By Adam Leitman Bailey and Dov Treiman
February 19, 2019
Adam Leitman Bailey and Dov Treiman discuss “Collazo v. Netherland Property Assets” and “Maddicks v. Big City Properties” — two cases which outcomes may signal “potentially enormous changes in how practitioners will practice landlord-tenant law.”
In front of the Court of Appeals are two cases which outcomes may signal potentially enormous changes in how practitioners will practice landlord-tenant law. For determination is whether litigants must first go to the state Division of Housing and Community Renewal (DHCR) to hear their overcharge cases and whether such cases are amenable to class action treatment.
The First Department in Collazo v. Netherland Property Assets, 155 A.D.3d 538, found that rent overcharge should be determined before the DHCR in the first instance. The same judicial department in Maddicks v. Big City Properties, 163 A.D.3d 501, closely divided, declined to sustain the dismissal of prosecution of an overcharge action as a class action pre-answer. Although both cases came from the same judicial department, they are not necessarily in conflict, given the tough standards for “failure to state a cause of action,” as compared to dismissal of class prosecution later in the process. However, by entertaining both suits, the Court of Appeals is presented with the opportunity to identify any conflict and resolve it.
Thus these suits present a dialog between the doctrines of class action and primary jurisdiction.
These authors are aware of some 19 large-scale litigations by numerous tenants currently pending against either single landlords or purportedly single enterprises. All but three of these cases seek to be heard as class actions, all alleging overcharges for a variety of legal theories. This article does not concern the particulars of these cases, but rather the procedural mechanisms that are available to process them.
‘Collazo’ and Primary Jurisdiction
The Collazo plaintiffs did not seek the class-action mechanism, but nonetheless suffered dismissal of their suit on the doctrine of “primary jurisdiction” where the courts defer hearing the case in favor of a determination by the appropriate administrative agency. Collazo, like many cases, arose from the chaos in the landlord-tenant field in the wake of the Court of Appeals 2009 decision in Roberts .v Tishman Speyer Props., 13 N.Y.3d 270 in which the court reversed the understanding in the real estate industry, including the DHCR, that buildings receiving tax benefits in exchange for rent regulation could deregulate apartments that crossed certain thresholds in their rental amounts. Subsequent cases established how to apply that ruling. The Collazo court held that the rules were now clear enough for an administrative agency to administer them without clogging the court system with scores of cases.
Speaking of overcharge cases generally, in Chang v. Bronstein, N.Y. Co. Index No. 156665/2017, the IAS Court stated on the record, “I would think [it] a judicial nightmare to try these type of cases in a class action. I tried them in housing court and even one individual apartment proved a case can take several days to weeks because it is very fact intensive. So you are talking about months and even years of hearings we would do on these type of cases.” 
While the DHCR does not have “class actions,” it does routinely process as many as hundreds of tenancies in single proceedings in a single building where, for example, the landlord has applied for a rent increase for the entire building by reason of improvements to the entire building. Thus, the DHCR routinely does bulk processing.
‘Maddicks’ and Class Actions
In Maddicks, supra, the 3-2 Appellate Division decision wrangled with the propriety of using CPLR 3211(a)(7) to dismiss the complaint for “failure to state a cause of action,” but not whether the plaintiffs possessed any cause of action at all, but whether the allegations of the complaint frame sufficient facts for prosecution as a class action. On such motions, the allegations of the complaint need not be factually established; they are deemed, for purposes of the motion, true Jiggetts v Grinker, 75 N.Y.2d 411, 554 N.Y.S.2d 92 (1990).
Thus, even with the case law sustaining complaints against motions to dismiss if any cause of action can be found in the allegations, Leon v. Martinez, 84 N.Y.2d 83, 614 N.Y.S.2d 972 (1994), the class action statutes’ rigor still give rise to dismissal of the class action aspect of the complaint if the statutory standards are not met when giving the class action allegations the benefit of every fair intendment.
While the courts have been generous in granting class action certification for overcharges arising out of mistaken deregulation of apartments receiving tax abatements, Borden v. 400 East 55th Street Associates, 24 N.Y.3d 382, 998 N.Y.S.2d 729 (2014), Maddicks focuses on whether class action certification is appropriate for allegedly improper rent increases based on improvements made to individual apartments. The majority argue that an alleged pattern by the landlord of cheating on claims for improvements creates the commonality needed for class actions; the dissent argues that the “pattern” is not itself enough to sustain the class, but rather the particularized proof needed to establish any such pattern is so individualized as to make class action treatment utterly impractical. In a large sense, the question before the court is whether a business methodology can sustain a class action or whether proof of that methodology is so individual as to overwhelm class treatment.
Exhaustion of Remedies
Until now, we have discussed these matters assuming that the ordinary doctrines of primary jurisdiction apply to rent regulation. However, perhaps the doctrine of exhaustion of remedies is implicated. Some statutory language implies that the DHCR not only has parallel jurisdiction with the court, but is perhaps required as a first step before resorting to judicial resolution at all.
For example, RSL §26-516(a)(2) provides that a claim for rent overcharge “shall” be filed with the DHCR. Likewise, RSL § 26-516(a) states that “any owner of housing accommodations who…is found by the (DHCR) to have collected an overcharge…shall be liable to the tenant.” Both RSL § 26-512(b)(4)(iii) says “[w]here the commissioner has determined that the rent charged is in excess of the lawful rents…” and RSL §26-516(c) says “if the owner is found by the commissioner…” If the legislature intended alternate paths, it could have said, “if it is found” without specifying the commissioner.
Criteria for Class Actions
CPLR 901 sets forth five criteria which when present would argue why class action certification should be granted. According to the case law, CPLR 902 is invoked after considering the CPLR 901 five criteria to consider in denying class certification [Pludeman v. Northern Leasing Systems, Inc., 74 A.D.3d 420, 904 N.Y.S.2d 372 (1st Dept. 2010)].
The CPLR 901 criteria, in short form are (a) whether the class is so big that conventional litigation naming each party is impractical (“numerosity”); (b) common questions predominate over individual ones (“commonality”); (c) the representatives’ claims are typical of those of the class (“typicality”); (d) the representatives will be fair and adequate (“adequacy”); and (e) a class action would be superior (“superiority”). City of NY v. Maul, 14 N.Y.3d 499, 903 N.Y.S.2d 304 (2010).
The CPLR 902 criteria, in short form are (a) the interest class members would have in controlling their own litigation (“control”); (b) impracticality or inefficiency of separate actions (“impracticality”); (c) extent and nature of already pending individual actions (“priors”); (d) the desirability of using a single forum (“desirability”); and (e) difficulty in managing a class action (“difficulty”).
Class Actions By Permission Only
Class actions, being governed by CPLR Article 9, are a highly unusual species of actions in which the law requires court permission to maintain the suit in class action form (CPLR 902 “the plaintiff shall move for an order to determine whether it is to be so maintained”). If the court denies class certification, this does not kill the suit altogether. Rather, the plaintiffs can continue to maintain the suit solely with respect to their own interests and not in their previously desired representative capacity.
However, the motion CPLR 902 requires for class certification is not necessarily the first time the court hearing the case can determine if the action can proceed as a class action.
Challenging Class Certification
There are at least three distinct procedural stages that could lend themselves to challenges to class certification of a plaintiff’s case. These are via motion to dismiss [CPLR 3211(a)(7)] wherein a defendant would argue that the plaintiff fails to state a cause of action that is amenable to class certification; post-answer for summary judgment (CPLR 3212) wherein a defendant would argue that there are no material triable issues of fact that the plaintiff fails to possess a cause of action amenable to class certification; and a motion to certify the class (CPLR 902) in which the plaintiff is obliged to demonstrate that the case is amenable to class action treatment.
As to the first two mechanisms, the defendant has the burden of persuasion and as to the third, such burden is with the plaintiff. On a motion to dismiss, the defendant must show that the plaintiff can’t find adequate facts that support the class action method of proceeding; on a motion for summary judgment, the movant must establish beyond dispute that no such facts were found; and on a motion to certify the class, the plaintiff must show a mere evidentiary basis to support class certification [Kudinov v. Kel-Tech Construction Inc., 65 A.D.3d 481, 884 N.Y.S.2d 413 (1st Dep’t 2009)]. However, “a court must be mindful of (the First Department’s) holding that the class certification statute should be liberally construed.” (id).
With a multiplicity of challenge points existing in the procedural law, naturally the question arises whether a determination on either a motion to dismiss or one for summary judgment would be law of the case for a motion for certification. The better answer is probably that sustaining the class under motions to dismiss or summary judgment would not be law of the case to sustain the viability of a class action with respect to certification, although specific factual issues raised and determined could well be.
This becomes apparent by what the three motions require. Motions to dismiss normally only examine the adequacy of the allegations, but certification requires an evidentiary showing. Sustaining the class action on a summary judgment motion requires showing a dispute of fact, but again, certification requires an evidentiary showing.
While class actions are more efficient for tenants seeking such recovery, it does mean that they have to waive treble damages, both on their own behalf and for the class. Gudz v. Jemrock Realty Co., 105 A.D.3d 625, 964 N.Y.S.2d 118 (1st Dept. 2013). This is because CPLR 901(b) prohibits the recovery of penalties in class actions. Borden, supra, permits class actions to proceed where the plaintiffs have waived treble damages and seems to assume that treble damages are unrecoverable in class action litigation on rental overcharges, but it does not actually squarely hold that there is such a rule. However, RSC §2526.1(a) does specifically refer to the treble damages as a “penalty.”
In spite of this waiver of a substantial right for class members, tenants’ attorneys seek class certification as it entitles them to discovery as to who actually are the class members . Given the two year statute of limitations on treble damages [RSC §2526.1(a)(2)(i)], or even the four year statute for simple damages (CPLR 213-a), these former tenants’ claims may already be time barred. However, in most cases, it appears that tenants are no better off, but their lawyers clearly do stand to benefit.
The “American Rule” has each party pay for its own attorney fees unless a statute, court rule, or contractual provision provides otherwise. Cier Industries Co. v. Hessen, 136 AD2d 145, 526 NYS2d 77 (1st Dept. 1988). In class action litigation, attorney fees shall be awarded to the representatives’ for their successful prosecution of the action (CPLR 909), but at least normatively, the fund for the payment of those attorney fees comes from the pot of funds generated by the class action litigation, Loretto v. Group W. Cable, 135 A.D.2d 444, 522 N.Y.S.2d 543 (1st Dept. 1987) unless there is a showing of bad faith on the other side (id.).
However, landlord-tenant litigation is unusual in that many leases support attorney fees in favor of landlords and Real Property Law §234 accords a tenant a reciprocal right in actions to enforce the lease. Case law does not reveal whether this statute provides a basis for an additional basis for award of attorney fees in successful class action litigation on behalf of tenants. However, it is certain that any such doctrine would be limited to those tenants who actually have leases with such clauses.
This means that in the prosecution of the class action, plaintiffs must authenticate each lease separately. Such a question would therefore weigh against findings of “commonality” and “typicality.” At the pleading stage, the representatives of the class could not possibly know if their class members typically have such leases. However, CPLR 906 allows for the possibility that the rest of the action be maintained as a class action with the atypical attorney fees questions relegated to classic individual suits.
CPLR 908 provides that a class action shall not be dismissed, discontinued, or compromised without the approval of the court on notice given to all members of the class in such manner as the court directs. Until recently, most practitioners assumed that it was permissible for the defendant to settle directly with the named plaintiff class representatives and discontinue the action before a class certification motion had been made, and before a class had been certified.
However, some commentators [for example, Alan S. Kaplinsky, Denise L. Plunkett, Alyssa E. Kutner, “N.Y. Decision May Hinder Early Class Action Settlements,” Consumer Finance Monitor (2018), fear the recent decision in Desrosiers v. Perry Ellis Menswear, LLC, 30 N.Y.3d 488 (2017) requiring notice of settlement to class members even prior to the certification of the class will discourage early settlements.
No one is compelled to bring a class action. While there are undeniable efficiencies in them, there are some cases in which they are simply inappropriate. Many cases have focused on the uniqueness of the damages not being a disqualification from class action treatment, but the specifics of landlord-tenant relationships can be so individualized that liability issues also may defeat the criterion of “typicality” and mandate that cases be processed entirely through individualized proceedings. Not since Roberts has the Court of Appeals had before it cases with the potential to be so transformative of landlord-tenant practice.
Adam Leitman Bailey, Dov Treiman, William J. Geller, Jeffrey R. Metz, Scott Pashman, and Carolyn Z. Rualo, assisted with the preparation of this article.