Borden v. 400 E. 55th St. Assoc., L.P., 24 N.Y.3d 382 (2014)
CPLR 901(b) permits class actions to recover compensatory rent overcharges under Roberts v. Tishman Speyer Props., L.P., even if the Rent Stabilization Law doesn’t explicitly authorize class actions and imposes treble damages for willful violations, provided the plaintiffs waive the treble damages claim.
Summary
This case addresses whether tenants can bring a class action lawsuit to recover rent overcharges resulting from improper deregulation under the Rent Stabilization Law (RSL) after landlords received J-51 tax benefits. The Court of Appeals held that CPLR 901(b) allows such class actions, even though the RSL doesn’t explicitly allow for class actions and provides for treble damages. The Court reasoned that the base rent overcharge is compensatory, not a penalty, and tenants can unilaterally waive treble damages to proceed with a class action, aligning with the intent of the CPLR and RSL to provide an effective remedy for tenants.
Facts
Plaintiffs, current or former tenants, claimed rent overcharges because their apartments were improperly decontrolled while the landlords were receiving J-51 tax abatements. This claim was based on the NY Court of Appeals’ prior holding in Roberts v. Tishman Speyer Properties, L.P. Initially, the plaintiffs sought treble damages in their complaints but then waived that demand through attorney affirmation.
Procedural History
In Borden, the Appellate Division affirmed the Supreme Court’s grant of class certification. In Gudz, the Appellate Division affirmed the Supreme Court’s grant of class certification. In Downing, the Appellate Division reversed the Supreme Court’s dismissal of the complaint and reinstated it. Each case reached the Court of Appeals after the Appellate Division certified a question to the Court.
Issue(s)
- Whether CPLR 901(b) permits plaintiffs to utilize the class action mechanism to recover compensatory overcharges under Roberts v. Tishman Speyer Props., L.P. when the Rent Stabilization Law does not specifically authorize class action recovery and imposes treble damages upon a finding of willful violation.
Holding
1. Yes, because the recovery of the base amount of rent overcharge is actual, compensatory damages, not a penalty, within the meaning of CPLR 901(b), and it does not contravene the letter or the spirit of the RSL or CPLR 901(b) to permit tenants to waive treble damages in these circumstances when done unilaterally and through counsel.
Court’s Reasoning
The Court reasoned that CPLR 901(b) prohibits class actions for penalties unless specifically authorized by statute, but the statute’s language allows for class-action recovery of actual damages, even when a statute provides for treble damages. The legislative history supports a liberal interpretation of CPLR 901(b), intending to allow plaintiffs to waive penalties to pursue class actions for actual damages. The Court emphasized that plaintiffs sought a refund of overcharges, which constitutes actual damages, and CPLR 901(b) was not meant to bar such actions.
The Court further addressed policy considerations, noting that class actions address information asymmetry and economies of scale, enabling tenants to pursue claims they might not otherwise bring individually. The Court distinguished the RSL from other statutes, such as General Business Law § 340(5), where treble damages are mandatory and cannot be waived. Because the RSL allows a landlord to disprove willfulness and avoid treble damages, the treble damages provision is not mandatory, allowing for waiver.
The Court also rejected the argument that unilateral waiver of treble damages violates Section 2520.13 of the Rent Stabilization Code, which prohibits agreements waiving RSL provisions. The Court reasoned that a unilateral waiver, particularly when supported by court order and made with counsel representation, complies with the law’s intent. In Roberts cases, landlords often followed DHCR guidance when deregulating units, making a finding of willfulness unlikely, further justifying the waiver.
Regarding class certification under CPLR 901(a), the Court found the lower courts’ evaluations adequate, noting the numerosity of class members, the predominance of common legal questions (whether apartments were unlawfully deregulated under Roberts), and the adequacy of class representation, especially given the opt-out provision. The Court referenced the legislative history that contemplated classes involving as few as 18 members “where the members would have difficulty communicating with each other, such as where ‘barriers of distance, cost, language, income, education or lack of information prevent those who are aware of their rights from communicating with others similarly situated’”.
The Court quoted Mohassel v. Fenwick, stating that the provisions of RSL § 26-516(a) “establish the penalty as the amount of the overcharge plus interest… are designed… to compensate the tenant.”
In conclusion, the Court held that maintaining the actions as class actions does not contravene the letter or the spirit of the CPLR or Rent Stabilization Law.