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N.Y. high court certifies class in cases over alleged NYC rent overcharges

By Kyla Asbury | Dec 3, 2014

NEW YORK (Legal Newsline) - The New York Court of Appeals has granted class certification in actions brought on behalf of tenants of separate New York City apartment buildings seeking damages for rent overcharges, affirming a lower court's ruling.

The court held that, although the city's Rent Stabilization Law imposes punitive damages when a landlord's violation is willful and New York State law prohibits a claim for penalties to be brought as a class action, these cases may now proceed as class actions because the tenants seek only to recover actual, compensatory overcharges and have waived punitive damages, according to an opinion filed Nov. 24.

Judges Jonathan Lippman, Victoria A. Graffeo, Susan P. Read and Jenny Rivera voted in the majority, with Lippman authoring the opinion.

Judge Robert S. Smith dissents in an opinion, in which Judge Eugene F. Pigott concurs.

The ruling will allow New York City tenants to recover rent over charges on a class-wide basis.

To preserve judicial resources, class certification is superior to having these claims adjudicated individually, according to the majority opinion.

"In conclusion, maintaining the actions as class actions does not contravene the letter or the spirit of the CPLR or Rent Stabilization Law," the majority opinion states. "Accordingly, in each case, the order of the Appellate Division should be affirmed, with costs and the certified question answered in the affirmative."

Lorraine Borden, Yanella Gudz and Elisa Downing filed separate lawsuits against 400 East 55th Street Associates LP, Jemrock Realty Company LLC and First Lenox Terrance Associates.

In all three of the class actions, the 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 § 26–516 (a) because their landlords accept tax benefits pursuant to New York City's J-51 tax abatement program," the majority opinion states. "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."

The plaintiffs' claims arose out of this court’s decision in Roberts v. Tishman Speyer Props., in which the court 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.

"Prior to Roberts, the New York State Division of Housing and Community Renewal 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," the majority opinion states. "In Roberts, we did not address the legitimacy of the putative class action, but we now address the issue."

All the plaintiffs initially sought treble damages in their complaints, but then waived that demand.

"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 majority opinion states.

In his dissenting opinion, Smith said the simplest and best reason to hold that even the untrebled remedy is a penalty is that the statute says it is.

"It could hardly be said more plainly that the authors of the RSL considered 'the amount of the overcharge plus interest' -- without trebling -- to be a 'penalty,'" the dissenting opinion states. "Our cases make clear that, in deciding whether a particular remedy is a penalty or not, the label chosen by the authors of the legislation in question is ordinarily dispositive."

Smith said while single-damages remedies are usually compensatory, the remedy provided by this RSL provision is unusual, because it awards monetary relief to people who have not, in economic reality, been damaged by the landlord misconduct of which they complain.

"In fact, these plaintiffs and others similarly situated are in a real sense beneficiaries of that misconduct," the dissenting opinion states. "Where, as here, a landlord illegally charges a freemarket rent for a rent-stabilized apartment, the result is that the apartment will be rented to someone able and willing to pay the market rent."

If the landlord had complied with the law, the apartment would have been more affordable and many more tenants would have been happy to rent it -- assuming that it had become vacant at all.

"It is most unlikely that any of the present plaintiffs, all of whom signed market-rent leases for their apartments, could have obtained the same apartments at the legal rent," the dissenting opinion states. "But the statute, by requiring the overcharge to be refunded to them, effectively gives them what they could not have obtained; they are getting not compensation, but a significant windfall."

Smith believes the choice makes sense, but only if the statute is seen not as compensating injured tenants, but as penalizing landlords.

"By being deprived of the money they have illegally received, the landlords are punished for their unlawful conduct...and they and other landlords are deterred from future violations of the law," the dissenting opinion states. "The result of this penalty, in the legislative scheme, is that landlords will be induced to comply with the rent limitations imposed by law and people who-- unlike the present plaintiffs --cannot pay market rents will be able to find affordable housing."

The plaintiffs are represented by Christian Siebott of Bernstein Liebhard LLP in New York and Matthew D. Brinckerhoff of Emery Celli Brinckerhoff & Abady LLP in New York.

The defendants are represented by Jeffrey Turkel of Rosenberg & Estis PC in New York, Magda L. Cruz of Belkin Burden Wenig & Goldman LLP in New York and Todd E. Soloway of Pryor Cashman in New York.

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