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Posted: September 13, 2014

Claim Involving Mandatory Statutory Penalties Cannnot be Brought as a Class Action

On September 10, 2014, the Second Department issued a decision in County of Nassau v. Expedia, Inc., 2014 NY Slip Op. 06050, holding that a claim involving mandatory statutory penalties could not be brought as a class action under CPLR Article 9.

In County of Nassau, Nassau County brought a class action “on behalf of itself and 55 New York local governmental entities” against a number of “online sellers or resellers of hotel and motel accommodations” for underpayment of hotel and motel occupancy taxes. The Second Department reversed the trial court’s grant of class certification under CPLR Article 9, explaining:

Pursuant to CPLR 901(b), “Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” However, even where a statute creates or imposes a penalty, the restriction of CPLR 901(b) is inapplicable where the class representative seeks to recover only actual damages and waives the penalty on behalf of the class, and individual class members are allowed to opt out of the class to pursue their punitive damages claims. Nonetheless, the waiver exception to CPLR 901(b) does not apply where a penalty is mandatory and cannot be waived.

Here, the plaintiff cannot obtain class certification of this action because, under the plaintiff’s own Hotel Tax law, it is required to recover a penalty of 5% of the amount of the tax allegedly due from the appellants within the meaning of CPLR 901(b), the recovery of which in a class action is not specifically authorized in the Hotel Tax law, and the imposition of which cannot be waived, as conceded by the plaintiff’s representative during the deposition. Accordingly, the Supreme Court should have denied the plaintiff’s motion pursuant to CPLR article 9 for class certification of this action.

(Internal quotations and citations omitted) (emphasis added).

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