"New York State class actions: making it work, fulfilling the promise": some recent positive developments and why CPLR 901(b) should be repealed.

• Author: Dickerson, Thomas A.
• Position: New York Civil Practice Law & Rules - Update to Albany Law Review, vol. 74, p. 711, 2010

1. INTRODUCTION

   In 2010, New York State Class Actions: Make It Work-Fulfill the Promise (hereinafter "Make It Work") was published. (1) Make It Work discussed the legislative history of Article 9 of New York's Civil Practice Law & Rules (CPLR sections 901-909) and the less than enthusiastic implementation of this salutary statute by many New York courts over the last thirty-five years. (2) Make It Work encouraged the courts, especially the New York State Court of Appeals, to take a more active role in interpreting and implementing CPLR sections 901-909. (3) Make It Work also discussed the need to repeal CPLR section 901(b). (4)

   Since Make It Work was published there have been several positive developments in how New York state trial courts, the First Department and Second Department of the Appellate Division, and the Court of Appeals have interpreted and implemented CPLR sections 901-909.5 6 7 We will discuss several reported decisions suggesting a significant change in judicial attitude.

   As far as CPLR section 901(b) is concerned, the United States Supreme Court in Standard Fire Insurance Co. v. Knowles (6) has rendered yet another decision which, along with its earlier decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., (7) supports the concept that this unnecessary limiting device should be repealed. First, it is now useless in prohibiting class actions seeking a statutory penalty or minimum recovery (hereinafter penalty class actions) since such a class action can now be brought in federal court. (8) Second, CPLR section 901(b) has led to inconsistent applications since some types of penalty class actions have been certified while others have not. (9) Third, in order to certify some penalty class actions, plaintiffs must, prior to certification, waive any claim for a penalty or minimum recovery thus raising important issues of adequacy of representation. (10)

2. RECENT POSITIVE DEVELOPMENTS (11)

   Since Make It Work was published in 2010, several New York trial courts, the First and Second Departments of the Appellate Division, and the New York State Court of Appeals have expanded the use of CPLR Article 9.

   1. The Rebirth of General Business Law Section 350

      In 1975 and 1980, the New York State Legislature enacted two important salutary statutes--the first procedural and the second substantive. (12) The first, Article 9 of the CPLR, pertains to class actions. (13) The second created a private right of action for the enforcement of General Business Law (hereinafter "GBL") section 349 (misleading and deceptive business practices) and GBL section 350 (false advertising). (14) As was noted in Make It Work, however, the courts have not made CPLR Article 9 class actions readily available to consumers and others. (15) Beginning in 1986 the courts imposed an individual reliance requirement onto consumer plaintiffs' GBL section 349 and 350 claims. (16) There is no statutory authority for this imposition yet it has effectively rendered GBL section 350 claims unavailable to consumers in class actions for over twenty-five years. (17)

      In Koch v. Acker, Merrall & Condit Co.,18 the Court of Appeals made it clear that justifiable reliance is not required to state a viable GBL section (350) claim. (19) In Koch, the plaintiff alleged, inter alia, that the defendant auction house was selling certain wines, which it described as extraordinary. (20) The plaintiff claimed, however, that the wines it purchased were actually counterfeit. (21) The Court of Appeals stated that the Appellate Division, First Department's imposition of a reliance requirement onto GBL section 349 and 350 claims was erroneous and that "[j]ustifiable reliance by the plaintiff is not an element of the statutory claim." (22) The Koch decision appears to overrule those appellate division cases dating back to 1986 which had imposed such a reliance requirement. (23)

      For plaintiffs bringing consumer class actions claiming violations of GBL sections 349 and 350, the Koch decision is extremely important. Although courts have generally certified consumer class actions alleging violations of GBL section 349, (24) prior to the Koch decision, courts held that reliance was not subject to class-wide proof and therefore declined to certify GBL section 350 class actions. (25)

   2. Encouraging Language

      In Corsello v. Verizon New York, Inc., (26) defendant Verizon attached a box to plaintiffs' building which "transmit[ted] telephone communications to and from Verizon's customers in other buildings." (27) The Court of Appeals held that the plaintiffs stated a valid inverse condemnation cause of action, that their GBL section 349 claim was time-barred by the statute of limitations, and that their unjust enrichment claim was legally insufficient. (28) In terms of class certification, the court stated that the case "seems on its face well-suited to class action treatment" because "it would be reasonable to infer that the case will be dominated by class-wide issues--whether Verizon's practice is lawful, and if not what the remedy should be" and that expert testimony could be used to "support an inference" of typicality. (29) The Court of Appeals, however, upheld the lower courts' denial of class certification holding that the named plaintiff was an inadequate class representative because his claims were atypical and subject to waiver and therefore did not meet the "predominance" and "typicality" requirements of CPLR sections 901(a)(2) and 901(a)(3). (30)

   3. No Fault Insurance Claims & Sua Sponte Certification

      In Globe Surgical Supply v. GEICO Insurance Co.,31 medical equipment suppliers brought a class action claiming that the defendant violated certain regulations promulgated "pursuant to the no-fault provisions of the Insurance Law, by systematically reducing its reimbursement for medical equipment and supplies." (32) Plaintiffs claimed that the reductions were improperly based on '"the prevailing rate in the geographic location of the provider,' or 'the reasonable and customary rate for the item billed.'" (33) The Appellate Division, Second Department denied class certification holding that the named plaintiff was an inadequate class representative. (34) The denial, however, was without prejudice thereby allowing plaintiffs to reapply for class treatment once an adequate class representative could be located. (35)

      In Amer-A-Med Health Products, Inc. v. GEICO Insurance Co. (36) and O'Brien u. GEICO Insurance Co., (37) the trial court certified the class sua sponte finding that the proposed intervenor was an adequate class representative. (38) The court noted that since the Appellate Division, Second Department already ruled that the plaintiff satisfied the criteria in CPLR sections 901 and 902, (39) requiring the plaintiff to bring a motion to demonstrate satisfaction of such criteria "would be illogical and redundant." (40) The Appellate Division, Second Department approved on appeal the use of sua sponte class certification but remitted the matter to the trial court "for the entry of an order pursuant to CPLR 903 describing the certified class." (41)

   4. Helping Tenants

      In Downing v. First Lenox Terrace Associates,42 the plaintiffs, which consisted of a class of tenants or former tenants of a residential complex, alleged that the owners "unlawfully deregulated their apartments under the luxury decontrol provisions of Rent Stabilization Law (Administrative Code of City of NY) 26501 et seq., [(hereinafter "RSL")] while receiving tax incentive benefits under the City of New York's J-51 program." (43) Plaintiffs sought "a declaration that all apartments in the complex are subject to rent stabilization, injunctive relief, and a money judgment." (44) Plaintiffs also waived their original request for treble damages pursuant to RSL section 26-516(a) and sought "only reimbursement of the alleged rent overcharges plus interest." (45) The defendant moved to dismiss based on CPLR section 901(b) arguing that RSL section 26-516(a)'s penalty provisions "are mandatory and cannot be waived." (46) The Appellate Division, First Department denied defendant's motion to dismiss and thereby expanded the application of CPLR Article 9 by permitting plaintiffs to waive RSL section 26-516(a)'s penalties by seeking only actual damages consisting of rent overcharges plus interest. (47)

   5. Internet Sales Tax

      In County of Nassau v. Expedia, Inc.,48 Nassau County sought on behalf of a class of fifty-six local governmental agencies to enforce its Hotel and Motel Tax Law and other similar taxing statutes throughout New York State against certain online sellers of hotel accommodations. (49) The defendants' businesses consist of purchasing "blocks of rooms from hotels and motels at discounted rates and then resell[ing] the rooms to members of the public via the internet." (50) According to the county, "the tax owed under the Hotel and Motel Tax Law is correctly calculated as a percentage of the price that occupants pay to the defendant resellers." (51) The county claimed, however, "that the online sellers collect the 3% hotel tax from consumers based on retail rooms rates but remit to the County only the portion of the tax based on defendants' lower 'wholesale' rate." (52)

      The trial court certified the class action relying upon the recent Court of Appeals' decision in Overstock.com, Inc. v. New York State Department of Taxation and Finance (53) noting "that [although] there is some variation in the tax rate among the different taxing authorities [,] ... the 'means and manner' of collecting the taxes is sufficiently similar." (54) The court therefore found that the plaintiffs satisfied the predominance requirement of CPLR section 901(a)(2). (55)

      Throughout the United States, taxing authorities have similarly sought to impose sales taxes on Internet travel sellers (56) and consumers have challenged Internet travel sellers' alleged misrepresentations of the purpose of certain tax...