DARNICE GREEN VS. MORGAN PROPERTIESÂ (L-4158-10, CAMDEN COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1247-16T3
DARNICE GREEN, MATHEW BLUMBERG,
MICHAEL PERMENTER and BETH
PERMENTER, individually and as
class representatives on behalf
of others similarly situated,
Plaintiffs-Appellants,
v.
MORGAN PROPERTIES, MORGAN
MANAGEMENT, MITCHELL L. MORGAN,
INC., EAST COAST THE WILLOWS,
LLC and EAST COAST COLONIAL
APARTMENTS, LLC,
Defendants-Respondents,
and
ROSEMARY SPOHN, ESQ.,
Defendant.
______________________________________
Argued March 16, 2017 – Decided September 21, 2017
Before Judges Alvarez, Accurso and Manahan.
On appeal from Superior Court of New Jersey,
Law Division, Camden County, Docket No. L-
4158-10.
Lewis G. Adler argued the cause for
appellants (Law Office of Lewis G. Adler and
Law Office of Paul DePetris, attorneys; Mr.
Adler and Mr. DePetris, on the brief).
Daniel S. Bernheim, of the Pennsylvania bar,
admitted pro hac vice, argued the cause for
respondents Morgan Properties, Morgan
Management, Mitchell L. Morgan, Inc. and
East Coast Colonial Apartments (Wilentz,
Goldman & Spitzer, and Mr. Bernheim,
attorneys; Rachel C. Heinrich and Mr.
Bernheim, on the brief).
Jonathan I. Epstein argued the cause for
respondent East Coast The Willows (Drinker,
Biddle & Reath, attorneys; Mr. Epstein and
John P. Mitchell, on the brief).
PER CURIAM
Plaintiffs Darnice Green, Michael and Beth Permenter and
their son Mathew Blumberg appeal, on leave granted,1 from an
August 2, 2016 order denying class certification in their long-
running suit against the owners and property managers of their
apartment complexes, defendants East Coast The Willows, LLC,
East Coast Colonial Apartments, LLC, Morgan Properties, Morgan
Management, and Mitchell L. Morgan, Inc., over an attorney's fee
provision in their leases. Although we agree with the trial
court that the class plaintiffs proposed was too broadly
1
See Daniels v. Hollister Co., 440 N.J. Super. 359, 361 n.1
(App. Div. 2015) (explaining our general policy of liberally
granting leave to appeal from orders granting or denying class
certification).
2 A-1247-16T3
construed to meet the requirements of Rule 4:32-1(a) and (b), we
think the smaller, more narrowly defined class plaintiffs
offered in the alternative can be certified. We accordingly
vacate the order denying class certification and remand for
certification of a class in conformity with this opinion.
The essential facts were set forth in the Supreme Court's
prior opinion in this matter, Green v. Morgan Props., 215 N.J.
431, 438-39 (2013).2 We summarize them here, augmented by the
undisputed facts from the record on the class certification
motion. Plaintiffs are current or former tenants of The
Willows, a 347-unit apartment complex in Barrington, or
Colonial, a 188-unit apartment complex in Cherry Hill. Since
2007, both complexes have been operated by one of the Morgan
defendants,3 Delaware corporations that manage 131 apartment
2
The Court affirmed in part and reversed in part our decision
reversing the trial court order dismissing plaintiffs' complaint
pursuant to Rule 4:6-2(e). See Green, supra, 215 N.J. at 460.
Specifically, the Court affirmed the reinstatement of
plaintiffs' claims under the Consumer Fraud Act (CFA), N.J.S.A.
56:8-1 to -206, and for negligent misrepresentation, and agreed
that plaintiffs' claims under the Anti-Eviction Act, N.J.S.A.
2A:18-61.1 to -61.12 should have only been dismissed without
prejudice. Id. at 437, 439, 460. The Court reversed our
decision reinstating the claims against the individual
defendant, Morgan's in-house counsel Rosemary Spohn, finding no
basis for liability against her. Id. at 456-57.
3
The Morgan defendants claim the two apartment complexes in
which plaintiffs resided were managed by Mitchell L. Morgan
(continued)
3 A-1247-16T3
complexes in ten different states, sixty-nine in New Jersey. In
September 2007, Morgan created an in-house legal department to
handle lease enforcement and tenant evictions at the sixty-nine
New Jersey properties it manages. Morgan maintains its New
Jersey legal department handles only such matters and no other
legal work.
From 2007 until 2010, each named plaintiff was a party to a
lease requiring payment of an attorney's fee of $400 as
additional rent in the event the landlord had to employ a lawyer
to recover rent due and owing.4 The lease provided the tenant
(continued)
Management, Inc., that Morgan Properties is a trade name and
there is no Morgan Management. As the issue is not critical to
the questions presented on appeal, we note the dispute but do
not resolve it.
4
The pertinent paragraph provided:
(a) Landlord is entitled to remove the
Tenant from the apartment for good cause
under New Jersey Law. If Landlord
institutes legal proceedings to remove
Tenant from the apartment with good cause,
including the collecting of rent, additional
rent or any other charges due and owing
under the lease, Tenant shall pay to
Landlord court costs and costs for the
preparation and filing of legal documents,
reasonable attorney's fees and any
additional costs of legal proceedings.
Landlord is entitled to begin a legal action
for non-payment of rent at any time after
rent is due and owing and not paid. Rent is
(continued)
4 A-1247-16T3
(continued)
due and owing on the first day of the month.
Landlord is further entitled to late charges
as set forth in Paragraph 3 of this lease
and costs, when rent remains due and owing
after the fifth (5) day of the month. In
addition, if rent is not received by
Landlord within fifteen (15) days after the
due date, then, in addition to all other
rights and remedies which Landlord may have,
Landlord or its agents may report such
delinquency or non-payment to national
credit reporting agencies. (b) If Tenant
fails to pay the entire amount of rent due
and owing, and the services of an attorney
are thereby required to resolve the matter,
either by court appearance, preparation of a
consent to be filed with the court or for
any other purpose, then a reasonable
attorney's fee of four hundred dollars
($400.00) is due and payable as additional
rent by the Tenant. If the attorney's fee
exceeds four hundred dollars ($400.00) then
the Tenant will be required to pay the
entire amount of reasonable attorney's fees
[due] and owing to the attorney. In the
event Tenant receives a Summons and
Complaint and pays all rent due, including
late charges and a legal fee of two hundred
dollars ($200.00), by certified check or
money order prior to the court date so that
Landlord's attorney is not required to make
an appearance on behalf of the Landlord,
Tenant shall not be liable for the remaining
two hundred dollar ($200.00) legal fee.
However, the four hundred dollars ($400.00)
attorney's fee is due and owing even if
Tenant makes full payment on the day of the
court appearance, because the attorney will
be required to make an appearance on behalf
of Landlord. All payments are to be by
certified check, cashier's check or money
order only. (c) If the Landlord is required
(continued)
5 A-1247-16T3
was responsible for all fees exceeding $400, and could receive a
$200 credit if all rent, including a $200 attorney's fee, was
paid before a lawyer was required to appear in court. The lease
further provided for imposition of the $400 fee for "matters
that do not require the filing of an action with a court
including the service of valid notices to cease, notices to
vacate, and demands for possession." The leases were amended in
(continued)
to institute or become involved in legal
proceedings requiring the services of an
attorney for any good cause, including but
not limited to, an action for possession,
collection of money, rent or other damages,
or any other valid reason, including
petitioning the court for injunctive relief,
making an appearance at a hearing requested
by Tenant for a stay of any portion of
eviction proceedings, including the issuance
and execution of the warrant of removal
and/or writ of possession, or other pre-
and/or post-eviction relief, or any other
action whether it be of a civil or criminal
nature, then this entitles the Landlord to
collect a reasonable attorney's fee of four
hundred dollars ($400.00), plus costs and
interest due and owing. If the actual
amount of the attorney's fee exceeds four
hundred dollars ($400.00), then Tenant will
be responsible for the entire reasonable
attorney's fee. Tenant is also responsible
for attorney's fees incurred for matters
that do not require the filing of an action
with a court including the service of valid
notices to cease, notices to vacate, and
demands for possession, in the amount of
four hundred dollars ($400.00).
6 A-1247-16T3
2010 to eliminate the automatic $200 reduction if no court
appearance was required.5
Each of the named plaintiffs was subjected to eviction
proceedings for non-payment of rent on multiple occasions and
was charged $400 in attorneys' fees each time. They did not,
however, pay that sum each time. Sometimes Morgan reduced the
fee charged. Plaintiffs Green and Blumberg vacated their
apartments still owing rent, including attorneys' fees, although
Blumberg's co-signer eventually paid all Blumberg owed on his
lease. Their individual circumstances are summarized below.
The Named Plaintiffs
Plaintiff Green was a tenant at The Willows from May 2002
until September 2010. The parties agree she was late paying her
rent on twenty-six occasions, resulting in the filing of five
summary dispossess actions. Each eviction action included a
5
The 2010 lease provision provides as follows:
(f) If the Landlord uses the services of an
attorney (including in-house counsel) for
any good cause in relation to the
enforcement or defense of any terms of this
Lease, or in any relation to this tenancy,
whether or not litigation is commenced,
Resident must pay Landlord's attorney fees
in the amount of four hundred dollars ($400)
plus costs as Additional Rent for each cause
in which the attorney's services are
engaged.
7 A-1247-16T3
demand of $400 for legal fees and court costs of $31. Green
paid the full $400 on two occasions. She was granted a $200
credit on one occasion and a $300 credit on another. She did
not pay any amount toward the $400 legal fee charged in the
fifth and final proceeding.6 Green was thus charged total legal
fees of $2000, of which she paid $1100. Green quit her
apartment owing The Willows $2960.11, after application of her
security deposit and interest.
The Permenters have resided at Colonial since January 2005.
The parties agree the couple was late paying their rent on over
thirty occasions, resulting in the filing of five summary
dispossess actions. Each eviction action included a demand of
$400 for legal fees and court costs of $37. The Permenters paid
the full $400 on one occasion. They were granted a credit of
$400 on one occasion and a credit of $200 on three others. The
6
We have extrapolated the fees and credits for each named
plaintiff for each summary dispossess action from the dates of
the charges, the credits and the summary dispossess actions
included in the record. The parties have calculated the total
legal fees charged to the named plaintiffs, as well as the total
fees they paid for all evictions, and we have included those
figures here as well. Defendants have also calculated the
average fee each named plaintiff paid per eviction. We have not
included those averages because the actual fees charged and paid
for each eviction, not the averages, would appear to be the
correct way of measuring ascertainable loss and damages in this
case. See D'Agostino v. Maldonado, 216 N.J. 168, 192-93 (2013).
8 A-1247-16T3
Permenters were thus charged total legal fees of $2000, of which
they paid $1000.
Plaintiff Blumberg was a tenant at Colonial from March 2006
through September 2009. He was late paying rent every month but
one and was subject to five summary dispossess actions. Each
eviction action included a demand of $400 for legal fees and $37
in court costs. Blumberg paid the full $400 on two occasions.
He was granted a $400 credit on one occasion and a $200 credit
on another. Although he was evicted from his apartment in
September 2009 owing $1252.81, including the $400 legal fee
charged on his last eviction, that amount was paid in full in
August 2010 by his aunt, who co-signed his lease. Blumberg was
thus charged total legal fees of $2000, of which "he" paid
$1400.
The Supreme Court's Opinion
In its opinion reinstating the CFA claim against
defendants, the Court expressed several reasons for rejecting
defendants' argument that the $400 lease term represented a
reasonable liquidated damages provision. Green, supra, 215 N.J.
at 452-55. Chief among them was that it would impermissibly
shift to plaintiffs the burden of establishing the
reasonableness of defendants' attorneys' fees. Id. at 454-55.
The Court held plaintiffs must be permitted the opportunity to
9 A-1247-16T3
challenge the reasonableness of the lease clause on which the
landlords relied in the summary dispossess proceedings. Id. at
454.
As the Court explained, "[t]hat these plaintiffs may have
paid the attorneys' fees set forth in the leases in order to
avoid eviction does not preclude them from attempting to
challenge the fees as being so unreasonable as to violate the
CFA in a corollary proceeding." Ibid. The Court concluded
defendants might well be able to "demonstrate that the basis on
which the fees were calculated and included in the leases is
reasonable, but it will be their burden to do so." Id. at 456.
The Class Certification Motion
Following discovery, plaintiffs sought class certification
on the single count of the complaint alleging violations of
Section 2 of the CFA.7 Plaintiffs allege defendants engaged in
affirmative misconduct by including and enforcing the $400
charge in plaintiffs' leases when defendants' actual costs for
each summary dispossess action were far less than $400. They
sought to certify a New Jersey class consisting of all tenants
of the Willows, Colonial and of any properties managed by the
7
Following the Supreme Court's decision in this matter,
plaintiffs did not move to re-plead their Anti-Eviction Act
claim and elected not to seek class certification on their
negligent misrepresentation claim.
10 A-1247-16T3
Morgan defendants "who were charged a legal fee for eviction"
from September 1, 2007 until the date of class certification.
Plaintiffs presented two expert reports in support of their
motion. One by a practicing landlord-tenant lawyer regarding
the reasonableness of the $400 fee in comparison to the rates
charged by firms representing landlords in Burlington and Camden
counties, and the other by a forensic accountant who analyzed
Morgan's expenses for the eviction actions against the legal
fees charged to the tenants in order to calculate the damages
sustained by the class. Plaintiffs' attorney expert, David
Capozzi, averred the $400 fee Morgan charged its tenants well
exceeded the $110 to $150 per eviction two different local firms
charged Morgan for preparing, filing and serving tenancy
complaints and appearing on the trial date. Plaintiffs'
forensic accountant, Forensic Resolutions, Inc., calculated on
the basis of Morgan's records that Morgan incurred a cost of
between $125 to $139 per eviction, resulting in tenants being
overcharged in amounts ranging from $11 to $275 for each
eviction action.
Defendants countered with their own joint forensic expert
report prepared by EisnerAmper LLP, comparing the attorneys'
fees charged the tenants, net of credits, against the costs of
operating Morgan's in-house legal department for the years
11 A-1247-16T3
spanning the putative class period. Based on total fees
collected of $3,838,894 and operating expenses of $3,790,548
over the same period, EisnerAmper calculated that tenants were
overcharged a total of $48,346, or $2.17 per eviction, leading
it to conclude that the $400 charge included in the leases was
supported and consistent with the operating costs of Morgan's
legal department. At deposition, the expert testified that
using those same figures, Morgan's actual cost per eviction was
$170 and it collected, on average, $172 per eviction.
In their briefs on the motion, the parties debated whether
plaintiff had established the Rule 4:32-1 prerequisites for
class certification, focusing largely on typicality and whether
common questions predominated over individual ones. Defendants
conceded plaintiffs' proposed class would be sufficiently
numerous to satisfy Rule 4:32-1(a)(1), but contended it was
impermissibly overbroad in that it included tenants who were
charged a $400 attorney's fee, regardless of whether they paid
anything or whether the amount paid was excessive. Defendants
further contended that many members of the proposed class left
their apartments owing rent, leaving them exposed to recoupment,
see Beneficial Fin. Co. of Atl. City v. Swaggerty, 86 N.J. 602,
609 (1981), extinguishing any sums they could recover on their
consumer fraud claims, or counterclaims for the unpaid rent.
12 A-1247-16T3
Plaintiffs argued in reply that their proposed class was
not overbroad because the attorney's fee charged to tenants was
"an illegal debt that is the product of fraud."8 They further
argued the court should exclude any counterclaims because "to
include [them] would result in those claims predominating the
litigation." Plaintiffs requested, in the alternative, that the
court order partial certification to permit a class wide
determination of the issue as to whether defendants had charged
excessive and illegal attorneys' fees to tenants.
Although the parties disagreed on the reasonableness of the
fees charged, plaintiffs accepted Morgan's figures of the number
of eviction proceedings over the putative class period, the fees
Morgan charged to tenants on those occasions and the credits
Morgan awarded against those charges. From January 2007 through
September 2014, Morgan charged over 10,000 different tenants,
attorneys' fees on 22,308 different occasions. On 16,754 of
8
Simultaneous with their class certification motion, plaintiffs
filed a motion for summary judgment on liability, arguing that
defendants' failure to have presented expert testimony by a
lawyer as to the reasonableness of the attorneys' fees charged
made it impossible for them to carry their burden of proving the
fees were reasonable. The trial court rejected that argument,
finding defendants had presented evidence of the reasonableness
of the fees through the EisnerAmper report, thereby making the
reasonableness of the fees a fact to be resolved by the jury.
We denied defendants' motion for interlocutory review of that
order.
13 A-1247-16T3
those occasions, or 75% of the time, those fees amounted to
$400. On the 22,308 occasions Morgan charged tenants fees, it
subsequently credited the tenant's account for some or all of
the fee 10,183 times, meaning on 12,125 occasions, no credits
were awarded. The parties agree that of the 10,613 New Jersey
tenants who were charged an attorney's fee by MLM Management
through December 31, 2014, slightly over 50% (or 5319) of those
tenants left owing rent and other charges, after the application
of the security deposit. There are no figures in the record, of
which we are aware, quantifying the number of tenants who left
owing more than they were charged in legal fees.
Although plaintiffs dispute that all of the expenses
Morgan's expert includes among the allocated costs of running
Morgan's legal department are proper, even under Morgan's
analysis there are several years in which collections of legal
fees have exceeded the department's expenses, sometimes
significantly. In 2008, for example, collections outstripped
expenses by $425,924.9 Morgan's expert arrived at its conclusion
that the legal department generated a $48,346 profit over the
9
EisnerAmper states that "[t]he years in which collections
exceeded expenses [2008, 2009, 2010 and 2011] appear to be due
to the 2008 recession and related increase in tenant collection
and eviction issues."
14 A-1247-16T3
putative class period by averaging the department's annual
profits and losses from 2007 through September 30, 2014. Its
conclusion that Morgan overcharged $2.17 per eviction is based
on dividing that average by 22,308, the total number of times
Morgan charged a tenant an attorney's fee over the period.
The Trial Court's Opinion
The trial court began its analysis by addressing the
parties' dispute over plaintiffs' obligation to prove
ascertainable loss in order to establish its CFA claim and the
Supreme Court's holding that defendants bear the burden to
"demonstrate that the basis on which the fees were calculated
and included in the leases is reasonable." Green, supra, 215
N.J. at 456. The judge determined that
the plaintiff bears the burden of
challenging the fee provision of the lease
agreement as an unlawful or unconscionable
business practice under the CFA, while the
fees actually charged to the plaintiffs – or
the prospective class members – must be
proven to be reasonable under the
circumstances of each case by these
Defendants.10
10
Although this issue is not raised on the class certification
motion, we note the judge's allocation of the burdens of proof
is not consistent with the Court's opinion in Green. As to the
$400 lease term, the Court was clear that "[i]t may well be that
the corporate defendants can demonstrate that the basis on which
the fees were calculated and included in the leases is
reasonable, but it will be their burden to do so." Green,
supra, 215 N.J. at 456 (emphasis added). So, while the court is
(continued)
15 A-1247-16T3
Analyzing the class plaintiffs initially proposed on the
motion, all tenants charged attorneys' fees under the leases,
the judge found it met none of the Rule 4:32-1(a)(1) through (4)
prerequisites for class certification, numerosity, commonality,
typicality and adequacy of representation, and that plaintiffs
could not demonstrate under Rule 4:32-1(b)(3) that common
questions of law or fact predominated and a class action was
superior to other methods for adjudicating the controversy.
The judge rejected numerosity because "[d]efining the class
by those who were merely charged a legal fee for an eviction,
regardless of whether the tenant actually paid and ignoring
whether the particular circumstances of the fee were actually
reasonable makes for a class definition that is impermissibly
broad," and would result in "a class that contained members who
sustained no ascertainable loss and were not entitled to
recovery under the Plaintiffs' Consumer Fraud claim."
The judge rejected commonality because "[t]he inquiry in
this case principally requires a finder of fact to determine
(continued)
correct that plaintiffs bear the burden of demonstrating the
unlawful practice they allege, because the lease term they
challenge is one based on imposition of a legal fee, the burden
of proving the reasonableness of the lease term, as well as the
actual fees they charged any particular plaintiff, is on
defendants. Ibid.
16 A-1247-16T3
whether the fees charged to a particular plaintiff were
reasonable in order to prevail on the CFA claim." He concluded
that "those questions of fact or law that Plaintiffs assert are
common to the class would require a much too individualized
inquiry into the facts and circumstances of each class member's
eviction proceedings to merit certification." Because some
proposed class members "paid attorneys' fees to avoid eviction
[and] others did not," the judge further concluded "there may
well be no single 'typical' Plaintiff because there may well be
no 'typical' class member." He thus concluded plaintiffs failed
to meet the typicality requirement as well.
In analyzing predominance, the judge considered plaintiffs'
argument that "common issues predominate because the central
issue to the case requires a determination that the Defendants
engaged in a common course of conduct that illegally charged
attorney's fees to the putative class" against defendants' claim
that the argument for "class certification depends less on
demonstrating a common illegal scheme perpetrated by the
Defendants, [and] more toward showing that the attorney's fees
charged to each Plaintiff were unreasonable." The judge found
"[t]he issues of liability in this case are focused on damages
assessed on an individual basis," noting that plaintiffs' own
expert conceded at deposition that "the reasonableness of the
17 A-1247-16T3
fees assessed would have to be determined individually." He
accordingly concluded that common questions of law or fact did
not predominate over questions only affecting individual
members.
In assessing the superiority of a class action against
other methods of adjudication, the judge focused on the
potential for counterclaims for unpaid rent against class
members. Concluding "that there may be little other alternative
for the Defendants but to bring claims against class members"
for unpaid rent under New Jersey's entire controversy doctrine,
Rule 4:30A, the judge found "[t]he addition of counterclaims
would present inefficient and unwieldy litigation." In light of
those management problems and the risk of counterclaims exposing
some number of "class members to be subject to paying the
Defendants' outstanding rent that was previously uncollected,"
the judge concluded "the class vehicle is not a superior method
of resolution in this case, and the pursuit of individual claims
and counterclaims would result in a more manageable resolution
for each case."
Finally, although acknowledging defendants' concession that
class counsel are certainly qualified to represent the class,
the judge concluded "there is no incentive for the named
Plaintiffs to defend claims against individual class members for
18 A-1247-16T3
unpaid rent." He thus concluded the named plaintiffs would not
adequately protect the interests of the class as required by
Rule 4:32-1(a)(4). The judge rejected plaintiffs' suggestion to
certify a "class to determine liability only, while leaving
litigation of damages to individual class members," because it
"fails to account for the later problem that those individual
class members would face in seeking a relatively small recovery
for a relatively significant expense of both time and financial
resources."
Our Analysis
Our Supreme Court has described the class action as "a
device that allows 'an otherwise vulnerable class' of diverse
individuals with small claims access to the courthouse." Lee v.
Carter-Reed Co., LLC, 203 N.J. 496, 518 (2010) (quoting Iliadis
v. Wal-Mart Stores, Inc., 191 N.J. 88, 120 (2007)). Our courts
liberally construe Rule 4:32-1, the class action rule, in
accordance with the Court's instruction that "a class action
'should lie unless it is clearly infeasible.'" Iliadis, supra,
191 N.J. at 103 (quoting Riley v. New Rapids Carpet Ctr., 61
N.J. 218, 225 (1972)). The Court has noted that CFA claims are
particularly well suited for class treatment. See Strawn v.
Canuso, 140 N.J. 43, 68 (1995), superseded on other grounds by
statute, New Residential Construction Off-Site Conditions
19 A-1247-16T3
Disclosure Act, L. 1995, c. 253 § 10 (codified at N.J.S.A.
46:3C-10), as recognized in, Nobrega v. Edison Glen Assocs., 167
N.J. 520, 533 (2001). Although decisions on class certification
are reviewed for abuse of discretion, Carter-Reed, supra, 203
N.J. at 504, our review of the trial court's analysis of the
legal questions underlying a decision on certification is de
novo, Int'l Union of Operating Eng'rs Local No. 68 Welfare Fund
v. Merck & Co., Inc., 192 N.J. 372, 386 (2007).
Applying that standard here, we agree with the trial court
that a proposed class of all tenants who were charged attorneys'
fees under the 2007 and 2010 Morgan leases is not maintainable.
The very real threat of counterclaims against class members for
unpaid rent exceeding any recovery makes a class including such
tenants impermissibly broad. See Rodriguez v. Nat'l City Bank,
726 F.3d 372, 381 (3d Cir. 2013) (observing that certification
of a class including individuals who did not experience the harm
allegedly caused by the defendants diminishes the relief for
class members who were harmed). We further agree the named
plaintiffs would have no incentive for defending counterclaims
against class members for unpaid rent and, as plaintiffs
concede, including them "would result in those claims
20 A-1247-16T3
predominating the litigation."11 See Channell v. Citicorp Nat'l
Servs., 89 F.3d 379, 385-86 (7th Cir. 1996).
In our view, however, defendants' counterclaims for unpaid
rent against some former tenants are not fatal to plaintiffs'
efforts to certify a class in this case. Accordingly, we review
the court's class certification analysis of plaintiffs' CFA
claim applied to the same putative class only excluding those
tenants who were evicted or quit their apartments owing more
than they were charged in legal fees.12
Plaintiffs pursuing a CFA claim need prove only three
things: an unlawful practice, an ascertainable loss, and a
causal relationship between the two. Carter-Reed, supra, 203
N.J. at 521. A party seeking class certification of a CFA claim
must satisfy the general prerequisites for maintaining a class
action set out in Rule 4:32-1(a), as well as one of the three
11
Although plaintiffs have argued against permitting defendants
to plead their counterclaims for unpaid rent, they offer no
rational basis for excluding such claims under the entire
controversy doctrine. See In re Cadillac V8-6-4 Class Action,
93 N.J. 412, 438 (1983) (noting "[c]ertification as a class
action does not limit a defendant's right to pursue any defense
on any of a plaintiff's claims").
12
Plaintiffs sought certification in the trial court of this
smaller class in their brief filed in response to defendants'
arguments regarding assertion of their unpled counterclaims as
well as at oral argument on the class motion. They have
likewise continued to press for this smaller alternate in their
briefs and at oral argument in this court.
21 A-1247-16T3
criteria enumerated in Rule 4:32-1(b)(3). Rule 4:32-1(a)
provides that:
One or more members of a class may sue or be
sued as representative parties on behalf of
all only if (1) the class is so numerous
that joinder of all members is
impracticable, (2) there are questions of
law or fact common to the class, (3) the
claims or defenses of the representative
parties are typical of the claims or
defenses of the class, and (4) the
representative parties will fairly and
adequately protect the interests of the
class.
The Rule 4:32-1(a) factors are commonly referred to as
numerosity, commonality, typicality and adequacy of
representation. Carter-Reed, supra, 203 N.J. at 519.
Rule 4:32-1(b)(3), under which plaintiffs proceed, requires
the court to find:
that the questions of law or fact common to
the members of the class predominate over
any questions affecting only individual
members, and that a class action is superior
to other available methods for the fair and
efficient adjudication of the controversy.
The factors pertinent to the findings
include:
(A) the interest of members of the
class in individually controlling the
prosecution or defense of separate actions;
(B) the extent and nature of any
litigation concerning the controversy
already commenced by or against members of
the class;
22 A-1247-16T3
(C) the desirability or undesirability
in concentrating the litigation of the
claims in the particular forum; and
(D) the difficulties likely to be
encountered in the management of a class
action.
The Rule 4:32-1(b)(3) factors are commonly referred to as
predominance and superiority. Carroll v. Cellco P'ship, 313
N.J. Super. 488, 495 (App. Div. 1998).
A class of tenants who were charged legal fees by
defendants under their leases but did not quit their apartments
owing more than those charges, represented by defendants to
number at least 5294 tenants, easily satisfies the numerosity
requirement. See In re Cadillac, 93 N.J. at 425 (finding
numerosity where number of plaintiffs is "sufficiently numerous
so that joinder is not a satisfactory alternative"). Common
questions of law and fact arise out of the uniform leases, the
legal fees charged pursuant thereto, the reasonableness of the
fee provisions in the leases and whether the $400 fee exceeded
the costs of the services. With the exception of plaintiff
Green, who would not be included in this smaller class because
she quit her apartment owing $2960.11, a sum exceeding the $2000
in legal fees she was charged by defendants over the course of
five summary dispossess actions, the claims of the named
plaintiffs "'have the essential characteristics common to the
23 A-1247-16T3
claims of the class.'"13 See ibid. (quoting 3B James W. Moore,
et al., Moore's Federal Practice ¶ 23.06-2 (2d ed. 1982)). That
plaintiff Blumberg's aunt paid, on his behalf, the rent
remaining due when he vacated his apartment does not distinguish
his claim in our view.
The nub of the dispute over this case proceeding as a class
action is whether plaintiffs have met their burden of proving
that common questions of law and fact predominate over
individual claims. R. 4:32-1(b)(3). In analyzing the larger,
more inclusive class, the trial judge viewed the central
question in the case as "whether the fees charged to a
particular plaintiff were reasonable." We see the case
differently.
As we see it, the central question is whether the $400 fee
charged to all plaintiffs was reasonable or instead,
unconscionable. Or, stated differently, whether defendants'
inclusion of the $400 charge in their tenant leases,
characterized by the Supreme Court as contracts of adhesion, see
Green, supra, 215 N.J. at 454, was an unconscionable or unlawful
practice. Framing the question as the trial court did removes
the focus from the lease clause and the summary dispossess
13
We assume plaintiffs will substitute a class representative
for Green or dismiss their claim against The Willows on remand.
24 A-1247-16T3
proceedings. See ibid. (holding "tenants must be afforded a
forum to challenge the reasonableness of lease clauses on which
landlords rely for purposes of summary dispossess proceedings").
The lease term is important because, as the Court has
noted, "summary dispossess litigation is an effective – and at
times coercive – mechanism for collecting rent and other fees."
Hodges v. Sasil Corp., 189 N.J. 210, 226 (2007). "If the rent
owed," here including legal fees denominated as additional rent,
"is paid 'on or before entry of judgment,' the legal proceeding
is terminated." Id. at 221 (quoting N.J.S.A. 2A:18-55). "The
tenant and landlord understand the summons and complaint to be a
demand for payment of rental arrears, a demand that prompts
defaulting tenants to pay owed rent." Id. at 227-28. As the
Court has acknowledged, the consequences of inflating the amount
due in such circumstances "can be particularly devastating when
applied to low-income tenants. The economic hardship resulting
from even a few extra dollars in late charges and attorneys'
fees may substantially impact a family's ability to survive."
Id. at 228.
The predominance inquiry "tests whether the proposed class
is 'sufficiently cohesive to warrant adjudication by
representation'" by considering the significance of the common
questions versus the individualized questions underlying the
25 A-1247-16T3
members' claims. Iliadis, supra, 191 N.J. at 108 (quoting
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623, 117 S. Ct.
2231, 2249, 138 L. Ed. 2d 689, 712 (1997)). Here, resolution of
the question of whether inclusion of the $400 charge in the
leases was reasonable or was instead an unlawful practice is
central to all of the members' claims and establishes one of the
three elements of each member's case.14
The issue on which the trial court focused, whether the
fees charged to an individual plaintiff were reasonable, no
doubt depends on individual assessments. But the issue of
whether the fees charged to an individual plaintiff were
reasonable goes to ascertainable loss and damages and only comes
into play if plaintiffs have succeeded in proving the $400 fee
included in their leases was unconscionable. See D'Agostino,
supra, 216 N.J. at 192-93 ("When an unconscionable commercial
practice has caused the plaintiff to lose money . . . that loss
14
Indeed, it would be the same for all tenant claims of the
larger class. The common questions are the same for both
putative classes. In the larger class, however, the very real
possibility of thousands of individual counterclaims
overwhelming the common questions make that larger class not
maintainable. Cf. In re Cadillac, supra, 93 N.J. at 430 (noting
"the critical question remains whether the benefit from the
determination in a class action of the existence of a common
defect and a common pattern of fraud outweighs the problems of
individual actions involving such other issues as causation,
reliance, and damages").
26 A-1247-16T3
can satisfy both the 'ascertainable loss' element of the CFA
claim and constitute 'damages sustained' for purposes of the
remedy imposed under the CFA."). "[P]redominance does not
require the absence of individual issues or that the common
issues dispose of the entire dispute." Iliadis, supra, 191 N.J.
at 108. The Court has made clear that "[i]ndividual questions
of law or fact may remain following resolution of common
questions." Ibid. This is especially true when remainder
issues go to damages. Id. at 112-13.
The parties in this case have conducted extensive fact
discovery and engaged experts who have prepared comprehensive
reports directed entirely to the question of whether the $400
fee in the lease was a reasonable approximation of the fees
defendants could expect to incur in a summary dispossess action
or an unconscionable overreach. Any evidentiary questions
regarding the reliability or admissibility of those opinions and
the credibility of the experts apply uniformly to all members of
the class. A jury may appropriately consider the basis on which
the fees were calculated, whether the costs defendants include
in the operating expenses for the legal department are fairly
allocated, whether the $400 fee included in the leases is a
reasonable approximation of defendants' expected costs for a
summary dispossess action, whether defendants may base the $400
27 A-1247-16T3
fee on its collections of fees charged instead of its costs for
services performed and whether those costs are reasonable in
comparison to the fees charged by outside lawyers for the same
work. If the jury decides the $400 lease charge is
unconscionable, it can decide what lease charge would be
reasonable.
Although resolution of those issues may not dispose of the
litigation, in the event it does not, it will at least establish
a basis for determining whether individual class members
suffered an ascertainable loss. Using the Permenters as an
example, if the jury were to decide that the $400 fee included
in the leases was reasonable, plaintiffs could not succeed in
proving an unlawful practice, ending the litigation and binding
all class members to that result. If, on the other hand, the
jury decided the $400 lease charge was unreasonable and that a
fair charge was $200, then the Permenters, having paid $400 on
one occasion, $0 on one occasion and $200 on three occasions,
could establish an ascertainable loss of $200, subject to
defendants' ability to demonstrate that the $400 was a
reasonable fee in light of the work performed on the summary
28 A-1247-16T3
dispossess action in which the Permenters paid a $400 fee.15 See
D'Agostino, supra, 216 N.J. at 192-93.
Significantly, almost all of the proofs relating to the
many individual issues defendants assert must be resolved for
each class member are in defendants' possession in the form of
the tenant ledgers and other computerized records. Even though
defendants claim their costs varied from eviction to eviction,
Morgan's actual ability to demonstrate the reasonableness of the
fee charged any particular tenant is unclear in light of its
lawyers' and paralegals' failure to maintain time records.
"Although 'different factual situations may arise with respect
to the defenses as to different plaintiffs[, such] does not
derogate from the fact that the affirmative cause of action
itself has the community of interests and of questions of law or
fact which justify the class action concept.'" Iliadis, supra,
191 N.J. at 112 (quoting Branch v. White, 99 N.J. Super. 295,
310 (App. Div.), certif. denied, 51 N.J. 464 (1968)).
Weighing the significance of the common questions, the
benefit of resolving those questions, as well as at least some
individual questions of ascertainable loss, through a class
15
Employing the same hypothetical, Blumberg could establish an
ascertainable loss of $600, subject to defendants' ability to
demonstrate that $400 was a reasonable fee in the three summary
dispossess actions for which Blumberg paid a $400 fee.
29 A-1247-16T3
action against alternatives, and considering the "common nucleus
of operative facts," Carter-Reed, supra, 203 N.J. at 520,
presented by the plaintiffs' challenge to a term in a uniform
lease utilized in sixty-nine apartment complexes throughout the
State, we are satisfied that the common questions predominate
over any questions affecting only individual members. R. 4:32-
1(b)(3). At the core of this case are tenants seeking to
redress a "common legal grievance," In re Cadillac, supra, 93
N.J. at 435, involving an allegedly unconscionable lease term
included in every one of their leases, making them sufficiently
cohesive to warrant adjudication through class representatives,
see Iliadis, supra, 191 N.J. at 108.
Finally, there can be little doubt that class litigation is
"superior to other available methods for the fair and efficient
adjudication of the controversy" in this case. R. 4:32-1(b)(3).
Given the class members' "lack of financial wherewithal,"
Saldana v. City of Camden, 252 N.J. Super. 188, 200 (App. Div.
1991), and the relatively low value of the individual claims,
the likelihood of any individual tenant challenging the $400
lease charge against these defendants is remote. As in New
Rapids, "[i]f each victim were remitted to an individual suit,
the remedy could be illusory, for the individual loss may be too
small to warrant a suit or the victim too disadvantaged to seek
30 A-1247-16T3
relief. Thus the wrongs would go without redress, and there
would be no deterrence to further aggressions." New Rapids,
supra, 61 N.J. at 225.
In our view, this case is well suited to class treatment.
A narrowed class, drawn so as to exclude those tenants against
whom defendants could assert counterclaims overwhelming the
common claims of the class, is an appropriate vehicle to redress
what the plaintiffs claim are systemic illegal lease charges to
over 5000 tenants in this State.
Although it is likely that individual issues will remain
following resolution of the common questions, posing some
management challenges, the issues here are not nearly so
complicated as those posed in either Iliadis or In re Cadillac.
The Law Division has the ability "to craft remedies and
procedures to address the peculiar problems of class
litigation," by altering, amending or even decertifying a class
if necessary. Iliadis, supra, 191 N.J. at 119-20; see also R.
4:32-2(a). "Class actions by their very nature are complicated
creatures, but they provide an efficiency of scale and an
equitable means of relief for individuals who might otherwise
not have access to the courthouse or the incentive or ability to
right a wrong." Carter-Reed, supra, 203 N.J. at 530.
31 A-1247-16T3
Although we agree with the trial court that the larger
class plaintiffs proposed was not maintainable in accordance
with Rule 4:32-1(a) and (b), we conclude the smaller, more
narrowly defined class plaintiffs offered in the alternative
should be certified. Accordingly, we vacate the order denying
class certification and remand for certification of a class in
conformity with this opinion.
Vacated and remanded. We do not retain jurisdiction.
32 A-1247-16T3