Armstrong v. Dumbo Lofts Rental, LLC: No “Reliance” Showing Needed for Fraudulent Deregulation Scheme Claims; Conclusory Owner Proof Cannot Win Summary Judgment

1. Introduction

Armstrong v Dumbo Lofts Rental, LLC (Appellate Division, Second Department, Aug. 5, 2026) arises from a Brooklyn residential building that received J-51 tax abatement benefits from 2000 to 2014. The plaintiffs (including William Armstrong, Jennifer Mancini, Propel-ant, Inc., Norman Yun, Nam Hee Lee, and Nusrat Durrani) were tenants of apartments they contended were rent stabilized during the J-51 period.

In 2019, plaintiffs sued the owner, alleging a fraudulent scheme to deregulate their apartments and collect unlawfully inflated rents. They alleged, among other things, that leases and DHCR registrations misstated “legal regulated rents,” labeled the charged rent as a lower “preferential rent” when it allegedly was not preferential, omitted required J-51 disclosures, falsely claimed stabilization had expired, and tendered market (nonstabilized) leases with unlawful increases.

The Supreme Court (Kings County) granted summary judgment to the owner before discovery on key parts of the case, reasoning that plaintiffs failed to allege reliance and thus could not show fraud. The Second Department reversed, holding the owner did not meet its prima facie summary judgment burden and that reliance is not required to establish a fraudulent deregulation scheme for rent-history review purposes.

2. Summary of the Opinion

  • The Appellate Division reversed the order insofar as appealed from and denied the owner’s motion for summary judgment dismissing:
    • the fraudulent scheme to deregulate allegations (and related rent-freeze request), and
    • the declaratory-judgment request that the tenants’ apartments are subject to the Rent Stabilization Law and Code.
  • The court emphasized that a tenant alleging a fraudulent deregulation scheme need not prove the elements of common-law fraud, including reliance.
  • The owner’s proof—particularly a conclusory and self-serving affidavit—was insufficient to establish, prima facie, the absence of a fraudulent scheme.
  • On the requested rent freeze, the owner failed to eliminate triable issues of fact as to whether annual registrations were “proper and timely” under Administrative Code § 26-517(e).
  • Because the owner conceded the apartments are rent stabilized, summary judgment dismissing the declaratory claim was improper.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Decision)

Lookback rule and the fraud exception

  • Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358: The court relied on Grimm for the foundational rule that overcharge claims were generally constrained by a four-year statute of limitations and for recognition of a limited fraud exception permitting review of rental history beyond the four-year lookback to assess whether a fraudulent deregulation scheme undermines the reliability of the base-date rent.
  • Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332: Cited for clarifying the fraud exception’s scope—rental history outside the lookback is generally barred for calculation purposes, but can be reviewed to determine whether a fraudulent scheme tainted the base date. Regina Metro also frames what a tenant must show: a “colorable claim of fraud” supported by “substantial indicia.”
  • Matter of Fairley v State of New York Div. of Hous. & Community Renewal, 214 AD3d 800: Used to connect the fraud exception to remedy: if a fraudulent scheme is found, the legal rent may be determined using a “default formula” rather than the base-date rent derived from tainted records.

No “reliance” requirement for fraudulent deregulation scheme allegations

  • Burrows v 75-25 153rd St., LLC, 44 NY3d 74: Central to the reversal. Burrows holds a plaintiff alleging a fraudulent scheme to deregulate an apartment need not demonstrate each element of common-law fraud, including reliance. Armstrong applies Burrows directly to reject the Supreme Court’s reliance-based dismissal rationale.
  • Gomes v Vermyck, LLC, 238 AD3d 26: Reinforces Burrows: courts require “sufficient indicia of fraud”/a “colorable claim,” not the full common-law fraud elements. Armstrong cites Gomes to underscore the proper pleading/proof framework for the fraud exception in rent-stabilization disputes.

Summary judgment burdens and insufficiency of conclusory owner affidavits

  • Alvarez v Prospect Hosp., 68 NY2d 320 and Winegrad v New York Univ. Med. Ctr., 64 NY2d 851: Provide the controlling standard: the movant must make a prima facie showing of entitlement to judgment as a matter of law, and failure to do so requires denial regardless of opposing papers.
  • Matter of Teore v State of New York Div. of Hous. & Community Renewal, 234 AD3d 860 and Cox v 36 S Oxford St, LLC, 237 AD3d 604: Cited to support the conclusion that a conclusory and self-serving affidavit does not establish the absence of a fraudulent scheme. Armstrong uses these cases to hold the owner’s CFO affidavit inadequate for prima facie summary judgment relief.

Rent-freeze doctrine tied to “proper and timely” registrations

  • Bradbury v 342 West 30th St, 84 AD3d 681 and Jazilek v Abart Holdings, LLC, 72 AD3d 529: Applied to the tenants’ rent-freeze theory under Administrative Code § 26-517(e). Armstrong holds the owner failed to eliminate triable issues as to whether the annual registration statements were “proper and timely,” precluding summary judgment dismissal of the rent-freeze request.

Concession of rent-stabilized status defeats dismissal of declaratory relief

  • Jannetti v Whelan, 165 AD3d 1082: Cited for the principle that where the defendant concedes the relevant status (here, that apartments are rent stabilized), dismissal of a declaratory-judgment claim on summary judgment is improper; the branch should be denied rather than granted.

3.2 Legal Reasoning

  1. Correct legal standard for “fraudulent scheme” claims: The Supreme Court treated the tenants’ allegations as requiring proof of common-law fraud (including reliance). The Appellate Division held this was legal error under Burrows v 75-25 153rd St., LLC and Gomes v Vermyck, LLC: for the narrow rent-stabilization “fraud exception,” the tenant need only allege/proffer “sufficient indicia” or a “colorable claim” of a fraudulent scheme—not reliance.
  2. Owner’s prima facie failure on summary judgment: Applying Alvarez v Prospect Hosp. and Winegrad v New York Univ. Med. Ctr., the court held the owner did not carry its initial burden to demonstrate the absence of a fraudulent scheme. The owner relied on a CFO affidavit deemed conclusory/self-serving, insufficient under Matter of Teore v State of New York Div. of Hous. & Community Renewal and Cox v 36 S Oxford St, LLC. Because the prima facie showing failed, the motion had to be denied irrespective of the tenants’ opposition.
  3. Rent freeze could not be dismissed as a matter of law: The owner also failed to show that registrations were “proper and timely” under Administrative Code § 26-517(e). Under Bradbury v 342 West 30th St and Jazilek v Abart Holdings, LLC, unresolved factual questions about registration compliance preclude summary judgment against a rent-freeze claim.
  4. Declaratory relief should not have been dismissed given concession: The owner conceded the apartments are rent stabilized. In that posture, the court held summary judgment dismissing the declaration claim was improper, citing Jannetti v Whelan.

3.3 Impact

  • Strengthens tenant ability to reach discovery and merits: Armstrong signals that early summary judgment—particularly pre-discovery—will be difficult for owners where tenants allege indicia of deregulation misconduct and the owner’s rebuttal is conclusory.
  • Reinforces post-Burrows pleading/proof alignment: The decision operationalizes Burrows v 75-25 153rd St., LLC in a practical procedural setting: trial courts should not demand “reliance” as a gatekeeping requirement for fraudulent deregulation scheme theories tied to rent-history review and remedies.
  • Encourages robust owner documentation: Owners seeking dispositive relief must submit competent evidence (not merely executive assurances) addressing alleged deregulation practices, lease/registration consistency, and compliance with notice obligations (including J-51-related disclosures where relevant).
  • Keeps rent-freeze exposure in play where registration compliance is disputed: By treating “proper and timely” registration as a fact-sensitive inquiry, Armstrong may increase litigation focus on registration filings, service, and accuracy, with potentially significant rent consequences if a freeze is warranted.

4. Complex Concepts Simplified

Rent Stabilization / Rent Stabilization Code
A regulatory system that limits rent increases and provides renewal and other protections for covered apartments.
J-51 tax abatement benefits
A New York City tax incentive program tied to building improvements. In many contexts, receipt of J-51 benefits is associated with rent-stabilization obligations during the benefit period, and owners may have related disclosure duties.
Preferential rent vs. legal regulated rent
The “legal regulated rent” is the official stabilized rent; a “preferential rent” is a lower rent an owner may charge. Misstating these figures (or labeling a rent “preferential” when it is not) can matter for overcharge analysis and stabilization status.
Four-year lookback rule
For the time period relevant in the opinion, overcharge claims generally limited recovery and rent calculation to a four-year window.
Fraud exception / “colorable claim” / “substantial indicia”
A narrow exception allowing examination of older rent history where there is evidence suggesting a fraudulent deregulation scheme that may have corrupted the base-date rent. The tenant need not prove common-law fraud elements like reliance.
Default formula
A method to set the legal regulated rent when reliable rent records are unavailable or tainted—used instead of simply accepting the base-date rent.
Rent freeze (Administrative Code § 26-517[e])
A potential consequence when required annual rent registrations are not “proper and timely,” potentially limiting increases until compliance occurs.
Prima facie burden on summary judgment
The moving party must first show it is entitled to judgment as a matter of law. If it fails, the motion is denied even if the opponent’s papers are weak.

5. Conclusion

Armstrong v Dumbo Lofts Rental, LLC reinforces a decisive procedural and substantive point in rent-stabilization litigation: allegations of a fraudulent deregulation scheme are not governed by the full pleading/proof demands of common-law fraud—most notably, no showing of reliance is required—and an owner cannot win summary judgment with conclusory, self-serving proof. The decision also preserves tenants’ ability to pursue a rent freeze where “proper and timely” registration compliance is factually disputed, and it rejects dismissal of declaratory relief where the owner concedes rent-stabilized status.