| Gudz v Jemrock Realty Co., LLC |
| 2013 NY Slip Op 02814 [105 AD3d 625] |
| April 25, 2013 |
| Appellate Division, First Department |
| Yanella Gudz, Respondent, v Jemrock RealtyCompany, LLC, Appellant. |
—[*1] Bernstein Liebhard LLP, New York (Christian Siebott of counsel), forrespondent.
Order, Supreme Court, New York County (Eileen A. Rakower, J.), entered October26, 2011, which, upon reargument, adhered to a prior order, same court and Justice,entered June 20, 2011, granting plaintiff's motion for class certification, affirmed,without costs. Appeal from the prior order, dismissed, without costs, as academic.
Plaintiff's rent overcharge claim did not seek a "penalty" within the meaning ofCPLR 901 (b), because she waived her right to treble damages under Rent StabilizationLaw of 1969 (RSL) (Administrative Code of City of NY) § 26-516 (a). The waiverwas effective, since, unlike the mandatory penalty provided under the Donnelly Act(General Business Law § 340 [5]; see Asher v Abbott Labs., 290 AD2d208 [1st Dept 2002], lv dismissed 98 NY2d 728 [2002]), treble damages are notthe sole measure of recovery, and an owner found to have overcharged may submitevidence to overcome the statutory presumption of willfulness (see Downing v FirstLenox Terrace Assoc., 105 AD3d —, 2013 NY Slip Op 02853 [1st Dept2013], and Borden v 400 E. 55th St. Assoc., L.P., 105 AD3d 630 [1st Dept 2013] [decided simultaneously herewith]).
Although plaintiff did not waive her right to reimbursement for alleged overchargesand interest, these claims did not render her action an action for a penalty for purposes ofCPLR 901 (b), even though such recovery is denominated a penalty by the RSL, becausethey lack a punitive, deterrent and litigation-incentivizing purpose (see Sperry v Crompton Corp.,8 NY3d 204, 212-213 [2007]) and are, in fact, compensatory (see Mohassel v Fenwick, 5NY3d 44, 50-51 [2005]).
Nor did the attorneys' fees request seek a penalty, as the general right to attorneys'fees in landlord-tenant proceedings (Real Property Law § 234) does not apply toadministrative proceedings (seeMatter of Blair v New York State Div. of Hous. & Community Renewal, 96 AD3d687 [1st Dept 2012]), and the RSL provision should be understood as having thesame nonpunitive purpose as the statute applicable to actions and summary proceedings.Notably, the reference in Rent Stabilization Code (9 NYCRR) § 2526.1 (d) toattorneys' fees as an "additional penalty," while otherwise not dispositive, is absent fromthe attorney fee provision in the [*2]legislatively enactedRSL.
Interpreting the requirements of the class action statute liberally, as we must (see City of New York v Maul,14 NY3d 499, 509 [2010]), we agree with the motion that those requirements weresatisfied. We reject defendant's contention that plaintiff was required to provide anaffidavit focused solely on her financial ability to adequately represent the class, whichwas adequately shown by counsel's assumption of the risk of costs and expenses in thelitigation.
We have considered defendant's other contentions and find them unavailing.Concur—Tom, J.P., Sweeny and Gische, JJ.
Moskowitz and Manzanet-Daniels, JJ., dissent in a memorandum byManzanet-Daniels, J., as follows: This appeal requires us to consider what constitutes a"penalty" for purposes of the class action statute, CPLR 901 (b), and whether a putativeclass representative may waive such penalty and still be deemed an adequate classrepresentative.
CPLR 901 (b) expressly provides that "[u]nless a statute creating or imposing apenalty, or a minimum measure of recovery specifically authorizes the recovery thereofin a class action, an action to recover a penalty, or minimum measure of recovery createdor imposed by statute may not be maintained as a class action" (emphasis added).CPLR 901 (b) thus precludes the maintenance of a class action seeking a penalty.
An award of treble damages under the Rent Stabilization Law of 1969 (RSL) clearlyconstitutes a "penalty." For one, such a recovery is denominated a penalty by the RSL(compare Bogartz v Astor, 293 NY 563 [1944] [double payment recoverableunder Workers' Compensation Law not a penalty because the statute referred to "doublecompensation"]). RSL (Administrative Code of City of NY) § 26-516 (a) statesthat if DHCR finds that an owner has collected rent in excess of that authorized by thestatute, the owner "shall be liable to the tenant for a penalty equal to three times theamount of such overcharge."
While one third of the award constitutes compensation for actual damages, theremaining two-thirds serves to punish the defendant on account of the willfulness of theviolation, acting as a deterrent (see Sperry v Crompton Corp., 8 NY3d 204, 212-213[2007]). As noted by the Court of Appeals, "These provisions are designed to discourageviolations of the Rent Stabilization Law" (Mohassel v Fenwick, 5 NY3d 44, 50 [2005]).
Since the enactment of RSL § 26-516 (a) postdates that of CPLR 901 (b), wemust assume that the legislature was aware that by denominating the treble damagesaward a "penalty" it was foreclosing the maintenance of a class action suit (seeSperry, 8 NY3d at 212-213; Asher v Abbott Labs., 290 AD2d 208 [1st Dept2002], lv dismissed 98 NY2d 728 [2002]).
The majority reasons that the statute does not impose a penalty because trebledamages are not the "sole" measure of recovery for rent overcharges. It is true that trebledamages are not available where an owner proves, by a preponderance of the evidence,that the overcharge was not willful. Nonetheless, it is inescapable—and notdisputed by the majority—that treble damages are mandatory in the eventthe owner is found to have overcharged the tenant. A landlord who fails to rebut thestatutory presumption of willfulness will be subject to treble damages.[*3]
The majority finds CPLR 901 (b) inapplicable inthis case because the plaintiff class representatives waived the right to seek trebledamages under RSL § 26-516 (a). However, to permit such a waiver would be tocircumvent the clear intent of CPLR 901 (b), which is to preclude the maintenance of aclass action suit seeking a penalty. Plaintiff's waiver of treble damages is moreover voidunder Rent Stabilization Code (9 NYCRR) § 2520.13, which provides that "[a]nagreement by the tenant to waive the benefit of any provision of the RSL or thisCode is void" (emphasis added; see e.g. Draper v Georgia Props., 230 AD2d 455[1st Dept 1997], affd 94 NY2d 809 [1999]; Drucker v Mauro, 30 AD3d 37 [1st Dept 2006], appealdismissed 7 NY3d 844 [2006]; Georgia Props., Inc. v Dalsimer, 39 AD3d 332 [1st Dept2007]).
I am unpersuaded by the majority's reasoning that 9 NYCRR 2520.13 does not applybecause plaintiff purported to "waive" the class members' rights to treble damages, ratherthan agreeing to do so via lease or stipulation. Whether unilaterally or via agreement, thefact remains that plaintiff has agreed to give up the benefit of a statutory protection, i.e.,the treble damages afforded by RSL § 26-516 (a), on behalf of not only herself butthe class—a far more profound impact than one individual purporting to agree togive up her rights via lease. We have previously held that an agreement "which waivesthe benefit of a statutory protection is unenforceable as a matter of public policy,even if it benefits the tenant" (Drucker, 30 AD3d at 38 [emphasisadded]). Since the effect of the waiver is to vitiate a provision integral to theRSL—the exaction of excessive rents by the landlord—I am compelled toconclude that it is void under 9 NYCRR 2520.13.
Because the penalty imposed by RSL § 26-516 (a) is a mandatory one,maintenance of a class action is prohibited (see e.g. Rudgayzer & Gratt v Cape Canaveral Tour & Travel,Inc., 22 AD3d 148, 149 [2d Dept 2005] [class action may not be maintainedunder the Telephone Consumer Protection Act (47 USC § 227) because section227 (e) (5) (A) (i) provides that "(a)ny person that is determined by the Commission. . . to have violated this subsection shall be liable to the United States for aforfeiture penalty"]; Giovanniello v Carolina Wholesale Off. Mach. Co., Inc., 29AD3d 737 [2d Dept 2006] [same]; Paltre v General Motors Corp., 26 AD3d 481 [2d Dept2006] [same]; Weber vRainbow Software, Inc., 21 AD3d 411 [2d Dept 2005] [same]; Klapak vPappas, 79 AD2d 602, 602 [2d Dept 1980] [class action may not be maintainedunder Social Services Law § 131-o where the relevant provisions of the lawprovide for "recovery of additional punitive damages in an amount equal to twice theamount (of personal allowance funds) misappropriated or withheld"]).[FN*]
This case is distinguishable from those cited by plaintiffs, which involve the waiverof discretionary, as opposed to mandatory, penalties (see e.g. Super Glue Corp. vAvis Rent A Car Sys., 132 AD2d 604 [2d Dept 1987] [under consumer protectionstatute, General Business Law § 349 (h), which provides that any plaintiff injuredby reason of a violation of the statute may bring an action to recover his actual damagesor $50, whichever is greater, with treble damages recoverable at the court's discretion];Ridge Meadows Homeowners' Assn. v Tara Dev. Co., 242 AD2d 947 [4th Dept1997] [same]). In allowing "waiver," the majority both rewrites the RSL to provide for adiscretionary rather than a mandatory penalty, and circumvents the clear [*4]purpose of CPLR 901 (b), which is to prohibit themaintenance of a class action for a penalty.
I am similarly unpersuaded by the majority's reasoning that there is no statutoryviolation because an individual class member may opt out of the class to pursue his orher treble damages claim. By allowing a class action to proceed seeking only actualdamages, we permit the class to effectively rewrite RSL § 26-516 (a) andundermine the legislature's purpose in enacting the statute. Further, allowing waiverunder these circumstances arguably does not satisfy due process. A putative classmember would not assume that his or her rights might be compromised by waiver ofpotential claims for treble damages since CPLR 901 (b) expressly forbids themaintenance of a class action seeking a penalty. Since an award of treble damagespursuant to RSL § 26-516 (a) unequivocally constitutes a "penalty," no rationalclass member would presume that a class representative would have the right to waivethese claims, and, more importantly, that he or she would be bound by any such waiverand unable to pursue a treble damages claim if he or she, like most absent class members,neglected to opt out.
Finally, the unilateral waiver of a statutorily imposed penalty by a classrepresentative adversely affects his or her ability to act as an adequate classrepresentative (see Small v Lorillard Tobacco Co., 94 NY2d 43, 54 [1999][affirming finding that plaintiffs were not adequate class representatives where theylimited their theory of recovery in "significant ways" and limited their claim for damages"in order to shape a legally de minimis theory of the case"]). Plaintiff's position willconflict with that of some members of the putative class who, unlike plaintiff, may havesuffered substantial overcharges, or whose rent histories may be different, or whoseapartments may be classified under a different regulatory category. Since the statuteauthorizes both actual (in the event the landlord rebuts the presumption of willfulness)and punitive damages, the named representative must seek both in order to adequatelyrepresent the interests of the proposed class (see Klapak, 79 AD2d at 602).
The putative waiver, moreover, was procedurally defective insofar as it was notaccomplished by plaintiff class representative via affidavit or amended pleading, but byplaintiff's attorney in a reply affirmation (see Pludeman v Northern Leasing Sys., Inc., 74 AD3d 420,422 [1st Dept 2010] ["The proponent of class certification bears the burden ofestablishing the criteria promulgated by CPLR 901 (a) . . . and must do soby the tender of evidence in admissible form"]).
For all of the above reasons, I would find that plaintiff's waiver of the statutory trebledamages provisions of the RSL is void and that maintenance of a class action isprohibited under CPLR 901 (b).
Footnote *: Social Services Law§ 131-o, similar to RSL § 26-516 (a), provides for the recovery ofactual damages in the event of non-willful conduct, and punitive damages in the event ofintentional misappropriation.