Maddicks v. Big City Props., LLC

• Decision Date: 22 October 2019
• Docket Number: No. 67,67
• Citation: 34 N.Y.3d 116,114 N.Y.S.3d 1,137 N.E.3d 456
• Parties: Theresa MADDICKS, et al., Respondents, v. BIG CITY PROPERTIES, LLC et al., Defendants, Big City Realty Management, LLC, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

34 N.Y.3d 116

137 N.E.3d 456

114 N.Y.S.3d 1

Theresa MADDICKS, et al., Respondents,

v. BIG CITY PROPERTIES, LLC et al., Defendants,Big City Realty Management, LLC, et al., Appellants.

No. 67

Court of Appeals of New York.

October 22, 2019

OPINION OF THE COURT

FAHEY, J.

Nothing in the CPLR prevents a defendant from moving to dismiss a class action claim pursuant to CPLR 3211. However, a motion to dismiss should not be equated to a motion for class certification. Nothing in the record supports the conclusion of the trial court that the claims for class relief should have been dismissed short of a judicial determination as to whether the prerequisites of CPLR 902 have been satisfied. We affirm the Appellate Division order insofar as appealed from.

I.

At issue here is what plaintiffs characterize as the Big City Portfolio, which consists of multiple apartment buildings located primarily in the Harlem neighborhood in Manhattan. The portfolio is managed by defendant Big City Realty Management, LLC. Individual corporate defendants own various buildings in the portfolio, and plaintiffs – who are current and former tenants in various buildings within the portfolio – suggest that those corporate entities are owned or controlled by a single holding company, defendant Big City Acquisitions, LLC.

Plaintiffs also allege that defendants,¹ in an effort to extract additional value from those properties, have engaged in what plaintiffs characterize as "a clear pattern and practice of improper and illegal conduct."² The allegations of the operative complaint – designated as the first amended class action complaint (hereafter, complaint)³ – state that this action was commenced "to end the illegal and fraudulent practices employed by [d]efendants over the course of [their] ownership and operation" of the buildings within the portfolio. That claim of illegality and fraud, plaintiffs maintain, addresses a scheme to inflate rents over and above the amounts defendants were legally permitted to charge. This was accomplished in four ways. Plaintiffs allege that defendants executed their overcharge plan by:

(a) falsely reporting to the Division of Housing and Community Renewal (DHCR) that leases were rent-controlled pursuant to the J–51 program,⁴ when in fact those contracts were free-market compacts;

(b) misrepresenting and inflating the costs of individual apartment improvements (IAIs)⁵ ;

(c) repeatedly failing to register rental information as required by state and city law, thereby rendering it impossible to calculate the correct legal regulated rent; and

(d) inflating 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.

Given their belief that nearly all factual and legal issues raised in the first amended class action complaint are common to each other and to members of the proposed class and sub-class,⁶ and that the statutory prerequisites to class certification would be satisfied (see CPLR 901 ), plaintiffs alleged that this lawsuit may be properly maintained as a class action. Plaintiffs asserted six causes of action to be pursued by the proposed class and sub-class, sounding principally in the alleged violation of the Rent Stabilization Law and General Business Law § 349. Plaintiffs seek, among other things, reformation of illegal leases to provide that the units subject to those agreements are subject to rent stabilization.

In lieu of answering, and before the appropriateness of the claims for class action could be tested through the mechanisms fixed in article 9 of the CPLR, defendants moved to dismiss the amended class action complaint. Defendants argued that plaintiffs failed to state a cause of action for violation of General Business Law § 349, and that the class allegations fail as a matter of law. With respect to the latter contention, defendants maintained that plaintiffs' claim of illegality and fraud is not a single instance of wrongdoing, and improperly attempts to bind together four disconnected theories of malfeasance.

Supreme Court granted the motion and dismissed the complaint. The court "determine[d] conclusively from the facts alleged [therein] that, as a matter of law, there is no basis for class relief" based on its belief that plaintiffs rely "on several different theories of the manner in which [d]efendants inflated the rent" that each "require[ ] a fact-specific analysis [that] precludes class certification" (see CPLR 901[a][2] ).

On appeal, a divided Appellate Division modified Supreme Court's order by denying the part of the motion seeking dismissal of the class action claims against defendants, except to the extent those allegations addressed the cause of action for violation of General Business Law § 349 (see 163 A.D.3d 501, 84 N.Y.S.3d 4 [1st Dept. 2018] ).⁷ The Appellate Division concluded that the dismissal of the "remaining class allegations ... at this early stage, before an answer was filed and before any discovery occurred, was premature" ( 163 A.D.3d at 502, 84 N.Y.S.3d 4 ). The Court added that "[i]t does not appear conclusively from the [operative] complaint that, as a matter of law, there is no basis for class action relief" ( id. ) before rejecting the contention of the dissenters (see id. at 505–506, 84 N.Y.S.3d 4 ) that the claims here are fact-intensive and can only be determined through an examination of the evidence pertinent to each individual unit allegedly affected by defendants' misconduct (see id. at 502, 84 N.Y.S.3d 4 ; see also CPLR 901[a][2] ). The conclusion that plaintiffs' class action claim should not be dismissed at this juncture was based on the Appellate Division's analysis of the complaint. It speaks to "the setting of ... improper rents [in the affected] apartments [as] part of a systematic effort by [defendant Big City Acquisitions, LLC] to avoid compliance with the rent stabilization laws" ( id. at 503, 84 N.Y.S.3d 4 ).

We share the view that dismissal of class claims based on allegations of a methodical attempt to illegally inflate rents was premature. We now affirm the order insofar as appealed from and answer the question certified to us by the Appellate Division, namely, "whether [the] order [of that Court] was properly made," in the affirmative.

II.

Initially, we agree with defendants and the amici curiae who submitted a brief in support of defendants' position 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. Nothing in the CPLR provides that a class claim cannot be dismissed, even at the pre-answer stage, for failure to state a cause of action (see generally Downing v. First Lenox Terrace Assoc. , 107 A.D.3d 86, 91, 965 N.Y.S.2d 9 [1st Dept. 2013], affd sub nom. Borden v. 400 E. 55th St. Assoc., L.P. , 24 N.Y.3d 382, 998 N.Y.S.2d 729, 23 N.E.3d 997 [2014] ; Wojciechowski v. Republic Steel Corp. , 67 A.D.2d 830, 413 N.Y.S.2d 70 [4th Dept. 1979], lv . dismissed 47 N.Y.2d 802 [1979] ).

As for whether the complaint here was properly dismissed, certain basic principles of procedural law apply. Where an appeal arises from a motion to dismiss, the complaint "is to be afforded a liberal construction" ( Leon v. Martinez , 84 N.Y.2d 83, 87, 614 N.Y.S.2d 972, 638 N.E.2d 511 [1994] ). We must "accept the facts as alleged as true, [and] accord plaintiffs the benefit of every possible favorable inference" ( id. ). We are also bound to "determine only whether the facts as alleged fit within any cognizable legal theory" ( id. at 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511 ); "the criterion is whether the proponent of the pleading has a cause of action, not whether [it] has stated one" ( id. at 88, 614 N.Y.S.2d 972, 638 N.E.2d 511 [emphases added] ).

The determination whether plaintiffs have a cause that may be asserted as a class action turns on the application of CPLR 901. That section provides that "[o]ne 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" ( City of New York v. Maul , 14 N.Y.3d 499, 508, 903 N.Y.S.2d 304, 929 N.E.2d 366 [2010] ) – are met ( CPLR 901[a][1]-[5] ). Of principal concern on this appeal is the "commonality" element, which, as set forth in CPLR 901(a)(2), inquires whether "there are questions of law or fact common to the class which predominate over any questions affecting only individual members."

With respect to the commonality question, defendants note that, where damages among class members may differ, a class action may proceed only "if the important legal or factual issues involving liability are common to the class" ( Borden , 24 N.Y.3d at 399, 998 N.Y.S.2d 729, 23 N.E.3d 997 ). That point is logical; perhaps the most generally known type of class claims involve a defect in a mass-produced product, such as an automobile, that has a common flaw that impacts consumers in disparate ways and yields disparate damages (see e.g. Belville v. Ford Motor Co. , 919 F.3d 224 [4th Cir. 2019] ; Samuel–Bassett v. KIA Motors Am., Inc. , 357 F.3d 392 [3d Cir. 2004] ; Matter of General Motors Corp. Pick–Up Truck Fuel Tank Prods. Liab. Litig. 55 F.3d 768 [3d Cir. 1995], cert . denied 516 U.S. 824, 116 S.Ct. 88, 133 L.Ed.2d 45 [1995] ; Estruch v. Volkswagen AG , 177 A.D.2d 943, 578 N.Y.S.2d 306 [4th Dept. 1991], lv . denied 79 N.Y.2d 759, 584 N.Y.S.2d 447, 594 N.E.2d 941 [1992] ).

Here, of course, there is an element of truth to defendants' suggestion that the class claims – particularly those based on the alleged misrepresentation and inflation of the costs of IAIs – may require separate proof with respect to each plaintiff. Along those lines, defendants note that the operative complaint "alleges overcharges for inflated IAI increases of [various] amounts" – 136%, 97%, 82%, 104%, 113%,...