DARNICE GREEN VS. MORGAN PROPERTIES (L-4158-10, CAMDEN COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court."

Although it is posted on the internet, this opinion is binding only on the

parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1247-16T3

DARNICE GREEN, MATHEW BLUMBERG,

MICHAEL PERMENTER and BETH

PERMENTER, individually and as

class representatives on behalf

of others similarly situated,

Plaintiffs-Appellants,

v.

MORGAN PROPERTIES, MORGAN

MANAGEMENT, MITCHELL L. MORGAN,

INC., EAST COAST THE WILLOWS,

LLC and EAST COAST COLONIAL

APARTMENTS, LLC,

Defendants-Respondents,

and

ROSEMARY SPOHN, ESQ.,

Defendant.

______________________________________

Argued March 16, 2017 – Decided September 21, 2017

Before Judges Alvarez, Accurso and Manahan.

On appeal from Superior Court of New Jersey,

Law Division, Camden County, Docket No. L-

4158-10.

Lewis G. Adler argued the cause for

appellants (Law Office of Lewis G. Adler and

Law Office of Paul DePetris, attorneys; Mr.

Adler and Mr. DePetris, on the brief).

Daniel S. Bernheim, of the Pennsylvania bar,

admitted pro hac vice, argued the cause for

respondents Morgan Properties, Morgan

Management, Mitchell L. Morgan, Inc. and

East Coast Colonial Apartments (Wilentz,

Goldman & Spitzer, and Mr. Bernheim,

attorneys; Rachel C. Heinrich and Mr.

Bernheim, on the brief).

Jonathan I. Epstein argued the cause for

respondent East Coast The Willows (Drinker,

Biddle & Reath, attorneys; Mr. Epstein and

John P. Mitchell, on the brief).

PER CURIAM

Plaintiffs Darnice Green, Michael and Beth Permenter and

their son Mathew Blumberg appeal, on leave granted,1 from an

August 2, 2016 order denying class certification in their long-

running suit against the owners and property managers of their

apartment complexes, defendants East Coast The Willows, LLC,

East Coast Colonial Apartments, LLC, Morgan Properties, Morgan

Management, and Mitchell L. Morgan, Inc., over an attorney's fee

provision in their leases. Although we agree with the trial

court that the class plaintiffs proposed was too broadly

1

See Daniels v. Hollister Co., 440 N.J. Super. 359, 361 n.1

(App. Div. 2015) (explaining our general policy of liberally

granting leave to appeal from orders granting or denying class

certification).

2 A-1247-16T3

construed to meet the requirements of Rule 4:32-1(a) and (b), we

think the smaller, more narrowly defined class plaintiffs

offered in the alternative can be certified. We accordingly

vacate the order denying class certification and remand for

certification of a class in conformity with this opinion.

The essential facts were set forth in the Supreme Court's

prior opinion in this matter, Green v. Morgan Props., 215 N.J.

431, 438-39 (2013).2 We summarize them here, augmented by the

undisputed facts from the record on the class certification

motion. Plaintiffs are current or former tenants of The

Willows, a 347-unit apartment complex in Barrington, or

Colonial, a 188-unit apartment complex in Cherry Hill. Since

2007, both complexes have been operated by one of the Morgan

defendants,3 Delaware corporations that manage 131 apartment

2

The Court affirmed in part and reversed in part our decision

reversing the trial court order dismissing plaintiffs' complaint

pursuant to Rule 4:6-2(e). See Green, supra, 215 N.J. at 460.

Specifically, the Court affirmed the reinstatement of

plaintiffs' claims under the Consumer Fraud Act (CFA), N.J.S.A.

56:8-1 to -206, and for negligent misrepresentation, and agreed

that plaintiffs' claims under the Anti-Eviction Act, N.J.S.A.

2A:18-61.1 to -61.12 should have only been dismissed without

prejudice. Id. at 437, 439, 460. The Court reversed our

decision reinstating the claims against the individual

defendant, Morgan's in-house counsel Rosemary Spohn, finding no

basis for liability against her. Id. at 456-57.

3

The Morgan defendants claim the two apartment complexes in

which plaintiffs resided were managed by Mitchell L. Morgan

(continued)

3 A-1247-16T3

complexes in ten different states, sixty-nine in New Jersey. In

September 2007, Morgan created an in-house legal department to

handle lease enforcement and tenant evictions at the sixty-nine

New Jersey properties it manages. Morgan maintains its New

Jersey legal department handles only such matters and no other

legal work.

From 2007 until 2010, each named plaintiff was a party to a

lease requiring payment of an attorney's fee of $400 as

additional rent in the event the landlord had to employ a lawyer

to recover rent due and owing.4 The lease provided the tenant

(continued)

Management, Inc., that Morgan Properties is a trade name and

there is no Morgan Management. As the issue is not critical to

the questions presented on appeal, we note the dispute but do

not resolve it.

4

The pertinent paragraph provided:

(a) Landlord is entitled to remove the

Tenant from the apartment for good cause

under New Jersey Law. If Landlord

institutes legal proceedings to remove

Tenant from the apartment with good cause,

including the collecting of rent, additional

rent or any other charges due and owing

under the lease, Tenant shall pay to

Landlord court costs and costs for the

preparation and filing of legal documents,

reasonable attorney's fees and any

additional costs of legal proceedings.

Landlord is entitled to begin a legal action

for non-payment of rent at any time after

rent is due and owing and not paid. Rent is

(continued)

4 A-1247-16T3

(continued)

due and owing on the first day of the month.

Landlord is further entitled to late charges

as set forth in Paragraph 3 of this lease

and costs, when rent remains due and owing

after the fifth (5) day of the month. In

addition, if rent is not received by

Landlord within fifteen (15) days after the

due date, then, in addition to all other

rights and remedies which Landlord may have,

Landlord or its agents may report such

delinquency or non-payment to national

credit reporting agencies. (b) If Tenant

fails to pay the entire amount of rent due

and owing, and the services of an attorney

are thereby required to resolve the matter,

either by court appearance, preparation of a

consent to be filed with the court or for

any other purpose, then a reasonable

attorney's fee of four hundred dollars

($400.00) is due and payable as additional

rent by the Tenant. If the attorney's fee

exceeds four hundred dollars ($400.00) then

the Tenant will be required to pay the

entire amount of reasonable attorney's fees

[due] and owing to the attorney. In the

event Tenant receives a Summons and

Complaint and pays all rent due, including

late charges and a legal fee of two hundred

dollars ($200.00), by certified check or

money order prior to the court date so that

Landlord's attorney is not required to make

an appearance on behalf of the Landlord,

Tenant shall not be liable for the remaining

two hundred dollar ($200.00) legal fee.

However, the four hundred dollars ($400.00)

attorney's fee is due and owing even if

Tenant makes full payment on the day of the

court appearance, because the attorney will

be required to make an appearance on behalf

of Landlord. All payments are to be by

certified check, cashier's check or money

order only. (c) If the Landlord is required

(continued)

5 A-1247-16T3

was responsible for all fees exceeding $400, and could receive a

$200 credit if all rent, including a $200 attorney's fee, was

paid before a lawyer was required to appear in court. The lease

further provided for imposition of the $400 fee for "matters

that do not require the filing of an action with a court

including the service of valid notices to cease, notices to

vacate, and demands for possession." The leases were amended in

(continued)

to institute or become involved in legal

proceedings requiring the services of an

attorney for any good cause, including but

not limited to, an action for possession,

collection of money, rent or other damages,

or any other valid reason, including

petitioning the court for injunctive relief,

making an appearance at a hearing requested

by Tenant for a stay of any portion of

eviction proceedings, including the issuance

and execution of the warrant of removal

and/or writ of possession, or other pre-

and/or post-eviction relief, or any other

action whether it be of a civil or criminal

nature, then this entitles the Landlord to

collect a reasonable attorney's fee of four

hundred dollars ($400.00), plus costs and

interest due and owing. If the actual

amount of the attorney's fee exceeds four

hundred dollars ($400.00), then Tenant will

be responsible for the entire reasonable

attorney's fee. Tenant is also responsible

for attorney's fees incurred for matters

that do not require the filing of an action

with a court including the service of valid

notices to cease, notices to vacate, and

demands for possession, in the amount of

four hundred dollars ($400.00).

6 A-1247-16T3

2010 to eliminate the automatic $200 reduction if no court

appearance was required.5

Each of the named plaintiffs was subjected to eviction

proceedings for non-payment of rent on multiple occasions and

was charged $400 in attorneys' fees each time. They did not,

however, pay that sum each time. Sometimes Morgan reduced the

fee charged. Plaintiffs Green and Blumberg vacated their

apartments still owing rent, including attorneys' fees, although

Blumberg's co-signer eventually paid all Blumberg owed on his

lease. Their individual circumstances are summarized below.

The Named Plaintiffs

Plaintiff Green was a tenant at The Willows from May 2002

until September 2010. The parties agree she was late paying her

rent on twenty-six occasions, resulting in the filing of five

summary dispossess actions. Each eviction action included a

5

The 2010 lease provision provides as follows:

(f) If the Landlord uses the services of an

attorney (including in-house counsel) for

any good cause in relation to the

enforcement or defense of any terms of this

Lease, or in any relation to this tenancy,

whether or not litigation is commenced,

Resident must pay Landlord's attorney fees

in the amount of four hundred dollars ($400)

plus costs as Additional Rent for each cause

in which the attorney's services are

engaged.

7 A-1247-16T3

demand of $400 for legal fees and court costs of $31. Green

paid the full $400 on two occasions. She was granted a $200

credit on one occasion and a $300 credit on another. She did

not pay any amount toward the $400 legal fee charged in the

fifth and final proceeding.6 Green was thus charged total legal

fees of $2000, of which she paid $1100. Green quit her

apartment owing The Willows $2960.11, after application of her

security deposit and interest.

The Permenters have resided at Colonial since January 2005.

The parties agree the couple was late paying their rent on over

thirty occasions, resulting in the filing of five summary

dispossess actions. Each eviction action included a demand of

$400 for legal fees and court costs of $37. The Permenters paid

the full $400 on one occasion. They were granted a credit of

$400 on one occasion and a credit of $200 on three others. The

6

We have extrapolated the fees and credits for each named

plaintiff for each summary dispossess action from the dates of

the charges, the credits and the summary dispossess actions

included in the record. The parties have calculated the total

legal fees charged to the named plaintiffs, as well as the total

fees they paid for all evictions, and we have included those

figures here as well. Defendants have also calculated the

average fee each named plaintiff paid per eviction. We have not

included those averages because the actual fees charged and paid

for each eviction, not the averages, would appear to be the

correct way of measuring ascertainable loss and damages in this

case. See D'Agostino v. Maldonado, 216 N.J. 168, 192-93 (2013).

8 A-1247-16T3

Permenters were thus charged total legal fees of $2000, of which

they paid $1000.

Plaintiff Blumberg was a tenant at Colonial from March 2006

through September 2009. He was late paying rent every month but

one and was subject to five summary dispossess actions. Each

eviction action included a demand of $400 for legal fees and $37

in court costs. Blumberg paid the full $400 on two occasions.

He was granted a $400 credit on one occasion and a $200 credit

on another. Although he was evicted from his apartment in

September 2009 owing $1252.81, including the $400 legal fee

charged on his last eviction, that amount was paid in full in

August 2010 by his aunt, who co-signed his lease. Blumberg was

thus charged total legal fees of $2000, of which "he" paid

$1400.

The Supreme Court's Opinion

In its opinion reinstating the CFA claim against

defendants, the Court expressed several reasons for rejecting

defendants' argument that the $400 lease term represented a

reasonable liquidated damages provision. Green, supra, 215 N.J.

at 452-55. Chief among them was that it would impermissibly

shift to plaintiffs the burden of establishing the

reasonableness of defendants' attorneys' fees. Id. at 454-55.

The Court held plaintiffs must be permitted the opportunity to

9 A-1247-16T3

challenge the reasonableness of the lease clause on which the

landlords relied in the summary dispossess proceedings. Id. at

454.

As the Court explained, "[t]hat these plaintiffs may have

paid the attorneys' fees set forth in the leases in order to

avoid eviction does not preclude them from attempting to

challenge the fees as being so unreasonable as to violate the

CFA in a corollary proceeding." Ibid. The Court concluded

defendants might well be able to "demonstrate that the basis on

which the fees were calculated and included in the leases is

reasonable, but it will be their burden to do so." Id. at 456.

The Class Certification Motion

Following discovery, plaintiffs sought class certification

on the single count of the complaint alleging violations of

Section 2 of the CFA.7 Plaintiffs allege defendants engaged in

affirmative misconduct by including and enforcing the $400

charge in plaintiffs' leases when defendants' actual costs for

each summary dispossess action were far less than $400. They

sought to certify a New Jersey class consisting of all tenants

of the Willows, Colonial and of any properties managed by the

7

Following the Supreme Court's decision in this matter,

plaintiffs did not move to re-plead their Anti-Eviction Act

claim and elected not to seek class certification on their

negligent misrepresentation claim.

10 A-1247-16T3

Morgan defendants "who were charged a legal fee for eviction"

from September 1, 2007 until the date of class certification.

Plaintiffs presented two expert reports in support of their

motion. One by a practicing landlord-tenant lawyer regarding

the reasonableness of the $400 fee in comparison to the rates

charged by firms representing landlords in Burlington and Camden

counties, and the other by a forensic accountant who analyzed

Morgan's expenses for the eviction actions against the legal

fees charged to the tenants in order to calculate the damages

sustained by the class. Plaintiffs' attorney expert, David

Capozzi, averred the $400 fee Morgan charged its tenants well

exceeded the $110 to $150 per eviction two different local firms

charged Morgan for preparing, filing and serving tenancy

complaints and appearing on the trial date. Plaintiffs'

forensic accountant, Forensic Resolutions, Inc., calculated on

the basis of Morgan's records that Morgan incurred a cost of

between $125 to $139 per eviction, resulting in tenants being

overcharged in amounts ranging from $11 to $275 for each

eviction action.

Defendants countered with their own joint forensic expert

report prepared by EisnerAmper LLP, comparing the attorneys'

fees charged the tenants, net of credits, against the costs of

operating Morgan's in-house legal department for the years

11 A-1247-16T3

spanning the putative class period. Based on total fees

collected of $3,838,894 and operating expenses of $3,790,548

over the same period, EisnerAmper calculated that tenants were

overcharged a total of $48,346, or $2.17 per eviction, leading

it to conclude that the $400 charge included in the leases was

supported and consistent with the operating costs of Morgan's

legal department. At deposition, the expert testified that

using those same figures, Morgan's actual cost per eviction was

$170 and it collected, on average, $172 per eviction.

In their briefs on the motion, the parties debated whether

plaintiff had established the Rule 4:32-1 prerequisites for

class certification, focusing largely on typicality and whether

common questions predominated over individual ones. Defendants

conceded plaintiffs' proposed class would be sufficiently

numerous to satisfy Rule 4:32-1(a)(1), but contended it was

impermissibly overbroad in that it included tenants who were

charged a $400 attorney's fee, regardless of whether they paid

anything or whether the amount paid was excessive. Defendants

further contended that many members of the proposed class left

their apartments owing rent, leaving them exposed to recoupment,

see Beneficial Fin. Co. of Atl. City v. Swaggerty, 86 N.J. 602,

609 (1981), extinguishing any sums they could recover on their

consumer fraud claims, or counterclaims for the unpaid rent.

12 A-1247-16T3

Plaintiffs argued in reply that their proposed class was

not overbroad because the attorney's fee charged to tenants was

"an illegal debt that is the product of fraud."8 They further

argued the court should exclude any counterclaims because "to

include [them] would result in those claims predominating the

litigation." Plaintiffs requested, in the alternative, that the

court order partial certification to permit a class wide

determination of the issue as to whether defendants had charged

excessive and illegal attorneys' fees to tenants.

Although the parties disagreed on the reasonableness of the

fees charged, plaintiffs accepted Morgan's figures of the number

of eviction proceedings over the putative class period, the fees

Morgan charged to tenants on those occasions and the credits

Morgan awarded against those charges. From January 2007 through

September 2014, Morgan charged over 10,000 different tenants,

attorneys' fees on 22,308 different occasions. On 16,754 of

8

Simultaneous with their class certification motion, plaintiffs

filed a motion for summary judgment on liability, arguing that

defendants' failure to have presented expert testimony by a

lawyer as to the reasonableness of the attorneys' fees charged

made it impossible for them to carry their burden of proving the

fees were reasonable. The trial court rejected that argument,

finding defendants had presented evidence of the reasonableness

of the fees through the EisnerAmper report, thereby making the

reasonableness of the fees a fact to be resolved by the jury.

We denied defendants' motion for interlocutory review of that

order.

13 A-1247-16T3

those occasions, or 75% of the time, those fees amounted to

$400. On the 22,308 occasions Morgan charged tenants fees, it

subsequently credited the tenant's account for some or all of

the fee 10,183 times, meaning on 12,125 occasions, no credits

were awarded. The parties agree that of the 10,613 New Jersey

tenants who were charged an attorney's fee by MLM Management

through December 31, 2014, slightly over 50% (or 5319) of those

tenants left owing rent and other charges, after the application

of the security deposit. There are no figures in the record, of

which we are aware, quantifying the number of tenants who left

owing more than they were charged in legal fees.

Although plaintiffs dispute that all of the expenses

Morgan's expert includes among the allocated costs of running

Morgan's legal department are proper, even under Morgan's

analysis there are several years in which collections of legal

fees have exceeded the department's expenses, sometimes

significantly. In 2008, for example, collections outstripped

expenses by $425,924.9 Morgan's expert arrived at its conclusion

that the legal department generated a $48,346 profit over the

9

EisnerAmper states that "[t]he years in which collections

exceeded expenses [2008, 2009, 2010 and 2011] appear to be due

to the 2008 recession and related increase in tenant collection

and eviction issues."

14 A-1247-16T3

putative class period by averaging the department's annual

profits and losses from 2007 through September 30, 2014. Its

conclusion that Morgan overcharged $2.17 per eviction is based

on dividing that average by 22,308, the total number of times

Morgan charged a tenant an attorney's fee over the period.

The Trial Court's Opinion

The trial court began its analysis by addressing the

parties' dispute over plaintiffs' obligation to prove

ascertainable loss in order to establish its CFA claim and the

Supreme Court's holding that defendants bear the burden to

"demonstrate that the basis on which the fees were calculated

and included in the leases is reasonable." Green, supra, 215

N.J. at 456. The judge determined that

the plaintiff bears the burden of

challenging the fee provision of the lease

agreement as an unlawful or unconscionable

business practice under the CFA, while the

fees actually charged to the plaintiffs – or

the prospective class members – must be

proven to be reasonable under the

circumstances of each case by these

Defendants.10

10

Although this issue is not raised on the class certification

motion, we note the judge's allocation of the burdens of proof

is not consistent with the Court's opinion in Green. As to the

$400 lease term, the Court was clear that "[i]t may well be that

the corporate defendants can demonstrate that the basis on which

the fees were calculated and included in the leases is

reasonable, but it will be their burden to do so." Green,

supra, 215 N.J. at 456 (emphasis added). So, while the court is

(continued)

15 A-1247-16T3

Analyzing the class plaintiffs initially proposed on the

motion, all tenants charged attorneys' fees under the leases,

the judge found it met none of the Rule 4:32-1(a)(1) through (4)

prerequisites for class certification, numerosity, commonality,

typicality and adequacy of representation, and that plaintiffs

could not demonstrate under Rule 4:32-1(b)(3) that common

questions of law or fact predominated and a class action was

superior to other methods for adjudicating the controversy.

The judge rejected numerosity because "[d]efining the class

by those who were merely charged a legal fee for an eviction,

regardless of whether the tenant actually paid and ignoring

whether the particular circumstances of the fee were actually

reasonable makes for a class definition that is impermissibly

broad," and would result in "a class that contained members who

sustained no ascertainable loss and were not entitled to

recovery under the Plaintiffs' Consumer Fraud claim."

The judge rejected commonality because "[t]he inquiry in

this case principally requires a finder of fact to determine

(continued)

correct that plaintiffs bear the burden of demonstrating the

unlawful practice they allege, because the lease term they

challenge is one based on imposition of a legal fee, the burden

of proving the reasonableness of the lease term, as well as the

actual fees they charged any particular plaintiff, is on

defendants. Ibid.

16 A-1247-16T3

whether the fees charged to a particular plaintiff were

reasonable in order to prevail on the CFA claim." He concluded

that "those questions of fact or law that Plaintiffs assert are

common to the class would require a much too individualized

inquiry into the facts and circumstances of each class member's

eviction proceedings to merit certification." Because some

proposed class members "paid attorneys' fees to avoid eviction

[and] others did not," the judge further concluded "there may

well be no single 'typical' Plaintiff because there may well be

no 'typical' class member." He thus concluded plaintiffs failed

to meet the typicality requirement as well.

In analyzing predominance, the judge considered plaintiffs'

argument that "common issues predominate because the central

issue to the case requires a determination that the Defendants

engaged in a common course of conduct that illegally charged

attorney's fees to the putative class" against defendants' claim

that the argument for "class certification depends less on

demonstrating a common illegal scheme perpetrated by the

Defendants, [and] more toward showing that the attorney's fees

charged to each Plaintiff were unreasonable." The judge found

"[t]he issues of liability in this case are focused on damages

assessed on an individual basis," noting that plaintiffs' own

expert conceded at deposition that "the reasonableness of the

17 A-1247-16T3

fees assessed would have to be determined individually." He

accordingly concluded that common questions of law or fact did

not predominate over questions only affecting individual

members.

In assessing the superiority of a class action against

other methods of adjudication, the judge focused on the

potential for counterclaims for unpaid rent against class

members. Concluding "that there may be little other alternative

for the Defendants but to bring claims against class members"

for unpaid rent under New Jersey's entire controversy doctrine,

Rule 4:30A, the judge found "[t]he addition of counterclaims

would present inefficient and unwieldy litigation." In light of

those management problems and the risk of counterclaims exposing

some number of "class members to be subject to paying the

Defendants' outstanding rent that was previously uncollected,"

the judge concluded "the class vehicle is not a superior method

of resolution in this case, and the pursuit of individual claims

and counterclaims would result in a more manageable resolution

for each case."

Finally, although acknowledging defendants' concession that

class counsel are certainly qualified to represent the class,

the judge concluded "there is no incentive for the named

Plaintiffs to defend claims against individual class members for

18 A-1247-16T3

unpaid rent." He thus concluded the named plaintiffs would not

adequately protect the interests of the class as required by

Rule 4:32-1(a)(4). The judge rejected plaintiffs' suggestion to

certify a "class to determine liability only, while leaving

litigation of damages to individual class members," because it

"fails to account for the later problem that those individual

class members would face in seeking a relatively small recovery

for a relatively significant expense of both time and financial

resources."

Our Analysis

Our Supreme Court has described the class action as "a

device that allows 'an otherwise vulnerable class' of diverse

individuals with small claims access to the courthouse." Lee v.

Carter-Reed Co., LLC, 203 N.J. 496, 518 (2010) (quoting Iliadis

v. Wal-Mart Stores, Inc., 191 N.J. 88, 120 (2007)). Our courts

liberally construe Rule 4:32-1, the class action rule, in

accordance with the Court's instruction that "a class action

'should lie unless it is clearly infeasible.'" Iliadis, supra,

191 N.J. at 103 (quoting Riley v. New Rapids Carpet Ctr., 61

N.J. 218, 225 (1972)). The Court has noted that CFA claims are

particularly well suited for class treatment. See Strawn v.

Canuso, 140 N.J. 43, 68 (1995), superseded on other grounds by

statute, New Residential Construction Off-Site Conditions

19 A-1247-16T3

Disclosure Act, L. 1995, c. 253 § 10 (codified at N.J.S.A.

46:3C-10), as recognized in, Nobrega v. Edison Glen Assocs., 167

N.J. 520, 533 (2001). Although decisions on class certification

are reviewed for abuse of discretion, Carter-Reed, supra, 203

N.J. at 504, our review of the trial court's analysis of the

legal questions underlying a decision on certification is de

novo, Int'l Union of Operating Eng'rs Local No. 68 Welfare Fund

v. Merck & Co., Inc., 192 N.J. 372, 386 (2007).

Applying that standard here, we agree with the trial court

that a proposed class of all tenants who were charged attorneys'

fees under the 2007 and 2010 Morgan leases is not maintainable.

The very real threat of counterclaims against class members for

unpaid rent exceeding any recovery makes a class including such

tenants impermissibly broad. See Rodriguez v. Nat'l City Bank,

726 F.3d 372, 381 (3d Cir. 2013) (observing that certification

of a class including individuals who did not experience the harm

allegedly caused by the defendants diminishes the relief for

class members who were harmed). We further agree the named

plaintiffs would have no incentive for defending counterclaims

against class members for unpaid rent and, as plaintiffs

concede, including them "would result in those claims

20 A-1247-16T3

predominating the litigation."11 See Channell v. Citicorp Nat'l

Servs., 89 F.3d 379, 385-86 (7th Cir. 1996).

In our view, however, defendants' counterclaims for unpaid

rent against some former tenants are not fatal to plaintiffs'

efforts to certify a class in this case. Accordingly, we review

the court's class certification analysis of plaintiffs' CFA

claim applied to the same putative class only excluding those

tenants who were evicted or quit their apartments owing more

than they were charged in legal fees.12

Plaintiffs pursuing a CFA claim need prove only three

things: an unlawful practice, an ascertainable loss, and a

causal relationship between the two. Carter-Reed, supra, 203

N.J. at 521. A party seeking class certification of a CFA claim

must satisfy the general prerequisites for maintaining a class

action set out in Rule 4:32-1(a), as well as one of the three

11

Although plaintiffs have argued against permitting defendants

to plead their counterclaims for unpaid rent, they offer no

rational basis for excluding such claims under the entire

controversy doctrine. See In re Cadillac V8-6-4 Class Action,

93 N.J. 412, 438 (1983) (noting "[c]ertification as a class

action does not limit a defendant's right to pursue any defense

on any of a plaintiff's claims").

12

Plaintiffs sought certification in the trial court of this

smaller class in their brief filed in response to defendants'

arguments regarding assertion of their unpled counterclaims as

well as at oral argument on the class motion. They have

likewise continued to press for this smaller alternate in their

briefs and at oral argument in this court.

21 A-1247-16T3

criteria enumerated in Rule 4:32-1(b)(3). Rule 4:32-1(a)

provides that:

One or more members of a class may sue or be

sued as representative parties on behalf of

all only if (1) the class is so numerous

that joinder of all members is

impracticable, (2) there are questions of

law or fact common to the class, (3) the

claims or defenses of the representative

parties are typical of the claims or

defenses of the class, and (4) the

representative parties will fairly and

adequately protect the interests of the

class.

The Rule 4:32-1(a) factors are commonly referred to as

numerosity, commonality, typicality and adequacy of

representation. Carter-Reed, supra, 203 N.J. at 519.

Rule 4:32-1(b)(3), under which plaintiffs proceed, requires

the court to find:

that the questions of law or fact common to

the members of the class predominate over

any questions affecting only individual

members, and that a class action is superior

to other available methods for the fair and

efficient adjudication of the controversy.

The factors pertinent to the findings

include:

(A) the interest of members of the

class in individually controlling the

prosecution or defense of separate actions;

(B) the extent and nature of any

litigation concerning the controversy

already commenced by or against members of

the class;

22 A-1247-16T3

(C) the desirability or undesirability

in concentrating the litigation of the

claims in the particular forum; and

(D) the difficulties likely to be

encountered in the management of a class

action.

The Rule 4:32-1(b)(3) factors are commonly referred to as

predominance and superiority. Carroll v. Cellco P'ship, 313

N.J. Super. 488, 495 (App. Div. 1998).

A class of tenants who were charged legal fees by

defendants under their leases but did not quit their apartments

owing more than those charges, represented by defendants to

number at least 5294 tenants, easily satisfies the numerosity

requirement. See In re Cadillac, 93 N.J. at 425 (finding

numerosity where number of plaintiffs is "sufficiently numerous

so that joinder is not a satisfactory alternative"). Common

questions of law and fact arise out of the uniform leases, the

legal fees charged pursuant thereto, the reasonableness of the

fee provisions in the leases and whether the $400 fee exceeded

the costs of the services. With the exception of plaintiff

Green, who would not be included in this smaller class because

she quit her apartment owing $2960.11, a sum exceeding the $2000

in legal fees she was charged by defendants over the course of

five summary dispossess actions, the claims of the named

plaintiffs "'have the essential characteristics common to the

23 A-1247-16T3

claims of the class.'"13 See ibid. (quoting 3B James W. Moore,

et al., Moore's Federal Practice ¶ 23.06-2 (2d ed. 1982)). That

plaintiff Blumberg's aunt paid, on his behalf, the rent

remaining due when he vacated his apartment does not distinguish

his claim in our view.

The nub of the dispute over this case proceeding as a class

action is whether plaintiffs have met their burden of proving

that common questions of law and fact predominate over

individual claims. R. 4:32-1(b)(3). In analyzing the larger,

more inclusive class, the trial judge viewed the central

question in the case as "whether the fees charged to a

particular plaintiff were reasonable." We see the case

differently.

As we see it, the central question is whether the $400 fee

charged to all plaintiffs was reasonable or instead,

unconscionable. Or, stated differently, whether defendants'

inclusion of the $400 charge in their tenant leases,

characterized by the Supreme Court as contracts of adhesion, see

Green, supra, 215 N.J. at 454, was an unconscionable or unlawful

practice. Framing the question as the trial court did removes

the focus from the lease clause and the summary dispossess

13

We assume plaintiffs will substitute a class representative

for Green or dismiss their claim against The Willows on remand.

24 A-1247-16T3

proceedings. See ibid. (holding "tenants must be afforded a

forum to challenge the reasonableness of lease clauses on which

landlords rely for purposes of summary dispossess proceedings").

The lease term is important because, as the Court has

noted, "summary dispossess litigation is an effective – and at

times coercive – mechanism for collecting rent and other fees."

Hodges v. Sasil Corp., 189 N.J. 210, 226 (2007). "If the rent

owed," here including legal fees denominated as additional rent,

"is paid 'on or before entry of judgment,' the legal proceeding

is terminated." Id. at 221 (quoting N.J.S.A. 2A:18-55). "The

tenant and landlord understand the summons and complaint to be a

demand for payment of rental arrears, a demand that prompts

defaulting tenants to pay owed rent." Id. at 227-28. As the

Court has acknowledged, the consequences of inflating the amount

due in such circumstances "can be particularly devastating when

applied to low-income tenants. The economic hardship resulting

from even a few extra dollars in late charges and attorneys'

fees may substantially impact a family's ability to survive."

Id. at 228.

The predominance inquiry "tests whether the proposed class

is 'sufficiently cohesive to warrant adjudication by

representation'" by considering the significance of the common

questions versus the individualized questions underlying the

25 A-1247-16T3

members' claims. Iliadis, supra, 191 N.J. at 108 (quoting

Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623, 117 S. Ct.

2231, 2249, 138 L. Ed. 2d 689, 712 (1997)). Here, resolution of

the question of whether inclusion of the $400 charge in the

leases was reasonable or was instead an unlawful practice is

central to all of the members' claims and establishes one of the

three elements of each member's case.14

The issue on which the trial court focused, whether the

fees charged to an individual plaintiff were reasonable, no

doubt depends on individual assessments. But the issue of

whether the fees charged to an individual plaintiff were

reasonable goes to ascertainable loss and damages and only comes

into play if plaintiffs have succeeded in proving the $400 fee

included in their leases was unconscionable. See D'Agostino,

supra, 216 N.J. at 192-93 ("When an unconscionable commercial

practice has caused the plaintiff to lose money . . . that loss

14

Indeed, it would be the same for all tenant claims of the

larger class. The common questions are the same for both

putative classes. In the larger class, however, the very real

possibility of thousands of individual counterclaims

overwhelming the common questions make that larger class not

maintainable. Cf. In re Cadillac, supra, 93 N.J. at 430 (noting

"the critical question remains whether the benefit from the

determination in a class action of the existence of a common

defect and a common pattern of fraud outweighs the problems of

individual actions involving such other issues as causation,

reliance, and damages").

26 A-1247-16T3

can satisfy both the 'ascertainable loss' element of the CFA

claim and constitute 'damages sustained' for purposes of the

remedy imposed under the CFA."). "[P]redominance does not

require the absence of individual issues or that the common

issues dispose of the entire dispute." Iliadis, supra, 191 N.J.

at 108. The Court has made clear that "[i]ndividual questions

of law or fact may remain following resolution of common

questions." Ibid. This is especially true when remainder

issues go to damages. Id. at 112-13.

The parties in this case have conducted extensive fact

discovery and engaged experts who have prepared comprehensive

reports directed entirely to the question of whether the $400

fee in the lease was a reasonable approximation of the fees

defendants could expect to incur in a summary dispossess action

or an unconscionable overreach. Any evidentiary questions

regarding the reliability or admissibility of those opinions and

the credibility of the experts apply uniformly to all members of

the class. A jury may appropriately consider the basis on which

the fees were calculated, whether the costs defendants include

in the operating expenses for the legal department are fairly

allocated, whether the $400 fee included in the leases is a

reasonable approximation of defendants' expected costs for a

summary dispossess action, whether defendants may base the $400

27 A-1247-16T3

fee on its collections of fees charged instead of its costs for

services performed and whether those costs are reasonable in

comparison to the fees charged by outside lawyers for the same

work. If the jury decides the $400 lease charge is

unconscionable, it can decide what lease charge would be

reasonable.

Although resolution of those issues may not dispose of the

litigation, in the event it does not, it will at least establish

a basis for determining whether individual class members

suffered an ascertainable loss. Using the Permenters as an

example, if the jury were to decide that the $400 fee included

in the leases was reasonable, plaintiffs could not succeed in

proving an unlawful practice, ending the litigation and binding

all class members to that result. If, on the other hand, the

jury decided the $400 lease charge was unreasonable and that a

fair charge was $200, then the Permenters, having paid $400 on

one occasion, $0 on one occasion and $200 on three occasions,

could establish an ascertainable loss of $200, subject to

defendants' ability to demonstrate that the $400 was a

reasonable fee in light of the work performed on the summary

28 A-1247-16T3

dispossess action in which the Permenters paid a $400 fee.15 See

D'Agostino, supra, 216 N.J. at 192-93.

Significantly, almost all of the proofs relating to the

many individual issues defendants assert must be resolved for

each class member are in defendants' possession in the form of

the tenant ledgers and other computerized records. Even though

defendants claim their costs varied from eviction to eviction,

Morgan's actual ability to demonstrate the reasonableness of the

fee charged any particular tenant is unclear in light of its

lawyers' and paralegals' failure to maintain time records.

"Although 'different factual situations may arise with respect

to the defenses as to different plaintiffs[, such] does not

derogate from the fact that the affirmative cause of action

itself has the community of interests and of questions of law or

fact which justify the class action concept.'" Iliadis, supra,

191 N.J. at 112 (quoting Branch v. White, 99 N.J. Super. 295,

310 (App. Div.), certif. denied, 51 N.J. 464 (1968)).

Weighing the significance of the common questions, the

benefit of resolving those questions, as well as at least some

individual questions of ascertainable loss, through a class

15

Employing the same hypothetical, Blumberg could establish an

ascertainable loss of $600, subject to defendants' ability to

demonstrate that $400 was a reasonable fee in the three summary

dispossess actions for which Blumberg paid a $400 fee.

29 A-1247-16T3

action against alternatives, and considering the "common nucleus

of operative facts," Carter-Reed, supra, 203 N.J. at 520,

presented by the plaintiffs' challenge to a term in a uniform

lease utilized in sixty-nine apartment complexes throughout the

State, we are satisfied that the common questions predominate

over any questions affecting only individual members. R. 4:32-

1(b)(3). At the core of this case are tenants seeking to

redress a "common legal grievance," In re Cadillac, supra, 93

N.J. at 435, involving an allegedly unconscionable lease term

included in every one of their leases, making them sufficiently

cohesive to warrant adjudication through class representatives,

see Iliadis, supra, 191 N.J. at 108.

Finally, there can be little doubt that class litigation is

"superior to other available methods for the fair and efficient

adjudication of the controversy" in this case. R. 4:32-1(b)(3).

Given the class members' "lack of financial wherewithal,"

Saldana v. City of Camden, 252 N.J. Super. 188, 200 (App. Div.

1991), and the relatively low value of the individual claims,

the likelihood of any individual tenant challenging the $400

lease charge against these defendants is remote. As in New

Rapids, "[i]f each victim were remitted to an individual suit,

the remedy could be illusory, for the individual loss may be too

small to warrant a suit or the victim too disadvantaged to seek

30 A-1247-16T3

relief. Thus the wrongs would go without redress, and there

would be no deterrence to further aggressions." New Rapids,

supra, 61 N.J. at 225.

In our view, this case is well suited to class treatment.

A narrowed class, drawn so as to exclude those tenants against

whom defendants could assert counterclaims overwhelming the

common claims of the class, is an appropriate vehicle to redress

what the plaintiffs claim are systemic illegal lease charges to

over 5000 tenants in this State.

Although it is likely that individual issues will remain

following resolution of the common questions, posing some

management challenges, the issues here are not nearly so

complicated as those posed in either Iliadis or In re Cadillac.

The Law Division has the ability "to craft remedies and

procedures to address the peculiar problems of class

litigation," by altering, amending or even decertifying a class

if necessary. Iliadis, supra, 191 N.J. at 119-20; see also R.

4:32-2(a). "Class actions by their very nature are complicated

creatures, but they provide an efficiency of scale and an

equitable means of relief for individuals who might otherwise

not have access to the courthouse or the incentive or ability to

right a wrong." Carter-Reed, supra, 203 N.J. at 530.

31 A-1247-16T3

Although we agree with the trial court that the larger

class plaintiffs proposed was not maintainable in accordance

with Rule 4:32-1(a) and (b), we conclude the smaller, more

narrowly defined class plaintiffs offered in the alternative

should be certified. Accordingly, we vacate the order denying

class certification and remand for certification of a class in

conformity with this opinion.

Vacated and remanded. We do not retain jurisdiction.

32 A-1247-16T3