Scott E. Mollen
Scott E. Mollen ()

Class Action Inappropriate To Determine Hurricane Sandy Damages—Breach of Warranty of Habitability—Unjust Enrichment—Constructive Eviction

The plaintiffs commenced a “putative bilateral class action.” They sought “to represent a class of all renters in the State of New York against a defendant class of all landlords in the State of New York to obtain rent rebates for violations of the warranty of habitability [warranty] caused by Superstorm Sandy.” The court addressed issues relating to “the suitability of the class representatives, due process, and…other serious problems.” Many of such questions “will ultimately be adjudicated in a class certification motion.” However, “given the myriad unprecedented issues—both factual and legal—and the enormous cost of discovery, the court stayed discovery pending the resolution” of this summary judgment motion by defendants. The plaintiffs had cross moved to file an amended complaint.

On Oct. 29, 2012, “the Storm hit New York, causing devastation to millions.” The law in New York “guarantees the habitability of all rental residences” and landlords throughout the state have strict liability “to ensure their tenants reside in livable conditions.” Landlords are obligated to “rebate rent for days when conditions were not habitable due to the Storm. Such rebates are discounted by the value of landlords’ mitigation efforts.” The salient issue was “how the vehicle of a class action can be used when so much of the damages sought—and damages are really all that is at issue—turn on fact specific inquiries, based on myriad variables such as where each building is located, how badly it was affected by the Storm, what mitigation efforts were made by the landlord, the terms of each tenant’s lease, and so much more.”

One proposed class representative (“A”) lives in a building where the landlord utilized a generator to provide elevator service, lighting for common areas, heat and hot water, after Con Edison (Con Ed) had turned off electricity. The landlord also provided free services, including, inter alia, complimentary meals, bottled water,…, [and] charging stations for cell phones and computers. “A” sought a rebate for the time when her apartment was “uninhabitable,” “without electricity, heat, hot water and/or elevator service.” She also claimed that her circumstances were “typical of the average New York State renter who suffered through the Storm.”

A second proposed class representative (“B”) had left her apartment before the Storm and stayed with friends and family and returned after conditions were back to normal. “B” apparently had no interest in returning to her apartment until after her college classes had resumed, “well after services in her apartment were fully restored.”

A third proposed class representative (“C”) lived in a building where stoves and hot water were not dependent on Con Ed electricity and had remained operational. Her apartment lacked heat during the subject period. However, “C” had left her apartment before the Storm and did not return until after electricity had been restored. Her landlord had asserted a counterclaim, alleging, inter alia, that this tenant had caused her apartment “to be infested with bedbugs,” and the bedbugs had spread throughout the building.

The complaint alleges causes of action for breach of the warranty and unjust enrichment. After some class discovery, the plaintiffs sought “broad and expensive electronic discovery to which defendants objected.”

The warranty is codified in RPL §235-b. It “places an unqualified obligation on the landlord to keep the premises habitable” and the tenant’s obligation to pay rent “is dependent upon the landlord’s satisfactory maintenance of the premises in habitable condition.” The fact that the storm had caused the habitability issues, was irrelevant since the landlord’s obligations under RPL §235-b are “unqualified.”

The Court of Appeals has explained that each case must turn on its own special facts and “the proper measure of damages…is the difference between the fair market value of the premises [if] they had been as warranted, as measured by the rent reserved under the lease, and the value of the premises during the period of the breach.” Moreover, “the finder of fact must weigh the severity of the violation and duration of the conditions giving rise to the breach as well as the effectiveness of steps taken by the landlord to abate those conditions.”

Since the warranty applies to parties to the lease, the court dismissed the claims against the non-landlord defendants, i.e., the defendant managing agents (agents). The court also dismissed the plaintiffs’ unjust enrichment claim. Since the warranty claim arises from leases, i.e., written contracts, the warranty “cannot give rise to the quasi-contract, unjust enrichment cause of action.” The court stated that “rent is the property of the landlords, not the…agents, and can only be recouped from the former. Absent veil piercing allegations, there is no basis to maintain a claim against” the agents. Moreover, the plaintiffs may not maintain claims for constructive eviction since such claim requires “wrongful acts by the landlord.” Here, “the issues were caused by the Storm, not landlords.”

Two to three proposed class representatives had not left their apartments because of “uninhabitable conditions caused by the Storm.” They had left their apartments because “they did not want to be in their apartments during the Storm.” Thus, the court held that “[a] rent rebate would be a windfall, not compensation for lacking a habitable residence.” The warranty is therefore inapplicable. Additionally, two of the proposed class representatives were “not typical of the proposed classes,” they had “not suffered through harsh” storm conditions, “they were somewhere else” and they had “no [RPL] §235-b claim and therefore cannot be class representatives.”

The court then explained that “[w]hether a lawsuit qualifies as a class action…’rests within the sound discretion of the trial court.’” Pursuant to CPLR 901(a), five conditions must be met before class action status may be granted, e.g., numerosity, common questions of law or fact that predominate over individual issues, claims or defenses of representative parties are typical of the class, and theclass action is “superior” to other available remedies. Since the court was not dealing with a class certification motion, it did not address every factor in detail. The subject motion was intended “to dispose of proposed classes which are so legally defective on their face as to not even merit class-discovery.”

The court found that there was “simply no way to make class-wide determinations about landlords’ mitigation efforts or the effects of the outages in each area or, for that matter, each building (e.g. those with generators, without elevators, or using natural gas or oil for hot water or heat).” Additionally, the plaintiffs’ class could not include tenants outside of Manhattan, since “conditions varied greatly by county” or other parts of New York State, “(where conditions varied even more, and local landlord-tenant laws differ).”

The court also stated that even a class comprised of tenants in a single building may not be viable, since even in the same building, “mitigation may have varied apartment by apartment (e.g., ground floor apartments had flooding, but no elevator concerns).” Further, damages may depend on whether the tenant had a rent-regulated or market lease or no lease and “[c]omputing damages in any way other than tenant-by-tenant runs the risk of glossing over the needs of each tenant and the individual efforts of each landlord.” At most, the court would “consider a plaintiff class limited to specific buildings where it can be demonstrated that the tenants of such buildings endured similar conditions and received similar mitigation.”

The court then held that there could not be a defendant class in this action because such class “would violate due process” and “the fact specific nature of determining each landlord’s mitigation efforts is not compatible with the commonality and numerosity factors.” Moreover, “a defendant class requires closer scrutiny…to assure fairness to absent members based on long-standing due process protections….” and thus, “defendant class actions are seldom certified.”

Additionally, “computing damages in a §235-b case is simply too fact specific to be amenable to a defendant class” and “the impracticability of managing such a class is exemplified by the Herculean task of enforcing judgements [sic] against and collecting damages from every landlord in the state.”

A significant “benefit of having a defendant class is avoiding relitigating the same threshold issue, especially when there is a risk of inconsistent rulings.” However, the issue of the landlords’ §235-b liability was “uncontroverted.” The key issue is “how much each landlord must pay to each tenant, an inquiry requiring building-by-building, and perhaps tenant-by-tenant discovery. This arduous task cannot be eschewed, gutting the efficiency of utilizing a class action.”

Accordingly, the court held that the viability of the case as a bilateral class action “is gravely in doubt. Although it may be possible to name a discreet group of landlords and find appropriate building representatives to serve as plaintiffs, the only way to expeditiously accomplish the…goal of recouping compensation for all Storm-related, [warranty] claims is to utilize the capable services of Housing Court.”

The court stated that the “Housing Court is duly equipped to mete out justice to pro se tenants who come forward with meritorious claims.” Furthermore, “[t]he forthcoming class certification motion will afford plaintiffs an opportunity to address the concerns raised in this decision.” However, the court warned that the plaintiffs “should not expect certification absent concrete, specific, and practical solutions to such concerns, especially when victims of the Storm may have superior means to obtain compensation.”

Disclosure: My firm, Herrick Feinstein, represented certain defendants.

Comment: The court had also noted that “many landlords and tenants may not wish to use the legal system to address Storm-related claims.” They may have worked out “their own settlements, such as voluntary rebates or factoring in Storm-issues into lease renewal negotiations.” The court further opined that a “class opt-out process would raise a host of issues, especially if such settlements were not done with legal formality.”

Mara Levin, and Janice Goldberg, of Herrick, Feinstein, were attorneys for certain defendants. Levin stated that “the court dismissed the complaint as to two of the three plaintiffs, and the third plaintiff, who the court permitted to amend her complaint, decided not to do so. While a notice of appeal was filed, it was not perfected within the prescribed time set forth in the Section 600.5(d) of the Appellate Division, First Department Rules.” Levin further noted that “while rarely used, a summary judgment motion before a class certification motion and without full discovery, may be a very useful tool to dismiss a class action which, on its face, cannot possibly meet the statutory requirements necessary to sustain certify the class.”

Adler v. Ogden Cap Properties, 650292/2013, NYLJ 1202633381044, at *1 (Sup. NY, Decided Dec. 11, 2013), Kornreich, J.

Real Property Tax Exemptions for Religious Organizations—Pagan Group Entitled to Exemptions

A petitioner had appealed from a trial court order which had dismissed the petitioner’s applications for real property tax exceptions (exemptions) pursuant to Real Property Tax Law (RPTL) Article 7, to review three determinations of a town board. The board had denied the requests for the exemptions.

The petitioner, a not-for-profit religious corporation, owns a three-acre parcel of real property. The property consisted of a 12-bedroom main house, a caretaker’s cottage, an “outdoor temple and ‘processional paths.’” The petitioner was “the corporate entity for the Cybeline Revival,” a pagan following founded in 1999, but which has ancient origins.” The Revival believes that “the divine feminine, the mother goddess Cybele, is present in everything, thereby creating a connection in all living things, as well as giving rise to an obligation to do charitable work and a responsibility to improve the conditions of all people, particularly women.”

The petitioner had received tax-exempt status from the Internal Revenue Service and sought an exemption under RPTL 420-a. The trial court had denied the town’s motion for summary judgment and the petitioner’s cross motion for summary judgment. Following a non-jury trial, the trial court dismissed the petition, on the grounds that “the property primarily is used to provide affordable cooperative housing to a small number of co-religionists, with the religious and charitable uses of the property being merely incidental to that primary nonexempt use.” The Appellate Division, Third Department reversed and held that the petitioner was entitled to the exemption.

To qualify for the exemption:

(1) [petitioner] must be organized exclusively for [the] purposes enumerated in the statute, (2) the property in question must be used primarily for the furtherance of such purposes,…(3) no pecuniary profit, apart from reasonable compensation, may inure to the benefit of any officers, members, or employees, and (4) [petitioner] may not be simply used as a guise for profit-making operations….

The salient issue was whether the property was “primarily used for religious or charitable purposes.” Property uses “that are ‘merely auxiliary or incidental to the main and exempt purpose and use will not defeat the exemption’….”

In 2002, “A,” the head of the Revival, had purchased the property, together with three other women, “with a goal of establishing affordable housing for transsexual women, and they established a not-for-profit corporation to manage the property. Three of the owners were members of the religion and began practicing it on the property….” The fourth owner sold her interest to a fourth Revival adherent.

The owners had dedicated the property as “the home of the religion, transferred title to petitioner and held a formal ceremony dedicating the property to the Mother Goddess.” The religion had seven priestesses. Each priestess’s room had an alter and there was a main alter on the building’s main floor. Certain “charitable guests” and “four ‘spiritual seekers’” had “resided temporarily on the property” between 2009 and 2011. No guests were required to pay for their stay and there was “little…financial support provided by guests.” Certain religious practices were conducted on the property, e.g., rituals related to marriage and death and “celebrations pertaining to physical changes in a woman’s lifetime.” There was also “religious instruction and spiritual counseling,” and several other religious ceremonies and events, including a “more secular, bisexual brunch.”

The court found that the petitioner primarily used the property for “religious and charitable purposes.” Although the town argued that the property was used primarily for cooperative housing, the court concluded that the petitioner had “just continued the property’s former residential use,” while also conducting its religious and charitable activities “throughout the property on a regular basis.” The court noted that the religion stressed “communal living among its adherents, as well as providing hospitality and charity to those in need, and the members consider this property the home of their faith….” Accordingly, the court reversed and held that the petitioner was entitled to the exemption.

Maetreum of Cybele v. McCoy, 515598, NYLJ 1202629484850, at *1 (App. Div., 3d, Decided Nov. 21, 2013). Before: Lahtinen, J.P., McCarthy, Spain and Egan Jr., JJ. Opinion by McCarthy, J. All concur.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.