Judge Certifies Class Action Over Rent Fraud Claims

Manhattan Supreme Court Justice Sabrina Kraus recently granted class action certification to past and present tenants in 11 buildings who have sued their landlords. They are accused of “systemic evasion of the rent regulations” and, according to the judge, the tenants showed in detail a “methodical attempt to illegally inflate rents and evade the requirements of rent-stabilization” [Maddicks v. Big City Properties, LLC].

The context: The landlord is a group of single-entity LLCs tied to the firms Big City Properties and Magnolia Holdings. The lawsuit claims the landlord inflated rents by making phony individual apartment improvement claims, failing to register units with the state, and withholding stabilized leases despite receiving city tax breaks.

The examples of alleged fraud in this lawsuit occurred prior to the 2019 Housing Stability and Tenant Protection Act. Since new tenant protection laws took effect in 2019, landlords can increase rents on stabilized units by only a small percentage with state approval after completing an individual apartment improvement.

This latest action comes after the landlords attempted to dismiss the case based on the idea that the tenants didn’t properly represent a class. The landlord argued that because the lawsuit involved more than 20 apartment buildings, owned by different LLCs, it didn’t qualify as a class action. Last October, New York’s highest court ruled that the lawsuit’s claims addressed “harm effectuated through a variety of approaches but within a common systematic plan” and that the trial court shouldn’t have dismissed a 2016 lawsuit against the landlord.

One level deeper: The case is the first certified class action lawsuit in New York State for individual apartment improvement fraud. The judge ordered the landlords to provide the tenants’ attorneys with current rent rolls, as well as information about former residents dating back to December 2012 so they can be added to the case.

If the tenants win the lawsuit or reach a settlement, the monthly rent in their apartments would likely revert to legally mandated stabilization levels and tenants in deregulated units would receive stabilized leases. Many, like tenants who moved out as prices rose, could receive money to cover any wrongful expenses.