New York Court of Appeals building. Photo: Rick Kopstein

Tenants living in two dozen New York City apartment buildings may continue to pursue their class action lawsuit against their landlords after a lower court ruling that dismissed their claims as lacking commonality was reversed by the New York Court of Appeals on Tuesday.

In a rare split decision, four of the seven judges on the state's highest court agreed to revive the tenants' claims, saying a decision to toss their lawsuit was "premature."

The court's three dissenting judges, meanwhile, argued that the majority's decision could diminish the power of trial courts in New York to prevent abuse of the class action process.

The tenants alleged in the lawsuit, brought three years ago, that their landlords had overcharged them rent in four different, illegal ways. While the trial court had ruled that those schemes were too different to litigate as a class, the high court disagreed.

"Here the complaint addresses harm effectuated through a variety of approaches but within a common systematic plan and its class claims should not be dismissed at this juncture," Associate Justice Eugene Fahey wrote for the majority.

The tenants were represented before the Court of Appeals by Roger Sachar, an associate with Newman Ferrara in Manhattan. Lucas Ferrara, name partner at the firm who's litigated tenant and housing matters for more than three decades, cheered the decision.

"It's a resounding victory for the tenants and reinforces that the class action mechanism is alive and well in the state of New York," Ferrara said.

Sachar said the firm is looking forward to continuing at the trial court level, where they'll now resume the tenants' case.

Fahey was joined on the majority opinion by Associate Judges Jenny Rivera, Leslie Stein and Rowan Wilson. The court's remaining judges—Chief Judge Janet DiFiore and Associate Judges Michael Garcia and Paul Feinman—dissented.

The court's majority agreed with a decision handed down last year by the Appellate Division, First Department that reinstated the tenants' claims after they were initially dismissed by Manhattan Supreme Court Justice Erika Edwards. 

Edwards, at the time, wasn't ruling on a motion to certify the class, which is required for litigation to move forward as a class action. She was, instead, considering a motion to dismiss the litigation, which was brought against the owner of the tenants' buildings, Big City Properties LLC.

In granting the company's motion to dismiss the lawsuit, Edwards also wrote that the tenants' claims lacked enough commonality to be considered as a class action lawsuit.

The First Department, in its decision last year, wrote that Edwards had erred when she decided to throw out the litigation and rejected the tenants' claims without considering what information could be gleaned from discovery. The Court of Appeals said the same Tuesday.

"We share the view that dismissal of class claims based on allegations of a methodical attempt to illegally inflate rents was premature," Fahey wrote.

That doesn't mean the litigation won't be dismissed in the future, Fahey wrote. The Legislature, he said, has provided different procedures that may provide an avenue to have the lawsuit thrown out after precertification discovery, for example. 

Associate Justice Michael Garcia, writing for the court's three dissenting justices, disagreed with the majority's interpretation that the tenants had shown some level of commonality among their claims against Big City.

"Understandably: there are none," Garcia wrote. "For that reason, the trial court properly granted the motion to dismiss the class allegations."

While each of the tenants alleged that properties owned by Big City had overcharged them rent, that's not enough to justify class action litigation, Garcia wrote. Such a lawsuit requires a common factor in an overall scheme, not separate claims with an underlying result, he wrote.

"There is no common 'defect' alleged here that produces disparate harms," Garcia wrote. "The allegation is only that the plaintiffs have been harmed—by paying inflated rents—but the cause of that harm is not a 'common flaw.' Rather, it is different for at least four different classes of plaintiffs"

"Lack of any common question is fatal here," Garcia later wrote.

The claims shouldn't be analyzed collectively, Garcia wrote, because each could have a different outcome.

The tenants had claimed that Big City overcharged them rent during times when their buildings should have received tax incentives tied to the J-51 program, immediately after their units were removed from rent control, and following individual apartment improvements, or IAIs.

In the case of the IAIs, for example, each apartment would have to be reviewed individually to determine whether the improvements were sufficient to justify an associated rent increase. That makes the result dependent on each tenant's unique situation, Garcia wrote.

He also warned that the majority's decision could open the door for future lawsuits to pursue status as a class action, even if there isn't a clear-cut underlying claim. One function of trial courts is to block inadequate class action litigation from moving forward, which Garcia said may be hampered by the majority's opinion.

"That outcome invites parties to file class allegations—even if a class could never be certified—knowing that they can force opposing parties to bear the costs of class discovery and certification proceedings," Garcia wrote. "The effect will be to diminish the power of the court to prevent abuse of the class action process."

The case was spurred by the Housing Rights Initiative, a nonprofit tenants rights group that connected that plaintiffs in the lawsuit to the attorneys at Newman Ferrara.

"This ruling will have broad implications for class action lawsuits in the State of New York, particularly those involving rent stabilization fraud," said Aaron Carr, who founded the group.

Big City was represented by Koss & Schonfeld partner Simcha Schonfeld, who was not immediately available for comment Tuesday.

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