Elisa Downing, et al., Respondents, v, First Lenox Terrace Associates, et al., Appellants.BriefN.Y.October 14, 2014To be Argued by: TODD E. SOLOWAY (Time Requested: 30 Minutes) APL-2013-00314 New York County Clerk’s Index No. 100725/10 Court of Appeals of the State of New York ELISE DOWNING, LOIS HENRY, LARRY MCMILLAN, LYNDA STEWART, ALBERT TAYLOR, MARY WHITE, TEZ BOIS, BARBARA JONES, JERILYN MABRY, VANESSA MACDONNA, RISA SCHNEIDER, GEORGE STARCKEY, and YVONNE STONE, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Respondents, – against – FIRST LENOX TERRACE ASSOCIATES, SECOND LENOX TERRACE ASSOCIATES, THIRD LENOX TERRACE ASSOCIATES, FOURTH LENOX TERRACE ASSOCIATES, FIFTH LENOX TERRACE ASSOCIATES, SIXTH LENOX TERRACE ASSOCIATES, and ROC-CENTURY ASSOCIATES, LLC, THE TRUST U/W/O ROBERT S. OLNICK, ROBERT S. OLNICK and SYLVIA OLNICK IRREVOCABLE TRUST, THE MILTON SCHUMER TRUST, LFI MARINA, LLC, MEREDITH LANE VERONA, NANCY OLNICK SPANU, RUTH FEINBERG and TOBETTE FEINBERT, Defendants-Appellants. BRIEF FOR DEFENDANTS-APPELLANTS PRYOR CASHMAN LLP 7 Times Square New York, New York 10036 Tel.: (212) 421-4100 Fax: (212) 326-0806 – and – MICHAEL B. KRAMER & ASSOCIATES 150 East 58th Street New York, New York 10155 Tel.: (212) 319-0304 Fax: (212) 319-0545 Attorneys for Defendants-Appellants Date Completed: December 20, 2013 CORPORATE DISCLOSURE STATEMENT Pursuant to Section 500.1(f) of the Rules of the Court of Appeals, Defendants-Appellants hereby state that Defendant-Appellant ROC-Century Associates LLC is affiliated with the following entities: 965 Associates, ROC-65th Street Associates, LLC, ROC-Kisco Associates, LLC and ROC-Shrub Oak Associates, LLC. No other Defendants-Appellants have any parents, subsidiaries or affiliates. i TABLE OF CONTENTS TABLE OF AUTHORITIES .................................................................................... iv PRELIMINARY STATEMENT ............................................................................... 2 A. Based Upon The Plain Language Of The Statute, Respondents Are Barred From Maintaining This Case As A Class Action ......................... 2 B. Respondents’ Belated Attempt To Waive The The Treble Damages Penalty Cannot Save Class Status ................................. 3 C. Respondents’ Attempt To Waive The Treble Damages Penalty Is Barred ........................................................... 5 STATEMENT OF JURISDICTION.......................................................................... 6 QUESTIONS PRESENTED ...................................................................................... 7 STATEMENT OF FACTS ........................................................................................ 8 A. Lenox Terrace .................................................................................................. 8 B. Roberts ............................................................................................................. 9 C. Commencement of the Action ....................................................................... 11 D. Appellants’ Motion to Dismiss the Complaint .............................................. 12 E. The I.A.S. Court Order Dismissing The Complaint ...................................... 14 F. The Appellate Division Order Reversing The I.A.S. Court .......................... 15 G. The Related Appellate Division Decisions .................................................... 17 ARGUMENT ........................................................................................................... 18 I. CPLR § 901(b) BARS CLASS ACTIONS TO RECOVER THE STATUTORY PENALTIES IMPOSED BY RSL § 26-516(a) ........... 19 ii TABLE OF CONTENTS, Continued A. The Plain Language Of CPLR § 901(b) Bars Actions To Recover The Treble Damages Penalty Imposed By RSL-26-516(a) ....... 19 1. CPLR § 901(b) Bars The Maintenance Of A Class Action To Recover A Statutory Penalty .................................... 19 2. RSL § 26-516(a) Imposes A Statutory Treble Damages Penalty, And Thus A Class Action May Not Be Maintained ............. 22 B. Interpreting CPLR § 901(b) To Permit The Waiver Of A Statutory Penalty To Maintain A Class Action Violates Fundamental Canons Of Statutory Interpretation ...................... 23 1. Courts Must Give Effect To The Plain Meaning Of Statutory Text ................................................. 24 2. CPLR Article 9 Does Not Contains Any Provision Authorizing A Plaintiff To Waive A Statutory Penalty To Avoid The Bar Of CPLR § 901(b) ................................... 25 C. Interpreting CPLR § 901(b) To Permit The Waiver Of A Statutory Penalty To Maintain A Class Action Also Subverts The Legislative Intent Of CPLR§ 901(b), Inviting Class Action Abuse ........ 27 1. Article 9 Is Intended Both To Incentivize Litigation Of Modest Claims While Also Safeguarding Against Class Action Abuse ......... 27 2. Allowing The Waiver Of A Statutory Penalty To Avoid The Bar Of CPLR § 901(b) Would Eviscerate A Fundamental Safeguard Against Class Action Abuse ........................ 29 II. A CLASS ACTION PLAINTIFF CANNOT WAIVE A PENALTY IMPOSED UNDER THE RENT STABILIZATION LAW ...... 33 A. By Its Express Terms, RSL § 26-516(a) Imposes A Mandatory Penalty That Cannot Be Waived ........................................ 33 iii TABLE OF CONTENTS, Continued B. The Only Circumstances In Which A Penalty Has Been Permitted To Be Waived Involve Statutes With Discretionary Penalties Distinguishable From RSL § 26-516(a) ............. 34 C. As A Matter Of Public Policy The Benefits Conferred Upon Tenants Under RSL § 26-516(a) Cannot Be Waived ..................... 37 CONCLUSION ........................................................................................................ 41 iv TABLE OF AUTHORITIES CASES PAGE(s) 390 West End Associates v. Harel, 298 A.D.2d 11, 744 N.Y.S.2d 412 (1st Dep’t 2002) ..................................... 38 31171 Owners Corp. v. New York City Department of Housing Preservation & Development, 190 A.D.2d 441, 599 N.Y.S.2d 19 (1st Dep’t 1993) ........... 9 Asher v. Abbott Laboratories, 290 A.D.2d 208, 737 N.Y.S.2d 4 (1st Dep’t 2002) ....................................... 36 Astoria Gas Turbine Power, LLC v. Tax Commission of City of N.Y., 14 A.D.3d 553, 788 N.Y.S.2d 417 (2005) ..................................................... 24 Avon Bard Co. v. Aquarian Foundation, 260 A.D.2d 207, 688 N.Y.S.2d 514 (1st Dep’t 1999) ................................... 38 Bender v. Jamaica Hospital, 40 N.Y.2d 560, 388 N.Y.S.2d 269 (1976) ..................................................... 25 Borden v. 400 E. 55th St. Associates, L.P., 105 A.D.3d 630, 964 N.Y.S.2d 115 (1st Dep’t 2013) ................................... 17 Chemical Specialties Manufacturers Association v. Jorling, 85 N.Y.2d 382, 626 N.Y.S.2d 1 (1995) ................................................... 25, 26 Cox v. Microsoft Corp., 8 A.D.3d 39, 778 N.Y.S.2d 147 (1st Dep’t 2004) ......................................... 34 Drucker v. Mauro, 30 A.D.3d 37, 814 N.Y.S.2d 43 (1st Dep’t 2006) ......................... 5, 18, 37, 30 Extell Belnord LLC v. Uppman, No. 10604, 2013 N.Y. App. Div. LEXIS 7642, 2013 N.Y. Slip Op. 07697 (1st Dep’t Nov. 19, 2013) ................................... 37 Gerard v. Clermont York Associates, LLC, 81 A.D.3d 497, 916 N.Y.S.2d 502 (1st Dep’t 2011) ............................... 14, 15 v CASES PAGE(s) Gudz v. Jemrock Realty Co., LLC, 105 A.D.3d 625, 964 N.Y.S.2d 118 (1st Dep’t 2013) ............................passim Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943, 862 N.Y.S.2d 854 (2008) ........................................... 5, 39, 40 Klein v. Ryan Beck Holdings, Inc., No. 06 Civ. 3460(WCC), 2007 U.S. Dist. LEXIS 51465 (S.D.N.Y. July 13, 2007) ............................................................................... 36 Majewski v. Broadalbin-Perth Central School District, 91 N.Y.2d 577, 673 N.Y.S.2d 966 (1998) ..................................................... 24 Mohassel v. Fenwick, 5 N.Y.3d 44, 799 N.Y.S.2d 758 (2005) ......................................................... 23 Noto v. Bedford Apts. Co., 21 A.D.3d 762, 801 N.Y.S.2d 21 (1st Dep’t 2005) ......................................... 8 Pesantez v. Boyle Environmental Services, Inc., 251 A.D.2d 11, 673 N.Y.S.2d 659 (1st Dep’t 1998) ..................................... 34 Raritan Development Corp. v. Silva, 91 N.Y.2d 98, 667 N.Y.S.2d 327 (1997) ................................................. 24, 25 Riley v. County of Broome, 95 N.Y.2d 455, 719 N.Y.S.2d 623 (2000) ..................................................... 24 Riverside Syndicate, Inc. v. Munroe, 39 A.D.3d 256, 833 N.Y.S.2d 452 (1st Dep’t 2007), aff’d, 10 N.Y.3d 18, 853 N.Y.S.2d 263 (2008) ................................................passim Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270, 890 N.Y.S.2d 388 (2009) ................................................. 9, 10 Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 698 N.Y.S.2d 615 (1999) ....................................................... 13 vi CASES PAGE(s) Smellie v. Mount Sinai Hospital, No. 03 Civ. 0805, 2004 U.S. Dist. LEXIS 24006 (S.D.N.Y. Nov. 24, 2004) .............................................................................. 35 Sperry v. Crompton Corp., 8 N.Y.3d 204, 831 N.Y.S.2d 760 (2007) ................................................passim Vallone v. Delpark Equities, Inc., 95 Misc. 2d 161, 407 N.Y.S.2d 121 (. Sup. Ct. 1978) .................................. 28 STATUTES CPLR § 901(b) ..................................................................................................passim CPLR 3211(a)(1) ...................................................................................................... 12 CPLR 3211(a)(5) ...................................................................................................... 12 CPLR 3211(a)(7) ...................................................................................................... 12 CPLR § 5602(b)(1) ................................................................................................... 6 GBL § 349 .................................................................................................... 34, 35, 36 GBL § 349(h) ..................................................................................................... 34, 35 GBL § 340 ................................................................................................................ 21 GBL § 340(5) ..................................................................................................... 21, 36 New York Labor Law § 198(1-a) ...................................................................... 35, 36 9 N.Y.C.R.R. § 2520.11(r)(5)(i) .............................................................................. 10 9 N.Y.C.R.R. § 2520.11(s)(2)(i)) ............................................................................. 10 9 N.Y.C.R.R. § 2520.13 ....................................................................................passim vii STATUTES PAGE(s) 22 N.Y.C.R.R. § 600.14(b) ........................................................................................ 6 Rent Stabilization Law § 26-516(a) ..................................................................passim Rent Stabilization Law § 26-516(a)(4) .................................................................... 31 Rent Stabilization Code, 9 N.Y.C.R.R. § 2520.13 ...........................................passim Rules of the City of N.Y. tit. 28, ch. 5 § 5-05(g)(2)(ii) ............................................. 9 McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 94 ........................................ 25 McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 240 ...................................... 25 McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 363 ...................................... 25 LEGISLATIVE HISTORY Executive Chamber Mem, Bill Jacket, L 1975, ch 207 ....................................... 4, 30 Governor’s Approval Memorandum, Bill Jacket, L 1975, ch 207 .......................... 28 Letter of Stanley Fink dated June 2, 1975, Encl. Sponsor’s Mem, Bill Jacket, L 1975, ch 207 ...................................................................................... 27 L. 1960, ch. 968 ......................................................................................................... 9 Mem in Support of The New York State Council of Churches, Feb. 11, 1975, Bill Jacket, L 1975, ch 207 ...................................................................................... 30 Mem in Opposition of Empire St Chamber of Commerce, Feb. 14, 1975, Bill Jacket, L 1975, ch 207 ............................................................................................. 30 Mem in Opposition of New York St Bankers Assoc., March 4, 1975, Bill Jacket, L 1975, ch 207 ...................................................................................... 30 Sponsor’s Mem, Bill Jacket, L 1975, ch 207 ..................................................... 29, 30 viii OTHER PAGE(s) DHCR, Policy Statement 89-2, Application of the Treble Damages Penalty (Apr. 26, 2013) ......................................................................................................... 33 Defendants-Appellants First Lenox Terrace Associates, Second Lenox Terrace Associates, Third Lenox Terrace Associates, Fourth Lenox Terrace Associates, Fifth Lenox Terrace Associates, Sixth Lenox Terrace Associates, Roc- Century Associates, LLC, the Trust u/w/o Robert S. Olnick, Robert S. Olnick and Sylvia Olnick Irrevocable Trust, The Milton Schumer Trust, LFI Marina, LLC, Meredith Lane Verona, Nancy Olnick Spanu, Ruth Feinberg and Tobette Feinberg (“Appellants”) respectfully submit this brief in support of their appeal of the Appellate Division’s Decision and Order dated April 25, 2013 (the “Order”).1 The Order reversed the Decision and Order of the Supreme Court, New York County (Ramos, J.), dated October 31, 2011 and entered November 15, 2011, dismissing the Amended Verified Class Action Complaint (the “Complaint”) of Plaintiffs-Respondents, Elise Downing, Lois Henry, Larry McMillan, Lynda Stewart, Albert Taylor, Mary White, Tez Bois, Barbara Jones, Jerilyn Mabry, Vanessa MacDonna, Risa Schneider, George Starckey and Yvonne Stone, on behalf of themselves and all others similarly situated (collectively, “Respondents”). 1 A copy of the Order is found at pages 498-510 of the Record on Appeal. Citations to the Record on Appeal are referenced herein as “R. __.” 2 PRELIMINARY STATEMENT A. Based Upon The Plain Language Of The Statute, Respondents Are Barred From Maintaining This Case As A Class Action Rent Stabilization Law § 26-516(a) mandates the imposition by the court of “a penalty equal to three times the amount of [the rent] overcharge” upon a landlord who willfully overcharges a tenant in violation of the rent regulations. The imposition of the treble damages penalty is mandatory unless the landlord “establishes by a preponderance of the evidence that the overcharge was not willful.” RSL § 26-516(a). The tenant does not need to make a claim for such treble damages nor offer any proof beyond that there was a rent overcharge, as the penalty is mandated by statute and the court is obligated to impose the penalty upon a violating landlord. In both the initial and amended complaints, Respondents sought “an award of treble damages pursuant to the Rent Stabilization Law” plus interest. (R. 61, ¶ 44-48; 83-84, ¶¶ 52-55). CPLR § 901(b) dictates that “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” CPLR § 901(b). Accordingly, except where a statute “specifically authorizes” the recovery of a penalty in a class action, actions brought pursuant to a statute imposing a penalty, such as RSL § 26-516(a), “may not be maintained as 3 a class action.” Id. Because 26-516(a) mandatorily imposes a statutory penalty, this case may not be maintained as a class action. B. Respondents’ Belated Attempt To Waive The Treble Damages Penalty Cannot Save Class Status In an attempt to save the class status of the action, in opposition to Appellants’ motion to dismiss, Respondents’ counsel submitted an affirmation stating that Respondents were willing – ostensibly on behalf of themselves and the unidentified class they purport to represent – to waive the treble damages penalty for overcharges as part of the class relief. (R. 221 at ¶ 12). But such a willingness cannot save Respondents’ claims, as CPLR § 901(b) on its face does not permit such waivers. This is particularly so where, as here, the penalty provisions of the RSL are mandatory. The Appellate Division Order – authorizing the waiver of a mandatory penalty so as to allow a party to gerrymander their way around the statutory prohibition – runs contrary to well-settled canons of statutory construction enunciated by this Court and subverts the expressed legislative intent in enacting CPLR § 901(b). The Appellate Division Order talks past the language of 901(b), which plainly bars such claims and nowhere permits a plaintiff to waive a penalty. Allowing such waivers invites the very form of class action abuse the Legislature 4 intended to prevent by enacting the statute. CPLR Article 9 was intended to provide a “controlled remedy” that incentivized the litigation of modest financial claims while at the same time shielding innocent class opponents from the potential for abuse by unscrupulous counsel. Executive Chamber Mem, Bill Jacket, L 1975, ch 207. As this Court explained in Sperry v. Crompton Corp., 8 N.Y.3d 204, 831 N.Y.S.2d 760 (2007), the penalty provision of CPLR § 901(b) was added as a fundamental protection against such abuse, as it prohibited class actions where “sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages)” already existed, thus negating the need to encourage litigation through the device of the class action. Id. at 213, 813 N.Y.S.2d at 764-75. Allowing a putative plaintiff to waive a statutory penalty so as to maintain a class action, nullifying one of the Legislature’s express and intended protections against class action abuse, is contrary to the Legislature’s intent. The Order erroneously permits a plaintiff to waive a penalty in order to maintain a class action, which is contrary to the plain language of CPLR § 901(b) and the intent of the Legislature, and should, therefore, be reversed. 5 C. Respondents’ Attempt To Waive The Treble Damages Penalty Is Barred By providing tenants the ability to waive a penalty mandated under the RSL for the sole purpose of commencing a class action, the Appellate Division Order fundamentally alters the rent regulation system and disrupts its stability in ways that are difficult to predict. This runs contrary to the long-standing public policy principle, as reflected in RSL § 26-516(a) (as well as § 2520.13 of the Rent Stabilization Code) and numerous judicial decisions over the past twenty years (including two recent decisions by this Court in Jazilek v. Abart Holdings LLC and Riverside Syndicate, Inc. v. Munroe2), to prevent such uncertainty and to further the central goal of the Rent Stabilization Law to enhance the social, economic and demographic stability of New York City. See Drucker v. Mauro, 30 A.D.3d 37, 41, 814 N.Y.S.2d 43, 46-47 (1st Dep’t 2006) (“[a]n agreement by the tenant to waive the benefit of any provision of the [Rent Stabilization Law] or this Code is void”). Recognizing that an exception for unilateral waivers of Rent Stabilization Code penalties cannot be reconciled with the principles of public policy embodied by the Rent Stabilization Law, the two dissenting justices in Gudz v. Jemrock Realty Co., LLC (one of two similar cases decided by the Appellate Division 2 Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943, 862 N.Y.S.2d 854 (2008); Riverside Syndicate, Inc. v. Munroe, 39 A.D.3d 256, 833 N.Y.S.2d 452 (1st Dep’t 2007), aff’d, 10 N.Y.3d 18, 853 N.Y.S.2d 263 (2008) 6 simultaneously with the Order and also now on appeal before this Court) point out that: Whether unilaterally or via agreement, the fact remains that plaintiff has agreed to give up the benefit of a statutory protection, i.e. the treble damages afforded by RSL § 26-516(a), on behalf of not only herself but the class – a far more profound impact than one individual purporting to agree to give up her rights via lease. * * * Since the effect of the waiver is to vitiate a provision integral to the RSL – the exaction of excessive rents by the landlord – I am compelled to conclude that it is void under 9 N.Y.C.R.R. §2520.13. Gudz, 105 A.D.3d 625, 628, 964 N.Y.S.2d 118, 121 (1st Dep’t 2013). Neither the benefits nor the burden of RSL may be waived. For this independent reason, the Order should be reversed. STATEMENT OF JURISDICTION On April 26, 2013, Respondents served Appellants with notice of entry of the Order. By notice of motion dated May 28, 2013, Appellants moved the Appellate Division, First Department, pursuant to CPLR § 5602(b)(1) and 22 N.Y.C.R.R. § 600.14(b), for leave to appeal the Order to this Court. By order dated October 22, 2013, the Appellate Division granted Appellant’s motion, and this appeal follows. (R. 497). 7 QUESTIONS PRESENTED 1. Where a statute creates and imposes a penalty, and the statute does not specifically authorize the recovery of such penalty in a class action, may a class action nonetheless be maintained? Answer: No. 2. Where the complaint in an action seeking recovery of alleged unlawful rent overcharges under the Rent Stabilization Law (“RSL”) purports to be brought as a class action under CPLR Article 9, and where RSL § 26-516(a) creates and imposes a treble damages penalty upon the violating landlord, should the complaint be dismissed pursuant to CPLR § 901(b), which prohibits class actions to recover statutory penalties? Answer: Yes. 3. Where the Rent Stabilization Code, 9 N.Y.C.R.R. § 2520.13 specifically bars any agreement by a tenant to waive the benefit of any provision of the RSL, may a putative class representative purporting to represent tenants under any circumstances waive the right to seek treble damages under RSL § 26-516(a)? Answer: No. 8 STATEMENT OF FACTS A. Lenox Terrace Lenox Terrace is comprised of six apartment buildings with 1,714 units covering six square blocks in Upper Manhattan. (R. 137, ¶ 6). After the passage of the Rent Stabilization Law of 1969, the apartments at Lenox Terrace became subject to rent stabilization. (R. 137, ¶ 7). In 1993, the Legislature enacted the Rent Regulation Reform Act of 1993 (the “Rent Reform Act”), which allowed the removal of apartments from rent regulation as they became vacant and were occupied by tenants not in economic need of protection (in what is known as “luxury” deregulation). See Noto v. Bedford Apts. Co., 21 A.D.3d 762, 765, 801 N.Y.S.2d 21, 24 (1st Dep’t 2005). Pursuant to the Rent Reform Act, the respective owners of Lenox Terrace began to deregulate apartments when permitted by law to do so. (R. 137-38, ¶ 10). Nevertheless, for a significant number of apartments, the rents charged under the leases remained below the permitted and registered maximum legal regulated rent. (This practice is often referred to as charging a “preferential rent.”). (R. 138, ¶ 11). In connection with certain improvements made at all six Lenox Terrace buildings, as of July 1, 1996, all six buildings at Lenox Terrace began receiving J- 9 51 tax abatements. (R. 139, ¶ 17).3 Because the apartments at Lenox Terrace were not regulated “solely by virtue of” the receipt of J-51 benefits, in reliance on the Division of Housing and Community Renewal’s (“DHCR”) directives, the owners of Lenox Terrace deregulated apartments when the criteria to do so under the Rent Reform Act were satisfied. (R. 140, ¶ 20).4 Furthermore, in accordance with the rules of the New York City Department of Housing Preservation and Development (the “HPD”), as apartments were deregulated, J-51 abatements were proportionally reduced so that the owners did not receive benefits for deregulated apartments. (R. 140, ¶ 22). Rules of the City of N.Y. tit. 28, ch. 5 § 5-05(g)(2)(ii). B. Roberts On October 22, 2009, this Court held that the Rent Reform Act’s prohibition on luxury deregulation of apartments that “became or become subject to [rent stabilization] by virtue of receiving [J-51] benefits” included buildings, such as Lenox Terrace, that had been subject to rent stabilization before receiving J-51 benefits. Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270, 286, 890 3 Pursuant to its J-51 program, the City rewards residential major capital improvement, moderate rehabilitation and conversion projects with real property tax exemption and abatement benefits. L. 1960, ch. 968; 31171 Owners Corp. v. New York City Dep’t of Hous. Preservation & Dev., 190 A.D.2d 441, 443, 599 N.Y.S.2d 19, 21 (1st Dep’t 1993). 4 Currently, only 25 West 132nd Street (i.e., Third Lenox) and 45 West 132nd Street (i.e., Sixth Lenox) still receive J-51 benefits. (R. 139, ¶ 18). The other four buildings ceased being eligible for and receiving J-51 benefits on June 30, 2008, the end date for the 2007/2008 tax year. (R. 139, ¶ 19; 150-57). Thus, the allegation at paragraph 21 of the Complaint that all six buildings are receiving and are eligible for J-51 benefits is inaccurate. (R. 77, ¶ 21). 10 N.Y.S.2d 388, 394 (2009). In so holding, this Court determined that owners of rental apartments receiving J-51 tax exemptions and abatements from New York City may not remove those apartments from rent regulation, even if the apartments were initially regulated for reasons other than receipt of such benefits. Id. Responding to an argument that its decision, which marked a departure from then-current practice as set forth in the DHCR’s administrative regulations (see 9 N.Y. Comp. Codes R. & Regs. (“N.Y.C.R.R.”) §§ 2520.11(r)(5)(i) and (s)(2)(i)), would have significant adverse financial consequences, this Court suggested that such consequences presaged to flow from its decision might be ameliorated by the subsequent determination of issues it specifically declined to address: Defendants predict dire financial consequences from our ruling, for themselves and the New York City real estate industry generally. These predictions may not come true; they depend, among other things, on issues yet to be decided, including retroactivity, class certification, the statute of limitations, and other defenses that may be applicable to particular tenants. Roberts, 13 N.Y.3d at 287, 890 N.Y.S.2d at 395 (emphasis added). Thus, while Roberts established a basic legal principle that an apartment in a rental building receiving J-51 benefits is ineligible for luxury deregulation, this Court left open for decision the very matter at issue on this appeal: whether claims such as those asserted here could be brought as a class action under CPLR Article 9. Id. 11 C. Commencement of the Action Within three months after the Roberts decision, on January 19, 2010, Respondents filed a Verified Complaint (R. 48-70) and filed an “Amended Verified Class Action Complaint” (which is referred to herein as the “Complaint”) on February 17, 2010. (R. 71-92). Respondents purported to sue on behalf of a sweeping class of past, present and future tenants of Lenox Terrace, and in both verified complaints sought, among other things, the treble damages penalty award imposed by RSL § 26-516(a). (R. 61, ¶ 44-48; 83-84, ¶¶ 52-55). In the First Cause of Action, Respondents incorrectly allege that all of the units at Lenox Terrace, “were and continue to be subject to the provisions of the Rent Stabilization Law,”5 that Appellants have “deregulated apartments, treated Respondents as unregulated market tenants and failed to offer Respondents rent- stabilized leases or renewal leases or to register their apartments with DHCR,” and that such conduct puts Respondents and the putative class members in jeopardy of being evicted at the expiration of their leases. (R. 82-83, ¶¶ 48-50). Despite the fact that the First Cause of Action states alleged “facts” but no claim, in their prayer for relief, Respondents demanded sweeping judgments declaring, inter alia: (a) that all Lenox Terrace apartments are subject to rent stabilization and that Appellants must offer Respondents rent-stabilized renewal 5 As the Record on Appeal reflects, four of the six buildings ceased receiving J-51 benefits in 2008. (R. 55, ¶ 14, R. 139-40, ¶¶ 18-19). 12 leases; (b) that any deregulation orders previously issued by DHCR with respect to tenancy at Lenox Terrace are null and void; (c) that Appellants are permanently enjoined from deregulating any Lenox Terrace apartments; and (d) that Appellants be ordered to re-regulate all Lenox Terrace apartments. (R. 82-85).6 For their Second Cause of Action, Respondents allege that Appellants overcharged them and the putative class members “in an amount equal to the difference between their monthly rents and security deposits and other charges and the appropriate regulated rent stabilized rents for their apartments,” and seek “an award of treble damages pursuant to the Rent Stabilization Law” plus interest (R. 83-84, ¶¶ 52-55). By their Third Cause of Action, Respondents seek attorneys’ fees, costs and disbursements pursuant to, among other statutes, the RSL. (R. 84-85, ¶ 56). D. Appellants’ Motion to Dismiss the Complaint Appellants sought dismissal of the Complaint pursuant to CPLR 3211(a)(1), (a)(5) and (a)(7), on the ground, among others, that this case cannot be maintained as a class action. Specifically, Appellants argued that, by reason of the treble damages penalty under RSL § 26-516(a), Respondents are precluded under the express terms of 6 The prayer for relief is breathtaking in its overbreadth and lack of legal justification. It purports to seek a result that is undifferentiated as to buildings, tenants and apartments, without regard to any individual circumstances, and it even seeks to dictate that no apartments can ever be deregulated in the future, regardless of whether any of the buildings continue to receive J-51 benefits (and only two buildings have received such benefits since 2008). 13 CPLR § 901(b) from maintaining this case as a class action. In opposition to the motion to dismiss, Respondents’ attorneys submitted an affirmation stating that Respondents’ “claims are not barred by CPLR § 901(b) because [Respondents] are willing [ostensibly on behalf of themselves and the unidentified class they purported to represent] to forgo penalties for overcharges as part of the class relief.” (R. 221, ¶ 12). Such a willingness cannot save Respondents’ claims. The penalty provisions of the RSL are mandatory, are imposed irrespective of whether a plaintiff seeks a penalty and may not be waived to end-run the prohibition of CPLR § 901(b).7 Furthermore, Appellants argued that because application of the rule announced in Roberts requires individual factual and legal determinations on a tenant-by-tenant, apartment-by-apartment and building-by-building basis, even merely addressing the circumstances of the named Respondents alone, their own individual issues overwhelmingly predominate over any issue of law or fact common to the putative class. In fact, there is only one common question of law 7 In any event, it is doubtful that putative class counsel could continue to adequately represent a class for whom, to try to maintain a class action, they would jettison treble damage claims. It is equally doubtful that Respondents could be suitable class representatives if they purported to waive, on behalf of the class they propose to represent, their right to treble damages. See Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 54, 698 N.Y.S.2d 615, 619 (1999) (affirming appellate division finding that plaintiffs were not adequate class representatives where they limited their theory of recovery in “significant ways” and limited their claim for damages “in order to shape a legally de minimis theory of the case”); Gudz v. Jemrock Realty Co., LLC, 105 A.D.3d 625, 964 N.Y.S.2d 118 (1st Dep’t 2013) (collecting cases). 14 (and none of fact): the rule in Roberts.8 Indeed, for every tenant (past and present) and for every apartment (as well as for each of the six buildings), not merely for the named plaintiffs (i.e., Respondents), there will need to be particularized discovery and separate trials addressing such personal variables as: when the individual tenant’s apartment was deregulated; the last legal rent charged; the appropriate base date for calculating an overcharge, if any; for each apartment, the “legal” rent during the years in which deregulation is alleged to have been improper; the permissible rent increases during those years; and any possible defenses to a given tenant’s claim. Moreover, these individual factual issues are further multiplied because four of the six buildings at issue have not received J-51 benefits since June 2008. (R. 139-140, ¶ 19; R. 220, ¶ 10). E. The I.A.S. Court Order Dismissing The Complaint The I.A.S. Court initially denied Appellants’ motion without prejudice and stayed the action for a period not to exceed six months or until decisions from the Appellate Division were issued in three then-pending Roberts-related appeals. (R. 100-01). After the Appellate Division decided the only one of those appeals that potentially could have (but did not) address the class action question, Gerard v. 8 Appellants recognize that the parties have yet to reach the class certification stage of the case. 15 Clermont York Assocs., LLC, 81 A.D.3d 497, 916 N.Y.S.2d 502 (1st Dep’t 2011), Appellants renewed their motion. Following extensive briefing and oral argument, during which the I.A.S. Court closely examined legal authority presented by both sides, the court ruled on and granted Appellants’ motion on the ground that CPLR § 901(b) barred Respondents’ putative class action owing to the fact that the RSL imposed a mandatory penalty; so-ordered the transcript of the oral argument; and entered a short-form order dismissing the Complaint. (R. 6, 14-42). F. The Appellate Division Order Reversing The I.A.S. Court In reversing the I.A.S. Court, the Appellate Division held that a putative class representative may waive a statutorily imposed penalty in order to maintain a class action, holding that: [E]ven where a statute creates or imposes a penalty, the restriction of CPLR 901(b) is inapplicable where the class representative seeks to recover only actual damages and waives the penalty on behalf of the class, and individual class members are allowed to opt out of the class to pursue their punitive damages claims. (R. 500-01) (citations omitted). Disinterested in the considered policy underlying the mandatory penalty imposed by RSL § 26-516(a), and overlooking the fact that class actions to recover penalties are barred under CPLR § 901(b), the Appellate Division held that: [U]nder General Business Law § 340(5), treble damages are awarded upon a finding of liability; the statute does not require a finding of 16 willfulness or bad faith. In contrast, Rent Stabilization Law § 26- 516(a) only requires treble damages where the landlord cannot demonstrate that it did not act willfully, and is analogous to Labor Law 198(1-a), under which plaintiffs have been allowed to waive their right to liquidated damages to preserve the right to maintain a class action, provided that putative class members are given the opportunity to opt out of the class in order to pursue their own liquidated damages claims. (R. 501-02) (citations omitted). The Appellate Division also departed from recent precedent from both this Court and the Appellate Division holding that the Rent Stabilization Code (9 N.Y.C.R.R. § 2520.13) prohibits waivers of the protections of the RSL even where such waivers benefit the tenant, announcing a new rule exempting “unilateral” waivers of statutory protections under the Rent Stabilization Code from the public policy-based prohibition codified in § 2520.13: Rent Stabilization Code (9 N.Y.C.R.R. § 2520.13), which states that “[a]n agreement by the tenant to waive the benefit of any provision of the RSL or this Code is void,” does not require a different result. “[P]laintiffs are seeking to waive their entitlement to treble damages unilaterally, not through agreement. Thus, allowing the class action to proceed would not frustrate the RSC’s purpose of [avoiding] situations whereby the landlord attempts to circumvent the [RSC’s] benefits.” (R. 502) (citations omitted). 17 G. The Related Appellate Division Decisions Two cases presenting similar questions, Gudz v. Jemrock Realty Co., LLC and Borden v. 400 E. 55th St. Assocs., L.P., were decided by the Appellate Division simultaneously with the Order.9 While the majority in both cases agreed with the Order, the two dissenting justices in Gudz presented arguments that apply with equal force to the Order here. First, the dissent in Gudz recognized that “the majority both rewrites the RSL to provide for a discretionary rather than a mandatory penalty, and circumvents the clear purpose of CPLR § 901(b), which is to prohibit the maintenance of a class action for a penalty.” 105 A.D.3d at 629, 964 N.Y.S.2d at 122. The dissent in Gudz further reasoned that any attempted waiver of a penalty by a tenant in order to maintain a class action under CPLR § 901(b) was void as a matter of public policy underlying the rent regulatory scheme, stating: Plaintiff’s waiver of treble damages is moreover void under Rent Stabilization Code (9 N.Y.C.R.R.) § 2520.13, which provides that “[a]n agreement by the tenant to waive the benefit of any provision of the RSL or this Code is void.” * * * 9 See Gudz v. Jemrock Realty Co., LLC, 105 A.D.3d 625, 964 N.Y.S.2d 118 (1st Dep’t 2013) (“Gudz”); Borden v. 400 E. 55th St. Assocs., L.P., 105 A.D.3d 630, 964 N.Y.S.2d 115 (1st Dep’t 2013) (“Borden”). Motions for leave to appeal to this Court in those cases were granted on the same day as the motion granting leave to appeal in this case. 18 We have previously held that an agreement “which waives the benefit of a statutory protection is unenforceable as a matter of public policy even if it benefits the tenant.” Id. at 627-28, 964 N.Y.S.2d at 121 (citing Drucker v. Mauro, 30 A.D.3d 37, 38, 814 N.Y.S.2d 43, 48 (1st Dep’t 2006) (emphasis in original). Recognizing that an exception for unilateral waivers would eviscerate the well-founded prohibition against waiving benefits of the rent regulations, the dissent in Gudz points out that: Whether unilaterally or via agreement, the fact remains that plaintiff has agreed to give up the benefit of a statutory protection, i.e. the treble damages afforded by RSL § 26-516(a), on behalf of not only herself but the class – a far more profound impact than one individual purporting to agree to give up her rights via lease. * * * Since the effect of the waiver is to vitiate a provision integral to the RSL – the exaction of excessive rents by the landlord – I am compelled to conclude that it is void under 9 N.Y.C.R.R. §2520.13. Id. at 628, 964 N.Y.S.2d at 121. ARGUMENT The I.A.S. Court properly dismissed the Complaint on the ground that this is an action to recover a statutory penalty, which is expressly barred by CPLR § 901(b). Consistent with this Court’s recent explanation of the purpose for this bar, see Sperry v. Crompton Corp., 8 N.Y.3d 204, 831 N.Y.S.2d 760 (2007), the I.A.S. Court correctly rejected the notion that the class action could be saved if 19 Respondents “waived” for themselves and for absent class members the statutory penalty of treble damages, because the penalty is statutorily mandated and thus not subject to waiver. The Order, by contrast, effectively held that Respondents could waive the treble damages penalty imposed by the RSL in order to evade the express proscriptions of both the CPLR and the RSL. This holding conflicts with the plain language of CPLR § 901(b) and RSL § 26-516(a), as well as long-standing principles of law and public policy in this State, and should be reversed. I. CPLR § 901(b) BARS CLASS ACTIONS TO RECOVER THE STATUTORY PENALTIES IMPOSED BY RSL § 26-516(a) A. The Plain Language Of CPLR § 901(b) Bars Actions To Recover The Treble Damages Penalty Imposed By RSL-26-516(a) 1. CPLR § 901(b) Bars The Maintenance Of A Class Action To Recover A Statutory Penalty Rent Stabilization Law § 26-516(a) mandates the imposition by the court of “a penalty equal to three times the amount of [the rent] overcharge” upon a landlord who willfully overcharges a tenant in violation of the rent regulations. RSL § 25-516(a). The imposition of the treble damages penalty is mandatory unless the landlord “establishes by a preponderance of the evidence that the overcharge was not willful.” Id. The tenant does not need to make a claim for treble damages or offer any proof beyond that there was a rent overcharge, as the 20 penalty is mandated by the statute and the court is obligated to impose it upon a violating landlord. Id. CPLR § 901(b) dictates that “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” CPLR § 901(b). Accordingly, except where a statute “specifically authorizes” the recovery of a penalty in a class action, actions pursuant to a statute imposing a penalty, such as RSL § 26-516(a), “may not be maintained as a class action.” Id. Describing the purpose of this bar, this Court has explained that: It is evident that by including the penalty exception in CPLR 901(b), the Legislature declined to make class actions available where individual plaintiffs were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages) unless a statute expressly authorized the option of class action status. This makes sense, given that class actions are designed in large part to incentivize plaintiffs to sue when the economic benefit would otherwise be too small, particularly when taking into account the court costs and attorneys’ fees typically incurred. Sperry, 8 N.Y.3d at 213, 831 N.Y.S.2d at 765 (emphasis added). To determine whether a statute provides for a “penalty” such that it falls within the prohibition of CPLR § 901(b), in Sperry this Court, after examining various rules it had articulated in other contexts regarding the identification of penalties, identified the following factors: (1) whether the statute expressly 21 denominates an enhanced damages provision to be compensatory in nature; (2) alternatively, whether the statute uses the word penalty to refer to something imposed in a punitive way for an infraction of a public law and does not include liability created for the purpose of redressing a private injury; and (3) the context of the provision. 8 N.Y.3d at 213, 831 N.Y.S.2d at 764. Reviewing the legislative history for the context of CPLR § 901(b), this Court first concluded that the “term ‘penalty,’ as used for purposes of the class action scheme, has broader application than [when used] for statute of limitations purposes.” Id. at 213, 831 N.Y.S.2d at 765. This Court then noted that neither the language of the statute at issue in Sperry – New York’s antitrust statute (General Business Law § 340 et seq.), commonly known as the Donnelly Act – nor its legislative history “clearly indicate a compensatory purpose.” Id. at 214, 831 N.Y.S.2d at 765.10 “Read[ing] together” the statutory language and its legislative history, this Court held that: Donnelly Act threefold damages should be regarded as a penalty insofar as class actions are concerned. Although one third of the award unquestionably compensates a plaintiff for actual damages, the remainder necessarily punishes antitrust violations, deters such behavior (the traditional purposes of penalties) or encourages plaintiffs to commence litigation—or some combination of the three. But we need not break down the remaining damages into specific categories for purposes of determining whether it is a penalty under 10 GBL § 340(5) states, in pertinent part: “any person who shall sustain damages by reason of any violation of this section, shall recover three-fold the actual damages sustained thereby....” GBL § 340(5). 22 CPLR 901(b). Where a statute is already designed to foster litigation through an enhanced award, CPLR 901(b) acts to restrict recoveries in class actions absent statutory authorization. Id. 2. RSL § 26-516(a) Imposes A Statutory Treble Damages Penalty, And Thus A Class Action May Not Be Maintained For these same reasons, the treble damages penalty imposed by RSL 26- 516(a) “should be regarded as a penalty so far as class actions are concerned” and maintenance of a class action prohibited. Id. Initially, as Justice Manzanet- Daniels correctly noted in the dissent in Gudz, the language of RSL § 26-516(a) explicitly classifies the statutory remedy of “three times the amount of such overcharge” as a “penalty,” providing that a landlord found to have overcharged a rent-stabilized tenant: shall be liable to the tenant for a penalty equal to three times the amount of such overcharge. In no event shall such treble damage penalty be assessed against an owner based solely on said owner’s failure to file a timely or proper initial or annual rent registration statement. If the owner establishes by a preponderance of the evidence that the overcharge was not willful, the state division of housing and community renewal shall establish the penalty as the amount of the overcharge plus interest. RSL § 26-516(a) (emphases added); Gudz, 105 A.D.3d at 627, 964 N.Y.S.2d at 120. Further, like the Donnelly Act, neither the language of RSL § 26-516(a) nor its legislative history “clearly indicate a compensatory purpose.” Sperry, 8 N.Y.3d 23 at 214, 831 N.Y.S.2d at 765. To the contrary, by awarding a “treble damage penalty,” two-thirds of the award “necessarily punishes [statutory] violations, deters such behavior (the traditional purposes of penalties) or encourages plaintiffs to commence litigation—or some combination of the three.” Id.; see also Mohassel v. Fenwick, 5 N.Y.3d 44, 50, 799 N.Y.S.2d 758, 761 (2005) (finding that RSL 25-516(a) is “designed to discourage violations of the Rent Stabilization Law”). As correctly reasoned by the dissent in Gudz, RSL 26-516(a)’s treble damages award “clearly constitutes a ‘penalty’” and a class action to recover such penalties is barred by CPLR § 901(b). 105 A.D.3d at 626-627, 964 N.Y.S.2d at 120. Accordingly, the Order should be reversed and the Complaint dismissed. B. Interpreting CPLR § 901(b) To Permit The Waiver Of A Statutory Penalty To Maintain A Class Action Violates Fundamental Canons Of Statutory Interpretation In both their initial and amended complaints, Respondents sought “an award of treble damages pursuant to the Rent Stabilization Law” plus interest. (R. 83-84, ¶¶ 52-55). Only after Appellants moved to dismiss pursuant to CPLR § 901(b) did Respondents’ attorney submit an affirmation stating that Respondents “claims are not barred by CPLR § 901(b) because [Respondents] are willing [ostensibly on behalf of themselves and the unidentified class they purported to represent] to forgo penalties for overcharges as part of the class relief.” (R. 221, ¶ 12). The 24 Appellate Division violated well-settled canons of statutory construction enunciated by the Court in allowing such a waiver to avoid the legislative constraints mandated by CPLR § 901(b). 1. Courts Must Give Effect To The Plain Meaning Of Statutory Text In interpreting a statute, this Court has repeatedly stated that “[i]t is fundamental that a court . . . should attempt to effectuate the intent of the Legislature,” and has also “correspondingly and consistently emphasized that where the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used.” Raritan Dev. Corp. v. Silva, 91 N.Y.2d 98, 106-07, 667 N.Y.S.2d 327, 331 (1997) (citation, quotations and emphasis omitted); see also Majewski v. Broadalbin-Perth Cent. School Dist., 91 N.Y.2d 577, 583, 673 N.Y.S.2d 966, 968 (1998) (“As the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself, giving effect to the plain meaning thereof.”); Riley v. County of Broome, 95 N.Y.2d 455, 463, 719 N.Y.S.2d 623, 627 (2000) (same); Astoria Gas Turbine Power, LLC v. Tax Comm’n of City of N.Y., 14 A.D.3d 553, 557, 788 N.Y.S.2d 417, 421 (2005) (same). As this Court has repeatedly instructed: New language cannot be imported into a statute to give it a meaning not otherwise found therein… [A] court cannot amend a statute by inserting words that are not there, nor will a court read into a statute a 25 provision which the Legislature did not see fit to enact. Also, an inference must be drawn that what is omitted or not included was intended to be omitted and excluded. Chemical Specialties Mfrs. Ass’n v. Jorling, 85 N.Y.2d 382, 394, 626 N.Y.S.2d 1, (1995) (internal citations & quotations omitted) (quoting McKinney’s Cons. Laws of N.Y., Book 1, Statutes § 94, at 190, § 240, at 412, § 363, at 525); see also Raritan Dev. Corp., 91 N.Y.2d at 107, 667 N.Y.S.2d at 331 (“[A]bsent ambiguity the courts may not resort to rules of construction . . . because no rule of construction gives the court discretion to declare the intent of the law when the words are unequivocal.”) (emphasis in original) (quoting Bender v. Jamaica Hosp., 40 N.Y.2d 560, 562, 388 N.Y.S.2d 269, 270 (1976)). “[C]ourts are not free to legislate and if any unsought consequences result, the Legislature is best suited to evaluate and resolve them.” Id. (quoting Bender, 40 N.Y.2d at 562, 388 N.Y.S.2d at 270). 2. CPLR Article 9 Does Not Contain Any Provision Authorizing A Plaintiff To Waive A Statutory Penalty To Avoid The Bar Of CPLR § 901(b) By permitting Respondents to waive the treble damages penalty imposed by the RSL in order to evade the express proscriptions of both the CPLR and the RSL, the Order clashes with these fundamental canons of statutory construction. CPLR § 901(b) dictates that “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery 26 thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” CPLR § 901(b). Accordingly, except where a statute “specifically authorizes” the recovery of a penalty in a class action, actions pursuant to a statute imposing a penalty, such as RSL 26-516(a), “may not be maintained as a class action.” Id. No provision in 901(b) (or elsewhere in Article 9) authorizes a plaintiff to “waive” a statutorily-imposed penalty to maintain a class action, and to read such a right into the statute (as did the Appellate Division) violates the well-settled canon of statutory construction that a court not “read into a statute a provision which the Legislature did not see fit to enact.” Jorling, 85 N.Y.2d at 394, 626 N.Y.S.2d at 7 (citation & quotations omitted). Indeed, where, as here, no such right is afforded, “an inference must be drawn that what is omitted or not included was intended to be omitted and excluded.” Id. (citation & quotations omitted). This is particularly appropriate here, given that, as the dissent in Gudz points out that, “[s]ince the enactment of RSL 26-516(a) postdates that of CPLR 901(b), we must assume that the Legislature was aware that by denominating the treble damages award a ‘penalty’ it was foreclosing the maintenance of a class action suit.” Gudz, 105 A.D.3d at 627, 964 N.Y.S.2d at 120. 27 Accordingly, the Appellate Division erred by reading into CPLR § 901(b) a right to waive a statutory penalty to maintain a class action, and the Order should be reversed. C. Interpreting CPLR 901(b) To Permit The Waiver Of A Statutory Penalty To Maintain A Class Action Also Subverts The Legislative Intent Of CPLR 901(b), Inviting Class Action Abuse Permitting a putative class action plaintiff to waive a statutory penalty to end-run the bar of CPLR § 901(b) also clashes with the Legislature’s intent in enacting that subprovision. 1. Article 9 Is Intended Both To Incentivize Litigation Of Modest Claims While Also Safeguarding Against Class Action Abuse CPLR Article 9 was enacted in 1975 to “enable persons similarly aggrieved to enforce existing substantive rights, which presently go without redress solely because of the financial impracticability of financing individual suits.” Letter of Assemblyman Stanley Fink dated June 2, 1975, Encl. Sponsor’s Mem, Bill Jacket, L 1975, ch 207. As this Court recently explained, Article 9 replaced “CPLR 1005, the former class action statute . . . which remained largely unchanged through its various incarnations dating back to the Field Code of Procedure (see L 1849, ch 438, § 119), had been judicially restricted over the years and was subject to inconsistent results.” Sperry, 8 N.Y.3d at 210, 831 N.Y.S.2d at 762. The new Article 9 was intended to serve two primary functions: provide access to the courts for plaintiffs holding modest financial claims while at the same 28 time shielding innocent class opponents from the potential for class action abuse. As then-Governor Carey noted when approving the new law: While this bill adds a major weapon to the consumer protection arsenal, it also provides legitimate enterprises with a shield against its abuse. The bill promulgates detailed guidelines and prerequisites to the maintenance of a class action suit. . . . In short, it empowers the court to prevent abuse of the class action device and provides a controlled remedy which respects the rights of the class as well as its opponent. Governor’s Approval Memorandum, Bill Jacket, L 1975, ch 207. See also Vallone v. Delpark Equities, Inc., 95 Misc. 2d 161, 164, 407 N.Y.S.2d 121, 124 (Sup. Ct. 1978) (stating, shortly after the passage of Article 9, that procedural safeguards were included in Article 9 because “it was recognized that the class action device was a potent weapon, of great coercive power and subject to gross potential abuse including the stirring up of unwarranted litigation and efforts designed purely for client solicitation”) (citations omitted). To achieve this dual purpose, Article 9 first vested discretion with the courts to determine the eligibility of a proposed class. As Assemblyman Stanley Fink, the bill’s sponsor, explained: The basic feature of the proposed bill is its departure from the restrictive notion, conceived under the Field Code, that . . . the class members must be in ‘privity’ … For more than 120 years the requirement of privity has produced unpredictable and erratic results under which ‘class actions were not permitted where they should have been and were allowed where they should not have been.’ 2 Weinstein, Korn, Miller, New York Practice, 1005.02. . . . In place of the amorphous privity concept, the proposed bill would substitute 29 pragmatic criteria [of numerosity, predominance, typicality, adequacy of representation and superiority]. Sponsor’s Mem, Bill Jacket, L 1975, ch 207. Thus, in place of the privity requirement, under Article 9 courts were to serve a “gatekeeping” role of determining – by evaluation of all five mandatory prerequisites for class action treatment – whether a proposed class action could be maintained.11 Id. Second, in further recognition of “the need for a flexible, but controlled remedy which respects the rights of the class as well as its opponent,” id. (emphasis added), the Legislature also included new subdivision CPLR § 901(b), which reads: “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” CPLR § 901(b). 2. Allowing The Waiver Of A Statutory Penalty To Avoid The Bar Of CPLR 901(b) Would Eviscerate A Fundamental Safeguard Against Class Action Abuse As this Court noted in Sperry, § 901(b) was added in response to concerns that class action “recoveries beyond actual damages could lead to excessively harsh results, particularly where large numbers of plaintiffs were involved.” 8 N.Y.3d at 211, 831 N.Y.S.2d at 763. Because, as Assemblyman Fink and this 11 Notably, efficiency is only one of the five criteria that must be satisfied before class action status may be granted. Sponsor’s Mem, Bill Jacket, L 1975, ch 207; CPLR 901(a). 30 Court explained, “[t]hese penalties or ‘minimum damages’ are provided as a means of encouraging suits where the amounts involved might otherwise be too small,” Sponsor’s Mem, Bill Jacket, L 1975, ch 207, “there was no need to permit class actions in order to encourage litigation by aggregating damages when statutory penalties and minimum measures of recovery provided an aggrieved party with a sufficient economic incentive to pursue a claim.” Sperry, 8 N.Y.3d at 211, 831 N.Y.S.2d at 763.12 To permit the waiver of a statutory penalty such as that imposed by RSL § 26-516(a) for the sole purpose of maintaining a class action would fundamentally undermine the intent of Article 9 and invite abuse of the intentionally limited class action statute. As its legislative history reflects, both proponents and opponents of Article 9 were concerned that its enactment not open the door to class action abuse by attorneys seeking pecuniary gain. See, e.g., Executive Chamber Mem, Bill Jacket, L 1975, ch 207; Mem in Support of The New York State Council of Churches, Feb. 11, 1975, Bill Jacket, L 1975, ch 207; and Mem in Opposition of Empire St Chamber of Commerce, Feb. 14, 1975, Bill Jacket, L 1975, ch 207; Mem in Opposition of New York St Bankers Assoc., March 4, 1975, Bill Jacket, L 1975, ch 207. 12 While Article 9 is largely derived from Rule 23 of the Federal Rules of Civil Procedure (Sponsor’s Mem, Bill Jacket, L 1975, ch 207), the Legislature independently added CPLR § 901(b) to address these concerns. 31 As explained above, the Legislature addressed these concerns by establishing criteria governing whether a proposed class action could be maintained, as well as by barring class actions “where individual plaintiffs [already] were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages).” Sperry, 8 N.Y.3d at 213, 831 N.Y.S.2d at 764-65. Allowing a putative plaintiff to waive a statutory penalty to maintain a class action, thus evading one of the Legislature’s intended protections against class action abuse, will benefit enterprising counsel at the expense of both the class members and their opponents. The Rent Stabilization Law illustrates the danger in permitting such conduct. The Rent Stabilization Law mandates the imposition by the court of “a penalty equal to three times the amount of [the rent] overcharge” upon a landlord who overcharges a tenant in violation of the rent regulations. RSL § 26-516(a). The tenant is also entitled to recover interest and his or her “reasonable attorneys’ fees and costs” incurred prosecuting the rent overcharge claim. RSL § 26-516(a)(4). Thus, the Rent Stabilization Law entitles a tenant that has been overcharged to recover: (i) three times the amount of the rent overcharge; (ii) interest; and (iii) the reasonable attorneys’ fees and costs incurred by the tenant in prosecuting the rent overcharge action. RSL § 26-516(a). If the landlord is able to show by a preponderance of the evidence that the overcharge was not willful, then it may 32 reduce its liability to the amount of the overcharge, plus interest and reasonable attorneys’ fees and costs. Id. Thus, the presumption is in favor of treble damages. By contrast, if the tenant waives her right to recover the treble damages penalty in order to maintain a class action, her optimal recovery is the amount of the rent overcharge, plus interest and reasonable attorneys’ fees. And to obtain this lesser recovery, the tenant seeking to be a class action plaintiff will be required to comply with certification and other procedural requirements of Article 9, rather than proceed expeditiously in landlord-tenant court. In other words, a tenant waiving her right to treble damages to maintain a class action cannot benefit financially or otherwise as a result of having done so. Rather, the only beneficiary would be the class action counsel seeking to pool together groups of tenants for his own pecuniary gain. Permitting such predatory conduct undermines the Legislature’s intent in enacting Article 901, and should not be permitted. Gudz, 105 A.D.3d at 627, 964 N.Y.S.2d at 121 (“to permit such a waiver would be to circumvent the clear intent of CPLR 901(b), which is to preclude the maintenance of a class action suit seeking a penalty”). Accordingly, for the foregoing reasons the Order should be reversed and the Complaint dismissed with prejudice. 33 II. A CLASS ACTION PLAINTIFF CANNOT WAIVE A PENALTY IMPOSED UNDER THE RENT STABILIZATION LAW A. By Its Express Terms, RSL § 26-516(a) Imposes A Mandatory Penalty That Cannot Be Waived RSL § 26-516(a) imposes a mandatory penalty upon a landlord found to have overcharged a rent-stabilized tenant, stating that the landlord “shall be liable to the tenant for a penalty equal to three times the amount of such overcharge.” RSL § 26-516(a) (emphases added). The penalty is subject to imposition without regard to whether the tenant seeks it, and the tenant is not required to meet any burden beyond establishing an overcharge to obtain the punitive remedy. Id. In short, a tenant pursuing a claim under § 26-516(a) is entitled to a punitive treble damages remedy, which the tenant takes automatically without any election or other action. Id. Only where the landlord is able to overcome the presumption of willfulness can the “penalty” imposed be reduced from treble damages to the amount of the overcharge plus interest and attorneys’ fees. Id.; see also DHCR, Policy Statement 89-2, Application of the Treble Damages Penalty (Apr. 26, 2013) (“The statute [RSL 26-516(a)], in fact, creates a presumption of willfulness subject to rebuttal by the owner showing non-willfulness of the overcharge by a preponderance of the evidence. In the absence of such affirmative proof by the owner or after the submission of inadequate proof, DHCR staff shall assess treble damages where a determination of overcharge is made.”) (emphasis added). 34 Accordingly, it follows that because, by legislative direction, a tenant has no ability to determine under RSL § 26-516(a) whether he or she receives treble damages, he or she has no ability to waive the treble damages penalty to evade the bar of CPLR § 901(b). Thus, as the dissent in Gudz correctly noted, “[i]n allowing ‘waiver,’ the [Order] both rewrites the RSL to provide for a discretionary rather than a mandatory penalty, and circumvents the clear purpose of CPLR 901(b), which is to prohibit the maintenance of a class action for a penalty.” Gudz, 105 A.D.3d at 629, 964 N.Y.S.2d at 122. B. The Only Circumstances In Which A Penalty Has Been Permitted To Be Waived Involve Statutes With Discretionary Penalties Distinguishable From RSL § 26-516(a) Although in certain circumstances the Appellate Division has permitted putative class action plaintiffs to waive statutory penalties in order to maintain a class action, it has done so only where the statute contains language permitting the plaintiff to affirmatively seek and/or show entitlement to a penalty. See, e.g., Cox v. Microsoft Corp., 8 A.D.3d 39, 778 N.Y.S.2d 147 (1st Dep’t 2004) (penalty which “may” be sought by a plaintiff under General Business Law (“GBL”) § 349 is waivable) and Pesantez v. Boyle Envtl. Servs., Inc., 251 A.D.2d 11, 673 N.Y.S.2d 659 (1st Dep’t 1998) (penalty “allowable” under Labor Law § 198(1-a) is not mandatory). RSL § 26-516(a) bears no resemblance to GBL § 349(h) or Labor Law § 35 198(1-a). Whereas RSL § 26-516(a) dictates that an overcharging landlord “shall be liable” for the specified penalties, GBL § 349 provides that an aggrieved party “may bring in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or [a penalty of] fifty dollars… or both…” GBL § 349(h) (emphases added). The statute continues that a “court may, in its discretion…” award a penalty and increase the award to an amount not to exceed three times the actual damages. Id. Thus, the penalty under GBL § 349(h) demonstrably is not mandatory. Likewise, the penalty provision of New York Labor Law § 198(1-a) is also fundamentally different from that in RSL § 26-516(a). Section 198(1-a) provides that a court “shall allow” a plaintiff to recover a liquidated damages penalty. N.Y. Labor Law § 198(1-a) (emphasis added). It follows that a court cannot be called upon to “allow” a claim for a penalty unless a plaintiff actively seeks one, and thus courts have held that, if a plaintiff does not desire or seek a penalty in connection with a Labor Law § 198(1-a) claim, there is no basis for allowing one (whether in a class action or otherwise). See, e.g., Smellie v. Mount Sinai Hosp., No. 03 Civ. 0805, 2004 U.S. Dist. LEXIS 24006, at **15-16 & n.12 (S.D.N.Y. Nov. 24, 2004). As a penalty under Labor Law § 198(1-a) is only available if it is affirmatively sought by a plaintiff, it is no way analogous to the mandatory penalty requirement of RSL § 26-516(a). 36 The permissive penalties available under GBL § 349 and Labor Law § 198-1 stand in stark contrast to the Donnelly Act’s (GBL § 340(5)) penalty provision, which like the penalty imposed by RSL § 26-516(a), is statutorily mandated and requires no affirmative conduct by the plaintiff. See Asher v. Abbott Labs., 290 A.D.2d 208, 737 N.Y.S.2d 4 (1st Dep’t 2002). Pursuant to GBL § 340(5), “[a]ny person who shall sustain damages by reason of any violation of this section, shall recover three-fold the actual damages sustained thereby....” GBL § 340(5) (emphasis added). Thus, similar to the penalties imposed by RSL § 26-516(a), upon a finding that the Donnelly Act is violated, an award of treble damages is mandated without any further showing required by the plaintiff. See Sperry, 8 N.Y.3d at 213, 831 N.Y.S.2d at 764-65; Klein v. Ryan Beck Holdings, Inc., No. 06 Civ. 3460 (WCC), 2007 U.S. Dist. LEXIS 51465, at *13 (S.D.N.Y. July 13, 2007). The statutory language and structure of the penalty provision in the Donnelly Act is virtually identical to that of RSL § 26-516(a), and as the Appellate Division held after analyzing the Donnelly Act, the imposition of treble damages under § 26-516(a) cannot be waived. See Asher, 290 A.D.2d at 208, 737 N.Y.S.2d at 4 (imposition of treble damages penalty under the Donnelly Act (GBL § 340(5)) cannot be waived). Because RSL § 26-516(a) imposes a mandatory penalty, Respondents cannot evade the proscription of CPLR § 901(b) by purporting to “waive” their rights to 37 recover the penalties provided by the statute. Accordingly, the Order should be reversed and the Complaint dismissed with prejudice. C. As A Matter Of Public Policy The Benefits Conferred Upon Tenants Under RSL § 26-516(a) Cannot Be Waived The penalty imposed under RSL § 26-516(a) also cannot be waived because such a maneuver violates public policy. It is well settled that, pursuant to the Rent Stabilization Code, 9 N.Y.C.R.R. § 2520.13, even where a waiver would benefit the tenant, “[a]n agreement by the tenant to waive the benefit of any provision of the [Rent Stabilization Law] or this Code is void.” See, e.g., Drucker v. Mauro, 30 A.D.3d 37, 38, 814 N.Y.S.2d 43, 48 (1st Dep’t 2006) (any attempted waiver is not only voidable, but void); Riverside Syndicate, Inc. v. Munroe, 39 A.D.3d 256, 257, 833 N.Y.S.2d 452, 453 (1st Dep’t 2007), aff’d, 10 N.Y.3d 18, 853 N.Y.S.2d 263 (2008) (consent judgment void because it waived benefits under RSL “notwithstanding that it does so to the tenants’ benefit…”). Just last month the Appellate Division reaffirmed this well-settled rule. See Extell Belnord LLC v. Uppman, No. 10604, 2013 N.Y. App. Div. LEXIS 7642, at *15, 2013 N.Y. Slip Op. 07697, at **7 (1st Dep’t Nov. 19, 2013). In circumstances analogous to those here, the Appellate Division in Drucker observed that the express injunction in § 2520.13 against tenant waivers of the benefits of the RSL reflects a legislative intent for this prohibition against waivers that goes far beyond merely protecting a tenant, stating: 38 “The point is not to protect just a tenant, but to ensure the viability of the rent regulation system which protects tenancies in general, provides predictability to landlords, and significantly enhances the social, economic and demographic stability of New York City. . . .” * * * This Court has made it clear that a tenant may not avail himself of the advantages of the statute when it furthers his interests and decline to be bound by the statutory scheme when it proves detrimental to those interests. Drucker, 30 A.D.3d at 41, 814 N.Y.S.2d at 46-47 (emphasis added) (quoting 390 West End Assocs. v. Harel, 298 A.D.2d 11, 16, 744 N.Y.S.2d 412, 416 (1st Dep’t 2002), citing Avon Bard Co. v. Aquarian Found., 260 A.D.2d 207, 212, 688 N.Y.S.2d 514, 518 (1st Dep’t 1999)).13 The penalties that arise from violations of the RSL are a part of the “statutory scheme” just as much as any other part of the law and are no more subject to waiver than any other part of that law. Indeed, as the dissent in Gudz correctly reasoned, “[s]ince the effect of the waiver is to vitiate a provision integral to the RSL – the exaction of excessive rents by the landlord – I am compelled to conclude that it is void under 9 NYCRR § 2520.13.” 105 A.D.3d at 628, 964 N.Y.S.2d at 121. 13 Although Drucker and the cases it cites concern private agreements renouncing almost all of the protections of the RSL, and not only the right to recover a specific penalty, the policy considerations underlying their holdings apply equally here. That is particularly true where, as described above, the penalty provision at issue uses mandatory language, specifically providing that the landlord “shall be liable” for treble damages or DHCR “shall establish” a penalty and thus, does not leave the award of a penalty to the discretion of the tenant. See RSL § 26-516(a). 39 To avoid such ramifications and consistent with this public policy, this Court has twice interpreted § 2520.13 to prohibit waivers even where such waivers benefit the tenant. See Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943, 944, 862 N.Y.S.2d 854, 855 (2008) (finding that a waiver of benefits under RSL in so- ordered stipulation “violates the Rent Stabilization Code and is void as against public policy”); Riverside Syndicate, Inc., 39 A.D.3d at 257, 833 N.Y.S.2d at 453 (affirming holding that consent judgment is void because it waived benefits under the RSL “notwithstanding that it does so to the tenants’ benefit…”). Given this recent precedent, the Order’s holding that a “unilateral[]” waiver was nonetheless permissible despite the express terms of § 2520.13 is erroneous. (R. 502). That holding conflicts with settled law, grounded in sound principles of public policy fundamental to the rent regulation system, that “a tenant may not avail himself of the advantages of the statute when it furthers his interests and decline to be bound by the statutory scheme when it proves detrimental to those interests.” Drucker, 30 A.D.3d at 41, 814 N.Y.S.2d at 47. Exemplifying the unpredictable consequences of adopting the new rule articulated by the Order, Respondents here sought treble damages in both their original Complaint and Amended Complaint, on the grounds that the alleged overcharges were “willful,” availing themselves of the benefits of the RSL when it was in their interests to do so. (R. 61, ¶¶ 44-48; 83-84, ¶¶ 52-55). Only after 40 Appellants moved to dismiss pursuant to CPLR 901(b), and it became detrimental to their interests, did counsel for Respondents claim that Respondents were willing to forgo penalties for overcharges as part of the class relief. (R. 221 at ¶ 12). That reversal cannot be reconciled with § 2520.13 and the public policy it articulates. Indeed, recognizing that an exception for unilateral waivers would eviscerate the well-reasoned prohibition against waiving benefits of the Rent Stabilization Code and cannot be reconciled with the Court of Appeals’ holdings in Jazilek and Riverside, the dissent in Gudz points out that : Whether unilaterally or via agreement, the fact remains that plaintiff has agreed to give up the benefit of a statutory protection, i.e. the treble damages afforded by RSL § 26-516(a), on behalf of not only herself but the class – a far more profound impact than one individual purporting to agree to give up her rights via lease. Gudz, 105 A.D.3d at 628, 964 N.Y.S.2d at 121. Given the profound regulatory and public policy issues at risk if the Order is affirmed, for this additional, independent reason the Order should be reversed. CONCLUSION For the foregoing reasons, Appellants respectfully request that the Court: (i) reverse the Order appealed from; (ii) dismiss Respondent's Complaint in its entirety with prejudice; and (iii) award Appellants such other and further relief as the Court deems just and proper. Dated: New York, New York December 20,2013 PRYOR CASHMAN LLP By:~~~:~~- Todd E. Soloway David C. Rose Joshua D. Bernstein Bryan T. Mohler 7 Times Square New York, New York 10036 (212) 421-4100 MICHAEL B. KRAMER & ASSOCIATES Michael B. Kramer 150 East 58th Street New York, New York 10155 (212) 319-0304 Attorneys for Defendants-Appellants 41