In Maddicks v. Big City Properties, LLC, - N.E.3d -, 2019 WL 5353010 (Oct. 22, 2019 N.Y.), the New York Court of Appeals issued a tenant-friendly decision upholding the ability of tenants to pursue class action lawsuits alleging improper schemes by landlords to inflate rents in violation of the rent stabilization laws.

The Maddicks plaintiffs were a group of tenants who rented apartment units in an approximately 20 building residential portfolio owned and managed by the defendants. The tenants alleged in their complaint that the defendants had engaged in a multi-year scheme to illegally inflate their rents by: (i) misrepresenting and inflating the costs of individual apartment improvements ("IAIs"); (ii) falsely reporting to the Division of Housing and Community Renewal that leases were rent-controlled pursuant to the J-51 program, when in fact those contracts were free-market contracts; (iii) repeatedly failing to register rental information as required by state and city law, rendering it impossible to calculate the correct legal regulated rent; and (iv) inflating the fair market rent on apartments that exited rent-controlled status by recording a rent price significantly higher than the preferential rent actually charged with respect to certain units. Maddicks, 2019 WL 5353010, at *1-2.

The defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action, arguing that the plaintiffs had failed to adequately allege the elements of a class action complaint, including any factual commonality of claims among the various tenants, who lived in several different buildings, whose apartments were each subject to alleged IAI overcharges in differing amounts and on different dates, and whose claims each depended upon individualized fact determinations specific to their own apartments. Notably, in a highly contested 4-3 split decision, the Court of Appeals rejected the defendants arguments and affirmed the First Department's decision to deny the motion to dismiss, holding that there was sufficient commonality among the tenants to justify the filing of a class action complaint. Maddicks, 2019 WL 5353010, at *3.

First, the Court of Appeals noted that the determination of whether plaintiffs have a cause of action that may be asserted as a class action turns on whether the plaintiffs have adequately alleged five factors, including numerosity of claimants, commonality of claims, typicality of the named plaintiffs as members of the proposed class, and adequacy of representation of the class. According to the Court of Appeals, the principal concern raised by the motion to dismiss was the "commonality" element, which inquires whether "there are questions of law or fact common to the class which predominate over any questions affecting only individual members." Maddicks, 2019 WL 5353010, at *3. The Court then held that "[c]ommonality is not to be confused with unanimity" among the members of the putative class. Id. at *4. Since the complaint sought relief for damages to the class members that were "effectuated through a variety of approaches but within a common systematic plan" by the defendant landlords to fraudulently increase rents, the fact that individualized proof would be required to establish the amount of damages suffered by the various class members was not a sufficient basis for dismissing the complaint. Id. More fully, the Court reasoned that, "[t]he possibility that individual damages determinations may become complicated...does not suggest that the commonality element cannot be satisfied." Id. at *5.

Second, the Court of Appeals noted its view that allowing the lawsuit to proceed beyond the motion to dismiss stage was a "moderate" approach under the circumstances. Maddicks, 2019 WL 5353010, at *4. The Court reasoned that CPLR 902 establishes a procedure for immediate threshold review of whether an action may proceed as a class action. More fully, CPLR 902 requires that the plaintiffs move for class certification within 60 days after the filing of responsive pleadings. The plaintiffs would be permitted to pursue pre-certification discovery in connection with the filing of such a motion, leaving open the possibility that the defendants would "obtain ... termination of the class claims...at the appropriate time." Id.

The Maddicks decision will have far-reaching implications for landlords confronted with tenant class action claims alleging fraudulent rent increases in violation of the rent regulations. Such claims are now highly unlikely to be dismissed at the pre-answer motion to dismiss stage of a litigation and will instead likely proceed to discovery in connection with a motion for class certification brought under CPLR 902. Although the Court of Appeals decided Maddicks on the narrowest of margins, it will remain the law unless the composition of the Court changes and the issue is brought before it again on some future date.