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Elise Downing, et al v. First Lenox Terrace Associates

April 25, 2013

ELISE DOWNING, ET AL., PLAINTIFFS-APPELLANTS,
v.
FIRST LENOX TERRACE ASSOCIATES, ET AL., DEFENDANTS-RESPONDENTS.



Plaintiffs appeal from the orders of the Supreme Court, New York County (Charles E. Ramos, J.), entered on or about November 15, 2011 and October 25, 2011, which to the extent appealed from as limited by the briefs, upon renewal, granted defendants' motion to dismiss plaintiffs-tenants' action.

The opinion of the court was delivered by: Andrias, J.

Downing v First Lenox Terrace Assoc.

Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on April 25, 2013

Peter Tom,J.P. Richard T. Andrias Dianne T. Renwick Leland G. DeGrasse Sheila Abdus-Salaam, JJ.

ANDRIAS, J.

In this putative class action, plaintiffs, 13 tenants or former tenants of a residential complex owned by defendants, allege that defendants unlawfully deregulated their apartments under the luxury decontrol provisions of Rent Stabilization Law (Administrative Code of City of NY) § 26--501 et seq., while receiving tax incentive benefits under the City of New York's J--51 program (see Roberts v Tishman Speyer Props., L.P., 13 NY3d 270, 280 [2009]). Plaintiffs seek, among other things, a declaration that all apartments in the complex are subject to rent stabilization, injunctive relief, and a money judgment. While plaintiffs demanded treble damages pursuant to Rent Stabilization Law § 26-516(a) in their amended complaint, they have since waived that request and seek only reimbursement of the alleged rent overcharges plus interest.

Supreme Court erred when it dismissed the putative class action pursuant to CPLR 901(b) and the individual claims on the ground that they should be brought before the Division of Housing and Community Renewal (DHCR). Because plaintiffs now seek to recover only their actual damages plus interest, rather than enhanced damages, and because Supreme Court has concurrent jurisdiction with DHCR with respect to overcharge claims, defendants' motion to dismiss should be denied.

Pursuant to Rent Stabilization Law § 26-516(a), "[i]f it is determined that the owner's decision to charge the excessive rent was deliberate, or done knowing that the rent as charged was unlawful, a finding of willfulness is entered and a penalty equal to three times the amount of the overcharge must be imposed" (Matter of H.O. Realty Corp. v State of N.Y. Div. of Hous. & Community Renewal, 46 AD3d 103, 107 [1st Dept 2007]). "If the owner establishes by a preponderance of the evidence that the overcharge was not willful," the tenant must be awarded the amount of the overcharge, plus interest "from the date of the first overcharge . . . at the rate of interest payable on a judgment pursuant to section 5004 of the [CPLR]" (Rent Stabilization Code [9 NYCRR] § 2526.1[a][1]).

Pursuant to CPLR 901(b), "[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 in a class action." However, 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, and individual class members are allowed to opt out of the class to pursue their punitive damages claims (see Cox v Microsoft Corp., 8 AD3d 39 [1st Dept 2004]; Pesantez v Boyle Envtl. Servs., 251 AD2d 11, 12 [1st Dept 1998]; Ridge Meadows Homeowners' Assn. v Tara Dev. Co., 242 AD2d 947 [4th Dept 1997]; Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604, 606 [2d Dept 1987]).

Relying on Asher v Abbott Labs. (290 AD2d 208 [1st Dept 2002], lv dismissed 98 NY2d 728 [2002]), defendants argue that the penalties of Rent Stabilization Law § 26-516(a) are mandatory and cannot be waived. In Asher, this Court held that "private persons cannot bring a class action under the Donnelly Act because the treble damages remedy provided in General Business Law § 340(5) is a penalty' within the meaning of CPLR 901(b), the recovery of which in a class action is not specifically authorized and the imposition of which cannot be waived" (290 AD2d at 208).

However, under General Business Law § 340(5), treble damages are awarded upon a finding of liability; the statute does not require a finding of willfulness or bad faith. In contrast, Rent Stabilization Law § 26-516(a) only requires treble damages where the landlord cannot demonstrate that it did not act willfully, and is analogous to Labor Law 198(1-a), under which plaintiffs have been allowed to waive their right to liquidated damages to preserve the right to maintain a class action, provided that putative class members ...


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