On October 22, 2019, the New York Court of Appeals unanimously held that there was no per se bar to a pre-answer motion under CPLR Rule 3211(a) to dismiss a complaint’s class action allegations. Maddicks v. Big City Props, LLC, 2019 N.Y. Slip Op. 07519 (October 22, 2019). However, the Court split in a spirited 4-3 decision on whether the defendants had met their burden on the dismissal motion. In doing so, the minority observed that if the commonality allegations in Maddicks passed muster, even the “most inadequate of class allegations” will survive a motion to dismiss.
Judge Garcia, in a dissent joined by Chief Judge DiFiore and Judge Feinman, wrote:
If, as the majority holds, it is not appropriate to dismiss the class allegations in this case, it is difficult to foresee a case in which the majority’s rule will have any practical effect: Motions to dismiss even the most inadequate of class allegations must be denied. That outcome invites parties to file class allegations – even if a class could never be certified – knowing that they can force opposing parties to bear the costs of class discovery and certification proceedings (see e.g. Adler, 42 Mis 3d at 619, 629-630). The effect will be to diminish the power of the court to prevent abuse of the class action process.
The dissent focused at length on what the complaint alleged as to commonality:
The allegation is only that the plaintiffs have been harmed – by paying inflated rents – but the cause of that harm is not a “common flaw” (majority op at 7). Rather, it is different for at least four different classes of plaintiffs (see majority op at 3). For some plaintiffs, there are allegations of violations of the J-51 tax program. For most, there are not. For some, there are allegations of insufficient Individual Apartment Improvements (“IAIs”) to justify any imposed rent increases. For others, there are not. For some, there are allegations of inadequate registration. For others, there are not. For some, there are allegations that defendants inflated fair market rents on previously rent-controlled apartments. For others, there are not.
The majority trivializes the questions that must be answered for each plaintiff’s claims, describing them as “potential idiosyncrasies . . . that speak to damages, not to liability” (majority op at 8). For most of the claims, however, the particularized “idiosyncrasies” will determine both damages and liability. For example, each claim based upon misrepresentation of IAIs will require independent analyses of each apartment on the issue of liability, to determine whether the IAIs were sufficient to justify an associated rent increase. If the IAIs for a particular apartment were not sufficient, defendants would be liable. If the IAIs for a particular apartment were sufficient, defendants would not be liable. A determination for each apartment is entirely independent of the determination for any other apartment – with no overlapping factual question – and there is no way to decide the issue for each plaintiff without looking at the individual apartments and IAIs. Similarly, discrete analyses would be required for each allegation that the defendants failed to adequately register a specific apartment, made misrepresentations to a specific plaintiff, or inflated the fair market rent on a specific apartment that had exited rent-controlled status [FN17]. These legal and factual “idiosyncrasies”, rather than any common question, would necessarily predominate [FN18].
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The plaintiffs’ claims relate to 11 different buildings, with several different owners over different periods of time, and with at least four different theories of harm that have little-to-no overlap on an apartment-by-apartment basis. Unlike Maul, involving failures by government agencies to provide services, there are no specific facts common to all or virtually all of the named plaintiffs. While Maul approached the “outer boundary” of commonality (id. at 512), class certification given the facts alleged in the complaint would go well beyond any reasonable limitation. The majority is in effect saying that a bald assertion of commonality – “a pattern or practice of overcharging rent” – is enough to survive a motion to dismiss.
The majority decision by Judge Fahey stressed that commonality does not mean unanimity, and that it was sufficient for the complaint to allege harm effected through a variety of approaches within a common scheme.
The decision is of significant import for the policy reasons described by the dissent:
Permitting the dismissal of class allegations without prejudice at this stage of the proceedings serves the general goals of CPLR 3211 (a), preventing courts and litigants from needless costs – particularly those resulting from discovery – associated with class certification proceedings that have no chance of success. A contrary rule would instead tie the hands of the trial court in a way that undermines, rather than promotes, those objectives and frustrates the goal of efficiency central to class actions (see e.g. CPLR 901[a]. An overly restrictive interpretation of trial court authority in this area would also impose class discovery on the party opposed to certification which, while often not as expensive or time-consuming as merits discovery, [FN14] may nonetheless lead to significant costs (see CPLR 3102 [a] [cataloging the many discovery devices available to parties in civil litigation, including interrogatories, depositions, and document requests]; cf. Brief for respondents in Wal-Mart Stores, Inc. v Dukes, 564 US 338 , available at 2011 WL 686407, *10-11 [nothing that precertification discovery in a federal class action included “over 200 depositions, production of more than a million pages of documents, and electronic personnel data”]) [FN15].
Given the financial burden of class discovery, the inability to dismiss class actions for lack of commonality at the pleading stage, will increase the settlement value of such cases. Moreover, in a case in which the commonality allegations are suspect, plaintiff counsel will understandably consider filing the action in New York state court, rather than in Federal Court. This factor may well lead to an increase in state court class action filings.
Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at www.JDBMediation.com