Lead Opinion
OPINION OF THE COURT
We hold that CPLR 901 (b) permits otherwise qualified plaintiffs to utilize the class action mechanism to recover
Facts and Procedural History
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 § 26-516 (a) because their landlords accept tax benefits pursuant to New York City’s J-51 tax abatement program (now Administrative Code of City of NY § 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 (
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
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,
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.,
In each case, the Appellate Division certified a question to this Court.
Discussion
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
CPLR 901 (b) prohibits any claim for penalties to be brought as a class action. It states, “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action” (CPLR 901 [b]). The language of CPLR 901 (b) itself says it is not dispositive that a statute imposes a penalty so long as the action brought pursuant to that statute does not seek to recover the penalty.
This view is bolstered by the legislative history of CPLR 901 (b) , which provides that the statute requires a liberal reading and allows class-action recovery of actual damages despite a statute’s additional provision of treble damages (Sponsor’s Mem, Bill Jacket, L 1975, ch 207). Assemblyman Fink, the bill’s sponsor, explained the purpose of CPLR 901 (b), stating that “[t]he bill . . . precludes a class action based on a statute creating or imposing a penalty . . . unless the specific statute allows for a class action,” but “[a] statutory class action for actual damages would still be permissible” (Sponsor’s Mem at 2, Bill Jacket, L 1975, ch 207 [emphasis added]). In other words, “if the members of a class who would be entitled to a penalty sue only for their actual damages, they may do so in a class action” (Mem of St Consumer Protection Bd at 4, Bill Jacket, L 1975, ch 207). Waiver does not circumvent CPLR 901 (b); on the contrary, the drafters not only foresaw but intended to enable plaintiffs to waive penalties to recover through a class action. Citing this Court’s decision in Moore v Metropolitan Life Ins. Co. (
The legislature paid particular attention to the Bankers Association and Empire State Chamber of Commerce when devising CPLR 901 (b) and their fear that plaintiffs would receive penalties far above their “actual damages sustained” (Mem of Empire St Chamber of Commerce at 3-4, Bill Jacket, L 1975, ch 207; see Mem of NY St Bankers Assn, Bill Jacket, L 1975, ch 207). The legislature added CPLR 901 (b) specifically to address this fear, intending to limit class actions to actual damages. It is abundantly clear that plaintiffs seek a refund, i.e. actual damages, which CPLR 901 (b) did not intend to bar.
From a policy standpoint, permitting plaintiffs to bring these claims as a class accomplishes the purpose of CPLR 901 (b). Preemptively responding to the argument raised by defendants here, the State Consumer Protection Board emphasized the importance of class actions:
“The class action device responds to the problem of inadequate information as well as to the need for economies of scale” for “a person contemplating illegal action will not be able to rely on the fact that most people will be unaware of their rights — if even one typical person files a class action, the suit will go forward and the other members of the class will be notified of the action either during the proceedings or after a judgment is rendered in their favor” (Mem of St Consumer Protection Bd at 1, Bill Jacket, L 1975, ch 207).
Where a statute imposes a nonmandatory penalty, plaintiffs may waive the penalty in order to bring the claim as a class action — such as was the case for consumer fraud actions brought under section 349 (h)
Defendants compare the language of the RSL to other statutes to support their contention that waiver is unavailable because the RSL mandates the assessment of treble damages. They contend that unless the landlord proves the overcharges were not willful, treble damages must be assessed, and this lack of discretion implies that no party may waive treble damages. However, the RSL’s treble damages are only applied where defendant fails to disprove willfulness under the low standard of preponderance of the evidence in contrast to a statute like General Business Law § 340 (5),
While RSL § 26-516 designates both the rent overcharge and treble damages as “penalties,” the Administrative Code and the
Regardless of the nomenclature, even if the Administrative Code and Policy Statement had consistently called the compensatory overcharge a penalty, the Administrative Code’s terminology alone would not be dispositive. Judge Cardozo eruditely observed that although a statute spoke of a payment due “as a penalty,” it is only so “in a loose sense” and “[f]orms and phrases of this kind, accurate enough for rough identification or convenient description, do not carry us very far” in determining the statutory meaning (Cox v Lykes Bros.,
This Court signaled that the “determination of whether a certain provision constitutes a penalty may vary depending on the context” (Sperry,
This Court has already found the same provision of the RSL to provide compensatory forms of relief — the provision serves to make the tenant whole, in addition to granting a separate punitive award of treble damages. As we stated in Mohassel v Fenwick, the provisions of RSL § 26-516 (a), which “establish the penalty as the amount of the overcharge plus interest . . . are designed . . . to compensate the tenant” (
It is ironic that landlords here argue that tenants must bring multiple actions for the greatest (treble) damages. They also cite the State’s long history of protecting tenants’ rights when arguing that waiver contravenes the purpose of the RSL.
Defendants alternatively argue that even if treble damages are not mandatory, tenants’ waiver of the provision contravenes the language and intent of section 2520.13 of the Rent Stabilization Code, which prohibits an agreement waiving any provisions of the RSL (9 NYCRR 2520.13). But tenants may waive a provision unilaterally (not through an agreement with the landlord), and still comply with the letter and the spirit of the law. The Rent Stabilization Code says as much when it allows tenants to withdraw claims through a negotiated settlement, or with the approval of the DHCR or a court, or where the tenant is represented by counsel (9 NYCRR 2520.13). Where courts have
Here, there is no evidence that tenants are being coerced to waive the treble damages provision or that there is any collusion between the landlords and the tenants. The tenants by themselves, and in opposition to the landlords’ wishes, are opting to waive treble damages because they believe they will be more protected through a class action that finds that deregulation was illegal and gives them compensation for the overcharges. This protects tenants and preserves rent regulation, fulfilling the most significant purpose of the RSL. The tenants’ waiver here is unilateral, supported by court order, and made with representation by counsel.
As the lower courts noted, treble damages would be unavailable to the tenants because a finding of willfulness is generally not applicable to cases arising in the aftermath of Roberts. For Roberts cases, defendants followed the Division of Housing and Community Renewal’s own guidance when deregulating the units, so there is little possibility of a finding of willfulness (Borden,
Although the dissenters in Roberts predicted numerous cases would arise out of the Roberts decision, the ubiquity of the wrong must be addressed, and that their foresight has proved correct supports class certification for reasons of judicial economy.
As to the question of whether the putative classes meet the standards for class certification, the nature of CPLR 901 (a) places determination of those factors “within the sound discretion of the trial court” (Small v Lorillard Tobacco Co.,
*399 “(1) the class is so numerous that joinder of all members ... is impracticable;
“(2) there are questions of law or fact common to the class which predominate over any questions affecting only individual members;
“(3) the claims or defenses of the representative parties are typical ... of the class;
“(4) the representative parties will fairly and adequately protect the interests of the class; and
“(5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy” (see CPLR 901 [a]).
As to the first factor, numerosity, the legislature contemplated classes involving as few as 18 members (Mem of St Consumer Protection Bd at 8 n 11, Bill Jacket, L 1975, ch 207) where the members would have difficulty communicating with each other, such as where “barriers of distance, cost, language, income, education or lack of information prevent those who are aware of their rights from communicating with others similarly situated” (Mem of St Consumer Protection Bd at 3, Bill Jacket, L 1975, ch 207). Such reasoning would apply to the cases here, where tenants have moved out of the building. In these cases, the classes range in size from 53 to over 500 members, well above the numerosity threshold contemplated by the legislature and approved by courts (Consolidated Rail Corp. v Town of Hyde Park,
As to predominance and typicality, the predominant legal question involves one that applies to the entire class — whether the apartments were unlawfully deregulated pursuant to the Roberts decision (Borden,
The courts’ evaluation of the adequacy of each representative was more than sufficient. Having found no substantiated
In conclusion, maintaining the actions as class actions does not contravene the letter or the spirit of the CPLR or Rent Stabilization Law. Accordingly, in each case, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.
Notes
. General Business Law § 349 makes deceptive acts and practices unlawful, stating that
“any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions. The court may, in its discretion, increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or
. General Business Law § 340 (5) prohibits monopolies and states that “any person who shall sustain damages by reason of any violation of this section, shall recover three-fold the actual damages sustained thereby, as well as costs not exceeding ten thousand dollars, and reasonable attorneys’ fees.”
Dissenting Opinion
(dissenting). Defendants argue that these are actions “to recover a penalty” because the treble damages remedy in Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) § 26-516 (a) is not waivable; because even if it were waivable under the statute that authorizes it, Rent Stabilization Code (9 NYCRR) § 2520.13 prohibits a waiver; and because in any event, even without trebling, the remedy provided by RSL § 26-516 (a) is a penalty. None of these arguments is without merit, but I will not stop to consider the first two, because I am satisfied that the third is correct. An action under RSL § 26-516 (a) to recover a rent overcharge, whether trebled or not, is “an action to recover a penalty . . . created or imposed by statute” and therefore “may not be maintained as a class action” (CPLR 901 [b]). (It is not disputed that the RSL, though technically a chapter of the Administrative Code of City of NY [tit 26, ch 4], is a “statute” within the meaning of the CPLR provision.)
The simplest and best reason to hold that even the untrebled remedy is a penalty is that the statute says it is. Section 26-516 (a) says:
“Subject to the conditions and limitations of this subdivision, any owner of housing accommodations who ... is found ... to have collected an overcharge above the rent authorized for a housing accommodation subject to this chapter shall be liable to the tenant for a penalty equal to three times the amount of such overcharge. ... If the owner establishes by a preponderance of the evidence that the overcharge was not willful, the state division of*401 housing and community renewal shall establish the penalty as the amount of the overcharge plus interest” (emphasis added).
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.”
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. “[T]his Court has stated that, where a statute expressly denominates an enhanced damages provision to be compensatory in nature, it will not be deemed a penalty” (Sperry v Crompton Corp.,
While of course 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. Where, as here, a landlord illegally charges a free-market 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. 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.
I am not criticizing the legislative choice to give this windfall to these plaintiffs. 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
I therefore conclude that the authors of RSL § 26-516 (a) had, at least, a reasonable basis for calling the untrebled remedy that plaintiffs here are seeking a “penalty.” Because it is a penalty, it may not be recovered in a class action.
In Borden v 400 E. 55th St. Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.
In Gudz v Jemrock Realty Co., LLC: Order affirmed, with costs, and certified question answered in the affirmative.
In Downing v First Lenox Terrace Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.