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IN AN ACTION ALLEGING A FRAUDULENT SCHEME TO DEREGULATE APARTMENTS, TO MAKE OUT A PRIMA FACIE CASE SUCH THAT THE FOUR-YEAR LOOK-BACK DOES NOT APPLY, PLAINTIFF NEED NOT DEMONSTRATE EACH ELEMENT OF COMMON-LAW FRAUD; SUFFICIENT INDICIA OF FRAUD OR A COLORABLE CLAIM OF A FRAUDULENT SCHEME ARE WHAT MUST BE DEMONSTRATED (FIRST DEPT).

The First Department, reversing Supreme Court upon remittitur from the Court of Appeals, over a two-justice dissent, remitted the matter to Supreme Court for application of the recently clarified standard for the prima facie demonstration of fraud in an action alleging a fraudulent scheme to deregulate apartments. The issue is whether plaintiffs presented sufficient evidence of fraud to overcome the four-year look-back provision in the former Rent Stabilization Law:

… [T]he Court [of Appeals] refined the common-law standard applied to allegations of a fraudulent scheme to deregulate apartments subject to rent stabilization on a motion to dismiss under CPLR 3211 … . More specifically, [the Court of Appeals] “made clear that, for the fraud exception [to the four-year lookback period in the former Rent Stabilization Law § 26-516 (a)] to apply, a plaintiff need not demonstrate each element of common-law fraud and instead must put forth sufficient indicia of fraud or a colorable claim of a fraudulent scheme” … .

Parallel to the Court of Appeals’ development of the common law applicable to fraudulent deregulation claims, the legislature addressed the fraudulent deregulation standard by statute … . Under the legislature’s statutory amendments, the relevant inquiry is whether the landlord ” ‘knowingly engaged in [a] fraudulent scheme [to deregulate] after a consideration of the totality of the circumstances’ ” … To date, the Court of Appeals has not had occasion to “address to what extent this legislation differs from [the] common-law rule, and, if there is any difference, the impact or applicability of that legislation” … . Aras v B-U Realty Corp., 2026 NY Slip Op 04983, First Dept 8-13-26

​Practice Point; Consult this decision for insight into what a plaintiff must allege or demonstrate to survive a motion to dismiss or to warrant summary judgment in an action alleging a fraudulent scheme to deregulate apartments and seeking the “fraud exception” to the statutory four-year look-back for damages.

 

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