Sapp v. Clark Wilson, Inc.

206 A.D.3d 1014

171 N.Y.S.3d 148

Dianna SAPP, et al., plaintiffs,

Tameake Macklin, et al., appellants,

v.CLARK WILSON, INC., et al., respondents, et al., defendants.

2018-14930, 2018-14969

Index No. 12230/15

Supreme Court, Appellate Division, Second Department, New York.

Argued—April 6, 2021

June 29, 2022

Justine Luongo, Attorney–in–Charge of the Criminal Defense Practice, New York, NY (Judith Goldiner, Sunny Noh, Kat Meyers, Meghan Walsh, Caryn Schreiber, Shemori Corinthian, and Paul, Weiss, Rifkind, Wharton & Garrison LLP [Audra J. Soloway, Amy L. Barton, Elana R. Beale, and Peter L. Baltera ], of counsel), for appellants.

Kucker Marino Winiarsky & Bittens, LLP, New York, NY (Nativ Winiarsky and Patrick K. Munson of counsel), for respondents.

COLLEEN D. DUFFY, J.P., FRANCESCA E. CONNOLLY, ANGELA G. IANNACCI, CHERYL E. CHAMBERS, JJ.

DECISION & ORDER

In a consolidated action, inter alia, for declaratory relief, the appeals are from (1) an order of the Supreme Court, Kings County (Peter P. Sweeney, J.), dated November 13, 2018, and (2) a judgment of the same court, also dated November 13, 2018. The order, insofar as appealed from, granted those branches of the motion of the defendants Clark Wilson, Inc., Clark Assoc., Inc., Wilson Flat, Inc., Wilson Mer Assoc., Inc., Wilson–Hins Assoc., and Wilson–Han Assoc., Inc., which were for summary judgment dismissing the first, second, and third causes of action insofar as asserted against them by the appellants. The judgment, insofar as appealed from, upon the order, awarded those defendants possession of the units occupied by the appellants.

ORDERED that the appeal from the order is dismissed, without costs or disbursements; and it is further, ORDERED that the judgment is affirmed insofar as appealed from, without costs or disbursements.

The appeal from the order must be dismissed because the right of direct appeal therefrom terminated with the entry of the judgment in the action (see Matter of Aho, 39 N.Y.2d 241, 248, 383 N.Y.S.2d 285, 347 N.E.2d 647 ). The issues raised on the appeal from the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501[a][1] ).

In October 2008, the New York City Department of Homeless Services (hereinafter DHS) entered into a contract with a service provider, the not-for-profit CAMBA, Inc. (hereinafter CAMBA), to provide transitional housing and services to homeless individuals and families pursuant to the Neighborhood Based Cluster Transitional Residence Program (hereinafter the Cluster Transitional Residence Program). Pursuant to this contract, CAMBA provided services to the homeless individuals and families, including food services, child care services, and health services. Several months later, in April 2009, in connection with CAMBA's contract with DHS, CAMBA entered into a Transitional Cluster Lease Agreement with We Care, Inc. (hereinafter We Care). The contract provided that a certain number of apartment units were to be made available to homeless families and individuals in buildings owned by the defendants Clark Wilson, Inc., Clark Assoc., Inc., Wilson Flat, Inc., Wilson Mer Assoc., Inc., Wilson–Hins Assoc., and Wilson–Han Assoc., Inc. (hereinafter collectively the owners), at a per-unit/per-diem rate of $75.50. DHS would refer homeless families and individuals to CAMBA, and they would then be placed in these units. Rent was paid by CAMBA from the monies received from DHS pursuant to their contract.

In 2014, We Always Care, Inc. (hereinafter We Always), negotiated a contract directly with DHS, substantially similar to that entered into between CAMBA and DHS, to be a service provider supplying housing and services to homeless families. We Care began working exclusively with We Always, instead of CAMBA, as a service provider. We Always entered into a Transitional Cluster Lease Agreement with We Care, which provided for a per diem/per unit rate of $76.15.

The appellants are recipients of transitional housing and services for homeless individuals, who were placed in the owners’ apartments by DHS under the Cluster Transitional Residence Program. In 2015, DHS advised one of the owners, Clark Wilson, Inc., that its building would no longer be used in the Cluster Transitional Residence Program and the appellants were informed that they would be transferred to other shelters.

Thereafter, DHS informed the appellants that it was terminating its relationship with We Always as service provider at all of the owners’ buildings.

The appellants then commenced separate actions, which were subsequently consolidated, alleging, inter alia, that they had been deprived of the benefits of rent stabilization by an illusory tenancy scheme. The appellants sought vacancy leases in their own names, and related relief. The owners subsequently moved, among other things, for summary judgment dismissing the appellants’ first, second, and third causes of action, predicated on the illusory tenancy claim, insofar as asserted against them. (Relief sought by the owners against certain other plaintiffs is not at issue here.) The Supreme Court, inter alia, granted those branches of the motion, and a judgment dated November 13, 2018, was entered, among other things, awarding the owners possession of the units occupied by the appellants.

In its order, the Supreme Court concluded that the appellants did not have standing to seek vacancy leases because they were licensees, not subtenants. Resolution of this issue is unnecessary, however, because, even assuming arguendo that the appellants are properly treated as subtenants, the owners demonstrated, prima facie, that the prime tenancies were not illusory, so as to accord the appellants the rights of such prime tenants under the Rent Stabilization Law and Code. The merits of that issue, which were raised in the Supreme Court and briefed in this Court, can properly be considered as an alternative ground for affirmance (see e.g. Kauffman v. Turner Constr. Co., 195 A.D.3d 1003, 1005, 150 N.Y.S.3d 321 ; see also Parochial Bus Sys. Inc. v. Board of Educ. of City of N.Y., 60 N.Y.2d 539, 544–546, 470 N.Y.S.2d 564, 458 N.E.2d 1241 ).

As to that dispositive issue, "[a]n illusory tenancy is defined generally as a residential leasehold created in a person who does not occupy the premises for his or her own residential use and subleases it for profit, not because of necessity or other legally cognizable reason " ( Matter of Badem Bldgs. v. Abrams, 70 N.Y.2d 45, 52–53, 517 N.Y.S.2d 450, 510 N.E.2d 319 [emphasis added]). An illusory tenancy scheme exists, for example, where the "prime tenant" rents a rent-stabilized apartment, which it never intends to occupy, and then subleases it for an amount in excess of the legal rent so as to make a profit ( Matter of 333 E. 49th Partnership, LP v. New York State Div. of Hous. & Community Renewal, 165 A.D.3d 93, 103, 83 N.Y.S.3d 461 ; see Matter of Partnership 92 LP v. State of N.Y. Div. of Hous. & Community Renewal, 46 A.D.3d 425, 429, 849 N.Y.S.2d 43, affd 11 N.Y.3d 859, 873 N.Y.S.2d 247, 901 N.E.2d 740 ; Primrose Mgt. Co. v. Donahoe, 253 A.D.2d 404, 405, 676 N.Y.S.2d 585 ; Matter of Avon Furniture Leasing Inc. v. Popolizio, 116 A.D.2d 280, 284, 500 N.Y.S.2d 1019 ). Additionally, an illusory tenancy might exist where "an alter ego of the owner rents an apartment as the ‘tenant’ and then ‘sublets’ to an innocent third party in an effort to stockpile vacancies or subscriptions for a conversion to cooperative or condominium ownership" ( Manocherian v. Lenox Hill Hosp., 229 A.D.2d 197, 205, 654 N.Y.S.2d 339 ). In such cases, the prime leases are nothing more than a contrivance with no legitimate purpose, and thus, are not entitled to legal recognition. Although illusory tenancy schemes may take different forms, "[a] case presenting the issue of illusory tenancy requires that the court examine the bona fides of the tenancy of the person [or entity] asserted to hold the status of prime tenant over the party in occupancy as subtenant" ( Bruenn v. Cole, 165 A.D.2d 443, 447, 568 N.Y.S.2d 351 ).

The leases in the present case did not lack a legitimate purpose. The subject premises were leased to, and by, both CAMBA and We Always for the "legally cognizable reason" of providing transitional housing in accordance with the terms of the Cluster Transitional Residence Program run by the City ( Matter of Badem Bldgs. v. Abrams, 70 N.Y.2d at 53, 517 N.Y.S.2d 450, 510 N.E.2d 319 ). The leases entered into by CAMBA and We Always both specified that the agreement was entered into "for the sole purpose of providing transitional housing and services in connection with the DHS Agreement," and the leases expired by their terms upon termination of the DHS Agreement (if not terminated earlier). Under the leases, CAMBA and We Always leased unspecified units in particular buildings, the number of which would increase or decease depending upon the extent of the needs of DHS to provide transitional housing for homeless families and individuals.

The undisputed facts that the units in which the appellants resided were leased by CAMBA and We Always pursuant to their agreements with DHS, and that the leases expired by their terms upon termination of such agreements, established, prima facie, "the bona fides of the tenancy of [the entity] asserted to hold the status of prime tenant," i.e., CAMBA and We Always ( Bruenn v. Cole, 165 A.D.2d at 447, 568 N.Y.S.2d 351 ). Under these circumstances, the owners demonstrated, prima facie, that the appellants were not entitled to vacancy leases and related relief because illusory tenancies were not created to deprive them of the benefits of rent stabilization (see Ecumenical Community Dev. Org., Inc. v. GVS Props. II, LLC, 168 A.D.3d 522, 523, 93 N.Y.S.3d 3 ; Manocherian v. Lenox Hill Hosp., 229 A.D.2d at 205, 654 N.Y.S.2d 339 ; cf. Primrose Mgt. Co. v. Donahoe, 253 A.D.2d at 405–406, 676 N.Y.S.2d 585 ).

As noted, the Court of Appeals’ definition of ...