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Tenants Can Bring Roberts Type Cases as Class Actions

On April 25, 2013 the Appellate Division, First Department issued three decisions that answered lingering questions regarding whether a Roberts-style case would be allowed to move forward as a class action.  In all three cases, the First Department decided that they could, allowing tenants to waive treble damage claims that would have triggered the penalty restriction in New York’s class action law, CPLR 901.

The First Department cases (Downing v. First Lenox Terrace Assocs., Gudz v. Jemrock Realty, and Borden v. 400 East 55th Street Assocs.) all arose following the New York State Court of Appeals decision in Roberts v. Tishman Speyer Props. In Roberts, the court held that a building owner receiving J-51 tax benefits is prohibited from deregulating rent stabilized apartments. While this ruling opened the door for tenants to bring for a rent overcharge and/or an order declaring that their apartments had been illegally destabilized, the question as to whether these cases could proceed as class actions remained unanswered.  The hurdle lies in the New York class action statute (CPLR 901) which prohibits a class from recovering damages that would be classified as penalties. CPLR 901(b) states:

“Unless a statute creating or imposing a penalty . . . specifically authorizes the recovery thereof in a class action, an action to recover a penalty . . . created . . by a statute may not be maintained as a class action.” (emphasis added).

The New York Rent Stabilization Law (RSL) allows for the recovery of two types of damages. If a landlord knowingly charged excessive rent, a tenant may seek an award of treble damages, or three times the amount of the overcharge.. However if the landlord can prove that the overcharge was not willful (and many cannot) then the tenant is limited to the amount of the overcharge plus interest.  Previous case law has established that RSL treble damages constitute a penalty under 901(b). Since the RSL does not specifically authorize the availability of treble damages in class action proceedings, tenants seeking treble damages are barred from doing so in the context of a class action. Realizing this barrier, the tenants in Downing, Gudz, and Borden all opted to unilaterally waive their right to treble damages as a class and only pursue an award of overcharge plus interest.

The landlords involved in the cases responded by asking the court to deny the tenants’ request to waive their right to seek treble damages based on the language of the RSL.  According to the statute, “an agreement by the tenant to waive the benefit of any provision of the RSL . . . is void.” Thus, the question before the court hinged on whether the tenant’s request would run afoul of this provision.  The First Department answered by rejecting the landlords’ position and holding instead that, the tenants could waive the treble damage claims and move forward as a class without violating either the RSL or the CPLR 901(b).  In Downing, the court explained the rationale behind this decision by explaining that, allowing tenants to unilaterally waive this right would not frustrate the RSL’s purpose of avoiding situations in which the landlord attempts to circumvent the RSL’s benefits.

All of the owners involved in these cases will be moving the First Department for leave to appeal to the Court of Appeals.  Stay tuned to find out whether the First Department allows the Court of Appeals to weigh in on this question.

By: Joshua Wackerly, Legal Intern for Fishman & Mallon, LLP
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