Aras v. B-U Realty Corp.
197 N.Y.S.3d 148
N.Y. App. Div.2023Background
- Tenants sued owner B‑U Realty and managing member Paul Bogoni for rent overcharges at 945 West End Ave.; building received J‑51 tax benefits from 2005–2019.
- Plaintiffs moved for partial summary judgment, seeking a building‑wide finding of fraud to permit use of the RSC "default formula" to calculate damages (which looks beyond the 4‑year lookback).
- Supreme Court granted liability for several tenants and found fraud for certain units, applying the default formula; other claims were denied or held in abeyance.
- Defendants conceded some overcharges but argued damages must be calculated by the standard method (base date rent + lawful increases) because overcharges resulted from error, not fraud.
- Appellate Division held the base date for all plaintiffs is November 18, 2010, reversed application of the default formula (finding no fraud as a matter of law), remanded for damages to be calculated under the standard method, but the dissent argued material questions of fact on fraud and that the majority improperly resolved damages methodology sua sponte.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper base date for measuring overcharges | Four years before complaint — relation back for later‑joined tenants where notice existed | Same base date; contest relation‑back only for some tenants | Base date for all plaintiffs = Nov. 18, 2010; relation‑back applies to certain joined plaintiffs (Arnot, Barish‑Straus, Lederer) where notice existed |
| Whether defendants engaged in a fraudulent scheme to deregulate (warranting review beyond 4‑yr lookback and use of default formula) | Evidence (post‑Roberts deregulations, Bogoni deposition acknowledging awareness, DHCR letters/directives, late amended registrations) shows indicia of a building‑wide fraudulent scheme | Deregulations were errors/misinterpretations (consistent with DHCR guidance in some periods); late registrations/amendments do not prove fraud; any overcharges were not willful | Majority: Plaintiffs failed to show fraud as a matter of law for the subject apartments; default formula improper. Dissent: raised triable issues of fact on scienter and scheme, so summary judgment wrongly decided |
| Standard for calculating damages (default formula vs. standard base‑date method) | Default formula should apply where base date rent is product of fraud or cannot be determined | Standard method per RSL 26‑516 and RSC 2526.1(a)(3)(i) applies absent fraud; default formula is exceptional | Where fraud not established, use legal regulated rent = rent charged on base date + lawful increases; remand to calculate damages under the standard method |
| Procedural scope — may appellate court decide damages method though defendants did not cross‑move? | Plaintiffs sought default formula; defendants did not seek affirmative relief on damages methodology | Defendants did not request that relief; majority should not grant relief to defendant absent cross‑motion | Dissent: majority erred procedurally by effectively granting defendants relief on damages methodology; majority nonetheless resolved it on the record and directed calculation under standard method |
Key Cases Cited
- Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270 (N.Y. 2009) (landlords receiving J‑51 benefits may not luxury‑decontrol units during benefit period)
- Matter of Regina Metro. Co., LLC v. N.Y. State Div. of Hous. & Community Renewal, 35 N.Y.3d 332 (N.Y. 2020) (reaffirmed 4‑year lookback; review outside lookback limited to determining fraudulent scheme; default formula available only if fraud renders base date unreliable)
- Casey v. Whitehouse Estates, Inc., 39 N.Y.3d 1104 (N.Y. 2023) (post‑Regina guidance: where base date rent can be determined, it should be used; amended registrations after lookback do not alone prove fraud)
- Conason v. Megan Holding, LLC, 25 N.Y.3d 1 (N.Y. 2015) (application of default formula where landlord created fictitious prior tenancy to inflate base date rent)
- Grimm v. N.Y. State Div. of Hous. & Community Renewal, 15 N.Y.3d 358 (N.Y. 2010) (DHCR/courts must inquire beyond lookback where substantial indicia of fraud exist)
- Thornton v. Baron, 5 N.Y.3d 175 (N.Y. 2005) (default formula appropriate where landlord used illusory tenancy to circumvent RSL; fraud taints base date rent)