Opinion
155091/2016
07-30-2018
Jonathan HAYGOOD, Plaintiff, v. PRINCE HOLDINGS 2012, LLC; Steven Croman; Harriet Croman a/k/a Harriet Kahan Croman, a/k/a Harriet Kahan; Oren Goldstein; and Janeth Donovan, Defendants.
Shaina Weissman, Esq., Grimble & LoGuidice, LLC, 217 Broadway, Suite 304, New York, NY 10007, (212) 349-0450, Attorneys for Plaintiff Dean Dreiblatt, Esq., Rose & Rose, 291 Broadway, 13th Floor, New York, New York 10007, (212) 349-3366, Attorneys for Defendants
Shaina Weissman, Esq., Grimble & LoGuidice, LLC, 217 Broadway, Suite 304, New York, NY 10007, (212) 349-0450, Attorneys for Plaintiff
Dean Dreiblatt, Esq., Rose & Rose, 291 Broadway, 13th Floor, New York, New York 10007, (212) 349-3366, Attorneys for Defendants
Kathryn E. Freed, J.
The following documents, filed with NYSCEF, were considered in deciding this motion: 61-74, 76-87.
Plaintiff Jonathan Haygood (Haygood) moves for an order: 1) granting summary judgment and/or partial summary judgment as to liability under his first cause of action; and 2) striking certain defenses or ordering a more definite statement as to various defenses. Defendants Prince Holdings 2012, LLC (Prince), Steven Croman (Croman), Harriet Croman a/k/a Harriet Kahan Croman, a/k/a Harriet Kahan (Kahan), Oren Goldstein (Goldstein) and Janeth Donovan (Donovan) cross-move for an order dismissing plaintiff's third and fourth causes of action, and dismissing the action in its entirety against the individual defendants.
Haygood alleged in his complaint that he resided in Apartment B, 309 East 8th Street (the Apartment). He moved into the Apartment in February 2015 and was given a market-rate lease at a rent of $2,695 per month. The previous tenant, Carol Ryals (Ryals) had agreed to vacate the apartment in May 2014, in exchange for a payment of $17,000. According to the complaint, Prince took title to the building in 2012, and was aware that the Apartment was subject to rent stabilization.
According to the Division of Housing and Community Renewal (DHCR) Registration Apartment Information, when Ryals moved out of the apartment in 2014, her rent was $533.82 per month, and in 2015, Prince registered the Apartment as permanently exempt for high rent vacancy. Haygood was unaware that the apartment was previously rent-stabilized and his lease did not contain a rent stabilization rider indicating that he was the first non-stabilized tenant.
In February 2016, Haygood signed a lease renewal for a one-year extension, raising his rent to $2,775 per month. Starting in March 2016, however, Haygood was charged $2,740 per month. In February 2017, Haygood and his partner moved out of the Apartment, "due to the high overcharge and [d]efendants' refusal to renew our lease." Haygood aff, ¶ 16.
The complaint alleges that defendants Croman and Kahan are both officers of Prince, and are in control of day-to-day operations of the building, and that Kahan is the managing agent of the building. The complaint further alleges that Goldstein is the chief operating officer of Prince, and Donovan is another individual in charge of day-to-day management, including communications with tenants, collection of rents, and leasing.
Haygood further alleged that, although the building was purchased by Prince, memos received by the tenants regarding water shut offs in the building were printed on the letterhead of 9300 Realty Management, Inc. (9300 Realty), another company owned by Croman and Kahan.
Haygood also alleged that defendants were principals, agents and employees of a group of related entities owning numerous residential buildings in New York, and that defendant Croman has been the subject of both a civil proceeding brought by the New York State Attorney General's office and a criminal indictment in connection with "widespread practices constituting unfair and illegal business practices against tenants throughout New York." Weissman affirmation, exhibit A (complaint), ¶ 11. He further alleged, on information and belief, that defendants have ignored the specific identities of their various business entities, have used mortgage loans on properties owned by one entity to acquire new entities or pay the expenses of other entities, commingled security deposits with general funds of various businesses, and ignored the obligations to segregate accounts attributable to specific tenants in specific buildings. Additionally, he claimed that defendants have employed these practices because Prince is undercapitalized. He further alleged that Croman, Kahan, and Goldstein exercised complete domination and control of the various Croman-owned entities, used different entity names to shield themselves from liability and to circumvent rent stabilization laws and their obligations under those laws, and that Croman, Kahan and Goldstein requested, ordered or condoned the wrongful conduct alleged in the complaint.
Further, Haygood alleged that defendants, acting together, failed to provide him with a proper rent stabilized lease, rent stabilization rider, and rent stabilized renewal leases, and that, by virtue of those facts, he was entitled to a judgment against defendants for rent overcharges, including treble damages, interest and punitive damages.
Haygood asserted causes of action for: 1) rent overcharges, including treble damages; 2) failure to provide proper repairs and services and breach of implied warranty of habitability; 3) deceptive practices in violation of General Business Law § 349 ; and 4) deceptive practices in violation of the New York City Consumer Protection Law § 20-700. Administrative Code of the City of New York (NYC Admin. Code) § 20-700.
In their verified answer and proposed amended verified answer (amended verified answer) , defendants set forth the basis on which they claimed that the Apartment was properly removed from rent stabilization as a high rent vacancy. According to defendants, the last legal regulated rent for the apartment was $533.82. Pursuant to the statutory vacancy allowances in effect in 2015, when Haygood entered into his lease, defendants were permitted to raise the regulated rent on his initial one-year lease by 18.25%. Because Ryals had been in occupancy since at least 1984, defendants were permitted to charge an additional long term vacancy allowance of 18.6% (.6% per year for 31 years), or, together, an additional $196.71 per month (see Rent Stabilization Code [RSC] § 2522.8 ( 9 NYCRR § 2522.8 ) and Rent Stabilization Law (RSL) § 26-511 (c) (5-a) ( NYC Admin Code § 26-511 [c] [5-a] ), bringing the total rent to $753.53 per month.
Although the document provided by both Haygood and defendants is titled Proposed Amended Verified Answer, on January 24, 2017, this Court granted defendants' motion to amend their answer. The document will, therefore, be referred to herein as the amended verified answer.
In addition, according to defendants, they were entitled to an increase, pursuant to RSC § 2522.4 (a) (1), for "Individual Apartment Improvements" (IAIs) which can be made while the apartment is vacant or with the consent of the tenant, when the apartment is occupied. 9 NYCRR § 2522.4 (a) (1). Defendants claim that they performed a total rehabilitation/renovation of the Apartment, including purchasing new appliances and upgrading the electrical system. Defendants claim that the cost of the work was: $64,143.93 for rehabilitation/renovation, $5,609.24 for appliances, and $3,873.97 for a pro rata share of $65,857.50 paid for a building-wide electrical upgrade, for a total cost of $73,627.14. Defendants then calculated 1/40 of that total (or $1,840.68) (see RSC § 2522.4 [a] [4] ), bringing the total rent to $2,571.21. Defendants contend that the total amount exceeded the then applicable threshold for luxury deregulation of $2,500.00 per month. Therefore, claim defendants, the Apartment was properly deregulated and Haygood's initial rent was properly a free-market rent, and no longer subject to regulation.
Pursuant to RSC § 2522.4 (a) (1),
"(1) an owner is entitled to a rent increase where there has been a substantial increase, other than an increase for which an adjustment may be claimed pursuant to paragraph 2 of this subdivision [governing major capitol improvements], of dwelling space or an increase in the services, or installation of new equipment or improvements, or new furniture or furnishings, provided in or to the tenant's housing accommodations, on written tenant consent to the increase. In the case of vacant housing accommodations, tenant consent shall not be required."
Although the total bill for the electrical upgrade was $73,175.00, only $65,857.50 was actually paid to the contractor, and defendants base their calculations on the latter number, a pro rata share of which is $3,873.97.
PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
In his motion for partial summary judgment, Haygood contends that the deregulation of his apartment was improper for several reasons. First, he argues that, pursuant to RSL § 26-504.2 (b) and RSC § 2520.11 (u), the landlord was required to provide the first market-rate tenant with a notice of high rent vacancy deregulation. The landlord was also required to properly register the apartment with DHCR. Failure to do so results in a rent freeze at the level of the " ‘legal regulated rent in effect on the date of the last preceding registration statement.’ " Jazilek v. Abart Holdings, LLC , 72 AD3d 529, 531 (1st Dept 2010), quoting RSL § 26-517 (e); see also see RSC § 2528.4 [a] ).
Relying on Altman v. 285 W. Fourth LLC (127 AD3d 654 [1st Dept 2015] ), Haygood next argues that, under the Emergency Tenant Protection Act § 5 (13), a high rent vacancy can only occur when the rent reaches the high rent threshold and then becomes vacant. Since Haygood's brief was submitted, however, the Altman case reached the Court of Appeals, which reversed the decision on which Haygood relies. The Court indicated that, after a regulated apartment becomes vacant, vacancy bonuses and increases attributable to apartment improvements may be considered in calculating the legal rent. Altman v. 285 W. Fourth LLC , 31 NY3d 178 (2018).
Haygood further argues that the proof offered by defendants to justify the claimed IAIs is insufficient and/or improper to support the claim. For example, in support of the expenditure of $64,143.93 for alleged apartment renovation, defendants provided a "Standard Construction Contract" which included categories of listings for some work with notations "if applicable," rather than listing the specific work done on the apartment, and some of the categories listed were, in fact, inapplicable to Haygood's apartment. See Weissman affirmation, exhibit B (verified answer), exhibit B (Standard Construction Contract). Additionally, the expenditures are not itemized or even broken down into categories. Thus, Haygood asserts, it is impossible to determine whether the expenditures were proper costs of total renovation, whether specific work was actually done, or if the alleged work constituted improvements for which reimbursement is allowed, or repair costs which may not be properly claimed as IAIs.
Finally, Haygood contends that Prince improperly claimed that electrical work was done as part of the IAI calculations. Haygood argues that building-wide improvements, such as the upgrade of the electrical wiring, are properly treated as major capital improvements (MCIs), which require prior approval from DHCR, rather than as IAIs, and are calculated on a different basis. See RSL § 26-511, RSC § 2522.4 (a)(2). For example, under RSL § 26-511 (6) and (6-a), an MCI increase may not exceed 6% of the base rent in any year. See also Bryant Ave. Tenants' Assn. v. Koch , 84 NY2d 960, 963 (1994) (" Section 26-511 (c) (6) is clear on its face: ‘[t]he collection of any increase in the stabilized rent for any apartment ... shall not exceed six percent in any year ... with collectability of any dollar excess above said sum to be spread forward in similar increments’ "). Therefore, adding the pro rata calculation of 1/19th of the building-wide cost for electrical work to the formula used in calculating IAIs was improper. Haygood argues that, even assuming the other IAI claims were proper, without the inclusion of the alleged electrical work, the rent for the Apartment would not have exceeded the high rent threshold of $2500 per month.
In opposition to Haygood's motion and in support of their own cross motion, defendants contend, as a threshold matter, that, under the lease, non-party Chloe Marten (Marten) was Haygood's co-tenant and, therefore, that she is a necessary party in this action. Defendants also note that, in his affidavit in support of the motion for partial summary judgment, Haygood states that "my partner and I were overcharged more than $2,000 per month on rent." Haygood aff, ¶ 15. Defendants argue that, under RSC § 2526.1 (b) & (c), the court or DHCR has an obligation to apportion any overcharges between co-tenants and, therefore, Haygood cannot, alone, obtain the benefit of a rent overcharge award. The regulations relied on by defendants, however, do not prohibit Haygood from bringing an action to collect for the alleged overcharge. Section 2526.1 (c) merely requires that "[a]ny affected tenant shall be given notice of and an opportunity to join in any proceeding commenced by the DHCR pursuant to this section."
Marten has submitted an affidavit in reply to defendants' cross motion indicating that she is the "partner and co-tenant" of Haygood, and that she is aware of the litigation. She states: "I did not wish to involve myself in the litigation, and I trust [Haygood] to represent [both of us in connection with] our rent overcharge claim." Marten aff, ¶¶ 2 & 5. Clearly, Marten has notice of Haygood's overcharge claim, and the purpose and intent of RSC 2526.1 is satisfied.
Pointing to Haygood's use of the term "partner" to describe Marten, defendants next rely on a case that stands for the proposition that individuals in limited partnerships do not have standing to assert a claim that belongs to the partnership. See Breslin Realty Dev. Corp. v. Shaw, 72 AD3d 258, 266 (2d Dept 2010). It is quite clear from Marten's affidavit, however, that the relationship between Haygood and Marten is not that of business entities, as discussed in Breslin Realty Dev., but rather is a "domestic relationship" (see Marten aff, ¶ 11) and, thus, the case relied on by defendants is inapposite.
Defendants next turn to the calculations which they claim brought plaintiff's rent above the threshold for luxury deregulation. In support of their position, they quote the decision of the Court of Appeals in Jemrock Realty Co., LLC v. Krugman (13 NY3d 924, 926 [2010] ) "[t]his case turns on the factual issue of whether the landlord's expenditures for ‘improvements’ were at least equal to the amount (approximately $30,000) necessary to bring the legal rent above the luxury decontrol threshold." Defendants reiterate the specific amounts submitted in their verified answer and amended verified answer, which purport to bring the rent above the $2500 high rent deregulation threshold, contending that Haygood does not contest the amounts claimed for IAIs. Regarding their expenditures for electrical work, however, defendants have changed their claim in a significant way. In both their verified answer and amended verified answer, the final category of alleged expenditures claimed by defendants relates to an alleged building-wide electrical upgrade. In the two verified answers, defendants state that the contractor
"performed a building-wide electrical upgrade for all 17 apartments in the building, at a total invoiced cost to Defendants of $73,175.00. Defendants did not pass along the costs incurred to the tenants in occupancy of the building by seeking a Major Capital Improvement (MCI) rent adjustment from DHCR. As a result, a pro-rata portion of the expense (1/17th, as there are 17 apartments in the subject building) is attributable to the Plaintiff's apartment."
Weissman affirmation, Exhibit B (Verified Answer), ¶ 18; see also id., Exhibit C (Amended Verified Answer), ¶ 29. However, in their motion papers, defendants claim, for the first time, that the upgrade could not qualify as an MCI because it was not building-wide but, rather, only for 13 apartments. See Dreiblatt affirmation, ¶ 42. Defendants then quote a portion of RSC § 2522.4 (a) (1), governing IAIs, which states "(1) an owner is entitled to a rent increase where there has been a substantial increase, other than an increase for which an adjustment may be claimed pursuant to paragraph 2 [governing major capitol improvements] of this subdivision." Based on that language, defendants contend that, since they could not claim the electrical work as an MCI, they were entitled to a pro rata share of the electrical expenses as part of their IAI calculations.
The affirmation states "This is apparent from the DOB application filed for this job (Exhibit "") and from the Casur document, which shows work in 13 apartments." Dreiblatt affirmation, ¶ 42. The court notes, however, that the DOB application annexed to Dreiblatt's affirmation as exhibit E refers to work with a Job State Date of 4/24/2013 and a Job End Date of 4/22/2014. The Casur M & M Inc. bill for electrical upgrade refers to work carried out from 2/1015 to 3/30/15. See Verified Answer, exhibit D.
ANALYSIS
Providing notice to the first market-rate tenant is an important part of the RSC, for without that notice, the incoming tenant has no way of knowing that the apartment was previously stabilized or to timely challenge the basis on which the rent was set. Defendants fail to respond to Haygood's assertion that he never received a rent stabilization rider and/or was given any notice regarding the apartment's previous status as a rent stabilized unit as required by RSC § 2520.11 (u) and RSL § 26-504.2. Rather, the only reference to rent stabilization in Haygood's lease is the statement that the apartment is exempt from rent regulation. Defendants' failure to provide Haygood with the rent stabilized rider was in clear violation of the RSC and the RSL.
As a basis for their claim of high rent deregulation, defendants rely on three categories of increases: 1) statutory vacancy allowance based upon the one year initial term of Haygood's lease, 2) long term vacancy allowance based upon the 31-year tenancy of the prior rent-stabilized tenant, and 3) compensable improvements to the Apartment (IAIs).
Haygood does not contest the amounts calculated for vacancy allowance or long term vacancy allowance, or the amount spent by Prince for new appliances. Defendants incorrectly state that Haygood does not contest the amounts allegedly spent for IAIs. He does contest both the $64,143.93 allegedly spent for rehabilitation/renovation and the $3,873 allegedly spent for the pro rata share of the alleged electrical upgrade.
This Court will first consider the expenditures for electrical upgrade. In their verified answer and proposed verified amended answer, defendants represented that $3,873.97 of the funds claimed as IAIs for the Apartment was the pro rata share of expenses for building-wide electrical upgrades. As Haygood argues, however, such an expense is not properly considered part of a claim for IAIs, but rather can only be recovered as an MCI.
In order to claim an MCI, the landlord must first file an application to increase the regulated rent on a form provided by DHCR. RSC § 2522.4 (a)(2) and (a)(8). There is no indication that this was ever done by the landlord.
Even had defendants properly applied for an MCI, the calculation of the share of an MCI which can be allocated to a particular apartment is not based on a simple pro rata share based on the number of apartments in the building. Rather, under the governing regulations, DHCR shall determine the dollar amount of the monthly adjustment for the improvement, which shall then be divided by the total number of rooms in the building, and the amount added to the rent will depend upon the number of rooms in the apartment. See RSC § 2522.4 (a)(2)(12). Additionally, the amount of the surcharge may not exceed 6% of the stabilized rent for the year. RSC § 2522.4 (a)(8) ; Bryant Ave. Tenants' Assn., 84 NY2d 960.
In response to the argument raised by Haygood regarding the expenditures for the electrical upgrade, defendants have abandoned their previous sworn statements that the electrical upgrade was building-wide, and submit new sworn statements that the work only covered 13 of the 17 apartments and, therefore, would not have qualified for MCI treatment. On that basis, they contend that they are entitled to claim a pro rata share of the expenditures as an IAI, rather than an MCI. There are, however, several problems with their argument.
First, although they seek to rely on the application to DOB for a permit to do work in the building and the invoice from Casur M & M for the electrical upgrade to establish that the work was only done in 13 apartments, those documents appear to relate to work done in different years. Additionally, this Court finds nothing in either document that indicates that 13 apartments were serviced. Perhaps even more importantly, even assuming that work was performed in only 13 of the 17 apartments, there is nothing in the documentation provided by defendants that establishes that the Apartment in question in this case was one of those 13 apartments, rather than one of the 4 apartments which were not upgraded. Finally, this Court notes that, although defendants now contend that work was only performed in 13 apartments, they have not altered their calculation for the pro rata amount of money allocable to the Apartment.
It is the landlord's burden to justify the granting of an MCI by presenting adequate documentation. Matter of West Vil. Assoc. v. Division of Hous. & Community Renewal, 277 AD2d 111, 113 (1st Dept 2000). The landlord has a similar burden of proving improvements claimed for IAI rent increases. Matter of 985 Fifth Ave. v. State Div. of Hous. & Community Renewal , 171 AD2d 572, 574-575 (1st Dept 1991). Defendants have clearly failed to sustain this burden. Given the foregoing, this Court concludes that defendants improperly included the cost of electrical upgrades as part of the calculation for the rent of the Apartment. Without that additional amount, the rent for the Apartment fell below the $2500 threshold for high rent deregulation. As discussed above, defendants also failed to provide the required notice to Haygood as the first market-rate tenant. Therefore, this Court concludes that plaintiff is entitled to partial summary judgment on liability under his first cause of action.
The amount of damages for rent overcharge, however, must be determined at trial. As part of that determination, the amount spent for rehabilitation/reconstruction of the apartment will be examined. As Haygood argues, the Standard Construction Contract submitted by defendants as exhibit B to their answer does not specify which of the four pages of potential work items were performed and the cost of the work was not itemized. In fact, some of the listed items are marked "optional", and some of those, such as "Shed skyline", would appear to be inapplicable to the Apartment. See Notice of Cross Motion, exhibit B at 14. It is thus impossible to determine from that document what work was actually performed.
Nor is it possible to determine from that document whether the work performed was properly compensable as apartment improvements, as opposed to required repairs. Under the RSC, not all expenditures by a landlord can justify an increase of rent as an IAI under section 2522.4 [a] [1] ), in calculating whether an apartment exceeds the threshold for luxury decontrol, which, at the time Haygood entered into his initial one-year lease in 2015, was $2500 per month. RSL § 26-504.2; RSC § 2520.11 (r)(4).
Under section 2522.4, in pertinent part: "An owner is entitled to a rent increase where there has been a substantial increase ... of dwelling space or an increase in the services, or installation of new equipment or improvements, or new furniture or furnishings, provided in or to the tenant's housing accommodation, on written tenant consent to the rent increase." 9 NYCRR § 2522.4 (a) (1) ; see also RSL § 26-511 (13).
"[I]n evaluating the legitimacy of an IAI increase, the court is required to determine (1) whether the owner made the improvements to the apartment during the relevant time period, (2) whether those improvements constitute legitimate individual apartment improvements within the meaning of the regulations, (3) the total cost of the improvements, (4) one fortieth of that cost, and (5) the sum of one fortieth of the costs plus the monthly rent level after any other increases to which the owner may be entitled."
Matter of Rockaway One Co., LLC v. Wiggins , 35 AD3d 36, 42 (2d Dept 2006).
"It is [the owner's] burden to prove that each of the improvements that entitled landlord to the IAI were actually made, and that the improvements were beyond ordinary repairs." Ernest & Maryanna Jeremias Family Partnership, LP v. Matas , 39 Misc 3d 1206(A), 2013 NY Slip Op 50505(U), *4 (Civ Ct, Kings County 2013); see also Matter of Mayfair York Co. v. New York State Div. of Hous. and Community Renewal, 240 AD2d 158 (1st Dept 1997) ; see also Lirakis v. 180 Seventh Ave. Assoc., LLC , 12 Misc 3d 1173(A), 2006 NY Slip Op 51211(U), *3 (Civ Ct, NY County 2006), affd 15 Misc 3d 128(A)(App Term, 1st Dept 2007) (work must constitute improvements and may not amount to "normal maintenance, ordinary repair and decorating"). For example, expenditures for painting, plastering and floor maintenance do not constitute improvements. Matter of Graham Ct. Owners Corp. v. Division of Hous. & Community Renewal , 71 AD3d 515, 515 (1st Dept 2010) ; see also Matter of Mayfair York Co. v. New York State Div. of Hous. & Community Renewal , 240 AD2d at 158 (painting, skim coating, partial floor replacement and partial rewiring disallowed as normal maintenance); Ernest & Maryanna Jeremias Family Partnership, LP v. Matas , 39 Misc 3d 1206(A), 2013 NY Slip Op 50505(U), *5 (painting and even removing rotten beams do not qualify as individual apartment improvements justifying an increase in rent).
As part of the trial to establish damages, defendants will be required to establish what work was actually done, whether the work was properly compensable as an IAI, and the specific cost of the individual items of work. It is not clear whether defendants will be able to establish what work was actually performed in the apartment and, with respect to any such work actually done, what is in fact recoverable as an improvement, as opposed to necessary repair work.
PLAINTIFF'S MOTION TO DISMISS AFFIRMATIVE DEFENSES
Haygood also moves to dismiss defendants' affirmative defenses or for a more definite statement.
Defendant's first affirmative defense asserts that plaintiff has failed to state a cause of action. Plaintiff's motion to dismiss that affirmative defense is denied. While "[t]he pleading of that defense is ... surplusage, as it may be asserted at any time even if not pleaded [,] ... [t]he assertion of that defense in an answer should not be subject to a motion to strike or provide a basis to test the sufficiency of the complaint."
Riland v. Todman & Co. , 56 AD2d 350, 352-533 (1st Dept 1977). Should defendants choose to move for summary judgment based on that defense, they will need to set forth the basis of such a motion at that time.
In response to plaintiff's motion, defendants have withdrawn their second affirmative defense, which alleged defective service of process.
Defendants' third affirmative defense sets out in detail the basis on which Haygood's initial rent was calculated. Plaintiff objects to that affirmative defense on the basis that, although it includes the same calculations as the original answer, it lacks the exhibits that were attached to that original answer. Those exhibits are, however, now part of the case file and this Court will treat them as such. Plaintiff's motion to strike the third affirmative defense is, therefore, denied.
Defendants' seventh affirmative defense is that plaintiff has an adequate remedy at law and, therefore, the request for injunctive relief in the complaint should be dismissed.
In their reply, plaintiff has discontinued any claim for injunctive relief, and, therefore, his motion to strike the seventh affirmative defense is withdrawn.
Defendants' fourth, fifth, sixth, eighth, ninth, and tenth affirmative defenses are dismissed as merely one sentence legal conclusions and are insufficient to make out an affirmative defense. Dahl v. Prince Holdings 2012, LLC , 2016 WL 892795, *2 (Sup Ct, NY County 2016), citing Robbins v. Growney, 229 AD2d 356, 358 (1st Dept 1996).
Defendants' ninth affirmative defense alleges that plaintiff lacks standing to assert claims on behalf of individuals not a party to the action and that he "purports to assert claims or seeks damages in connection with harm alleged to have been suffered by Marten." Amended Verified Answer, ¶ 44. Plaintiff contends that the ninth affirmative defense is duplicative of the eighth affirmative defense of failure to name a necessary party. Although the eighth affirmative defense has been stricken as merely a legal conclusion, the ninth affirmative defense at least provides the name of plaintiff's co-tenant and is not truly duplicative. Although it is not clear, however, to what defendants are referring in stating that harm is "alleged to be suffered by Marten," plaintiff's motion to strike the ninth affirmative defense as duplicative is denied.
Plaintiff does not move to dismiss the eleventh affirmative defense.
Finally, defendants assert a first counterclaim for "attorneys' fees, costs and disbursements in a sum to be determined by the Court but, in no event, less than $10,000.00." Weissman affirmation, exhibit C (amended verified answer), ¶ 51. Plaintiff contends that the lease does not provide for attorneys' fees and thus the counterclaim should be stricken. Plaintiff further contends that defendants should not be permitted to claim a "random, bloated number." Weissman affirmation, ¶ 41.
Under New York law, "attorneys' fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or court rule." Matter of A.G. Ship Maintenance Corp. v. Lezak , 69 NY2d 1, 5 (1986). Since defendants have set forth no basis for recovering attorneys' fees, even if they were successful in this litigation, their counterclaim for attorneys' fees is stricken.
DEFENDANTS' CROSS MOTION
Defendants cross-move to dismiss plaintiff's third cause of action based on section 349 of the General Business Law and fourth cause of action based upon section 20-700 of the New York City Consumer Protection Law for failure to state of cause of action.
General Business Law § 349 (a) states that "Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." Defendants argue that the courts have consistently held that landlord-tenant disputes and overcharge complaints do not fall within the ambit of the statute. Collazo v. Netherland Prop. Assets LLC, 155 AD3d 538,538 (1st Dept 2017), lv granted, 2018 WL 2977764, 2018 NY LEXIS 1487 (June 18, 2018) (rent overcharge claim failed to state a cause of action under GBL § 349 ); Aguaiza v. Vantage Props. LLC, 69 AD3d 422, 423 (1st Dept 2010) (plaintiff's claims "presented only private disputes between landlords and tenants, and not consumer-oriented conduct aimed at the public at large, as required by the statute"); Nezry v. Haven Ave. Owner LLC, 28 Misc 3d 1226(A), 2010 NY Slip Op 51506(U), *10 (Sup Ct, NY County 2010)("plaintiffs' GBL claim is ... a private dispute between a landlord and its tenants, and thus, fails to state a claim under the GBL").
As plaintiff argues, however, courts have applied GBL § 349 to landlord-tenant matters for years. See e.g., 23 Realty Assoc. v. Teigman , 213 AD2d 306, 308 (1st Dept 1995) ("An apartment dweller is today viewed, functionally, as a consumer of housing services—as much a consumer as the purchaser of any other goods or services"). 23 Realty Assoc . involved alleged violations of the New York City Consumer Protection Law, on which plaintiff also relies, in connection with advertisements for apartments. Considering the applicability of deceptive practice laws to landlord-tenant relations, the Appellate Division further noted: "[t]he Department of Consumer Affairs has given notice that the offering of rental housing is a legitimate area of interest for consumer protection against deceptive advertising and misrepresentation, and we agree." Id. ; see also Lozano v. Grunberg, 195 AD2d 308 (1st Dept 1993) (reversing the dismissal of an action of a tenant challenging a deceptive final notice sent to her by her landlord); Buyers & Renters United to Save Harlem v. Pinnacle Group NY LLC , 575 F Supp 2d 499 (SD NY 2008) (tenants of rent-stabilized apartments alleging that defendants deceptively demanded and collected rents above those permitted by statute stated a cause of action under GBL § 349 ). Here, rather than providing a deceptive notice, defendants provided a lease which deceptively stated that the apartment was not rent-stabilized, and failed to provide a required notice to Haygood which would have alerted him to information enabling him to check with DHCR concerning the proper status of the Apartment.
Aguaiza v. Vantage Props., LLC (2009 NY Slip Op 31144(U), *2 [Sup Ct, NY County 2009], affd as modified 69 AD3d 422 [1st Dept 2010] ), relied on by defendants, is distinguishable, because in that case, plaintiffs neither alleged that defendants made materially misleading statements of fact, nor were they ever deceived by any statements made by defendants. Rather, the Aguaiza plaintiffs alleged that "[d]efendants commenc[ed] baseless non-payment proceedings ..., arbitrarily refus[ed] to accept timely tendered rent payments ..., prosecut[ed] bogus non-primary residency and/or illegal sublet holdover proceedings ..., ma[de] baseless refusals to offer lease renewals and arbitrarily demand[ed] proof of identity from [p]laintiffs without good cause to maintain their rent stabilized tenancy rights." Aguaiza v. Vantage Props., LLC , 2009 NY Slip Op 31144(U), *2.
Here, in contrast, plaintiff alleges that defendants made false statements about the regulatory status of the apartment and he was deceived by those representations. Moreover, plaintiff alleges that his is not an isolated example of rent-overcharge by defendants. Rather, he alleges that Croman owns numerous residential buildings throughout the City of New York, and has been sued by the State of New York "for widespread practices constituting unfair and illegal business practices against tenants." Complaint, ¶ 11; see People of the State of New York v. Croman, Sup Ct, NY County, Index No. 450545/2016. This Court notes that, although the State's proceeding has been settled by Croman and his co-defendants without an admission of liability, the settlement resulted in, among other things, a confession of judgment by the Croman Respondents (including Croman, individually) creating an $8,000,000 Tenant Restitution Fund to compensate tenants for conduct alleged in the petition. People v. Croman, Sup Ct, NY County, Dec. 21, 2017, Hagler J, Index No. 450545/2017, NYSCEF Doc No 149. This Court further notes that Prince is among the respondents in that proceeding, 309 East 8th Street is one of the subject buildings, and among the causes of action alleged in the petition is violation of GBL § 349.
With respect to plaintiff's claim under the New York City Consumer Protection Law, that law specifically states that "[n]o person shall engage in any deceptive or unconscionable trade practice in the sale, lease, rental or loan or in the offering for sale, lease, rental, or loan of any consumer goods or services, or in the collection of consumer debts" ( NYC Admin Code § 20-700 ), and that provision of the Code has been held to apply to landlord-tenant transactions. See 23 Realty Assoc. v. Teigman, 213 AD2d 306. The allegations in the complaint certainly fall within the ambit of § 20-700 of the Consumer Protection Law.
Thus, this Court concludes that Haygood has sufficiently alleged causes of action under GBL § 349 and § 20-700 of the New York City Consumer Protection Law. Thus, that branch of defendants' cross motion to dismiss those causes of action is denied.
Defendants also move to dismiss the action against the individual defendants, Croman, Kahan, Goldstein and Donovan.
With respect to plaintiff's first cause of action, defendants argue that, pursuant to RSC § 2526.1, an "owner" is liable for rent overcharges and, pursuant to RSC § 2520.6 (1), an owner is defined as "[a] fee owner, lessor, sublessor, assignee, net lessee, or a proprietary lessee of a housing accommodation." Defendants contend that, since Prince is the owner of the housing accommodation, the claims against the individual defendants must be dismissed. With respect to the second cause of action for breach of the warranty of habitability, which is governed by Real Property Law (RPL) § 235-b, defendants, similarly, argue that under section 235-b the landlord or lessor is liable and the landlord is plainly Prince, a limited liability company, and not the individual defendants.
Normally, a member of a limited liability company "cannot be held liable for the company's obligations by virtue of his status as a member thereof." Retropolis, Inc. v. 14th St. Dev. LLC , 17 AD3d 209, 210 (1st Dept 2005), citing Limited Liability Company Law §§ 609, 610. However, Haygood seeks to pierce the corporate veil to reach members of the limited liability company. "The party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene." Matter of Morris v. New York State Dept. of Taxation & Fin. , 82 NY2d 135, 142 (1993). To do so, "plaintiffs bear a heavy burden of showing that the [company] was dominated [by the owners] as to the transaction attacked and that such domination ... resulted in wrongful ... consequences." Matias v. Mondo Props. LLC , 43 AD3d 367, 368 (1st Dept 2007) (internal quotation marks and citation omitted). Here, the complaint alleges that Croman and Kahan are both officers of Prince and are in control of the day to day operations of the company, and that Goldstein is the chief operating officer of the company and is also in control of the day-to-day operations of that entity. Finally, the complaint alleges that Donovan is in charge of day to day management, including communicating with tenants, collecting rents and leasing to defendants.
The complaint contains no specific allegations of actions by Donovan, and it appears from the allegations in the complaint that Donovan is merely an employee of Prince, rather than a member or officer. Nor does the complaint include Donovan in the allegations regarding the various business entities described as Croman-owned entities. Thus, that branch of defendants' cross motion seeking to dismiss Donovan as a defendant is granted.
With respect to the other three individual defendants, however, it is alleged that they are officers or chief operating officers of Prince. Although the allegations concerning the manner in which they have abused the corporate form of Prince are conclusory, it is still early in this litigation. Moreover, on a motion to dismiss, the plaintiff's complaint should be "given the benefit of every possible favorable inference." Rovello v. Orofino Realty Co. , 40 NY2d 633, 634 (1976). Furthermore, as discussed above, in People of the State of New York v. Croman, the Croman (Sup Ct, NY County, Index No. 450545/2016), Respondents agreed, among other things, to fund an $8,000,000 Tenant Restitution Fund. The Croman Respondents include, among others, Croman, 9300 Realty, and "the special-purpose limited liability real-estate entities that own the Subject Properties over which Steven Croman exercises control, as described in the Corrected Verified Petition." People v. Croman, Sup Ct, NY County, Dec. 21, 2017, Hagler J, index No. 450545/2017, NYSCEF Doc No 149, at 3. Further, 309 E 8th Street is among the properties that are subject properties covered by the consent decree. Id., exhibit A, ¶ 81. In light of People of the State of New York v. Croman, the court concludes that Haygood should be permitted to proceed with his effort to pierce the corporate veil and establish individual liability against Croman, Kahan and Oren Goldstein. Thus, defendants' cross motion is granted only to the extent of dismissing the complaint as to Janeth Donovan.
The complaint alleges that tenants at 309 East 8th Street received water shut-off notices on 9300 Realty letterhead.
In light of the foregoing, it is hereby:
ORDERED that the motion by plaintiff Jonathan Haygood for partial summary judgment on his first cause of action seeking a declaratory judgment is granted; and it is further
ADJUDGED AND DECLARED that plaintiff Jonathan Haygood was improperly denied a rent-stabilized lease for Apartment B at 309 East 8th Street, New York, NY, as required by the Rent Stabilization Law and the Rent Stabilization Code; and it is further
ORDERED that the branch of plaintiff Jonathan Haygood's motion to strike certain affirmative defenses of defendants and their counterclaim for attorneys' fees is granted as to the fourth, fifth, sixth, eighth, and tenth affirmative defenses and the counterclaim for attorneys' fees, and is denied as to the first, third, and ninth affirmative defenses; and it is further
ORDERED that the branch of the cross motion by defendants Prince Holdings 2012, LLC, Steven Croman, Harriet Croman a/k/a Harriet Kahan Croman, a/k/a Harriet Kahan, Oren Goldstein and Janeth Donovan to dismiss plaintiff's third and fourth causes of action is denied; and it is further
ORDERED that the branch of defendants' cross motion seeking to dismiss the complaint in its entirety as to defendants Steven Croman, Harriet Croman a/k/a Harriet Kahan Croman, a/k/a Harriet Kahan, Oren Goldstein and Janeth Donovan is granted with respect to Janeth Donovan, only, and is otherwise denied, and it is further
ORDERED that the branch of defendants' cross motion seeking dismissal of the complaint as against defendant Janeth Donovan is granted and the complaint is dismissed in its entirety as against said defendant, with costs and disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant; and it is further
ORDERED that the action is severed and continued against the remaining defendants; and it is further
ORDERED that the caption be amended to reflect the dismissal and that all future papers filed with the court bear the amended caption; and it is further
ORDERED that counsel for the moving party shall serve a copy of this order with notice of entry upon the Clerk of the Court (60 Centre Street, Room 141B) and the Clerk of the General Clerk's Office (60 Centre Street, Room 119), who are directed to mark the court's records to reflect the change in the caption herein; and it is further
ORDERED that such service upon the Clerk of the Court and the Clerk of the General Clerk's Office shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "E-Filing" page on the court's website at the address www.nycourts.gov/supctmanh) ];
and it is further
ORDERED that counsel are directed to appear for a status conference at 80 Centre Street, Room 280, on October 16, 2018, at 2:30 p.m.