Judges OK class actions for NYC tenants claiming rent overcharges

Judges OK class actions for NYC tenants claiming rent overcharges
Reuters
April 25, 2013
by Joseph Ax

NEW YORK (Reuters) - Tenants who claim landlords illegally deregulated their rent-stabilized apartments can bring class actions seeking reimbursement for rent overcharges, a New York state appeals court ruled in a trio of decisions on Thursday.

In the cases, all of them involving class action claims, the Appellate Division, First Department, found that tenants who voluntarily agreed not to seek a treble-damage penalty under New York City's rent-stabilization law are entitled to class certification rather than having to file individual claims.

The cases - Gudz v. Jemrock Realty Company, Borden v. 400 E. 55th Street Associates and Downing v. First Lenox Terrace Associates - are among dozens related to the Court of Appeals' 2009 decision in Roberts v. Tishman Speyer Properties. There the court ruled that building owners cannot deregulate apartments while receiving certain tax breaks known as J-51 benefits.

Under the city's rent-stabilization law, tenants who are overcharged rent are entitled to treble damages unless the owner can show the overcharge was not willful.

The state's class action statute, Civil Practice Law and Rule 901(b), does not allow any lawsuit that seeks to recover a "penalty" to be brought as a class action. Treble damages for rent overcharges are considered a penalty under state law.

But the First Department ruled that tenants could waive their right to treble damages, allowing them to file a class action without violating the law.

"Plaintiff's rent overcharge claim did not seek a 'penalty' within the meaning of CPLR 901(b), because she waived her right to treble damages," the majority wrote in the Gudz case, which was decided 3-2 in favor of the tenants.

In dissent, Justice Sallie Manzanet-Daniels said allowing the tenants to do so would undermine the purpose of the class action statute.

"To permit such a waiver would be to circumvent the clear intent of CPLR 901(b), which is to preclude the maintenance of a class action suit seeking a penalty," she wrote in her dissent, which was joined by Justice Karla Moskowitz.

In addition, she wrote, the rent-stabilization law expressly prohibits a tenant from making "an agreement ... to waive the benefit of any provision of the RSL."

LAW 'NOT A MENU'

In the Downing case, however, Justice Richard Andrias wrote for the majority that waiving treble damages was not precluded by that language, because the tenants were not giving up a right in an "agreement" but were doing so unilaterally.

"Significantly, plaintiff's waiver of treble damages will not subvert a protection afforded by the rent stabilization scheme," he said.

The three cases presented a somewhat incongruous dispute, in which tenants sought to give up their right to demand more damages while landlords insisted they could not do so.

Class actions can provide a means for litigants to combine smaller claims that could be costly to file individually. In addition, according to Christian Siebott, who represented the plaintiffs in both Gudz and Borden, collecting treble damages is unlikely because the city told landlords prior to Roberts that deregulation was permitted under the J-51 program.

Lawyers for all three building owners said they would consider appealing the decisions and cited the dissent in Gudz as the correct finding.

"The rent stabilization law is not a menu. It's not something where the tenants get to pick and choose what they want," said Jeffrey Turkel, who represented the owners of 400 E. 55th St in the Borden case.

MAJORITY RULING

Magda Cruz, who represented Jemrock Realty Company in the Gudz case, said that adjudicating overcharge claims for different apartments, leases and tenants was akin to "fitting a square peg into a round hole."

Siebott said it was "no surprise" that the court had accepted the tenants' arguments.

In Gudz and Borden, the court affirmed the granting of class certification by the trial judges. In Downing, the court reversed a dismissal by Manhattan Supreme Court Justice Charles Ramos, who had ruled that the lawsuit could not be brought as a class action due to the treble damages penalty issue.

Across the three cases, eight justices - some of whom sat on more than one panel - ruled in favor of the tenants' right to bring a class action. A ninth, Justice Leland DeGrasse, agreed in Downing that the dismissal should be reversed on technical grounds and did not indicate his position on the waiver issue.

Manzanet-Daniels and Moskowitz, the dissenting justices in Gudz, were the only two to find that the waiver should be disallowed.

The cases are Gudz v. Jemrock Realty, Borden v. 400 East 55th Street Associates and Downing v. First Lenox Terrace Associates; New York State Supreme Court, Appellate Division, First Department; Nos. 9182, 9285N and 7662.

For Gudz and Borden: Christian Siebott and Gabriel Galletti of Bernstein Liebhard.

For Downing: Matthew Brinckerhoff and Adam Pulver of Emery Celli Brinckerhoff & Abady; William Gribben, David Hershey-Webb and Ronald Languedoc of Himmelstein, McConnell, Gribben, Donoghue & Joseph.

For Jemrock: Magda Cruz of Belkin Burden Wenig & Goldman.

For 400 E. 55th Street: Jeffrey Turkel of Rosenberg & Estis.

For First Lenox Terrace: David Rose, Donald Zakarin and Todd Soloway of Pryor Cashman; Michael Kramer of Michael B. Kramer & Associates.