Borden v. 400 East 55th Street Associates, L.P.

Smith, J.

(dissenting). Defendants argue that these are actions “to recover a penalty” because the treble damages remedy in Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) § 26-516 (a) is not waivable; because even if it were waivable under the statute that authorizes it, Rent Stabilization Code (9 NYCRR) § 2520.13 prohibits a waiver; and because in any event, even without trebling, the remedy provided by RSL § 26-516 (a) is a penalty. None of these arguments is without merit, but I will not stop to consider the first two, because I am satisfied that the third is correct. An action under RSL § 26-516 (a) to recover a rent overcharge, whether trebled or not, is “an action to recover a penalty . . . created or imposed by statute” and therefore “may not be maintained as a class action” (CPLR 901 [b]). (It is not disputed that the RSL, though technically a chapter of the Administrative Code of City of NY [tit 26, ch 4], is a “statute” within the meaning of the CPLR provision.)

The simplest and best reason to hold that even the untrebled remedy is a penalty is that the statute says it is. Section 26-516 (a) says:

“Subject to the conditions and limitations of this subdivision, any owner of housing accommodations who ... is found ... to have collected an overcharge above the rent authorized for a housing accommodation subject to this chapter shall be liable to the tenant for a penalty equal to three times the amount of such overcharge. ... If the owner establishes by a preponderance of the evidence that the overcharge was not willful, the state division of *401 housing and community renewal shall establish the penalty as the amount of the overcharge plus inter est” (emphasis added).

It could hardly be said more plainly that the authors of the RSL considered “the amount of the overcharge plus interest”— without trebling — to be a “penalty.”

Our cases make clear that, in deciding whether a particular remedy is a penalty or not, the label chosen by the authors of the legislation in question is ordinarily dispositive. “[T]his Court has stated that, where a statute expressly denominates an enhanced damages provision to be compensatory in nature, it will not be deemed a penalty” (Sperry v Crompton Corp., 8 NY3d 204, 212-213 [2007] [citing cases]). The reverse should also be true; where the statute says a remedy is a penalty, it is one. At least, we would not be justified in rejecting the legislative label unless it were plain that it is a misnomer — that the single overcharge remedy, though called a penalty, is in fact a purely compensatory remedy. Here, there is ample justification for the legislative choice to call this remedy a penalty.

While of course single-damages remedies are usually compensatory, the remedy provided by this RSL provision is unusual, because it awards monetary relief to people who have not, in economic reality, been damaged by the landlord misconduct of which they complain. In fact, these plaintiffs and others similarly situated are in a real sense beneficiaries of that misconduct. Where, as here, a landlord illegally charges a free-market rent for a rent-stabilized apartment, the result is that the apartment will be rented to someone able and willing to pay the market rent. If the landlord had complied with the law, the apartment would have been more affordable and many more tenants would have been happy to rent it — assuming that it had become vacant at all. It is most unlikely that any of the present plaintiffs, all of whom signed market-rent leases for their apartments, could have obtained the same apartments at the legal rent. But the statute, by requiring the overcharge to be refunded to them, effectively gives them what they could not have obtained; they are getting not compensation, but a significant windfall.

I am not criticizing the legislative choice to give this windfall to these plaintiffs. The choice makes sense — but only if the statute is seen not as compensating injured tenants, but as penalizing landlords. By being deprived of the money they have illegally received, the landlords are punished for their unlawful *402 conduct (though, because the misconduct was not wilful, the punishment is only one third as severe as it would otherwise be) and they and other landlords are deterred from future violations of the law. The result of this penalty, in the legislative scheme, is that landlords will be induced to comply with the rent limitations imposed by law and people who — unlike the present plaintiffs — cannot pay market rents will be able to find affordable housing.

I therefore conclude that the authors of RSL § 26-516 (a) had, at least, a reasonable basis for calling the untrebled remedy that plaintiffs here are seeking a “penalty.” Because it is a penalty, it may not be recovered in a class action.

In Borden v 400 E. 55th St. Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.

Opinion by Chief Judge Lippman. Judges Graffeo and Rivera concur; Judge Read concurs in result for reasons stated in the memorandum at the Appellate Division ( 105 AD3d 630 [2013]); Judge Smith dissents in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.

In Gudz v Jemrock Realty Co., LLC: Order affirmed, with costs, and certified question answered in the affirmative.

Opinion by Chief Judge Lippman. Judges Graffeo and Rivera concur; Judge Read concurs in result for reasons stated in the memorandum at the Appellate Division ( 105 AD3d 625 [2013]); Judge Smith dissents in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.

In Downing v First Lenox Terrace Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.

Opinion by Chief Judge Lippman. Judges Graffeo and Rivera concur; Judge Read concurs in result for reasons stated by Justice Richard T. Andrias at the Appellate Division ( 107 AD3d 86 [2013]); Judge Smith dissents in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.