NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R.1:36-3.
Plaintiffs Darnice Green, Michael and Beth Permenter and their son Mathew Blumberg appeal, on leave granted,
The essential facts were set forth in the Supreme Court's prior opinion in this matter,
From 2007 until 2010, each named plaintiff was a party to a lease requiring payment of an attorney's fee of $400 as additional rent in the event the landlord had to employ a lawyer to recover rent due and owing.
Each of the named plaintiffs was subjected to eviction proceedings for non-payment of rent on multiple occasions and was charged $400 in attorneys' fees each time. They did not, however, pay that sum each time. Sometimes Morgan reduced the fee charged. Plaintiffs Green and Blumberg vacated their apartments still owing rent, including attorneys' fees, although Blumberg's co-signer eventually paid all Blumberg owed on his lease. Their individual circumstances are summarized below.
The Named Plaintiffs
Plaintiff Green was a tenant at The Willows from May 2002 until September 2010. The parties agree she was late paying her rent on twenty-six occasions, resulting in the filing of five summary dispossess actions. Each eviction action included a demand of $400 for legal fees and court costs of $31. Green paid the full $400 on two occasions. She was granted a $200 credit on one occasion and a $300 credit on another. She did not pay any amount toward the $400 legal fee charged in the fifth and final proceeding.
The Permenters have resided at Colonial since January 2005. The parties agree the couple was late paying their rent on over thirty occasions, resulting in the filing of five summary dispossess actions. Each eviction action included a demand of $400 for legal fees and court costs of $37. The Permenters paid the full $400 on one occasion. They were granted a credit of $400 on one occasion and a credit of $200 on three others. The Permenters were thus charged total legal fees of $2000, of which they paid $1000.
Plaintiff Blumberg was a tenant at Colonial from March 2006 through September 2009. He was late paying rent every month but one and was subject to five summary dispossess actions. Each eviction action included a demand of $400 for legal fees and $37 in court costs. Blumberg paid the full $400 on two occasions. He was granted a $400 credit on one occasion and a $200 credit on another. Although he was evicted from his apartment in September 2009 owing $1252.81, including the $400 legal fee charged on his last eviction, that amount was paid in full in August 2010 by his aunt, who co-signed his lease. Blumberg was thus charged total legal fees of $2000, of which "he" paid $1400.
The Supreme Court's Opinion
In its opinion reinstating the CFA claim against defendants, the Court expressed several reasons for rejecting defendants' argument that the $400 lease term represented a reasonable liquidated damages provision.
As the Court explained, "[t]hat these plaintiffs may have paid the attorneys' fees set forth in the leases in order to avoid eviction does not preclude them from attempting to challenge the fees as being so unreasonable as to violate the CFA in a corollary proceeding."
The Class Certification Motion
Following discovery, plaintiffs sought class certification on the single count of the complaint alleging violations of Section 2 of the CFA.
Plaintiffs presented two expert reports in support of their motion. One by a practicing landlord-tenant lawyer regarding the reasonableness of the $400 fee in comparison to the rates charged by firms representing landlords in Burlington and Camden counties, and the other by a forensic accountant who analyzed Morgan's expenses for the eviction actions against the legal fees charged to the tenants in order to calculate the damages sustained by the class. Plaintiffs' attorney expert, David Capozzi, averred the $400 fee Morgan charged its tenants well exceeded the $110 to $150 per eviction two different local firms charged Morgan for preparing, filing and serving tenancy complaints and appearing on the trial date. Plaintiffs' forensic accountant, Forensic Resolutions, Inc., calculated on the basis of Morgan's records that Morgan incurred a cost of between $125 to $139 per eviction, resulting in tenants being overcharged in amounts ranging from $11 to $275 for each eviction action.
Defendants countered with their own joint forensic expert report prepared by EisnerAmper LLP, comparing the attorneys' fees charged the tenants, net of credits, against the costs of operating Morgan's in-house legal department for the years spanning the putative class period. Based on total fees collected of $3,838,894 and operating expenses of $3,790,548 over the same period, EisnerAmper calculated that tenants were overcharged a total of $48,346, or $2.17 per eviction, leading it to conclude that the $400 charge included in the leases was supported and consistent with the operating costs of Morgan's legal department. At deposition, the expert testified that using those same figures, Morgan's actual cost per eviction was $170 and it collected, on average, $172 per eviction.
In their briefs on the motion, the parties debated whether plaintiff had established the
Plaintiffs argued in reply that their proposed class was not overbroad because the attorney's fee charged to tenants was "an illegal debt that is the product of fraud."
Although the parties disagreed on the reasonableness of the fees charged, plaintiffs accepted Morgan's figures of the number of eviction proceedings over the putative class period, the fees Morgan charged to tenants on those occasions and the credits Morgan awarded against those charges. From January 2007 through September 2014, Morgan charged over 10,000 different tenants, attorneys' fees on 22,308 different occasions. On 16,754 of those occasions, or 75% of the time, those fees amounted to $400. On the 22,308 occasions Morgan charged tenants fees, it subsequently credited the tenant's account for some or all of the fee 10,183 times, meaning on 12,125 occasions, no credits were awarded. The parties agree that of the 10,613 New Jersey tenants who were charged an attorney's fee by MLM Management through December 31, 2014, slightly over 50% (or 5319) of those tenants left owing rent and other charges, after the application of the security deposit. There are no figures in the record, of which we are aware, quantifying the number of tenants who left owing more than they were charged in legal fees.
Although plaintiffs dispute that all of the expenses Morgan's expert includes among the allocated costs of running Morgan's legal department are proper, even under Morgan's analysis there are several years in which collections of legal fees have exceeded the department's expenses, sometimes significantly. In 2008, for example, collections outstripped expenses by $425,924.
The Trial Court's Opinion
The trial court began its analysis by addressing the parties' dispute over plaintiffs' obligation to prove ascertainable loss in order to establish its CFA claim and the Supreme Court's holding that defendants bear the burden to "demonstrate that the basis on which the fees were calculated and included in the leases is reasonable."
Analyzing the class plaintiffs initially proposed on the motion, all tenants charged attorneys' fees under the leases, the judge found it met none of the
The judge rejected numerosity because "[d]efining the class by those who were merely charged a legal fee for an eviction, regardless of whether the tenant actually paid and ignoring whether the particular circumstances of the fee were actually reasonable makes for a class definition that is impermissibly broad," and would result in "a class that contained members who sustained no ascertainable loss and were not entitled to recovery under the Plaintiffs' Consumer Fraud claim."
The judge rejected commonality because "[t]he inquiry in this case principally requires a finder of fact to determine whether the fees charged to a particular plaintiff were reasonable in order to prevail on the CFA claim." He concluded that "those questions of fact or law that Plaintiffs assert are common to the class would require a much too individualized inquiry into the facts and circumstances of each class member's eviction proceedings to merit certification." Because some proposed class members "paid attorneys' fees to avoid eviction [and] others did not," the judge further concluded "there may well be no single `typical' Plaintiff because there may well be no `typical' class member." He thus concluded plaintiffs failed to meet the typicality requirement as well.
In analyzing predominance, the judge considered plaintiffs' argument that "common issues predominate because the central issue to the case requires a determination that the Defendants engaged in a common course of conduct that illegally charged attorney's fees to the putative class" against defendants' claim that the argument for "class certification depends less on demonstrating a common illegal scheme perpetrated by the Defendants, [and] more toward showing that the attorney's fees charged to each Plaintiff were unreasonable." The judge found "[t]he issues of liability in this case are focused on damages assessed on an individual basis," noting that plaintiffs' own expert conceded at deposition that "the reasonableness of the fees assessed would have to be determined individually." He accordingly concluded that common questions of law or fact did not predominate over questions only affecting individual members.
In assessing the superiority of a class action against other methods of adjudication, the judge focused on the potential for counterclaims for unpaid rent against class members. Concluding "that there may be little other alternative for the Defendants but to bring claims against class members" for unpaid rent under New Jersey's entire controversy doctrine,
Finally, although acknowledging defendants' concession that class counsel are certainly qualified to represent the class, the judge concluded "there is no incentive for the named Plaintiffs to defend claims against individual class members for unpaid rent." He thus concluded the named plaintiffs would not adequately protect the interests of the class as required by
Our Supreme Court has described the class action as "a device that allows `an otherwise vulnerable class' of diverse individuals with small claims access to the courthouse."
Applying that standard here, we agree with the trial court that a proposed class of all tenants who were charged attorneys' fees under the 2007 and 2010 Morgan leases is not maintainable. The very real threat of counterclaims against class members for unpaid rent exceeding any recovery makes a class including such tenants impermissibly broad.
In our view, however, defendants' counterclaims for unpaid rent against some former tenants are not fatal to plaintiffs' efforts to certify a class in this case. Accordingly, we review the court's class certification analysis of plaintiffs' CFA claim applied to the same putative class only excluding those tenants who were evicted or quit their apartments owing more than they were charged in legal fees.
Plaintiffs pursuing a CFA claim need prove only three things: an unlawful practice, an ascertainable loss, and a causal relationship between the two.
A class of tenants who were charged legal fees by defendants under their leases but did not quit their apartments owing more than those charges, represented by defendants to number at least 5294 tenants, easily satisfies the numerosity requirement.
The nub of the dispute over this case proceeding as a class action is whether plaintiffs have met their burden of proving that common questions of law and fact predominate over individual claims.
As we see it, the central question is whether the $400 fee charged to all plaintiffs was reasonable or instead, unconscionable. Or, stated differently, whether defendants' inclusion of the $400 charge in their tenant leases, characterized by the Supreme Court as contracts of adhesion,
The lease term is important because, as the Court has noted, "summary dispossess litigation is an effective — and at times coercive — mechanism for collecting rent and other fees."
The predominance inquiry "tests whether the proposed class is `sufficiently cohesive to warrant adjudication by representation'" by considering the significance of the common questions versus the individualized questions underlying the members' claims.
The issue on which the trial court focused, whether the fees charged to an individual plaintiff were reasonable, no doubt depends on individual assessments. But the issue of whether the fees charged to an individual plaintiff were reasonable goes to ascertainable loss and damages and only comes into play if plaintiffs have succeeded in proving the $400 fee included in their leases was unconscionable.
The parties in this case have conducted extensive fact discovery and engaged experts who have prepared comprehensive reports directed entirely to the question of whether the $400 fee in the lease was a reasonable approximation of the fees defendants could expect to incur in a summary dispossess action or an unconscionable overreach. Any evidentiary questions regarding the reliability or admissibility of those opinions and the credibility of the experts apply uniformly to all members of the class. A jury may appropriately consider the basis on which the fees were calculated, whether the costs defendants include in the operating expenses for the legal department are fairly allocated, whether the $400 fee included in the leases is a reasonable approximation of defendants' expected costs for a summary dispossess action, whether defendants may base the $400 fee on its collections of fees charged instead of its costs for services performed and whether those costs are reasonable in comparison to the fees charged by outside lawyers for the same work. If the jury decides the $400 lease charge is unconscionable, it can decide what lease charge would be reasonable.
Although resolution of those issues may not dispose of the litigation, in the event it does not, it will at least establish a basis for determining whether individual class members suffered an ascertainable loss. Using the Permenters as an example, if the jury were to decide that the $400 fee included in the leases was reasonable, plaintiffs could not succeed in proving an unlawful practice, ending the litigation and binding all class members to that result. If, on the other hand, the jury decided the $400 lease charge was unreasonable and that a fair charge was $200, then the Permenters, having paid $400 on one occasion, $0 on one occasion and $200 on three occasions, could establish an ascertainable loss of $200, subject to defendants' ability to demonstrate that the $400 was a reasonable fee in light of the work performed on the summary dispossess action in which the Permenters paid a $400 fee.
Significantly, almost all of the proofs relating to the many individual issues defendants assert must be resolved for each class member are in defendants' possession in the form of the tenant ledgers and other computerized records. Even though defendants claim their costs varied from eviction to eviction, Morgan's actual ability to demonstrate the reasonableness of the fee charged any particular tenant is unclear in light of its lawyers' and paralegals' failure to maintain time records. "Although `different factual situations may arise with respect to the
Weighing the significance of the common questions, the benefit of resolving those questions, as well as at least some individual questions of ascertainable loss, through a class action against alternatives, and considering the "common nucleus of operative facts,"
Finally, there can be little doubt that class litigation is "superior to other available methods for the fair and efficient adjudication of the controversy" in this case.
In our view, this case is well suited to class treatment. A narrowed class, drawn so as to exclude those tenants against whom defendants could assert counterclaims overwhelming the common claims of the class, is an appropriate vehicle to redress what the plaintiffs claim are systemic illegal lease charges to over 5000 tenants in this State.
Although it is likely that individual issues will remain following resolution of the common questions, posing some management challenges, the issues here are not nearly so complicated as those posed in either
Although we agree with the trial court that the larger class plaintiffs proposed was not maintainable in accordance with
Vacated and remanded. We do not retain jurisdiction.