Court Denies Motion To Certify An Issue Class

On February 26, 2025, Justice Joel M. Cohen denied plaintiffs’ motion for class certification. Stafford v. A&E Real Estate Holdings, LLC, Index No. 655500/2016.

Plaintiffs alleged that defendants evaded New York City’s rent regulations by failing to properly register their rent-regulated apartments, using impermissible preferential rents, and deregulating (or increasing the legal regulated rent of) certain units based on underperformed and/or nonqualifying Individual Apartment Improvements (“IAIs”). Plaintiffs moved to certify an issue class limited to resolving the question “whether Defendants engaged in a methodical attempt to inflate rents.” In denying the motion, the Court explained:

CPLR 906 provides, in part, that “[w]hen appropriate, … an action may be brought or maintained as a class action with respect to particular issues.” In an “issue class” case, such as the one Plaintiffs propose here, CPLR 906 directs that “[t]he provisions of this article shall then be construed and applied accordingly.” In that regard, Plaintiffs acknowledge that they must demonstrate the predominance of common issues of law or fact among prospective class members with respect to the issue for which they seek certification (NYSCEF 525 at 14). Plaintiffs are correct that they need not demonstrate that common issues of law or fact predominate over individual issues with respect to the portions of the case as to which they do not seek class certification (accord In re Nassau County Strip Search Cases, 461 F3d 219, 227 [2d Cir 2006]).

Plaintiffs propose that, following certification, they will seek a class-wide determination by the Court that “Defendants engaged in a methodical attempt to illegally inflate rents[,]” after which a referee will be appointed to conduct “individual damages proceedings” on an apartment-by-apartment basis (NYSCEF 411 at 10-11). Plaintiffs’ proposed “damages” referee, however, would in fact be a liability referee as well. Even assuming Defendants are found to have engaged in a “methodical attempt to illegally inflate rents” across a number of their buildings, the referee still must determine whether each class member in fact has been overcharged (i.e., liability) before determining damages. These liability issues include, as to each member of the class, whether the claimed IAIs qualify as improvements rather than mere repairs, whether qualifying IAIs were ever (or were fully) performed, whether certain tenants must demonstrate (and if so, whether they have demonstrated)[] sufficient indicia of fraud to consider rental history beyond the four-year statutory period, and whether certain “Clarifying Legislation” (L. 2023 ch. 760 and L. 2024 ch. 95), as dubbed by Plaintiffs (NYSCEF 525 at 10), can be applied retroactively to obviate the four-year statutory period for apartments with preferential rents, among other topics. In these circumstances, certification of the proposed “issue class” would have negligible (if any) benefit in terms of efficiency and case management (see In re Amla Litig., 282 F Supp 3d 751, 765 [SDNY 2017] [“[C]ertification is not appropriate if, despite the presence of a common issue, certification would not make the case more manageable”] [internal citations and quotations omitted]; Benner v Becton Dickinson & Co., 214 FRD 157, 170 [SD NY 2003] [“Where substantial individual actions…would still be necessary after the…[liability] issue class trial, this Court cannot find that issue certification materially advances the litigation”]).

Moreover, the need to convene a procedure in which hundreds or perhaps thousands of individualized determinations are to be made (purportedly by a referee)[] regarding liability and damages is likely to create difficulties in case management, which further weighs against certification (CPLR 902 [5]).

(footnotes omitted).

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