Yanella Gudz, Respondent,v.Jemrock Realty Company, LLC, Appellant.BriefN.Y.October 14, 2014To be Argued by: CHRISTIAN SIEBOTT (Time Requested: 30 Minutes) APL 2013-00313 New York County Clerk’s Index No. 603555/09 Court of Appeals of the 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 PLAINTIFF-RESPONDENT CHRISTIAN SIEBOTT GABRIEL G. GALLETTI HEATHER V. LYNCH Of Counsel BERNSTEIN LIEBHARD LLP Attorneys for Plaintiff-Respondent 10 East 40th Street, 22nd Floor New York, New York 10016 Tel.: (212) 779-1414 Fax: (212) 779-3218 Date of Completion: March 20, 2014 STATUS OF RELATED LITIGATION Pursuant to this Court’s Rule of Practice 500.13 (a) (22 NYCRR 500.13 [a]), Respondent wishes to inform the Court of related litigation. Two other related cases from Supreme Court, New York County, are simultaneously on appeal to this Court. These cases, like the instant case, raise the question of the propriety of certifying a class of tenants paying market rents in a residential apartment building while their landlord receives J-51 tax benefits. The cases were all brought in the wake of this Court’s decision in Roberts v Tishman Speyer Properties, L.P. (13 NY3d 270 [2009]) that landlords cannot deregulate their apartments while receiving J-51 tax benefits. In the first, Borden v 400 East 55th Street Associates, L.P. (Index No. 650361/09), the landlord appeals the First Department’s affirming Supreme Court’s granting class certification. In the second, Downing v First Lenox Terrace Associates (Index No. 100725/10), the landlord appeals the First Department’s decision that certain statutes and regulations do not bar class certification. Counsel for Respondent in the instant case is also respondent’s counsel in Borden and presents its two briefs for this Court’s consideration. ii TABLE OF CONTENTS Page STATUS OF RELATED LITIGATION ................................................................... i TABLE OF AUTHORITIES ..................................................................................... v PRELIMINARY STATEMENT ............................................................................... 1 COUNTER-STATEMENT OF QUESTIONS PRESENTED .................................. 4 COUNTER-STATEMENT OF FACTS .................................................................... 6 I. The Parties and Their History .......................................................................... 6 II. Gudz Commences the Action and Moves for Class Certification. ................. 9 III. The IAS Court Decides Gudz’s Motion for Class Certification. ..................11 IV. The IAS Court Decides Landlord’s Motion for Leave to Reargue and Renew. ...........................................................................................................13 V. Gudz Submits a Personal Affidavit Affirming Her Adequacy. ....................15 VI. The Appellate Division Affirms Class Certification. ....................................16 VII. Related Cases Repeatedly Uphold the Propriety of Class Certification. ......18 STANDARD OF REVIEW .....................................................................................21 ARGUMENT ...........................................................................................................24 I. CPLR 901(b) Does Not Bar This Case from Being Maintained as a Class Action Under RSL § 26-516 ..........................................................................24 A. Waiver of Penalty Damages Is Allowed Where a Statute Provides for Both Penalty and Non-Penalty Damages Depending on Defendant’s Culpability. ..........................................................................................24 B. The Different Statutes of Limitations Governing Actual and Treble Damages Make Respondent’s Waiver Eminently Reasonable. ..........27 iii C. Respondent’s Waiver Does Not Amount to Much of a Waiver at All. .............................................................................................................28 D. This Court’s Sperry Decision Dictates that Actual Damages Under RSL § 26-516 Are Not a CPLR 901(b) “Penalty” ..............................29 E. RSL § 26-516 Is Not a Mandatory Statute ..........................................33 F. Courts Allow Waiver Under Statutes that Are Analogous to RSL § 26-516 ...............................................................................................37 G. Landlord’s Distinguishable Statutes Are of No Moment....................40 II. New York Public Policy and RSC § 2520.13 Do Not Prevent Respondent from Waiving Penalty Damages. ...................................................................42 III. This Action Satisfies CPLR 901 (a)’s Five Requirements for Class Certification. ..................................................................................................46 A. CPLR 901 (a) (1): The Class Is Sufficiently Numerous. ...................49 B. CPLR 901 (a) (2): Common Issues Predominate. ..............................49 1. Commonality and Common Issues Are Apparent ....................49 2. Appellant’s Smattering of Supposedly Individual Issues Does Not Defeat Commonality. .........................................................52 C. CPLR 901 (a) (3): Respondent’s Claims Are Typical of Those of Each Class Member. ............................................................................56 D. CPLR 901 (a) (4): Respondent and Her Counsel Have Shown that They Will Adequately Represent the Class. .......................................57 E. CPLR 901 (a) (5): Class Treatment Is Superior. ................................62 IV. Appellant’s Procedural Arguments Are Groundless. ....................................63 A. Respondent Has Provided Sufficient Evidence of Her Adequacy, While Landlord Has Waived Its Arguments to the Contrary. ............63 1. Landlord Has Waived Its Argument that Respondent Did Not Provide Sufficient Evidence of Adequacy. ...............................63 iv 2. Respondent Has Proffered Evidence Showing that She Will Adequately Represent the Class................................................66 B. Respondent Has Waived Her Right to Seek Treble Damages. ...........69 CONCLUSION ........................................................................................................72 v TABLE OF AUTHORITIES CASES 390 W. End Assoc. v Harel (298 AD2d 11 [1st Dept 2002]) .................................................................... 43, 44 Ackerman v Price Waterhouse (252 AD2d 179 [1st Dept 1998]) ...................................................... 12, 57, 65, 67 Adler v Ogden CPA Props., LLC (42 Misc 3d 613 [Sup Ct NY County 2013]) .......................................................53 Advanced Magnetic Closures, Inc. v Rome Fastener Corp. (607 F3d 817 [Fed Cir 2010]) ....................................................................... 67, 68 Asher v Abbott Labs. (290 AD2d 208 [1st Dept 2002], lv dismissed 98 NY2d 728 [2002]) ............................................................... 17, 40 Aurecchione v DHCR (98 NY2d 21 [2002]) ............................................................................................33 Biancur v Hickey (Civ No 95-2145, 1997 WL 9857 [ND Cal Jan. 7, 1997]) ..................................67 Borden v 400 East 55th St. Assoc., L.P. (105 AD3d 630[2013]) ................................................................................. passim Brandon v Chefetz (106 AD2d 162 [1st Dept 1985]) .........................................................................23 Charron v Pinnacle Group N.Y. LLC (731 F3d 241 [2d Cir 2010]) ...............................................................................55 City of New York v Maul (14 NY3d 499 [2010]) .................................................................................. passim Cohn v Goldman (76 NY 284 [1879]) ..............................................................................................63 Cox v Microsoft Corp. (290 AD2d 206[1st Dept 2002], lv dismissed 98 NY2d 728 [2002]) ........... 35, 38 vi Cox v Microsoft Corp. (8 AD3d 39 [1st Dept 2004]) ........................................................................ 25, 39 Dabrowski v Abax, Inc. (84 AD3d 633 [1st Dept 2011]) ...........................................................................49 Daniel v DHCR (179 Misc 2d 452 [Sup Ct, NY County 1998]) ............................................. 55, 56 Downing v First Lenox Terrace Assoc. (107 AD3d 86 [2013]) .................................................................................. passim Drucker v. Muro (30 AD3d 37 [2006], lv dismissed 7 NY3d 844 [2006]) ................................................................. 42, 44 Dugan v London Terrace Gardens, L.P. (34 Misc 3d 1240[A], 2011 WL 7553528 [Sup Ct, NY County 2011]) ..............62 Estro Chemical Co. v Falk (303 NY 83 [1951]) ..............................................................................................43 Evans v Johnstown (97 AD2d 1 [3d Dept 1983]) ................................................................................23 Friar v Vanguard Holding Corp. (78 AD2d 83 [2d Dept 1980]) ...................................................................... passim Gaidon v Guardian Life Insurance Co. of America (94 NY2d 330 [1999]) ..........................................................................................41 Georgia Props., Inc. v Dalsimer (39 AD3d 332 [1st Dept 2007]) .................................................................... 43, 44 Gerard v Clermont York Assoc., LLC (81 AD3d 497 [1st Dept 2011]) ...........................................................................62 Gersten v 56 Seventh Avenue LLC (88 AD3d 189 [1st Dept 2011], appeal withdrawn 18 NY3d 954 [2012]) ...................................................... 53, 54 Giovanello v Carolina Wholesale Off. Mach. Co., Inc. (29 AD3d 737 [2d Dept 2006]) ............................................................................41 vii Goshen v Mutual Life Ins. Co. of New York (1997 WL 710669 [Sup Ct, NY County Oct. 21, 1997]) ....................................41 Greenspan v Brassler (78 FRD 130 [SD NY 1978]) ...............................................................................67 Guzman v Mike's Pipe Yard (35 AD3d 266 [1st Dept 2006]) ...........................................................................70 Matter of H.O. Realty Corp. v DHCR (46 AD3d 103 [1st Dept 2007]) .................................................................... 33, 34 Iglesias-Mendoza v La Belle Farm, Inc. (239 FRD 363 [SD NY 2007]) .............................................................................59 Katz v NVF Co. (100 AD2d 470 [1st Dept 1984]) .........................................................................66 Klapak v Pappas (79 AD2d 602 p2d Dept 1980]) ........................................................ 26, 42, 45, 58 Kolbert v Clayton (127 Misc 2d 1036 [NY City Civ Ct 1985]) ........................................................36 Krebs v Canyon Club, Inc. (22 Misc 3d 1125[A], 2009 WL 440903 [Sup Ct, Westchester County 2009]) ......................................59 Krichman v J.P. Morgan Chase Co. (Civ No 06-15305, 2008 WL 5148769 [SD NY Dec. 8, 2008]) ............ 25, 38, 40 Kudinov v Kel-Tech Constr. Inc. (65 AD3d 481 [1st Dept 2009]) ...........................................................................46 Liechtung v Tower Air, Inc. (269 AD2d 363 [2d Dept 2000]) ..........................................................................23 Life & Cas. Ins. Co. of Tenn. v McCray (291 US 566 [1934]) ............................................................................................29 Manocherian v Lenox Hill Hosp. (84 NY2d 385 [1994]) ..........................................................................................44 viii Matinzi v Joy (60 NY2d 835 [1983]) ..........................................................................................43 McLaughlin v Bd. of Police Comm'rs of City of Yonkers (174 NY 450 [1903]) ............................................................................................60 Mohassel v. Fenwick (5 NY3d 44 [2005]) ................................................................................. 32, 33, 34 P.T. Bank Central Asia v Chinese American Bank (229 AD2d 224 [1st Dept 1997]) .........................................................................63 Pesantez v Boyle Envtl. Servs. (251 AD2d 11 [1st Dept 1998]) ........................................................ 25, 38, 39, 40 Pludeman v N. Leasing Sys, Inc. (74 AD3d 420 [1st Dept 2010]) ................................................................... passim Pruitt v Rockefeller Ctr. Props., Inc. (167 AD2d 14 [1st Dept 1991]) ...........................................................................23 Rebibo v Axton Owner LLC (2012 NY Slip Op 30109[U], 2012 WL 252643 [Jan. 18, 2012]) ............... passim Ridge Meadows Homeowners' Assn., Inc. v Tara Dev. Co., Inc. (242 AD2d 947 [4th Dept 1997]) ...................................................... 26, 38, 39, 71 Riverside Syndicate, Inc. v Munroe (10 NY3d 18 [2008]) ............................................................................................44 Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]) .................................................................................. passim Roberts v Tishman Speyer Props., L.P. (62 AD3d 71[1st Dept 2009], affd 13 NY3d 270 [2009]) ............................................................................ passim Roberts v Tishman Speyer Props., L.P. (89 AD3d 444 [1st Dept 2011]) ...........................................................................50 Rubin v Nine West Group, Inc. (1999 WL 1425364 [Sup Ct, Westchester County 1999]) ..................................26 ix Rudgayzer & Gratt v Cape Canaveral Tour & Travel, Inc. (22 AD3d 148 [2d Dept 2005]) ............................................................................41 Russo & Dubin v Allied Maint. Corp. (95 Misc 2d 344 [Sup Ct, NY County 1978]) ............................................... 26, 56 SAP V/ATLAS 845 WEA Assoc. NF LLC v Jannelli (30 Misc 3d 75 [App Term, 1st Dept 2010]) .......................................................47 Semmen v Butterick Pub. Co. (166 NYS 993 [2d Dept 1917]) ...........................................................................31 Sicolo v Prudential Sav. Bank of Brooklyn (5 NY2d 254 [1959]) ............................................................................................31 Small v Lorillard Tobacco Co. (94 NY2d 43 [1999]) ............................................................................................21 Smellie v Mount Sinai Hosp. (Civ No 03-805, 2004 WL 2725124 [SD NY Nov. 29, 2004]) .................... 38, 40 Sperry v Crompton Corp. (8 NY3d 204 [2007]) .................................................................................... passim Super Glue Corp. v Avis Rent A Car Sys., Inc. (132 AD2d 604 [2d Dept 1987], lv denied 77 NY2d 801 [1991]) ................................................................... passim Surowitz v Hilton Hotels Corp. (383 US 363 [1966]) ............................................................................................ 67 Thoreson v Penthouse Intl. (80 NY2d 490 [1992], affg 179 AD2d 29 [1st Dept 1992]) .....................................................................22 Tishman Constr. Corp. of New York v City of New York (280 AD2d 374 [1st Dept 2001]) .........................................................................70 Wal-Mart Stores, Inc. v Dukes (131 S Ct 2541 [2011]) ........................................................................................50 Weber v Rainbow Software, Inc. (21 AD3d 411 [2d Dept 2005]) ............................................................................41 x Weinberg v Hertz Corp. (116 AD2d 1[1st Dept 1986], affd 69 NY2d 979 [1987]) ...................... 25, 39, 59 Wilder v May Dept. Stores Co. (23 AD3d 646 [2d Dept 2005]) ............................................................................65 DOCKETED CASES Borden v 400 East 55th St. Assoc., L.P. (Index No. 650361/09E [Sup Ct, NY County]) ...........................................passim Casey v Whitehouse Estate, Inc. (Index No. 111723/11 [Sup Ct, NY County]) .................................................... 20 Downing v First Lenox Terrace (Index No. 100725/10 [Sup Ct, NY County]) .................................................... 21 Gerard v Clermont York Assoc., LLC (Index No. 101150/10 [Sup Ct, NY County]) .................................................... 21 Gudz v Jemrock Realty Co., LLC (Index No. 603555/09 [Sup Ct, NY County]) ............................................ passim Rebibo v Axton Owner LLC (Index No. 105995/10 [Sup Ct, NY County]) .................................................... 21 Roberts v Tishman Speyer Props., L.P. (Index No. 100956/07E [Sup Ct, NY County]) ...........................................passim Stillman v Clermont York Assocs., LLC (Index No. 603557/09 [Sup Ct, NY County]) .................................................... 20 RULES AND REGULATIONS CPLR 213-a .................................................................................................. 27, 49, 51 CPLR article 9 ...................................................................................................passim CPLR article 78 .......................................................................................................... 5 CPLR 901 (a) ....................................................................................................passim CPLR 901 (b) ....................................................................................................passim xi CPLR 902 ........................................................................................................... 10, 50 CPLR 909 ................................................................................................................. 33 Emergency Tenant Protection Act (L 1974 ch 576, as enacted) ............................. 36 Federal Rule of Civil Procedure 23 ......................................................................... 22 New York Admin Code § YY51-6.0.5 .................................................................... 36 NY Gen Bus Law § 340 (5) (“Donnelly Act”) .................................................passim NY Gen Bus Law § 349 ......................................................................... 37, 38, 39, 40 NY Labor Law § 198 ............................................................................. 38, 39, 40, 59 NY Social Services Law § 131-o ............................................................................. 42 Rent Stabilization Code (“RSC”) § 2520.13 ....................................................passim Rent Stabilization Law (“RSL”) § 26-504.1 .............................................................. 6 RSL § 26-504.2 .......................................................................................................... 1 RSL § 26-511 ............................................................................................................. 8 RSL § 26-516 ....................................................................................................passim 22 NYCRR § 500.13 ................................................................................................... i OTHER AUTHORITIES Haig (3 Commercial Litigation of New York State Courts § 20:7 [3d ed., 2010]) .......................................................................................... 57 Siegel New York Practice § 141 .............................................................................. 62 PRELIMINARY STATEMENT The appeal brought by Defendant-Appellant Jemrock Realty Company, LLC (“Landlord”) against its tenant, Plaintiff-Respondent Yanella Gudz, is without merit. Multiple times, motions for class certification in actions virtually identical to this case have come before the courts of this State. Each time that a court has issued a final ruling on the motion, that court has granted class certification: seven motions granted in New York Supreme Court and two at the Appellate Division. Yet Appellant in its brief makes no meaningful attempt to distinguish this long line of case law. Instead, Appellant asks this Court to misconstrue statutes, regulations, and policy to benefit Appellant and no one else. Regarding the State class action law (CPLR article 9), Appellant instructs this Court not to apply the law liberally to favor the maintenance of class actions. Although this construction is well-settled, Appellant asks this Court to interpret article 9 so narrowly as to make class certification impossible. But when a bar to class certification is at issue, mainly CPLR 901 (b) and Rent Stabilization Code (“RSC”) § 2520.13, Appellant shifts gears and asks this Court to sweep so wide as to make class certification, once again, impossible. This is a tailor-made class action. Respondent brings two causes of action: (1) damages for rent overcharges and (2) declaratory relief in the form of a 2 judgment that all class members’ apartments are subject to the Rent Stabilization Law (“RSL”). The class definition is straightforward. It includes current and former tenants in Respondent’s building who have been charged a market rent while Appellant has received J-51 tax benefits. A market rent, by definition, is not subject to the RSL. Class membership therefore ensures liability because the foundational decision, Roberts v Tishman Speyer Properties, L.P. (62 AD3d 71 [1st Dept 2009], affd 13 NY3d 270 [2009]), held that all apartments in a building receiving J-51 benefits are subject to the RSL (id. at 81). As a result, a single common issue (did a tenant pay a market rent while Appellant received J-51 benefits) determines liability. In addition, each class member’s damages can be determined by addressing common issues. By answering common legal questions, such as how to determine the base rent and how to account for lawful increases, a court can set a common formula to determine the overcharge owed to each class member. Appellant’s main argument is that class certification is barred by CPLR 901 (b), which prohibits the maintenance of a class action seeking to recover a “penalty.” Respondent, on behalf of herself and the class she represents, sues for rent overcharges under RSL § 26-516, which provides for two types of damages depending on the degree of a landlord’s culpability: (1) treble damages for willful overcharges and (2) actual damages for non-willful overcharges. Because 3 Resopndent waived the former, and pursues only the latter type of damages, the § 901 (b) bar to certification does not apply. Waiver is permitted since absent class members who wish to seek penalty damages may opt out to bring individual actions. This is exactly the type of class action envisaged by the Legislature in enacting CPLR 901 (b). Respondent’s waiver of penalty damages prevents her and the class from recouping a windfall and unduly penalizing Appellant. Instead, Respondent and the class can obtain precisely the moneys they are owed through the efficiencies of class treatment. Appellant’s arguments to the contrary are baseless. First, Appellant cannot rationally claim that it is being penalized. Second, treble damages are not mandatory since RSL § 26-516 provides for both treble and singular damages depending on a landlord’s culpability. It is settled law for RSL § 26-516 and analogous statutes that waiver of penalties is allowed to maintain a class action. Third, even though willfulness is presumed under the RSL, if Appellant’s strategy is to refuse to disprove its willfulness, a court can still determine for itself whether Appellant owes actual or penalty damages. Fourth, given Appellant’s admitted good-faith reliance on regulations overturned by Roberts in overcharging tenants, it is likely that Appellant did not willfully overcharge Respondent or the class. A class member would be hard pressed to show that his or her overcharge was 4 willful. Fifth, because the limitations period for penalty damages is two years shorter than that for actual damages, there is no reason not to certify claims for the entire actual damages period. Finally, Appellant erroneously argues that a class action is barred by the public policy (codified at RSC § 2520.13) that prohibits agreements to waive a benefit under the rent laws. Obviously, Respondent’s unilateral decision to waive penalties is not an agreement. Therefore, it does not invoke the policy concerns of owners coercing tenants into paying unlawful rents or the parties collaborating to diminish prospectively the stock of affordable housing in New York City. Respondent’s decision directly impacts only herself. Absent class members will be given clear, court-sanctioned notice that they may opt out of the class to pursue treble damages. In the end, Appellant provides no cogent reason for this Court to grant its appeal. The Appellate Division should be affirmed. COUNTER-STATEMENT OF QUESTIONS PRESENTED 1. Although CPLR 901 (b) bars a class action from being maintained where a plaintiff sues for penalty damages, a plaintiff may maintain a class action by waiving penalty damages and pursuing only actual damages. The first question presented by this appeal is whether a plaintiff may maintain a class action under RSL § 26-516, a statute providing for two types of damages, treble and actual damages, depending on a landlord’s culpability, by waiving treble damages and 5 pursuing only actual damages. The Appellate Division was not in error when it allowed this action to be maintained as a class action as a result of Respondent’s waiver of penalty damages. 2. The public policy of this State, as codified at RSC § 2520.13, prohibits agreements between landlords and tenants to waive a benefit of the rent laws. The second question presented by this appeal is whether to permit a unilateral decision by a class representative to waive, on behalf of herself and the class she represents, the chance to pursue treble damages under RSL § 26-516 given that class members may opt out to pursue treble damages and that waiver comports with the policies behind RSC § 2520.13. The Appellate Division was not in error when it allowed this action to be maintained as a class action notwithstanding public policy and RSC § 2520.13. 3. CPLR 901 (a) sets forth five prerequisites for a case to proceed as a class action: numerosity, commonality, typicality, adequacy, and superiority. The third question presented by this appeal is whether a case can be maintained as a class action under § 901 (a) when all five requirements are met, particularly the predominance of common issues in determining both liability and damages. The Appellate Division was not in error when it allowed this action to be maintained as a class action under CPLR 901 (a). 6 COUNTER-STATEMENT OF FACTS The J-51 program, pursuant to RSL §§ 26-504.1 and 26-504.2 (a), grants tax benefits to landlords under the condition that “all apartments in buildings receiving J-51 tax benefits are subject to the RSL during the entire period in which the owner receives such benefits.” (Roberts, 62 AD3d at 81). This Court, in Roberts (13 NY3d 270), affirmed this reading of the RSL and accordingly overturned Division of Housing and Community Renewal (“DHCR”)1 regulations that stated otherwise. I. The Parties and Their History This case, like many others, was brought in the wake of the 2009 Roberts decisions.2 On January 29, 2010, Gudz, a residential tenant of Apartment (the “Apartment”) located in West 101st Street in the County, City, and State of New York (“the Building”), brought a Class Action Complaint (R. 56-66 (“Complaint” or “Compl.”)) on behalf of herself and others similarly situated against the Building’s owner (Landlord).3 The Complaint sought rent overcharge damages and a judgment that Gudz and class members’ apartments are subject to the RSL. 1 DHCR is now part of Homes and Community Renewal (“HCR”), which consists of all of New York’s major housing and community renewal agencies. 2 On April 11, 2013, a final settlement in Roberts was approved by Justice Richard B. Lowe, III, the Chief Justice of the Appellate Term, First Department. Counsel for Borden and the class was also co-lead counsel in Roberts. 3 Citations to Appellant’s Record are designated “R.” Citations to Appellant’s Brief are designated “Br.” 7 Landlord, on behalf of the Building (Manhattan Block 1872, Lot 43), has been receiving J-51 tax benefits since tax year 1999-2000 and will continue to receive said benefits through tax year 2035-36. (R. 44-55; Compl. (R. 57 ¶ 4)). New York City Department of Finance records show that in tax year 1999-2000, Landlord began to receive both a 34-year exemption of the Building’s assessed value for tax purposes as well as an abatement reducing taxes over a 20-year period (R. 44). In tax year 2001-02, Landlord renewed its 34-year exemption, which will now expire in 2035-36 (R. 46). While Landlord states that its J-51 benefits have already expired in 2012 (Br. 7), the Appellant Record’s most recent J-51 statement (R. 55) indicates a $4.162 million tax exemption for tax year 2010- 11, reducing the Building’s taxable value from its assessed value of $9.351 million to $5.188 million. In addition, the 2010-11 statement reveals that a tax exemption will last 34 more years after 2001-02 (id.). When Gudz moved for class certification, the Building contained 171 residential apartment units (R. 26), of which 82 were stabilized (R. 28), and 89 were non-stabilized. Landlord avers that no more than 78 units are non-regulated (R. 151 ¶ 6). Gudz moved into the Apartment on or around September 15, 2006 and continues to reside therein. She initially signed a one-year lease, effective September 15, 2006 to September 30, 2007, at a rent of $4,400 per month (R. 29, 8 181). Subsequently, she signed three one-year renewal leases: (1) October 1, 2007 to September 30, 2008 at a rent of $4,400 per month (R. 214); (2) October 1, 2008 to September 30, 2009 at a rent of $4,500 per month (R. 237); and October 1, 2009 to September 30, 2010 at a rent of $4,600 per month (R. 34, 260). Since this most recent lease expired, Gudz has maintained a month-to-month tenancy paying a rent of $4,600 per month (R. 152 ¶ 9). During the entirety of Gudz’s tenancy, she has been unlawfully treated by Landlord as a non-regulated tenant despite Landlord’s receipt of J-51 benefits (R. 20-21 ¶ 5). 4 All four of Gudz’s leases state prominently at the top of the first page: “***THIS IS NOT A RENT STABILIZED LEASE***” (R. 181, 214, 237, 260). In addition, all four leases contain a “Rent Guideline Rider,” which states that “this apartment is not subject to the Rent Stabilization Law” (R. 185, 218, 241, 262). In each lease, Landlord failed to provide the rider required by RSL § 26-511 (d) for all registered apartments, describing tenants’ and landlords’ rights and duties under the RSL. Landlord has also failed to register the Apartment since 1998, as required by RSL § 26-517 (R. 42-43).5 4 R. 19-25 contains the Affirmation of Hanna R. Neier in Support of Plaintiff Yanella Gudz’s Motion for Class Certification, dated Jan. 5, 2011, not including the exhibits attached thereto (“Neier Affirmation” or “Neier Aff.”). 5 R. 40-43 contains the Apartment’s Registration Apartment Information, a report generated by DHCR, dated Nov. 2, 2009 (“DHCR Report”). 9 Further, none of Gudz’s leases contain the required J-51 notice, pursuant to RSL § 26-504 (c), “informing such tenant that the unit shall become subject to deregulation upon the expiration of such [J-51] tax benefit period”. Because of Landlord’s failure to include the J-51 notice, the Apartment “shall be subject to [rent stabilization] until the occurrence of the first vacancy of such unit after such [J-51] benefits are no longer being received” (RSL § 26-504 [c]). Therefore, even if this Court agrees that the Building’s J-51 benefits expire in 2012, the RSL dictates that Landlord must wait until Gudz vacates the Apartment for it to become subject to deregulation. Accordingly, Gudz remains a regulated tenant. II. Gudz Commences the Action and Moves for Class Certification. The Complaint is dated and was served on January 29, 2010. Gudz brought the Complaint on her behalf as well as a class of similarly-situated tenants in her Building (the “Class”). Although Landlord redefines the Class throughout its brief (see e.g. Br. 4, 17-18, 20, 52-53), the Complaint defines the Class in the following manner: “[A]ll persons who are or were residential tenants at 210 West 101st Street and were charged, and/or continue to be charged, market rate rents during the period in which Defendant was participating in the J-51 tax benefit program.” (Compl. (R. 57 ¶ 7)). The Complaint pleads two causes of action: (1) rent overcharge damages in an amount equal to the difference between the Class’s actual monthly rents and 10 their appropriate rent-stabilized rents had their apartments not been illegally deregulated (R. 62 ¶ 33) and (2) a Judgment declaring that Class members’ apartments continue to be subject to the provisions of the RSL (with entitlement to stabilized rents and other benefits under the law) for the entire J-51 period and until such time as the Class’s apartments may thereafter be properly deregulated (R. 63 ¶ 36). Landlord’s Answer is dated March 10, 2010 (R. 67-79). In its Answer, Landlord asserts numerous affirmative defenses, including defenses that it did not willfully overcharge Gudz. In its fourteenth affirmative defense, Landlord avers that it “properly relied upon duly promulgated provisions of the RSC in deregulating plaintiff’s apartment and charging market rate rent therefor.” (R. 76 ¶ 75). In its sixteenth affirmative defense, Landlord avers that to the extent this Court’s ruling in Roberts is determined to apply retroactively, “defendant did not willfully overcharge plaintiff.” (R. 77 ¶ 79). Gudz moved for class certification by motion dated January 5, 2011 (R. 17- 18). Gudz argued that the she and the Class met the five requirements of certification set forth in CPLR 901 (a): numerosity, commonality, typicality, adequacy, and superiority. Gudz also maintained that she and the Class satisfied the five discretionary factors that courts shall consider in determining whether an action may proceed as a class action under CPLR 902. Landlord opposed by 11 arguing that the action did not meet the requirements of CPLR 901 (a) and that class certification was prohibited by CPLR 901 (b), which bars actions to recover a “penalty” from being maintained as a class action. Gudz had sought treble damages under RSL § 26-516, but in her reply, Gudz, through an attorney affirmation, waived her right to seek treble damages and averred that she would seek only actual damages on behalf of herself and the Class (R. 323 ¶ 7).6 III. The IAS Court Decides Gudz’s Motion for Class Certification. The “IAS Court” (Rakower, J.), by Decision and Order entered June 20, 2011 (R. 9-16), granted Gudz’s motion for class certification. The court analyzed the action under each of the five class certification requirements of CPLR 901 (a) and held that each was satisfied. First, the IAS Court held that Gudz satisfied the § 901 (a) (1) numerosity requirement because the Class consisted of “at least 78 de-regulated tenants” (R. 14). It rejected Landlord’s argument that the Class was limited only to those apartments, like Gudz’s, that were deregulated before Landlord began receiving J- 51 benefits, since Roberts plainly held that all units are subject to the RSL during the entire period in which the building’s owner receives J-51 benefits (id.). 6 R. 322-23 contains the Affirmation of Gabriel G. Galletti in Support of the Reply Memorandum of Law in Further Support of Plaintiff Yanella Gudz’s Motion for Class Certification, dated Apr. 1, 2011, not including exhibits attached thereto (“Galletti Affirmation” or “Galletti Aff.”). 12 Second, the IAS Court held that the predominant question was whether Landlord was receiving J-51 benefits while charging market rents to Class members, thereby satisfying § 901 (a) (2) commonality. The court held that individual matters, such as “when apartments were deregulated, the last regulated rental amount of each apartment, and the method of calculation to be used” did not destroy commonality (R. 14-15, citing Pludeman v N. Leasing Sys., Inc. 74 AD3d 420, 423 [1st Dept 2010]). Third, the IAS Court held that Gudz’s claim, was based on the “central issue of Jemrock’s illegal receipt of tax exemptions for a building which contained unregulated apartments”, and thus was typical of other potential class members (R. 15). Fourth, the court held that Gudz satisfied § 901 (a) (4) adequacy. Citing Ackerman v Price Waterhouse (252 AD2d 179, 202 [1st Dept 1998]), the court held that Gudz satisfied all three factors for determining adequacy of representation: (1) whether any conflict exists between the representative and class members, (2) the representative’s familiarity with the lawsuit, and (3) competence and experience of counsel (R. 15). The court made this decision notwithstanding the CPLR 901 (b) “penalty” issue, holding that the argument was moot since Gudz had withdrawn her claim for treble damages (R. 12 n 3). The court also rejected Landlord’s argument that Gudz failed to sufficiently demonstrate her financial 13 ability to prosecute the action, holding that her attorney’s affirmation attesting to counsel’s full assumption of the financial risks of the litigation rendered Gudz’s financial condition irrelevant. (R. 15). Fifth, the IAS Court found CPLR 901 (a) (5) superiority satisfied where all potential class members had an interest in the determination of both causes of action (R. 16). The court reasoned that individual adjudications “would be a waste of time and resources, will not promote uniformity of decision, and would be contrary to public policy.” (Id.). On July 22, 2011, Landlord moved for leave to reargue and renew the decision of the IAS Court and, upon reargument and renewal, for a denial of Gudz’s motion for class certification (R. 392). In support of its motion, Landlord advanced many of the same arguments it had made in opposing Gudz’s motion for class certification. Landlord added an argument that an April 18, 2011 letter from DHCR to the trial court in Roberts (R. 400-02 (“DHCR Letter”)), offering guidance on determining damages, provided grounds for renewal. Gudz opposed. IV. The IAS Court Decides Landlord’s Motion for Leave to Reargue and Renew. The IAS Court resolved Landlord’s motion by Decision and Order entered October 26, 2011 (R. 4-7). In its decision, the court granted Landlord’s motion for leave to reargue, and upon reargument, the court adhered to its original decision granting class certification. This subsequent decision focused exclusively on 14 Landlord’s arguments that CPLR 901 (b) barred class certification. The IAS Court described these arguments as “misplaced” (R. 6). In support, the court cited a long line of cases allowing a representative plaintiff to waive the penalty portion of a statute in order to maintain a class action (id.). Further, the IAS Court rejected Landlord’s attempt to analogize the action, brought under RSL § 26-516, to one brought under New York General Business Law (“GBL”) § 340 (5) (the “Donnelly Act”), which sets forth damages for anticompetitive behavior. The court held that the two statutes are distinct because RSL § 26-516 provides for both treble and compensatory damages depending on a landlord’s culpability, while the Donnelly Act provides only for treble damages regardless of defendant’s culpability (id.). Therefore, any case law suggesting that waiving treble damages is prohibited under the Donnelly Act is not relevant (id.). Landlord submitted a Notice of Appeal of the IAS Court’s decisions granting class certification and perfected its appeal to the Supreme Court’s Appellate Division, First Department, on August 8, 2012. In its brief, Landlord largely repeated the same arguments it had made to the IAS Court. However, Landlord did introduce a new argument for the first time on appeal: that Gudz failed to provide sufficient evidence that she was an adequate class representative. Respondent opposed and included an argument that Landlord’s new contention was not preserved for appeal since it had multiple opportunities, 15 yet failed to raise these arguments to the IAS court. Respondent also explained that Landlord’s new argument was in error. V. Gudz Submits a Personal Affidavit Affirming Her Adequacy. The matter proceeded under the jurisdiction of the IAS Court. The parties attempted to agree on the outlines of class-wide discovery but were unable to do so. By motion dated January 15, 2013, Gudz moved the IAS Court to compel the production of documents from Landlord. In support of her motion, Gudz submitted a personal affidavit in support of the motion (“Gudz Affidavit” or “Gudz Aff.”). As part of the record before the IAS Court, but not part of Appellant’s Record, Respondent asks this Court to take judicial notice of the Gudz Affidavit. In the Gudz Affidavit, Gudz took the opportunity to reaffirm in her own words that she is an adequate Class representative. For instance, Gudz affirms that she is familiar with this lawsuit. In Paragraph 4, she describes the Complaint’s two causes of action. In Paragraph 5, she writes “I am familiar with these claims”. In Paragraph 6, she writes that she has “diligently, fairly, and adequately represented the Class” and will continue to do so. In Paragraph 7, she describes the papers and filings in the lawsuit that she has reviewed and approved. Paragraphs 8 and 9 reveal that Gudz has regularly consulted with her attorneys about the litigation and about her and her counsel’s litigation strategy. In addition, Gudz shows that she is aware of her duty to represent the Class’s best interests and that she is not aware of 16 any conflicts between her and other Class members. Finally, in Paragraph 8, Gudz avers that she has waived penalty damages: “During these consultations [with my attorneys], I decided that I would waive my right to pursue treble damages in this action, and I instructed my counsel to do so on my behalf.” VI. The Appellate Division Affirms Class Certification. By Decision and Order entered April 25, 2013 (R. 466-75), the Appellate Division affirmed the IAS Court’s October 26, 2011 order granting class certification. The appeal of the June 20, 2011 order was dismissed as academic. The Appellate Division explained that Gudz’s rent overcharge claim did not seek a “penalty” within the meaning of CPLR 901 (b) because Gudz had waived her right to treble damages under RSL § 26-516 (a). Gudz’s waiver was effective since, under the RSL statute, treble damages are not the sole measure of recovery. That is, they are not mandatory. (R. 466-67). Instead, Gudz, on behalf of the Class, sued for damages that the court described as “compensatory” (R. 467). The intended recovery, although labeled a “penalty” in the statute, lacked a punitive, deterrent, and litigation-incentivizing purpose. Therefore, the recovery did not meet the threshold for what is a “penalty” under CPLR 901 (b) (id., citing Sperry v Crompton Corp., 8 NY3d 204, 212-13 [2007]). The Appellate Division contrasted RSL § 26-516 (a) to the Donnelly Act, where penalty damages are mandatory (id., 17 citing Asher v Abbott Labs., 290 AD2d 208 [1st Dept 2002], lv dismissed 98 NY2d 728 [2002]). The Appellate Division went on to agree with the IAS Court that Gudz and the Class satisfied the five CPLR 901 (a) prerequisites for class certification. In doing so, the Appellate Division emphasized that it was “[i]nterpreting the class action statute liberally, as [it] must” (R. 468, citing City of New York v Maul, 14 NY3d 499, 509 [2010]). Finally, the Appellate Division held that Gudz’s attorney’s assumption of the risk of the litigation’s cost and expenses demonstrated that Gudz had the financial ability to adequately represent the Class (id.). A dissent followed, which opined that the maintenance of a class action was barred by CPLR 901 (b). The dissent concluded that treble damages are, in fact, “mandatory in the event the owner is found to have overcharged the tenant.” (R. 470). As a result, allowing waiver would circumvent the “clear intent” of CPLR 901 (b), which is to bar a class action suit that seeks a penalty (R. 471). In addition, the dissent found that waiver would be barred by RSC § 2520.13, which voids an agreement by a tenant to waive a provision of the RSL or the RSC (id.). Next, the dissent turned to case law and found that whether a class representative could waive penalty damages depended upon whether the statutory penalties were mandatory. Because the dissent found that RSL § 26-516 penalties were mandatory, it reasoned that class certification should be disallowed. (R. 472-73). 18 The dissent then veered into opinions that seem to support a per se bar on a class representative ever waiving penalty damages to satisfy CPLR 901 (b) (R. 473-75). First, the dissent opined that an arrangement whereby class members have to opt out to pursue treble damages “arguably” may not satisfy class members’ due process. (R. 474). Second, the dissent rejected Gudz’s adequacy as class representative because she was not seeking the full range of damages available to her under RSL § 26-516 (R. 475). VII. Related Cases Repeatedly Uphold the Propriety of Class Certification. On the same day that the First Department, issued its decision in the instant case, the court also held that class certification could go forward in two equivalent appeals (see supra Status of Related Litigation). First, in Borden (105 AD3d 630), the First Department affirmed certification of a class that is defined identically as the Class in the instant case (except for the buildings’ addresses). The Borden court held that CPLR 901 (b) does not bar plaintiff’s class action because plaintiff has waived her right to treble damages and class members can opt out should they wish to pursue penalty damages (id.). The Borden court likewise emphasized that it was interpreting the class action statute liberally. The court then held that the motion court did not abuse its discretion in finding that the class satisfied CPLR 901 (a). The court then expressly held that the class satisfied § 901 (a) (2) commonality. (Id.). 19 Second, in Downing (107 AD3d 86), the First Department again held, in an equivalent case, that a class action could be maintained. The appeal considered defendant’s motion to dismiss, particularly whether certain statutes and regulations barred class certification.7 For a third time, the First Department held that § 901 (b) does not bar a class action. The court explained that under RSL § 26-516, unlike the Donnelly Act, penalty damages are not mandatory (id. at 89). The Appellate Division went on to refute the argument that plaintiffs had run afoul of RSC § 2520.13. The court explained that plaintiffs’ waiver was not an agreement, but rather, a unilateral action that did not implicate the RSC provision. (Id. at 89-90). Next, the court explained that, although RSL § 26-516 labels actual damages “penalties,” said damages are not “penalties” for the purpose of CPLR 901 (b). Instead, these actual damages are designed to compensate, not to punish, and do not meet the threshold for “penalties” under § 901 (b). (Id. at 90). A lone concurring and dissenting opinion followed. While agreeing that the motion court erroneously granted defendant’s motion to dismiss, the opinion found that the majority had prematurely addressed the merits of class certification. The 7 In Downing, the First Department did not evaluate whether the action satisfied the CPLR 901 (a) certification requirements. 20 concurrence/dissent also found that certain plaintiffs’ claims were time barred. (Id. at 92-94).8 Even before the Appellate Division weighed in, the Supreme Courts of New York overwhelmingly approved class certification. Including this action, Respondent’s counsel is aware of seven times that a motion for class certification has come before the Supreme Court in a Roberts-type action prior to the Appellate Division’s resolving the issue. All seven times where the Supreme Court has made a final ruling on a motion for class certification, that motion has been granted. Classes have been certified in: (1) Borden; (2) Roberts (Index No. 100956/07E); (3) Casey v Whitehouse Estates, Inc. (Index No. 111723/11); (4) Stillman v Clermont York Associates, LLC (Index No. 603557/09); (5) Gerard v Clermont 8 The three Appellate Division decisions from April 25, 2013 amount to a veritable en banc sitting of the First Department on the issue now before this Court. Reviewing the above decisions, the eight justices that signed on to at least one of the majority opinions (Tom, Sweeny Jr., Gische, Andrias, Renwick, Freedman, Feinman, and Abdus-Salaam) all expressly held that CPLR 901 (b) did not bar a class action under RSL § 26-516. Two justices (Moskowitz and Manzanet-Daniels, dissenting in this action) disagreed. On the issue of whether RSC § 2520.13 prevented a plaintiff’s waiver of penalty damages under the RSL, four justices (Tom, Andrias, Renwick, and Abdus-Salaam) expressly held that the code provision did not. These four comprise the majority in Downing. Although RSC § 2520.13 was extensively briefed to the First Department both in this action and in Borden, these two majority opinions did not expressly mention the RSC provision. The two dissenters in the case at bar argued that RSC § 2520.13 barred plaintiff’s waiver. Seven justices (Tom, Sweeny, Gische, Andrias, Renwick, Freedman, and Feinman) expressly held that the CPLR 901 (a) class action requirements were satisfied. These are the justices in the First Department majorities in this action and in Borden. The two dissenting justices in the case at bar, once again, took issue with the majorities’ § 901 (a) findings. 21 York Associates LLC (Index No. 101150/10); (6) Rebibo v Axton Owner LLC (Index No. 105995/2010); and (7) the instant case. 9 Now the propriety of an RSL § 26-516 class action comes before this Court. Respondent writes in opposition to show that Landlord’s appeal is groundless and that affirming the Appellate Division is warranted under a straightforward application of settled law. STANDARD OF REVIEW A decision on the merits of class certification “ordinarily rests within the sound discretion of the trial court.” (Small v Lorillard Tobacco Co., 94 NY2d 43, 52 [1999]). On appeal, the Appellate Division is vested with the same discretionary power as the trial court and may exercise that power even absent an abuse of discretion (id. at 52-53). With the matter now before this Court, its “standard of review . . . is far more limited. Where, as here, the Appellate Division affirms a Supreme Court order certifying a class, we may review only for an abuse 9 The decisions on class certification, all from Supreme Court, New York County, are: (1) Borden, first decision at 34 Misc 3d 1202[A], 2011 WL 6446039 [Nov. 9, 2011]; second decision (granting class certification) Decision/Order, NYSCEF Doc. 100 [Apr. 11, 2012]; (2) Roberts (class certification motion granted on consent) (R. 80-85, Order, Aug. 25, 2010); (3) Casey (2012 NY Slip Op 51471[U], 2012 WL 3168689 [Aug. 6, 2012]); (4) Stillman (Decision/Order, NYSCEF Doc. 53 [Aug. 6, 2012]); (5) Gerard (Decision/Order, NYSCEF Doc. 46 [Aug. 8, 2012]); (6) Rebibo (first decision at 2012 NY Slip Op 30109[U], 2012 WL 252643 [Jan. 18, 2012]); second decision (granting class certification) Decision/Order [Oct. 11, 2012]; and (7) the instant case (R. 4-7, 9-16). One decision not listed is the Supreme Court’s July 26, 2011 on-the-record dismissal in Downing. This case is not listed because the court did not decide a motion for class certification. Regardless, the First Department overturned the motion court’s granting the defendant’s motion to dismiss (107 AD3d 86). 22 of discretion as a matter of law.” (Maul, 14 NY3d at 509). Appellant’s burden is substantial. This Court observed in 2010 that “to date this Court has not found an abuse of discretion as a matter of law in the CPLR article 9 class certification context.” (Id. at 510 n 7). Nearly four years later, this observation still holds true. The trial court’s findings of fact are given due deference. In Thoreson v Penthouse International (80 NY2d 490, 495 [1992]), this Court explained: “‘[T]he decision of the fact-finding court should not be disturbed upon appeal unless it is obvious that the court’s conclusions could not be reached under any fair interpretation of the evidence’” (id. at 495, quoting and affg 179 AD2d 29, 31 [1st Dept 1992]). Courts are to give a liberal construction to the class action requirements set forth in CPLR article 9. In Maul, this Court observed that “‘the Legislature intended article 9 to be a liberal substitute for the narrow class action legislation which preceded it.’” (14 NY3d at 310 (quoting Friar v Vanguard Holding Corp., 78 AD2d 83, 91 [2d Dept. 1980]). Friar is still a New York appellate court’s most thorough examination of the policy behind CPLR article 9. Written five years after the 1975 enactment of article 9, the court confronted a landscape where courts narrowly construed the statute, failing to give it its intended effect (Friar, 78 AD2d at 92-93). The court in Friar observed that article 9 was based upon Federal Rule of Civil Procedure 23, and “[t]he policy of rule 23 is to favor the maintenance of 23 class actions and liberal interpretation.” (Id. at 93). The Friar court then expounded on the importance of the class action device. Class actions provide collateral public benefits by inducing responsible behavior on the part of large institutions. The class action also expands due process by affording groups of individuals a right to participate meaningfully in the litigation process. (Id. at 94- 95). Although it is the thrust of Appellant’s briefing, courts are not in the business of ratcheting up the article 9 standards to find ways to bar class actions. (Accord Liechtung v Tower Air, Inc., 269 AD2d 363, 364 [2d Dept 2000] (“Generally, CPLR Article 9 is to be liberally construed and any error should be resolved in favor of allowing the class action.”) (emphasis added)).10 In the First Department’s decisions in both this matter and in Borden, the court properly emphasized that it was “[i]nterpreting the requirements of the class action statute liberally” (R. 468; Borden, 105 AD3d at 630). Instead, Appellant attempts to negate a class action by arguing for an overly broad construction of two provisions that do not apply to this matter. First, CPLR 901 (b) is not relevant because it applies only to actions to recover penalties. Second, RSC § 2520.13 and related 10 (See also Pruitt v Rockefeller Ctr. Props., Inc., 167 AD2d 14, 20-21 [1st Dept 1991] (same); Brandon v Chefetz, 106 AD2d 162, 168 [1st Dept 1985] (policy behind CPLR article 9 “is to favor the maintenance of class actions and for a liberal interpretation.”); Evans v Johnstown, 97 AD2d 1, 2 [3d Dept 1983] (“CPLR article 9 was enacted to liberalize the narrow class action legislation which preceded it by providing a flexible, functional scheme for certification of class actions.”) (emphasis added)). 24 public policy are not relevant because they void agreements that impact tenants and landlords prospectively. The matter before this Court involves none of these. Instead, it is a tailor-made class action brought by a class representative who has unilaterally waived her right to penalty damages. She represents a class of similarly-aggrieved tenants seeking to recover the amount they were overcharged under the RSL by their landlord — no more, no less. ARGUMENT I. CPLR 901(b) Does Not Bar This Case from Being Maintained as a Class Action Under RSL § 26-516 A. Waiver of Penalty Damages Is Allowed Where a Statute Provides for Both Penalty and Non-Penalty Damages Depending on Defendant’s Culpability. CPLR 901 (b)’s prohibition of class actions seeking a “penalty” does not bar a class action under RSL § 26-516 for actual, compensatory damages. CPLR 901 (b) provides: 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. RSL § 26-516 (a), the statute under which Respondent sues, provides that: any owner of housing accommodations who, upon complaint of a tenant . . . is found . . . 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 25 the evidence that the overcharge was not willful, the state division of housing and community renewal shall establish the penalty as the amount of the overcharge plus interest. While a suit seeking treble damages for a willful overcharge would likely amount to a “penalty” under CPLR 901(b), Respondent has waived her entitlement to treble damages and has chosen to seek only actual damages (Galletti Aff. (R. 323 ¶ 7); Gudz Aff. ¶ 8). Should an absent Class member wish to pursue treble damages, he or she may opt out of the Class and seek individual relief. “New York appellate courts have repeatedly affirmed the right of plaintiffs to form a class after waiving statutory penalties available to them.” (Krichman v J.P. Morgan Chase Co., Civ No 06-15305, 2008 WL 5148769, *2 [SD NY Dec. 8, 2008]). The matter is settled in this State’s appellate courts where a statute provides for both penalty and non-penalty damages depending on a defendant’s culpability. (See Weinberg v Hertz Corp., 116 AD2d 1, 4 [1st Dept 1986], affd 69 NY2d 979 [1987]; Super Glue Corp. v Avis Rent A Car System, Inc., 132 AD2d 604 [2d Dept 1987], lv denied 77 NY2d 801 [1991]). The court in Super Glue stated that “the weight of authority holds” that “where, as here, the statute does not explicitly authorize a class recovery thereof [for penalty damages], the named plaintiff in a class action may waive that relief and bring an action for actual damages only.” (Id. at 606). (Accord Cox v Microsoft Corp., 8 AD3d 39, 40 [1st Dept 2004]; Pesantez v Boyle Envtl. Servs., 251 AD2d 11, 12 [1st Dept 1998]; 26 Ridge Meadows Homeowners’ Assn., Inc. v Tara Dev. Co., Inc., 242 AD2d 947, 947 [4th Dept 1997]). Absent class members may pursue penalty damages by opting out of the Class to do so. This possibility is never even considered by the court opinions from the 1970s and early 1980s on which Landlord relies for this argument.11 For example, Hauptman is a 1982 State Supreme Court where the court failed to consider the possibility of class members opting out, but instead believed that absent class members would be “requir[ed]” to waive their claim for penalty damages (114 Misc 2d at 937). Klapak is an appellate court decision from 1980 that sets forth a similar analysis of the waiver issue. New York appellate case law has evolved since these cases were decided. (See e.g. Borden, 105 AD3d at 630 (“individual class members will be allowed to opt out of the class to pursue their treble damages claims, should they believe there is a lawful basis for doing so”); Downing, 107 AD3d at 89, 90, 91 (same); Super Glue, 132 AD2d at 606 (“Should any class member wish to pursue his or her statutory right to minimum and treble damages, he or she may opt out of the class and bring an individual action therefor.”)). 11(See Br. 42-43, 49, citing Klapak v Pappas, 79 AD2d 602 [2d Dept 1980]; Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344 [Sup Ct, NY County 1978]; Hauptman v Helena Rubinstein, Inc., 114 Misc 2d 935 [Sup Ct, NY County, 1982]; Rubin v Nine West Group, Inc., 1999 WL 1425364 [Sup Ct, Westchester County 1999]). 27 A plaintiff can waive penalty damages under RSL § 26-516 and seek actual damages only. Each time waiver under RSL § 26-516 has arisen in a motion for class certification, the court has held that CPLR 901 (b) does not bar certification. This was the holding of the Appellate Division in this case: “Plaintiff’s rent overcharge claim did not seek a ‘penalty’ within the meaning of CPLR § 901(b), because she waived her right to treble damages under [RSL § 26-516].” (R. 466). It was also the holding of other courts to consider the matter (see Borden, 105 AD3d at 630; Downing, 107 AD3d at 88; Casey, 2012 WL 3168689, * 2). B. The Different Statutes of Limitations Governing Actual and Treble Damages Make Respondent’s Waiver Eminently Reasonable. Permitting waiver is particularly justified in a rent overcharge claim because the treble damages claim and actual or compensatory damages claim have two entirely different statutes of limitations – the former is two years, and the latter is four years. (RSL § 26-516 [a] [2]).12 Even if CPLR 901 (b) prohibits a waiver of the two-year willfulness treble damages claim (which it does not) and bars class certification of that claim, it could not by any interpretation prohibit class certification of a compensatory damages action for the first two years of the four- 12 The damages period begins four years before the complaint is filed (RSL § 26-516 [a] [2]; CPLR 213-a). However, the period in which these damages can be trebled only goes back two years before the complaint’s filing. Pursuant to RSL § 26-516 (a) (2) (i), “No penalty of three times the overcharge may be based upon an overcharge having occurred more than two years before the complaint is filed”. 28 year statutory period for bringing such claims, during which treble damages are barred from being recovered altogether under RSL § 26-516. And since the first two years of the compensatory damages claims can be certified in any event, there is no logical or policy-based reason not to certify such claims for the entire overcharge period beginning four years before the commencement of the action. In light of the differing statutes of limitation under RSL § 26-516, the only rational way to read that statute in conjunction with CPRL 901 (b) is to conclude that rent overcharge cases can be certified as to actual damages claims even if they cannot be certified as to treble damages claims. C. Respondent’s Waiver Does Not Amount to Much of a Waiver at All. Because the lower courts have made plain that willfulness generally cannot be proved in Roberts-type cases, choosing to proceed with strong actual damages claims covering a longer overcharge period and waiving weak (at best) treble damages claims that cover two fewer years of overcharges makes good sense from a class-wide litigation perspective. This is especially true given that any class member who would prefer to pursue treble damages can do so by opting out of the Class to bring an individual action (see Super Glue, 132 AD2d at 606). It is likely that actual damages are all that are available to Respondent and the Class. Landlord concedes this. For example, in its Answer, Landlord argues that it relied in good faith on the then-existing law in determining whether Class 29 members’ apartments could be deregulated (R. 76 ¶ 75, 77 ¶ 79; accord R. 14-15). Justice Gische, 13 in her Supreme Court decision granting class certification in Borden, explained that the right to treble damages was “at best, completely speculative, and in reality, virtually non-existent.” (Accord Casey, 2012 WL 3168689, *4 (“[T]he treble damage provisions of the rent regulations simply do not apply under the facts alleged.”)). In Roberts, this Court observed that landlords “predict[ed] dire financial consequences” from the Roberts ruling because they had relied on the overturned-DHCR guidance in deregulating tenants’ apartments and charging market rents (13 NY3d at 287). So by waiving her right to willful damages, Gudz really is not waiving much at all. D. This Court’s Sperry Decision Dictates that Actual Damages Under RSL § 26-516 Are Not a CPLR 901(b) “Penalty” Having chosen not to pursue treble damages, it is important to establish that actual damages are not “penalties” either. RSL § 26-516 uses the word “penalty” to describe what are actual damages: “the amount of the overcharge plus interest.” As Justice Cardozo noted, “‘[p]enalty’ is a term of varying and uncertain meaning.” (Life & Cas. Ins. Co. of Tenn. v McCray, 291 US 566, 574 [1934], quoted in Sperry, 8 NY3d at 213). The First Department in Downing observed that notwithstanding the “penalty” label, whether actual damages constitutes a 13 Justice Judith J. Gische wrote the two Supreme Court decisions on class certification in Borden before she was elevated to the Appellate Division, First Department. 30 “penalty” under RSL § 26-516 “‘depend[s] on the context’ and ‘[t]he nature of the problem.’” (107 AD3d at 90, quoting Sperry, 8 NY3d at 213). A review of the foundations and judicial interpretations of CPLR 901 (b), as articulated in Sperry, demonstrates that a class action can seek non-willful, actual rent overcharges. In fact, this action is exactly the type of class action envisaged by the drafters of § 901 (b): individuals obtaining their actual damages through the efficiencies of class treatment but not recouping a treble damages windfall and unduly penalizing a defendant. The legislative purpose behind CPLR 901 (b) was to preclude class actions based on statutes that, by providing economic incentives beyond actual damages, encourage individual plaintiffs to bring suit. Otherwise, a class of plaintiffs could reap a windfall by aggregating these penalty damages (Sperry, 8 NY3d at 213). This Court in Sperry held that the meaning of “penalty” in CPLR 901 (b) was limited to punitive measures that set an arbitrary or minimal amount of damages regardless of plaintiff’s actual damages (id.). The Sperry Court based its ruling on § 901 (b)’s legislative history, quoting the bill sponsor’s memorandum: “These penalties or ‘minimum damages’ are provided as a means of encouraging suits where the amounts involved might otherwise be too small. Where a class action is brought, this additional encouragement is not necessary. A statutory class action for actual damages would still be permissible.” (Id. at 211). 31 Factors indicating a “penalty” under CPLR 901 (b) are where the remedy: (1) punishes or deters wrongdoing rather than redresses private injury, (2) incentivizes an individual plaintiff who suffered little actual damage to bring suit by guaranteeing a minimum measure of recovery, and (3) lacks a compensatory purpose (id. at 211-13). (See Downing, 107 AD3d at 90, quoting Alexander, Practice Commentaries, McKinney’s Cons. Laws of N.Y., Book 7B, CPLR 901 at 104 (“‘[A] statute imposes a penalty when the amount of damages that may be exacted from the defendant would exceed the injured party’s actual damages.’”)). Sperry compels a finding that the overcharge Respondent seeks is not a penalty under CPLR 901 (b). First, the non-willful damages provision of RSL § 26-516 is not punitive; rather, it redresses a private injury (see Sicolo v Prudential Sav. Bank of Brooklyn, 5 NY2d 254, 258 [1959] (defining penalties as punitive and “not includ[ing] a liability created for the purpose of redressing a private injury”)). Second, the provision does not provide extra incentive for an individual plaintiff who suffered little damage to bring suit because the provision allows only for recovery of the actual overcharge. Third, the provision is limited to actual damages and is therefore compensatory (see Semmen v Butterick Pub. 32 Co., 166 NYS 993, 995 [2d Dept 1917] (“[c]ompensatory damages and actual damages mean the same thing”) [internal citation and quotation omitted]).14 The courts below looked beyond labels to determine that what Respondent seeks for herself and the Class cannot be a penalty. The Appellate Division, citing Sperry, explained: Although plaintiff did not waive her right to reimbursement for alleged overcharges and interest, these claims did not render her action an action for a penalty for purposes of CPLR 901(b), even though such recovery is denominated a penalty by the RSL, because they lack a punitive, deterrent and litigation-incentivizing purpose (see Sperry v. Crompton Corp., 8 N.Y.3d 204, 212–213, 831 N.Y.S.2d 760, 863 N.E.2d 1012 [2007] ) and are, in fact, compensatory (see Mohassel v. Fenwick, 5 N.Y.3d 44, 50–51, 799 N.Y.S.2d 758, 832 N.E.2d 1174 [2005]). (R. 467; accord Downing, 107 AD3d at 90-91). Appellant is wrong when it argues that Respondent seeks a penalty because she pursues “something beyond actual damages” (Br. 30). Appellant never rationally explains what this “something” could be. It cannot be the overcharge, since that is “compensatory,” giving back to Respondent what her landlord unlawfully charged her (R. 467). It cannot be interest either since this Court has already held that substantial pre-judgment rent overcharge interest is “‘not a 14 Appellant makes the strained argument that the actual damages provision “serves the same purpose as the treble damages penalty, i.e., to penalize the owner” (Br. 38) and that both amply incentivize tenants to pursue individual claims by giving them a “clear entitlement to an enhanced award” (Br. 39). However, the damages provided by the RSL for a non-willful overcharge simply compensate a tenant for what he or she was overcharged and do not penalize the landlord. For example, a tenant who was overcharged a small amount of rent is not provided extra incentive to sue her landlord for actual damages. 33 punishment’” but rather, it “‘represents the cost of having the use of another person’s money for a specified period’” (Mohassel v Fenwick, 5 NY3d 44 [2005], quoting Matter of Aurecchione v DHCR, 98 NY2d 21, 27 [2002]). In Aurecchione, this Court repeated that “interest is not a penalty.” (98 NY2d at 27 [internal quotation and citation omitted]). It cannot be attorneys’ fees and costs either (Br. 32, 39). These are not “penalties” either because CPLR 909 expressly permits courts to award attorneys’ fees in class actions, which the Legislature would not have done if it deemed attorneys’ fees to be a “penalty” that would preclude a class action altogether. If costs and fees were CPLR 901 (b) “penalties,” class actions would likely disappear from New York State courts entirely. E. RSL § 26-516 Is Not a Mandatory Statute Evaluating a rent overcharge claim under RSL § 26-516 is a two-step process. First, a court must objectively determine whether an overcharge occurred (Matter of H.O. Realty Corp. v DHCR, 46 AD3d 103, 106-07 [1st Dept 2007]). Second, if an overcharge is found, a court then must decide which type of damages should be imposed (id. at 107). These are two discrete steps: “the issues to be resolved in determining if the rent is unlawful and whether the landlord thereby acted willfully are very different.” (Id.). RSL § 26-516 provides for two distinct types of damages depending on a landlord’s culpability: (1) treble damages if a landlord’s overcharge is willful and (2) actual damages for a landlord’s non-willful 34 overcharge. While willfulness is presumed, “[i]n the absence of willfulness, DHCR [or the court] “‘shall establish the penalty as the amount of the overcharge plus interest.’” (Mohassel, 5 NY3d at 50, quoting RSL § 26-516 [a]). Landlord argues that the question of whether damages were willful is out of the hands of both Respondent and this Court since treble damages are “mandatory in all cases of rent overcharge.” (Br. 47). Respondent disagrees, as this is overreach. The facts are as follows: Respondent seeks only actual damages. Landlord, having argued for years that its overcharges were not willful, now changes course and argues that its “exposure to treble damages penalties . . . remains intact.” (Br. 4 n 1). However, it is still evident that “willful” likely does not describe Landlord’s overcharge.15 And regardless of either party’s litigation posture, a court has discretion not to award willful damages under the RSL. To argue otherwise is to argue for an abdication of a court’s necessary role in a rent overcharge proceeding. Courts have substantial discretion to evaluate whether an overcharge is willful or non-willful (see e.g. H.O. Realty, 46 AD3d at 106-09; Mohassel, 5 NY3d at 50-51 (noting with approval Rent Administrator’s decision to award penalty damages “after determining that owner’s conduct was willful”)). 15 These facts make clear that this is not the “‘end-run around’” CPLR 901 (b) that Landlord makes this out to be. (Br. 48, quoting Napolitano, Avoiding the Minefields in New York Practice, NYLJ, May 18, 2009 at 57 col 1). 35 Likewise, the court below allowed Respondent’s waiver of treble damages since “treble damages are not the sole measure of recovery” (R. 467). Appellant argues that RSL § 26-516 is a mandatory statute (Br. 32-33). This is error because to establish that the statute is mandatory, Appellant would have to show that once liability is found, a court may award one remedy only, regardless of culpability. Appellant cannot make this showing and therefore cannot credibly argue that RSL § 26-516 is a mandatory statute. The dissent is also in error when it writes that “it is inescapable . . . that treble damages are mandatory in the event that the owner is found to have overcharged the tenant.” (R. 470). An actual mandatory statute is the Donnelly Act (see Cox v Microsoft Corp., 290 AD2d 206, 206 [1st Dept 2002], lv dismissed 98 NY2d 728 [2002] (“[T]reble damages under the Donnelly Act are . . . mandatory, i.e., neither discretionary nor contingent upon a finding of bad faith.”)). Utterly unlike RSL § 26-516, the Donnelly Act provides that for antitrust violations, courts can award only treble damages regardless of degree of culpability: [A]ny person who shall sustain damages by reason of any violation of this section, shall recover three-fold the actual damages sustained thereby, as well as costs not exceeding ten thousand dollars, and reasonable attorneys’ fees. The court below correctly recognized the distinction between the two statutes (R. 467). As did the First Department in Downing: “However, under [the Donnelly Act], treble damages are awarded upon a finding of liability; the statute 36 does not require a finding of willfulness or bad faith. In contrast, Rent Stabilization Law § 26-516(a) only requires treble damages where the landlord cannot demonstrate that it did not act willfully” (107 AD3d at 89).16 The dissent was also persuaded by the fact that RSL § 26-516 (a) postdates CPLR 901 (b) (R. 470). However, the relevant RSL language has been the law since before the 1975 enactment of CPLR article 9 and § 901 (b) (see Sperry, 8 NY3d at 210). For example, the Emergency Tenant Protection Act (“ETPA”), as enacted in 1974, provided that an owner found: to have collected any rent or other consideration for a housing accommodation in excess of the rent authorized for such housing accommodation by or pursuant to this act shall be liable to the tenant for 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 neither willful nor attributable to his negligence, the state division of housing and community renewal shall establish the penalty as the amount of the overcharge. (L 1974, ch 576 § 12a [1], as enacted).17 16 If penalty damages under RSL § 26-516 (a) are mandatory then how would one describe penalty damages under the Donnelly Act? Are they extra mandatory? An analogous comparison arose in Kolbert v Clayton (127 Misc 2d 1036 [NY City Civ Ct 1985]), where the court considered whether an award of treble damages for a sublessor’s rent overcharges was mandatory (damages then codified at NY Admin Code § YY51-6.0 [c] [14]). The court drew a comparison with the statute providing damages for an owner’s rent overcharge (then codified at NY Admin Code § YY51-6.0.5 and equivalent to RSL § 26-516 [a]). The two statutes both provided that plaintiffs were entitled to three times the overcharge, except only the owner, not the sublessor, was given the right to show non-willfulness to be liable only for actual damages. Based on this distinction, the court observed, “A fair reading of the statute indicates that trebling of damages in subletting overcharges is mandatory, not discretionary.” (127 Misc 2d at 1038). 17 Respondent attaches the entire ETPA (L 1974 ch 576), as enacted in 1974, to the end of this brief. Respondent directs this Court’s attention to Section 12a (1) (Enforcement) on pages 1521- 22. 37 The language that provided for rent overcharge damages before the enactment of CPLR 901 (b) was almost identical to today’s RSL § 26-516 (a).18 The enactment dates of CPLR article 9 and RSL § 26-516 do not strengthen Appellant’s argument. RSL § 26-516 is not the Donnelly Act, where the treble damages provision was added “shortly after” the adoption of CPLR article 9, and therefore, “[c]learly, the Legislature was aware of the requirement of making express provision for a class action when drafting penalty statutes” (Sperry, 8 NY3d at 214). (See also Gudz dissent (R. 470), citing Sperry, 8 NY3d at 212-13; Br. 57).19 F. Courts Allow Waiver Under Statutes that Are Analogous to RSL § 26-516 Appellant discounts the entirety of the lower courts’ CPLR 901 (b) analysis because the courts cited only to cases involving so-called “permissive or optional penalties.” (Br. 43). However, in Downing, the First Department cited a long line of appellate authority for the holding that CPLR 901 (b) is inapplicable where the class representative waives penalty damages, seeks actual damages only, and class members are allowed to opt out to pursue penalty damages (107 AD3d at 89, citing 18 The only notable difference is the requirement that an owner disprove, not just willfulness, but negligence as well to be liable for actual damages. 19 Further, GBL § 349 (h), which penalizes deceptive business practices, was enacted in 1980. Although the statute post-dates CPLR 901 (b), and does not make express provisions for class actions, courts allow GBL § 349 class actions to proceed. (See e.g. Super Glue, 132 AD2d at 606). 38 Cox; Pesantez; Ridge Meadows; Super Glue). Landlord is mistaken because the statutes involved in these cases are analogous to RSL § 26-516. Class representatives may waive penalties to pursue a class action under GBL § 349 and New York Labor Law (“Labor Law”) § 198.20 Both statutes, like RSL § 26-516, contemplate multiple types of damages depending on defendant’s culpability. Pursuant to GBL § 349 (h), an injured person may sue for actual damages or $50, whichever is greater. A court may increase the award to three times the actual damages if defendant acted knowingly or willingly. Labor Law §§ 198 (1-a) and (3) provide for actual damages and 25 percent of total wages due if defendant acted willfully. Appellant fails to distinguish either statute (Br. 43- 46). 20 GBL § 349 (h) provides: [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 . . . . 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. Labor Law § 198 (1-a) has recently been amended several times. The relevant law that was in effect when Pesantez, Krichman, and Smellie v Mount Sinai Hospital (Civ No 03-805, 2004 WL 2725124 ([SD NY Nov. 29, 2004]) were both commenced and decided provided: In any action instituted upon a wage claim by an employee or the commissioner in which the employee prevails, the court shall allow such employee reasonable attorney’s fees and, upon a finding that the employer’s failure to pay the wage required by this article was willful, an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due. (Labor Law § 198 [1-a] [prior to L 2009, c 372]). At the time, Labor Law § 198 (3) allowed employers to sue “to recover full wages, benefits and wage supplements accrued during the six years previous to the commencing of such action.” (prior to L 2010, c 564 [not amended in 2009]). 39 First, Appellant cannot distinguish GBL § 349. In Cox v Microsoft, the First Department affirmed class certification under GBL § 349 because representative plaintiffs sought only “actual damages,” rather than “minimum or punitive damages” (8 AD3d at 40). Appellant misconstrues the $50 minimum damages provision of GBL § 349 (h) to be “compensatory; not a penalty.” (Br. 44). However, the $50 is by definition a “minimum measure of recovery” that CPLR 901 (b) expressly bars from being the basis for a class action. Nonetheless, the court in Cox allowed a class action to go forward because plaintiffs “expressly seek only actual damages” (8 AD3d at 40). (Accord Super Glue, 132 AD2d at 606; Weinberg, 116 AD2d at 4; Ridge Meadows, 242 AD2d at 947). Second, Appellant cannot distinguish Labor Law § 198, which is also analogous to RSL § 26-516. Appellant is wrong when it argues that RSL § 26-516 is mandatory, while the punitive remedies of Labor Law § 198 are permissive (Br. 46). Appellant simply cites Pesantez for this proposition (id.), yet the First Department in Pesantez said no such thing. The extent of its CPLR 901 (b) analysis is: “[t]o the extent certain individuals may wish to pursue punitive claims pursuant to Labor Law § 198(1-a), which cannot be maintained in a class action (CPLR 901 [b]), they may opt out of the class action” (251 AD2d at 12).21 21 In fact, the punitive remedies of Labor Law § 198 (1-a) are not permissive at all: “In any action instituted upon a wage claim . . . in which the employee prevails, the court shall allow such employee . . . upon a finding that the employer’s failure to pay the wage required by this 40 Regardless, when statutes like RSL § 26-516 and Labor Law § 198 provide for both penalty and non-penalty damages, a plaintiff can maintain a class action by waiving the former and seeking only the latter. Both statutes provide for penalty damages, upon a finding of willfulness, and actual damages for non-willful damages. Waiver of penalty damages is permitted under both statutes (accord Downing, 107 AD3d at 89; Krichman, 2008 WL 5148769, *2; Smellie, 2004 WL 2725124, *4-5). In Smellie, the Southern District of New York was clear: The penalty provision of section 349(h), like that of Labor Law 198(1- a), turns on a finding of wilfulness [sic]. Nothing in Pesantez or related caselaw, or in either statute, indicates that a plaintiff cannot chose to forego the opportunity to prove wilfulness and thus, in effect, waive the penalty provision. These statutes are thus unlike the Donnelly Act provision that was held unwaivable in Asher v. Abbott Laboratories, 737 N.Y.S.2d 4 (1st Dep’t 2002). (2004 WL 2725124, *5 n 12). G. Landlord’s Distinguishable Statutes Are of No Moment. Appellant argues that three statutes under which courts have barred class actions are analogous to RSL § 26-516. First is the Telephone Consumer Protection Act (47 USC § 227) (“TCPA”) (Br. 35). However, 47 USC § 227 (e) (5) (A) (i) provides for a mandatory penalty regardless of culpability that “shall not exceed $10,000 for each violation, or 3 times that amount for each day of a continuing violation.” In addition, the representative plaintiffs in the two TCPA article was willful, an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due.” 41 cases that Appellant cites (Br. 35) expressly sought the $500 minimum measure of recovery provided by 47 USC § 227 (c) (5) (B). (See Rudgayzer & Gratt v Cape Canaveral Tour & Travel, Inc., 22 AD3d 148, 152 [2d Dept 2005] (“plaintiff seeks to recover for each member of the class the minimum measure of recovery created by the TCPA for a violation ($500)”)).22 Second, New York Insurance Law (“Ins. Law”) § 4226 (Br. 36-37) is distinguishable from RSL § 26-516 and is, in fact, analogous to the Donnelly Act. Ins. Law § 4226 provides for one remedy only, a punitive one. An insurer that knowingly violates the statute “shall . . . be liable to a penalty in the amount of such premium or compensation” (Ins. Law § 4226 [d]). The statute penalizes insurers by forcing them to provide insurance coverage and subsequently return the full premium. This is a recovery far greater than actual damages and therefore constitutes a penalty. (Accord Goshen v Mut. Life Ins. Co. of New York, 1997 WL 710669, *12 [Sup Ct, NY County Oct. 21, 1997],23 quoting Ins. Law § 4226 [d] (“Insurance Law § 4226(d) specifically limits recovery under the statute to ‘a penalty of such premium or compensation’”)). 22 The two other TCPA cases cited in the dissent simply affirm the holding in Rudgayzer without discussing the facts of the cases (see R. 472, citing Giovanello v Carolina Wholesale Off. Mach. Co., Inc., 29 AD3d 737 [2d Dept 2006]; Weber v Rainbow Software, Inc., 21 AD3d 411 [2d Dept 2005]). 23 Goshen was affirmed sub nom and modified by Gaidon v Guardian Life Insurance Co. of America (94 NY2d 330 [1999]), where this Court noted that “[t]he propriety of the class certification is not before us on this appeal.” (Id. at 341 n 8). 42 Third, the court in Klapak incorrectly held that a class action under New York Social Services Law (“SSL”) § 131-o was barred by CPLR 901 (b) (R. 472 (Gudz dissent); Br. 35). The Klapak decision conflicts with and predates the settled law of this State, which allows for waiver of penalty damages when non- punitive damages are available. Importantly, the court in Klapak never contemplated the possibility that absent class members may opt out of a class should they wish to pursue penalty damages (79 AD2d at 602-03). II. New York Public Policy and RSC § 2520.13 Do Not Prevent Respondent from Waiving Penalty Damages. Neither New York public policy nor RSC § 2520.13 bars Respondent’s waiver of treble damages. Appellant’s cursory argument of this issue (Br. 39-41) is largely based upon a misreading of the Code provision. 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 added). The provision plainly refers only to agreements, not unilateral decisions, like Respondent’s choosing to waive treble damages. The First Department agreed that RSC § 2520.13 did not bar a class action since plaintiffs’ waiver was a unilateral decision (Downing, 107 AD3d at 89-90). Case law is clear that whether a tenant’s action is the result of an agreement is a critical element of whether that action is void under RSC § 2520.13. (See Drucker, 30 AD3d at 40 (“The prohibition against avoiding, by agreement, protection afforded by the rent stabilization scheme could not be stated more 43 plainly [in RSC § 2520.13].” (emphasis added)). Appellant has not, nor can it, point to a single case where a court held that a unilateral decision by a tenant was void under RSC § 2520.13.24 New York jurisprudence involving RSC § 2520.13 speaks clearly of the need to prevent landlords and tenants from unlawfully collaborating. This meeting of the minds can foist unlawful leases onto tenants as well as strip tenants of RSL protections. In Downing, the First Department upheld plaintiffs’ waiver since the landlord was not attempting to circumvent the rent laws (107 AD3d at 90). In 390 West End Associates v Harel (298 AD2d 11 [1st Dept 2002]), the First Department held that a private agreement between tenant and owner to deregulate a rent- stabilized apartment offends the policy behind RSC § 2520.13, as it would “open the door to landlords and tenants privately agreeing to deregulate rent stabilized units . . . and to the indisputable diminution of the rent stabilization regime” (298 AD2d at 16). Respondent’s unilateral decision does not invoke this concern.25 24 This Court’s central holding in Estro Chemical Co. v Falk (303 NY 83 [1951]) (Br. 41) applies solely to agreements as well. In Estro, this Court held that a tenant may not waive “by agreement” his or her right to recover excess rent (id. at 87). Neither the Estro holding nor RSC § 2520.13 is as inviolate as Appellant argues (Br. 41). For example, RSC § 2520.13 expressly permits negotiated settlements between parties approved by DHCR or a court of competent jurisdiction. In addition, this Court held that its decision in Estro “does not prohibit an agreement to surrender possession of the apartment and resolve incidental differences.” (Matinzi v Joy, 60 NY2d 835, 836 n * [1983] (cited in Br. 39 n 5)). 25 The First Department, in Georgia Properties, Inc. v Dalsimer (39 AD3d 332 [1st Dept 2007]) (Br. 39-40), explained: We have previously held that “an agreement in purported or actual settlement of a landlord-tenant dispute which waives the benefit of a statutory protection is 44 Neither will Respondent’s decision have a negative prospective impact on the rental market. Tellingly, in quoting the RSL’s Declaration of Emergency (Br. 41), Appellant omits that the RSL is intended to address “acute shortage of dwellings which creates a special hardship to persons and families occupying rental housing.” (RSL § 26-501). Preserving affordable regulated rental housing is a centerpiece of the rent laws (RSC § 2520.13). In Manocherian v Lenox Hill Hospital (84 NY2d 385 [1994]), this Court explained: “The central, underlying purpose of the RSL is to ameliorate the dislocations and risk of widespread lack of suitable dwellings.” (Id. at 395). RSC § 2520.13 is squarely aimed at protecting the rent stabilization system prospectively by preventing units from wrongfully leaving regulation. For example, in Riverside Syndicate, Inc. v Munroe (10 NY3d 18 [2008]) (Br. 40), this Court voided an agreement that effectively deregulated a rent-stabilized apartment, unenforceable as a matter of public policy, even if it benefits the tenant” (Drucker v Mauro, 30 AD3d 37, 38 [2006], appeal dismissed 7 NY3d 844 [2006]). Such agreements undermine the “viability of the rent regulation system,” and we have consistently prohibited “landlords and tenants from making private agreements to effectively deregulate applicable housing units” (390 W. End Assoc. v Harel, 298 AD2d 11, 16 [2002]). (39 AD3d at 334 (emphasis added)). 45 thereby “distort[ing] the market without benefitting the people the rent stabilization laws were designed to protect.” (Id. at 23).26 If Respondent’s waiver has prospective impact, it is a positive impact. A class action will set Class members’ rents at their appropriate levels, declare Class members’ apartments rent-stabilized until at least the expiration of Landlord’s J-51 benefits, and provide a powerful incentive for landlords not to overcharge tenants in the future. Further, the argument advanced by the dissent that Respondent’s waiver should be voided because it will have a “profound impact” on absent Class members is misplaced (R. 471; Br. 47-48). This argument, much like the outdated case law it cites (R. 472, citing Klapak, 79 AD2d 602), simply overlooks the significance of Class members’ ability to opt out to pursue the remedy of their choosing. Class members will receive court-sanctioned notice that will allow them to choose for themselves the impact that Respondent’s waiver has on their potential damages.27 26 One could also reasonably ask whether the right to seek penalty damages that are difficult to prove, unavailable for the first two years of the damages period, and that pose a bar to maintaining a class action is a “benefit” at all. 27 The significance of opting out is discussed in greater detail in Argument Section III.D, which addresses the CPLR 901 (a) (4) adequacy requirement. 46 III. This Action Satisfies CPLR 901 (a)’s Five Requirements for Class Certification. This action comfortably meets the five requirements set forth by CPLR 901 (a): numerosity, commonality, typicality, adequacy, and superiority. Respondent has established each § 901 (a) criterion by “providing an evidentiary basis for class action certification.” (Kudinov v. Kel-Tech Constr. Inc., 65 AD3d 481, 483 [1st Dept 2009]). Before analyzing CPLR 901 (a) (1-5), it is important to correct Landlord’s habitual redefining of the Class in its brief (see e.g. Br. 4, 17-18, 20, 52-53). As pled in the Complaint, the Class consists of: [A]ll persons who are or were residential tenants at 210 West 101st Street and were charged, and/or continue to be charged, market rate rents during the period in which Defendant was participating in the J- 51 tax benefit program. (R. 57 ¶ 7). Landlord repeatedly informs this Court, without any evidence in the Record, that the Class consists only of tenants in the “twenty-four (24) apartments in the Building, like the Apartment, [which] were deregulated prior to the Building’s receipt of J-51 tax benefits.” (Br. 52). Landlord has been defining the Class on its own terms since it first opposed class certification. The argument was expressly rejected by the IAS Court (R. 14) and should be rejected by this Court as well. 47 This false definition seems to reflect a misunderstanding of Roberts and the case at bar. The date of an apartment’s deregulation is not at all relevant to this motion. In Roberts, the First Department , as affirmed by this Court, was clear that “all apartments in buildings receiving J-51 tax benefits are subject to the RSL during the entire period in which the owner receives such benefits.” (Roberts, 62 AD3d at 81). (Accord SAP V/ATLAS 845 WEA Assoc. NF LLC v Jannelli, 30 Misc 3d 75, 77 [App Term, 1st Dept 2010] (“[Roberts] held, among other things, that all apartments in a building receiving J-51 tax benefits are subject to the [RSL] during the entire period in which the owner receives such benefits”)). Respondent defines the Class she represents as all tenants paying market rents while Landlord received J-51 benefits. Any tenant paying a market rent is by definition not subject to the RSL (see RSL § 26-504.3 [e] (defining “market rent” as “a rent obtainable in an arm’s length transaction”)). Therefore, while Appellant has received J-51 benefits, it has treated each Class member unlawfully in the same manner. Each has a cognizable claim for rent overcharges and is, or was, entitled to a stabilized lease (the Complaint’s two causes of action). This is why the IAS court was correct that the commonality analysis is largely decided by the fact that “[t]he predominant question here is whether or not Jemrock, in violation of the RSL, was receiving J-51 benefits while collecting market rents from the tenants 48 residing at 201 West 101st Street.” (R. 14). Here, Appellant is, by Class definition, liable to each Class member in the same manner. A second important point to discuss is Appellant’s argument that the possibility that Gudz has not been overcharged is fatal to her motion for class certification (Br. 15, 18, 20). There is no basis for this argument. Landlord, despite the conclusory arguments in its Statement of Facts (Br. 18-19), has failed to establish that Respondent has not been overcharged. Landlord fails even to address Respondent’s second cause of action that she is entitled to a declaration that her lease is subject to the RSL. Legally, Appellant’s argument is an unlawful attempt to presage the merits on a motion for class certification. The First Department has recognized that “[c]lass action certification is thus appropriate if on the surface there appears to be a cause of action which is not a sham.” (Pludeman, 74 AD3d at 422). (See also Maul, 14 NY3d at 514 (“In upholding class certification, we emphasize that, at this early stage of the litigation, we are not expressing an opinion on the merits of plaintiffs’ causes of action.”)). The principal issue before this Court is not whether Respondent has been injured, but rather, can she prove injury to herself and the Class through common proof? 49 A. CPLR 901 (a) (1): The Class Is Sufficiently Numerous. The Class easily satisfies numerosity, which evaluates whether joinder of all members of a class would be impracticable. Respondent has set forth evidence from the New York City Department of Finance and by attorney affirmation demonstrating that when she brought her motion for class certification, on January 5, 2011, the Building contained approximately 89 non-regulated apartments (see R. 26, 28).28 In each non-regulated apartment, the tenants residing therein would have been charged an unlawful market rent. The Class includes both current and former tenants, dating back four years before the action was commenced (CPLR 213-a). While there is no magical number beyond which numerosity is satisfied, a class consisting of current and former tenants in 78 or 89 apartments comfortably satisfies numerosity despite disagreement over the precise number of Class members (accord Dabrowski v Abax, Inc., 84 AD3d 633, 634 [1st Dept 2011] (numerosity satisfied by class consisting of “between 50 and 100 laborers”)). (See also Borden, 2011 WL 6446039, *2). B. CPLR 901 (a) (2): Common Issues Predominate. 1. Commonality and Common Issues Are Apparent This action is replete with common issues and therefore comfortably satisfies commonality. This Court has explained that: 28 Appellant contends that at this time 78 units were non-regulated (R. 151 ¶ 6). 50 [C]ommonality cannot be determined by any “mechanical test” and that “the fact that questions peculiar to each individual may remain after resolution of the common questions is not fatal to the class action” (Friar, 78 A.D.2d at 97-98, 434 N.Y.S.2d 698). Rather, it is “predominance, not identity or unanimity,” that is the linchpin of commonality (id. at 98, 434 N.Y.S.2d 698). (Maul, 14 NY3d at 514). Commonality also considers “‘whether the use of a class action would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated.’” (Pludeman, 74 AD3d at 423, quoting Friar, 78 AD2d at 97). (See also Wal-Mart Stores, Inc. v Dukes, 131 S Ct 2541, 2551 [2011] (Br. 49, 57) (common question of law or fact “must be of such a nature that it is capable of classwide resolution.”)). This case goes well beyond what is required to satisfy CPLR 901 (a) (2) since common issues predominate in determining both liability and damages. First, liability, as previously explained, is established by a tenant’s membership in the Class. This can be determined by answering the common questions recognized by the First Department in Borden: The issues of when defendant received J-51 benefits, whether defendant deregulated apartments while receiving those benefits, which tenants resided in those apartments during those time periods, and whether defendant wrongfully charged market rents while accepting J–51 benefits are common issues that “predominate,” thereby meeting the commonality requirement of CPLR 902(a)(2) [sic]. 51 (105 AD3d at 630-31). 29 These questions are easily answered by common evidence: the Building’s J-51 history and rent records. If a tenant is a Class member then he or she has a cognizable claim for a rent overcharge pursuant to RSL § 26-516, and that tenant merits a judicial declaration that his or her lease is subject to the RSL. This was the conclusion of the IAS Court, which held that the predominant question is whether Landlord was receiving J-51 benefits while collecting market rents from the Building’s tenants (R. 14). (Accord Borden, 2011 WL 6446039, *3 (“[T]he factual and legal issues associated with liability for each member of the proposed class are nearly identical, involving the identification of an apartment as deregulated and the receipt of a J-51 tax abatement.”)). In addition, damages can be determined entirely through answering common questions with common proof. These questions include but are not limited to: (1) How to determine the base rent for calculating damages? (2) How to apply the CPLR 213-a four-year limitations period? (and 3) How to factor lawful increases in determining the rent Appellant should have charged? Accounting for each type of increase, such as Rent Guideline Board increases and Major Capital 29 The First Department has already answered an additional important question regarding liability, that is, whether this Court’s decision in Roberts applies retroactively. The First Department’s 2011 decision in the Roberts litigation (89 AD3d 444 [1st Dept 2011]) answered this question in the affirmative. By doing so, the court ensured that Landlord was liable to Class members whose tenancies predate the 2009 Roberts decision. 52 Improvements, presents common issues that when resolved will be the same for the entire Class. By answering these questions, the court can devise a formula, common to each Class member, to determine damages. The rental history of each Class member can be plugged into this common formula to arrive at that tenant’s damages. In a related case, the Supreme Court held: The question of damages are dominated by common issues. To determine damages, this Court must answer two questions common to each class member: 1) how to determine the tenant’s base rent; and 2) how to devise a formula for calculating damages. Accordingly, the commonality requirement has been satisfied. (Casey, 2012 WL 3168689, *5). 2. Appellant’s Smattering of Supposedly Individual Issues Does Not Defeat Commonality. Appellant tries to defeat commonality mainly by scattering supposedly individual issues throughout its brief (Br. 4-5, 21, 25, 54-62). But Appellant never explains how these issues predominate or how they defeat the substantial efficiencies provided by class treatment. For example, Appellant argues that determining Class membership would require “individual apartment-by-apartment analysis” (Br. 57). This is wrong because Class membership can be determined by answering common questions with common proof. It is only where “individualized proof is required for the claims alleged or individual factual questions with respect to individual class members preponderate, [that] commonality is lacking.” (Pludeman, 74 AD3d at 422-23). 53 An example of Appellant’s idea of individual issues which are almost wholly irrelevant to this motion are: (1) whether an apartment was rent controlled or stabilized prior to deregulation, (2) the rental history, and (3) the history of improvements (Br. 57). Inevitably, there are differences among apartments and tenants. However, as the First Department recognized in Borden, “[t]he need to conduct individualized damages inquiries does not obviate the utility of the class mechanism for this action, given the predominant common issues of liability.” (105 AD3d at 631). Further, the circumstances surrounding an apartment’s deregulation have minimal impact on liability and damages. For example, Appellant provides no basis for its assertion that the rights and damages of Class members differ depending on whether their apartments were deregulated before or while Appellant received J-51 benefits (see Br. 61).30 Appellant does point out one potentially individual issue that merits discussion. That is, the First Department’s holding in Gersten v 56 Seventh Avenue LLC (88 AD3d 189 [1st Dept 2011], appeal withdrawn 18 NY3d 954 [2012]). In 30 The recent State Supreme Court decision cited by Appellant, Adler v Ogden CPA Properties, LLC (42 Misc 3d 613 [Sup Ct NY County 2013] (Br. 55-56), actually supports Respondent’s argument that common issues predominate. In Adler, plaintiffs brought a class action of every single renter in the State of New York against a defendant class of every single landlord in New York, seeking rent rebates in the wake of Superstorm Sandy (id. at 615). Obviously individual issues dominated, such as the effects of outages in each area and for each building, e.g., buildings without elevators, or whether a building used gas or oil for hot water (Id. at 626). Yet the court expressly deferred a decision on whether plaintiff classes limited to specific buildings could be certified and ended its opinion by scheduling a status conference to determine a briefing schedule for class certification (id. at 627, 629-30). 54 Gersten, the court held that “tenants in the Building who were deregulated pre- Roberts, pursuant to a DHCR Order issued during the J-51 benefits period, would be collaterally estopped from challenging such order of deregulation.” (Br. 59-60). As a result, if a tenant had a DHCR deregulation order entered against him or her, that tenant may be excluded from the Class. In Gersten, the court simply answered a legal question that is common to the entire Class. Whether a DHCR order was entered against any tenant can be ascertained through the common proof of the Building’s rent records. In addition, the Gersten holding would have minimal impact on Class membership. The tenants in Gersten lived in the same apartment for over ten years, a long time when tenants pay market rents, and waited that long to challenge the DHCR order (88 AD3d at 193). To the extent the Gersten holding presents an individual issue, such issues are to be expected and do not defeat commonality (see Maul, 14 NY3d at 514 (individual issues remaining after resolution of common issues not fatal to class action)). In addition, the 2011 DHCR Letter is simply not the smoking gun that, as Landlord believes (Br. 57-59), shows that each Class member’s damages must be determined individually (accord Borden, 2011 WL 6446039, *3 (“The DHCR letter, relied upon by the owner, is not legal precedent and does not otherwise persuade the court of the absence of uniform formulas in setting post Roberts levels of rents for affected apartments.”)). The DHCR Letter is part of the record 55 in Roberts, wherein the Supreme Court had previously granted class certification (R. 324) and was now seeking guidance on how to determine damages. DHCR was not asked, nor did it provide, any opinion on class certification. Instead, it provided in the DHCR Letter a “non-binding, advisory opinion” that recited issues that could arise in calculating a tenant’s overcharge claim (R. 400). The class of tenants in Roberts remained certified, and last year the Supreme Court approved a final settlement notwithstanding the DHCR Letter. In the case at bar, the IAS Court correctly recognized: “Issues such as: when individual apartments were deregulated, the last regulated rental amount of each apartment, and the method of calculation to be used, need not prevent certification, as ‘[c]lass certification is appropriate even when there are questions of law or fact not common to the class.’” (R. 14-15, quoting Pludeman, 74 AD3d at 423). Appellant then makes the sweeping generalization that “courts have recognized that class certification is inappropriate for rent overcharge claims.” (Br. 40). In doing so, Appellant completely ignores the history of Roberts-type litigation and the consistency with which courts have certified tenant classes (see supra Counter-Statement of Facts, Section VII). (See also Charron v Pinnacle Group N.Y. LLC, 731 F3d 241 [2d Cir 2010] (affirming district court’s certification of damages class of thousands of New York City tenants seeking to 56 recover rent overcharges where their landlord’s common course of conduct caused the overcharge)). In support of its argument, Appellant offers quotes from two State Supreme Court cases that have nothing to do with this motion: Russo & Dubin v Allied Maintenance Corp. (95 Misc 2d 344 [Sup Ct, NY County 1978]) and Daniel v DHCR (179 Misc 2d 452 [Sup Ct, NY County 1998]). Landlords were not defendants in either action. In Russo & Dubin, a purported class of 100,000 tenants sued 11 maintenance companies for conspiring to restrain trade (95 Misc 2d at 345, 348). And Daniel was an Article 78 proceeding where tenants challenged DHCR’s denial of various overcharge proceedings (179 Misc 2d at 460). C. CPLR 901 (a) (3): Respondent’s Claims Are Typical of Those of Each Class Member. Typicality ensures similarity between the claims of the representative plaintiff and the class members. The requirement is satisfied if the “plaintiff’s claim derives from the same practice or course of conduct that gave rise to the remaining claims of other class members and is based upon the same legal theory.” (Friar, 78 AD2d at 99). In Borden, the First Department expressly found that typicality was satisfied, explaining, “[Respondent’s] claim is typical of the claims of all class members in that each flows from defendant’s alleged unlawful deregulation of apartments while receiving J–51 benefits.” (105 AD3d at 631). 57 Appellant’s typicality section is sparse and largely repeats arguments it has already advanced in its brief (Br. 62-63). Landlord claims that Respondent has not proffered any evidence that she is a typical Class member. However, Respondent provided excerpts from her leases (R. 29, 34). Each lease is clear that it is non- regulated and, therefore, charges a market rent. Respondent has also provided evidence that Landlord has received J-51 benefits from 1999 to 2036 (R. 44-55) and that at least 89 apartments in the Building are, like Respondent’s, not regulated (R. 26, 28). Respondent has thus demonstrated that she is typical of the Class she represents (accord Casey, 2012 WL 3168689, *5 (“Here, the class representatives’ claims are based on the same conduct by the landlord; assert the same legal theory; and are based on the same cause of action. Accordingly, the typicality requirement has been satisfied.”)). D. CPLR 901 (a) (4): Respondent and Her Counsel Have Shown that They Will Adequately Represent the Class. Adequacy requires that representative plaintiffs and their counsel are “up to the job” of representing the absent class members. (Haig, 3 Commercial Litigation of New York State Courts § 20:7 [3d ed., 2010]). “The factors to be considered in determining adequacy of representation are whether any conflict exists between the representative and the class members, the representative’s familiarity with the lawsuit and his or her financial resources, and the competence and experience of class counsel.” (Ackerman, 252 AD2d 179 at 202). These criteria are satisfied. 58 Respondent can and will adequately represent the Class. In this appeal, Landlord does not challenge Respondent’s financial resources or the competence of her counsel. Landlord mainly argues that Respondent’s waiver of her entitlement to treble damages renders her inadequate (Br. 63-66).31 Landlord cites the dissent, which argued that Respondent’s waiver of penalty damages may put her in conflict with members of the Class (R. 474-75). For this argument, the dissent cites a case (Klapak, 79 AD2d at 602) that never even considered the possibility of absent class members opting out to pursue penalty damages. Klapak is no longer good law, having effectively been overruled by numerous appellate decisions. (See e.g. Downing, 107 AD3d at 91 (class action allowed to proceed provided class members allowed to opt out to pursue individual actions)). The dissent, as well as Appellant, does not grasp the significance of Class members’ ability to opt out to pursue treble damages (see R. 474 (“allowing waiver under these circumstances arguably does not satisfy due process”); Br. 65-66). Respondent’s counsel will provide clear, court-sanctioned notice of the remedies available to Class members and how to pursue them either by remaining in the Class or by opting out. This case will not result in a penny settlement that will be overlooked by Class members. Rather, Class members’ potential damages 31 Landlord’s argument that Respondent has not presented sufficient evidence to demonstrate her adequacy, particularly her familiarity with the lawsuit, is addressed in Argument, Section IV.A, infra. 59 for years’ of overcharges may be substantial. Absent Class members will diligently consider their options. The ability to opt out was referred to by one Supreme Court as an “elegant solution” to preserving a class action pursuant to a statute providing for penalties. (Krebs v Canyon Club, Inc., 22 Misc 3d 1125[A], 2009 WL 440903, *15 [Sup Ct, Westchester County 2009]). In Iglesias-Mendoza v La Belle Farm, Inc. (239 FRD 363 [SD NY 2007]), “[t]he court s[aw] no problem with plaintiffs waiving their liquidated damages [under New York labor law] as long as notice is provided to the Rule 23 class instructing individuals how to opt-out in order to preserve their claims for liquidated damages.” (Id. at 373- 74). Appellant wholly dismisses the idea that an absent Class member may opt out to seek treble damages. It even questions whether waiver should ever be allowed without express statutory authorization. (Br. 48-50). However, the ability to waive statutory penalties to maintain a class action has been the settled law in this State for almost 30 years, starting with the First Department’s 1986 Weinberg decision (116 AD2d 1). (Accord Iglesias-Mendoza, 239 FRD at 373 (“This argument [that New York labor law does not permit class actions for liquidated damages unless expressly provided for by statute] has been repeatedly rejected by the courts.”)). The Legislature is surely aware of this construction when it enacts statutes that provide for penalties. 60 In Sperry, this Court addressed the meaning of “penalty” under CPLR 901 (b) (8 NY3d 204). What constitutes a penalty, and accordingly cannot be the basis for a class action, is circumscribed by § 901 (b). What Respondent seeks in this action does not fall within the parameters of this statute (see supra Argument, Section I.D). Further, Landlord cannot credibly argue that Respondent requires express authorization to waive penalties (Br. 56) since “[i]t is well settled by authority that a man may waive any right that he has, whether secured to him by contract, conferred upon him by statute or guaranteed him by the Constitution.” (McLaughlin v Bd. of Police Comm’rs of City of Yonkers, 174 NY 450, 456 [1903]). As for whether this reasoning opens the door to the waiver of penalties under genuine mandatory statutes, this Court expressly declined to address the matter when considering the Donnelly Act in Sperry (8 NY3d at 215). However, the Donnelly Act reflects a legislative judgment that treble damages should be the exclusive remedy for violations of the State’s antitrust laws. No such judgment is evident in RSL § 26-516. An honest reading of RSL § 26-516 is that the legislature believes that landlords overcharging rent in a non-willful manner should be liable for actual damages only. Appellant simply presents a tortured reading of the statute. Landlord’s strategy is that by abdicating its good-faith defense against willfulness, 61 it can argue that it failed to disprove willfulness, and Respondent is left seeking a penalty that is barred by CPLR 901 (b). This gamesmanship cannot defeat class certification. In addition, the matter before this Court is not Lorillard, a comparison both the dissent and Appellant strain to make (R. 474; Br. 63-64). Lorillard is easily distinguished because the class representatives were not just refusing to pursue penalty damages; they were hardly pursuing any damages. The named plaintiffs acted contrary to the interests of approximately five million absent class members when they sued cigarette manufacturers for deceptive practices. In pursuit of class certification, the named plaintiffs sought only the purchase cost of cigarettes that they claim they would not have bought, but for defendants’ deceptive practices. (94 NY2d at 51). The class representatives did not seek potentially lucrative personal injury damages, and they even failed to pursue claims stemming from approximately 30 years of defendants’ deception (id. at 54). This Court found plaintiffs’ legal theory to be “de minimis,” the intended recovery to be of “negative value,” and the plaintiffs themselves to be inadequate class representatives (id.). Here, by contrast, Respondent seeks the actual overcharges she is owed, mindful that penalty damages will be hard to come by. Said action does not put Respondent in conflict with the Class, nor does it impinge on her adequacy. 62 E. CPLR 901 (a) (5): Class Treatment Is Superior. “‘Any device which would allow one action to do the job, or a good part of it, that would otherwise have to be done by many, must be considered ‘superior’’” (Friar, 78 AD2d at 100, quoting Siegel, New York Practice, § 141 at 180). In Borden, the motion court held that “a class action is an efficient and superior method of resolving the post Roberts issues” (2011 WL 6446039, *6). Due to the predominance of common issues, a class action offers substantial efficiencies. Failure to certify would lead to individual actions that would be wasteful for Respondent, Appellant, the Class, State agencies, and the courts. Appellant argues that Respondent and the Class should seek relief from DHCR (Br. 66). Respondent’s case cites (Br. 66-68) are inapposite since DHCR is not capable of granting the class-wide relief Respondent seeks. For example, in Gerard (81 AD3d 497 [1st Dept 2011]), the First Department held that, in an equivalent class action, “[i]t is the courts, not [DHCR], that should address these issues in the first instance.” (Id. at 497-98). A significant impediment to DHCR adjudication is that the agency “is unauthorized to . . . adjudicate plaintiffs’ classwide claims, or grant the classwide relief plaintiffs seek.” (Dugan v London Terrace Gardens, L.P., 34 Misc 3d 1240[A], 2011 WL 7553528, *3 [Sup Ct, NY County 2011] (so held in equivalent class action)). 63 Respondent seeks relief for the entire Class, not just the few members who may eventually bring actions with DHCR. Landlord has not even provided any evidence, nor are Respondent’s attorneys aware, of any related actions commenced by Building tenants with DHCR. Failure to certify leaves aggrieved Class members with the possibility of piecemeal litigation through the courts, a deluge of inconsistent rulings, and an administrative agency that cannot grant Class-wide relief. IV. Appellant’s Procedural Arguments Are Groundless. A. Respondent Has Provided Sufficient Evidence of Her Adequacy, While Landlord Has Waived Its Arguments to the Contrary. Landlord argues that, as a matter of procedure, Respondent failed to provide sufficient evidence that she is an adequate Class representative (Br. 69-70). However, as Respondent argued when Landlord raised the same claim to the Appellate Division, Landlord never raised this claim to the IAS Court. The argument is therefore waived. But even if it were preserved for appellate review, it is wrong as a matter of law and fact. 1. Landlord Has Waived Its Argument that Respondent Did Not Provide Sufficient Evidence of Adequacy. A party must not be penalized for failing to correct a potential error when it was never brought to that party’s attention in the first place (accord Cohn v Goldman, 76 NY 284, 287 [1879] (“It is, indeed, a rule, that questions not raised at 64 the trial court, which might have been obviated by the action of the court then, or by that of the other party, will not be heard on appeal as ground of error.”). Accordingly, matters that may have been corrected, if presented to the trial court, by the submission of documentary evidence are waived. In P.T. Bank Central Asia v Chinese American Bank (229 AD2d 224 [1st Dept 1997]), the court barred plaintiff from arguing on appeal that defendant did not prove its security interest by submitting a copy of the security agreement because the record of the court below was devoid of any mention of this argument. The court explained that “[t]his is clearly a matter that could have been resolved by the submission of documentary evidence” to the court below (id. at 229). Landlord submitted to the IAS Court four memorandums of law in opposition to class certification (R. 306, 381, 418, 453). In these memorandums, Landlord’s arguments regarding whether Respondent submitted sufficient evidence of adequacy were limited entirely to arguing that Respondent failed to submit a personal affidavit demonstrating “her financial ability to pay the costs required to prosecute this action and to reimburse counsel for the amounts advanced.” (R. 317; see also R. 308-09, 418). The closest Landlord came to preserving the argument is an insufficient, boilerplate observation in its Preliminary Statement that “[a]s a preliminary matter, no affidavit is submitted by plaintiff to satisfy her burden of proof [under CPLR 901 (a)].” (R. 307). 65 In the original motion to the IAS Court for class certification, Respondent’s counsel, in the Neier Affirmation, averred that counsel has and will continue to undertake the full financial risks of the litigation and would not seek reimbursement unless it obtained a satisfactory result (R. 25 ¶ 11). The IAS Court, in its first decision on class certification, cited the Neier Affirmation in holding that Respondent’s counsel’s assumption of risk rendered her financial condition “irrelevant.” (R. 15). The IAS Court also cited Wilder v May Department Stores Co. (23 AD3d 646 [2d Dept 2005]). In Wilder, the court held that “where, as here, the plaintiff’s attorney promises to assume responsibility for litigation expenses, the plaintiff’s personal financial condition becomes irrelevant” (id. at 648-49). In its second decision, the IAS Court did not address adequacy at all. Subsequently, the Appellate Division tellingly addressed only the adequacy component that Landlord had preserved for appellate review: “We reject defendant’s contention that plaintiff was required to provide an affidavit focused solely on her financial ability to adequately represent the class, which was adequately shown by counsel’s assumption of the risk of costs and expenses in the litigation.” (R. 468). Now, having again limited its arguments to whether Respondent has the financial resources to adequately represent the Class, Landlord cannot make the sweeping generalization that Respondent has failed to provide personal testimony 66 showing that she would “‘fairly and adequately protect the interests of the class’” (Br. 70, quoting CPLR 901 [a] [4]). Obviously, had Landlord so argued to the IAS Court, Respondent could have produced personal testimony covering all the bases of adequacy. The four components of adequacy (conflicts, finances, personal characteristics, and competence of counsel (see Ackerman, 252 AD2d at 202)) are discrete inquiries, and Landlord has only preserved for appeal its argument that Respondent has not tendered sufficient evidence of her financial wherewithal. 2. Respondent Has Proffered Evidence Showing that She Will Adequately Represent the Class. Even if this Court considers Appellant’s new adequacy argument, it is not convincing. It is tantamount to arguing that there is a per se bar against a finding of adequacy without personal testimony from each class representative. There is no support in law for such a wide-ranging proposition. Appellant cites the State Supreme Court decisions in Borden (2011 WL 6446039) and Rebibo (2012 NY Slip Op 30109[U] [Sup Ct, NY County, Jan. 18, 2012]) (Br. 69-70). These cases did not hold that adequacy was wholly unsatisfied. More specifically, the courts held that the class representatives failed to show that they could “personally” represent the class (see Borden I, 2011 WL 6446039, *5 (holding that plaintiff must set forth personal testimony regarding her “understanding of the litigation”); Rebibo, 2012 NY Slip Op 30109[U], *3 (holding that plaintiffs must tender 67 personal evidence regarding their “personal characteristics to adequately represent the class”)). The courts in Borden and Rebibo erred in applying an unnecessarily rigorous adequacy test. A plaintiff moving for class certification must demonstrate by “a sufficient evidentiary basis,” and not “general, conclusory allegations,” that he or she satisfies CPLR 901 (a) (Katz v NVF Co., 100 AD2d 470, 473 [1st Dept 1984]). The First Department in Ackerman held that familiarity with the litigation is established by showing that the plaintiff has a “general awareness of the claims” – no higher level of knowledge is required (252 AD2d at 202).32 Respondent’s familiarity with the lawsuit was shown to the IAS Court not by conclusory statements but by the Neier Affirmation’s personal, first-hand observations that “Plaintiff has been an involved participant and has remained committed to this matter since she filed suit in 2009, regularly consulting with counsel and otherwise routinely and diligently exercising her duties on behalf of the putative class.” (R. 22 ¶ 7). In the Galletti Affirmation, counsel averred that Gudz “will continue, as she has previously, to diligently represent herself and the putative class.” (R. 323 ¶ 7). Additionally, after meeting with Gudz, her counsel 32 “The threshold of knowledge required to qualify a class representative is low; a party must be familiar with the basic elements of her claim, and will be deemed inadequate only if she is ‘startlingly unfamiliar’ with the case.” (Biancur v Hickey, Civ No 95-2145, 1997 WL 9857, *9 [ND Cal Jan. 7, 1997] (internal citation omitted), quoting Greenspan v Brassler, 78 FRD 130, 133-34 [SD NY 1978] (emphasis added). (Accord Surowitz v Hilton Hotels Corp., 383 US 363, 372-74 [1966]). 68 set forth in the Complaint that “Plaintiff is committed to the vigorous prosecution of this action” (R. 61 ¶ 26). Gudz’s involvement with this litigation has been a collaboration between her and her attorneys, and her counsel have made first-hand observations about Gudz’s involvement. To the extent this Court feels it must rely on hearsay to evaluate Gudz’s adequacy, this evidence is admissible (accord Advanced Magnetic Closures, Inc. v Rome Fastener Corp., 607 F3d 817, 831 [Fed Cir 2010] (“As for admitting the [hearsay] testimony as evidence, [plaintiff] fails to recognize that in the Second Circuit, as in other federal courts of appeals, the Federal Rules of Evidence do not generally apply when the judge is acting as a fact-finder because a judge can presumably exclude improper inferences.”)).33 Further, this Court need not rely on hearsay since Gudz has submitted an affidavit to the IAS Court that provides first-hand evidence of her adequacy as a class representative (see supra Counter-Statement of Facts, Section V). Although not part of Appellant’s Record, this Court can take judicial notice of the affidavit. In the Gudz Affidavit, Respondent reaffirmed in her own words that she is an adequate Class representative. For instance, Gudz affirms that she is familiar with this lawsuit and that she is aware of her fiduciary duty to the Class and is not aware 33 In addition, to the extent the IAS Court made factual determinations about the credibility of the evidence Gudz offered to show that she can adequately represent the Class, these findings are entitled to due deference by this Court (see supra Argument, Standard of Review). 69 of any conflicts between her and the class (Gudz Aff. ¶¶ 4-10). In Paragraph 4, she describes the Complaint’s two causes of action. In Paragraph 5, she writes “I am familiar with these claims”. In Paragraph 7, she describes the papers and filings in the lawsuit that she has reviewed and approved, such as the Complaint and Respondent’s motion for class certification. Paragraphs 8 and 9 reveal that Gudz has regularly consulted with her attorneys about the litigation and about her and her counsel’s litigation strategy. In Paragraph 6 of the Gudz Affidavit, she affirms: I have diligently, fairly and adequately represented the Class since initiating this action in 2009, and I will continue to do so throughout the duration of this litigation. I am not aware of any conflicts between the Class and myself. I also understand that as Class representative, I must always consider the interests of the Class and make decisions that are fair to everyone in the Class. As for the Borden and Rebibo cases that Landlord cites (Br. 69-70), each case granted class certification after the class representatives renewed their motions with personal affidavits attesting to their adequacy. If this Court feels it needs personal testimony to affirm Respondent’s adequacy, it has the evidence courtesy of the Gudz Affidavit. B. Respondent Has Waived Her Right to Seek Treble Damages. Appellant’s other procedural argument, that Respondent must move for leave to amend the Complaint in order to waive treble damages, is baseless (Br. 70 70-72).34 No such motion is necessary since an amendment to the pleadings consists of adding new facts, claims, or theories, not narrowing the scope of recovery. Respondent has simply limited her recovery by waiving treble damages via the Galletti Affirmation (R. 323 ¶ 7).35 Respondent has also personally affirmed her waiver in the Gudz Affirmation (¶ 8): I have regularly consulted with my attorneys about this litigation by phone, email, and in person at their offices at 10 East 40th Street in Manhattan. During these consultations, I decided that I would waive my right to pursue treble damages in this action, and I instructed my counsel to do so on my behalf. Even though treble damages may be available to me in an individual action, I made the decision to waive these damages after discussions with my attorneys regarding the state of the law, the best interests of the Class, and in order to maintain this case as a class action. Guzman v Mike’s Pipe Yard (35 AD3d 266 [1st Dept 2006]) (Br. 47-48) is inapposite. In Guzman, the court considered whether defendant could amend its pleadings to assert a new affirmative defense and to advance new arguments. By contrast, in narrowing her recovery, Respondent invokes none of the concerns raised by amending pleadings since “it is well established that leave to amend a pleading shall be freely given absent prejudice or surprise” (Tishman Constr. Corp. of New York v City of New York, 280 AD2d 374, 377 [1st Dept 2001]). There is no 34 The dissent agreed with Appellant that Respondent did not properly waive penalty damages (R. 475). 35 Unlike its new argument about the sufficiency of Respondent’s adequacy evidence, Landlord did argue to the IAS Court that Respondent should have moved for leave to amend the Complaint in order to waive treble damages (R. 385-86). 71 surprise to Appellant since it had argued even prior to Respondent’s waiver of penalty damages that CPLR 901 (b) barred her motion for class certification (R. 310-11). There is no prejudice either since Gudz is limiting her and the Class’s potential damages. In fact, in the one appellate case where the court expressly discussed a method of waiving statutory penalties, plaintiffs successfully did so not by motion for leave to amend, not by affidavit, but simply by consent on the appeal. The court accordingly maintained a class action: [P]laintiffs are barred by CPLR 901(b) from maintaining a class action . . . . On this appeal, however, plaintiffs consent to strike that portion of the sixth cause of action seeking that relief and to limit their demand to actual damages. Thus, CPLR 901(b) is no longer applicable and that cause of action may be maintained as a class action. (Ridge Meadows, 242 AD2d at 947 (emphasis added)). In the case at bar, the Appellate Division affirmed that “waiver was effective” (R. 467). The IAS Court also did not err in holding that the CPLR 901 (b) argument was mooted by Respondent’s withdrawing her claim for treble damages in her reply papers (R. 12 n 3). (Accord Borden I, 2011 WL 6446039, *4 (“Borden has, through counsel, now waived her claim for treble damages.”) (emphasis added)). CONCLUSION For these reasons, Respondent respectfully requests that this Court affirm the order of the Appellate Division, First Department, affirming the lAS Court's granting class certification. Dated: New York, New York March 20,2014 BERNSTEIN LIEBHARD LLP BY: ~~ Christian iebott Gabriel G. Galletti Heather V. Lynch 10 East 40th Street New York, NY 10016 (212) 779-1414 Attorneys for Plaintiff-Respondent 72 ADDENDUM •~ 1510 I,.~d~•~ ~~~~ \Tr:«~ 1'c~ish, 15~7~ (Cir.~r. c~~~r~'LR 57G~~ AN r1CT to nn~rnd tLe emer~►enc~~ ]►nusin~ rent contro] ln~ti• and the loenl emcr- ~ency houain~ rent control act, in relation to eli~ninatinr ~•r~ennc~ decontrol in cortnin n~ttniotpnlities: to ennet the ~mer~enc~~ fennnt proirrti~n act of nilieteeu 1ii~ndi•edt ~e~•etity•Poin•; to amend tl~e ndniiiii~;trati~•e code ~f the cite of \Tew York in relntinn to conforn~in~ thr \'e~~• Yor1. cit}~ ront ~tnbilizntion in~v of nineteCn hundrnd si~tynine to auel~ tanant prot~etint~ nit and to repent nncl con~nlidatr eubdivisiony n, b and d of aecti~n ~'1'+;1- ~.0 thereof, rQlnting thereto; to ~mcncl tL~ puUlic I►~ugin~ lnti~~ in relntion to cicpostt of funds recet~•al b~• the ~U~•ision of housing and eommanit~• ronc~~•nl for ndmin• istrntion of sttrh ncE; to amenci tLe real pr~~~ert~• t~i~ la~~• in relation to making coniorriiin~ nmenclmetits to pro~•isions tliereaf iuitl~orizin~ senior citizen rent increase exeroptiona and tnx nb;~tententy; and to continue the Nc~v fork city concilinlion ttncl nppcnla bonrd anci to conflr►n and rspnnd ity pouera and duties Tlecame n in~~• ~Cn~• `w!1, lei.}, ~~•itl~ tli~ nP~~rn~•nl of th~~ Cm•~~rn~r. Pn~~ed on mesgn~o of necessit~~ ~~t~rsunnt to _lrticle 1~I, section 14 of the conatitufion by n mnjorit~• ~•ote, tlirce•ftft,lis Ueing present. The Ycoptc of Elie ~Sfato of Ycio York, represc~itcd in Scuafc acid :iRacmblU, do e~~act as Jalio~na: Section 1. I'nrnArnph (i) ~f stibdi~~isian t«•o of section t~~o of chnpter t~~'0 Illl21(~red se~'l'llt}~-fol~r of the l:t~~~s of nineteen hundred fnl't3'-SI\~ l'0115t1t.11t111~ t~1C l'llll'!'rCll(?~~ ~l~~llSlll~ 1'C11t C011tl'0~ ~(lN~ E1S lust au~e~ickcl b~• c~h:zpter three lituitlrecl ~e:~r~it`•-one of the lt~~~~s of i1117Ctc'P11 lnmdr~cl se~~ent`•-o»r, i5 herebt~ atn~ncl~~l to reed as fol- lo~r (i) liousiuo ttrroni~uodr~ti~3i~s ~~•l~i~~jl ~Pl'0111C t':ic~nnfi pro~~idecl, bolt. ever, thnt this eaen~ptio~i shrill riot ~ppl~ ~r become ef~eetitie ~v}~ere the commi5sio» clete~`Illl]1C5 ar fi~►ds tli:~t the j1011S111~ f►cron~mada- tioiis Uecni~ie ~•a~~aut bec~~utie the lit~icllc~rd or t~nti~ ~~ers~n uetiu~ on leis behalf, «'It~l 111tLIlt t0 Cni~se the teiitu~i to ~~~~nte~ e~inaioed iii nny~ cotu•se of coiidi~ct (iiiclu~iin~;, brit not lizi~ited to, interruption or (~1SCOtltlllllllltl:(' 0~ essenti:il ser~~ices) ~t~hiclt itrt~r£ered ~~~ith or dis- ttn~becl or «~as inte»ded to int~arfe~•~ with or disturb the comfort, repose, pence or quiet of the teni~~ii iu lii5 use ar oceupnncy of the housing s~ccommocl~ti~ns; ar~d f trrth~r prac~idcd thnt hoacsi~:q accom- nioclatio»s as fn iul~ich a ho~~siuq c~ricr~/enc~ has bee~i ~reclnred ptcr- stcarrt to the cnicr~er~c~ ~eira~tt profccfion act of ~~i»etce~i seve~itf- fott~• shall be s~cb,jec~ ►n lh~ prni~rcro~rs of ~uclt act fa~~ fh~ tl•i~ratton of s~sch c~ticrge~zc~; or § 2. The second u»desio~intecl ~~i~rnhrapl~ of subdivisio~i five of section one of ~haptcr t~renty-~n~~ of the lams of ni~zeteen Iiuncired silty-t~~•o, constittttinb the loenl enirroeneS~ housing rent control act, ns r~mencied by clinl~t~~t• three l~undrecl5c~~ci~ty-o»e of the ltt~vs of nineteen ht~ncl~•ed se~~ent`•-nne, 1S IlCl~ebt~ amei~clecl io re~►d r~s £ollo~vs: "~'m`F:.—~uhdi~•iaicins n, L and d ~►f section l'~';il-.~.n of the :ldininirtrntice Code of the City of \'~~n~ 1 ork, rc~~~enled if}• r:e<~ti~m !i ~f this nit nr~~ i~e•c~nneted ae Hubcli~~icionq n and L ~~•itl~out AuU~tnnti~~e cl~un;;c otlu~r tlinn to prrn•id~ for tenant repreaontation on the \'ew fork City rent ~;uidelin~~ 1►anrd. 1' So in original. w ~;7c~ 1.,~~ti•5 or~ \'r«• ~'~rcr., lni~ ]51l I~Tot«~ithstnnding ru~3~ locnl 1~«• or orclina~ice, hott5i»g necommoda- tions ~~~hich [became became ~~ae~nt o~i or of lcr• ~Ittl~ first, ~tineteen hzcn~lred scucnt~~-o~ie nr ii~hiclr hercaf~er becn»cc uaca~it shrill be [exempt from re~ultttiais cud coutrol1 srcLjee( to (he provisions of ticc c~ucr~c~ic~ tc~ra»t protectrotr act of ~~it~ctcc~i scvc~it~-~'ottr, provided, hou~e~•er, t~lAt tIl1S ~CXCli1pt10lla ~rot~isin~i shall not t~PPIY or become ei~ccti~~e ~ritl~ resn~c~t to i~o~~sinry ~iceommodsttions ~~~1~ie1~, by IOCA~ ~tl~ti~ ar ordinnnce, nrc~ made directly subject to regulation anti eo»ti•ol b~~ t~ city l~oii5ing i•~nt ~~cue1- n,~a ~~~C}~ ~►o~t~~Y a~t~r- niiiyes or flncIs that tlic housi»~r ftceo~i~modatio»s becunie ~~acant because the Ittndlord or any person ~ic~tin~r on his i~cht~lf, «•ith intent to cause the tenaint tc, i•aente, c~n~t~~ecl in any co~n~se o£ caiduet (i~ieluclirig but nol limited to, intcrruptiou or discontim~Anee of esseiitinl serriees) rrliieh i»terfereci ~ti~itl~ or ciisturbeci or ~~~as intenclecl to interfere n~ith or distiu~b the c~nifort, repose, per~ce ox quiet o.~ the tenrtni in his use ar oc~c~u~~nncy of the housins nceom- mOdtlti0ns. Tf~c ren~o~~nl of ~n~~ liousin~ ttccon~modatio~i Froni regu- lAtioii tint] control of rents pursii~tut to t}~e ~~nen~ic~• etemption pro- vided for iii this pt~rn~r~ph sh~dl not constitute or operate as a ground for t}~e subjection to ii~ore striiisent regul~►tio~i acid control of t~ny~ hau5in~ ~eeoi2imodntion iii such property or iu un;►• other propert3~ o~t•necl by the same landlord, not«•ithstt~nclin~ nn3• prior Agreement to the contrnrt• ley the Inncllord. ~ 3. Paraornph (h) of subdi~•ision teat of section one of such cltupter, its tttdcled b3• ehttpter three hundred se~~enty-o~ie of the ln«~s o£ nineteeT~ huncir~d se~•ent}~-one, is hereby nmendeci to rend ns follows ; (h} 1~~~y tenant ~~•ha has ~~ncated }pis housing accommodations because t]~e landlord oz• r►n3~ p~rsoii :~ctin~; oil his bch~tlf} ~Vlt]i 111tCIlt 1p CF1l1SC t~1C tC'Il~lllt 10 ~'~cnte, P11h~loCc~ 111 illll' COUCSC Of COII(~UCt ~1I1C1U(~2I1~' ~U~ riot Iimitecl to, 111tCI'I'l1ntI011 OP (~1SCOI1t1IlUF~11CC 0~ essential ser~~i~es) ~~l~ieh i»terfered «•ith or disturbed or was intended to iriterferc u~itlt o~• disturb tl~e comfort, repose, peace or quiet of the t~~iant in his rise or occupunet~ o£ the housing accom- n~odntions IIItlV, «~ithi~i ~~iiict3~ clays £ter ~~acuting, apply for a determii~}itinn that the ~lO11Al2i~ liCC0I111110(~At1Ql]S ~ti•cre racated as a result of ;,iic:Il COIl(IllCt, and may, «'It~]!Il OItC 1'Ciir after sueli deter- minrttion, institute t~ ci~'1~ ACt1011 fl~~l]ilSt tllL lanctlarci i~3• reason of sueli eonclt~et. 1lppliention For such cl~termination mad be mncie to the eit~~ hou~ii~~* rent ngei~ej• ti~~ith respect to housing ~ccommodntions which, by lae~l la«~ nr ardinnnce, rare mnc]e dir~etlj• subject to re~ul~- tion rind control ~s• snch t~gene~•, For all other hou~in~ necommod~- dn#io~Z~*' si~l~j~~~t to rr~~ilntic~ti ~>>id ~~o~~irol pu~:e~~rr~11 t~~ the \'~~~r ~'orh city re~:t slccbilizatio~i law or i~inctcc~t h~~udred sixth-~ii~ic, ttpplicu- tion for stleh determinntioi~ mn~• be made la the [state divisio~i of housinn n»cl commuliity rene~rni] 11'cra fork city conciliation acid appeals board. T'or the ptmpose of tnaltir~~ and enforciu~ an}• deter- minatioi~ of tli~ [state di~•ision) ~'1'ct{+ S'~~rlc ~+ti~ co~icilintio~t a~td " So in ari~i»ni. [«'ord mi,~i,~llcd.]T ~ ~ - - - •-' -~ ---- ---~ Iixrc.nxnrios -- Jfattrr in tfoAc.r ~~ nc~~ ; matter i❑ b~.~cket~ [ ] i~ uld late' to Lc omitted. 1512 I~.~«~:; o~~~ ;~1r:~v Yoei:, 19i~ [Cxnr, appeals board us herein provided, the provisions of sections seven, eight and ten, ~vl~enever they refer to tlie city l~ousi~ti~ rent a~eney, shall be deemed to refer tc~ [tl~e state division] s:ccla Lactrd. In such aetian the landlord sl~nll be li~btc to the tci~nnt Sor three times the (3tiITlil~,"CS Si19tA1t1CC~ Oh iICCORIlt Of $1101 CO11ClUC~ ~I118 l~c~sonablQ attor- ney's fees and costs as determined by the court, Tai addition to any other damages tl~e cost of removal a£ praperty sl~r~li be ~. lawful measure oP dum~tges. § 4. The emergency tenant protection act of nineteen seventy- four is hereby enacted, to re~tcl n~ follows ~i11~R(~rNCY ~'~N1~V'r PIi,OT~CTIO~T ACT OF NINE'r~EN SEVENTY-T'OiJIZ Section 1. Short title. 2. Legislative ftndin~, 3. Local determintttio~i of emergency; end of omergeney. 4, EstnUlishmei~t of rent guicieli~ies boards; duties. 5. Housing accommodations subject to re~~ilntion. 6, Regult►tion o£ rents. 7. ~lZaintenance of services. 8. Administration, 9. Applicntio~i for ncljustment of initial legal re~ulnted rent. 10. Regulations. 11. Non-waiver of rights. 12. Enforcement. 13, CooperAtion ~vitl~ other ~o~~ernment~l a~el~cies. 14. ~lppliention of yet. Section 1. Short title. This set slznll be lcnown and may be cited as the "emergency tenant protection net of nineteen soventy-four". § 2. Legislative finding. T]~e leaislnture ]iereby finds end declares that a serious public emergency continues to exist in the liousin~ of a considerable number o£ persona in tl~c state o£ Ne«~ York which emergency tivas nt its inceptio~i cre~tted by ~var, tho effects of tivar and the nfterm~th of hostilities, that aucli emergenc3~ necessitated the intervention of £ederul, state tend loet~l government"' in order to prevent speculative, un«~arrantecl and abnormal increases in rents; that there continues to exist in many ~reaa of the state an acute shortAge of housing accommad~tiona caused by continued high demand, attributable iii part to netiv l~ouseliold formations end decreased supply, in lame measure attributable to reduced avail- ability o£ federal subsidies, and increased costa of construction and other iitflationAry factors; that a substantial number of persons residing in housing not prese~itly subject to the provisions of the emergency housing rent control lnty or the local emergency ltausin~ • ~a in original. 576] T.a~ti~, .,i~~ \TL~v YOItFi~ 197 1513 rent control net u.re being cliur6ecl excessive ~i~cl w~~varranted rents and teat increases; that pi'CVCl1tlYC FICL1011 by the legislature eon- tinues to be imperative iii order to present ex~etion of unaust, unreusonAUlo and oppressi~~e re~ita axed rental u~reementa and to forestall profitecrii~~, apeeul~tiou and other disruptive prAeticea tending to produce threats to the public health, safety and general welfare; that in order to prc~~ent uneertaint3~, l~erclsllip and dislo- cation, the pro~~isioi~s of this act are necessary and designed to pro- teetthe public health, safety and ~eiierAl tis~elfure; that the transition From regulntioii to a nor»~al tnttrket of £rec~ Uar~nining between landlord aua ~~na~~t, while the ultimate objective of state policy, must take plttce ~ritll due rea~rd for sueli emer~eiiey; and that the policy liereiii etpressed shall be subject to determii~atiou of the ezisteiace of n public emergency requiring the regulation of resideu- tial rents ~~~itl~in any city, to«~ii or ~~illaoe by the local legislative body of such eit3~, to~rii or village. § S. Local determii~atioi~ of emer~eney; end of emergency. a. Tlie existence of public emcrgei~cy requirin;; the regulation of resi- dential rents for all or zany class or classes of housing aeeommoda- tioiis heretofore destabilized; lieretufore or hereafter decontrolled, esenipt, riot subject to control, or cxempteci from regulation and control under tl~e provisions of the emergency housing rent control la~v, the local emergency housing rent control act or the Netiv York city rent stabilization lu~►~ Of IilllCt@~11 ~11111C~Y'C{I Sl`.Cty-nine; or sub- ject to stabilization or control under such rent stabilization law, shall be a matter for local determinntioii ~vitl~in each city, town or village. A~iy such determination shall be made by the local legis- lative body of such city, ta`~~n or villt~~e on the basis of the supply of housing uceonimodations within suer city, town or village, the condition of sueli accommodations and tl~e need for regulating and controlling residential rents within such city, town or village. A declaration of emergency may be made as to any class of houein~* accommodations i£ the vacancy rate for the ]iousin~ accommodations in such class tiritl~i~i such inuiiieipality is not in excess of flue per- eent and a declaration of emergency may be made as to all Housing aeeommodntions if the vact~ncy rate for the housing accommodations within such municipality is not iii excess of five pereeut. b. The local ~overnin~ body of a city, town or village leaving declared un enier~ency pursuant to subdivision a of this section may ~t any tirue, on the basis of tine supply of. Housing accommod~- tions within such city, town or village, the condition of such accom- modations and the heed for co~~tinued regulation u~id control oP residentin~l rents «~itl~in such municipality, declare that the emerg- eney is either wholly or partially abated ox that the regulation o~ rents pursuant to this net does not serve to ~bnte such emer~eney and thereby remove one or more classes of uccommod~tions from regulation u»der this act. The emergency niust be declared at an EXPLANATION --^ ~IAItL'P i~ ifolict Is i1C~P; matter in 6rackats (1 is old law to lu omitted. 151 1,.~~~•, c~~~~ i~'r:~v 1'on~:, 1~}7~ CC~np. end once tl~e ~~~ct~iicy rate described in siiudivisiayi rt of this section exceeds Live pereeut. c. No resolution c3eclnrin4 thr existence ar end of nn e~ner~cney, us uutliorized by' St1~J(~1~'1510119 tl !!il(~ ~ 0~ t}11S SCCt1011~ ratty be adopted except after public }~e~rinh held on not less t~lil21 ten days public notice, as the loe~l legislati~~e body may reasonably pro~~ide. § ~. ~stnblisl~nir~~t of rent ~uid~lines boards; dtYties. a. Tn each cout~t3~ ~~•]iereii~ ~t~~~ city ht~~•i»g it pOj)Li1F1t1011 0~ ICSS than one mil- lion or any to«~ii or ~~illtig4 1►as detcriiiiuecl the e~isteiiee of un etnergeucy ~~ui'SUtillt ZO section three of this act, there shill be cret~tecl n i•ciit ;uictelines board to consist of nixie members appointed by the comii~issioner of ]~ousii~~ a~icl eoniiiiuiiity rene«~A1 npou reeoir~i~ie»cintion o~ tl~e eount}~ ]egislatu►~e ~rl~iclt recomnieudtttion shall be mftde n•itliii~ thirty dn}•s n£tei• the frst local ~leeiaratioii of n~i einer~c»cy' 1l1 511Ch c~auntti-; t«~o 5uch izie»ybcrs shrill be representu- ti~•e of tenants, tn•o shall be representative of owners of propertq, and fi~~e ~hnll be IIIIUIIt' 1t1C'lll}JPI;s earls of ~~'~10I11 S~lFl~l ~ltl~•e httd ttt ICASt ~~'C 3'l'A1'S t'\p('rience 111 CIt~tCl~ fii~unec, CCO11UI111CS OP ~10US117~,. One public member siinll be clesigu~ted by tl~e commissioner to serve us eh~ii~~iinn nncl slinll l~alcl no otliei• public office. No member, officer ar eniploy~ee of :ti~~' It111111C1~)tll Dent i~enulation t~geney or the state c1i~~isiai o~ housi~io n»d community reue«•al acid iio person wlia owns or mnn~~es reel estzite coti•cred by this lntir ox ~vho is an officer of any a«•uer ar tc~»iit or~aiiiz~tian sl~Ali serve on t~ rent 6't11C~CI111CS ~Otlt~d. Oiic Public me~z~bei•, Disc menibei• representative 0~ tCI1FlI1tS tlilL~ Ol1C 1t1CiI1UC1• 1'@])1'CSC11tAt11'C 0~ O~CIICI'$ S~IA~I serv6 for ~ terns e~idi~~~ t~~•o ti~e~rs from Jn~ii~nr~ first ue:~t succeeding the date of their nppoiy~tsuent; o~ic public ~itenibei•, Disc member repre- senttttit~e of te~innts ~iud o~ie ~iieu~ber representnti~•e of o«ners shall serve far tet~m~ endi~tr three ;~•e~r5 from the JnYius~ry first next sue- ceeding the c1~te of their nppointnient n~~d three public members shall ser~~c for terius e~~cli~i~ four 3~e~rs fi~an Ja~iunry first next succeeding tl~c dates of their ~ppoi~ituient. 'i'herenfter, ~Il members shall serre for terms oi' four yeiirs e~c1~. Alr~nbers shall continue in office lllltll tI]Cll' Sl1CCCSSOI~s hn~~c been nppoiiited and qualified, The conunissioner sl~~ll fill ~»y racnnc}• ~~•l~icli may occur by reason of death, resi~«tttio~i or otl~ci~«~isc iii n m~iuier consistent «~it}~ the ori~innl nppoi~atment, t1 member n~ny be r~~movecl by the eommis- sioiier for case, but ziot «•itl~out an opportunity to be Beard in person or by counsel, i» liis defense, upon not less tht~u ten days notice. Compenstitiou foi' Y~1C 111C111~CI•s of the board sli~ll be nt the rite of one hwulred doll:it•ti per da~~, £or no more tl~~1i ten days a year, except that the ch~ii'Illilll S~1Q11 UC C011lp~'11StitC(~ ~l~ t~l@ late of one hundred t«•ei~t~•-fi~~e clollni~s ii clay for nn more tl~a~~ fiftee~~ days a year•. The bonrcl sl~nll be pra~~ided Stet' assistance Uy the division of housing t~~id eammu~~ity ►~eiie~~•nl. Tlie CO111pCIlSfit1011 of such members anal tl~e eosis of stuff nssistanc~e s}iail be paid by the divi- $1011 0~ ~10US1Iln t~iici eo~n~iituiity r~~ne~~•r~l ~~~hieli slinll Ue reimbursed in the manner prescribed in section four of this act. ,i7G] L~~~~•s oF, \'~~~• Youx, 1J7~ ~JYJ b. A county rent ~ttideli~ies lio~t•d slinll establish ~iit~u~llS• ~uide- li~ies for re»t ~tcljustniciits, and in cictermi~~iii~ t~~hetlier rents for ~1O11S111~ n(!COIT11110C~i1t1011S X15 10 \CIl1C~l till C111CP;;~11C~' lies bee~i deelured pursuant to this net Shall be tidjustecl, shall con5icler nmoii~ other things (1) the CCOI101111C cotiditio~i of tl~e resiclentinl rCAI estate indush~y~ iii the afTeetccl tiret~ i»eluIAttt~ III ifalirt i~ ucw; ntattcr iii 6~ackel~ [ I is of• to its »iOSt r~ccc~:E acZjttst~itai:t and tlio co~tcidaatio~z aitd appaals baar~~ ~~ta~ so ~•ecitcca the ~~cnt if it ~~i~s that the otvster• leas failed ~o ~~tai~~ta:~t siccic scrv~ccs. The o~une~~ sr~ara v~ s~cpplied zuit)i a copy of tree applicatioaa a~icl shall Lc pc~•niittc~l t~ ale a~~ a~istvc►• flicroto. d Iceari~ir~ ~ita~ be Iccl~ icpo~s• the regicest of eithar part, or tlaa conciliatia~z a»tl appeals boa~•d nta~ )iol~l a hcari~t~ ~ipo~z ids oiu~~ nto~zon. Tlaa c~ncilialio►i and• appeals boartZ ~na~ con,~olidaEc flee proccedin~s for tivo or uioro petitio~~s applicable to tlaa same bttild- inq. ~f tlae cor~cilicttiorz attcl appercls Loarcl ~~~ids that rho o:u~ier leas knoivin~ly filed a false ccrtifcatio~s, it sliall, i~a additio~i to abatti~iq flee rcrtt, assess tlic oivncr ~uifh tlaa ~~casa~i~blc cosfs of the proeeedi~i~, inclu~'i~i~ reaso»able ntfa~ue~s' fees, acid i~raposo a pe~ial~y •~ioi iii c:~cccs al' two li~cuclrcd ~ft~ dollars for eacli false certi~catio~:, § 13. Seetioii four hur~drrd ~ist~•_s~~~en-b of the reQl property tax la~v, as added by chapter sis huizcl~~eci ei~ht3•aiinc of the ltt~vs of nineteen hundred seventy-t~ti~o, is hereby s~mc~ided to rettcl ns follows: § X67-b. TAS AbiltCltlCllt ~Ol~ rent-controlled acid rest rc~tclated property occupied by se~lior citizens, 1. Definitions. A~ used in this section ; u. "Dwelling unit" means that pert of a dwelling in ~vhieb a head o£ tho household resides and «•hich is subjee~ to either tlia emergency ltiousing rent control ln~~ or to tl~e rent aid rehnbilitatian law of the city of Ne~v Yorlc enacted pursuant tto the local law enacted ~ursuunt] to the local emergency liousin~ rent eantrol I~~v, ar to the emcr~cnc~ tc~~ant ~rotectio~a pct of ~ti~ictce~a scvc~zty- f otcr ; b. "Head of the housel~olcl" means a person ~vlio is sixty-t~vo years of age or older, is not n recipient of public nssist~nce pursuant to tha social sorviees Ia`v nnci is entitled to the possessio~i or to the use or oceupnncy o~ n d~ti~eltii~~ unit; Notici~iq laerci~a co~:taz~iecl shall re~zde~~ ivioligiLde fo~~ bc~zefits per- so~is reeei~i~zp~ s2tpplenic~ztal. scc~u~i~zf z~~comc. o~• additio~~al stata pay- ~i:ents, or both, sender n pro~rc~nz acl~tiinigter•ecl b~ the United States 576] T~=~~rs or \'~~v ~'ORK~ 174 153] departt~te~it of licaltli, educatio?i and ~vedfaro or L~ st~cli cleparta~ie~if and tho Notu York stafa dcpurd~~iant or social ser•vice~.• c, "Tneame" means income from till sources after deduction o£ all income and social secu~`lt~► t~l%CS AIl{~ iiieludes social security and ~~etirement benefits, interests, dividends, net rental income, salary or eurnin~5, ttnd ne~v iucante from se1F-employment, bat shall not include lifts or inlieritunces; d. "Income tax year" means a t`veh'P. ]11011t~1 period for ~vhieli the Rend of tl~e liousel~old filed ~ federal personal it~eome tttx return, or if i~o ~ueh return is filed, the caleiiclai~ year; e, "Increase in maxiniuni rent ar Icryal rc~icfafcd r•c~it" means auy increase in the matimtim rent a• the ic~al rcgiclatcd re~zt fo~~ the d~vellin~ uiyit in question pursui~nt to tl~c ttppliettble rent control la~v or to the ciricr~c~icy t~i~a~~l proteclio~ti act of ~ai~ietee~z seve~zt~-faacr, 9~espectivcl~, or suri~ classes o£ increase thereunder ' as may be speciflecl in n local 1H~~~, urc~inance or resolution enacted pursuant to this secti~~n, ores' Si1C~1 base period rent aq shall be provided therein ; F. "\i~~~ hers ~f the l~onsehold" means the bend of the household ~~tic] nri~~ ~u~rson, other thou it bOIIA fide roomer, bot~rder or sub- ~' ~ ~~u,~t,t; ~~~ho is not related to tl~e head of the household, permanently ~~::idin~ in the d~~•ellin~ unit. 2, Tho ~overnina body of any [city, to~~>>i or village] ~titc~iieipal ;, aorporatio~z is hereby Al1t~lOrized t~~id empo«~ered to adopt, after public lienrin~►, in nee~rda»ee ~ti~itli the pro~~isions o~ this section, :i local la~v, ordinance or resututiai pro~~idin~ for the t~butement ; of tales of said inuiiieipnl eorport~tion imposed oil real property containins a dwelling unit as defined herein by nn amount not in excess of that portio~i o£ any iiicret~se in ma4i~num rent ar• legal ~~ ra~tiiated rcpt «~hicli c~u~es such ror~~imum rent a• le~lal ~•eh:tlafed rent to egceed o~~e-third of the combined income of stll members of '~ the household. 3. Any such lacnl la~v, ordinance or resolutio~i sl~nll prop►ide tl~ut ; ; . a, no tax t~batement shall be ~r~nted if the combi~xed income of all members of the household for the income tux year iinniediutely ~,~' preceding the d~.te of 111Ak111~ application exceeds [tltree~ f otcr thousand dollars, or such other sum not more than [five] sip thousand flue liic~idred dollt~rs ns may be proti~ideci by► the local la~v, ordin~ncc or resolution adopted pursuant to this seetioii, pro~~ided that when the head of the household retires Uefore the commence- ment of such year anti the dt~te of fllin~ the application, the income for such yetti• m~ty be ncljusted by e~eludin~ salary or enrnii~~s and projeetin~ his retirement income over the entire period of sueli year, ', b, upon issun~ice of r~ tn~ abatement certificate ~s provided in +. subdivision four of this scetio2i, the nniaiii~t of i»crensc i~l mt~~imum rent o~~ lc~al rc~ttlatetl rc~it SCt ~Al~th in said certificate shall be ~~ deducted from tl~e le~nl ~n~~i~i~um rent o~~ le~~l rc~ulatecl ~~c~it chargeable for ~t cItvellin~ emit of n bend of tl~e household. I:tr~nrtntiox --- \I;tttcr to itnfi~s i+ »c~v; matter in hr,wkcls [ ] i. of