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Posted: September 21, 2020

Motion to Dismiss Under CPLR 3211 Not Proper Vehicle for Challenging Adequacy of Class Allegations

On September 10, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Mahmood v. Riverside 1795 Assoc. L.L.C., 2020 NY Slip Op. 20229, holding that a motion to dismiss was not the proper vehicle for challenging the adequacy of a complaint’s class allegations, explaining:

On a motion to dismiss pursuant to CPLR 3211, the pleading must be afforded a liberal construction, and the court must accept the facts alleged in the complaint as true, accord the allegations in the complaint all favorable inferences, and only determine whether the facts as alleged fit within any cognizable legal theory. With respect to allegations made with respect to a putative class action complaint, as the Court of Appeals recently explained:

Nothing in the CPLR prevents a class action defendant from moving to dismiss a claim pursuant to CPLR 3211. However, a motion to dismiss should not be equated to a motion for class certification.

Maddicks involved a rent overcharge action commenced by plaintiff-tenants of over twenty different apartment buildings, on behalf of a putative class and subclass. At issue in that case was:

what plaintiffs characterize as the Big City Portfolio, which consisted of multiple apartment buildings located primarily in the Harlem neighborhood in Manhattan. The portfolio was managed by defendant Big City Realty Management, LLC. Individual corporate defendants owned various buildings in the portfolio, and plaintiffs — who were current and former tenants in various buildings within the portfolio — suggested that those corporate entities were owned or controlled by a single holding company, defendant Big City Acquisitions, LLC.

The plaintiff-tenants in Maddicks alleged that the defendant-landlords engaged in a common fraudulent scheme designed to inflate rents by, among other things, (i) misrepresenting and inflating the costs of IAIs performed, and (ii) failing to register rental information as required by the J-51 Program. In support of their class action, the Maddicks plaintiffs alleged that their factual and legal issues were common to each other and to the members of the proposed class and subclass, and sought, among other things, reformation of the illegal leases to provide that the units subject to those agreements were subject to rent stabilization laws.

Before the appropriateness of the claims for class action could be tested through the mechanisms fixed in Article 9 of the CPLR, the Maddicks defendants moved to dismiss in lieu of answering, arguing that plaintiffs failed to state a cause of action and that the class allegations fail as a matter of law because plaintiffs’ claim of illegality of fraud is not a single instance of wrongdoing, and improperly attempts to bind together four disconnected theories of malfeasance. The trial court agreed with the defendants and dismissed the action, finding that the amended complaint in that action failed to assert how the Defendants were factually or legally related or bound in the action, and because the Plaintiffs’ allegations that all properties were part of one Portfolio were insufficient to join all claims and all parties based on the facts alleged in the amended complaint. The trial court further concluded that dismissal was warranted as the Maddicks plaintiffs sought to impermissibly join former and current tenants of several different properties, owned by separate and distinct companies, which are based on different theories of recovery, involving separate and distinct law and facts, requiring a fact specific analysis that precludes class certification. Although nuanced, this is, essentially, what the defendants in the case at bar argue on the instant motions.

On appeal, a divided Appellate Division, First Department modified the trial court’s order by denying that part of the motion seeking dismissal of the class action claims, except to the extent those allegations addressed a cause of action for violation of General Business Law § 349. Significantly, the Appellate Division held that dismissal of the class allegations at the pleading stage, before an answer was filed and before any discovery occurred, was premature.

The Court of Appeals affirmed. The Court explained that the legislative purpose of CPLR article 9 was intended to provide a flexible, functional scheme wider and more welcoming that the narrow class action legislation which preceded it. Thus, although the complaint in Maddicks addressed harm effectuated through a variety of approaches, because those allegations were all alleged to be within a common systematic plan, they should not have been dismissed at the pleading stage and such dismissal by the trial court was error.

Here, as in Maddicks, the defendants argue that each plaintiff, at most, has a potentially viable rent overcharge claim against his or her own landlord-defendant only and not against the other landlord-defendants in this action. The defendants seek to distinguish Maddicks by arguing that severance was never an issue in Maddicks and, therefore, that decision is wholly inapplicable. This nuanced distinction fails.

Simply put, Maddicks stands for the proposition that a CPLR 3211 motion to dismiss should not be equated with an Article 9 motion for class certification and it is premature to dismiss class claims based on allegations of a methodical attempt to illegally inflate rents by landlords based on the notion that the claims cannot be certified against all of the named defendants. The fact that the Maddicks defendants never sought to sever the claims asserted against them, and, instead, only sought to dismiss those claims does not render Maddicks inapplicable. Like the case at bar, Maddicks involved multiple plaintiffs alleging rent overcharge claims on behalf of a putative class and subclass comprised of current and former tenants of multiple different buildings owned by separate corporate entities and under common control (i.e., 18 different buildings in this action, and over 20 different buildings in Maddicks). What is different in this action from Maddicks is that (i) there is no allegation that any one defendant is an umbrella owner of all the other defendants, and (ii) neither the management company nor Mr. Gluck, the purported beneficial owner of the defendants, are named as defendants. The allegations in the Complaint do, however, include that Mr. Gluck is the managing member and an owner of all of the landlord-defendants and that he impermissibly caused rent overcharges including, allocation of credits from IAI overcharges from one building to the next and to his personal residence. Therefore, these differences are not sufficiently significant to distinguish this case from Maddicks. Accordingly, the motion must be denied.

(Internal quotations and citations omitted).

Class actions are a way for one member of a large group of potential plaintiffs to vindicate the group’s rights. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a class action.

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