Yanella Gudz, Respondent,v.Jemrock Realty Company, LLC, Appellant.

Brief

N.Y.October 14, 2014

APL-2013-00313 New York County Clerk’s Index No. 603555/09 Court of Appeals STATE OF NEW YORK YANELLA GUDZ, on behalf of herself and all others similarly situated, Plaintiff-Respondent, against JEMROCK REALTY COMPANY, LLC, Defendant-Appellant. >> >> BRIEF FOR DEFENDANT-APPELLANT BELKIN BURDEN WENIG & GOLDMAN, LLP Attorneys for Defendant-Appellant 270 Madison Avenue New York, New York 10016 212-867-4466 Of Counsel: Sherwin Belkin Magda L. Cruz Steven Kirkpatrick Date Completed: January 13, 2014 To Be Argued By: Magda L. Cruz Time Requested: 30 Minutes -i- TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................... iii JURISDICTIONAL STATEMENT .......................................................................... 1 DISCLOSURE STATEMENT .................................................................................. 1 PRELIMINARY STATEMENT ............................................................................... 2 QUESTIONS PRESENTED ...................................................................................... 8 STATEMENT OF FACTS ...................................................................................... 11 The Parties ................................................................................................................ 11 The Building and the Apartment .............................................................................. 11 The Underlying Complaint and Answer .................................................................. 14 Plaintiff’s Motion for Class Certification ................................................................ 16 The Supreme Court’s Initial Order .......................................................................... 23 Owner’s Motion to Reargue and Renew .................................................................. 24 The Reargument Order ............................................................................................. 25 The Appellate Division Order on Appeal ................................................................ 26 The Dissenting Opinion ........................................................................................... 27 POINT I PLAINTIFF IS BARRED FROM CLASS CERTIFICATION UNDER CPLR § 901(b) AND CANNOT WAIVE STATUTORY PENALTIES ........................... 29 The RSL and RSC Impose Mandatory Penalties and Minimum Measures of Recovery ...................................................................... 30 When a Statute Imposes Mandatory Penalties, CPLR § 901(b) Bars Class Certification ...................................................................... 33 Plaintiff Cannot Waive Mandatory RSL or RSC Penalties ............................... 39 -ii- The Cases Relied Upon by the Lower Courts Permit Waiver of Permissible Penalties and are Not Dispositive of the Facts at Bar .................................................................................................. 43 “Waiver” or “Opting Out” Should not be Used to Circumvent CPLR § 901(b) ............................................................................... 48 POINT II PLAINTIFF FAILED TO ESTABLISH HER ENTITLEMENT TO CLASS CERTIFICATION UNDER CPLR § 901(a) ....................................... 51 Numerosity: CPLR § 901(a)(1) ....................................................................... 52 Commonality: CPLR § 901(a)(2) ..................................................................... 53 Typicality: CPLR § 901(a)(3) .......................................................................... 62 Adequacy: CPLR § 901(a)(4) .......................................................................... 63 Superiority: CPLR § 901(a)(5) ......................................................................... 66 POINT III PLAINTIFF’S MOTION FOR CLASS CERTIFICATION SHOULD HAVE BEEN DENIED ON PROCEDURAL GROUNDS ................... 69 Plaintiff Never Submitted an Affidavit in Support of the Motion ................... 69 Plaintiff’s Purported Waiver in a Reply Affirmation Made Material Amendments to the Complaint Without First Seeking Such Relief By Motion As Required by CPLR § 3025 ................................. 70 CONCLUSION ........................................................................................................ 73 -iii- TABLE OF AUTHORITIES CASES: 212 W. 22 Realty, LLC v. Fogarty, 1 Misc.3d 905A; 781 N.Y.S.2d 629 (Civ. Ct. NY Co. 2003) .............................. 33 430 Realty Co. LLC v. Heftler, 185 Misc.2d 45; 712 N.Y.S.2d 853 (Civ. Ct. N.Y. Co. 2000) ............................. 61 72A Realty Associates v. Lucas, 32 Misc.3d 47; 929 N.Y.S.2d 349 (App. T. 1st Dep’t 2011), modified, 101A.D.3d 401; 955 N.Y.S.2nd 19 (1st Dep't 2012) ...................... 17, 18 Ackerman v. Price Waterhouse, 252 A.D.2d 179, 191; 683 N.Y.S.2d 179 (1st Dep’t 1998) ..................... 51, 52, 64 Adler v. Ogden Cap Properties, 2013 NY Slip Op 23428; 2013 N.Y. Misc. LEXIS 5762 (S. Ct. N.Y.Co., Dec. 11, 2013) ............................................................... 55, 56, 67 Alix v. Wal-Mart Stores, Inc., 16 Misc.3d 844; 838 N.Y.S.2d 885 (Sup. Ct. NY Co. 2007), aff’d 57 A.D.3d 1044; 868 N.Y.S.2d 372 (3rd Dep’t 2008) .............. 53, 57, 64, 66 Asher v. Abbott Labs., 290 A.D.2d 208; 737 N.Y.S.2d 4 (1st Dep’t 2002) .................................. 35, 42, 49 Bloom v. Cunard Line, Ltd., 76 A.D.2d 237; 430 N.Y.S.2d 607 (1st Dep’t 1980) ............................................. 53 Blumenthal v. American Soc. of Travel Agents, N.Y.L.J., July 8, 1977, p. 5, col. 1, 1977 WL 18392, at *3 (Sup. Ct. NY Co. 1977) ............................................ 43, 49 Borden v. 400 E. 55th St. Assoc. L.P., Sup. Ct. NY Co., December 7, 2011, Gische, J. (Index No. 650361/09), aff'd, 105 A.D.3d 630; 964 N.Y.2d 115 (1st Dept 2013) ...................................... 69 Brennan v. City of New York, 99 A.D.2d 445; 470 NYS2d 621 [1984] .............................................................. 71 -iv- Cardona v. Maramont Corp., 2009 N.Y. Misc. LEXIS 5010, 2009 NY Slip Op 32695U (Sup. Ct. NY Co.) ... 52 Consolidated Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. N.Y. 1995) .................................................................. 53 Cox v. Microsoft Corp., 8 A.D.3d 39; 778 N.Y.S.2d 147 (1st Dep’t 2004) ........................................... 43-45 Daniel v. DHCR, 179 Misc.2d 452; 683 N.Y.S.2d 404 (Sup. Ct. NY Co. 1998) ............................. 61 Dimich v. Med-Pro, Inc., 34 A.D.3d 329; 826 N.Y.S.2d 3 (1st Dep’t 2006) ................................................. 62 Draper v. Georgia Properties, Inc., 230 A.D.2d 455; 660 N.Y.S.2d 556 (1st Dep’t 1997), aff’d, 94 N.Y.2d 809; 701 N.Y.S.2d 322 (1999) .................................................. 40 Drucker v. Mauro, 30 A.D.3d 37; 814 N.Y.S.2d 43 (1st Dep’t 2006) ........................................... 39-40 Estro Chemical Co. v. Falk, 303 N.Y. 83; 100 N.E.2d 146 (1951) ................................................................... 41 Ferrentino v. Mobil Oil Corp., NYLJ, July 2, 1979, p. 14, col. 6 .......................................................................... 43 Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 704 N.Y.S.2d 177 (1999) ............................................................ 36 Gaynor v. Rockefeller, 15 N.Y.2d 120; 256 N.Y.S.2d 584 (1965) ........................................................... 54 Georgia Properties, Inc. v. Dalsimer, 39 A.D.3d 332; 835 N.Y.S.2d 41 (1st Dep’t 2007) ............................................... 39 Gersten v. 56 7th Avenue LLC, 88 A.D.3d 189; 928 N.Y.S.2d 515 (1st Dep’t 2011) ...................................... 59, 60 Globe Surgical Supply v. GEICO Ins. Co., 59 A.D.3d 129; 871 N.Y.S.2d 263 (2nd Dep't 2008) ............................................ 51 Gordon v. Ford Motor Co., 260 A.D.2d 164; 687 N.Y.S.2d 369 (1st Dep’t 1999)........................................... 54 -v- Goshen v. Mutual Life Ins. Co., 1997 N.Y. Misc. LEXIS 486 (Sup. Ct. NY Co.), aff’d 259 A.D.2d 360; 684 N.Y.S.2d 791 (1st Dep’t 1999) ........................... 36, 38 Guzman v. Mike's Pipe Yard, 35 A.D.3d 266; 825 N.Y.S.2d 480 (1st Dep’t 2006) ...................................... 71, 72 H.O. Realty Corp. v. DHCR, 46 A.D.3d 103; 844 N.Y.S.2d 204 (1st Dep’t 2007) ............................................. 32 Hauptman v. Helena Rubinstein, Inc., 114 Misc. 2d 935; 452 N.Y.S.2d 989 (Sup. Ct. NY Co. 1981) ............................ 42 Jara v. Strong Steel Door, Inc., 2008 NY Slip Op 51733U (Sup. Ct. Kings Co. 2008) ......................................... 67 Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943, 944; 862 N.Y.S.2d 854 (2008)……………………………..40 Klapak v. Pappas, 79 A.D.2d 602; 433 N.Y.S.2d 500 (2nd Dep’t 1980) ..................................... 35, 64 Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 A.D.2d 624; 630 N.Y.S.2d 1003 (1995) ....................................................... 71 Marinelli v. Shifrin, 260 A.D.2d 227; 688 N.Y.S.2d 72 (1999) ........................................................... 71 Matter of 10th St. Assoc. LLC v. DHCR, 34 Misc.3d 1240A (Sup. Ct. NY Co. 2012) ......................................................... 33 Matter of Empire Blue Cross & Blue Shield Customer Litigation, 164 Misc. 2d 350;, 622 N.Y.S.2d 843 (Sup. Ct. NY Co. 1994) ........................... 37 Minihane v. Weissman, 226 A.D.2d 152; 640 N.Y.S.2d 102 (1st Dep’t 1996).................................... 37, 40 Mitchell v. Barrios-Paoli, 253 A.D.2d 281; 687 N.Y.S.2d 319 (1st Dep’t 1999).................................... 55, 67 Mohassel v. Fenwick, 5 N.Y.3d 44; 799 N.Y.S.2d 758 (2005) ........................................................ 37, 38 Myeong Cheol Kim v. DHCR, 249 A.D.2d 478; 671 N.Y.S.2d 309 (2nd Dep’t 1998) .......................................... 33 -vi- Pesantez v. Boyle Environmental Services, Inc., 251 A.D.2d 11; 673 N.Y.S.2d 659 (1st Dep’t 1998) ............................................. 46 Pludeman v. Northern Leasing Sys., Inc., 74 A.D.3d 420; 904 N.Y.S.2d 372 (1st Dep’t 2010) ...................................... 51, 69 Rebibo v. Axton Owners, Inc., 2012 N.Y. Misc. LEXIS 198, 2012 NY Slip Op 30109U (Sup. Ct. NY Co.) ..... 69 Ridge Meadows Homeowners’ Assoc. v. Tara Development Co., 242 A.D.2d 947; 665 N.Y.S.2d 361 (4th Dep’t 1997) .......................................... 46 Riverside Syndicate, Inc. v. Munroe, 39 A.D.3d 256; 833 N.Y.S.2d 452 (1st Dep’t 2007), aff’d, 10 N.Y.3d 18, 853 N.Y.S.2d 263 (2008) .................................................... 40 Roberts v. Tishman Speyer Properties,L.P., 62 A.D.3d 71; 874 N.Y.S.2d 97 (1st Dep't), aff'd, 13 N.Y.3d 270, 890 N.Y.S.2d 388 (2009) .......................................... passim Roberts v. Tishman Speyer Properties, L.P., 89 A.D.3d 444; 932 N.Y.S.2d 45 (1st Dep’t 2011) ............................................... 17 Roberts v. Tishman Speyer Properties, L.P., Transcript, S. Ct. N.Y.Co. Index No.: 100956/2007, April 9, 2013 .................... 25 Rubin v. Nine West Group, Inc., 1999 N.Y. Misc. LEXIS 655 (Sup. Ct. Westchester Co.) ............................. 42, 49 Rudgayzer & Gratt v. Cape Canaveral Tour & Travel, Inc., 22 A.D.3d 148; 799 N.Y.S.2d 795 (2nd Dep’t 2005) ............................................ 35 Rudgayzer & Gratt v. LRS Communications, Inc., 6 Misc.3d 20; 789 N.Y.S.2d 601 (App. T. 2nd Dep’t 2004) ................................. 35 Russo & Dubin v. Allied Maintenance Corp., 95 Misc.2d 344 ........................................................................................ 43, 49, 62 Sirica v. Cellular Telephone Co., 231 A.D.2d 470; 647 N.Y.S.2d 219 (1st Dep’t 1996)........................................... 55 Small v. Lorillard Tobacco Co., 94 N.Y.2d 43; 698 N.Y.S.2d 615 (1999) .......................................... 54, 63, 64, 67 -vii- Solomon v. Bell Atlantic Corp., 9 A.D.3d 49; 777 N.Y.S.2d 50 (1st Dep’t 2004) ............................................ 54, 63 Sperry v. Crompton Corp., 8 N.Y.3d 204; 831 N.Y.S.2d 760 (2007) ..................................... 30, 33-35, 38, 48 Super Glue Corp. v. Avis Rent A Car System, Inc., 132 A.D.2nd 604; 517 N.Y.S.2d 764 (2nd Dep’t 1987) ......................................... 46 Tegnazian v. Consol. Edison, Inc., 189 Misc.2d 152; 730 N.Y.S.2d 183 (S. Ct. N.Y.Co. 2000) ......................... 54, 55 Wal-Mart Stores v. Dukes, 131 S. Ct. 2541; 180 L. Ed.2d 374 (2011) .................................................... 49, 57 NEW YORK STATUTES: Civil Practice Law & Rules ("CPLR") §901(a) ............................................... passim CPLR §901(b)……………………………………………………………….passim CPLR §213-a .............................................................................................................. 5 CPLR §3025 ...................................................................................................... 70, 72 CPLR §5501(b)…………………………………………………………………....1 CPLR §5602(b)(1)………………………………………………………………...1 General Business Law ("GBL") §340(5) .................................................... 33, 35, 38 GBL §349 ............................................................................................... 44, 45,46, 63 GBL §350……...…………………………………………………………………63 Labor Law §198(1-a)……………………………………………………………46 New York Insurance Law §4226 ................................................................ 36, 37, 38 N.Y.C. Admin. Code §11-243 ("J-51 Program")..…………………………….12 Real Property Law §234……………………………………………………….27 Real Property Tax Law §489…………………………………………………..12 Rent Stabilization Code ("RSC") §2520.13 ............................ 6, 27, 39-40, 45, 47-48 RSC §2521.1(a)(1) ................................................................................................... 61 RSC §2522.3 ..................................................................................................... 18, 61 RSC §2522.5……………………………………………………………………..19 RSC §2522.8(a)(2)(ii) ....................................................................................... 18, 19 RSC §2526.1(a)(1) ........................................................................................... passim RSC §2526.1(d)………………………………………………..……………31-31 Rent Stabilization Law ("RSL") §26-501 ................................................................ 41 RSL §26-504.1 ................................................................................... 2, 11,12, 14, 18 RSL §26-504.2 ............................................................................ 2, 11, 12, 13, 14, 15 RSL §26-516(a) ................................................................................................ passim Social Services Law § 131-o………………………………….…….35-36, 38, 67 -viii- FEDERAL AUTHORITY: Federal Rules of Civil Procedure, § 23(b)(3)…………………………………56 Telephone Consumer Protection Act, 47 U.S.C.S. §227………………………………………………………….35, 38 OTHER LEGAL AUTHORITY: Katz, E., “Supreme Court Articulates Rigorous Standard for Class Certification,” N.Y.L.J., May 17, 2013, at p. 3……………………………………………. 56 Napolitano, “Avoiding the Minefields in New York Practice,” N.Y.L.J., May 18, 2009, at p. 57….………………………………...........48-49 MCRUZ/4331.0090/697703 -1- JURISDICTIONAL STATEMENT This Court’s jurisdiction is invoked pursuant to CPLR § 5602(b)(1), in that leave to appeal was granted to Defendant-Appellant, Jemrock Realty Company, LLC, by the Appellate Division, First Department, by order entered on October 22, 2013 (R. 465). The questions presented on this appeal are questions of law, reviewable by this Court pursuant to CPLR §5501(b). RULE 500.1(f) CORPORATE DISCLOSURE STATEMENT Defendant-Appellant, Jemrock Realty Company, LLC, is a New York Limited Liability Company, with no parents, subsidiaries, or affiliates. -2- PRELIMINARY STATEMENT Defendant-Appellant, Jemrock Realty Company, LLC (“Owner”) appeals from the Order of the Appellate Division, First Department, entered on April 25, 2013 (Manzanet-Daniels, J. and Moskowitz, J., dissenting), which affirmed the Supreme Court, New York County (Rakower, J.S.C.), in granting Plaintiff-Respondent’s motion for class certification of this action. Plaintiff-Respondent, Yanella Gudz (“Plaintiff”), commenced this action in the wake of this Court’s holding in Roberts v. Tishman Speyer Properties, L.P., 13 N.Y.3d 270; 890 N.Y.S.2d 388 (2009) (Read, J. and Graffeo, J., dissenting), which held that luxury deregulation under Rent Stabilization Law (“RSL”) §§ 26-504.1 and 26-504.2 cannot be employed in buildings while J-51 tax benefits are in effect. In an unverified complaint, Plaintiff sought (a) a judicial declaration that certain apartments in the subject Manhattan building where she lived were improperly deregulated while Owner received J-51 tax benefits, and (b) to recover treble damages and other statutory penalties for alleged rent overcharges, on behalf of herself and the putative class of former and current tenants of deregulated apartments in the building. The Supreme Court issued two orders which the Appellate Division addressed. The June 20, 2011 Order (“Initial Order”) granted Plaintiff’s motion for class certification. The subsequent October 24, 2011 Order (“Reargument -3- Order”) granted Owner’s motion for reargument, but, upon reargument, the Supreme Court continued to adhere to the Initial Order. In affirming the Supreme Court’s orders, the Appellate Division majority contravened CPLR § 901(b). CPLR §901(b) prohibits class certification in “an action to recover a penalty or minimum measure of recovery created or imposed by statute” unless the statute “specifically authorizes the recovery thereof in a class action.” The statute and regulation which form the basis of Plaintiff’s damages claim, i.e., RSL §26-516(a) and Rent Stabilization Code (“RSC”) §2526.1(a)(1), impose (a) a mandatory penalty of treble damages in the event that a willful overcharge is found (and all overcharges are presumptively willful under the RSL and RSC), or (b) a minimum measure of recovery in the amount of the overcharge, plus interest, should the landlord rebut the statutory presumption that all overcharges are willful. Neither the RSL nor the RSC authorizes recovery of overcharge penalties (or any other type of relief for a violation of the rent laws) in a class action. Based on a plain reading of CPLR §901(b), RSL §26-516(a), and RSC §2526.1(a)(1), the Appellate Division should have found that Plaintiff was legally barred from maintaining a class action to remedy alleged violations of the rent laws (most particularly, rent overcharge), and, thus, class certification should have been denied. -4- Plaintiff attempted to overcome the CPLR §901(b) bar by purporting to waive the treble damages claim. Plaintiff’s purported waiver was made, not by Plaintiff (who never submitted an affidavit on the motion for class certification), but, rather, solely by her attorney in a reply affirmation on the motion. The Appellate Division majority failed to recognize that the treble damages penalty is a mandatory, non-waivable penalty under the clear text and public policy of the RSL, RSC, and binding precedent.1 In addition, even if waiver of statutory penalties was possible, the Appellate Division majority disregarded the procedural infirmities rendering the purported waiver ineffectual. The Appellate Division majority also erred in concluding that Plaintiff had met her burden of satisfying all five of the criteria for class certification set forth under CPLR §901(a). First, the numerosity requirement was not satisfied since there were, at most, only 24 apartments in the building which were deregulated, like Plaintiff’s apartment, prior to the building’s receipt of J-51 tax benefits. The second and third criteria -- commonality and typicality – were not met because an individualized, fact-specific, and legal-specific analysis is 1 Owner does not concede or admit that a willful overcharge occurred in the case at bar. However, unless and until a finding of non-willfulness is made (which did not occur), exposure to treble damages penalties, as well as other penalties, such as attorneys’ fees, remains intact. Moreover, even if an overcharge is found to be non-willful, the RSL and RSC provides for minimum measures of recovery (also denominated as penalties), including pre-judgment interest. These mandatory statutory penalties fall squarely within the CPLR §901(b) preclusion provision. Thus, an action seeking rent overcharges and other statutory punitive remedies for alleged violations of the rent laws cannot be maintained as a class action. -5- necessary in order to determine the regulatory status of each apartment, as well as the amount of any possible overcharge for that apartment. The methodology for computing the legal rent also depends on whether the apartment was formerly rent controlled or rent stabilized. These individual factual and legal questions predominate over any general question common to the putative class. Plaintiff also failed to meet the fourth criterion of the class certification statute; to wit, the ability to be an adequate class representative. As noted, Plaintiff never submitted an affidavit in support of the motion for class certification or a verified pleading. Plaintiff, therefore, has never attested to her adequacy as class representative. In addition, the purported waiver (via an attorney reply affirmation) of the treble damages penalty on behalf of the putative class was inconsistent with adequate class representation. Such act indicated that Plaintiff would not protect the interests of the putative class. The fifth criterion requires a showing that there are no adequate alternative remedies. Plaintiff made no such showing. To the contrary, there are ample administrative remedies before the Office of Rent Administration of the NYS Division of Housing and Community Renewal (“DHCR”), as well as remedies at law under CPLR §213-a, and defenses in non-payment proceedings, readily available to all tenants with regulatory status and/or overcharge claims. -6- DHCR is the state agency charged with administering and enforcing the rent laws. The Housing Part of the Civil Court is dedicated to resolving landlord-tenant disputes. Both forums are fully equipped to conduct the necessary fact/law-specific analysis of an apartment’s unique rental history, and determine its regulatory status and legal regulated rent. In addition, the right to presumptive treble damages and other penalties under the RSL and RSC provides a strong incentive for any tenant who has been aggrieved to pursue individual claims before the DHCR, or in court. Plaintiff failed to demonstrate that a class action is superior to these other avenues for adjudicating the potential claims of the putative class members. The two dissenting justices further noted that the RSL is a law that has never provided for, nor contemplated, class actions as a means to enforce its provisions. The Appellate Division Order, in carving out a novel exception in order to facilitate rent overcharge class actions, set a troubling precedent that actually undermines, rather than advances, tenant protections. The dissenting justices explained that the approval of the broad waiver of the statutory penalty of treble damages is inconsistent with the core principles and public policy underlying the rent laws. This is reflected in RSC §2520.13, which clearly states that all agreements to waive RSL rights and obligations are void. -7- The dissenting justices also cogently rejected the notion that the possibility of “opting out” of the class sufficiently alleviated any individual tenant harm from the waiver of treble damages. The dissenting justices pointed out that given how integral treble damages is to the RSL/RSC rent enforcement scheme, coupled with the no-waiver regulation, a putative tenant class member would not presume statutory penalties were waived, and thus, would not likely opt out. This would, in turn, raise potential due process issues because as a consequence of not opting out, such tenants would be deprived of substantial statutory rights they reasonably expected were inviolate. The Appellate Division should have held that Plaintiff’s motion for class certification was (1) barred under CPLR §901(b); (2) deficient under CPLR §901(a); and (3) procedurally infirm. Any one of these three grounds was sufficient to deny the motion. Accordingly, for all of the reasons set forth herein, the Appellate Division and Supreme Court orders should be reversed. -8- QUESTIONS PRESENTED I. Q. Does CPLR § 901(b) preclude class certification of an action for alleged unlawful rent overcharges under RSL § 26-516(a) and RSC § 2526.1(a)(1), which expressly define all overcharges as presumptively willful, and as such, command mandatory penalties upon all findings of overcharge (whether willful or not), and do not specifically authorize the recovery thereof in a class action? A. The courts below held that the CPLR §901(b) preclusion did not apply to this case because the RSL and RSC rent overcharge penalties are waivable. The two dissenting justices of the Appellate Division strongly disagreed. II. Q. Can a plaintiff who seeks remedies for alleged violations of the rent laws on behalf of putative class members waive mandatory RSL and RSC penalties in order to overcome the CPLR §901(b) preclusion? A. The courts below answered in the affirmative. The two dissenting justices of the Appellate Division strongly disagreed. -9- III. Q. Even were waiver of statutory and regulatory rights permissible, would such waiver disqualify Plaintiff as an adequate class representative? A. The courts below found that the waiver of tenant protections did not render Plaintiff an inadequate class representative. The two dissenting justices of the Appellate Division strongly disagreed. IV. Q. Even if waiver of statutory and regulatory rights was permissible, could such waiver be effectuated via a mere reply affirmation of counsel, with no amendment of the complaint? A. The courts below found Plaintiff’s waiver to be effective. The two dissenting justices of the Appellate Division strongly disagreed. V. Q. Did Plaintiff’s motion meet the five (5) requirements for class certification set forth under CPLR §901(a)? A. The courts below answered this question in the affirmative, despite (a) the material issues of fact defeating compliance with those requirements and distinguishing Plaintiff from the putative class, and (b) the absence of any affidavit from Plaintiff establishing the statutory criteria. The two dissenting -10- justices of the Appellate Division strongly disagreed that CPLR §901(a) criteria were met by Plaintiff. -11- STATEMENT OF FACTS The Parties Defendant-Appellant, Jemrock Realty Company, LLC (“Owner”), is the owner of XXX2 West 101st Street, New York, New York (the “Building”) (R. 58, 67).3 Plaintiff-Respondent, Yanella Gudz (“Plaintiff”), is a tenant of apartment XXX (the “Apartment”) in the Building (R. 57). Plaintiff entered into occupancy in 2006 pursuant to a market rate lease. Plaintiff was the third tenant following the luxury deregulation of the Apartment in 1997 pursuant to RSL §26- 504.2 (high rent vacancy deregulation). The Building and the Apartment The Building contains 169 apartments. It is a pre-war multiple dwelling that became subject to rent stabilization pursuant to the Rent Stabilization Law of 1969. Apartments occupied by tenants before 1969 were subject to rent control under the City Rent and Rehabilitation Law, and such apartments remain rent controlled until a vacancy occurs. (R. 150-151.) 2 Where “sensitive material,” as defined by this Court’s Confidential and Sensitive Documents Notice, appears in this brief, such material has been redacted and indicated as “XXX.” 3 References to the bound record on appeal are indicated as “R.” followed by the relevant page number(s). -12- In 1999, the Building received a J-51 tax abatement for a capital improvement.4 The J-51 tax abatement was fully exhausted as of June 30, 2012 (R. 55, 150). When the underlying motion seeking class certification was made, seventy-eight (78) units in the Building (including the Apartment) were deregulated, while the remaining ninety-one (91) units remained subject to rent stabilization or rent control (R. 151). Some of the 78 units were deregulated pursuant to final DHCR orders, or during a time when the Building was not receiving tax benefits, and thus, fall outside the scope of the tax benefit proviso under RSL §§26-504.1 and 26-504.2. The pertinent rental history of the Apartment indicates that it was lawfully deregulated in 1997, prior to any tax benefits being received at the Building. Twenty-four apartments (of the 78 deregulated units) fall under this category; i.e., having been initially deregulated during a time when no tax benefits were in effect. The last rent stabilized lease for the Apartment was for a legal regulated rent of $1,409.10 per month. After a vacancy occurred in 1997, Owner completed over $37,000.00 in individual apartment improvements, such that the 4 The “J-51” program is §11-243 of the NYC Administrative Code, which is authorized by §489 of the New York State Real Property Tax Law. -13- legal regulated rent for the Apartment was increased above $2,000.00 per month, the statutory threshold for vacancy deregulation in effect at that time (R. 153) (RSL §26-504.2[a]). There was no bar to high rent vacancy deregulation in 1997, inasmuch as no J-51 tax benefit was in effect at the Building in 1997. Thereafter, the first free market rent tenant took occupancy of the Apartment pursuant to a lease effective June 1, 1999 -- prior to the Building’s receipt of the J-51 tax benefits -- at a rent of $3,160.00 per month (R. 153, 287). When that tenant vacated, the Apartment was re-rented to the second free market rent tenant pursuant to a lease effective August 1, 2005 through July 31, 2006, at a rent of $4,100.00 per month (R. 153, 198). Plaintiff was the third free market tenant (albeit, by the time Plaintiff took occupancy, J-51 tax benefits had commenced). Plaintiff took occupancy of the Apartment pursuant to an initial lease effective September 15, 2006, at a monthly rent of $4,400.00 (R. 29, 153). Plaintiff executed renewal leases in 2007, 2008 and 2009 (R. 29, 153, 214, 237 and 260). Under Plaintiff’s most recent renewal lease, effective October 1, 2009 through September 30, 2010, Plaintiff’s monthly rent was $4,600.00 (R. 153, 260). Plaintiff remains in occupancy of the Apartment paying $4,600.00 per month (R. 152). -14- The Underlying Complaint and Answer In the aftermath of this Court’s determination in Roberts, 13 N.Y.3d 270, supra, Plaintiff commenced the underlying action by summons with notice dated November 20, 2009, and an unverified complaint (R. 56-66, 281-284). The unverified complaint was brought on behalf of “current and former tenants” of the Building (the “Putative Class”) and sought (i) “money damages for rent overcharges by [Owner], and attorneys’ fees,” and (ii) a judicial declaration that certain apartments in the Building “remain subject to rent stabilization and will continue to be so until the last J-51 tax benefit period for [the Building] expires” (R. 56). More specifically, the unverified complaint alleged that Plaintiff and the Putative Class were illegally charged rents in excess of the legal regulated rent levels during the time that the Building was receiving J-51 tax benefits, in violation of RSL §§ 26-504.1 and 26-504.2, and the Roberts decision (R. 59, 63). As such, the unverified complaint seeks “treble damages for [Owner’s] willful overcharges occurring after March 5, 2009, the date of the Supreme Court, Appellate Division’s decision in [Roberts]” (R. 56-57). Owner served a verified answer to the complaint stating that it had lawfully and permanently deregulated the Apartment, prior to the Building’s receipt of J-51 tax benefits (R. 67-79). As to other units that were deregulated -15- while J-51 tax benefits were being received, Owner stated that, prior to the Appellate Division’s issuance of its decision in Roberts on March 5, 2009 [62 A.D.3d 71; 874 N.Y.S.2d 97 (1st Dep’t 2009), aff’d 13 N.Y.3d 270, supra], Owner, as well as the Roberts defendants and numerous other property owners, believed (based on city and state regulations) that they could deregulate apartments in buildings receiving J-51 tax benefits, so long as the building had been subject to rent stabilization for some reason other than, or in addition to, the receipt of the tax benefits. Owner submitted that the new Roberts decision should not be retroactively applied (R. 71-73, 76-77). Owner further alleged that Plaintiff had voluntarily entered into a market lease for the Apartment when she first took occupancy in 2006, that her initial lease and renewals contained a rider explaining that the Apartment was deregulated pursuant to RSL § 26-504.2 (i.e., high rent vacancy deregulation), and the Apartment had been registered with DHCR as permanently exempt from rent stabilization as of April 1, 1998 (prior to receipt of any J-51 tax benefits). Most notably, Owner stated that even if Plaintiff was rent regulated, the rental amounts charged to Plaintiff, which increased by only $200.00 over three (3) years, would not exceed legal regulated rent levels. Therefore, regardless of her claims, Plaintiff had not suffered any legally cognizable rent overcharge under Rent Guideline Board Orders that were issued during her tenancy (R. 72-73). -16- Owner also set forth twenty (20) affirmative defenses to the unverified complaint, including that Plaintiff was not entitled to class certification (R. 73-78). None of these defenses (other than class certification) have been dismissed. Plaintiff’s Motion for Class Certification On January 5, 2011, Plaintiff moved for an order certifying the action as a class action on behalf of all former and current tenants in the Building who “were charged, and/or continue to be charged, market rate rents” during the time that Owner received J-51 tax benefits, appointing Plaintiff as the class representative, and appointing Plaintiff’s counsel as counsel for the Putative Class (R. 17-146). Plaintiff stated that the proposed class encompassed approximately ninety (90) deregulated apartments in the Building. Plaintiff alleged, in general terms, that the Putative Class satisfied all five (5) criteria for class certification required under CPLR § 901(a). Plaintiff did not submit any affidavit in support of her motion (R. 136-145). Owner opposed the motion and moved for a stay of the underlying action. Owner sought a stay pending the Appellate Division’s determination of the retroactivity issue in Roberts, and the Appellate Term’s determination of base date -17- and calculation methodology related to the rent issues, in appeals then pending before them (R. 147-321).5 Owner submitted an affidavit by Marina Higgins, a Vice-President of its managing agent, in opposition to Plaintiff’s motion (“Higgins Affidavit”) (R. 149-155). In her affidavit, Ms. Higgins attested to the following pertinent facts: 1. Contrary to Plaintiff’s claim that the Building had received $26,000,000.00 in J-51 tax benefits, Owner had actually received under $500,000.00 in J-51 benefits (R. 55, 150). 2. Plaintiff was the only tenant in the Building who had asserted a rent overcharge claim based on allegations that the Apartment was improperly rented as a market apartment while the Building was receiving J-51 tax benefits (R. 150). 3. Contrary to Plaintiff’s claim that ninety (90) apartments in the Building had been deregulated, there were only seventy-eight (78) deregulated apartments in the Building (R. 151). 4. The facts surrounding the deregulation of each apartment were all very different. Specifically, • Twenty-four (24) apartments in the Building, including the Apartment, were deregulated before the Building ever received any J-51 benefits. 5 The Appellate Division subsequently determined the retroactivity issue by decision dated November 3, 2011. See, Roberts v. Tishman Speyer Properties, L.P., 89 A.D.3d 444, 932 N.Y.S.2d 45 (1st Dep’t 2011). The Appellate Term decided the base date and rent calculation issues by decision dated June 1, 2011. See 72A Realty Associates v. Lucas, 32 Misc.3d 47, 929 N.Y.S.2d 349 (App. T. 1st Dep’t 2011). After the Appellate Term decided Lucas, leave to appeal was granted, and the Appellate Division further addressed the methodology for determining rent claims in cases where apartments were erroneously deregulated during a time when J-51 tax benefits were in effect. 101 A.D.3d 401; 955 N.Y.S.2d 19 (2012). -18- • Among those 24 apartments, some were previously rent stabilized while others were previously rent controlled, and, thus, are governed by completely different regulations and rent calculation formulas. • Further, some apartments were deregulated pursuant to DHCR orders (RSL §26-504.1 et seq.), while others were deregulated due to high rent vacancy. • In addition, as to the separate category of apartments that were deregulated after the Building received J-51 benefits, some in that category were deregulated pursuant to DHCR orders, and they all have separate and unique rental histories. • Seventeen (17) of the deregulated apartments in the Building were previously rent controlled, not rent stabilized, and, thus, are governed by completely different regulations and rent calculation formulas. (R. 151). Ms. Higgins also explained that, if the four year statute of limitations applies to determine overcharges in the wake of Roberts (as the Appellate Term determined that it did in Lucas, 32 Misc.3d 47, supra, and the Appellate Division seems to have approved except in cases involving possible fraudulent conduct, 101 A.D.3d at 402-403, supra), then Plaintiff was not overcharged. Specifically, the rent charged and paid four (4) years prior to the date Plaintiff commenced this action (November 20, 2009), was $4,100.00 per month (R. 281-284). Under RSC §2522.8(a)(2)(ii), Owner was entitled to collect a vacancy increase of 17.25% -19- when the prior tenants vacated. Thus, the legal regulated rent when Plaintiff took occupancy in 2006 was $4,807.25, and exceeded Plaintiff’s initial monthly rent ($4,400.00) paid pursuant to her initial lease, by over $400.00 per month (R. 152, 198). Ms. Higgins illustrated this point via a chart (R. 153), which demonstrates that, at all times throughout her tenancy, were she to have been stabilized, Plaintiff paid a monthly rent that was lower than the legal regulated rent that Owner was entitled to charge pursuant to the annual Rent Guidelines Board Orders.6 Owner further argued that the action was barred from class certification under CPLR §901(b), which prohibits class certification under “a statute creating or imposing a penalty, or a minimum measure of recovery” unless such statute “specifically authorizes the recovery thereof in a class action[.]” Owner pointed out that Plaintiff sought treble damages in the complaint, which are mandatory penalties under RSL § 26-516(a) and RSC § 2526.1(a)(1), and must be 6 Ms. Higgins noted in her affidavit that the legal regulated rent calculations set forth in the chart presume that the actual rent charged (which includes preferential rents) is used to calculate the permissible rent stabilized rent increases (R. 153). Although such approach in not the methodology that DHCR would necessary employ, Ms. Higgins explained that Owner used this method for illustrative purposes only because it is the calculation most favorable to Plaintiff. Put another way, under normal circumstances, an owner would calculate a tenant’s legal regulated rent cumulatively, by taking RGB increases from the base date rent and from the increased legal regulated rent amount upon each renewal, rather than based on the actual rents charged as set forth on each lease, which might be lower than the legal regulated rents. RSC §§ 2522.5 and 2522.8(a). -20- awarded if the statutory presumption of willfulness is not rebutted. Owner, thus, urged the Court to deny the motion because Plaintiff is statutorily barred from maintaining a class action when such mandatory penalties (and other penalties) are integral to the causes of action of the complaint (R. 307-311). Owner further demonstrated that Plaintiff had failed to satisfy the five (5) requirements for class certification set forth under CPLR §901(a). Specifically, Plaintiff could not satisfy the numerosity requirement because most, if not all, of the current and former tenants of the seventy-eight (78) deregulated apartments in the Building could not establish that they had been overcharged under any methodology for calculating legal rents under the Rent Stabilization Law. Thus, the pool of potential legitimate claimants was small. In addition, Owner showed how only twenty-four (24) apartments in the Building, including the Apartment, were deregulated prior to the Building’s receipt of J-51 tax benefits. Only those twenty-three (23) other apartments were “similar” to Plaintiff’s for purposes of class certification. Owner further demonstrated that each of the apartments was deregulated under a myriad of circumstances. Determining the legal regulated rent for each apartment would turn on factors such as: prior regulatory status, the basis for deregulation, the date of deregulation, the legal regulated rent charged prior to deregulation, how long the prior tenant was in occupancy (which could trigger a -21- longevity allowance in addition to the normal vacancy increase), what improvements were made to each apartment, the allowable rent increases based on each apartment’s specific history, the RGB Order applicable at the time of each vacancy, re-letting, and renewal, and the post-deregulation rental history (R. 314- 316). There was no single formula for setting the legal rents of these apartments after many years of deregulation. It was, thus, necessary to conduct a fact-laden, apartment-specific, highly individualized analysis in order to determine class membership. Plaintiff could not satisfy the commonality or typicality requirements for a class action under such circumstances. (R. 151, 312-313, 316.) Owner further submitted that Plaintiff could not be considered an adequate class representative as she purported to waive significant statutory penalties on behalf of all unnamed class members (if waiver was even possible). Moreover, Plaintiff did not attest to her qualifications as she failed to submit any affidavit in support of her motion for class certification, and there was no verified pleading (R. 316-317). Finally, Owner argued that the superiority criteria of CPLR § 901(a) was not satisfied because each member of the Putative Class had readily available and competent administrative remedies for determining the regulatory status of his or her individual apartment and its legal regulated rent, if any. Each member of the Putative Class could seek a rent stabilized lease and to recover any overcharges -22- and statutory penalties by filing a simple complaint with DHCR (R. 317-319). No lawyer is needed for such a filing, and no filing fee is charged. Each member could also assert a counterclaim for rent overcharge in any nonpayment proceeding, or commence an individual action in court for such relief. Each member could receive a substantial monetary award in such proceeding or action, in the form of, inter alia, treble damages, interest, and legal fees. Thus, the highly complex, time-consuming, and costly vehicle of a class action was not appropriate (and certainly not the most efficient way) to remedy the alleged claims, which tenants had significant statutory incentives to pursue on an individual basis. The Purported Waiver On reply, Plaintiff’s counsel attempted to overcome the CPLR §901(b) penalty preclusion, by asserting in his reply affirmation that Plaintiff “waives her right to seek treble damages under [RSL] § 26-516(a)[.]” Plaintiff’s counsel further asserted, “[o]n behalf of herself and the proposed class, she will seek actual damages against [Owner]. Accordingly, she abandons, in their entirety, Paragraphs 5 and 36 wherein she had sought treble damages in [the complaint]” (R. 322-323). Owner emphasized that an attorney reply affirmation making conclusory assertions was legally insufficient to waive substantive and material -23- claims in a class action complaint. Plaintiff neither moved to amend the class action complaint, nor submitted an affidavit to substantiate her counsel’s statement. Furthermore, Owner reiterated that overcharge penalties under RSL § 26-516(a) and RSC § 2526.1(a)(1), were non-waivable tenant protective rights. Thus, Owner submitted that Plaintiff had utterly failed to establish any of the essential criteria for class certification relief (R. 381-389). The Supreme Court’s Initial Order By Decision and Order dated June 16, 2011, the Supreme Court granted Plaintiff’s motion (“Initial Order” at R. 10-16). In a footnote, the Supreme Court summarily rejected Owner’s argument that the action is barred from class certification under CPLR §901(b). The Supreme Court misstated: “that point is moot as Plaintiff, in her reply papers, states that she is withdrawing her claim for treble damages” (R. 12). Turning to the five (5) requirements set forth under CPLR §901(a), the Supreme Court concluded that the “predominant question” of the action was whether Owner “was receiving J-51 benefits while collecting market rents from the tenants at [the Building].” This question, the Court held, sufficiently warranted class certification despite the numerous variables highlighted by Owner in its opposition to Plaintiff’s motion (R. 13-16). -24- Owner’s Motion to Reargue and Renew Owner moved to reargue on the grounds that the lower court overlooked or misapprehended that: (i) CPLR §901(b) expressly prohibits class certification when a complaint seeks mandatory penalties such as those set forth under the RSL §26-516(a) and RSC §2526.1(a)(1); (ii) Plaintiff could not waive those mandatory penalties in order to obtain class certification; (iii) Even if waiver was possible, the purported waiver in an attorney reply affirmation was ineffectual; and (iv) Plaintiff had not satisfied the pre-requisites for class certification set forth under CPLR §901(a). Most notably, the lower court improperly disregarded Plaintiff’s inability to adequately serve as the class representative, as evidenced by her lawyer’s uncorroborated withdrawal of the treble damages claim on behalf of the Putative Class. (R. 392-432.) Owner argued that in permitting Plaintiff to withdraw the treble damages claim, the Court overlooked the distinction between mandatory statutory penalties, which are not waivable, and permissive penalties. The Court had incorrectly relied on cases that involved permissive statutory remedies, and were, therefore, distinguishable from the case at bar (R. 423-428). In addition, Owner brought to the Court’s attention a letter submitted by DHCR to the Supreme Court in the Roberts case, dated April 18, 2011 (“DHCR Letter”) (R. 400-402). The DHCR Letter was a response to the Supreme Court’s -25- Order of Referral in Roberts, “requesting the DHCR to provide the Court with a non-binding, advisory opinion on the appropriate formulae, under the [RSL] and [RSC] for: (1) establishing the correct legal regulated rents for the apartments at issue in [the Roberts] case; and (2) calculating past rent overcharges.” The DHCR Letter advised the Roberts Court that calculating legal regulated rents and determining past overcharges “will require the application of both a complex set of statutory laws and regulations and equitable principles, which will require an understanding of facts that may be unique to each apartment” (R. 400).7 The DHCR Letter confirmed that an individual, fact and law-specific analysis was necessary in order to determine the rights and remedies of each affected apartment at the Building (R. 395-397, 420-422).8 The Reargument Order By Order dated October 24, 2011, the Supreme Court granted leave to reargue, but upon reargument, adhered to its Initial Order (“Reargument Order” at R. 5-7). The Supreme Court stated that “[c]ourts have consistently held that 7 The DHCR Letter in Roberts pertained to a housing complex where only rent stabilization was applicable. In the subject Building, both, rent stabilized and rent controlled rent histories are present, creating a need for even greater fact and law specificity for each apartment. 8 The merits of class certification were never litigated in Roberts. Following the remand from this Court, the parties entered into a consent class certification order and ultimately settled the case. Had it not settled, the Supreme Court indicated that the issue of individualized rent calculations was a significant concern that could have resulted in a decertification order. Transcript of Proceedings in Roberts v. Tishman Speyer Properties, L.P., S. Ct. N.Y.Co. Index No.: 100956/2007, April 9, 2013 at 19-20. -26- plaintiffs may waive the penalty portion of a statute that would otherwise render the action ineligible for class certification” (R. 6). However, all of the cases cited by the Court to support this determination involved permissive statutory penalties and not mandatory statutory penalties, like the treble damages penalty set forth under RSL § 26-516(a) and RSC § 2526.1(a)(1), where willfulness is statutorily presumed. The Supreme Court completely ignored the import of the DHCR Letter, which confirmed the absence of commonality or typicality of fact or law in the material allegations of the complaint. The Appellate Division Order on Appeal On appeal, a majority of the Appellate Division affirmed the Supreme Court orders. The majority maintained that Plaintiff’s action did not seek a “penalty” within the meaning of CPLR §901(b), because Plaintiff waived her right to treble damages. The majority held that Plaintiff’s “waiver” was allowed and effective because treble damages are not the “sole measure of recovery” for rent overcharge, since an owner who rebuts the presumption of willfulness cannot be assessed with punitive damages. (R. 466-468.) The majority found that notwithstanding the RSL defining all forms of recovery for rent overcharge as a “penalty”, reimbursement of an overcharge with statutory interest (in the event that the presumption of willfulness is rebutted), in -27- the majority’s view, is simply “compensatory” and lacks the requisite “punitive, deterrent and litigation-incentivizing purpose” that underlies the basis for CPLR §901(b) preclusion. The attorneys’ fees provision in the RSL overcharge section also did not trigger the CPLR §901(b) preclusion because the majority opined that such provision should be treated like the reciprocal right that tenants have to recover fees under RPL §234 when prevailing in landlord-tenant summary proceedings. The majority addressed the lack of an affidavit by Plaintiff, but did so only in the context of discussing whether she established her financial ability to adequately represent the Putative Class. The majority found that Plaintiff’s counsel’s assumption of the risk of costs and expenses in the litigation was sufficient to establish CPLR §901(a)(4) criteria. However, the majority was silent as to the other statutory prerequisites (such as commonality [a][2], typicality [a][3], and class action superiority [a][5]), that were the actual focus of Owner’s objections. The Dissenting Opinion Conversely, the dissenting justices highlighted inconsistencies with the majority’s holding and the words and intent of CPLR §901(b), RSL §26- 516(a), RSC § 2526.1(a)(1), and RSC § 2520.13. The dissent pointed out possible due process issues with the assumption that Putative Class members could “opt -28- out” of the class action to pursue treble damages, and disagreed that Plaintiff had satisfied CPLR §901(a) criteria – most notably the (a)(4) prerequisite of being an adequate class representative. This Court should adopt the reasoning and conclusions of the dissent, and reverse the lower court orders. Plaintiff’s motion for class certification should not have been granted, as a matter of law. -29- POINT I PLAINTIFF IS BARRED FROM CLASS CERTIFICATION UNDER CPLR § 901(b) AND CANNOT WAIVE STATUTORY PENALTIES CPLR §901 is titled “Prerequisites to a class action” and provides as follows: b. Unless 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. (Emphasis supplied.) Notably, there is no language anywhere in the statute allowing a plaintiff to waive a statutory penalty in order to overcome the CPLR §901(b) limitation on class actions. Paragraphs 5 and 36 of the class action complaint, here, specifically sought treble damages pursuant to the Rent Stabilization Law and Code – i.e., “a penalty…created or imposed by statute.” (R. 57, 63). Nevertheless, by affirmation of counsel, submitted in reply on Plaintiff’s motion for class certification, the attorney purportedly “waived” the Putative Class’s right to treble damages under RSL §26-516(a) and RSC §2526.1(a)(1), and purportedly “abandoned” those paragraphs of the complaint specifically seeking such damages. The action is barred from class certification because (i) under CPLR § 901(b), Plaintiff cannot seek RSL § 26-516(a) penalties in a class action complaint, -30- and (ii) the statutory right to such damages cannot be waived on behalf of the Putative Class. CPLR §901(b) was enacted with the express goal of preventing class certification in situations like the situation at bar, where the statutory provision at issue awards something beyond actual damages to the plaintiff (i.e. a penalty). CPLR §901(b) expressly precludes class certification, unless the statute providing for the penalty states that recovery of such penalty may be recovered in a class action. See Sperry v. Crompton Corp., 8 N.Y.3d 204, 213; 831 N.Y.S.2d 760 (2007). The rent overcharge enforcement provisions of the Rent Stabilization Law and Code do not contain any language providing for recovery of rent overcharge penalties in a class action. The RSL and RSC Impose Mandatory Penalties and Minimum Measures of Recovery A plain reading of RSL §26-516(a) and RSC §2526.1(a)(1) demonstrates that treble damages are a mandatory penalty imposed for a landlord’s presumptively willful overcharge. The complaining tenant does not have the option of foregoing that penalty. Nor does the complaining tenant have the burden of proving willfulness. The RSL and RSC expressly provide that willfulness is presumed once an overcharge is found. If the landlord fails to demonstrate that an overcharge was not willful (and that burden of proof falls exclusively upon the landlord), treble damages must -31- be awarded. Neither DHCR nor the court has any discretion to refrain from imposing that penalty. Significantly, even if the landlord is able to overcome the presumption of willfulness, the landlord would still be liable for the payment of a penalty or minimum measure of recovery equal to the amount of the overcharge plus interest. Moreover, the costs and attorney’s fees incurred by the tenant are “an additional penalty” for rent overcharge. RSC §2526.1(d). In short, every overcharge, willful or not, is defined in the statute and Code as subject to a mandatory “penalty.” RSL § 26-516(a) provides for the imposition of treble damages, in pertinent part, as follows: a. [A]ny owner of housing accommodations who, upon complaint of a tenant, or of [DHCR], is found by [DHCR], 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, [DHCR] shall establish the penalty as the amount of the overcharge plus interest. (Emphasis supplied.) Similarly, RSC § 2526.1, titled: “Determination of legal regulated rents; penalties; fines; assessment of costs; attorney’s fees; rent credits,” provides, in pertinent part: -32- (a) (1) Any owner who is found by the DHCR, after a reasonable opportunity to be heard, to have collected any rent or other consideration in excess of the legal regulated rent shall be ordered to pay to the tenant a penalty equal to three times the amount of such excess….If the owner establishes by a preponderance of the evidence that the overcharge was not willful, the DHCR shall establish the penalty as the amount of the overcharge plus interest[.] (Emphasis supplied.) RSC § 2526.1(d) further provides that an owner who is found to have overcharged a tenant may be assessed an “as an additional penalty[,] the reasonable costs and attorney’s fees of the proceeding.” (Emphasis supplied.) See also RSL §26-516(a)(4) (a landlord found to have illegally overcharged a tenant is liable for the costs and attorneys’ fees incurred by the tenant in prevailing in the complaint). Courts have consistently held that once a finding of a willful overcharge is made, the imposition of the treble damages penalty is mandatory under the RSL and RSC.9 In H.O. Realty Corp. v. DHCR, 46 A.D.3d 103, 107; 844 N.Y.S.2d 204 (1st Dep’t 2007), the Court held: If the actual rent being charged for the premises exceeds the lawful rent, a finding of overcharge is entered and DHCR must then determine what penalty should be imposed in light of the violation. If it is determined that the owner’s decision to 9 To reiterate, Owner reserves its right to rebut the presumption of willfulness should any rent overcharge be found. But the lower courts totally overlooked this issue. -33- 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[.] (Citing, RSL § 26-516[a]; emphasis supplied.) See also, Myeong Cheol Kim v. DHCR, 249 A.D.2d 478; 671 N.Y.S.2d 309 (2nd Dep’t 1998) (“[o]nce it was determined that the [landlord] had overcharged the complaining tenant…the penalty of treble damages was properly imposed,” unless the landlord could establish that the overcharge was not willful); Matter of 10th St. Assoc. LLC v. DHCR, 34 Misc. 3d 1240A (Sup. Ct. NY Co. 2012) (under RSL §26-516(a) and RSC §2526.1(a)(1), absent proof that an overcharge is not willful, “treble damages are mandatory”); 212 W. 22 Realty, LLC v. Fogarty, 1 Misc. 3d 905A; 781 N.Y.S.2d 629 (Civ. Ct. NY Co. 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”). When a Statute Imposes Mandatory Penalties, CPLR § 901(b) Bars Class Certification In Sperry, 8 N.Y.3d at 209, supra, this Court determined that the treble damages provision set forth under General Business Law (“GBL”) §340(5)10 was a mandatory penalty for CPLR §901(b) purposes and such damages could not be sought as a class action. GBL §340(5), similar to RSL §26-516(a) and RSC § 10 GBL § 340 is also known as the “Donnelly Act,” and is New York’s antitrust statute. -34- 2526.1(a)(1), provides that a successful antitrust plaintiff “shall recover three-fold the actual damages sustained thereby[.]” In Sperry, this Court focused on the reasoning behind the enactment by the legislature of CPLR §901(b), stating: It is evident that by including the penalty exception in CPLR 901(b), the Legislature declined to make class actions available where individual plaintiffs were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages), unless a statute expressly authorized the option of class action status. This makes sense, given that class actions are designed in large part to incentivize plaintiffs to sue when the economic benefit would otherwise be too small, particularly when taking into account the court costs and attorneys’ fees typically incurred. Therefore, the term “penalty,” as used for purposes of the class action scheme, has broader application … . 8 N.Y.3d at 213. This Court in Sperry continued that “threefold damages should be regarded as a penalty insofar as class actions are concerned” because two-thirds of the damages are intended to punish a violation of law, deter such behavior (which, the Court noted, is the traditional purpose of penalties), encourage a plaintiff to commence litigation, or some combination of those factors. Id. at 214. Thus, this Court stated, “[w]here a statute is already designed to foster litigation through an -35- enhanced award, CPLR §901(b) acts to restrict recoveries in class actions absent statutory authorization.” Id. Accordingly, this Court in Sperry affirmed the dismissal of the plaintiff’s causes of action alleging violations of the Donnelly Act in the purported class action. See also, Asher v. Abbott Labs., 290 A.D.2d 208; 737 N.Y.S.2d 4 (1st Dep’t 2002) (“the treble damages remedy provided in [GBL §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”). This reasoning is not limited to the Donnelly Act. In Rudgayzer & Gratt v. LRS Communications, Inc., 6 Misc.3d 20; 789 N.Y.S.2d 601 (App. T. 2nd Dep’t 2004), the Appellate Term held that CPLR §901(b) barred class action recovery under the Telephone Consumer Protection Act (“TCPA”), codified at 47 U.S.C.S. § 227, because TCPA § 227(e)(5)(A)(1) provides, “[a]ny person that is determined by the Commission…to have violated this subsection shall be liable to the United States for a forfeiture penalty.” (Emphasis supplied.) See also, Rudgayzer & Gratt v. Cape Canaveral Tour & Travel, Inc., 22 A.D.3d 148, 149; 799 N.Y.S.2d 795 (2nd Dep’t 2005) [a class action may not be maintained for alleged violations of the TCPA in light of CPLR 901(b)]; Klapak v. Pappas, 79 A.D.2d 602; 433 N.Y.S.2d 500 (2nd Dep’t 1980) [holding that class certification on a claim seeking compensatory and punitive damages under Social Services Law § -36- 131-(o) was barred under CPLR § 901(b), where the relevant provision of law provided for “recovery of additional punitive damages in an amount equal to twice the amount [of personal allowance funds] misappropriated or withheld”]. In Goshen v. Mutual Life Ins. Co., 1997 N.Y. Misc. LEXIS 486 (Sup. Ct. NY Co.), aff’d 259 A.D.2d 360, 684 N.Y.S.2d 791 (1st Dep’t 1999), aff’d sub nom. as modified, Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 704 N.Y.S.2d 177 (1999), the Supreme Court determined that New York Insurance Law (“Ins. Law”) § 4226 could not provide a basis for recovery in a class action because aggrieved parties can recover penalties for a violation of the statute. Ins. Law § 4226(d) provides: Any such insurer that knowingly violates any provision of this section, or knowingly receives any premium or other compensation in consequence of such violation shall, in addition to any other penalty provided in this chapter, be liable to a penalty in the amount of such premium or compensation, which penalty may be sued for and recovered by any person aggrieved for his own use and benefit, in accordance with the provisions of the [CPLR]. (Emphasis supplied.) The Goshen Supreme Court, as affirmed by the Appellate Division and this Court, determined that “Insurance Law § 4226 cannot serve as a basis for a recovery in a class action, because it provides for the recovery of a ‘penalty.’” CPLR 901(b) expressly bars a class action where such recovery is available. See Goshen, 1997 LEXIS 486 at p. 37. See also, Matter of Empire Blue Cross & Blue -37- Shield Customer Litigation, 164 Misc. 2d 350, 362; 622 N.Y.S.2d 843 (Sup. Ct. NY Co. 1994), aff’d sub nom. Minihane v. Weissman, 226 A.D.2d 152; 640 N.Y.S.2d 102 (1st Dep’t 1996) (“[Ins. Law §] 4226 clearly states that it provides for recovery of a penalty and does not contain the necessary express clause allowing these damages to be recovered in a class action”). Notably, the penalty imposed under Ins. Law § 4226 is limited to the “amount of such premium or compensation.” There is no trebling of damages, no award of interest, and no additional penalty in the form of costs or attorneys’ fees set forth under that provision of law. RSL § 26-516 and RSC § 2526.1, on the other hand, both provide for enhanced penalties in the form of treble damages, interest, costs and/or attorneys’ fees, once an overcharge is found to have been committed by the owner. Moreover, as shown, all overcharge awards, trebled or not, are statutorily defined as “penalties.” The RSL and RSC penalties are intend to discourage violations of the rent laws and encourage tenants to seek relief for violations of the rent laws on an individual basis. In Mohassel v. Fenwick, 5 N.Y.3d 44; 799 N.Y.S.2d 758 (2005), referring to RSL §26-516(a) and RSC §2526.1, this Court recognized, both, the public policy advanced by the rent laws penalizing all rent overcharges (“[t]hese provisions are designed to discourage violations of the RSL”), as well as the incentivizing nature of the penalties. Under Mohassel, the minimum measure of -38- recovery in the form of the amount of the overcharge, plus interest (in the event of a non-willful overcharge), serves the same purpose as the treble damages penalty, i.e., to penalize the owner for its violation of the legal regulated rent provisions of the rent laws. Thus, even if a landlord overcomes the presumption of having committed a willful overcharge, the alternative mandatory penalties applicable to non-willful overcharges, falls squarely within the preclusive parameters of CPLR §901(b). The rationale set forth in Mohassel firmly shows that the goals of the RSL §26-516 and RSC §2526.1 mandatory penalty provisions are analogous with the goals of the GBL §340(5) penalty provisions at issue in Sperry and Ins. Law § 4226 in Goshen. These regulatory frameworks seek to award something beyond actual damages to an injured plaintiff and to foster the enforcement of the law through an enhanced award. Thus, class certification should be barred for complaints invoking RSL §26-516 and RSC §2526.1 remedies, just as class certification is barred for claims asserted under the penalty provisions set forth under GBL § 340(5), Ins. Law § 4226 (as well as, TCPA § 227 and Social Services Law § 131-o). The lower courts in the case at bar erred in determining that Sperry was not dispositive based on their conclusion that the Donnelly Act “only imposes treble damages” (emphasis in original), while the RSL “permits treble damages -39- upon a landlord’s failure to show that the overcharge was not willful, and otherwise allows plaintiffs to recover compensatory damages.” (R. 6; see also, R. 467, where the Appellate Division majority opines that treble damages under the RSL/RSC are not the “sole measure of recovery”). However, as the clear text (as well as the underlying public policy) of the rent laws shows, both, the treble damages penalty and the alternative minimum measure of recovery in the form of the amount of the overcharge, plus interest, and costs and attorney’s fees, preclude class certification of rent overcharge claims under CPLR §901(b) because all forms of recovery for rent overcharge are expressly defined as penalties intended to redress a public wrong; not just compensate a private injury. Moreover, the enforcement scheme of these rent laws provide ample incentive to tenants to pursue individual claims, by giving them a clear entitlement to an enhanced award beyond just actual damages. Plaintiff Cannot Waive Mandatory RSL or RSC Penalties RSC §2520.13 provides that “[a]n agreement by the tenant to waive the benefit of any provision of the RSL or this Code is void.” (Emphasis supplied.) The no-waiver provision of the RSC has been strictly and consistently enforced by the courts. In Georgia Properties, Inc. v. Dalsimer, 39 A.D.3d 332; 835 N.Y.S.2d 41 (1st Dep’t 2007), citing Drucker v. Mauro, 30 A.D.3d 37, 38, 814 -40- N.Y.S.2d 43 (1st Dep’t 2006), the Court reiterated 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.” See also, Draper v. Georgia Properties, Inc., 230 A.D.2d 455, 458; 660 N.Y.S.2d 556 (1st Dep’t 1997), aff’d, 94 N.Y.2d 809; 701 N.Y.S.2d 322 (1999) (lease provisions requiring waiver of a benefit of the RSL are void and unenforceable). In Riverside Syndicate, Inc. v. Munroe, 39 A.D.3d 256, 257; 833 N.Y.S.2d 452 (1st Dep’t 2007), aff’d, 10 N.Y.3d 18; 853 N.Y.S.2d 263 (2008), this Court affirmed the holding that a consent judgment so-ordered by the Supreme Court was “null, void, and of no force or effect, on the ground that it violates [RSC] § 2520.13 and is contrary to public policy.” The consent judgment at issue purported to waive the tenants’ right to overcharge penalties, in exchange for the landlord agreeing to waive certain possessory rights. Citing Drucker, the Court determined that the consent judgment was “void in its entirety” and “unenforceable” because it “violate[d] public policy by waiving benefits of the [RSL,]” even though the waiver of such benefits was to the tenants’ benefit. See also, Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943, 944; 862 N.Y.S.2d 854 (2008) (tenant’s waiver in so-ordered stipulation “violates the Rent Stabilization Code and is void as against public policy”). -41- In the rent regulatory case of Estro Chemical Co. v. Falk, 303 N.Y. 83; 100 N.E.2d 146 (1951), this Court held 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.” There is no doubt that the comprehensive mechanism created by the legislature for the purpose of enforcing legal rent levels in regulated apartments, is the centerpiece of rent regulatory policy in the State of New York. These powerful tenant rights are overwhelmingly viewed by the legislature as protective of important public interests. This is demonstrated by the sweeping language used in the “Findings and Declaration of Emergency” section of the RSL (RSL §26-501), which espouses the need “to prevent speculative, unwarranted and abnormal increases in rents”, and “that unless residential rents…continue to be regulated and controlled, disruptive practices and abnormal conditions will produce serious threats to the public health, safety and general welfare.” The cases discussed above, broadly construing the no-waiver provision of the RSC, confirm that rent overcharge statutory penalties protect and advance public interests; they seek to vindicate a public wrong, rather than merely compensate a private injury. Such statutory penalties, therefore, cannot be waived. The lower courts in the case at bar erroneously found that CPLR §901(b) did not preclude certifying this case as a class action because (a) waiver -42- was possible under that law, and (b) Plaintiff’s attorney had waived a non- waiveable right under the RSL. The lower courts improperly permitted counsel to waive such non-waiveable rights on behalf of Putative Class members, who had every right to believe that waiver of such fundamental tenant rights could not occur. Notably, even were RSL penalties waivable (which they are not), a plaintiff cannot waive a mandatory penalty on behalf of a purported class in order to obtain class certification. See Asher, 290 A.D.2d 208, supra (the imposition of the treble damages penalty set forth under the Donnelly Act cannot be waived); Rubin v. Nine West Group, Inc., 1999 N.Y. Misc. LEXIS 655 (Sup. Ct. Westchester Co.) (declining to award class certification “because of the mandatory nature of the treble damage provision of the [Donnelly] Act, the ‘well settled [rule applies] that a plaintiff, by her pleading or otherwise, may not abjure a statutory remedy for the purpose of achieving compliance with procedural rules such as…CPLR Section 901(b)[,]’”). A waiver of statutory rights by one plaintiff for an entire putative class also negates the adequacy requirement set forth under CPLR § 901(a)(4). In Hauptman v. Helena Rubinstein, Inc., 114 Misc. 2d 935, 937; 452 N.Y.S.2d 989 (Sup. Ct. NY Co. 1981), the Supreme Court held: While the named plaintiffs may waive their own claim to liquidated damages, they are without -43- authority to waive the claim for liquidated damages on behalf of the members of the class they seek to represent. By requiring that members of the class waive their claim to liquidated damages provided by statute, the class representatives cannot be considered to fairly and adequately protect the interests of the class as required by CPLR 901[(a)(4)]. [Citing Blumenthal v. American Soc. of Travel Agents, NYLJ, July 8, 1977, p 5, col 1; Russo & Dubin v. Allied Maintenance Corp., 95 Misc.2d 344; and Ferrentino v. Mobil Oil Corp., NYLJ, July 2, 1979, p. 14, col. 6.] Thus, Plaintiff’s purported waiver of substantial, tenant protective, statutory penalties on behalf of unwitting tenants, is also inconsistent with the adequacy mandate under CPLR §901(a)(4). Plaintiff’s attorney’s action palpably evidenced the inadequacy of Plaintiff’s representative capacity. The Cases Relied Upon by the Lower Courts Permit Waiver of Permissible Penalties and are Not Dispositive of the Facts at Bar The Supreme Court and the Appellate Division majority erroneously relied on inopposite cases where courts have allowed waivers of permissive or optional penalties in order to sustain a class action. Such holdings have no application here, where the RSL and RSC penalties are not permissive or optional. As noted, under the RSL and RSC rent enforcement scheme, all overcharges, willful or not, are subject to mandatory and non-waivable penalties. In contrast, Cox v. Microsoft Corp., 8 A.D.3d 39; 778 N.Y.S.2d 147 (1st Dep’t 2004), cited below, involved a cause of action for deceptive business acts -44- and practices under GBL §349. The plaintiff sought class certification. Defendant moved for an order dismissing the GBL cause of action on the grounds that the statute prescribed a $50 minimum damages award should a violation of the law be found. Defendant maintained that such minimum damage award was a “penalty” within the meaning of CPLR § 901(b). Unlike the RSL and RSC mandatory penalties for overcharges, the $50 minimum damages provision of GBL §349 was compensatory; not a penalty. Furthermore, to the extent that GBL §349 provides for treble damages, the granting of such damages is discretionary; not mandatory. To illustrate, GBL §349(h) states, in pertinent part, as follows: [A]ny person who has been injured by reason of any violation of this section may bring … 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. (Emphasis supplied.) In Cox, the Court held that such GBL §349 remedies did not preclude class certification because: Inasmuch as plaintiffs in their amended complaint expressly seek only actual damages, the motion court correctly found CPLR §901(b), which -45- prohibits class actions for recovery of minimum or punitive damages, inapplicable. See Cox, 8 A.D.3d at 40. GBL §349(h) is distinguishable from RSL §26-516(a) and RSC §2526.1(a)(1) because it provides that the court “may, in its discretion” impose treble damages upon a finding of a willful or knowing violation of that provision. No such permissive language exists under RSL §26-516(a) or RSC §2526.1(a)(1), which provide that upon a finding of a willful overcharge (and all overcharges are presumptively willful), the violating landlord “shall be liable to the tenant for a penalty equal to three times the amount of such overcharge[,]” and if the owner can establish that the overcharge was not willful, DHCR “shall establish the penalty as the amount of the overcharge plus interest.” Again, all overcharge awards are defined in the RSL and RSC as “penalties.” Moreover, since GBL §349(h) expressly provides that the plaintiff may bring an action to recover his “actual damages,” there was nothing stopping the Cox plaintiff from limiting the relief sought to actual damages. Here, however, the RSL does not give the tenant the option to limit his or her recovery upon a finding of overcharge to only “actual damages.” The RSL provides that all overcharges are presumptively willful and, therefore, subject to enhanced mandatory penalties for violations of the rent laws. RSC § 2520.13 and governing case law prohibit Plaintiff from waiving such rights. -46- Super Glue Corp. v. Avis Rent A Car System, Inc., 132 A.D.2nd 604, 517 N.Y.S.2d 764 (2nd Dep’t 1987), and Ridge Meadows Homeowners’ Assoc. v. Tara Development Co., 242 A.D.2d 947, 665 N.Y.S.2d 361 (4th Dep’t 1997), are two more cases that involved GBL §349 claims. There, the courts approved class certification, finding that “[c]learly…the intent of the Legislature when it enacted [GBL] §349(h)” was to permit plaintiffs to maintain a class action to recover actual damages and injunctive relief under that provision (132 A.D.2nd at 606), and the plaintiffs consented to limit their demand to actual damages under GBL §349(h). In contrast, there is no express language in RSL §26-516(a) or RSC §2526.1(a)(1) permitting an aggrieved tenant to seek to recover only actual damages. Pesantez v. Boyle Environmental Services, Inc., 251 A.D.2d 11; 673 N.Y.S.2d 659 (1st Dep’t 1998), is also distinguishable because the punitive remedies in Pensantez under Labor Law §198(1-a), were permissive penalties, unlike RSL § 26-516(a) and RSC § 2526.1(a)(1). Thus, unlike the consumer protection statutes and labor laws that courts have found to contain waivable penalties, and thereby not falling within the CPLR §901(b) proscription, rent regulation serves substantially different legal and policy objectives and contains expressly non-waivable penalties. As the dissenting justices correctly emphasized, under the RSL, all overcharges are violations of the rent laws. -47- Although treble damages may not be the “sole” measure of recovery for rent overcharge, the clear text and intent of the RSL and RSC is that they are mandatory in all cases of rent overcharge because all overcharges are presumed to be willful and violations of law. Tenants do not have the burden of proving willfulness; nor do they have the option of limiting their recovery to only actual damages. Only the owner can attempt to overcome the presumption of willfulness by substantial evidence, and if the owner fails, DHCR or the court must impose treble damages. As such, RSL §26-516(a) and RSC §2526.1(a)(1), clearly command that (i) the overcharge, (ii) treble damages, (iii) statutory interest on the overcharge, and (iv) costs and attorney’s fees, are all “penalties” recoverable by the aggrieved tenant as of right, as they are intended to compel compliance with the rent laws for the public good. Contrary to the majority’s opinion, one remedy cannot be isolated from the other, or called something other than a penalty, unless one rewrites the law or disregards the legislative and public policy purposes of the rent laws. Nor, as the dissenting justices indicated, is there any valid reason to narrowly construe the RSC no-waiver regulation as only applying to lease agreements or stipulations. Such constricted interpretation of RSC § 2520.13 overlooks that: -48- Whether unilaterally or via agreement, the fact remains that Plaintiff has agreed to give up the benefit of a statutory protection, i.e. the treble damages afforded by RSL §26-516(a), on behalf of not only herself but the class – a far more profound impact than one individual purporting to agree to give up her rights via lease. (R. 471.) Thus, the dissent aptly concluded: 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. (R. 472.) “Waiver” or “Opting Out” Should not be Used to Circumvent CPLR §901(b) Contrary to the majority’s ruling, there are compelling legislative policy reasons militating against allowing a plaintiff to waive statutory penalties in order to maintain a class action. One commentator has written: Plaintiffs disclaiming statutorily provided damages in order to achieve class certification are arguably seeking an end-run around the legislature’s express purpose in placing a clear restriction on class actions. In enacting [CPLR] 901(b), the legislature intended to restrict the availability of class actions “where individual plaintiffs were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages…)” (citing Sperry, 8 N.Y.3d at 213). -49- Napolitano, “Avoiding the Minefields in New York Practice,” NYLJ, May 18, 2009, at 57, col. 1. Moreover, as to whether the possibility of a putative class member “opting out” salvages the harm caused by the Plaintiff purportedly waiving penalties, it was noted that: [I]f opt-out rights are all that is required to circumvent CPLR 901(b), it may be argued that virtually any cause of action could be brought on behalf of a class, regardless of whether the legislature has specifically provided for a penalty or minimum measure of damages. Id. A number of lower courts have rejected the tactic of waiving penalties in order to evade the CPLR §901(b) limitations on class actions. See, Rubin v. Nine West Group, Inc., supra, (“a plaintiff, by her pleading or otherwise, may not abjure a statutory remedy for the purpose of achieving compliance with procedural rules such as…CPLR Section 901[b]”); Blumenthal v. Am. Society of Travel Agents, Inc., 1977 WL 18392, at *3 (Sup. Ct. NY Co. 1977) (cited in Hauptman, supra); and Russo & Dubin v. Allied Maintenance Corp., 95 Misc. 2d 344, 407 N.Y.S.2d 617 (Sup. Ct. NY Co. 1978) (cited in Hauptman, supra). Along the same lines, other courts have observed that class actions are an “exception to the usual rule” that courts resolve disputes between individually named parties. See, e.g., Wal-Mart Stores v. Dukes, 131 S. Ct. 2541; 180 L. Ed.2d 374 (2011). Therefore, limitations on class certification, such as CPLR §901(b), -50- ought to be strictly construed to avoid the expansion of class action litigation into areas where there is ample recourse and incentive to vindicate individual harm. This Court should similarly decline to carve out misplaced exceptions to the CPLR §901(b) bar against class certification of actions seeking relief under statutes creating or imposing a penalty, or a minimum measure of recovery, like the RSL and RSC here, which do not authorize such recovery in a class action. -51- POINT II PLAINTIFF FAILED TO ESTABLISH HER ENTITLEMENT TO CLASS CERTIFICATION UNDER CPLR § 901(a) The “Prerequisites to a Class Action” are enumerated under CPLR § 901(a), as follows: 1. the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable; 2. there are questions of law or fact common to the class which predominate over any questions affecting only individual members; 3. the claims or defenses of the representative parties are typical of the claims or defenses of the class; 4. the representative parties will fairly and adequately protect the interests of the class; and 5. a class action is superior to other available methods for the fair and efficient adjudication of the controversy. A class action may be maintained in New York only if all five of the requirements set forth under CPLR §901(a) are met. See, Ackerman v. Price Waterhouse, 252 A.D.2d 179, 191; 683 N.Y.S.2d 179 (1st Dep’t 1998); Globe Surgical Supply v. GEICO Ins. Co., 59 A.D.3d 129, 135; 871 N.Y.S.2d 263 (2nd Dep't 2008). In Pludeman v. Northern Leasing Sys., Inc., 74 A.D.3d 420, 422; 904 N.Y.S.2d 372 (1st Dep’t 2010), the Court ruled that: -52- The proponent of class certification bears the burden of establishing the criteria promulgated by CPLR 901(a) and must do so by the tender of evidence in admissible form. Conclusory assertions are insufficient to satisfy the statutory criteria. (Internal citations omitted.) See also, Ackerman, 252 A.D.2d at 191, supra (“[p]laintiff bears the burden of establishing compliance with the requirements of…CPLR 901”). On numerous fronts, Plaintiff utterly failed to meet this burden in her motion seeking class certification. Numerosity: CPLR § 901(a)(1) Plaintiff did not satisfy the numerosity requirement because, as set forth in the Higgins Affidavit, only twenty-four (24) apartments in the Building, like the Apartment, were deregulated prior to the Building’s receipt of J-51 tax benefits.11 Thus, only tenants of those few apartments should be considered “similar” to Plaintiff for purposes of class certification. Where there are so few potential putative plaintiffs, the numerosity requirement is not satisfied. See, Cardona v. Maramont Corp., 2009 N.Y. Misc. LEXIS 5010, 2009 NY Slip Op 32695U (Sup. Ct. NY Co.) (joinder is impracticable when the putative class exceeds 40 members); Consolidated Rail 11 In striking contrast, the Roberts class action, upon which Plaintiff relies, covered more than 4,000 apartments. -53- Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. N.Y. 1995) (“numerosity is presumed at a level of 40 members”). Class certification is inappropriate where the possible affected parties could merely be joined in the action (which they most certainly could be, here), and the additional procedural requirements and costs of proceeding as a class action outweigh the benefits. See, Bloom v. Cunard Line, Ltd., 76 A.D.2d 237, 240; 430 N.Y.S.2d 607 (1st Dep’t 1980) (class action inappropriate when 45 potential class action plaintiffs had brought separate actions seeking the same relief). Here, joinder of all possible claimants is practicable since only twenty-four (24) apartments in the Building were deregulated under circumstances akin to those of the Apartment.12 Commonality: CPLR § 901(a)(2) The need to make factual and legal determinations pertaining to each of the deregulated apartments in the Building defeats the commonality requirement. In Alix v. Wal-Mart Stores, Inc., 16 Misc. 3d 844, 851, 838 N.Y.S.2d 885 (Sup. Ct. NY Co. 2007) aff’d 57 A.D.3d 1044, 868 N.Y.S.2d 372 (3rd Dep’t 2008), the Court held: “[w]here a case-by-case analysis is necessary to determine 12 Moreover, as noted in the Higgins Affidavit, notwithstanding the fact that Plaintiff’s counsel sent solicitation letters to many tenants in the Building, Plaintiff was “the only person in the Building who [had] asserted a rent overcharge claim based upon an allegation that [her] apartment was improperly deregulated while the Building received J-51 benefits” (R. 150). This reveals, that there are few tenants who feel they have actually been aggrieved in any way at the Building. -54- whether any given individual satisfies the requirements for class membership or where the size of a putative class is incapable of ascertainment absent such an analysis, certification of a class action is not warranted.” See also, Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 53-54, 698 N.Y.S.2d 615 (1999) (affirming decertification of a class when “individual issues would predominate throughout” the class); Gordon v. Ford Motor Co., 260 A.D.2d 164, 165; 687 N.Y.S.2d 369 (1st Dep’t 1999) (“[c]ertification of a New York class was properly denied since questions affecting individual members of the putative class predominate over common issues of law or fact”). In Gaynor v. Rockefeller, 15 N.Y.2d 120, 129; 256 N.Y.S.2d 584 (1965), this Court came to a similar judgment; holding that a class action may not be maintained where the wrongs asserted are individual to the different persons involved, and each of the persons aggrieved “may determine for himself the remedy which he will seek” and could be subject to “a defense not available against others.” See also, Solomon v. Bell Atlantic Corp., 9 A.D.3d 49, 54-55; 777 N.Y.S.2d 50 (1st Dep’t 2004) (class action not viable where “[i]ndividual trials also would be required to determine damages based on the extent of each plaintiff’s injuries”); and Tegnazian v. Consol. Edison, Inc., 189 Misc.2d 152, 155; 730 N.Y.S.2d 183 (S. Ct. N.Y.Co. 2000) (the commonality criterion was not met because “many issues must be addressed which are not of general concern to the -55- putative class, but would require individual inquiry” including “whether there were any legally cognizable damages, and what those damages were.”) Notably, in Tegnazian, the potential damages of each putative class member, like here, were “not easily computable” and they required “considerable inquiry regarding not only the amount,” but also whether the damages were caused by the harm allegedly committed by the defendant. The need to conduct such individualized inquiries defeats the class action’s goal of saving judicial time and resources. Mitchell v. Barrios-Paoli, 253 A.D.2d 281, 292; 687 N.Y.S.2d 319 (1st Dep’t 1999); Sirica v. Cellular Telephone Co., 231 A.D.2d 470, 471; 647 N.Y.S.2d 219 (1st Dep’t 1996). These points were most recently highlighted in the landlord-tenant context in Adler v. Ogden Cap Properties, 2013 NY Slip Op 23428; 2013 N.Y. Misc. LEXIS 5762 (S. Ct. N.Y.Co., Dec. 11, 2013). Emphasizing how so much of the damages sought in the class action complaint (which mainly consisted of demands for rent abatements based on breaches of the warranty of habitability stemming from Superstorm Sandy), were highly dependent upon a myriad of factors unique to each individual tenant’s circumstances and each landlord’s mitigation efforts, the Court found “there is simply no way to make class-wide determinations” on liability. -56- Significantly, the Adler Court found certifying a class in even one building to be problematic, precisely because of the necessary apartment-by- apartment analysis that the plaintiffs’ claims entailed. The Adler Court explained: The smallest possible class – a class comprised of tenants in a single building – may be no more viable than any other possible class (i.e., a class defined by block, neighborhood, or borough), because, even in the same building mitigation may have varied apartment-by-apartment (e.g., ground floor apartments had flooding, but no elevator concerns). Moreover, damages (including legal costs governed by a prevailing party clause) may vary depending upon whether the tenant has a rent regulated or market leases, or even no lease at all. Computing damages in any way other than tenant-by-tenant runs the risk of glossing over the needs of each tenant and the individual efforts of each landlord [to mitigate the Storm’s harms]. 2013 NY Slip Op 23428 at p. 9. The Adler Court, thus, concluded that the overriding fact-specific nature of the claims was not compatible with the commonality or typicality factors in CPLR §901(a). See also, discussion of recent U.S. Supreme Court and U.S. District Court decisions interpreting the parallel federal rule regarding class certification requirements: Katz, E., “Supreme Court Articulates Rigorous Standard for Class Certification,” N.Y.L.J., May 17, 2013 at 3. The federal courts indicate that where the plaintiff fails to show that damages can be measured on a class-wide basis, the “predominance requirements of Rule 23(b)(3) of the FRCP -57- (which permits certification if ‘questions of law or fact common to the class predominate over questions affecting only individual members’ of the class) are not met.” Wal-Mart Stores, Inc. v. Dukes, supra (class certification was reversed based in large part on the individualized fact-based inquiries that were needed to determine the class members’ claims). The Putative Class, which Plaintiff claims includes current and former tenants of all the deregulated apartments in the Building, is “fatally overbroad” (Alix, supra) because determination of the class membership would require an individual apartment-by-apartment analysis. Even amongst those few “similar” apartments to Plaintiff’s, the circumstances governing the deregulation of each apartment are different. For example, unlike the Apartment, some of the other twenty-three (23) apartments were deregulated by DHCR Order and some were rent controlled prior to deregulation, rather than rent stabilized. The facts and circumstances surrounding the deregulation of each apartment, including the rental history, history of improvements, and the nature of the deregulation, would need to be considered in order to determine which apartments, if any, are similar to the Apartment for purposes of class certification. As stated in the DHCR Letter submitted to the Roberts Court: -58- Calculating the current legal regulated rent and any past rent overcharge remedies will require the application of both a complex set of statutory laws and regulations and equitable principles, which will require an understanding of facts that may be unique to each apartment. * * * [A]pplication of [the rent stabilization] laws and applying equitable principles requires an investigation into the circumstances surrounding each lease and each subsequent rent increase for every apartment….Examples of unique facts requiring consideration of legal and equitable principles may include, but are not limited to, whether the owner has maintained required services continuously during the tenancy, whether increases for Individual Apartment Improvements for a unit were properly documented and necessary, whether Major Capital Improvements were needed, completed properly, occurred prior to or subsequent to the beginning of the tenancy, and whether the tenant was provided legal notice of such improvements, whether a preferential rent was properly set forth in a lease that reserved a higher legal rent and whether the higher rent complies with the law, whether a tenant occupied the unit as a primary residence, the material circumstances affecting vacancies of each unit, whether lease renewals were timely, whether the units were properly registered with DHCR, and whether the failure to register during the period prior to the Court’s decisions bars rent increases during that period. The Court may consider a number of factors to determine whether a rent increase is allowed and should be recognized for a particular apartment….Each of these issues, in any combination, could impact the legal regulated rent -59- differently for each apartment impacted by this complex litigation. Consequently, there is no general “formula” that can be devised to arrive at an answer to the request posed by the Court’s Order of Referral. (R. 400-401.) Other factual and legal variations include (i) whether each apartment was rent controlled or rent stabilized prior to deregulation, (ii) whether each apartment was deregulated by high rent/high income deregulation, high rent vacancy deregulation, or DHCR Order, and (iii) the date of deregulation (i.e. pre- or post-receipt of J-51 benefits). Because of the need for these fact-specific inquiries, Plaintiff cannot satisfy the commonality requirement of CPLR § 901(a)(2). The purported “common question” of whether Owner “wrongfully charged market rents to tenants of [the Building], while at the same time taking advantage of and receiving J-51 tax benefits” (R. 61) does not predominate over the fact-specific inquiries required to determine regulatory status and any potential overcharge with respect to each individual apartment. A court or DHCR could find that Owner “wrongfully charged market rents” to some tenants in the Building, but not others, based on the considerations set forth above. By way of example, consider the circumstances of Gersten v. 56 7th Avenue LLC, 88 A.D.3d 189, 202; 928 N.Y.S.2d 515 (1st Dep’t 2011). In Gersten, -60- the Court held that tenants were collaterally estopped from challenging the deregulation of the subject apartment, which had been deregulated pursuant to a DHCR order. The Court noted that the tenants “had ample opportunity to challenge the prior owner’s application for luxury decontrol as being precluded by the receipt of J-51 benefits.” However, since they never raised that challenge, they were legally barred from doing so eleven (11) years after the DHCR deregulation order issued. Thus, under the Gersten precedent, tenants in the Building who were deregulated pre-Roberts, pursuant to a DHCR order issued during the J-51 benefit period, would be collaterally estopped from challenging such order of deregulation. The answer to the question of whether those tenants were “wrongfully charged market rents” is likely to be very different from the answer to the same question posed with respect to tenants like Tenant, who were deregulated based on high rent vacancy prior to the Building’s receipt of J-51 benefits. Yet another scenario involves members of the Putative Class falling under the Roberts category of tenants, who were deregulated while the Building was receiving J-51 benefits. The rights and damages of such Putative Class members are different from those of Tenant’s, whose Apartment was deregulated before the Building received J-51 tax benefits. The deregulation of the Apartment -61- prior to the Building’s receipt of J-51 benefits raises unique questions, which have not previously been addressed by the courts. A different analysis also applies if an apartment was subject to rent control before deregulation. When a rent controlled apartment is vacated, the next tenant who moves in has the right to contest the rent, but such contest can only be determined by DHCR under its “Fair Market Rent Appeal” process. RSC §§2521.1(a)(1) and 2522.3. Such determination of the first legal regulated rent following a rent control vacancy cannot be made by a court. RSC §2522.3(a). See also, 430 Realty Co. LLC v. Heftler, 185 Misc.2d 45, 712 N.Y.S.2d 853 (Civ. Ct. N.Y. Co. 2000). It falls exclusively within DHCR jurisdiction. Some apartments in the Putative Class fall under this unique category. For these reasons, courts have recognized that class certification is inappropriate for rent overcharge claims. In Daniel v. DHCR, 179 Misc. 2d 452, 460, 683 N.Y.S.2d 404 (Sup. Ct. NY Co. 1998), plaintiffs moved for class certification in an action that sought reversal of “decisions made by DHCR which denied overcharges based on events occurring more than four years prior to the filing of the action[.]” In denying class certification, the Supreme Court held: [T]here is no single issue of fact or law common to the proposed class which predominates over any questions affecting only individual members. The unique factual circumstances concerning the denials of the various overcharge complaints are not common to all members of the class. -62- See also, Russo & Dubin, supra (common questions did not predominate when “[e]ach [class] member’s claim would require proof of an alleged overcharge pursuant to such member’s individually negotiated lease”). The different factors and circumstances underlying an apartment’s rental history affect not only the calculation of the apartment’s legal regulated rent or potential overcharge, but also the regulatory status of each apartment. Thus, Plaintiff failed to meet her burden of establishing that common questions predominate, as required under CPLR § 901(a)(2). Typicality: CPLR § 901(a)(3) The fact-specific questions and fundamental differences between each apartment’s rental history, and each tenant’s rights and potential damages also defeat the typicality requirement. See, Dimich v. Med-Pro, Inc., 34 A.D.3d 329; 826 N.Y.S.2d 3 (1st Dep’t 2006) (typicality defeated when specific facts pertaining to plaintiff created “unique defenses to his claims”). Notably, besides the Apartment falling into a narrow category as set forth above, Plaintiff submitted no evidence to indicate that her rental history is “typical.” Indeed, her rental history is inconsistent with any overcharge claim. Owner demonstrated that Plaintiff’s market lease rent was less than the legal regulated rent of the Apartment during all relevant time periods. Plaintiff, -63- therefore, made no showing that she incurred any injury, despite her allegations of potential widespread overcharges at the Building. In Solomon v. Bell Atl. Corp., supra, a class action alleging deceptive business practices under GBL §§ 349 and 350, the Court held that there was “no typical plaintiff” when the record reflected, “differences among the individual plaintiffs [including] the nature and extent of their injuries, and the damages they claim.” Id., 9 A.D.3d at 56. Adequacy: CPLR § 901(a)(4) Plaintiff must demonstrate that she “will fairly and adequately protect the interests of the class[.]” See CPLR § 901(a)(4). Plaintiff failed to make this showing, as starkly demonstrated by her lawyer’s purported unilateral waiver of the treble damages penalty on behalf of the Putative Class. The dissent, here, cogently emphasized that waiving statutory penalties – especially treble damages under the RSL rent overcharge provisions – negates the ability of Plaintiff being an adequate class representative, and thereby requires a finding that CPLR §901(a)(4) is not satisfied: Finally, the unilateral waiver of a statutorily imposed penalty by a class representative adversely affects his or her ability to act as an adequate class representative (see Small v. Lorillard Tobacco Co., 94 NY2d 43, 54 [1999] [affirming finding that plaintiffs were not adequate class representatives where they limited their theory of recovery in “significant ways” and limited their claims for damages “in order to shape a legally de minimis -64- theory of the case”]. Plaintiff’s position will conflict with that of some members of the putative class who, unlike plaintiff, may have suffered substantial overcharges, or whose rent histories may be different, or whose apartments may be classified under a different regulatory category. Since the statute authorizes both actual (in the event the landlord rebuts the presumption of willfulness) and punitive damages, the named representative must seek both in order to adequately represent the interests of the proposed class (see Klapak, 79 AD2d at 602). (R. 474-475.) This Court’s decision cited by the dissent, Small v. Lorillard Tobacco Co., supra, strongly suggests that a class representative who, as here, tries to manipulate the damage claims solely to maintain a class action, is inadequate. In Small (94 N.Y.2d at 54-55), this Court determined that the Appellate Division had correctly “recognized a tension between the claims selected by the named plaintiffs and those of absent class members.” The named plaintiffs limited their theory of recovery in “significant ways,” which could subsequently preclude members of the purported class from bringing substantial claims on their own behalf. See also, Alix, supra, 868 N.Y.S.2d at 374 (named plaintiff was not an adequate class representative when the conflict between the interests of plaintiff and other class members was “self-evident” and “substantial”); Ackerman, supra, 252 A.D.2d at 202 (“factors to be considered in determining adequacy of -65- representation are…whether any conflict exists between the representative and the class members”). There was a similar conflict here. Indeed, the dissent pointed out possible due process infringements caused by allowing Plaintiff to waive mandatory RSL rights on behalf of putative class members; to wit: Since an award of treble damages pursuant to RSL 26- 516(a) unequivocally constitutes a “penalty,” no rational class member would presume that a class representative would have the right to waive these claims, and more importantly, that he or she would be bound by such waiver and unable to pursue a treble damages claim if he or she, like most absent class members, neglected to opt out. (R. 474.) Thus, the dissenting justices rightly warned that Plaintiff’s purported waiver would have a “far more profound impact” on the putative class members than just herself. Id. Accordingly, Plaintiff’s ostensible waiver of substantial rent regulatory rights renders her an inadequate class representative for the Putative Class. Plaintiff’s position will conflict with some members of the Putative Class, who, unlike Plaintiff, may have suffered real overcharges if their rent history is different and the regulatory status of their apartment falls under a different category. Such tenants would be clearly be harmed by Plaintiff’s waiver of the -66- treble damages penalty (assuming such waiver is possible, which as demonstrated above, it is not), wholly unbeknownst to them, and wholly unexpected. Finally, as more fully discussed under Point III, infra, Plaintiff failed to establish that she is an adequate class representative when she did not submit an affidavit attesting to her alleged qualifications. Superiority: CPLR § 901(a)(5) A class action is not superior to other methods of adjudicating the regulatory claims of the Putative Class. The determination of the regulatory status and the legal regulated rent of the apartments pertaining to the Putative Class is replete with fact-specific inquiries and apartment-by-apartment rental history analysis, such that proceeding as a class action would be grossly inefficient, extremely burdensome, time-consuming and financially draining. Conversely, Plaintiff and other members of the Putative Class have ample access, if they so choose, to well-developed administrative remedies at DHCR, the expert agency on rent regulation, for any and all of the tenancy-related issues raised in the complaint. Thus, in Alix, 57 A.D.3d at 1048, supra, the availability of an administrative process with “its focus on the particulars applicable to each…claim, made it in many ways a superior method by which the claims made by plaintiffs, and the proposed members of the class, could be pursued against defendant. See -67- also, Jara v. Strong Steel Door, Inc., 2008 NY Slip Op 51733U, 20 (Sup. Ct. Kings Co. 2008) (“if adequate relief is available through administrative agencies, a class action is unnecessary and, indeed, undesirable”); Adler v. Ogden Cap Properties, LLC, supra (“If [plaintiff] or any other tenant is really interested in getting a rent rebate for issues related to the Storm, they will surely get their money much sooner in a Housing Court proceeding than in a class action, which could take years to adjudicate.”). In Small, supra, 94 N.Y.2d at 55, this Court affirmed the Appellate Division’s decertification of a class of nicotine-addicted smokers as requiring overly burdensome individualized proof of class membership. The smokers could pursue individual personal injury actions if they so elected. Similarly, in Mitchell v. Barrios-Paoli, supra, 253 A.D.2d at 291, the Appellate Division reversed the Supreme Court’s order certifying a class in an action commenced under the Social Services Law, noting: [D]etermining who is a member of that class would require individualized examination of each person’s medical history and the physical demands of her assigned task, which would defeat the class action’s goal of saving judicial time and resources. A class action would, thus, not be the most efficient format for adjudicating these claims. (Internal citation omitted.) Plaintiff has failed to establish that a class action is superior to the other available methods for adjudicating any potential claims of the Putative Class. -68- The proposed class action is, in fact, a grossly inefficient mechanism to ascertain the rights and potential overcharges that each individual Putative Class member may have as a result of the Roberts holding. Based on Plaintiff’s clear failure to satisfy any (much less all five) of the prerequisites for class certification under CPLR §901(a), the lower courts committed reversible error in granting Plaintiff’s wholly deficient motion. -69- POINT III PLAINTIFF’S MOTION FOR CLASS CERTIFICATION SHOULD HAVE BEEN DENIED ON PROCEDURAL GROUNDS Plaintiff’s motion contained material procedural defects that should not have been overlooked or minimized by the lower courts. These defects fully warranted denial of Plaintiff’s motion. Plaintiff Never Submitted an Affidavit in Support of the Motion In Rebibo v. Axton Owners, Inc., 2012 N.Y. Misc. LEXIS 198, 2012 NY Slip Op 30109U (Sup. Ct. NY Co.) and Borden v. 400 E. 55th St. Assoc. L.P., Sup. Ct. NY Co., December 7, 2011, Gische, J. (Index No. 650361/09), the Supreme Court denied class certification motions where, like here, the class action complaint was unverified and the plaintiff-tenants failed to submit an affidavit substantiating their adequacy to serve as class representatives under CPLR §901(a)(4). Notably, the plaintiffs in both Rebibo and Borden, involving post- Roberts overcharge complaints, were represented by the same law firm as Plaintiff in this case. In Borden, the Court noted that attempting to establish the CPLR §901(a)(4) adequacy requirement “only through observations of counsel” was “completely inadequate.” See also, Pludeman, supra, 74 A.D.3d at 422 (cited in Rebibo and holding, “[t]he proponent of class certification bears the burden of -70- establishing the criteria promulgated by CPLR 901 (a)…and must do so by the tender of evidence in admissible form”). In the Orders below, the lower courts ignored Owner’s objection to Plaintiff seeking class certification without a verified complaint or an affidavit submitted in support of the motion. The lower courts, instead, found that the hearsay representations made by Plaintiff’s counsel (many of which were wholly uncorroborated and directly rebutted by Owner’s documents and the Higgins Affidavit) were enough to comply with CPLR class certification criteria. Such finding was erroneous in that without any sworn statement of merits from the proposed class representative, Plaintiff could not establish that she would “fairly and adequately protect the interest of the class,” as required under CPLR §901(a)(4). Plaintiff’s Purported Waiver of Statutory Rights in Her Attorney’s Reply Affirmation Made Material Amendments to the Complaint Without First Seeking Such Relief By Motion As Required by CPLR §3025 CPLR § 3025(a) provides that a party may amend a pleading “once[,] without leave of court[,] within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days after service of a pleading responding to it[.]” CPLR § 3025(b) provides that a party may amend or supplement a pleading “at any time by leave of court or by stipulation of all parties.” -71- However, there is no provision allowing for the amendment of a material pleading, merely by affirmation of counsel, in reply papers submitted on a motion for class certification, well after a party’s time to amend her pleading has expired. Plaintiff’s unconventional tactic employed to try to get around the CPLR §901(b) bar, should not have been allowed by the lower courts. In Guzman v. Mike's Pipe Yard, 35 A.D.3d 266; 825 N.Y.S.2d 480 (1st Dep’t 2006), the Court held, in pertinent part: Motions to amend pleadings… should “not be granted upon mere request, without appropriate substantiation” (Brennan v. City of New York, 99 A.D.2d 445, 446, 470 NYS2d 621 [1984]). These moving papers consisted solely of a four-page attorney's affirmation, without an affidavit of a person having personal knowledge, or any other evidence of a viable defense, and thus lacked probative value (see Marinelli v. Shifrin, 260 A.D.2d 227, 229, 688 NYS2d 72 [1999]). Significantly, this Court in Guzman specifically rejected the same ploy that Plaintiff’s counsel utilized here; to wit: Defendant’s attempt to salvage an inadequate set of moving papers by advancing new arguments in its reply affirmation was improper and not entitled to any consideration by the motion court (see Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 AD2d 624, 630 NYS2d 1003 [1995]). Here, in seeking to, in effect, amend her complaint by way of a bald assertion by counsel in a reply affirmation submitted on a motion for class -72- certification, Plaintiff is guilty of even more procedural errors than the movant in Guzman. First, Plaintiff never made a motion for leave to amend the complaint, as required under CPLR § 3025(b), and never requested that leave to amend the complaint be granted. Rather, recognizing that the mandatory penalties sought in the complaint were fatal to her motion for class certification, Appellant attempted “to salvage an inadequate set of moving papers” by purporting to waive the claim for treble damages in her counsel’s two-page reply affirmation. Plaintiff’s counsel reply affirmation baldly stated: Plaintiff “waives her right to seek treble damages under [RSL § 26-516(a)]” and “abandons, in their entirety, Paragraphs 5 and 36 [of the complaint] wherein she had sought treble damages” (R. 323). This contrivance offends CPLR § 3025 and was specifically rejected in Guzman. Even if Plaintiff could waive the treble damages penalty (and Owner strenuously maintains that she cannot), Plaintiff’s purported waiver in a reply affirmation of counsel was grossly improper. Based on the foregoing, the Orders below should be reversed on these procedural grounds. Plaintiff totally failed to comply with even the most basic prerequisites for class certification. -73- CONCLUSION WHEREFORE, the Order of the Appellate Division, First Department (Manzanet-Daniels, J. and Moskowitz, J.), entered on April 25, 2013, which affirmed the Supreme Court’s Initial and Reargument Orders, should be reversed, and the Plaintiff’s motion for class certification should be denied, in its entirety, together with such other and further relief as this Court deems just and proper under the circumstances. Respectfully submitted, Dated: New York, New York BELKIN BURDEN WENIG & January 13, 2014 GOLDMAN, LLP Attorneys for Defendant-Appellant 270 Madison Avenue New York, New York 10016 (212) 867-4466 By: _____________________________ Magda L. Cruz SHERWIN BELKIN MAGDA L. CRUZ STEVEN KIRKPATRICK Of Counsel