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Fleetwood v Haberman 2007 NY Slip Op 30826(U) April 12, 2007 Supreme Court, New York County Docket Number: 0105186/2006 Judge: Joan A. Madden Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication.

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SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY
PART

6/

FLEETWOOD, BLAKE
vs
~

INDEXNO. MOTION DATE
..

HABERMAN, SIMON
Sequence Number : 002
DISMISS

,
I 1
I

M O T I O W E Q . NO.
MOTION CAL. NO.

The following papers, numbered 1 to

were read on this motion to/for
PAPERS NUMBERED

Notice of Motion/ Order to Show Cause - Affidavits - Exhibits Answering Affidavits - Exhlbits Replying Affidavits

...

Cross-Motion:

0 No

Upon the foregoing papers, it Is ordered that this motion

Check one:

0 FINAL DISPOSITION
E1
DQNOTP

V

NON-FINAL DISPOSITION

Check if appropriate:

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BLAKE FLEETWOOD and JANE FLEETWOOD,
Plaintiffs,

INDEX NO. 405186/06

In this action to recover cxccss rent awarded in a fair market rent appeal ("FMRA") before the New York State Division of Housing and Community Renewal ("DHCR"), defendants move for an order pursuant to CPLR 321 l(a)(5) and (7) dismissing the complaint, or alteimatively, for an order pursuant to CPLR 3212 granting them summary judgment. Defendants

also scek an ordcr canceling the lis pendens filed with the complaint. Plaintiffs oppose the
motion and cross-move for an order pursuant to CPLR 3212 granting thcm summary judgment, or in the alternative, an order pursuant to CPLR 3 126(3) granting various relief based on defendants' failure to comply with discovery demands. The following h c t s are not disputed. By a lease datcd March 3 1 1992, plaintiffs became the tenants of a rent stabilized apartment located at 1 West 85"'Street, Apartment 4B,in Manhattan. The leasc listcd thc owner of the building as "251 CPW Housing Ltd. DBA Orwell Managcmcnt," and provided for a term of one year and 15 days commencing on April 15, 1992,

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and ending on April 30, 1993, at a monthly rent of $3,000. Plaintiffs vacated the apartment on or about Novcmber 30, 1994. Meanwhile, plaintiffs filed a FMRA with DHCR, alleging that the initial rent stabilized rent exceeded the apartment's fair market rent.' The owner named i n the

FMRA is "25 1 CPW Housing Ltd, c/o Orwell Managemcnt," which is the owner listed on the
lease. On July 29, 1997, DHCR issued an order establishing the fair market rent for plaintiffs' apartmcnt at $1,382.86, and adjusting the initial legal regulated rcnt from $3,000 to $1,382.86 effective April 15, 1992, the commencement date of the initial rent stabilized lease. The owner,

251 CPW Housing Ltd. c/o Orwell Management, thereafter filed a Petition for Administrative
Review ("PAR"). On May 20, 1999, DHCR Deputy Cornmissioner Roldan issued an order granting the PAR in part by increasing the fair market rent to $2,191.43. The Commissioner deterrnincd that the total amount of excess rent was $25,801.14 and directed thc owner to refund that amount to the tenants.

In or about July 1999, the owner commenced an Article 78 proceeding seeking to vacate
DHCR's determination in the FMRA. The owner/petitioner in that proceeding was named as
"Simon Haberman d/b/a 251 CPW Housing," which differed from the owner named in FMRA, the PAR, and the lease, i.e. 251 CPW Housing Ltd. c/o Orwell Management. The sworn and verified petition stated that Habeman "is a natural person, and all times relevant hereto has been owner urd landlord of real property in New York County known as and located at One West 85`" Street, New York, Ncw Yolk" (emphasis added). Haberman's personal vcrification of the pctition stales that "Simon Haberman, being duly sworn, deposes and says. . . Deponent is

`The complaint alleges that the FMRA was filed "on or about 1996." DHCR's records, however-, indicate that the FMRA was first brought in August 1992. 2

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h n d l o r d of the premises which are the subject of this proceeding" (emphasis added). The
tenants, Blake and Jane Fleetwood, responded to the petition, by "cross-petitioning" to modify DHCR's order. In a decision and judgment entered on July 24, 2000, the Hon. Paula Omansky upheld DHCR's determination, and dismissed the petition and cross-petition. On or about July 31,2000, the tenants commenced a plenary action in Civil Court, seeking a money judgmcnt enforcing DHCR's FMRA order as to thc $25,801.14 in excess rent to which thcy were entitled, as well as an award of costs and attorncy's fecs. The Civil Court complaint named the defendant as "Simon Habcrman dba 251 CPW Housing," who was the petitioner in the Article 78 proceeding challenging the FMRA award. The tenants moved for summary judgment against "both defendants" and on October 24, 2003, the Hon. Lucy Billings granted the motion to the extent of awarding ajudgment in the amount of the Civil Court's jurisdictional limit of $25,000, against "251 CPW Housing Ltd." Judge Billings found that since the DHCR order was against only 251 CPW Housing Ltd, the tenants were entitled to a judgment only against that entity, and Habcrman was entitled to summary judgment dismissing the complaint against him. Judge Billings also awarded the tenants prejudgment interest, and reasonable attorney's fees and expcnses incumcd in the Civil Court action to enforce DHCR's order, but not in the DHCR and Article 78 proceedings.2 Thereafter, the defendants in the Civil Court action appealcd the portion of order granting the tenants' motion for summary judgment. The tenants cross-appealed the portion of the order dismissing the complaint as against Sinion Haberman. On October 17, 2005, the Appellate

'Plaintiffs state that they were subsequently awarded $15,000 in legal fees, by an order of the Civil Court dated March 13,2006, which is under appeal. 3

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Term, First Department issued an order modifying the Civil Couit's order "by deeming the
dismissal of plaintiffs' claim of `alter ego' liability against Simon Habeman to be without prejudice." Fleetwood v. Haberman, 9 Misc3d 133(A), 808 NYS2d 917,2005 WL 2648486 (App Term, 1" Dept 2005). The Appellate Term determined as lollows: Plaintiffs-tenants commenced this plenary action against the corporate defendant to rccover excess rent awarded them in a Fdir market rent appeal. They also sought recovery against defendant Haberman, principal of the defendant corporation, who allegedly misused the corporate form for purposes of evading liability for excess rent charges. The defense attack on thc order to refund excess rent collected is without merit, and is in any event barred by the doctrinc of collateral estoppel bascd on prior judicial review ol` the underlying fair market rent appeal. . . . Plaintiffs were properly awarded attorney's fees incurred in prosecuting this plenary action. . . . as wcll as prejudgment intcrest on their rent ovcrpayments from the midpoint of each overcharge period. . . . While it is true that Haberman was not named a party to the fair market rent appeal, he did file a petition in his individual capacity for administrative review, which was denied. He has also been the record owner of the building since 1972, rendering summary judgment dismissal of the claim against him inappropriate (see yemrally Scinrru v. 531 E. 83rdSt. Owners Corp., 8 AD3d 159 [2004]). Civil Court does not have jurisdiction to grant a piercing of the corporate veil. , , . Accordingly, we modify Civil Court's order to deem the dismissal as against Habcrman to be without prcjudice to plaintiff's equitablc remedies in a proper forum. On April 14,2006, thc tenants commenced the instant action to enforce the FMRA order against Simon I-Iaberinan individually, and 251 CPW Housing LLC. The complaint asserts seven causes of action seeking to hold Haberman individually responsible as the owner of the premises, seeking to pierce the corporate vcil and hold Haberman individually responsible, and for fraudulent conveyance. Plaintiffs also request costs and attorney's fees. The complaint alleges that the owncr named in the 1992 lease, 251 CPW Housing Ltd, is listed as an inactive corporation by thc New York State Division of Corporations, and that the owner "at that time

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was in fact defendant Simon Haberman pursuant to a deed dated October 12, 1972." The complaint further allcges that Haberman Inter transferred the premises "for less than lair market value" to dcfendant 251 CPW Housing LLC, by a deed dated January I, 1997, which is an "LLC owned and controlled by him," and that 251 CPW Housing LLC is still the owner of the premises. The complaint asscrts that Haberman is individually responsible to plaintiffs because "at all relevant times he was the owner of the subject premises," because the landlord listed on the lease "never cxisied," because Haberman "excrcised such a dominion and control over the landlord and," and because the landlord used 251 CPW Housing Ltd and 251 CPW Housing LLC to perpetuate a fraud or a wrong. Specifically, plaintiffs seek lo pierce the corporate shields of both corporations, alleging that the operations of the two corporations and Haberman "were and are so intermingled as to given them no indepcndent identities," that Haberman exercised control over both corporations

"as if there was a single integrated operation," and that the two corporations lacked a corporate
formality, were under-capitalized, filed no tax returns, elected no directors and had no stockholders. Plaintiffs fui-ther seek to set asidc as lmdulcnt, the conveyance o l title to 251 CPW Housing LLC, allcging that at the time of the transfer, plaintiffs' FMRA was pending, that Habennan and 251 CPW Housing Ltd. knew of the indebtedness to plaintiffs, that such transfer with made for no or insufficient consideration, and that such transfer was "made with actual intent to hinder, delay or defraud" plaintiffs. Defendants now move to dismiss the complaint on thc grounds of statute of limitations, collateral estoppel, res judicata, and failure to state a cause of action. Plaintiffs opposc the

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motion and cross-move for summary judgment, and alternatively, move for sanctions for noncompliance with discovery. Defendants' motion lo dismiss is denicd in its entirety. First, as to the statutc of limitations issue, defcndants assert the action is barrcd by the four-year statute of limitations applicable to a FMRA proceeding. Specifically, defendants argue that since neither of them was a party to the DHCR proceedings, the instant "action constitutcs a de novo Fair Market Rent Appeal against said defendants and not merely enforcement of an existing DHCR award," which is subject to the four-year statute of limitations for commencing a FMRA before the DHCR.
This argument is without mcrit, as defendants mischaracterize the nuturc of plaintiffs' action,

which is not a FMRA. Plaintiffs' FMRA was finally adjudicated in their favor, and in this action they are simply continuing their efforts to enforce the FMRA order. While plaintiffs have alrcxly secured a judgment against 251 CPW Housing Ltd. as a result of the plenary action in Civil Court, thcy commenced the instant plenary action against Habeman and 251 CPW Housing LLC, non-parties to the FMRA, to hold them liable for the excess rent awarded in the FMRA, on the equitable grounds of piercing the corporate veil and fraudulent conveyance. A plenary action to enforce a FMRA ordcr is goveiiied by [he six-year statute of limitations period

i n CPLR 213(1).

Scianra v. 531 East 83rdStreet Owners Cor'., 8 AD3d 159 ( I " Dept 2004).

Second, defendants rely on Judge Billings' dismissal of the Civil Court complaint against Haberman in arguing that the instant action against him is bar-rcd undcr the doctrines of res judicata and collateral estoppel. Defendants, however, convcniently neglect to mention that on appeal, the Appellatc Teim, First Department modified the Civil Court's order "to decm the

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dismissal as against Haberman to be without prejudice to plaintiffs' equitable remedies in a proper forum" (emphasis added). The Appellate Term concluded that summary dismissal of the claim against Habcrman was inappropriate, in view of his having filed thc Ariicle 78 petition in

his individual capacity and his record ownership of the building sincc 1972. Thus, as a result of
the Appellate Terni's order, plaintiffs arc permitted to maintain this action against Haberman to

hold him individually rcsponsible for the judgment awarded against 251 CPW Housing Ltd,
based upon equitablc claims of piercing the corporate veil and fraudulent conveyance.

Third, defendants argue that the complaint fails to state a cause of action against defendant 251 CPW Housing LLC, sincc that entity was not party to the FMRA proceeding and did not obtain title to the building until many years after plaintiffs paid exccssive rent to its predecessor. To support this argument, defendants cite Fullan v. 142 East 27"'Strcet Assocs, 1
NY3d 21 1 (2003) and Sciar-ra v. 531 East Urd Street Owners C q . , supra, which hold that a

successor landlord is generally not liable for excess rcnt collected by a predeccssor landlord, as determined in a FMRA order. Although that is the general rule, those cases also make clear that whcre, as here, a fraud cause of action has been pleaded, and the evidence shows or at least suggests that the transfer of the property was not at arms' length or was entered into for the purpose of evading liability for excess rent charges, a tenant may be able to recover against a
S U C C ~ S S O Iowner -

in a plenary action. See Fullan v. 142 East 27Ih Strect Assocs v. 27 Realtv, LLC,

supra; Sciarra v. 531 East 83`" Street Owners Corn., supra. Finally, defcndants argue that plaintiffs fail to state a cause action for fraudulent conveyance. Specifically, defendants assert that no basis exists for setting aside as fraudulent,

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the January 1, 1997 conveyance of the building to 251 CPW Housing LLC, since at the time of the conveyance, the parties to the conveyance, Haberman and 251 CPW Housing LLC, were not parties to any judgment, administrative award or pending litigation involving plaintiffs. Once again, this argument is premiscd on a mischaraterization of the claims as pleaded in the complaint, as plaintiffs are seelung to set aside, as fraudulent, the conveyance of the building from Haberman to 25 1 CPW Housing LLC, by alleging that Haberman and 25 1 CPW Housing

LLC participatcd in the fraud in an cffort to prcvcnt plaintiffs from collccting the FMRA award
directly from the landlord named in the lease and in the FMRA proceeding, 251 CPW Housing Ltd.
As Haberman's conveyance occurred in January 1997, while the FMXA was pending

before DHCR, plaintiffs have sufficicntly stated a cause of action for fraudulent conveyance. Bascd on thc foregoing, defendants' motion to dismiss the complaint is denied. In light of this dctcrmination, defendants' motion to cancel thc lis pendcns is likewise denied. Turning to the cross-motion, plaintiffs are seeking an order awarding them summary judgment. To obtain summary judgrncnt, plaintiffs must make a prima facie showing of cntitlernent to judgment as a matter of law, tendering sufficient evidentiary proof to dernonstratc thc abscncc of any material issues of fact as to thcir cause of action.
Alvarez v. Prospect

Hospital, 68 NY2d 320, 324 (1986). "Failure to make such prima facie showing requires a denial

of the motion, regardless of the sufficiency of the opposing papers."

M.

Here, plaintiffs have failed LO meet this burden. In support of thc motion, they submit an affidavit of plaintill` Blake Fleetwood and annex various documents, consisting of their interrogatories, records Tram the Division of Corporations of thc New York Stale Department of State, a certified copy of an October 12, 1972 deed conveying the property from CPW 251 8

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Housing, Ltd to Simon Habcrman, the verified petition in the landlord's Article 78 proceeding, Justice Omansky's order denying that Article 78 proceeding, and the Appellate Term's decision modifying Judge Billing's order. Fleetwood's affidavit, however, is insufficient to support plaintiffs' motion. Whilc hc swears that he is "fully familiar with the facts herein set forth," the affidavit contains numerous f x t u a l statements and lcgal conclusions of which he cannot possibly have any personal knowledge, since he restates verbatim every factual allegation and legal assertion contained in the complaint. For example, Fleetwood states that "251 CPW Housing Ltd lacked a corporate Iomality, was undercapitalized and Simon Haberman personally used the funds of 25 1 CPW Housing Ltd," and that "[tlhe landlord's minutes, books, stock certificate books, and stock ledgers are blank, [and the landlord] elected no directors, held no stockholders'

oi-directors' meetings, adopted no bylaws and issued no stock."
While plaintiffs arguably may be relying on the documents annexed
LO Fleetwood's

affidavit, they present no identifiable legal arguments or factual contentions as to why such docurncnts demonstrate their entitlement to judgment as a matter of law on their claims against dcfendants. Significantly, plaintiffs' motion papers point to no specific documents and argue that such proof establishes a p i m a facie case for piercing the corporate veil or for fraudulent conveyincc. Morcover, plaintiffs' arguments submitted for the first time in their reply papers arc not properly considered.

See Morris v. Solow Management Corn., 8 AD3d

126 (1" Dept

2004); Dannasch v. Bilfulco, 184 AD2d4lS (1" Dept 1992); Ritt v. Lenox Hill Hospital, 182
AD2d 560 ( lstDept 1992). However, even if those arguments could be considered, counsel's
bare and conclusory assertions as to the significance of certain docurncnts, arc insufficient to support summary judgment. Under these circumstances, plaintiffs have failed to cstablish prima 9

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facie entitlement to judgment as a matter of law. Alternatively, plaintiffs seek sanctions against defendants for noncompliance with discovery. This portion of the cross-motion is granted only to the extent of directing the parties
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appear for thc compliancc conrerence previously scheduled for May 13, 2007.

Accordingly, it hercby

ORDERED that defendants' motion is denied in its cntirety; and it is further
ORDERED that plaintiffs' cross-motion for summary judgment is denied and plaintiffs'
cross-motion for discovery sanctions is granted only 10 the extent of directing the parties to

appear for the compliance conference previously scheduled for May 13, 2007 at 9:30 am, in Part
11, Room 351 at 60 Centre Street.

DATED: April

/& 2007

ENTER:

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