Plaintiffs in this action, the New York State Division of Housing and Community Renewal (DHCR), and the People of the State of New York (acting through Attorney General Letitia James), brought this action against defendant Zara Realty Corp., and numerous individuals and entities affiliated with or controlled by Zara Realty, alleging that defendants violated New York's rent-regulation laws and Executive Law § 63 (12).

Most of the Zara-affiliated defendants were named in the initial complaint. On motion sequence 003, plaintiffs moved (i) for leave to amend their complaint to add Gagandeep Singh, Vibha Subraj, Lions Guard Brokerage LLC, James Bacchus, Michael J Homes, LLC, David Rawana and David K Homes LLC as additional defendants; and (ii) for a preliminary injunction barring all defendants (including the proposed new defendants) "from collecting broker's fees or any other fees in excess of the legal regulated rent from rent-stabilized tenants." (NYSCEF No. 68 at 2 [notice of motion].) This court (Erika M. Edwards, J.) granted plaintiffs' request for leave to amend.^[FN1] (See NYSCEF No. 82 at 3-4.) With respect to the preliminary-injunction request, the court granted a preliminary injunction as against all defendants named in the initial complaint (see id. at 4-5); it declined to enjoin the proposed new defendants because they had not yet had an opportunity to be heard on the injunction issue (id. at 4).

Plaintiffs now move again for a preliminary injunction, seeking to bar Gagandeep Singh and Lions Guard Brokerage LLC (the Lions Guard defendants), and James Bacchus and Michael J Homes, LLC (the Michael Homes defendants), "from collecting broker's fees or any other fees in excess of the legal regulated rent from rent-stabilized tenants." (NYSCEF No. 132 at 2 [notice of motion].) The motion is granted.

DHCR and the Attorney General have statutory authority under the Rent Stabilization Law and the Executive Law, respectively, to seek injunctive relief to halt violations of the Rent Stabilization Law and Rent Stabilization Code. (See Unconsolidated Laws § 26-516 [e] [Rent [*2]Stabilization Law];^[FN2] Executive Law § 63 [12].) To obtain injunctive relief, these plaintiffs must show a "likelihood of success on the merits, and a balancing of the equities in [their] favor." (People v Apple Health & Sports Clubs, 174 AD2d 438, 438 [1st Dept 1991], affd 80 NY2d 803 [1992].)

Here, plaintiffs claim that the Lions Guard/Michael Homes defendants are violating RSC § 2525.1. That provision bars any person from demanding or receiving rent in excess of the lawful regulated rent for rent-stabilized apartments. And it defines "rent," for purposes of this prohibition, as including fees paid to a real-estate broker in relation to an apartment when "there is common ownership, directly or indirectly, or a financial interest between the owner" of the apartment building and the real-estate broker. This rule operates to prevent landlords from circumventing the regulation of lawful stabilized rents through charging tenants "broker fees," "application fees," and the like, on top of the lawful regulated rent.

I. Whether Plaintiffs Have Established a Likelihood of Success on the Merits

To establish a likelihood of success on the merits, plaintiffs rely on documentary evidence, which, they contend, shows that the Lions Guard/Michael Homes defendants (i) charge and collect additional fees from tenants moving into apartment buildings owned by the other defendants in this action (the Zara defendants), while (ii) sharing an (indirect) common ownership interest and a financial interest with the Zara defendants. The Lions Guard/Michael Homes defendants argue that the evidence reflects instead that they are independent real-estate brokers who merely work with—rather than being owned/controlled by—the Zara defendants. This court agrees with plaintiffs.

Plaintiffs have established through several categories of evidence that they will likely be able to establish that the Lions Guard/Michael Homes defendants are owned and controlled by the Zara defendants.

1. Plaintiffs have introduced documents indicating that the Zara defendants intended Lions Guard to serve merely as a cosmetic rebadging of their former real-estate broker, defendant Jasmine Homes, LLC—an entity subject to the injunction this court entered on motion sequence 003.

For example, Zara Realty's COO emphasized in internal emails with other Zara principals that Lions Guard needed to begin operating "soonest," to "reduce our exposure." (NYSCEF No. 71 at 6.) Four days after that email, defendant Gagandeep Singh—nominally the co-founder and sole LLC member of Lions Guard—asked Zara Realty staff if they could let him know "when [*3]we are expected to get the new forms for [L]ions [G]uard Brokerage LLC," explaining that he had "just told a client to bring the broker[']s fee for [J]asmine Homes LLC" because he did not "have any forms" for Lions Guard and had not received "the banking ok" from Zara Realty's financial controller. (NYSCEF No. 74 at 112-113.)

Two months after these email exchanges, a Zara Realty employee informed real-estate agents working for Jasmine Homes that "'Jasmine Homes LLC' will no longer be in use" and that "[w]e will be switching over to 'Lions Guard Brokerage LLC." (NYSCEF No. 71 at 2.) Given the switch, the real-estate agents were asked not to "use the Jasmine Homes Forms/Receipt Book anymore," and instead to use "[n]ew forms and a new receipt book" that had been put out at the office's front desk. (Id.) These real-estate agents also received new Lions Guard email accounts; although they retained their Jasmine Homes email accounts in case former clients contacted them at their old addresses, they were instructed not to use those accounts otherwise. (See NYSCEF No. 74 at 85, 88.) And Lions Guard used the same landline phone numbers, at the same locations, as Jasmine Homes.^[FN3] (See NYSCEF No. 75 at 9.)

2. The record reflects that Zara Realty's principals exercised direct decision-making authority over Lions Guard. Zara's principals took all of the logistical steps necessary to prepare Lions Guard to operate as a brokerage. (See NYSCEF No. 71 at 6.) They decided among themselves when Lions Guard was ready to begin operating.^[FN4] (See NYSCEF No. 71 at 5-6.) Defendant Singh submitted Lions Guard's policies for its real-estate agents to Zara Realty staff for line-editing and approval. (See NYSCEF No. 75 at 31.) Lions Guard real-estate agents were expected to report daily to Zara Realty staff to let them know that they had begun working each day. (See NYSCEF No. 75 at 34.) And Zara Realty's COO determined how broker fees would be booked (whether as paid to Lions Guard or to another Zara-controlled entity). (See NYSCEF No. 71 at 12-13.)

3. From a financial standpoint, Zara Realty controlled the bank accounts of both Jasmine Homes and Lions Guard, and directed funds transfers from one to the other as needed. (See NYSCEF No. 75 at 39-42.) Zara Realty maintained internal records of broker commissions paid to Lions Guard real-estate agents. (See id. at 62-74.) Zara Realty set up a subaccount for Lions Guard within Zara Realty's account on the Yardi property-management system that Zara uses to manage the apartment buildings it controls, just as Zara had done for Jasmine Homes. (See NYSCEF No. 74 at 94-100.) When Zara Realty learned that receipts received by tenants for payments made to Lions Guard also listed Zara as the underlying company, it took pains, working with its bank, to "remov[e] Zara Realty Holding from Lions Guard LLC credit card [*4]receipts" (NYSCEF No. 75 at 46)—telling the bank that "[w]e do not want Zara Realty Name anywhere in the receipt." (Id. at 48; see generally id. at 44-50.)

Zara Realty's accountant included both Jasmine Homes and Lions Guard on the tax-preparation invoices she sent to Zara. (See NYSCEF Nos. 135, 136.) And to assist the accountant in preparing taxes for Zara-controlled entities, Zara's financial controller provided her with sets of Form 1099s for Jasmine Homes/Lions Guard real-estate agents (one Form 1099 from each company for each agent), telling her that Lions Guard "is replacing [J]asmine [H]omes." (NYSCEF No. 71 at 7.)

4. With respect to James Bacchus and Michael J. Homes LLC, the record reflects that Bacchus asked Zara Realty's property manager whether a broker fee paid to Lions Guard could instead be treated as "paid to Michael J Homes LLC so it can help in having a cushion" for the following month. (NYSCEF No. 71 at 13.) As noted above, Zara's COO ultimately refused this request, because "[i]f it is paid to [L]ion [G]uard it says that way." (Id. at 12.) The next day, Zara's property manager told the COO that she had "explained to [Bacchus] that per your instructions," Bacchus "is not part [of] Lions Guard Brokerage LLC and has set up his own brokerage, Michael J Homes LLC and as such would not be needing a [L]ions [G]uard email," and asked the COO to confirm. (Id.) The COO agreed, stating that he "had [M] use his own email as we don't want to show association with him and [L]ions [G]uard." (Id.)

From a financial standpoint, Zara Realty's "Vendor Ledger" reflected payments of broker-fee commissions to Bacchus and to Michael J. Homes LLC. (See NYSCEF No. 75 at 74; see generally id. at 62-74.) Those payments, like the payments to other individual real-estate agents appearing in this ledger, were described as being for "lion" properties. (See id.) And both Bacchus and Michael J Homes were provided Form 1099s listing them as having been paid compensation by Lions Guard. (See NYSCEF No. 75 at 28-29.)

In opposition, defendants do not introduce documents that might affirmatively establish that Lions Guard and Michael J. Homes are legally and financially independent of Zara Realty and its subsidiaries. Instead, they offer differing interpretations of some—but certainly not all—of the documentary evidence relied on by plaintiffs. Many of these alternative interpretations are unpersuasive; and, in any event, defendants do not attempt to explain away much of the evidence discussed above that points in plaintiffs' favor. This court finds defendants' evidentiary arguments insufficient to defeat plaintiffs' showing of a likelihood of success, or even to warrant a factual hearing.^[FN5]

II. Whether the Balance of the Equities Favors Plaintiffs

As noted above, to obtain a preliminary injunction, plaintiffs must also show that the equities favor them.^[FN6]

Plaintiffs' balance-of-equities argument is simple and powerful: (i) Plaintiffs have shown that the practices they seek to enjoin are likely illegal; (ii) a strong public interest exists in halting exaction of illegal rent-related fees; (iii) this public interest is strengthened by the evidence that Zara Realty set up Lions Guard and Michael J. Homes specifically to evade legal restrictions on exacting these fees. (See NYSCEF No. 133 at 20-21.)

In response, the Lions Guard defendants argue that the equities are against plaintiff because the requested injunction "will effectively destroy the Lions Guard Defendants' business, as well as the livelihoods of the salespersons who work with Lions Guard, because a significant portion of their business is from tenants looking to rent apartments in buildings owned by the Zara Defendants." (NYSCEF No. 140 at 19.) This court disagrees with Lions Guard's position on the balance of equities.

The requested injunction does not categorically bar Lions Guard and its real-estate agents from operating as brokers for apartments in buildings owned by the Zara Defendants. Rather, it bars these defendants from collecting broker fees, application fees, and so on "from rent-stabilized tenants." (NYSCEF No. 132 at 2 [notice of motion] [emphasis added].) This injunction would thus apply to Lions Guard only to the extent that the Zara-owned buildings are rent-stabilized. If the Lions Guard defendants are contending that it would seriously harm their business to bar them from demanding or collecting additional fees from rent-stabilized tenants in Zara-owned buildings, that is tantamount—given the court's likelihood-of-success holding—to arguing that it would be inequitable to halt an illegal business from operating.^[FN7] That argument is unpersuasive.

Accordingly, it is

ORDERED that plaintiffs' motion for a preliminary injunction is granted; and it is further

ORDERED that defendants Lions Guard Brokerage LLC, Gagandeep Singh, Michael J Homes, LLC, and James Bacchus, and their agents, employees, and persons otherwise acting under their direction, are hereby enjoined, during the pendency of this action, from demanding or collecting broker's fees or any other fees in excess of the legal regulated rent from rent-stabilized tenants; and it is further

ORDERED that plaintiffs serve a copy of this order with notice of its entry on all parties.