404 Fraud Suit for Luxury Rent Deregulation Dismissed - - Peter Moulinos

Fraud Suit For Luxury Rent Deregulation Dismissed

In Katz 737 Corp. v. Cohen, our firm represented Carol Cohen, a prominent real estate broker in New York City, and her husband Lester Cohen who were accused by their landlord of under-reporting her income in order to maintain a rent stabilized apartment in violation of luxury rent deregulation laws. The landlord, prior to selling its building to Harry Macklowe for a reported $250 million, had argued that the Cohens had committed fraud in failing to properly report their income to the Department of Housing and Community Renewal (“DHCR”).

We successfully obtained dismissal of the landlord’s action in the Supreme Court of the State of New York on the basis that the landlord cannot assert a claim of fraud against the Cohens because any dispute must be resolved by the DHCR. Additionally, we successfully argued that the landlord had not stated any claim of fraud against the Cohens and merely conjured a lawsuit against them based on speculation and innuendo. The landlord thereafter appealed the dismissal.

The Appellate Division, First Department, in a lengthy opinion upheld the dismissal. Specifically, the Court ruled that “[t]his action is no more than an attempt to launch a belated collateral attack against determinations that are subject to the rule of administrative finality and by which [the landlord] is bound….The present plenary action alleging that the Cohens fraudulently underreported their income for the years in issue to avoid luxury deregulation of their dwelling unit is merely an attempt to relitigate issues administratively determined and to circumvent the jurisdiction of DHCR to decide such matters. The law vests exclusive original jurisdiction in DHCR to determine whether a rent-stabilized tenant’s household income exceeds the threshold for deregulation (Administrative Code § 26-504.3[b], [c][2]).”

The Court also ruled that that the landlord’s “pleadings show that it placed no reliance upon the Cohens’ statements of income or upon DHCR’s findings….Further, [the landlord’s] fraud allegations are wholly speculative; there are no allegations offered from which it could reasonably be inferred that the Cohens provided fraudulent income statements, and there are no non-conclusory allegations that they earned more than $175,000 in two consecutive years (see generally Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 560 [2009]). The crux of [the landlord’s] fraud argument, that the Cohens fraudulently hid their annual income in an S-Corporation that cannot be traced without proper discovery, is likewise without merit since that income cannot be considered for purposes of determining whether the Cohens met the $175,000 threshold to warrant luxury deregulation (see e.g. Matter of Nestor, 257 AD2d 395 at 396). Thus, there is no basis upon which this action may be maintained.”

The case was decided on December 20, 2012 and is cited as Katz 737 Corp. v Cohen, 2012 NY Slip Op 08818.

About Peter Moulinos
The founder and partner of Moulinos & Associates LLC. His experience as an attorney includes practice on matters involving commercial law, real estate law, litigation, international law, employment law, estate practice and trademark matters.

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