Julie Conason, et al., Respondents,v.Megan Holding, LLC, et al., Appellants.BriefN.Y.January 13, 2015To be Argued by: JAMES B. FISHMAN (Time Requested: 30 Minutes) APL 2013-00352 New York County Clerk’s Index No. 106560/11 Court of Appeals of the State of New York JULIE CONASON and GEOFFREY BRYANT, Plaintiffs-Respondents, – against – MEGAN HOLDING, LLC and EMMANUEL KU, Defendants-Appellants. BRIEF FOR PLAINTIFFS-RESPONDENTS JAMES B. FISHMAN SUSAN K. CRUMILLER Of Counsel FISHMAN & MALLON, LLP Attorneys for Plaintiffs-Respondents 305 Broadway, Suite 900 New York, New York 10007 Tel.: (212) 897-5840 Fax: (212) 897-5841 Date Completed: April 24, 2014 i TABLE OF CONTENTS QUESTION PRESENTED................................................................ 1 PRELIMINARY STATEMENT ......................................................... 2 FACTS ................................................................................................. 4 The Housing Court Proceeding and Findings of Fact Regarding Ku’s Fraud .................................... 5 The Instant Action, Piercing the Corporate Veil, and Summary Judgment ............................................................ 9 The Appellate Division Order ………………………………… 16 ARGUMENT ………………………………………………………... 18 I. RESPONDENTS’ RENT OVERCHARGE CLAIM WAS TIMELY INTERPOSED A. This Court Has Soundly and Repeatedly Rejected Appellants’ CPLR § 213-a Argument …………………...… 19 B. This Action Falls Squarely Within the Grimm Line of Cases ……………………………………… 22 II. THE APPELLATE DIVISION AND THE MOTION COURT CORRECTLY HELD THAT MEGAN IS COLLATERALLY ESTOPPED FROM CHALLENGING THE HOUSING COURT’S FINDINGS OF FRAUD …………. 24 A. Megan Was Afforded a Full and Fair Opportunity to Litigate the Housing Court Proceeding …………………. 25 B. The Housing Court’s Findings of Fraudulent Conduct by Megan Are Not “Dicta” ………………………. 27 ii III. THE UNREFUTED EVIDENCE ESTABLISHES A RENT OVERCHARGE, EVEN WITHOUT THE HOUSING COURT’S FINDINGS OF FACT ………….….….. 29 IV. THE COURT CORRECTLY UPHELD SUMMARY JUDGMENT ON RESPONDENTS’ CLAIM TO PIERCE THE CORPORATE VEIL ........................ 31 A. Ku Clearly Exercised Domination Over Megan With Respect to the Transactions Attacked ................................... 35 B. Ku, Through Megan, Undisputedly Committed Fraud Against Respondents............................................................. 38 V. THE COURT CORRECTLY UPHELD THE AWARD OF TREBLE DAMAGES AND ATTORNEY’S FEES .................... 39 CONCLUSION ..................................................................................... 40 iii TABLE OF AUTHORITIES CPLR § 203(d) 9 CPLR § 205(a) 10 CPLR § 213-a 19, 21 CPLR § 3015(b) 10 CPLR § 5713 18 Rent Stabilization Code (9 NYCRR) (“RSC”) § 2506.1 39 RSC § 2526.1 16, 39 Rent Stabilization Law of 1969 (Administrative Code of City of NY) (“RSL”) §26-511 5 RSL § 26-516 16, 39 RPL § 234 39 72A Realty Assoc. v Lucas, 101 AD3d 401 (1st Dept 2012) 30 Matter of Abady, 22 AD3d 71 (1st Dept 2005) 26 ABN AMRO Bank, N.V. v MBIA Inc., 17 NY3d 208 (2011) 33 Berenger v 261 W. LLC, 93 AD3d 175 (1st Dept 2012) 38 Brito v DILP Corp., 282 AD2d 320 (1st Dept 2001) 32 Brown v Suggs, 39 AD3d 395 (1st Dept 2007) 26 Matter of Cintron v Calogero, 15 NY3d 347 (2010) 3, 21 Cobalt Partners, L.P. v GSC Capital Corp., iv 97 AD3d 35 (1st Dept 2012) 31 Conason v Megan Holding, LLC, 2013 NY Slip Op 60670(U) (App Div 1st Dept 2013) 16 East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 16 NY3d 775 (2011) 32 Fantazia Int’l v CPL Furs NY, Inc., 67 AD3d 511 (1st Dept 2009) 33 Feinberg v Boros, 99 AD3d 219 (1st Dept 2012) 25 Gateway I Group v Park Ave. Physicians, P.C., 62 AD3d 141 (2nd Dept 2009) 34 Grimm v DHCR, 15 NY3d 358 (2010) passim Horizon Inc. v Wolkowicki, 55 AD3d 337 (1st Dept 2008) 34, 36 Island Seafood Co. v Golub Corp., 303 AD2d 892 (3rd Dept 2003) 37 Jackson v Board of Educ. of City of New York, 30 AD3d 57 (1st Dept 2006) 28 James v Loran Realty Corp., 20 NY3d 918 (2012) 31 Kirke La Shelle Co. v Paul Armstrong Co., 263 NY 79 (1933) 22 Megan Holding LLC v Conason, 37 Misc3d 135(A) (App Term 1st Dept 2012) 9, 17, 27, 39 Miller v Cohen, 93 AD3d 424 (1st Dept 2012) 34, 38 Miller v DHCR, 289 AD2d 20 (1st Dept 2001) 39 Morpheus Capital Advisors LLC v UBS AG, v 105 AD3d 145 (1st Dept 2013) 31-32 Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135 (1993) 31 Padilla v Edison Transp., Inc., 104 AD3d 518 (1st Dept 2013) 32 Matter of Partnership 92 LP v DHCR, 11 NY3d 859 (2008) 3, 20, 21, 30 Pollicino v Roemer & Featherstonhaugh P.C., 277 AD2d 666 (3d Dept 2000) 28 Retropolis, Inc. v 14th St. Dev. LLC, 17 AD3d 209 (1st Dept 2005) 37 Sahn v AFCO Indus., 192 AD2d 480 (1st Dept 1993) 28 Schwartz v Public Adm’r of County of Bronx, 24 NY2d 65 (1969) 25 Sheridan Broad. Corp. v Small, 19 AD3d 331 (1st Dept 2005) 36 Sound Communications, Inc. v Rack & Roll, Inc., 88 AD3d 523 (1st Dept 2011) 32-33 Stewart Tit. Ins. Co. v Liberty Tit. Agency, LLC, 83 AD3d 532 (1st Dept 2011) 32 Thornton v Baron, 5 NY3d 175 (2005) passim 1 QUESTION PRESENTED Was the order of the Appellate Division, First Department, which unanimously affirmed the order of Supreme Court, properly made? Yes. The Appellate Division correctly rejected appellants’ statute of limitations argument. “A landlord whose fraud remains undetected for four years [cannot,] simply by virtue of having filed a registration statement, transform an illegal rent into a lawful assessment that would form the basis for all future rent increases” (Thornton v Baron, 5 NY3d 175, 181 [2005]). The Appellate Division correctly upheld the motion court’s holding that appellants, who undisputedly created a fictitious tenant to justify an illegal rent increase and lied about alleged apartment improvements, had violated the Rent Stabilization Law by willfully overcharging respondents. The Appellate Division correctly upheld the motion court’s granting of leave to respondents to pierce the corporate veil, upon unrebutted evidence that the 99% individual owner of the LLC failed to adhere to corporate formalities, claimed LLC property as his personal property, intermingled funds, and undisputedly committed fraud against respondents. 2 PRELIMINARY STATEMENT This brief is respectfully offered by Plaintiffs-Respondents Julie Conason and Geoffrey Bryant (“respondents”) in opposition to the brief of Defendants-Appellants Megan Holding LLC (“Megan”) and Emmanuel Ku (“Ku”; collectively, “appellants”). Respondents, who are rent-stabilized tenants, commenced this action in June 2011 against the owner of the building, Megan, and its principal Ku, the owner of 99% of Megan (Record on Appeal [hereafter “R.”] 158-65). Respondents allege that Megan charged an illegal rent, in violation of the Rent Stabilization Law, and that they are entitled to a money judgment, including treble damages, in the amount of $172,674.35 and attorney’s fees (id.; R. 171-83). Respondents also allege that Ku, through Megan, created a fictitious tenant in order to falsely inflate the legal regulated rent for the subject apartment, lied about fictitious renovations allegedly made to the apartment, and charged respondents an illegal, excessive rent (id.). Appellants have never denied those facts. Instead, they argue that the action is barred by the statute of limitations because the rent overcharge claim was interposed more than four years after the first overcharge occurred even though the overcharge continued for six years afterward. 3 In its October 12, 2012 decision and order, the motion court held that respondents were entitled to a liability judgment against appellants on their rent overcharge claim as well as on their claims for treble damages and attorney’s fees (R. 11-25). The court found respondents had fully established the facts necessary to prove their rent overcharge claim, relying in part upon findings of fact made by the Civil Court of the City of New York (Housing Part) (“Housing Court”) after a lengthy non-payment summary proceeding trial between the parties, where respondents had originally asserted the claim (R. 19). The motion court also held that respondents were entitled to pierce the corporate veil and obtain summary judgment against Ku, finding that as the 99% owner of Megan he was its alter ego who exercised complete dominion and control of it to commit fraud against, and cause damage to, respondents (R. 23). On September 24, 2013, the Appellate Division, First Department unanimously upheld the motion court’s order in its entirety (R. 634-40). Appellants’ breathtaking arguments ask this Court to sweep away its decisions in Thornton, Grimm v DHCR (15 NY3d 358 [2010]), Matter of Partnership 92 LP v DHCR (11 NY3d 859 [2008]), and Matter of Cintron v Calogero (15 NY3d 347 [2010]) as well as similar decisions of the lower courts. For the reasons set forth here, as well in the orders of both the Appellate Division and the motion court, that effort must be rejected. FACTS The following facts are undisputed. Respondents are the rent stabilized tenants of , Apartment , New York, New York (R. 49). Respondents commenced occupancy of the subject apartment pursuant to a two-year lease between the parties commencing November 1, 2003. The lease states that the rent for the subject apartment is $2,000.00, but “the owner will temporarily accept a reduced amount of $1800.00 per month” (R. 74-82). In 2002, the legal regulated rent for the subject apartment, as registered with the DHCR, was $475.24 (R. 139-43). Yet, without explanation, and after respondents commenced occupancy, appellants increased the registered rent for the subject apartment to $1,000 in 2003, then to $1,800 in 2004 (id.). Respondents were charged, and paid, rent of $1,800.00 per month from November 2003 to October 2005, $1,899.00 from November 2005 to October 2007 and $1,955.97 from November 2007 to May 2009, in accordance with written leases governing those periods (R. 49-50, 74-138). Moreover, the initial lease between the 4 5 parties did not contain a rent stabilization rider, in violation of Rent Stabilization Law of 1969 [Administrative Code of City of NY] [“RSL”] §26-511(d) (R. 49, 74-83). As a result, respondents were not given the statutorily required information disclosing how their initial rent was calculated. It is apparent that the rider was purposefully withheld because it would have alerted respondents to their claim. Moreover, appellants failed to file any DHCR registrations whatsoever for the subject apartment for the relevant years until after respondents had commenced occupancy, when appellants filed their undisputedly false and fraudulent registrations (R. 58), though appellants falsely claim otherwise (Brief 43). The Housing Court Proceeding and Findings of Fact Regarding Ku’s Fraud On or about April 9, 2009, Megan commenced a proceeding against respondents in Housing Court for alleged nonpayment of rent (R. 57). Respondents appeared in that proceeding and asserted, inter alia, counterclaims for rent overcharge and breach of the warranty of habitability (R. 144-53). After Megan’s case was dismissed for lack of evidence, trial commenced on respondents’ counterclaims on December 9, 2009, and continued over a period of nine months (R. 57). 6 Both respondents testified about the condition of the subject apartment and presented extensive evidence to support their warranty of habitability claim. Additionally, the building superintendent, a neighbor, and Ku himself were called as respondents’ witnesses to testify regarding the apartment rental history and the improvements allegedly made to justify the rent increases (R. 58-59). During the course of the Housing Court proceeding four different attorneys appeared for Megan, and subsequently withdrew, for various reasons (R. 32). On July 26, 2010, in the middle of trial, the court granted leave to Megan’s fourth attorney to withdraw, based on ethical concerns (R. 324-25, 1038-40).1 Umar Sheikh, appellants’ current counsel, appeared on behalf of Megan that day to orally contest the application (R. 323). The court granted the application. Respondents consented to a seven-week adjournment so that Megan could seek new counsel, specifically to avoid creating an appellate issue (R. 348). It is not disputed that Mr. Sheikh was involved with the proceeding since April 2010 (R. 323). 1 As discussed below, Megan later appealed the post-trial order, claiming it had been deprived of a fair opportunity to litigate the overcharge claim. The Appellate Term rejected Megan’s argument upon consideration of a full record. However, only the briefs in that appeal are in the record before this Court (R. 272-344). 7 On September 15, 2010, after Megan failed to appear with new counsel, the court closed the proceedings and directed the parties to submit post-trial memoranda (R. 675, 678). Mr. Sheikh submitted Megan’s brief (R. 329). At no point did Megan ever seek to reopen the proceedings to introduce additional evidence, or for any other purpose. On April 8, 2011, the Housing Court issued an order holding that Megan, by Ku, had committed fraud by creating and registering a fictitious tenant so as to illegally and falsely inflate the legal regulated rent for respondents’ rent-stabilized apartment (R. 57-64). The court made the following findings of fact: “On December 23, 2003, after respondents took occupancy, [Megan] registered the apartment with the DHCR listing Suzuki Oki as the tenant under a two year lease running from April 1, 2003 through March 31, 2005 at a monthly rent of $1000.00. Respondents presented persuasive evidence that Suzuki Oki never lived in the apartment. “A witness from Con Edison testified that an electricity and gas account in the name of Candida Vasquez was closed by the tenant on May 30, 2003, and that there was no active account for the apartment after that until respondent Conason opened her account on November 1, 2003, the starting date of her lease. There was never an account in the name of Suzuki Oki for this apartment. “Hector Velazquez, the building superintendent in 2003, testified that the last occupants of the apartment before the respondents were Jacobo Rivera and Candida Vasquez. DHCR records . . . show that Mr. Rivera was the registered tenant in 2002 under a lease expiring 8 September 30, 2003. Mr. Velasquez [sic] testified that no one occupied the apartment between the departure of Rivera and Vasquez and the respondents’ arrival, and that he did not know anyone named Suzuki Oki. A neighbor also testified that the apartment was vacant in the summer and fall of 2003. “Emmanuel Ku, [Megan’s] principal, called as respondents’ witness, testified that he had no records at all for Suzuki Oki. He had no lease, no rental application, and no evidence of payment by Suzuki Oki. He did not establish a security deposit account for Suzuki Oki and he claimed she paid him only in cash. He also claimed she remained in the apartment for only two months and that she paid him exclusively in cash. Finally, Mr. Ku testified that although Oki was in the apartment for only two months, he completely renovated the apartment and claimed a rent increase for individual apartment improvements both before her tenancy and after it. I found Mr. Ku’s testimony to be entirely incredible.” (R. 58-59.) The court further held: “This is clearly a case in which Grimm applies. [Megan] created an entirely fictitious tenant and at least one entirely fictitious apartment renovation in 2003 in order to boost the regulated rent from $475.24 per month . . . to $1800. [Respondents’] rent on the base date was obviously affected by [Megan’s] fraud.” (R. 59-60.) 2 The court held that respondents had “established that an actionable overcharge occurred” (R. 58). However, the Housing Court dismissed the claim, without prejudice, for failure to prove “the amount of the legal 2 When the base date rent in an overcharge case is “affected by fraud” and therefore unreliable, the court has an obligation to investigate the legality of the base date rent (Grimm, 15 NY3d 358). 9 regulated rent and the amount of the overcharge” since respondents had not submitted proof regarding the lowest rent charged for a comparable apartment in the building to establish the “default formula” (id.; emphasis added; see Thornton, 5 NY3d at 180, fn1 [2005]). Megan appealed that order, claiming that the Housing Court had deprived it of the opportunity to present evidence by closing the proceedings after it failed to appear by counsel (R. 272-344). On November 15, 2012, the Appellate Term, First Department, unanimously dismissed that appeal, ruling that Megan had defaulted “when it failed to appear at trial by replacement counsel, despite ample opportunity to do so, following the grant of its prior attorney's motion to withdraw” (Megan Holding LLC v Conason, 37 Misc3d 135[A] [App Term 1st Dept 2012] [emphasis added]). The Instant Action, Piercing the Corporate Veil, and Summary Judgment On June 13, 2011, respondents commenced this action seeking damages and treble damages for a willful rent overcharge as well as statutory attorney’s fees (R. 158-65, 171-182). 3 Respondents also sought to 3 The “base date” for respondents’ rent overcharge claim is April 9, 2005, as the claim was deemed interposed on April 9, 2009 when the Housing Court proceeding was commenced (CPLR § 203(d); R. 19-20). Because this action was commenced within six months of the dismissal without prejudice to respondents’ claim in the Housing Court 10 pierce the corporate veil and impose individual liability upon Ku because he used Megan, one of his dozens of “strawman” LLCs, as his alter ego to commit fraud upon respondents (R. 172-78). On August 22, 2011, the motion court denied Ku’s motion to dismiss the complaint for failure to state a cause of action against him individually and granted respondents’ unopposed cross-motion for an order, pursuant to CPLR § 3015(b), to amend the complaint, finding that it stated a cause of action to pierce the corporate veil against Ku (R. 185). Appellants did not appeal that order. After discovery, 4 respondents moved for summary judgment granting their rent overcharge claim and granting leave to pierce the corporate veil (R. 26-27). In response, appellants moved for summary judgment dismissing the action on the basis that it is barred by the statute of limitations (R. 388-89). In support of their rent overcharge claim, respondents submitted the following evidence, in admissible form: proceeding, the claim was tolled and the base date remains the same in this action (CPLR § 205[a]). 4 It is unclear what appellants mean by their claim that “discovery confirmed that the respondents’ claim for rent overcharge accrued in November 2003 and was time-barred” (Brief 22), and there is no citation in the Record for it. 11 • The leases between the parties (R. 49, 74-86); • Proof of payment of rent for each month from November 2003 to May 2009 (R. 49, 87-138); • A certified DHCR rent registration statement indicating the illegal, unjustified rent increases for the subject apartment (R. 65-73); • The Housing Court order, with notice of entry, describing the Con Edison records and testimony, the testimony of the building superintendent, Ku’s testimony, and the court’s findings that Ku was “entirely incredible” and that Megan, by Ku, had committed fraud against respondents (R. 57-64); • An affidavit stating that Apartment 6 in the subject building has the same number of rooms as the subject apartment and a certified DHCR rent registration establishing the rent for Apartment 6 is $180.92 (R. 49, 139-43). In support of their claim for leave to pierce the corporate veil, respondents submitted the following evidence, in admissible form: • Megan’s Operating Agreement showing that Ku has a 99% controlling interest (R. 266); • A “Personal Financial Statement” from Ku dated August 18, 2009 (just four months after the Housing Court proceeding was commenced) submitted to New York Community Bank, in which he listed the subject building, and fifteen other properties totaling millions of dollars in value, as being owned solely by him, but which in fact are owned by his LLCs (R. 39, 244; see generally R. 241-45); • Ku’s personal bank statements, which reveal an extensive pattern of routine, almost daily, transfers to and from his personal account and LLC accounts. The statements established that Ku routinely transferred a sum of money from one LLC into his personal account 12 and immediately thereafter that same sum was transferred into an account in the name of a different LLC. In the nine months of statements appellants produced during discovery (February to October 2011), these transfers total half a million dollars (R. 55, 246-65); • The bank statements also revealed at least two instances where Ku used personal funds to pay LLC expenses (R. 41, 247, 263); • Ku’s testimony in the Housing Court proceeding that he used personal funds to pay for alleged improvements to respondents’ apartment (R. 237-39); • A copy of a check drawn on Megan’s account on which Ku had handwritten “Dakko Property” (another one of Ku’s LLCs) as the payor (R. 240). In other words, use of Megan funds for payment of a different LLC expenditure; • An affidavit by Special Counsel to the Department of Housing Preservation and Development which describes a study finding that violations in buildings owned by Ku increased at a rate “10 times greater” than those of other prior landlords (R. 232), as well as numerous other newspaper articles attesting to Ku’s documented pattern and practice of letting his rent-stabilized buildings fall into dilapidation (“profit through neglect”) and otherwise violating the housing laws, in NYC and in other parts of the country (R. 215-36); 5 • Information compiled from public records establishing that Ku shares an address with Megan, and that all of his LLCs share the same four addresses, each of which Ku has used as his personal address (R. 53- 54); • Information compiled from public records that Ku “sold” the subject building to Megan from another one of his LLCs in 2003, the year Megan was formed, for $10, and five other transactions in which Ku 5 While the motion court disregarded this documentation on the basis that it was not related to this action, this Court can review the entire record and consider it. 13 “sold” his properties from one LLC to another, for nominal consideration (R. 40); • Three examples, compiled from public records, of Ku intermingling funds by using his various properties as interchangeable collateral for loans to his various LLCs, including Megan (R. 41). Appellants presented literally no evidence in opposition to the rent overcharge claim. Nor did they even attempt to present proof of any claimed “improvements” in the subject apartment used to justify the fraudulent, illegal rent increases. The only evidence appellants presented in opposition to the piercing claim was a three-page affidavit by Ku (R. 365-67). Ku did not deny submitting a “Personal Financial Statement” submitted to New York Community Bank in support of a loan application in which he claimed to personally own sixteen properties, including the subject building, which are actually owned by his LLCs. Nor did Ku even attempt to explain why he did so. Nor did Ku address why he crossed out the name on a pre-printed “Megan Holding LLC” check and hand-wrote the name of a different LLC on it. Nor did he deny, or explain, the use of personal funds for Megan expenditures about which he had testified (R. 237-39). Appellants also did not, and could not, refute the documentation regarding Ku’s pattern of 14 deliberate disregard for, and failure to adhere to, a variety of housing laws (R. 215-36). Ku’s conclusory affidavit served only to confirm that he uses the LLCs interchangeably, and that he does so to avoid paying taxes: Counsel claims that I have changed the names of entities to avoid creditors. That is simply not true. As my holdings grew I received different tax advice over the years. The name changes (which were really changes in the form of entity owning the real property) have followed such advice. (R. 366.) Ku’s explanation for his routine, large transfers from his personal account to other LLC accounts was equally specious and disingenuous: “Counsel claims that I ‘funnel’ money. I do not know what this means. As permitted, when practicable, distributions are made from entities within which I have an interest. At the same time, if an entity within which I have an interest is in need of funds, when practicable, I make a capital contribution to such entity.” (Id.) Ku did not deny that he and his LLCs, including Megan, share the same addresses. He did not deny that he used his personal funds to pay for LLC expenses, including Megan expenses. He claimed that one check drawn from his personal account for an LLC expense was for a matter “for 15 which I was personally responsible as the firm was handling one matter that involved me personally” (R. 365).6 Finally, Ku did not deny that he used Megan to perpetrate a fraud against respondents, specifically by fraudulently overcharging them by creating a fictitious tenant and lying about alleged apartment improvements. On October 10, 2012, the motion court issued an order consolidating the parties’ motions for disposition, granting respondents summary judgment on their rent overcharge claim, granting respondents leave to pierce the corporate veil, and denying appellants’ summary judgment motion in its entirety (R. 12-25). The motion court held that respondents had established liability on their claim of rent overcharge and also found that appellants had committed fraud, relying upon the Housing Court’s determinations. It found appellants’ argument, that those determinations are not entitled to collateral estoppel, “specious” based on the fact that Megan plainly had a full and fair opportunity to be heard in the prior proceeding. The court specifically found that collateral estoppel applies because Megan “by deliberate action refused 6 Ku did not deny that the check was payment for an effort to collect rents for a building owned by one of his LLCs. Certainly, Ku considers himself to be “personally responsible” for matters involving all of his LLCs. 16 to defend or litigate the charge or allegation that is the subject of the preclusion request” (R. 22 [citation omitted]; see also Megan, 37 Misc3d at 135[A]). The motion court further found that appellants willfully overcharged respondents and that respondents were therefore entitled to treble damages (Rent Stabilization Code [“RSC”] [9 NYCRR] § 2526.1[a][1]) and set the matter down for a hearing on the amount of total rent overcharge respondents are entitled to recover. Finally, the court awarded statutory attorney’s fees to respondents in an amount to be determined at a hearing (RSL § 26-516(a)(4); RSC § 2526.1). Thereafter, appellants appealed the motion court order to the Appellate Division, First Department. On January 10, 2013, as a condition of granting a stay of the damages hearing ordered by the motion court, the Appellate Division ordered that appellants post a bond in the amount of $67,449.19 (Conason v Megan Holding LLC, 2013 NY Slip Op 60670[U][App Div 1st Dept 2013]). The Appellate Division Order On September 24, 2013, the Appellate Division, First Department unanimously upheld the motion court’s order, in its entirety (R. 634-40). 17 The Court fully rejected appellants’ argument that respondents’ overcharge claim is barred by the statute of limitations. The Court cited those portions of both Grimm and Thornton in which this Court specifically rejected the same argument, holding that “the four year statute of limitations is not a bar in a rent overcharge claim where there is significant evidence of fraud on the record” (R. 638). In finding that there was significant evidence of fraud on the record, the Court agreed that appellants were collaterally estopped from arguing that no fraud existed, since “Megan was represented by counsel during most of the trial, was afforded the opportunity to acquire new counsel when its lawyer withdraw for ethical reasons, failed to obtain successor counsel, declined to present a defense, submitted a post-trial brief, and failed to appeal the determination” (R. 638-39).7 Finally, the Court held that the motion court had properly pierced the corporate veil: “There is evidence that Ku abandoned the corporate form. For instance, in a loan application Ku claimed 16 LLC properties, including the subject building, as his own property. There is also evidence of the habitual transfer of funds to and from Ku's individual account, which indicates the intermingling of funds. Ku also used personal funds for Megan expenditures and used 7 The motion court erroneously stated that Megan did not appeal the Housing Court order. As previously stated, Megan did appeal that determination and lost (Megan, 37 Misc3d 135[A]). 18 Megan funds for expenditures by other LLCs. There is also evidence that, through Megan, Ku fraudulently set a rent for [respondents’] apartment and that [respondents] were financially injured thereby.” (R. 639.) On December 12, 2013, the Court issued an order denying appellant’s motion to reargue its September 24, 2013 order and granted their motion for leave to appeal to this Court. Pursuant to CPLR § 5713, the Court certified the question: “Was the order of this Court, which unanimously affirmed the order of the Supreme Court, properly made?” (R. 633) ARGUMENT Appellants do not, and indeed cannot, dispute that a rent overcharge occurred, nor that Ku personally, through Megan, committed fraud against respondents. Instead, appellants resort to frivolous arguments which have been repeatedly, and soundly, rejected by courts at four levels of the judicial system, by a total of nine judges. These arguments fail and the Appellate Division order must be upheld in its entirety. 19 I. RESPONDENTS’ RENT OVERCHARGE CLAIM WAS TIMELY INTERPOSED A. This Court Has Soundly and Repeatedly Rejected Appellants’ CPLR § 213-a Argument In Thornton (5 NY3d 175), this Court addressed the very issue that appellants ask the Court to reconsider: the application of CPLR § 213-a to a rent overcharge claim. In Thornton, the subtenants in an illusory tenancy scheme sued the owner of the subject apartment eight years after commencing occupancy of the subject apartment.8 The owner argued that pursuant to CPLR § 213-a the Court was prohibited from examining rental records more than four years old, and, as such, the legal regulated rent must be the registered rent on the base date; this Court disagreed (Id. at 180-81). The Court specifically rejected the argument of the dissent, which was that the subtenants “had four years to [challenge the rent] and no more” based on the dissent’s reading of the 1997 amendment (id. at 183). To the contrary, the majority explained, “Under the dissent's rule, a landlord whose fraud remains undetected for four years—however willful or egregious the violation—would, 8 The Thorntons commenced occupancy in 1992; they sued the prime tenants in 1996 but did not amend their complaint to name the owner until 2000. The Court rejected the Thorntons’ argument that their amended complaint against the owner should relate back to the original complaint against the subtenant because the defendants were not united in interest (id. at 180, fn 2). 20 simply by virtue of having filed a registration statement, transform an illegal rent into a lawful assessment that would form the basis for all future rent increases. Indeed, an unscrupulous landlord in collusion with a tenant could register a wholly fictitious, exorbitant rent and, as long as the fraud is not discovered for four years, render that rent unchallengeable. That surely was not the intention of the Legislature when it enacted the RRRA.” (Id. at 181 [emphasis added].) In Partnership 92 (11 NY3d 859), this Court yet again reaffirmed that where no reliable rent records are available, a factfinder is not obligated to accept the legal regulated rent to be whatever the owner claimed it was four years prior; to the contrary, the default formula must be used. In Grimm (15 NY3d 358), this Court concluded that the rationale in Thornton applied “in a situation where it is alleged that the standard base date rent is tainted by fraudulent conduct on the part of a landlord” (id. at 358). The Court described how in Thornton, “[a]cknowledging that the apartment’s prior rental history could not be examined, and that the stabilized rent before the fraudulent scheme was of no relevance, we nonetheless rejected the owner’s contention that the legal regulated rent should be established by simple reference to the rental history on the [base date]” (Id. at 365 [internal quotation marks and citations omitted]). The Court also specifically included the landlord’s failure to include a rent- 21 stabilized rider along with the tenant’s lease as a factor which “should have led the DHCR to investigate the legality of the base date rent” (id. at 366). Again, as in Thornton, the dissent largely focused on CPLR 213-a (id. at 367). In Cintron (15 NY3d 347), decided the same day as Grimm, the Court considered a rent overcharge complaint filed on the basis of the owner’s violation of a decades-old rent reduction order. The Court held that the rent reduction remained in effect and should be used to calculate the overcharge. In that case the tenant filed a complaint seventeen years after commencing occupancy and sixteen years after the relevant DHCR rent reduction order was filed. It is virtually impossible to understand how appellants square their argument with this Court’s well established holding in Cintron. In sum, it is well-established that the statute of limitations runs not from the filing of a fraudulent rent registration, as appellants in effect argue, but from each illegally collected rent payment, as a rent overcharge involves continuing payments which occur each month. Thus, though appellants claim to take umbrage with the Appellate Division order, their rationale would require that Thornton, Grimm, Partnership 92, and Cintron be overturned. 22 B. This Action Falls Squarely Within the Grimm Line of Cases Appellants’ repeated description of their fraudulent actions as “garden variety” (Appellants’ Brief [hereafter “Brief”] 6, 8, 50) is simply inaccurate. It is not your everyday landlord who falsely testifies to a veritable novella of invented facts, complete with a wholesale fictitious tenant, fictitious cash payments, the tenant’s purported mysterious and unexplained departure after two months, fictitious unspecified renovations allegedly completed both before and after the purported tenancy, the mysterious disappearance of all relevant files, and even fictitious conversations with the imaginary tenant (who, incidentally, had zero gas or electricity usage and no Con Edison account) (R. 58-59). Appellants also attempt to sow confusion where it does not exist by falsely claiming that there has been a “range of interpretations” by the three courts who have examined this case to date (the Housing Court, the Supreme Court, and the Appellate Division) (Brief 11, fn 6). To the contrary, every single court, and every single judge of those courts, has agreed that (1) appellants committed fraud against respondents; and (2) therefore Grimm applies. 23 Appellants’ argument that the Appellate Division unfairly punished them by creating an “Ex Post Facto” law is equally absurd (Brief 68-74). The RRRA was passed in 1997; respondents took occupancy in 2003; later that year, Ku filed the undisputedly fraudulent registrations; Thornton was decided in 2005; respondents interposed their overcharge claim in 2008. Appellants do not, and cannot, specify the point at which Ku allegedly believed he was in the clear for the fraudulent registrations, nor when Ku believed that the illegal rent had transformed into a lawful assessment simply by virtue of enough time having passed. Throughout their brief, appellants attempt to shift the burden of a rent overcharge claim – from a landlord (to refrain from illegally overcharging a tenant) to the tenant (to become experts on rent stabilization and to regularly go to DHCR and examine their rent registration history), ignoring the implied covenant of good faith and fair dealing (Kirke La Shelle Co. v Paul Armstrong Co., 263 NY 79 [1933]). There is no support whatsoever for appellants’ speculation that the statute of limitations was designed to “reward[] tenants who regularly inspect the rent history for their rent stabilized unit” (Brief 39), speculation which defies common sense. And the appellants’ description of “unscrupulous” straw-tenants who sit on their 24 hands, voluntarily overpaying their landlords each month for years in the hopes of later obtaining a “windfall”, has no basis in reality (Brief 39-40). Appellants’ argument that principles of equitable recoupment and equitable tolling do not apply to this case (Brief 10 fn 4, 47, 74-75) are complete non sequiturs. Respondents have never advanced either argument in this case and no court has ever mentioned, let alone considered, those principles. Respondents seek recoupment of rent overcharge payments made in the four years immediately preceding their filing of the claim. Equitable recoupment, and tolling, are wholly irrelevant here and must be disregarded by the Court. Finally, Appellants go so far as to argue, in all apparent seriousness, that treble damages may not be awarded where a tenant does not assert his or her claim for rent overcharge within two years after commencing occupancy (Brief 39, 73). There is no authority whatsoever for that position, which also defies common sense. II. THE APPELLATE DIVISION AND THE MOTION COURT CORRECTLY HELD THAT MEGAN IS COLLATERALLY ESTOPPED FROM CHALLENGING THE HOUSING COURT’S FINDINGS OF FRAUD Appellants argue that collateral estoppel should not apply to the Housing Court’s findings of fact because Megan was deprived of a full and 25 fair opportunity to litigate, and that the Housing Court’s findings of fact are “dicta”. The motion court correctly rejected those arguments as “specious” (R. 21) and the Appellate Division correctly upheld that finding (R. 638-39). Moreover, even if the Housing Court’s findings are disregarded, sufficient unrefuted evidence was submitted to the motion court to establish the rent overcharge and appellants’ fraudulent conduct. A. Megan Was Afforded a Full and Fair Opportunity to Litigate the Housing Court Proceeding “It is well established that the doctrine of collateral estoppel bars a litigant from disputing an issue in another proceeding in which he had a full and fair opportunity to contest the matter” (Feinberg v Boros, 99 AD3d 219 [1st Dept 2012]) (cited by the motion court, R. 22). Collateral estoppel “preserves party and judicial resources by preventing re-litigation of matters that have already been resolved” and “prevents inconsistent results” (id.). In other words, “where it can be fairly said that a party has had a full opportunity to litigate a particular issue, he cannot reasonably demand a second one” (Schwartz v Public Adm’r of County of Bronx, 24 NY2d 65 [1969]). A party who, “by deliberate action, refused to defend or litigate the charge or allegation that is the subject of the preclusion request,” cannot 26 thereafter challenge the application of collateral estoppel. (Matter of Abady, 22 AD3d 71, 83-84 [1st Dept 2005]; see also Brown v Suggs, 39 AD3d 395 [1st Dept 2007] [holding that prior order has preclusive effect, although issued on default, because “defendant deliberately refused to participate in the proceedings leading to the default dismissal”].) 9 Both the Appellate Division and the motion court correctly held that Megan had deliberately failed and refused to litigate the Housing Court action, despite having a full and fair opportunity to do so, and was therefore barred from challenging those findings (R. 638-39, 22). In the Housing Court proceeding it is not disputed that appellants were fully aware, for at least several months, that Megan’s attorney intended to withdraw, and that the situation was one of Megan’s own creation (R. 322-25). Nor is it disputed that appellants’ current attorney was involved with the proceeding since April 2010, appeared on Megan’s behalf in July 2010 and submitted a post-trial memorandum on its behalf (R. 322-39). Appellants have never explained why that attorney could not have represented Megan at trial. More importantly, however, this Court need not address Megan’s unexplained, inexcusable failure to appear by counsel, because, again, the 9 Though cited by both the motion court (R. 22) and the Appellate Division (R. 638), appellants have never made any attempt to distinguish Abady. 27 Appellate Term has already held that Megan defaulted when it “failed to appear at trial by replacement counsel, despite ample opportunity to do so,” and that holding was not appealed (Megan, 37 Misc3d 135[A]). Finally, appellants have never presented any evidence whatsoever to refute the Housing Court’s findings of fact, either in that proceeding or in this action. Appellants presented literally no evidence in opposition to respondents’ overcharge claim before the motion court. They do not dispute that the legal regulated rent was $475.24, or that they charged respondents $1,800. They presented no evidence whatsoever to explain the discrepancy. Nor did they dispute that they violated the Rent Stabilization Law by failing to include the legally required lease rider with the initial lease. In short, appellants cannot credibly argue that Megan was deprived of an opportunity to submit evidence in the Housing Court proceeding when the appellants undoubtedly had the opportunity to do so in this action and did not. B. The Housing Court’s Findings of Fraudulent Conduct by Megan Are Not “Dicta” Appellants also argue that the Housing Court’s findings of fact, made after extensive litigation, are “dicta” and therefore not entitled to preclusive effect. Appellants’ argument, once again, is unavailing. Moreover, 28 appellants fail to address their failure to present any evidence in opposition to the motion court’s findings. The cases appellants cite in support of their argument are inapposite. In Pollicino v Roemer & Featherstonhaugh P.C. (277 AD2d 666 [3rd Dept 2000]), the Court granted a motion to dismiss a case where the plaintiff waited over four years to attempt to correct a defect in the pleadings. Dismissing the case, “the court also noted that if it had viewed the [defendant’s] motion as one for summary judgment,” it would have dismissed the action anyway, because the plaintiff failed to establish a key element in his papers. Collateral estoppel was held not to apply to that statement, which was clearly dicta, and which clearly pertained to a pleading defect, not to issues which had been litigated. In Sahn v AFCO Indus. (192 AD2d 480 [1st Dept 1993]), collateral estoppel did not apply because the issue at hand had not been actually litigated in the prior case. Similarly, Jackson v Board of Educ. of City of New York (30 AD3d 57, 59 [1st Dept 2006]), referenced statements made in a prior case which actually were “mere dicta,” unlike the findings of fact made after extensive litigation in this case. 29 The Housing Court’s findings of fact were final factual determinations on issues fully litigated. As such a challenge to those findings is barred by collateral estoppel. Findings of fact – factual determinations regarding a specific issue made after extensive litigation – are not “dicta”. Instead, dicta is a legal opinion or comment in a decision which is unnecessary to the decision in the case and therefore not precedential. It is not uncommon for a court to issue a judgment on the issue of liability only but to require additional proof regarding specific damage amounts (indeed, the decision under appeal does this as well). Certainly, those liability judgments are not meaningless. In other words, a court’s refusal to impose liability in a particular amount does not mean the underlying litigation never occurred or that the findings of fact were never made. Megan had a full and fair opportunity to litigate the rent overcharge and fraud allegations. The Housing Court’s findings are fully binding on appellants. III. THE UNREFUTED EVIDENCE ESTABLISHES A RENT OVERCHARGE, EVEN WITHOUT THE HOUSING COURT’S FINDINGS OF FACT Appellants have never disputed that a rent overcharge occurred. They do not dispute, nor submit any explanation for, the enormous discrepancy between the $475.00 per month legal regulated rent in 2003 and the 30 $1800.00 per month rent they charged respondents in 2003. Nor do they dispute the rent amount as calculated using the default formula. Thus, given the extensive case law that the default formula is appropriate where the base date rent is reliable even absent an express finding of fraud, the Housing Court determination that Megan committed fraud is unnecessary to the rent overcharge award. In Partnership 92 (11 NY3d 859), this Court affirmed that use of the default formula was appropriate “since no reliable rent records were available” even where no specific finding of fraud had been made. Similarly, in 72A Realty Assoc. v Lucas (101 AD3d 401 [1st Dept 2012]), the Appellate Division, First Department reversed a lower court’s decision to set the base date rent at the market rate in the lease, holding that “in light of the improper deregulation of the apartment and given that the record does not clearly establish the validity of the rent increase that brought the rent- stabilized amount above $2,000, the free market lease amount should not be adopted,” and remanding the matter for further review (id. at 402). The Housing Court’s holding that appellants committed fraud is therefore helpful, but not integral, to respondents’ rent overcharge claim. As appellants have submitted no explanation for the enormous, unjustified rent 31 increase, use of the default formula is appropriate even absent an explicit finding of fraud. Thus, even if the Housing Court’s findings of fact were somehow not preclusive, the rent overcharge determination must stand. IV. THE COURT CORRECTLY UPHELD SUMMARY JUDGMENT ON RESPONDENTS’ CLAIM TO PIERCE THE CORPORATE VEIL The standards for piercing the corporate veil are well-established. To pierce the corporate veil a plaintiff must establish that the individual “abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against” the plaintiff (James v Loran Realty Corp., 20 NY3d 918 [2012]). Specifically, a plaintiff must show that “(1) the owners [of a corporation] exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury. . . “While complete domination of the corporation is the key to piercing the corporate veil, especially when the owners use the corporation as a mere device to further their personal rather than the corporate business, such domination, standing alone is not enough; some showing of a wrongful or unjust act toward plaintiff is required.” (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141-142 [1993].) The complaint must also plead that the corporate defendant engaged in self-dealing, commingled funds, or lacked corporate formalities 32 (Morpheus Capital Advisors LLC v UBS AG, 105 AD3d 145 [1st Dept 2013]). Evidence that the individual was doing business in an individual capacity, or using the corporate position for “personal rather than corporate ends,” will support a finding of individual liability (Padilla v Edison Transp., Inc., 104 AD3d 518 [1st Dept 2013], citing Brito v DILP Corp., 282 AD2d 320, 321 [1st Dept 2001]). So will allegations of “acts amounting to an abuse or perversion of the corporate form” resulting in harm to the plaintiffs (East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 16 NY3d 775 [2011]). See also Cobalt Partners, L.P. v GSC Capital Corp. (97 AD3d 35 [1st Dept 2012]) (reversing dismissal of cause of action seeking leave to pierce the corporate veil, holding that “[t]o use domination and control to cause another entity to breach a contractual obligation for personal gain is certainly misuse of the corporate form to commit a wrong”) and Stewart Tit. Ins. Co. v Liberty Tit. Agency, LLC (83 AD3d 532 [1st Dept 2011]) (holding that complaint stated facts sufficient to support piercing the corporate veil since it alleged individual “used his domination and control over the corporation to divert escrow funds for his personal benefit and perpetrate a fraud against the plaintiff”). Fraud, as opposed to simply a 33 breach of contract, must generally be alleged (Sound Communications, Inc. v Rack & Roll, Inc., 88 AD3d 523 [1st Dept 2011]). While no one factor is dispositive, some factors to be considered include: • the disregard of corporate formalities; • inadequate capitalization; • intermingling of funds; • overlap in ownership, officers, directors, and personnel; • common office space or telephone numbers; • the degree of discretion demonstrated by the allegedly dominated corporation; • whether dealings between the entities are at arm’s length; • whether the corporations are treated as independent profit centers; • the payment or guaranty of the corporation’s debts by the dominating entity. (Fantazia Int’l v CPL Furs NY, Inc., 67 AD3d 511 [1st Dept 2009].) For example, in ABN AMRO Bank, N.V. v MBIA Inc. (17 NY3d 208, 229 [2011]), this Court held that allegations that a parent company “abused its control of its wholly-owned subsidiary . . . by causing it to engage in harmful transactions that now shield billions of dollars in assets from 34 plaintiffs and expose them to significant liability” were sufficient to state a cause of action. In Horizon Inc. v Wolkowicki (55 AD3d 337 [1st Dept 2008]), the Appellate Division, First Department affirmed that the plaintiff had stated a cause of action for piercing the corporate veil where the individual “ignored the corporate form by transferring monies in and out of [the corporation] without any documentation or formalities; this allegedly injured plaintiffs by creating a labyrinth of persons and entities through which to pursue their funds.” In Gateway I Group v Park Ave. Physicians, P.C. (62 AD3d 141 [2nd Dept 2009]), the Court upheld a complaint against an individual which alleged that the corporate defendant “had been undercapitalized and failed to adhere to corporate formalities,” the individual had used corporate funds for his own personal purposes, and the corporation “was the alter ego and a mere instrumentality of” the defendant. The Court held that the complaint stated a cognizable cause of action for piercing the corporate veil. In Miller v Cohen (93 AD3d 424 [1st Dept 2012]), the Appellate Division, First Department reversed dismissal of a cause of action for piercing the corporate veil on the basis that the individual defendants had 35 failed to sustain their burden of demonstrating that the corporate defendant was not their alter ego, that they had observed corporate formalities, and that they were solely investors in the corporate defendant’s projects. The Court considered the individuals’ testimony that the corporation had no independent source of funds and “was not treated as an independent profit center” (id.; citation omitted). Ku’s fraudulent abuse of the corporate form places his conduct squarely within this line of cases. A. Ku Clearly Exercised Domination Over Megan With Respect to the Transactions Attacked Throughout their brief appellants misstate, mischaracterize, or misrepresent the evidence presented to the motion court. They claim that “Respondent neither alleged nor presented documentary evidence showing that Megan, through its principal Emmanuel Ku, failed to adhere to corporate formalities at any time. None.” (Brief 83.) That statement is patently false. Appellants fully ignore the Community Bank application in which Ku literally “disregarded the corporate form” by claiming sixteen LLC properties, including the subject building, as his own individual property (R. 53-54). Surely Ku’s representation constitutes disregard for the corporate form in the clearest sense. Nor do appellants address the habitual 36 transfer of funds to and from Ku’s individual account, just like that in Wolkowicki (55 AD3d 337). Again, those transfers typify the intermingling that is integral in justifying piercing the corporate veil. Appellants similarly ignore Ku’s admitted use of personal funds for Megan expenditures (R. 237- 39) and his admitted use of Megan funds for other LLC expenditures (R. 240). They also ignore the “sale” of the subject building – clearly not an “arm’s length” transaction (R. 40) – and the shared addresses (R. 53-54). 10 Appellants cite Sheridan Broad. Corp. v Small (19 AD3d 331 [1st Dept 2005]) for the well-settled proposition that “[a]n inference of abuse does not arise where a corporation was formed for a legal purpose or is engaged in legitimate business” (emphasis added). However, respondents need not rely upon an inference of abuse in this case as they have well documented actual abuse. Sheridan is also inapposite because in that case plaintiffs sought to pierce the corporate veil of a broadcasting company “in order to circumvent the fact that the breach complained of was not actually committed by that company. Unlike here, plaintiffs in that case failed 10 Appellants also mischaracterize the holding in the Civil Court decision dismissing respondents’ turnover proceeding, Bryant v Ku (Index No. CV 2/12 [Chan, J.]) (Brief 88; R. 368-70). While the court did hold that the evidence in that proceeding was “insufficient to establish that the corporations are alter egos of each other or that they are one and the same,” that claim is not made in the instant action. Here, respondents seek only to pierce the corporate veil so as to hold Ku himself liable, not any of his dozens of LLCs. 37 because they did not assert sufficient facts to satisfy the two-prong test. Retropolis, Inc. v 14th St. Dev. LLC (17 AD3d 209 [1st Dept 2005]), also cited by appellants, is also inapposite, as it is merely an example of a piercing claim that failed for want of evidence. The extensive, concrete evidence submitted in this is far more extensive and compelling than was submitted in Retropolis (in which two rent checks, out of seventy, were accidentally deposited into the wrong account, then immediately transferred to the correct account). Appellants rely heavily upon Island Seafood Co. v Golub Corp. (303 AD2d 892 [3rd Dept 2003]), another case where leave to pierce the corporate veil was denied. However, unlike here, the record in that case was “devoid of evidence of [the individual’s] personal use of corporate funds or that [the corporate defendant] was undercapitalized” or any evidence of inter- corporate shuffling of assets and debts (id. at 895). Here, respondents have presented ample evidence that Ku used personal funds for Megan expenditures, that he used personal funds to pay for other LLC expenditures, that he claimed Megan property as his own personal property as well as claiming that of his other LLCs, and that he routinely shuffles assets from one LLC to another. 38 Finally, appellants argue that respondents failed to establish that Ku exercised domination over Megan “with respect to the transaction in question” as the law requires (e.g., Berenger v 261 W. LLC, 93 AD3d 175 [1st Dept 2012]). Appellants are grasping at straws. Respondents submitted proof that Megan has been dominated by Ku since its inception and appellants presented no evidence to the contrary. Nor do appellants deny that Ku himself committed the wrongful acts which form the basis of respondents’ fraud claim, or claim that he changed his patterns and practices at any time. As such, Miller v Cohen (93 AD3d 424) is on point. B. Ku, Through Megan, Undisputedly Committed Fraud Against Respondents Appellants do not, and cannot, deny that Ku himself created a fictitious tenant, created fictitious apartment improvements, lied about them on the witness stand in Housing Court, and used Megan to illegally overcharge respondents in an amount totaling over $100,000.00 (R. 52). Appellants argue that the Housing Court determinations are not preclusive, yet nowhere do they deny the substance of those findings. It is abundantly clear that the motion court’s determination that piercing the corporate veil is “necessary to achieve equity” (R. 23) was correctly upheld (R. 639). Ku exercised domination of Megan, failed to 39 adhere to corporate formalities, and undisputedly committed fraud to harm respondents. He cannot continue to use the corporate form to shield himself from liability. This Court should uphold the Appellate Division’s determination that respondents are entitled to pierce the corporate veil. V. THE COURT CORRECTLY UPHELD THE AWARD OF TREBLE DAMAGES AND ATTORNEY’S FEES Under the Rent Stabilization Code, a rent overcharge is presumed willful unless a landlord proves by a preponderance of the evidence that it was not (RSC § 2506.1; see also, e.g., Miller v DHCR, 289 AD2d 20 [1st Dept 2001]). Appellants presented no evidence whatsoever to rebut the overcharge claim and it must therefore be presumed to be willful. Finally, appellants presented no evidence to refute that respondents are entitled to an award of attorney’s fees pursuant to RPL § 234 or RSL § 26-516(a)(4) and RSC § 2526.1. 11 As such, the Appellate Division correctly upheld the award of treble damages and attorney’s fees. 11 There is no dispute that respondents’ lease contains an enforceable attorney’s fee clause (R.74-82). Indeed, the Housing Court has already awarded attorney’s fees to respondents in connection with the Housing Court litigation on two separate occasions pursuant to RPL § 234. (Megan, 37 Misc3d 135[A]; Megan Holding LLC v Conason, NYLJ, Nov. 27, 2013, at 33, col. 1 [Civ Ct NY County 2013] [awarding $49,471.25 for fees incurred defending Megan’s appeals of two Housing Court orders and finding the appeals “frivolous from their inception”].) CONCLUSION The order of the Appellate Division, First Department, which unanimously affirmed the order of Supreme Court, was properly made and must be affirmed. Dated: April 24, 2014 New York, New York Respectfully submitted, FISHMAN & MALLON, LLP By: ~~B. F~ru- JAMES B. FISHMAN Attorneys for Plaintiffs-Respondents On the Brief: James B. Fishman Susan K. Crumiller 40