Maddicks v Big City Props., LLCMaddicks v Big City Props., LLC
Argued September 4, 2019; decided October 22, 2019
Maddicks v Big City Props., LLC, 163 AD3d 501, affirmed.
Fahey, J.
Nothing in the
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.
(a) falsely reporting to the Division of Housing and Community Renewal that leases werе 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 subclass,6 and that the statutory prerequisites to
In lieu of answering, and before the appropriateness of the claims for class action could be tested through the mechanisms fixed in
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 action 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” (2017 NY Slip Op 32385[U], *4
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
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
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 NY2d 83, 87 [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); “the criterion is whether the proponent of the pleading has a cause of action, not whether [it] has stated one” (id. at 88 [emphases added]).
With respect to the commonality question, defendants note that, where damages among class members may differ, a class
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%, 33%, or 254% for various apartments—which they contend supports the idea that the аlleged overcharges are separate wrongs to separate persons that do not form the basis for a class action (see Ray v Marine Midland Grace Trust Co., 35 NY2d 147, 151 [1974]; Gaynor v Rockefeller, 15 NY2d 120, 129 [1965]; cf. Bolanos v Norwegian Cruise Lines Ltd., 212 FRD 144, 148 [SD NY 2002]).8
That leads to the friction point on this appeal: are we to look at the common basis for a damages claim or the degree of damage alleged? On the one hand, if, as defendants suggest, the differences in the specific means of harm is considered—that is, if at this stage the Court contemplates nuances of how those overcharges allegedly were accomplished—then plaintiffs may struggle to satisfy the factual component of
City of New York v Maul (14 NY3d 499 [2010]) is instructive in that respect. There, the plaintiffs generally alleged that the social services agencies in question failed in various training and identification tasks that injured “at least 150 youngsters with developmental disabilities” (id. at 506). Although each one of the class members possessed their “own unique factual circumstances and special needs,” and although “a determination regarding appropriate placements [would have] require[d] a particularized inquiry of each [of the] plaintiff‘s requirements” (id. at 512), we refused to conclude that the class could not be certified as a matter of law. That determination was driven at least in part by our recognition of the legislative desire for
Commonality is not to be confused with unanimity (see Maul, 14 NY3d at 514). In deciding Maul, we “recognize[d] that commonality cannot be determined by any ‘mechanical test’ and that ‘the fact that questions peculiar to each individual may remain after resolution of the common questions is not fatal to the class action’ ” (Maul, 14 NY3d at 514, quoting Friar v Vanguard Holding Corp., 78 AD2d 83, 97-98 [2d Dept 1980]). “Rather,” we added, “it is ‘predominance, not identity or unanimity,’ that is the linchpin of commonality” (Maul, 14 NY3d at 514, quoting Friar, 78 AD2d at 98).9 Those observations apply to this case. Here the complaint addresses harm effectuated through a variety of apрroaches but within a common systematic plan (see generally Freeman v Great Lakes Energy Partners, L.L.C., 12 AD3d 1170, 1171 [4th Dept 2004]), and its class claims should not be dismissed at this juncture.
III.
Five additional points complete our analysis.
First, it bears noting that our approach—allowing the action to proceed to the
Second, we agree with plaintiffs that to dismiss these class claims at this juncture would be to effectively nullify
Third, it is a long-held principle “that the individualized proof required on issues such as damages . . . of each class
The possibility that individual damages determinations may become complicated to the extent the class allegations survive a
Fourth, defendants contend that the complaint fails to state a claim with respect to IAIs because plaintiffs “do not affirmatively allege wrongdoing with respect to [those imprоvements].” Rather, defendants contend, plaintiffs “allege that unspecified inspections of the apartments merely suggest that IAIs may not . . . have been completed.” We agree with plaintiffs, however, that they adequately stated IAI claims. In the absence of the pre-certification discovery contemplated by
Fifth, and finally, “[t]he existence of a [potential] statute of limitations issue does not compel a finding that individual issues predominate over common ones” (Williams v Sinclair, 529 F2d 1383, 1388 [9th Cir 1975]). Although “individual class members whose claims are shown to fall outside the relevant
Accordingly, the Appellate Division order insofar as appealed from should be affirmed, with costs, and the certified question answered in the affirmative.
Garcia, J. (dissenting). The complaint in this case was originally brought on behalf of all current and former rent-stabilized tenants in “over 20 apartment buildings” in New York City, alleging “a scheme designed to inflate rents.” In upholding reinstatement of the class allegations in that complaint, the majority fails to identify any possible “questions of law or fact common to the class which [could] predominate over any questions affecting only individual members” (
I.
I agree with the majority that, when it is clear from the face of a pleading and any supporting affidavits that a class cannot be certified, the class allegations in that pleading must be dismissed upon a motion made pursuant to
Pеrmitting the dismissal of class allegations without prejudice at this stage of the proceedings serves the general goals of
Accordingly, when it is readily apparent from the face of a pleading and any supporting affidavits that the claims are not appropriate for class relief, trial courts should have the freedom to grant motions to dismiss the class allegations.
II.
While we agree with the rule the majority appears to embrace, the incorrect application of that rule in this case will in effect preclude trial courts from granting motions to dismiss even the most insufficient of class allegations.
A.
As the dissent below pointed out, the deficiency in this complaint is not based on whether common questions of law or fact would predominate; it is that questions common to the class, predominant or otherwise, simply do not exist (Maddicks v Big City Props., LLC, 163 AD3d 501, 506 [1st Dept 2018, Friedman, J.P., dissenting]). The bare allegation that the defendants have overcharged rent to the plaintiffs, without a common theory of how they did so, is legally insufficient to find that common issues predominate.
Recognizing that deficiency, the majority justifies the denial of relief by relying on an alleged “scheme” or a “pattern and practice” by the defendants in overcharging rent (majority op at —). The example given by the majority is a case involving a defect in a mass-produced product “such as an automobile” which damages consumers in different ways (majority op at —). There is no common “defect” alleged here that produces disparate harms. The allegation is only that the plaintiffs have been harmed—by paying inflated rents—but the cause of that harm is not a “common flaw” (majority op at —). Rather, it is different for at least four different classes of plaintiffs (see majority op at —). For some plaintiffs, there are allegations of
There is some sleight of hand in the majority‘s approach, which emphasizes that even though each claim may require separate proof, for example with respect to damages, that fact cannot in itself defeat class certification (see majority op at —). True, of course, and well established in our case law. But in beginning the analysis there, the majority directs attention away from the requirement of a predominant issue of law or fact creating the need to calculate those individual damages. “[T]he fact that questions peculiar to each individual may remain after resolution of the common questions is not fatal to the class action” (majority op at —, quoting City of New York v Maul, 14 NY3d 499, 514 [2010]). Lack of any common question is fatal here.
The majority further asserts that it is a mistake to focus on mere “nuances of how th[e] overcharges allegedly were accomplished” (majority op at —). Instead, according to the majority, commonality is somehow satisfied by allegations of “a common method to damage in slightly different ways” (majority op at —), although the method itself is never articulated. That is not only incorrect, but inaccurate in describing the theories of harm upon which the plaintiffs rely. As the Appellate Division dissent correctly noted, the existence or nonexistence of a “systematic” effort by the defendants to overcharge rent is irrelevant to the merits of each individual plaintiff‘s overcharge claim (see Maddicks, 163 AD3d at 511 [Friedman, J.P., dissenting]). While it might lead to the possibility of treble damages in individual or joined actions, such damages are not permissible in a class action (see
The majority trivializes the questions that must be answered for each plaintiff‘s claims, describing them as “potential idiosyncrasies . . . that speak to damages, not to liability” (majority op at —). For most of the claims, however, the particularized “idiosyncrasies” will determine both damages and liability. For example, each claim based upon misrepresentation of IAIs will require independent analyses of each apartment on the issue of liability, to determine whether the IAIs were sufficient to justify an associated rent increase. If the IAIs for a particular apartment were not sufficient, defendants would be liable. If the IAIs for a particular apartment were sufficient, defendants would not be liable. A determination for each apartment is entirely independent of the determination for any other apartment—with no overlapping factual question—and there is no way to decide the issue for each plaintiff without looking at the individual apartments and IAIs. Similarly discrete analyses would be required for eaсh allegation that the defendants failed to adequately register a specific apartment, made misrepresentations to a specific plaintiff, or inflated the fair market rent on a specific apartment that had exited rent-controlled status.5 These legal and factual “idiosyncrasies,”
B.
The majority relies heavily on City of New York v Maul to justify reinstatement of the class allegations (see majority op at —). However, unlike the present case, the plaintiffs in Maul presented several “common allegations that
We emphasized that the plaintiffs in Maul sought relief to address “interrelated harms” (id. at 513). Here, as discussed previously, the claims are not “interrelated” but will instead require largely discrete and independent analyses. The plaintiffs’ claims relate to 11 different buildings, with several different owners over different periods of time, and with at least four different theories of harm that have little-to-no overlap on an apartment-by-apartment basis. Unlike Maul, involving failures by government agencies to provide services, there are no specific facts common to all or virtually all of the named plaintiffs. While Maul approached the “outer boundary” of commonality (id. at 512), class certificаtion given the facts alleged in the complaint would go well beyond any reasonable limitation. The majority is in effect saying that a bald assertion of commonality—“a pattern or practice of overcharging rent“—is enough to survive a motion to dismiss.
C.
The majority appears to give trial courts theoretical permission to grant
III.
The discretion and flexibility of trial courts in overseeing class actions is vital to thе design of article 9 (see Governor‘s Mem approving L 1975, ch 207, 1975 McKinney‘s Session Laws of NY at 1748 [explaining that article 9 “empowers the court to prevent abuse of the class action device and provides a controlled remedy which recognizes and respects the rights of the class as well as those of its opponent“]). If, as the majority holds, it is not appropriate to dismiss the class allegations in this case, it is difficult to foresee a case in which the majority‘s rule will have any practical effect: motions to dismiss even the most inadequate of class allegations must be denied. That outcome invites parties to file class allegations—even if a class could never be cеrtified—knowing that they can force opposing parties to bear the costs of class discovery and certification proceedings (see e.g. Adler, 42 Misc 3d at 619, 629-630). The effect will be to diminish the power of the court to prevent abuse of the class action process.
Order insofar as appealed from affirmed, with costs, and certified question answered in the affirmative.