Scott E. Mollen

Landlord–Tenant—Class Action Complaint Withstands Motion To Dismiss—Rent Overcharges—Motion for Class Certification

The New York Court of Appeals (court) explained that "nothing in the CPLR prevents a defendant from moving to dismiss a class action claim pursuant to CPLR 3211" and that a motion to dismiss "should not be equated to a motion for class certification."

The court found that "nothing in the record" supported the trial court's finding that claims for class relief "should have been dismissed short of a judicial determination as to whether the prerequisites of CPLR 902 have been satisfied." Thus, it affirmed the subject Appellate Division order to the extent it was appealed from.

This case involved multiple apartment buildings that were managed by a defendant management company. Multiple defendant entities own several buildings in the apartment building portfolio. The plaintiffs are current and former tenants of such buildings. The plaintiffs contended that the defendant entities were owned or controlled by a single holding company defendant.

The plaintiffs alleged that the defendants had attempted to "extract additional value from those properties" by engaging in a "clear pattern and practice of improper and illegal conduct." The court's majority opinion stated that the dissent ignored this point "in concluding that there are no questions of law or fact common to the class here…."

The plaintiffs alleged that the defendants engaged in a scheme to "inflate rents" above rents permitted by law. They asserted that the defendants had (a) falsely reported to the NYS Div. of Housing and Community Renewal that leases were rent controlled pursuant to the J-51 program, when those leases were free-market leases, (b) misrepresented and inflated the cost of individual apartment improvements (IAIs), (c) failed to register rental information as required by state and city law, thereby making it "impossible to calculate the correct legal regulated rent" and (d) inflated the fair market rent on apartments that "exit rent-controlled status, by recording a rent price significantly higher than the preferential rent actually charged with respect to certain units."

The plaintiffs argued that almost all of the factual and legal issues alleged "are common to each other and to members of the proposed class and sub-class," the "statutory prerequisites to class certification would be satisfied" and therefore, the subject lawsuit could be maintained as a class action. The plaintiffs' claims essentially alleged violations of the Rent Stabilization Law and General Business Law (GBL) §349. The plaintiffs sought inter alia, "reformation of the illegal leases" to provide that those apartments are "subject to rent stabilization."

Prior to answering and before a motion for class action certification, the defendants moved to dismiss the complaint. They argued that the plaintiffs failed to state a cause of action for violation of GBL §349 and the class allegations fail as a matter of law.

The trial court granted the motion to dismiss. It held that there is no basis for class relief given plaintiffs' "several different theories of the manner in which the defendants inflated the rent" and that each theory required a "fact-specific analysis." A divided Appellate Division denied the part of the motion to dismiss the class action claims, except as to the GBL §349 claims. The Appellate Division held that dismissal of the class action allegations, at the early procedural stage, before an answer had been filed and before any discovery had occurred was "premature." It stated that it could not "conclusively" determine, as a matter of law, that there is no basis for class action relief and rejected the reasoning of the dissenters that the claims are "fact-intensive and can only be determined through an examination of the evidence pertinent to each individual unit allegedly affected by defendants' misconduct…."

The court agreed that dismissal of the class action claims as to "a methodical attempt to illegally inflate rents" was premature and therefore affirmed. It noted that there is no "per se bar to a pre-answer motion pursuant to CPLR 3211(a) seeking an order dismissing a class action allegation."

The court then explained that whether the plaintiffs have a claim that may be asserted as a class action depends upon the application of CPLR 901. CPLR 901 provides that "'one or more members of a class may sue or be sued as representative parties on behalf of all' where five factors—sometimes characterized as 'numerosity, commonality, typicality, adequacy of representation and superiority…'" are present. The principle issue on this appeal is the "commonality" element which focuses on whether "there are question of law or fact common to the class which predominate over any question affecting only individual members."

The court explained that class actions may proceed even where damages may differ, "if the important legal or factual issues involving liability are common to the class…."

The defendants argued that especially the claims based on allegedly inflated costs of IAIs may "require separate proof with respect to each plaintiff." Those claims involved widely ranging percentages for various apartments. The plaintiffs countered that "to focus on potential idiosyncrasies within the class claims-distinctions that speak to damages, not to liability-at this juncture would potentially be to reward bad actors who execute a common method to damage in slightly different ways."

The court cited City of New York v. Maul, 14 NY 3d 499 (2010), which involved class members who claimed that social service agencies failed in training and identification tasks that injured at least 150 children with development disabilities. Although each class member had their own "unique factual circumstances and special needs" and "a determination regarding appropriate placements [would have] required a particularized inquiry of each of the plaintiff's requirements," the court refused to find that a class could not be certified as a matter of law. Maul had reasoned that CPLR Art. 9 is "to be construed so as to provide a flexible, functional scheme wider and more welcoming than 'the narrow class action legislation which preceded it….'" The subject court opined that the "allegations of misconduct here are of the same character as those at issue in Maul."

The court noted that "[c]ommonality is not to be confused with unanimity…." It is "'predominance, not identity or unanimity," that is the linchpin of commonality…." It reasoned that the subject allegations involved "harm effectuated through a variety of approaches but within a common systematic plan …" and, therefore, the class claims should not be dismissed at this juncture.

The court asserted that the dissent's concerns as to potential costs of pre-certification discovery in the subject case "are based on sheer speculation" and "potential litigation costs alone did not justify the premature determination of an action or a course of action."

The court further reasoned that allowing the action to proceed to the class certification stage is a "moderate" approach. The plaintiffs must move within 60 days "after the window for responsive pleadings is closed for an order to determine whether an action brought as a class action may be so maintained." Thus, since the class allegations will be evaluated at the hearing stage "envisioned by the Legislature," the defendants will have the opportunity to terminate the class claims "at the appropriate time."

The court opined that to dismiss the class claims at this point "would be to effectively nullify CPLR 906." It stated that a dismissal "at this time would be to prematurely dispose of causes that could be severed into individual claims through the procedures established in CPLR Article 9." It also noted that "the individualized proof required on issues such as damages…of each class member does not preclude a finding that common questions of law or fact predominate over individual questions…." "[S]uch issues may, if necessary, be tried separately…." In cases involving individual damage issues, courts have permitted those issues to be "handled separately by a special master…."

The court also upheld the sufficiency of the IAI claims pleading and noted that absent of the pre-certification discovery contemplated by CPLR 902, "information with respect to those improvements is not readily available to them…." Finally, as to possible statute of limitations (SOL) issues involving certain individual members of the proposed class, the court asserted that it would be "antithetical to CPLR 901 to conclude that a (SOL) defense applicable to some, but not all, members of a class of plaintiffs would insulate defendants from class liability." Accordingly, the court held that the Appellate Division order should be affirmed.

A dissenting opinion asserted that the majority failed to identify any possible "questions of law or fact common to the class which could predominate over questions affecting all the individual members….." The dissent stated that "[u]nderstandably: there are none." Thus, the dissent asserted that the trial court had properly granted the motion to dismiss the class allegations.

The dissent noted that the "prevailing view in federal court is to allow trial courts to dispose of class allegations prior to a motion for class certification….." It also observed that "[p]ermitting the dismissal of class allegations without prejudice at this stage of the proceedings serves the general goals of CPLR 3211(a), preventing courts and litigants from needless costs—particularly those resulting from discovery—associated with class certification proceedings that have no chance of success. A contrary rule would instead tie the hands of the trial court in a way that undermines, rather than promotes those objectives and frustrates the goal of efficiency central to class actions….."

The dissent further reasoned that "an [o]verly restrictive interpretation of trial court authority in this area would also impose class discovery on the party opposed to certification which, while often not as expensive or time—consuming as merits discovery, may nonetheless lead to significant costs…." It stated that while discovery may be bifurcated into a class phase and merits phase, courts may permit "some degree of merits discovery during the precertification phase due to difficulty drawing the hard line between class discovery and merits discovery…."

The dissent also asserted that "when it is readily apparent from the face of a pleading and any supporting affidavits that the claims are not appropriate for class relief, trial courts should have the freedom to grant motions to dismiss the class allegations." The dissent argued that the deficiency in the complaint was not based on what "are common questions of law or fact would predominate; it is that questions common to the class, predominate or otherwise, simply do not exist…." The dissent reasoned that "[t]he bare allegation that the defendants have overcharged rent to the plaintiffs, without a common theory of how they did so, is legally insufficient to find that common issues predominate."

The dissent stated that the majority "justifies the denial of relief by relying on an alleged 'scheme' or a 'pattern and practicing' by the defendants in overcharging rent…." It distinguished a prior case on the grounds that such case involved "a defect in the mass-produced product such as an automobile," "which damages consumers in different ways….." In addition, it contended that "[t]here is no common defect alleged here that produces disparate harms."

The dissent further stated that although the complaint alleged that the plaintiffs were harmed by paying "inflated rents," the cause of that harm is not a "common flaw," noting that "it is different for at least four different classes of plaintiffs…." The plaintiff alleged violations of the J51 Tax Program, insufficient IAI improvements, inadequate "registrations" and "inflated fair market rents on previously rent controlled apartments."

The dissent acknowledged that if there are common questions of law, the need for separate proof with respect to damages cannot itself defeat the class certification. However, it asserted that here there is no predominate issue of law or fact "creating the need to calculate those individual damages," and that is "fatal."

As to commonality based on the "allegations of 'a common method to damage in slightly different ways,'" the dissent contended that the "method itself is never articulated." It reasoned that the "existence or non-existence of a 'systematic' effort by the defendants to overcharge rent is irrelevant to the merits of each individual plaintiff's overcharge claim…." It also noted that such fact might justify "damages in individual or joined actions, such damages are not permissible in a class action…."

The dissent also stated that the allegation of a "common systematic plan" is "the legal equivalent of arguing that their common issues of fact because all of the dwellings…are apartments in Manhattan, or every member of the class was a renter. Holding that such generalized and immaterial facts may serve as potential predicates for class certification risks turning the commonality and predominance requirements into a nullity…."

Additionally, the dissent asserted that for most of the claims, "particularized 'idiosyncrasies' will determine both damages and liability." For example, each IAI based claim "will require independent analysis of each apartment on the issue of liability, to determine if the IAIs were sufficient to justify an associated increase." "A determination for each apartment is entirely independent of the determination for any other apartment—with no overlapping factual question—and there is no way to decide the issue for each plaintiff without looking at the individual apartments and IAIs." The dissent believed there would also be "discreet analyses … required for each allegation the defendants failed to adequately register a specific apartment, made misrepresentations to a specific plaintiff, or inflated the fair market rent on a specific apartment that exited rent-controlled status." The dissent contended that the asserted "legal and factual 'idiosyncrasies,' rather than any common question, would necessary predominate."

The dissent denied that it ignored the plaintiffs' allegations as to a "clear pattern in practice of improper and illegal conduct." It contended that based under the theories of harm alleged, those allegations, even if true were "simply immaterial; they are not questions of law or fact to be argued or proved…." It agreed with the majority that the J51 claims may be "amenable to class resolution." However, only four of the 11 buildings were a part of the J51 program and "any commonality as to those claims certainly would not predominate."

The dissent did not believe that the majority's approach was "moderate" since there were eleven different defendants, involving several buildings with different owners, with different ownership entities "over a relatively lengthy period of time." It believed that it is "reasonable to believe that class discovery will be neither efficient nor straightforward in this case" and trial courts "may have difficulty limiting class discovery during the precertification phase…and preventing lengthy proceedings associated with class discovery requests even when it is clear that class certification will be denied…."

The dissent also noted that Maul involved "common allegations that transcended and predominated over any individual matters for all or virtually all of the plaintiffs…."

The dissent argued that the majority "appears to give trial courts theoretical permission to grant CPLR 3211(a)(7) motions prior to a motion for certification." "Yet, the majority also asserts it would be improper to allow courts to grant such motions for complaints that fail to plead the CPLR 901(a) prerequisites on their face because it would 'nullify' the provisions in CPLR 906 that allow for the creation of 'issue classes'…and 'subclasses'" The dissent contended that such position is "incorrect" and that "CPLR 906's provisions are essentially 'management devices' that allow the trial court to more effectively organize class disputes." It argued that "the antecedent question remains whether there exists an overarching class that can meet the CPLR 901(a) prerequisites. Dismissing class actions from a complaint that cannot meet each of the CPLR 901(a) prerequisites does not nullify the provisions of CPLR 906 for appropriate cases."

Finally, the dissent asserted that the "discretion and flexibility of trial courts in overseeing class actions is vital to the design of Article 9…." It stated that if it is not "appropriate to dismiss the class allegations in this case, it is difficult to foresee a case in which the majority's rule will have any practical effect: Motions to dismiss even the most inadequate of class allegations must be denied. That outcome invites parties to file class allegations—even if a class can never be certified—knowing that they can force opposing parties to bear the costs of class discovery and certification proceedings.… The effect will be to diminish the power of the court to prevent abuse of the class action process."

Maddicks v. Big City Properties, LLC, State of New York, Court of Appeals, 2019 NY Slip Op 07519, decided Oct. 22, 2019, Opinion by Fahey, J., Rivera, Stein and Wilson, JJ. concur. Garcia, J. dissents in an opinion in which Chief Judge DiFiore and Judge Feinman concur.

Landlord-Tenant—Landlord Could Insist That Tenants Retrieve Personal Property Under Controlled Conditions

A trial court had denied plaintiffs' motion to restore "settled action to the calendar," to compel a defendant landlord's adherence to a stipulation of settlement and for an award of continuing damages and legal fees. The Appellate Division affirmed.

The plaintiffs were long-term tenants in a building that had been "severely damaged and rendered unsafe by a fire in February 2017." They had commenced an action seeking, inter alia, "access to their personal property left in the apartment." The plaintiffs and the landlord had entered into the settlement in 2017, pursuant to which the subject lease would be terminated, and the landlord agreed that it would not dispose of the plaintiffs' personal property until the building had been "deemed safe and plaintiffs were allowed access to remove their belongings." The settlement provided that a non-breaching party could seek injunctive relief and reasonable attorney fees in the event of a breach or a threatened breach of the settlement.

The plaintiffs argued that a landlord's letter "updating them on upcoming repairs and seeking their input concerning items that needed to be relocated or discarded in anticipation of the repairs, did not constitute a threatened breach of the settlement agreement." The Appellate Division (court) rejected the plaintiffs' argument that such letter constituted a threatened breach of the settlement. The court found that the letter "merely sought a mutual understanding to determine which items in a portion of the unit needing repair were not salvageable due to fire, smoke, water or more damage….."

Comment: Adam Leitman Bailey of Adam Leitman Bailey, P.C., attorney for the landlord, explained that the landlord had "suffered a devastating fire in its building" and former tenants sought to not only recover their property from the unsafe building, but also sought what the landlord believed were "undeserved buyouts." He stated that the landlord was entitled to require that the tenants retrieve their property under "controlled conditions." He also noted that several tenants had "peaceably relinquished" their tenancies. Finally, he stated that the landlord had merely sought to "categorize what property was salvageable" and by doing so, had not violated its obligations to permit tenants to recover their surviving property.

Varley v. Elk 300 E 83, LLC, Appellate Division, 1st Dept., 2019 NY Slip Op 07022, Case No. 151716/17, decided Oct. 1, 2019, Richter, J.P., Gische, Kapnick, Kern, Moulton, JJ.

Scott E. Mollen is a partner at Herrick, Feinstein.