Antitrust Law Daily Wrap Up, RICO NEWS: Supreme Court asked to review class settlement in action by tenants against property owner, (Feb 24, 2014)

By Linda O’Brien, J.D., LL.M.

A group of individual tenants has asked the U.S. Supreme Court to review a decision of the U.S. Court of Appeals in New York City that (1) did not require subclassing of the class to ensure adequate representation; (2) approved a class settlement that excluded from the claims process absent class members who held certain types of claims; and (3) determined the settlement to be fair, adequate, and reasonable, even though the class counsel engaged in no merits discovery. The petition for certiorari was filed on February 18 (Suarez v. Charron, Dkt. 13-1000).

Nine individual tenants brought suit against Pinnacle Group NY LLC and its principal owner, Joel Wiener, alleging that the defendants engaged in a conspiracy to fraudulently increase regulated rents in apartment buildings owned or controlled by them in New York City. The plaintiffs claimed that the defendants unlawfully inflated rents, refused to make repairs, filed meritless eviction suits, and harassed tenants in violation of the Racketeer Influenced Corrupt Organization Act (RICO). The district court certified two classes: an injunctive class consisting of current tenants and a liability class consisting of persons who were tenants in apartments owned or controlled by Pinnacle from July 2004 to April 2010. In the final settlement approved by the district court, two subgroups of class members were excluded from the claims process: tenants whose rent was illegally set by a prior landlord and tenants whose illegal rents were set by Pinnacle prior to July 2004.

The Second Circuit affirmed the district court’s approval of the settlement of the class action.

In evaluating substantive fairness, the district court carefully analyzed the factors set forth in Detroit v. Grinnell Corp., 495 F.2d.448 (1974) in its thorough opinion, finding that the factors weighed heavily in favor of final approval of the Settlement Agreement. The Second Circuit also held that the discovery conducted was sufficient to permit the district court to evaluate the claims and settlement. The district court treated the objections to the settlement seriously - delayed the fairness hearing for many months, required revised notice and a twenty building sampling, and ordered the parties to answer detailed questions about the effects of the settlement on various hypothetical class members. Its careful review of the settlement warrants great deference normally accorded to trial court findings with respect to the fairness of class action settlements.

Calling the plaintiffs’ complaint “a daring and unconventional effort to turn New York City rent violations into RICO claims that could be pursued on a class-wide basis,” the Second Circuit noted that the litigation had “achieved significant benefits for the class, particularly in its injunctive aspects, against significant odds.”

“While the settlement has its own unconventional aspects, and leaves much to be desired from the standpoint of the more militant members of the class (including the named plaintiffs), those less favorable aspects of the settlement are largely attributable to the precariousness of plaintiffs’ claims,” according to the appellate court.

Questions presented. The petitioners presented two questions: (1) whether, when a class action settlement distributed its benefits unequally among different subgroups of class members, a district court is required to both determine whether that differential recovery bore a reasonable relationship to the strength of the subgroups’ claims and to appoint subclasses with separate counsel to aid in that process; and (2) whether, in determining that the class action settlement was fair, adequate, and reasonable, the Second Circuit incorrectly assessed the importance of the class counsel’s decision not to conduct any merits discovery.

Attorneys: Kenneth Rosenfeld (Northern Manhattan Improvement Corp. Legal Services) and Harold F. McGuire, Jr. (D.F. McGuire & Associates, LLC) for Enrique Suarez, Hamida Moumouni, and Diogenes Abreu

Companies: Pinnacle Group NY LLC; Pinnacle Group Corp.; Pinnacle Group, LLC

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