Borden v. 400 E. 55th St. Assocs., L.P.
| Decision Date | 24 November 2014 |
| Citation | 2014 N.Y. Slip Op. 08211,998 N.Y.S.2d 729,24 N.Y.3d 382,23 N.E.3d 997 |
| Court | New York Court of Appeals Court of Appeals |
| Parties | Lorraine BORDEN, on behalf of herself and all others Similarly Situated, Respondent, v. 400 EAST 55TH STREET ASSOCIATES, L.P., Appellant. Yanella Gudz, on behalf of herself and all Others Similarly Situated, Respondent, v. Jemrock Realty Company, LLC, Appellant. Elisa Downing et al., on behalf of themselves and all Others Similarly Situated, Respondents, v. First Lenox Terrace Associates et al., Appellants. |
Rosenberg & Estis, P.C., New York City (Jeffrey Turkel and Dani Schwartz of counsel), for appellant in the first above-entitled action.
Bernstein Liebhard LLP, New York City (Christian Siebott, Gabriel G. Galletti and Heather V. Lynch of counsel), for respondent in the first above-entitled action.
Belkin Burden Wenig & Goldman, LLP, New York City (Magda L. Cruz, Sherwin Belkin and Steven Kirkpatrick of counsel), for appellant in the second above-entitled action.
Bernstein Liebhard LLP, New York City (Christian Siebott, Gabriel G. Galletti and Heather V. Lynch of counsel), for respondent in the second above-entitled action.
Pryor Cashman LLP, New York City (Todd E. Soloway, David C. Rose, Joshua D. Bernstein and Bryan T. Mohler of counsel), and Michael B. Kramer & Associates, New York City (Michael B. Kramer of counsel), for appellants in the third above-entitled action.
Emery Celli Brinckerhoff & Abady LLP, New York City (Matthew D. Brinckerhoff and Hayley Horowitz of counsel), and Himmelstein McConnell Gribben Donoghue & Joseph, New York City (William Gribben, David Hershey–Webb and Ronald S. Languedoc of counsel), for respondents in the third above-entitled action.
We hold that CPLR 901(b) permits otherwise qualified plaintiffs to utilize the class action mechanism to recover compensatory overcharges under Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270, 890 N.Y.S.2d 388, 918 N.E.2d 900 (2009), even though Rent Stabilization Law of 1969(RSL) (Administrative Code of City of NY) § 26–516 does not specifically authorize class action recovery and imposes treble damages upon a finding of willful violation. We find the recovery of the base amount of rent overcharge to be actual, compensatory damages, not a penalty, within the meaning of CPLR 901(b). We also do not believe it contravenes 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.
In all three of these putative class actions, plaintiffs are current or former tenants of separate apartment buildings in New York City who seek damages for rent overcharges. They allege that their units were decontrolled in contravention of RSL § 26516(a) because their landlords accept tax benefits pursuant to New York City's J–51 tax abatement program (now Administrative Code of City of N.Y. § 11–243). To qualify for the J–51 program exemption, landlords must relinquish their rights under the decontrol provisions of the RSL while they benefit from the exemption.
Plaintiffs' claims arose out of this Court's decision in Roberts, where we held that a landlord receiving the benefit of a J–51 tax abatement may not deregulate any apartment in the building pursuant to the luxury decontrol laws (13 N.Y.3d at 286, 890 N.Y.S.2d 388, 918 N.E.2d 900 ). Prior to Roberts, the New York State Division of Housing and Community Renewal (DHCR) took the position that where participation in the J–51 program was not the sole reason for the rent-regulated status of a building, particular apartments could be luxury decontrolled. As a consequence, many landlords decontrolled particular apartments in their buildings, charging tenants market rents, while at the same time receiving J–51 tax abatements. In Roberts, we did not address the legitimacy of the putative class action, but we now address the issue.
All plaintiffs initially sought treble damages in their complaints, but then waived that demand through attorney affirmation. Because of the number of plaintiffs from each building who seek damages for rent overcharges, the question arises whether these claims can properly be brought as class actions.
The Borden defendant appeals from a unanimous Appellate Division order affirming a Supreme Court grant of plaintiff's motion for class certification (Borden v. 400 E. 55th St. Assoc., L.P., 105 A.D.3d 630, 964 N.Y.S.2d 115 [1st Dept.2013] ). The Supreme Court held that CPLR 901(b) permits waiver of penalties and “allow[s] the claims for compensatory damages only to continue” (Borden v. 400 E. 55th St. Assoc. L.P., 34 Misc.3d 1202[A], 2011 N.Y. Slip Op. 52322[U], *5, 2011 WL 6446039 [Sup.Ct., N.Y. County 2011] ). The court found that treble damages are not mandatory because the “trebling penalty is not available where a landlord can prove that the overcharge was not willful,” and “the post Roberts jurisprudence has rejected the trebling of damages ... because the market rents were charged in accordance with DHCR rules and regulations” (id. ). Further, any class member wanting to seek treble damages would be able to opt out of the class to protect his or her interests (2011 N.Y. Slip Op. 52322[U], *4). The Appellate Division agreed, concluding that plaintiff properly waived treble damages under RSL § 26–516(a), and the waiver permitted her to bring her claims as a class action under CPLR 901(b) (Borden, 105 A.D.3d 630, 964 N.Y.S.2d 115 [1st Dept.2013] ).
In Gudz, defendant appeals an Appellate Division order affirming, by a 3–2 vote, the Supreme Court grant of class certification (Gudz v. Jemrock Realty Co., LLC, 105 A.D.3d 625, 964 N.Y.S.2d 118 [1st Dept.2013] ). As the record in Gudz indicates, Supreme Court also rejected the argument that the RSL mandates treble damages, remarking that “[c]ourts have consistently held that plaintiffs may waive the penalty portion of a statute that would otherwise render the action ineligible for class certification.” The Appellate Division majority concluded the same, finding that waiver of the treble damages provision does not violate CPLR 901(b) or the RSL because CPLR 901(b) allows waiver of a penalty, and the RSL does not mandate treble damages (see Gudz, 105 A.D.3d at 625–626, 964 N.Y.S.2d 118 ). Because “treble damages are not the sole measure of recovery” and a landlord may overcome the presumption of willfulness, the penalty was not mandatory and plaintiff's claim for overcharges and interest did not fall within the definition of a penalty under CPLR 901(b) (id. at 625–626, 964 N.Y.S.2d 118 ). “[E]ven though such recovery is denominated a penalty by the RSL,” it is not a penalty “because [claims for overcharges and interest] lack a punitive, deterrent and litigation-incentivizing purpose and are, in fact, compensatory” (id. at 626, 964 N.Y.S.2d 118 [citation omitted] ). The dissenting Justices contended that plaintiff's waiver of the treble damages remedy “circumvent[ed] the clear intent of CPLR 901(b), which is to preclude the maintenance of a class action suit seeking a penalty” (id. at 627, 964 N.Y.S.2d 118 ). Conceding that plaintiff's request for the first third (the base amount) of the treble damages award was compensatory, the dissenters maintained, however, that the RSL mandated the imposition of treble damages pursuant to the presumption that an overcharge is willful and asserted that any waiver of the RSL's provisions was void (id. at 627–628, 964 N.Y.S.2d 118 ). They also disputed the protection that an opt-out clause would provide, contending that members may be bound by a waiver they did not make and be unable to take advantage of all the remedies available to them (id. at 629, 964 N.Y.S.2d 118 ).
The Downing defendants appeal an Appellate Division order reversing the Supreme Court dismissal of plaintiffs' complaint. In granting defendants' motion to dismiss, Supreme Court asserted that CPLR 901(b) prohibited class actions for claims seeking penalties, and the RSL forbade waiver of treble damages. In reversing and reinstating the complaint, the Appellate Division majority held that the class action could be brought under CPLR 901(b) because plaintiffs waived treble damages and “even where a statute creates or imposes a penalty, the restriction of CPLR 901(b) is inapplicable where the class representative seeks to recover only actual damages and waives the penalty on behalf of the class” provided that class members have the opportunity to opt out of the class to seek punitive damages (Downing v. First Lenox Terrace Assoc., 107 A.D.3d 86, 89, 965 N.Y.S.2d 9 [1st Dept. 2013] ). The court also concluded that a unilateral waiver complies with the Rent Stabilization Code's prohibition of any agreement to waive its provisions (see id. at 89–90, 965 N.Y.S.2d 9 ). The majority remanded for further proceedings to evaluate whether the allegations satisfy factors for class certification under CPLR 901(a).
In each case, the Appellate Division certified a question to this Court.
Rent Stabilization Law § 26–516(a) states, in relevant part, that any landlord “found ... to have collected an overcharge above the rent authorized for a housing accommodation ... shall be liable to the tenant for a penalty equal to three times the amount of such overcharge” but “[i]f the owner establishes by a preponderance of the evidence that the overcharge was not willful, the state division of housing and community renewal shall establish the penalty as the amount of the overcharge plus interest” (RSL § 26–516[a] ). It provides that “[i]n no event shall such treble damage penalty be assessed against an owner based solely on said owner's failure to file a timely or proper initial or annual rent registration statement” (RSL § 26–516[a] ). Further, “no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than...
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Borden v. 400 E. 55th St. Assocs., L.P.
...24 N.Y.3d 38223 N.E.3d 997998 N.Y.S.2d 7292014 N.Y. Slip Op. 08211Lorraine BORDEN, on behalf of herself and all others Similarly Situated, Respondentv.400 EAST 55TH STREET ASSOCIATES, L.P., Appellant.Yanella Gudz, on behalf of herself and all Others Similarly Situated, Respondentv.Jemrock R......