OPINION OF THE COURT
Chief Judge LIPPMAN.
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 (13 NY3d at 286). Prior to Roberts, the New York State Division of Housing and Community Renewal (DHCR) took the position that where participation in the J-51 program was not the sole reason for the rent-regulated status of a building, particular apartments could be luxury decontrolled. As a consequence, many landlords decontrolled particular apartments in their buildings, charging tenants market rents, while at the same time receiving J-51 tax abatements. In Roberts, we did not address the legitimacy of the putative class action, but we now address the issue.
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, 105 A.D.3d 625 [1st Dept 2013]). As the record in Gudz indicates, Supreme Court also rejected the argument that the RSL mandates treble damages, remarking that "[c]ourts have consistently held that plaintiffs may waive the penalty portion of a statute that would otherwise render the action ineligible for class certification." The Appellate Division majority concluded the same, finding that waiver of the treble damages provision does not violate CPLR 901 (b) or the RSL because CPLR 901 (b) allows waiver of a penalty, and the RSL does not mandate treble damages (see Gudz, 105 AD3d at 625-626). Because "treble damages are not the sole measure of recovery" and a landlord may overcome the presumption of willfulness, the penalty was not mandatory and plaintiff's claim for overcharges and interest did not fall within the definition of a penalty under CPLR 901 (b) (id. at 625-626). "[E]ven though such recovery is denominated a penalty by the RSL," it is not a penalty "because [claims for overcharges and interest] lack a punitive, deterrent and litigation-incentivizing purpose and are, in fact, compensatory" (id. at 626 [citation omitted]). The dissenting Justices contended that plaintiff's waiver of the treble damages remedy "circumvent[ed] the clear intent of CPLR 901 (b), which is to preclude the maintenance of a class action suit seeking a penalty" (id. at 627). Conceding
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., 107 A.D.3d 86, 89 [1st Dept 2013]). The court also concluded that a unilateral waiver complies with the Rent Stabilization Code's prohibition of any agreement to waive its provisions (see id. at 89-90). The majority remanded for further proceedings to evaluate whether the allegations satisfy factors for class certification under CPLR 901 (a).
In each case, the Appellate Division certified a question to this Court.
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. (33 N.Y.2d 304, 313 ), in which we commended the legislature for its "comprehensive proposal to provide a broadened scope and a more liberal procedure for class actions," the legislature intended for CPLR 901 (b) to be interpreted liberally, and be a stark contrast from the former statute "which fail[ed] to accommodate pressing needs for an effective, flexible and balanced
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:
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., 237 N.Y. 376, 380 ). Continuing, he cautioned us "to remember that the same provision may be penal as to the offender and remedial as to the sufferer" and "[t]he nature of the problem will determine whether we are to take one viewpoint or the other" (id. at 380). As Judge Cardozo alluded, the word penalty does have a specific definition that does not apply to actual damages. "[A] statute imposes a penalty when the amount of damages that may be exacted from the defendant would exceed the injured party's actual damages" (Vincent C. Alexander, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C901:11 at 104 [2006 ed]).
This Court signaled that the "determination of whether a certain provision constitutes a penalty may vary depending on the context" (Sperry, 8 NY3d at 213). In Sperry, where we found the treble damages provision of General Business Law § 340 (5) constituted a penalty, we also found that "one third of the award unquestionably compensates a plaintiff for actual damages" while "the remainder necessarily punishes ... violations, deters such behavior (the traditional purposes of penalties) or encourages plaintiffs to commence litigation" (Sperry, 8 NY3d at 214). We disallowed class action recovery in Sperry, but the plaintiff plainly sought treble damages, refusing to waive the
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" (5 N.Y.3d 44, 50  [emphasis added]). There, we held that "[t]he imposition of prejudgment interest ensures that injured tenants will be made whole" (Fenwick, 5 NY3d at 51). Reading the interest provision as punitive would be "inconsistent with the purpose of overcharge proceedings to fully compensate tenants when owners fail to comply with rent stabilization requirements" (Fenwick, 5 NY3d at 51). We emphasized that the award refunded the tenant since the landlord "had the use of the tenant's money ... while the tenant was deprived of it" (Fenwick, 5 NY3d at 52). The same circumstance arises here where the landlord overcharges a tenant, holds that money for a time, and then must pay it back. When a store overcharges a customer who later brings in the receipt seeking a refund of the overcharge, no one could argue that repayment penalizes the store — the money always belonged to the customer. As we found in Fenwick, we find here that the first third of the treble damages award merely compensates the tenant and CPLR 901 (b) does not apply to such a nonpunitive claim.
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, 34 Misc.3d 1202[A], 2011 NY Slip Op 52322[U] [Sup Ct, NY County 2011]). Only after the Roberts decision did the DHCR's guidance become invalid.
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., 94 N.Y.2d 43, 52-53 ) and "reviewable by us only for an abuse of discretion" (Corsello v Verizon NY, Inc., 18 N.Y.3d 777, 791 , rearg denied 19 N.Y.3d 937 ; City of New York v Maul, 14 N.Y.3d 499, 509 ). In Borden and Gudz, the courts below thoroughly evaluated the five prerequisites that CPLR 901 (a) requires to be satisfied before a class may be certified, and thus the Appellate Division did not abuse its discretion in affirming those determinations. The prerequisites are:
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, 47 F.3d 473, 483 [2d Cir 1995] ["numerosity is presumed at a level of 40 members"]).
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, 105 AD3d at 631). It should be noted that the legislature enacted CPLR 901 (a) with a specific allowance for class actions in cases where damages differed among the plaintiffs, stating "the amount of damages suffered by each class member typically varies from individual to individual, but that fact will not prevent the suit from going forward as a class action if the important legal or factual issues involving liability are common to the class" (Mem of St Consumer Protection Bd at 3, Bill Jacket, L 1975, ch 207).
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.
SMITH, J. (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:
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., 8 N.Y.3d 204, 212-213  [citing cases]). The reverse should also be true; where the statute says a remedy is a penalty, it is one. At least, we would not be justified in rejecting the legislative label unless it were plain that it is a misnomer — that the single overcharge remedy, though called a penalty, is in fact a purely compensatory remedy. Here, there is ample justification for the legislative choice to call this remedy a penalty.
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.
Opinion by Chief Judge LIPPMAN. Judges GRAFFEO and RIVER concur; Judge READ concurs in result for reasons stated in the memorandum at the Appellate Division (105 A.D.3d 630 ); Judge SMITH dissents in an opinion in which Judge PIGOTT concurs; Judge ABDUS-SALAAM taking no part.
In Gudz v Jemrock Realty Co., LLC: Order affirmed, with costs, and certified question answered in the affirmative.
Opinion by Chief Judge LIPPMAN. Judges GRAFFEO and RIVER concur; Judge READ concurs in result for reasons stated in the memorandum at the Appellate Division (105 A.D.3d 625 ); Judge SMITH dissents in an opinion in which Judge PIGOTT concurs; Judge ABDUS-SALAAM taking no part.
In Downing v First Lenox Terrace Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.
Opinion by Chief Judge LIPPMAN. Judges GRAFFEO and RIVER concur; Judge READ concurs in result for reasons stated by Justice Richard T. Andrias at the Appellate Division (107 A.D.3d 86 ); Judge SMITH dissents in an opinion in which Judge PIGOTT concurs; Judge ABDUS-SALAAM taking no part.