Lorraine Borden, et al., Respondents,v.400 East 55th Street Associates, L.P., Appellant.

Brief

N.Y.October 14, 2014

To be Argued by: JEFFREY TURKEL (Time Requested: 30 Minutes) APL-2013-00312 New York County Clerk’s Index No. 650361/09 Court of Appeals of the State of New York   LORRAINE BORDEN, on behalf of herself and all others similarly situated, Plaintiff-Respondent, – against – 400 EAST 55TH STREET ASSOCIATES, L.P., Defendant-Appellant. REPLY BRIEF FOR DEFENDANT-APPELLANT 400 EAST 55TH STREET ASSOCIATES, L.P. JEFFREY TURKEL DANI SCHWARTZ Of Counsel ROSENBERG & ESTIS, P.C. Attorneys for Defendant-Appellant 733 Third Avenue New York, New York 10017 Tel.: (212) 867-6000 Fax: (212) 551-8484 Date Completed: April 10, 2014 TABLE OF CONTENTS PRELIMINARY STATEMENT ................................................................................ 1 POINT I RESPONDENT CANNOT EVADE CPLR 901(b) BY PURPORTING TO WAIVE TREBLE DAMAGES UNDER RSL § 26-516(a) .................................................................................... 6 A. Respondent Misapprehends the Intent and Operation of RSL §26-516(a) ............................................................................................ 6 1. RSL § 26-516(a) Cannot be Endlessly Bifurcated to Suit Respondent's Attempted Circumvention of CPLR 901 (b) ......... 6 2. Respondent Misapprehends the Mandatory Nature of Treble Damages under RSL § 26-516( a) .................................... 9 3. Respondent Misapprehends the History of RSL § 26- 516(a) ....................................................................................... 11 4. Respondent's Waiver is not Inconsequential; Owner Still Must Establish Lack of Willfulness ......................................... 13 B. The "Mandatory/Non-Mandatory" Distinction the First Department Used to Determine Whether Penalty Damages can be Waived to Evade CPR 901(b) is Unendorsed by the Court of Appeals, Arbitrary, and Superficial.. .................................................. 16 1. LaborLaw§198(1-a) .............................................................. 19 2. GBL § 349(h) ........................................................................... 24 POINT II A TENANT'S ATTEMPT TO WAIVE A BENEFIT GRANTED UNDER THE RSL FOR ANY PURPOSE, INCLUDING EVASION OF CPLR 901(b), IS VOID AS AGAINST PUBLIC POLICY AND BARRED BY RSC §2520.13 ............................................................................................ 27 A. Respondent's Purported Waiver Violates Public Policy .................... 27 B. Respondent's Purported Waiver Violates RSC § 2520.13 ................. 33 - 1 - RE\29718\0001 \536823v4 POINT III RESPONDENT CANNOT ESTABLISH THE CPLR 90l(a) FACTORS OF ADEQUACY OR SUPERIORITY ........................... 37 A. Respondent's WaiverofTwo-Thirds ofthe Class's Potential Recovery Renders Respondent an Inadequate Class Representative .................................................................................... 3 7 B. Respondent Cannot Establish the Superiority of a Class Action Because DHCR Can Determine all Claims Relating to Rent Stabilization ........................................................................................ 43 CONCLUSION ....................................................................................................... 45 -11- RE\29718\000 1 \536823v4 TABLE OF AUTHORITIES Page(s) Cases 1097 Holding LLC v Ballesteros, 19 Misc3d 1126(A) (Civ Ct New York County 2008) ...................................... 11 lOth Street Assoc. LLC v New York State Div. of Hous. & Community Renewal, 34 Misc3d 1240(A) (Sup Ct New York County 2012) ...................................... 10 212 W. 22 Realty, LLC v Fogarty, 1 Misc3d 905(A) (Civ Ct New York County 2003) ...................................... 7, 10 390 W. End Assoc. v Hare/, 298 AD2d 11 (1stDept2002) ............................................................................ 31 72A Realty Assoc. v Lucas, 28 Misc3d 585 (Civ Ct New York County 2010), aff'd 32 Misc3d 47 (App Term 1st Dept 2011), rev'd 101 AD3d 401 (1st Dept 2012) .............................................. 13, 14, 15, 16 8200 Realty Corp. v Lindsay, 60 Misc2d 248 (Sup Ct New York County 1969), rev'd 34 AD2d 79 (1st Dept 1970), rev'd 27 NY2d 124 (1970) ....................... 12 85 Eastern Parkway Corp. v New York State Div. of Hous. and Community Renewal, 297 AD2d 675 (2d Dept 2002) .......................................................................... 32 Alix v Wal-Mart Stores, Inc., 57 AD 3d 1044 (3d Dept 2008) .......................................................................... 43 Ammon v New York State Div. of Hous. and Community Renewal, 1997 WL 34826119 (Sup Ct New York County 1997) ..................................... 28 Asher v Abbot Laboratories, 290 AD2d 208 (1st Dept 2002) ................................................................ 4, 16, 42 Beer Garden, Inc. v New York State Liquor Auth., 79 NY2d 266 ( 1992) .......................................................................................... 30 - 111- RE\29718\0001\536823v4 Berkovich v Mostovaya, 22 Misc3d 91 (App Term 2d Dept, 11th and 13th Jud. Dists 2009) ................. 28 Blumenthal v American Socy. of Travel Agents, 1977 WL 18392 (Sup Ct New York County) .................................................... 42 Brooklyn Sav. Bankv O'Neil, 324 us 673 (1945) ............................................................................................. 28 CityofNew YorkvMaul, 14 NY3d 499 (2010) ............................................................................................ 4 Downing v First Lenox Terrace Assoc., 107 AD3d 86 (1st Dept 2013) ..................................................................... passim Draper v Georgia Props., 230 AD2d 455 (1st Dept 1997), aff'd 94 NY2d 809 (1999) .................................................................................... 7 Drucker v Mauro, 30 AD3d 37 (1st Dept 2006), lv. to appeal dismissed 7 NY3d 844 (2006) ................................................. 30, 33 Dugan v London Terrace Gardens, L.P., 2013 WL 4878363 (Sup Ct New York County 2013) ....................................... 15 East 163rd Street LLC v New York State Div. of Hous. & Community Renewal, 4 Misc3d 169 (Sup Ct Bronx County 2004) ...................................................... 11 Estro Chemical Co., Inc. v Falk, 303 NY 83 (1951) ....................................................................................... passim Federal Home Loan Mtge. Corp. v New York State Div. of Hous. and Community Renewal, 87 NY2d 325 (1995) ............................................................................................ 5 Georgia Props., Inc. v Dalsimer, 39 AD3d 332 (1st Dept 2007) ................................................................ 31, 35,36 Guardinella v New York State Div. of Hous. & Community Renewal, 141 Misc2d 714 (Sup Ct New York County 1988) ........................................... 30 -lV- RE\29718\000 1 \536823v4 Gudz v Jemrock Realty Co., LLC, 105 AD3d 625 (1st Dept 2013) ................................................................... passim Gustafson v Bell Atlantic Corp., 171 F Supp 2d 311 (SD NY 2001 ) ..................................................................... 19 Hadden v Cons. Edison Co. ofNew York, Inc., 45 NY2d 466 (1978) .......................................................................................... 29 In re Berry Estates, Inc. v State of New York, 812 F2d 67 (2d Cir 1987) ................................................................................... 28 Laurian Assoc., L.P. v Lassoff, 25 Misc3d 1239(A) (Civ Ct New York County 2009) ...................................... 11 Madison Ave. Leasehold, LLC v Madison Bentley Assoc. LLC, 30 AD3d 1 (1st Dept 2006) ................................................................................ 28 Matinzi vJoy, 60 NY2d 835 (1983) .......................................................................................... 32 Matter of Gerald R. M, 12 AD3d 1192 (4th Dept 2004) ......................................................................... 28 McLaughlin v Bd. of Police Commrs. of City of Yonkers, 174 NY 450 (1903) ............................................................................................ 29 Mott v New York State Div. ofHous. & Community Renewal, 202 AD2d 354 (1st Dept 1994) .......................................................................... 10 MQDC, Inc. v Steadfast Ins. Co., 2013 WL 6388624 (ED NY 2013) ............................................................... 25, 28 Nagobich v New York State Div. of Hous. & Community Renewal, 200 AD2d 388 (1st Dept 1994) .......................................................................... 10 Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175 (1982) .......................................................................................... 28 New York State Health Facilities Ass 'n., Inc. v Axelrod, 77 NY2d 340 (1991) .......................................................................................... 30 -v- RE\29718\0001\536823v4 Newport Partners LLC v New York State Div. of Hous. & Community Renewal, 15 Misc3d 1125(A) (Sup Ct New York County 2007) ........................................ 7 Norms Realty Corp. v Rodriguez, 108 Misc2d 124 (Civ Ct New York County 1981) ............................................ 28 Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, N.A., 85 NY2d 20 (1995) ............................................................................................ 25 P AK Realty Assoc. v RE/MAX Universal, Inc., 157 Misc2d 985 (Civ Ct New York County 1993) ............................................ 28 Park Towers So. Co., LLC v Universal Attractions, 274 AD2d 312 (1st Dept 2000) .......................................................................... 31 Pesantez v Boyle Envtl. Serves., Inc., 251 AD2d 11 (1st Dept 1998) .......................................................... 16, 19, 21, 23 Pultz v Economakis, 10 NY3d 542 (2008) .......................................................................................... 31 Rima 106, L.P. v Alvarez, 257 AD2d 201 (1st Dept 1999) .......................................................................... 31 Riverside Syndicate v Munroe, 10 NY3d 18 (2008) ................................................................................ 30, 34, 35 Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 (2009) ................................................................................... passim Rocky 116 L.L.C. v Weston, 284 AD2d 139 (1st Dept 2001) .......................................................................... 31 Rubin v Nine West Group, Inc., 1999 WL 1425364 (Sup Ct Westchester County 1999) .................................... 42 Russo & Dubin v Allied Maintenance Corp., 95 Misc2d 344 (Sup Ct New York County 1978) ............................................. 42 Schatz v Cellco Partnership, 842 F Supp 2d 594 (SD NY 2012) ..................................................................... 28 - Vl- RE\29718\0001\536823v4 Small v Lorillard Tobacco Co., 94 NY2d 43 (1999) .................................................................................. 4, 39, 40 Smellie v Mt. Sinai Hosp., 2004 WL 2725124 (SD NY 2004) ..................................................................... 20 St. Nicholas 184 Holding, LLC v New York State Div. of Hous. & Community Renewal, 20 Misc3d 1138(A) (Sup Ct New York County 2008) ...................................... 10 Standard Fire Insurance v Knowles, 133 S Ct 1345 (2013) ............................................................................. 37, 38, 39 Super Glue Corp. v Avis Rent A Car Sys., Inc., 132 AD2d 604 (2d Dept 1987) .............................................................. 24, 40, 42 Weinberg v Hertz Corp., 116 AD2d 1 (1st Dept 1986) ........................................................................ 40,42 Yeger v E*Trade Sec. LLC, 65 AD3d 410 (1st Dept 2009) ............................................................................ 42 Statutes CPLR 901 .................................................................................................................. 5 CPLR 901(a) ....................................................................................................... 4, 37 CPLR 901(a)(3) ....................................................................................................... 42 CPLR 90l(a)(5) ....................................................................................................... 43 CPLR 90 1 (b) .................................................................................................... passim Emergency Tenant Protection Act, L. 1974, c. 576, § 4 ......................................... 12 ETPA § 12(a)(l) ...................................................................................................... 12 GBL § 349(h) ................................................................................................... passim General Business Law § 340( 5) .............................................................................. 16 L. 1967, c. 310, § ! .................................................................................................. 19 - Vll- RE\29718\0001\536823v4 L. 1980, c. 346, § ! .................................................................................................. 24 L. 1983, c. 403, § 14 ................................................................................................ 12 L. 2009, c. 372, § ! ............................................................................................ 19,21 Labor Law§ 198(1-a) ...................................................................................... passim New York State Leg Ann, 2009 .............................................................................. 22 RSC § 2520.13 ................................................................................................. passim RSL § 26-501 ............................................................................................................ 7 RSL § 26-516 ............................................................................................................ 8 RSL § 26-516(a) ............................................................................................... passim RSL § 26-516(a)(2) ................................................................................................... 8 RSL § YY 51-6.0(e)(3) ........................................................................................... 12 Other Authorities Adolf Hornberger, State Class Actions and the Federal Rule, 71 Colum. L.Rev. 609, 636 (1971) .................................................................... 44 Alexander, Practice Commentaries, McKinney's Cons Laws ofNY, Book 7B, CPLR C901:8 ................................ 44 Alexander, Supplemental Practice Commentaries, McKinney's Cons Laws ofNY, Book 7B, C901:11 (2013) ............................. 38 Associate Judge Bernard S. Meyer, Taking Appeals to the Court of Appeals- Part II, NYLJ, Sept. 18, 1989 ........... 2 Chief Judge Stanley H. Fuld, The Court of Appeals and the 1967 Constitutional Convention, 39 NYS Bar Journal (Apri11967) ........................................................................ 2 - Vlll- RE\29718\0001\536823v4 STATE OF NEW YORK COURT OF APPEALS --------------------------X LORRAINE BORDEN, on behalf of herself and all others similarly situated, Plaintiff-Respondent, -against- 400 EAST 55TH STREET ASSOCIATES, L.P., Defendant-Appellant. : --------------------------X Index No. 650361/09 REPLY BRIEF FOR DEFENDANT-APPELLANT 400 EAST 55TH STREET ASSOCIATES, L.P. PRELIMINARY STATEMENT Defendant-appellant 400 East 55th Street Associates, L.P. ("Owner") submits this brief (1) in reply to the March 20, 2014 brief submitted by plaintiff-respondent Lorraine Borden ("Respondent");1 and (2) in further support of Owner's appeal from an order of the Appellate Division, First Department, entered on April25, 2013 (R. 894-97).2 The Court of Appeals has never ruled on, commented on, or in any way endorsed the judicially created expedient of allowing a plaintiff to waive statutory 1 All defined terms used herein have the same meanings ascribed to them in Owner's Main Brief. 2 Numbers in parentheses refer to pages in the Record on Appeal. Citations to Respondent's Brief are designated "Br." RE\29718\000l\536823v4 penalties to evade CPLR 901 (b). Moreover, if waiver is indeed permissible under some circumstances, this Court has never established criteria for determining whether waiver will be permitted under any particular statute. Notwithstanding, Respondent asserts that it is "settled law" that a plaintiff can waive "statutory penalties in class actions" to circumvent CPLR 901 (b) (Br., p. 44), and that it is "settled law" under "RSL § 26-516 ... that waiver of penalties is allowed to maintain a class action." Id. at 3. Respondent argues that these issues became "settled" by virtue of various lower court and intermediate appellate decisions where waiver has been permitted. Id. at 18-19, 23-24. In fact, nothing is settled until the Court of Appeals says so. The primary role of the Court of Appeals is to state what the law is in the State of New York. See Associate Judge BernardS. Meyer, Taking Appeals to the Court of Appeals- Part II, NYLJ, Sept. 18, 1989, at 2, col3. The Court's purpose "is conceived to be that of declaring and developing an authoritative body of decisional law for the guidance of the lower courts, the bar and the public." Chief Judge Stanley H. Fuld, The Court of Appeals and the 1967 Constitutional Convention, 39 NYS Bar Journal at 100-101 (April 1967). The Court of Appeals' role is not -- as Respondent would have it -- to passively accept lower court decisions as "settling" the law, or to tally up lower court decisions and rubber stamp the majority view. - 2- RE\29718\0001\536823v4 The Court of Appeals is free to write on a clean slate as to whether waiver is ever permitted to circumvent CPLR 901 (b), and if so, when. The Court is the ultimate arbiter in this State as to what a statute says or means, and is bound herein by nothing other than the plain language ofCPLR 901(b) and RSL § 26-516(a). One additional point should be made at the outset. Respondent's complaint sets forth two causes of action. The first alleges rent overcharge, while the second seeks a declaration, inter alia, that all apartments in the building are subject to rent stabilization. As to the second cause of action, the point is moot: pursuant to Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 (2009) ("Roberts"), as a matter of law any apartment in the building that was erroneously deregulated must be treated as subject to rent stabilization. As such, Owner has registered all formerly deregulated apartments in the Building as stabilized, and has also tendered refunds, with interest, adjusted all rents that required adjustment, and has offered rent stabilized leases where necessary. What remains, then, is Respondent's cause of action for rent overcharge. For the reasons set forth herein, Owner respectfully submits that the Court of Appeals should reverse the First Department's order. - 3- RE\29718\000 l \536823v4 STANDARD OF REVIEW As this Court explained in Small v Lorillard Tobacco Co., 94 NY2d 43, 52 (1999), "whether a lawsuit qualifies as a class action matter is a determination made upon a review of the statutory criteria as applied to the facts presented; it ordinarily rests within the sound discretion of the trial court." Respondent distorts this simple statement, claiming that this Court's review herein is limited to determining whether there was abuse of discretion as a matter of law. Br., p. 20. In so arguing, Respondent ignores the distinction between review of certification based upon the CPLR 901(a) factors, and threshold review of whether a class action is barred by CPLR 901(b) and/or other applicable law. Of course, the latter question is the crux of this appeal. Although the determination of whether a lawsuit qualifies as a class action under the statutory criteria set forth in CPLR 901(a) is a discretionary determination (see City of New York v Maul, 14 NY3d 499, 509 [2010]), the threshold question of whether a class action can be maintained here at all is a purely legal issue that this Court can decide independently. See e.g. Asher v Abbot Laboratories, 290 AD2d 208 (1st Dept 2002) ("Asher") (affirming denial of class certification without reference to CPLR 90 1 [a] because certification was barred by CPLR 901 [b ]). -4- RE\29718\000I\536823v4 Finally, Respondent urges this Court to apply a liberal interpretation of the law to favor maintenance of a class action. Br., p. 21. But the referenced "liberal" policy does not permit a court to abrogate the plain meaning of statutes and regulations-- in this case CPLR 901(b), RSL § 26-516(a), and RSC § 2520.13 --in order to accommodate the request of a single plaintiff and her attorneys. That kind of liberality is baseless. Notably, the RSL is a remedial statute and should be interpreted broadly to effectuate its intended purpose. See Federal Home Loan Mtge. Corp. v New York State Div. of Hous. and Community Renewal, 87 NY2d 325, 332 (1995). There is no reason to interpret CPLR 901 liberally, while narrowly interpreting the RSL in the manner Respondent seeks. - 5 - RE\29718\000l\536823v4 POINT I RESPONDENT CANNOT EVADE CPLR 90l(b) BY PURPORTING TOW AIVE TREBLE DAMAGES UNDER RSL § 26-516(a) A. Respondent Misapprehends the Intent and Operation of RSL § 26-516(a) Before discussing why a tenant cannot waive rights under RSL § 26-516(a), Owner must address various misstatements in Respondent's brief as to what the statute actually says, and how it operates. 1. RSL § 26-516(a) Cannot be Endlessly Bifurcated to Suit Respondent's Attempted Circumvention of CPLR 901(b) RSL § 26-516(a) states in relevant part: "Subject to the conditions and limitations of this subdivision, any owner of housing accommodations who, upon complaint of a tenant . . . is found by the state division of housing and community renewal, after a reasonable opportunity to be heard, to have collected an overcharge above the rent authorized for a housing accommodation subject to this chapter shall be liable to the tenant for a penalty equal to three times the amount of such overcharge... If 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." Although Respondent conclusorily states that she "has waived her entitlement to treble damages and has chosen to seek only actual damages" (Br., p. 23), and that "[t]he choice is Respondent's" (id. at 39), RSL § 26-516(a) authorizes no such bifurcation or election. The only choice the Legislature gave - 6- RE\29718\0001\536823v4 tenants under RSL § 26-516(a) (other than choice of forum) was whether to file an overcharge complaint. Once the tenant files a complaint, he or she has no choice as to what penalties can be pursued or awarded. The Legislature enacted RSL § 26-516(a) to further its goal, inter alia, of preventing "exactions of unjust, unreasonable and oppressive rents." RSL § 26-501. To implement this policy, the Legislature (1) placed the burden of proving the legality of the rent on the landlord (see Newport Partners LLC v New York State Div. of Hous. & Community Renewal, 15 Misc3d 1125[A] [Sup Ct New York County 2007]); (2) created a presumption that every overcharge is willful (see Draper v Georgia Props., 230 AD2d 455,460 [1st Dept 1997], aff'd 94 NY2d 809 [1999]); (3) imposed the burden of disproving willfulness on the landlord (id.); and ( 4) deprived courts of discretion as to whether to award treble damages where the landlord fails to sustain that burden (see 212 W. 22 Realty, LLC v Fogarty, 1 Misc3d 905[A] [Civ Ct New York County 2003] ["[i]t is well-settled that unless the petitioner can rebut the presumption that the rent overcharge was willful, the imposition of treble damages is mandatory"]). There is nothing in RSL § 26-516(a) to indicate that the Legislature intended that tenants would have the choice, by manipulating the type of damages they sought, to limit a tribunal's application of statutory presumptions, burdens, and penalties, or to relieve landlords of same. Further, these statutory provisions belie -7- RE\29718\0001\536823v4 Respondent's claim that "[a]n honest reading of RSL § 26-516 is that the legislature believes that landlords overcharging rent in a non-willful manner should be liable for actual damages only." Br., p. 46. The Legislature did not intend that landlords who were unable to prove lack of willfulness would escape treble damages, and certainly did not authorize complaining tenants to allow them to do so. Seizing on the fact that RSL § 26-516(a)(2) bars the imposition of treble damages during the first two years of the four year look-back period, Respondent argues that "there is no logical or policy-based reason not to certify such claims for the entire overcharge period beginning four years before the commencement of the action." Br., p. 25. As an initial matter, Respondent never raised this argument before Supreme Court or the First Department. The argument is therefore unpreserved. Moreover, Respondent never framed, or sought to certify, the class as only those individuals who were allegedly overcharged by Owner during the first two years of the four year look-back period. By her argument regarding the look-back period, Respondent once again attempts to bifurcate § 26-516(a) for her own ends. The fact that the Legislature barred the imposition of treble damages for two years of the four year look-back period does not mean that tenants can (1) split their overcharge claims between the - 8- RE\29718\0001\536823v4 compensatory and treble damage periods; (2) seek class certification for only a portion of their overcharge claims; (3) waive treble damage penalties that the Legislature has mandated for willful overcharge; or (4) pursue different overcharge claims in different forums. The Legislature has given tenants none of these options, and Owner respectfully submits that this Court should give effect to the Legislature's intent. 2. Respondent Misapprehends the Mandatory Nature of Treble Damages under RSL § 26-516(a) In response to Owner's assertion that RSL § 26-516(a) gives a tribunal no leeway as to whether to award treble damages upon a finding of willfulness, Respondent asserts: Br., p. 32. "a court has discretion not to award willful damages under the RSL. To argue otherwise is to argue for an abdication of a court's necessary role in a rent overcharge proceeding." Respondent is wrong, and makes Owner's point when she admits in her next sentence that "Courts have substantial discretion to evaluate whether an overcharge is willful or non-willful." Id. Under RSL § 26-516(a), a tribunal's "discretion" -- if that is the right word -- is limited to evaluating whether a landlord has sustained its burden of proving lack of willfulness. The "discretion" to weigh evidence and make factual findings is, of course, what tribunals do. But once the tribunal makes - 9- RE\29718\000 1 \536823v4 its finding as to willfulness, the Legislature has given the tribunal no discretion as whether to award treble damages. Unless the landlord can rebut the presumption that the overcharge was willful, or if the landlord fails to present any proof on the question of willfulness, treble damages must be awarded. See 212 W. 22 Realty, 1 Misc3d at 905(A); see also lOth Street Assoc. LLC v New York State Div. of Hous. & Community Renewal, 34 Misc3d 1240(A) (Sup Ct New York County 2012) ("The burden is on the landlord to rebut the presumption by establishing by a preponderance of the evidence that the overcharge is not willful. Absent such proof, treble damages are mandatory"); St. Nicholas 184 Holding, LLC v New York State Div. of Hous. & Community Renewal, 20 Misc3d 1138(A) (Sup Ct New York County 2008). Correspondingly, if a tribunal determines that the landlord has met its burden, treble damages cannot be awarded. See Nagobich v New York State Div. of Hous. & Community Renewal, 200 AD2d 388 (1st Dept 1994); Mott v New York State Div. ofHous. & Community Renewal, 202 AD2d 354,355 (1st Dept 1994). Respondent goes further astray by asserting that even where a landlord "refuse[ s] to disprove its willfulness, a court can still determine for itself whether [the landlord] owes actual or penalty damages" (material in brackets supplied). Br., p. 3. In fact, DHCR and the courts have never taken that position and Respondent has failed to point to any authority reaching that conclusion. As - 10- RE\29718\000l\536823v4 DHCR wrote in Amended Policy Statement 89-2 (April 26, 2013), captioned "Application of the Treble Damage Penalty:" "The owner must prove by a preponderance of the evidence . . . that the overcharge was not a willful act. This simply means that where an owner submits no evidence or where the evidence is equally balanced, the overcharge is deemed to be wil/fuf' (italics supplied). See also East 163rd Street LLC v New York State Div. of Hous. & Community Renewal, 4 Misc3d 169, 174 (Sup Ct Bronx County 2004); Laurian Assoc., L.P. v Lassojf, 25 Misc3d 1239(A) (Civ Ct New York County 2009) ("Petitioner did not offer anything to overcome this presumption. Accordingly, the overcharge must be trebled ... "); 1097 Holding LLC v Ballesteros, 19 Misc3d 1126(A) (Civ Ct New York County 2008) ("when an owner fails to submit evidence ... the overcharge will be deemed willful, and treble damages will be imposed"). 3. Respondent Misapprehends the History of RSL § 26-516(a) In Gudz v Jemrock Realty Co., LLC, 105 AD3d 625 (1st Dept 2013) ("Gudz"), the dissent observed that the treble damage penalty was added to the RSL in 1983, after the Legislature enacted CPLR Article 9 in 1975: "Since the enactment ofRSL 26-516(a) postdates that of CPLR 90 1 (b), we must assume that the Legislature was aware that by denominating the treble damages award a 'penalty' it was foreclosing the maintenance of a class action suit" (citations omitted). 105 AD 3d at 627. - 11 - RE\29718\0001\536823v4 Respondent asserts that "the relevant RSL language" was in fact contained in section 12(a)(l) of the Emergency Tenant Protection Act (L. 1974, c. 576, § 4) ("ETPA"), and thus pre-dates CPLR 901(b). Br., pp. 34-35. Respondent is wrong. By its own terms, ETPA § 12(a)(1) applied only to "housing accommodations in a city having a population of less than one million," i.e., a few thousand scattered apartments in municipalities that elected to opt into the ETP A. Treble damages for over one million New York City rent stabilized apartments, however, did not become law until L. 1983, c. 403, § 14, which added RSL § 26-516(a) to the statute. This language, coming nine years after the enactment of the ETP A, marked an extraordinary change to the RSL scheme. Before the 1983 amendment, the RSL did not even authorize an award of interest on rent overcharges, instead providing "for a cash refund or a credit, to be applied against future rent, in the amount of the excess, if any, of the rent paid since January first, nineteen hundred sixty-nine over the permitted level of their rent increase." RSL § YY 51-6.0(e)(3); see also 8200 Realty Corp. v Lindsay, 60 Misc2d 248, 259 (Sup Ct New York County 1969}, rev 'd 34 AD2d 79 (1st Dept 1970), rev'd 27 NY2d 124 (1970). Notwithstanding this enormous expansion of treble damage liability, the Legislature did not see fit to authorize tenants to seek such damages in a class action. - 12- RE\29718\0001\536823v4 4. Respondent's Waiver is not Inconsequential; Owner Still Must Establish Lack of Willfulness Respondent asserts that this Court should allow Respondent to waive treble damages because Respondent will probably not get treble damages anyway. Br., pp. 25-27. This is an odd statement indeed, given Respondent's allegation in the complaint that "any overcharges occurring after March 5, 2009, the date of the ... Appellate Division's decision in Roberts v Tishman Speyer Props., L.P., were willful" (R. 41 ). In a further attempt to downplay the likelihood of treble damages, Respondent turns the statutory burden of proof on its head, stating that "Class members will be hard pressed to show that their overcharge was willful." Id. at 3. In fact, Respondent does not have the burden of proving willfulness; the burden is on Owner to establish lack of willfulness. See RSL § 26-516(a). Along similar lines, Respondent argues that waiver should be permitted because "lower courts have made plain that willfulness generally cannot be proved in Roberts-type cases ... " id. at 25. Ignoring counsel's lack of zealous advocacy, and Respondent's inadequacy as a class representative (see discussion at pp. 37-42, infra), it is sufficient to note that First Department authority is to the contrary. In 72A Realty Assoc. v Lucas, 28 Misc3d 585 (Civ Ct New York County 2010), aff'd 32 Misc3d 47 (App Term 1st Dept 2011), rev'd 101 AD3d 401 (1st Dept 2012), - 13- RE\29718\0001\536823v4 Civil Court took the position that in Roberts-type cases, treble damages were unavailable to tenants as a matter of law: "As seen above, the overcharge respondent has actually paid under her leases, if any, was minimal, and petitioner, who relied upon the DHCR interpretation of the statute, although incorrect, will not be subject to treble damages for the small overcharge, if any, that occurred within four years before respondent interposed her counterclaim herein based upon the rent overcharge." 28 Misc3d at 591. Appellate Term thereafter affirmed, but in doing so, incorrectly imposed the burden upon the tenant to establish that the landlord had acted willfully: "With respect to tenant's rent overcharge counterclaim, we agree that no basis was shown . . . to impose treble damages upon landlord, tenant having failed to demonstrate a tenable claim of . . . willfulness on the landlord's part" (internal citations omitted). 32 Misc3d at 50. The First Department reversed, holding that a landlord's claimed reliance on DHCR's interpretation of the governing statute did not constitute an automatic defense to the presumption of willfulness and the imposition of treble damages: "The courts also erred to the extent that they dismissed, as a matter of law, tenants' counterclaim seeking treble damages. Landlord, in its affidavit, states that in 200 1, $30,000 worth of renovations to the apartment were completed, bringing the monthly rent above the $2,000 threshold. However, the record does not contain anything to support landlord's renovation claim, including for example, bills from a contractor, an - 14- RE\29718\000 1 \536823v4 agreement or contract for work in the apartment, or records of payments for the renovations. A $1 ,491 monthly increase in rent is a substantial amount, and landlord did not provide sufficient information to validate the increase. Further inquiry upon remand is required to determine whether the overcharge was not willful, but rather the result of reasonable reliance on a DHCR regulation." 101 AD3d at 402. As Supreme Court cautioned in Dugan v London Terrace Gardens, L.P., 2013 WL 4878363 *13 (Sup Ct New York County 2013): "Simply claiming reliance on DHCR's faulty interpretation [of the luxury deregulation statute], without more, may be insufficient to escape liability for treble damages" (material in brackets supplied).3 Contrary to Respondent's insinuations (Br., pp. 3, 32), Owner has never (1) asserted that any overcharges were willful; (2) threatened to refuse to carry its burden of proof as to lack of willfulness; or (3) changed its position on the issue of willfulness. Owner has alleged as its eighth and ninth affirmative defenses in its answer that any overcharges were not willful, and were made in reliance on, inter alia, DHCR's "pronouncements and conduct" (R. 47). Nevertheless, it remains to be seen whether Owner, to the satisfaction of any tribunal, will be able to sustain 3 Respondent trumpets Justice Gische's Supreme Court ruling below that waiver was permissible because treble damages in the aftermath of Roberts were "completely speculative, and in reality, virtually non-existent" (R. 24). Br., p. 14. In its April 25, 2013 order herein, however, the First Department did not adopt Justice Gische's rationale in this regard, no doubt because such rationale was foreclosed by the First Department's own December 4, 2012 ruling in 72A Realty Assoc. v Lucas. Nor did the majority opinion in Gudz, in which Associate Justice Gische joined, adopt this rationale. - 15- RE\29718\000 1 \536823v4 its burden of rebutting the statutory presumption of willfulness. The First Department made clear in 72A Realty v Lucas that a landlord's bare allegation of reliance upon DHCR is insufficient "as a matter of law" to rebut a finding of willfulness and the imposition of treble damages. 101 AD 3d at 402. Rather, the landlord must submit proof of such reliance, which the Court must consider together with any other evidence relating to willfulness. B. The "Mandatory/Non-Mandatory" Distinction the First Department Used to Determine Whether Penalty Damages can be Waived to Evade CPR 90l(b) is Unendorsed by the Court of Appeals, Arbitrary, and Superficial In Asher, 290 AD2d 208, the First Department ruled that penalty damages under General Business Law § 340(5) could not be waived to circumvent CPLR 901(b). In Pesantez v Boyle Envtl. Serves., Inc., 251 AD2d 11 (1st Dept 1998) ("Pesantez"), the First Department conversely ruled that plaintiff could evade CPLR 901(b) by waiving penalty damages under Labor Law§ 198(1-a). In the instant case, as well as in Gudz and Downing v First Lenox Terrace Assoc., 107 AD3d 86 (1st Dept 2013) ("Downing"), the First Department thus had to (1) explain why it permitted waiver in Pesantez but not in Asher; and (2) determine which case governed RSL § 26-516(a). The First Department had never before attempted to reconcile the two cases. Citing no precedent, the First Department in Downing determined that the sole criterion for determining whether waiver is permitted under a particular statute - 16- RE\29718\0001 \536823v4 for purposes of circumventing CPLR 90 1 (b) is whether the award of penalty damages is contingent on a finding of willfulness: "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 the putative class members are given the opportunity to opt out of the class in order to pursue their own liquidated damages claims (see Pesantez, 251 AD2d at 12)." 107 AD3d at 89. In Gudz, the majority appears to have added a second criterion, i.e., whether penalty damages are the only damages that can be awarded: "The waiver was effective, since, unlike the mandatory penalty provided under the Donnelly Act (General Business Law § 340[5]; see Asher v Abbott Labs., 290 AD2d 208 [1st Dept. 2002], lv. dismissed 98 NY2d 728 [2002]), treble damages are not the sole measure of recovery, and an owner found to have overcharged must submit evidence to overcome the statutory presumption of willfulness ... " 105 AD3d at 625. The First Department did not explain why it determined that these criteria were dispositive, or why it declined to take into account such self-evidently relevant factors as whether the statute in question ( 1) gives the plaintiff the option - 17- RE\29718\000 1 \536823v4 of waiving statutory penalties; (2) gives the tribunal discretion to award a penalty; (3) imposes the burden of establishing willfulness on the plaintiff; or (4) imposes the burden of establishing lack of willfulness on the defendant. See Main Brief, Point I(C). At the outset, if the primary criterion is whether penalty damages are "mandatory" under a particular statute, then RSL § 26-516(a) so qualifies. As Justice Manzanet-Daniels wrote her dissent in Gudz: "It is true that treble damages are not available where an owner proves, by a preponderance of the evidence, that the overcharge was not willful. Nonetheless, it is inescapable - and not disputed by the majority - that treble damages are mandatory in the event the owner is found to have overcharged the tenant. A landlord who fails to rebut the statutory presumption of willfulness will be subject to treble damages" (italics in original). 105 AD 3d at 627. As noted, there is a statutory presumption of willfulness, and treble damages are mandatory where "an owner submits no evidence or when the evidence is equally balanced ... " DHCR Amended Policy Statement, 89-2 (April26, 2013). Assuming that the Court of Appeals will use a more varied approach to determine when penalty damages can be waived under a particular statute (assuming that waiver is at all permissible to evade CPLR 901[b]), it is clear, as Owner establishes below, that RSL § 26-516(a) is substantially different from the - 18- RE\29718\0001\536823v4 "analogous" statutes (Labor Law § 198[1-a] and GBL § 349[h]) upon which the First Department and Respondent rely. 1. Labor Law§ 198(1-a) Labor Law§ 198(1-a) was first enacted pursuant to L. 1967, c. 310, § 1, and was next amended by L. 2009, c. 3 72, § 1. Thus, the version of Labor Law § 198(1-a) in effect in 1998 when the First Department decided Pesantez read as follows: "In any action instituted upon a wage claim by an employee or the commissioner in which the employee prevails, the court shall allow such employee reasonable attorney's fees and, upon a finding that the employer's failure to pay the wage required by this article was willful, an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due." A similarity between RSL § 26-516(a) and the above-quoted version of Labor Law § 198(1-a) is that in both statutes penalty damages require a predicate finding of willfulness. The difference between the statutes -- and it is a crucial one -- relates to which party has the burden of proof on the issue of willfulness. In RSL § 26-516(a), it is the defendant, i.e., the party accused of wrongdoing. In the 1998 version of Labor Law § 198(1-a), it was the plaintiff. See e.g. Gustafson v Bell Atlantic Corp., 171 F Supp 2d 311, 327 (SD NY 2001) ("plaintiff has failed to produce evidence sufficient to establish willfulness that would entitle him to liquidated damages under New York law"). - 19- RE\29718\000 I \536823v4 In Smellie v Mt. Sinai Hosp., 2004 WL 2725124 (SD NY 2004) ("Smellie"), the Southern District, observing that penalties under Labor Law § 198(1-a) could be waived to evade CPLR 90 1 (b), viewed as critical the fact that the plaintiff bore the burden of establishing willfulness: "Mount Sinai argues that the discretion granted to judges in section 349(h) proceedings in setting the amount of the penalty somehow distinguishes section 349(h)'s penalties from that provided for in section 198(1-a) of the Labor Law, rendering irrelevant to the instant analysis the holdings in Pesantez and its predecessors. The Court disagrees. The penalty provision of section 349(h), like that of Labor Law 198(1-a), turns on the finding of willfulness. Nothing in Pesantez or related case law, or in either statute, indicates that a plaintiff cannot choose to forego the opportunity to prove willfulness and thus, in effect, waive the penalty provision" (italics supplied). 2004 WL 2725124 at n. 12 The Southern District's analysis makes sense. If a statute imposes upon a plaintiff the burden of establishing willfulness, then the plaintiff should be allowed to forego that burden; there is no reason to force a plaintiff to put on a case it does not wish to make. In contrast, RSL § 26-516(a) imposes no burden of proof on tenants as to willfulness, thus distinguishing the rent regulatory statute from Labor Law§ 198(1-a) and GBL § 349(h). The Court in Downing, finding that RSL § 26-516(a) and Labor Law § 198(1-a) were "analogous," focused on the defendant's burden of proof: -20- RE\29718\0001\536823v4 "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 the right to liquidated damages to preserve the right to maintain a class action, provided that putative class members are given the opportunity to opt out of the class in order to pursue their own liquidated damages claims (see Pesantez, 251 AD2d at 12)" (italics supplied). 107 AD3d at 89. The "analogous" provision in the two statutes upon which the Downing Court relied -- that the defendant has the burden of proving lack of willfulness -- was not added to Labor Law § 198(1-a) until L. 2009, c. 372, § 1, long after Pesantez was decided. In 2009, the Legislature amended section 198(1-a) as follows: "On behalf of any employee paid less than the wage to which he or she is entitled under the provisions of this article, the commissioner may bring any legal action necessary, including administrative action, to collect such claim and as part of such legal action, in addition to any other remedies and penalties otherwise available under this article, the commissioner may assess against the employer an additional amount as liquidated damages equal to twenty-five percent of the total amount of wages found to be due, unless the employer proves a good faith basis for believing that its underpayment of wages was in compliance with the law. In any action instituted in the courts upon a wage claim by an employee or the commissioner, in which the employee prevails, the court shall allow such employee reasonable attorney's fees and, lif>OB a fiadiag that the employer's failure to pay the wage feE}tiired ey this artiele y;as willfill unless the -21- RE\29718\000 l \536823v4 employer proves a good faith basis to believe that its underpayment of wages was in compliance with the law, an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due" (material added by L. 2009, c. 372, § 1 underscored, material deleted by L. 2009 c. 3 72, § 1 indicated by striking). It was only after the Legislature placed the burden of provmg non-willfulness on the defendant that Labor Law§ 198(1-a) and RSL § 26-516(a) become "analogous" in any meaningful way. Critically, when amending the statute in 2009, the Legislature viewed this shifting of the burden of proof as a fundamental change to the statutory scheme: "This proposal would also conform New York law to the Fair Labor Standards Act and the laws of other states that allow workers liquidated damages once they establish that their employer violated the wage law. These jurisdictions recognize the inherent unfairness of requiring employees who have already proven that they were underpaid to further prove that the underpayment was willful. The burden of explaining the basis of violations rightly rests with the employer, rather than imposing the onerous burden on employees of establishing their employer's state of mind'' (italics supplied). New York State Leg Ann, 2009 p. 224. Respondent claims that the Downing Court's holding that Labor Law § 198(1-a) and RSL § 26-516(a) are "analogous" (107 AD3d at 89) had nothing to do with the fact that both statutes, after 2009, required the defendant to prove a lack of willfulness. Br., pp. 37-38. The Court's "analogous" observation, -22- RE\29718\000 l \536823v4 however, was immediately preceded by its statement that "Rent Stabilization Law § 26-516(a) only requires treble damages where the landlord cannot demonstrate that it did not act willfully ... " Downing, 107 AD 3d at 89. If this is not the "analogy" to which the First Department was referring, then the First Department did not explain how the statutes were analogous, or why cases allowing waiver under Labor Law§ 198(1-a) were controlling of the instant case. Attempting to supply an "analogy" between RSL § 26-516(a) and the pre-2009 version of Labor Law§ 198(1-a), Respondent asserts that: "Labor Law § 198 prohibits employers from under- paying wages. Clearly underpaying wages causes private injury, but it is just as much a public wrong. Nonetheless, a class action may be maintained under the statute. Similarly, it is evident that landlords that overcharge their tenants cause both private injuries and public wrongs." Br., pp. 38-39. Respondent is wrong. The version of Labor Law § 198(1-a) upon which the First Department relied in Pesantez imposed the burden of proving willfulness on the plaintiff. As such, the Legislature intended that penalty damages would redress private wrongs -- a plaintiff should not have the burden of proof to vindicate the public. Thus, the First Department in Pesantez ruled that plaintiffs could forego the burden of proving willfulness -- and hence the right to receive penalty damages -- if they so chose. Tenants under RSL § 26-516(a) have no such burden, thus -23- RE\29718\000l\536823v4 establishing that the Legislature intended that the treble damages penalty under RSL § 26-516(a) would redress a public wrong, and thus cannot be waived. 2. GBL § 349(h) Respondent's insistence that GBL § 349(h) is analogous to RSL § 26-516(a), such that the instant case is governed by such authority as Super Glue Corp. v Avis Rent A Car Sys., Inc., 132 AD2d 604 (2d Dept 1987) ("Super Glue Corp."), is even more perplexing than Respondent's reliance on Labor Law § 198(1-a). GBL § 349(h) was first enacted pursuant to L. 1980, c. 346, § 1, and has not been amended since 1984. GBL § 349(h) states in its entirety: "In addition to the right of action granted to the attorney general pursuant to this section, any person who has been injured by reason of any violation of this section may bring an action in his or her own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions. The court may, in its discretion, increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or knowingly violated this section. The court may award reasonable attorney's fees to a prevailing plaintiff' (italics supplied). GBL § 349(h) sharply differs from RSL § 26-516(a) in two respects. First, the statute gives the court, "in its discretion," the right to award penalty damages. As established supra, RSL § 26-516(a) gives the tribunal no discretion as to whether treble damages should be awarded. The distinction is critical; it may be that plaintiffs can waive penalty damages under a statute where the Legislature has -24- RE\29718\0001\536823v4 given the court discretion to refuse to award such damages, even upon a finding of willfulness. As the Eastern District recently observed with respect to GBL § 349(h) in MQDC, Inc. v Steadfast Ins. Co., 2013 WL 6388624 (ED NY 2013) ("MQDC, Inc."): "On the other hand, 'a statutory right conferred on a private party, but affecting the public interest, may not be waived or released if said waiver or release contravenes the statutory policy.' Estro Chern. Co. v Falk, 303 N.Y. 83, 86, 100 N.E.2d 146 (1951). Arguably, waiver of the right to seek treble damages would contravene the public interest in deterring businesses from engaging in deceptive practices. However, since treble damages are discretionary, they may not be essential to the statutory scheme" (italics supplied). 2013 WL 6388624 at *13. Under RSL § 26-516(a), unlike GBL § 349(h), a tribunal has no discretion as to whether to award treble damages, thus establishing that such damages are essential to the statutory scheme and cannot be waived. The second distinction relates to the burden of proof as to willfulness. A tenant has no such burden under RSL § 26-516(a). In contrast, as this Court held in Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, N.A., 85 NY2d 20, 26 (1995), the plaintiff has the burden of proving willfulness under GBL § 349(h): "Although it is not necessary under the statute that a plaintiff establish the defendant's intent to defraud or -25- RE\29718\0001\536823v4 mislead, proof of scienter permits the court to treble the damages up to $1,000 (General Business Law§ 349[h])." In GBL § 349(h), the Legislature intended that the plaintiff would bear the burden of proving willfulness. Such intent may be consistent with waiver; a party should not have to prove willfulness, and thus seek penalty damages, if it does not wish to do so. In contrast, RSL § 26-516(a) imposes no burden of proof on the tenant as to willfulness, and provides that the tenant shall be awarded treble damages should the landlord fail to sustain its burden of proof. Because RSL § 26-516(a) imposes no burden ofproofon tenants as to willfulness, tenants cannot waive treble damages. -26- RE\29718\000 1 \536823v4 POINT II A TENANT'S ATTEMPT TO WAIVE A BENEFIT GRANTED UNDER THE RSL FOR ANY PURPOSE, INCLUDING EVASION OF CPLR 90l(b), IS VOID AS AGAINST PUBLIC POLICY AND BARRED BY RSC § 2520.13 Respondent benignly asserts that her waiver of treble damages "is a unilateral decision by Respondent to bring claims for herself, and on behalf of the Class, by pursuing one remedy over another." Br., p. 39. Putting aside the fact that the Legislature gave Respondent no such choice under RSL § 26-516(a), Respondent's purported waiver violates both public policy and RSC § 2520.13. A. Respondent's Purported Waiver Violates Public Policy Respondent challenges Owner's reliance on Estro Chemical Co., Inc. v Falk, 303 NY 83 (1951) ("Estro"), claiming that Estro only applies to a waiver made "by agreement," whereas Respondent's waiver herein was purportedly unilateral. Br., p. 39. This Court's actual language in Estro, however, tells a different story: "we think that the express provision of the statute now under consideration and public policy require a holding in cases such as this, involving as it does excessive payments of rent, that under no circumstances may tenants waive or release or otherwise settle by agreement their right to recover rent paid in excess of that permitted by law. This is in accord with holdings that a 'statutory right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy"' (citations omitted, italics supplied). 303 NY at 87. -27- RE\29718\0001\536823v4 See also Brooklyn Sav. Bank v 0 'Neil, 324 US 673, 704 (1945); Berkovich v Mostovaya, 22 Misc3d 91 (App Term 2d Dept, 11th and 13th Jud. Dists 2009); Ammon v New York State Div. of Hous. and Community Renewal, 1997 WL 34826119 (Sup Ct New York County 1997); PAK Realty Assoc. v RE/MAX Universal, Inc., 157 Misc2d 985 (Civ Ct New York County 1993); Norms Realty Corp. v Rodriguez, 108 Misc2d 124 (Civ Ct New York County 1981); In re Berry Estates, Inc. v State of New York, 812 F2d 67 (2d Cir 1987); MQDC, Inc., 2013 WL 6388624 at *4; Schatz v Cellco Partnership, 842 F Supp 2d 594 (SD NY 2012). The Estro Court's holding that a tenant may not "waive or release or otherwise settle by agreement" a right granted under a statute is stated in the disjunctive. The use of the word "or" indicates an alternative and often connects a series of words or propositions presenting a choice of either. See Matter of Gerald R. M, 12 AD3d 1192, 1193 (4th Dept 2004). Thus, the Court of Appeals in Estro intended that a tenant could not (1) waive rights; (2) release rights; or (3) give away rights "by agreement." Waiver does not rest "upon consideration or agreement" (Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, 184 [1982]), and thus can be unilateral (see Madison Ave. Leasehold, LLC v Madison Bentley Assoc. LLC, 30 AD 3d 1, 4 [1st Dept 2006]). -28- RE\29718\000 1 \536823v4 In the second quoted sentence in Estro, this Court held that a statutory right conferred upon a private party, but affecting the public interest, '"may not be waived or released if such a waiver or release contravenes the statutory policy."' 303 NY at 87. The Court did not use the word "agreement" in that sentence, establishing that the Court will not permit tenants to forfeit rights granted under rent regulatory statutes, irrespective of whether such forfeiture is bilateral or unilateral. Respondent attempts to negate Estro by citing McLaughlin v Bd. of Police Commrs. of City of Yonkers, 174 NY 450 (1903), for the proposition that "[i]t is well settled by authority that a man may waive any right that he has, whether secured to him by contract, conferred upon him by statute or guaranteed him by the constitution." Br., p. 45. In fact, as this Court wrote in Hadden v Cons. Edison Co. of New York, Inc., 45 NY2d 466, 469 (1978), the quoted "rule" contains a crucial exception where the purported waiver violates public policy: "Generally and excepting instances where there would be transgressions of public policy, all rights and privileges to which one is legally entitled . . . may be waived" (citation omitted, italics supplied). Respondent's waiver herein is unenforceable because it undermines the public policy set forth in the RSL. Respondent next asserts that Estro "does not subsume" RSC § 2520.13, a regulation that employs the word "agreement." Br., p. 39. Section 2520.13 is -29- RE\29718\0001\536823v4 nothing more than a regulation promulgated by an administrative agency. "Even when broad rule-making authority has been granted, an agency cannot 'promulgate rules in contravention of the will of the Legislature."' Beer Garden, Inc. v New York State Liquor Auth., 79 NY2d 266, 276 (1992) (internal citations omitted). Nor may an agency, by regulation, "effect its vision of societal policy choices" (see New York State Health Facilities Ass 'n., Inc. v Axelrod, 77 NY2d 340, 346 [1991] [citation omitted]), or violate "the common law" as "propounded ... by the courts" (see Guardinella v New York State Div. of Hous. & Community Renewal, 141 Misc2d 714, 717 [Sup Ct New York County 1988] [Rubin, J.]). Estro is an important part of the common law of this State, and DHCR did not, and could not, limit or modify Estro by administrative regulation. Respondent insists that "New York jurisprudence" i.e., Estro, is designed to protect tenants, and only applies to landlord-tenant agreements because "a meeting of the minds can foist unlawful leases onto tenants as well as strip tenants of RSL protections." Br., p. 41. Respondent is wrong; anti-waiver jurisprudence is designed to protect the integrity of the rent stabilization system, not to protect individual parties. This is established by the fact that in most of the leading anti-waiver cases, it was the tenant who sought to enforce the unlawful waiver. See Riverside Syndicate v Munroe, 10 NY3d 18 (2008) ("Riverside") ("an agreement of this kind is not enforceable by the tenant"); Drucker v Mauro, 30 -30- RE\29718\0001\536823v4 AD3d 37 (1st Dept 2006), lv. to appeal dismissed 7 NY3d 844 (2006) ("Drucker"); Georgia Props., Inc. v Dalsimer, 39 AD3d 332 (1st Dept 2007) ("Georgia Props.") (landlord's purported waiver of right to commence a non-primary residence proceeding against tenant declared "void as against public policy"); Rocky 116 L.L.C. v Weston, 284 AD2d 139 (1st Dept 2001) (same); Park Towers So. Co., LLC v Universal Attractions, 274 AD2d 312 (1st Dept 2000) (same); Rima 106, L.P. v Alvarez, 257 AD2d 201 (1st Dept 1999) (same). Thus, the point of the anti- waiver rule is not only to make sure that tenants are not stripped "of RSL protections," but to also ensure that such tenants are not given protections, rights, or options that the RSL does not permit. Respondent's claim that her waiver is permissible because it "only directly impacts herself," Br., p. 43, misapprehends the anti-waiver rule. The Legislature created the RSL to reconcile the differing interests of landlords and tenants. See Pultz v Economakis, 10 NY3d 542, 548 (2008). Waiver under the RSL is not permitted because it strikes at the Legislature's carefully crafted balance, and thus undermines the integrity of the RSL itself. As the First Department wrote in 390 W. End Assoc. v Hare/, 298 AD2d 11, 16 (1st Dept 2002): "The point [of anti-waiver jurisprudence] is not to protect just a tenant, but to ensure the viability of the rent regulation system which protects tenancies in general, provides predictability to landlords, and significantly enhances the social, economic and demographic stability of New York City" (material in brackets supplied). - 31- RE\29718\0001\536823v4 Respondent asserts that Owner "cannot point this Court to a single case where a court voided a unilateral decision by a tenant under Estro or RSC § 2520.13." Br., p. 42. In response to Owner's citation in this respect to 85 Eastern Parkway Corp. v New York State Div. of Hous. and Community Renewal, 297 AD2d 675 (2d Dept 2002), Respondent asserts that 85 Eastern Parkway Corp. involved an agreement between the landlord and the tenant whereby one of the co-tenants "purported to withdraw the complaints upon the landlord's agreement to make repairs in the apartment" (italics in original). Id. In fact, the Second Department did not find that there was any such "agreement," and simply observed that the tenant "allegedly withdrew both complaints after the prior owner agreed to make repairs in the apartment." 297 AD2d at 675. The fact that the notice of the withdrawal may have been exchanged for a promise of repairs did not affect the Court's determination; the Court held that the waiver of a benefit under the RSL, whether unilateral or in exchange for consideration, is invalid as a matter of public policy. Respondent (Br., p. 40) next seeks to limit Estro by citing Matinzi v Joy, 60 NY2d 835 (1983), wherein this Court held that Estro did not "prohibit an agreement to surrender possession of the apartment and resolve incidental differences." 60 NY2d at 837, n. There is no conflict between the two cases. In Matinzi and its progeny, courts have allowed tenants to waive rights where they are -32- RE\29718\000 1 \536823v4 vacating an apartment and exiting the rent regulatory system altogether. In Estro and in the instant case, the tenant is remaining in the rent regulated space, but is purporting to pick and choose which portions of the rent regulatory statute will govern the continued tenancy. That is not permitted. As the First Department held in Drucker: "Fairness requires that the Rent Stabilization Law be applied impartially. This Court has made clear that a tenant may not avail himself of the advantages of the statute when it furthers his interest and decline to be bound by the statutory scheme when it proves detrimental to those interests" (citations omitted). 30 AD3d at 41. B. Respondent's Purported Waiver Violates RSC § 2520.13 Respondent's purported waiver, which clearly violates public policy, also violates RSC § 2520.13. Respondent argues to the contrary, stating that section 2520.13 only applies to agreements, whereas Respondent's waiver herein was unilateral. Br., p. 39. In Gudz, the dissent wrote that an identical "unilateral" waiver of treble damages violated the intent of the regulation: "I am unpersuaded by the majority's reasoning that 9 NYCRR 2520.13 does not apply because plaintiff purported to 'waive' the class members' right to treble damages, rather than agreeing to do so via lease or stipulation. Whether unilaterally or via agreement, the fact remains that plaintiff has agreed to give up a benefit of a statutory protection, i.e., the treble damages afforded by RSL § 26-516(a), on behalf of not only herself but the class - a far more profound impact than one individual - 33- RE\29718\000 1 \536823v4 purporting to agree to give up her rights via lease. We have previously held that an agreement 'which waives the benefit of a statutory protection is unenforceable as a matter of public policy, even if it benefits the tenant. ' Since the effect of the waiver is to vitiate a provision integral to the RSL - the exaction of excessive rents by the landlord - I am compelled to conclude that it is void under 9 NYCRR § 2520.13" (italics in original, internal citations omitted). 105 AD3d at 628. In fact, Respondent's purported waiver of treble damages was not unilateral. Respondent and her attorneys entered into a retainer agreement whereby the parties agreed that "Attorneys will bring and prosecute this lawsuit as a class action, on your behalf and on behalf of all other tenants who may be similarly situated" (R. 631 ). The retainer agreement further provided that "Attorneys will prosecute the law suit on a contingent fee basis." /d. As such, Respondent's decision to facilitate the class action by purporting to waive treble damages -- which damages she had originally sought in the complaint (R. 41) -- was necessitated by her bilateral agreement with her attorneys. Respondent next argues that her waiver was lawful because the overriding goal of RSC § 2520.13 is to maintain affordable housing. Br., pp. 47-48. This is demonstrably untrue; many of the leading anti-waiver cases have served to promote deregulation. For example, in Riverside, the landlord and the tenants entered into an agreement whereby the tenants agreed to pay an unlawful rent and -34- RE\29718\000 1 \536823v4 waive claims of rent overcharge, in exchange for the landlord's waiver of its right to seek to evict the tenants based on non-primary residence. The tenants argued that public policy would be served by enforcing the agreement, an argument this Court unanimously rejected: "The basis for the tenants' public policy argument is their assertion that, if the 1996 eviction proceeding had not been settled by the agreement in suit, only two outcomes were possible: either the tenants would have remained in the apartment at the legal rent, or they would have been evicted and the apartments would have been deregulated. Neither result, the tenants say, would serve the policy of the rent stabilization laws any better than the compromise result the parties reached. The assertion on which this argument rests is dubious, but even assuming the assertion is true, the conclusion is wrong. It is the policy of the rent stabilization laws that apartments should either be rented at no more than the legal maximum or deregulated. Deregulation, when the conditions for it are met, serves public policy by increasing the availability of housing on the open market." 10 NY3d at 23. In Riverside, this Court's refusal to enforce the mutual waivers facilitated two important RSL goals: (1) to prevent the exaction of unlawful rents; and (2) to allow for deregulation where appropriate. Thus, even a waiver that would preserve the stock of affordable housing will be deemed unenforceable if it violates the Legislature's intent as expressed in the RSL. Similarly, in Georgia Props., the tenants and the landlord entered into an agreement whereby the tenants would execute a non-regulated office lease for -35- RE\29718\0001\536823v4 apartment 19A in exchange for the landlord's waiver of its right to seek to deregulate the tenants' second apartment, 18D, based on luxury deregulation. The First Department refused to enforce the mutual waivers, thereby facilitating the deregulation of apartment 18D. 39 AD3d at 334. Accordingly, the anti-waiver rule, and RSC § 2520.13, are designed to further legislative intent, whether that intent relates to ( 1) preventing the exaction of unjust rents; (2) maintaining the stock of affordable housing; or (3) allowing for deregulation of an apartment where the conditions for deregulation are met. Respondent's waiver herein makes a mockery of RSL § 26-516(a), turning a carefully crafted legislative enactment -- which gives tenants no options as to the extent of damages that may be sought or awarded -- into a menu whereby Respondent can ask a court to enforce only those RSL provisions of her choosing. Respondent lastly argues that waiver is justified so that all of the apartments at issue can be declared rent stabilized in a class action. Br., p. 48. Respondent is wrong. There is no question that pursuant to Roberts, all of the apartments in the building are subject to rent regulation while J-51 benefits are in effect;4 Owner concedes the point, and has registered all apartments in the building as rent stabilized. Respondent's purported waiver will do nothing to facilitate a declaration as to stabilization status. 4 J-51 benefits herein will end on June 30, 2016, not "approximately 2025," as Respondent erroneously asserts. Br., p. 7. -36- RE\29718\000 l \536823v4 POINT III RESPONDENT CANNOT ESTABLISH THE CPLR 901(a) FACTORS OF ADEQUACY OR SUPERIORITY As Owner establishes below, the lower courts erred in determining that Respondent established the required CPLR 90l(a) factors of adequacy and superiority. A. Respondent's Waiver of Two-Thirds of the Class's Potential Recovery Renders Respondent an Inadequate Class Representative Owner asserts that Respondent is an inadequate class representative because she has purported to waive two-thirds of the class's potential recovery. In response, Respondent argues that any question relating to adequacy is obviated by the ability of absent class members wishing to seek treble damages to opt out of the class. Respondent is wrong. Even assuming that this Court ratifies the judicial expedient of "waiver/opting out" in the first place, Respondent would still be an inadequate class representative pursuant to the United States Supreme Court's recent decision in Standard Fire Insurance v Knowles, 133 S Ct 1345 (2013). In Knowles, the Supreme Court noted that the class representative therein could be deemed inadequate "due to the artificial cap he purports to impose on the class' recovery." 133 S Ct at 1349. The Court then explained that a class representative's actions prior to certification are not binding on absent class - 37- RE\29718\0001 \536823v4 members in any event. 133 S Ct at 1349. Specifically, the Supreme Court stated that because members of a proposed class are not yet "parties" to the putative class action, "a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified." !d. As such, Respondent's argument that the purported waiver of treble damages is valid under CPLR 901 (b), because dissatisfied class members can simply opt out of such waiver, is inconsistent with the fact that a pre-certification waiver cannot bind potential class members in the first place. See Alexander, Supplemental Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, C901:11 at 11 (2013) ("Alexander"). Professor Alexander has explained that Knowles poses a challenge to the First Department's order in this case, as well as to its orders in Gudz and Downing: "Following this logic, a pre-certification waiver of penalty damages would be ineffective as to anyone other than the class representative personally, meaning that a putative class action under the RSL could be nothing other than a class action for treble damages, which is impermissible under CPLR 901(b)" (italics supplied). Alexander, C90 1: 11 at 11. Because Respondent's purported pre-certification waiver of treble damages is ineffective to waive any other potential class member's presumed right to treble damages pursuant to RSL § 26-516(a), all class members except Respondent necessarily seek treble damages, in violation of CPLR 901 (b). Consequently, the First Department erred in certifying the class. - 38- RE\29718\0001 \536823v4 Respondent glibly dismisses the impact of Knowles in a footnote. Br., p. 59 n 32. It is, however, indisputably significant that the highest Court in the land has suggested that a class representative's manipulation and limitation of available damages is not binding on the class, and renders the representative inadequate. Turning to the question of whether this Court should ratify the judicial expedient of waiver/opting out, Owner notes that this Court previously declined to do so. In Small, 94 NY2d 43, the plaintiffs purported to narrowly limit the damages sought. Supreme Court certified the class (175 Misc2d 294 [Sup Ct New York County 1998]), but the First Department reversed and decertified, holding, inter alia, that the proposed class representatives' limitations on the damages sought rendered them inadequate (252 AD2d 1, 11 [1st Dept 1998]). This Court affirmed. 94 NY2d at 51. Here, Respondent asserts that the waiver of two-thirds of the potential recovery of the class does not render her an inadequate representative because any class member can opt out and pursue his or her entitlement to treble damages. Presumably, however, the same opt out was available to those class members in Small whose potential damages were unreasonably restricted by the proposed class representatives. This Court, as the First Department did herein, could have held that the class representatives were adequate and allowed all others to opt out of the class. Tellingly, this Court affirmed the holding that by limiting the class's - 39- RE\29718\000 I \536823v4 potential recovery so substantially, the lead plaintiffs could not adequately represent the absent class members. 94 NY2d at 54-55. This Court decided Small in 1999, more than a decade after the Appellate Divisions' decisions in Weinberg v Hertz Corp., 116 AD2d 1 (1st Dept 1986) ("Weinberg"), and Super Glue Corp. sanctioned the waiver/opt out expedient. Thus, when faced with an opportunity to adopt Respondent's waiver/opt out approach, this Court declined to do so. In addition to jettisoning two-thirds of the potential damages available to the class, Respondent proclaims that her waiver of treble damages "prevents her and the class from recouping a windfall and unduly penalizing Appellant." Br., p. 3. It is astounding that Respondent claims to be an adequate plaintiff, while at the same time ( 1) insuring that class members will obtain nothing beyond the bare minimum damages; and (2) making sure that Owner will not be "unduly" penalized by treble damages. Respondent's betrayal of the absent class members, and her desire to spare Owner penalty damages, mandate a finding of inadequacy. In addition, Respondent goes out of her way to advocate in favor of Owner's affirmative defenses. Specifically, Owner's eighth and ninth affirmative defenses asserted that any overcharges were not willful and, to the extent any overcharge occurred, it was made in reliance on DHCR (R. 47). In Respondent's misguided zeal to avoid "recouping a windfall and unduly penalizing" Owner (Br., p. 3.), -40- RE\29718\000l\536823v4 Respondent openly advocates for Owner by ( 1) claiming that "it is likely that [Owner] did not willfully overcharge Respondent or the class" (Br., p. 3); (2) agreeing that Owner acted in good faith with respect to any overcharge (id., p. 26); and (3) asserting that mwillfulness' likely does not describe Landlord's overcharges" (id., p. 32). Apparently, Respondent views her role in this case as minimizing potential recovery for class members, and sparing Owner treble damages. Respondent has substantively and procedurally acted to prevent class members from recovering any more than what Respondent has decided they are owed. Of course, Respondent's concessions that any overcharges were not willful, and that the purported waiver of treble damages "does not amount to much of a waiver at all" (Br., p. 25), are in stark contrast to Respondent's allegation in the complaint (which was never amended) that any overcharges occurring after the First Department's decision in Roberts "were willful" and warranted imposing "a penalty equal to three times the overcharges since that date" (R. 41 ). Respondent and her attorneys are willing to say anything, and even switch legal positions, in their quest to maintain a class action. Lastly, Respondent attempts to distinguish as outdated certain cases denying certification on the basis that the class representatives were deemed inadequate because they purported to limit the potential damages for the absent class. Even -41- RE\29718\000 l \536823v4 after the appellate decisions in Weinberg and Super Glue Corp., however, courts have denied certification based on the class representative's waiver of potential damages. See e.g. Rubin v Nine West Group, Inc., 1999 WL 1425364 at * 4 (Sup Ct Westchester County 1999). Notably, the First Department approvingly cited Rubin in Asher, 290 AD2d 208 (also decided after Weinberg and Super Glue Corp.), as well as citing older authorities such as Russo & Dubin v Allied Maintenance Corp., 95 Misc2d 344, 348-49 (Sup Ct New York County 1978), and Blumenthal v American Socy. of Travel Agents, 1977 WL 18392, * 3 (Sup Ct New York County).5 5 We note that Respondent's claims are also atypical of the class, in violation of CPLR 901(a)(3). Here, Owner conceded Respondent's rent stabilized status in 2010 and offered Respondent a rent stabilized lease (R. 205-1 0), but Respondent refused to sign. Where a proposed class representative has rejected all or a portion of the relief sought in the complaint, that plaintiff's claim is atypical. Yeger v E*Trade Sec. LLC, 65 AD3d 410, 414 (1st Dept 2009) ("plaintiffs are not proper class representatives because their rejection of E*Trade's offer to refund the [service] fee [sought to be recouped in the class action] renders their claim atypical (CPLR 901 [a][3])" (material in brackets supplied). -42- RE\29718\0001 \536823v4 B. Respondent Cannot Establish the Superiority of a Class Action Because DHCR Can Determine all Claims Relating to Rent Stabilization The lower courts also erred in determining that a class action is the superior mechanism for dealing with rent stabilization claims relating to the Building because the proposed class members have an efficient means of resolving any individual claims through the administrative process at DHCR. In Alix v Wal-Mart Stores, Inc., 57 AD3d 1044, 1048 (3d Dept 2008), a dispute over unpaid wages, the Court decertified the class, holding, inter alia, that CPLR 901(a)(5) superiority could not be established because the proposed class members had an efficient means of resolving their individual claims through a readily available administrative process: "Specifically, an administrative remedy is available by which plaintiffs, in their status as employees, could file wage related complaints with the Department of Labor (see Labor Law §§ 196, 196-a). Simply because the Commissioner of Labor's authority to pursue such claims is discretionary (see Labor Law § 196 [2]), this does not render such a proceeding less effective than a class action. The availability of this administrative process, and its focus on the particulars applicable to each employee's claim, make it in many ways a superior method by which the claims made by plaintiffs, and the proposed members of the class, can be pursued against defendant" (italics supplied). The same rationale applies here, where any potential class member is free to file an individual complaint, at no cost, with DHCR. The expert state agency -43- RE\297l8\000l\536823v4 charged with the administration of the rent regulation laws can provide complete relief to anyone filing a complaint, including ordering Owner to offer a rent stabilized lease, to refund any overcharges, pay any penalties, if applicable, and to direct other relief, as appropriate. See also Alexander, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C901:8, at 98 (quoting Adolf Hornberger, State Class Actions and the Federal Rule, 71 Colum. L.Rev. 609, 636 [1971]: "[I]f adequate relief is available through administrative agencies, a class action is unnecessary and, indeed, undesirable"). Thus, decertification would not prejudice the absent class members (none of whom has appeared in the case since it was commenced in 2009) in any way. Respondent's claim that decertification "would lead to individual actions that would be wasteful for Respondent, Appellant, the Class, State agencies, and the courts" (Br., p. 53) is presumptuous and speculative. Further, the alleged "wastefulness" caused by individual actions or administrative proceedings, as opposed to the dozens or hundreds of required mini-trials Supreme Court would have to conduct in the event of an affirmance, does not exist. -44- RE\29718\000I\536823v4 CONCLUSION THIS COURT SHOULD REVERSE THE ORDER OF THE FIRST DEPARTMENT Dated: New York, New York April 10,2014 JEFFREY TURKEL DANI SCHWARTZ Of Counsel RE\29718\0001\536823v4 Respectfully submitted, ROSENBERG & ESTIS, P.C. Attorneys for Defendant-Appellant By: New York, New Yor (212) 867-6000 -45-