Class Action Lawsuits Against Landlords

Class Action lawsuit

Flickr-thanks to jseattle

Class action lawsuits are lawsuits brought by a group of tenants with the same or very similar claims against a common defendant, the landlord. Security deposits are a great example of this. The amount of any individual security deposit may be too small to sue your landlady over. However if there are 40 or 50 people whose security deposit has been illegally withheld by the landlord, it might make sense to collectively sue the landlord through class action lawsuit.

The class action claim in the civil lawsuit is that a group of tenants have been taken advantage of by the landlord through similar actions or circumstances. Not all the people have to be identified before the lawsuit is filed. The lawsuit can be filed in the name of a representative person, called the lead plaintiff. The rest of the plaintiffs can be identified while the suit proceeds. However the court must certify that there are many plaintiffs with the same issues and that the pattern of behavior from the landlord is similar.

Here are some of the considerations that are involved in certifying the class:

  • Can the class be easily identified?
  • Are there enough members for there to be a “class”? There must be a minimum number such as 15 or 25 for the judicial system to decide if there is a pattern of landlord misbehavior.
  • Are the legal and factual issues the same for all of the class members?
  • If there are differences in circumstances between some of the class members, do legal and factual issues predominate?
  • Is the lead plaintiff’s claim typical of all the other class members?
  • From the attorney’s standpoint, can they adequately represent the entire class? For example there can’t be any infighting among the plaintiffs.
  • Is a class-action the best method of litigating this situation?

Class actions are civil actions filed at the state level, except for very large dollar amount cases ($5M or more) which are filed at the federal level under the Class Action Fairness Act of 2005 It is possible to get treble damages in some cases so even relatively small individual cases can mount up quickly. Federal cases often involve plaintiffs who live in different states. Both because of the dollar amount ($>5M) and plaintiffs from multiple states, the federal case situation will rarely applied to tenants.

Class action lawsuits are often accepted by civil attorneys on a contingency basis meaning that they do not get paid unless they are successful. Normal contingency fee varies but an operating rule of thumb is 25-40% of the amount collected. The class administration is managed by the attorneys handling the class litigation; no class members (tenants) need be involved. Attorneys bear the expense of discovery, expert witness fees, and all costs of the case. As opposed to billing clients on an hourly basis, these types of cases are where attorneys get to be entrepreneurs and weigh the expected outcome versus their time expenditure to determine whether or not to take the case. For that reason you can be sure that a class action attorney will not take the case unless they believe it has merit and is fairly easy to prove because they are bearing the risk. Additionally, they will make sure that the defendant can pay. As a practical matter, this generally means that they make sure that the defendant has insurance that covers against problems that the landlord caused. Class action lawsuits rarely go to trial; instead, a class action lawsuit settlement is reached whereby the defendants and plaintiffs reach an agreement to pay a settlement amount into the court. The judge agrees with the amount and a class action settlement notice is sent to all members of the class giving them a chance to opt out of receiving the money.(If they do, they usually have to individually sue the defendants.) If they do not, they receive their money shortly.

Let’s see how a tenant class action lawsuit might proceed against the landlord over withheld security deposits. Let’s assume that your landlord makes a practice of illegally withholding your entire security deposit and does the same for many other tenants. Assume that your security deposit is $900, equal to one month’s rent. Because there has been so much abuse by landlords’ withholding security deposits, many state statutes allow recovery of treble damages in the case of security deposits. That makes the potential recovery per tenant of $2700. If there are enough tenants involved to certify a class-action, you can sue your landlord under the class-action statutes in your state.

The number of tenants that it takes to certify a class-action varies by state but is surprisingly small, perhaps only 20-30 tenants. So if there are 20-30 tenants whose circumstance is the same, the class action might be able to be certified. When class actions are filed, damage awards may be trebled, as well as recovery of attorney’s fees, expert witness fees, and costs. So taking the $2700 involved per tenant and trebling that amount because of the class action means that each tenant might obtain $8100. The lead plaintiff would obtain a much larger amount since they were the tenant that made the class-action possible.

To see the types of issues that get raised in these class actions, here is a summary of the issues raised in a large class-action lawsuit against a large apartment owner, someone who owns thousands of units.

  • Property managers were improperly billing costs against the security deposit of tenants, turning a security deposit into a profit center rather than a reimbursement of direct costs.
  • Charging fees to the tenant that were not allowed under the state tenant statutes. Specified items were amenity fees, penalties, costs of replacing locks and keys. Types of amenity fees were fees to use the on-site gym, cleaning fees, application fees, renters insurance premiums, use of the outdoor pool, grill, and gym.
  • Amenity fees were not held in interest-bearing accounts and were non-refundable when the tenant moved out
  • The apartment operator was alleged to have required tenants to take out renter’s insurance and pay the entire amount upfront. They also required the tenant to name the owner as an additional insured (protecting the landlord against loss to the rental unit). It was also apparently alleged that the apartment operator was paid a commission by the insurance company.
  • The apartment operator was alleged to have charged the full replacement cost of items replaced and not give the tenant credit for the reduced value of the item (not deducting normal wear and tear from the value)
  • The apartment operator was alleged to have charged excessive security deposit fees.
  • It was alleged that the apartment operator charged an application fee that exceeded their cost of obtaining the report
  • Illegal collection of fees such as early termination fees. This allowed the apartment operator to collect double rent from apartments by charging flat rate early termination fees and then quickly re-renting the unit.
  • Illegal collection of concession fees if the tenant moved out early. Concession fees are discounted rent given to induce a tenant to sign a lease such as $30 off the monthly rent. If the tenant moves out early the entire amount of the concession fee is deducted from any amounts owing the tenant. The reason this was alleged to be illegal is that concession fees were part of the conditions existing at the time the tenant originally moved in. Conditions are not necessarily the same at the time the tenant moves out. For example, conditions could have deteriorated to the point that currently a discounted rent of $60 is given for new tenants.
  • The allegation was that the apartment operator profited on a ratio utility billing system (RUBS) that allocated utilities back to each unit. The allegation was that the apartment operator overbilled tenants for their share of the total bill such as not subtracting vacant units from the bill or units undergoing repair whose expense belongs to management. Also the apartment operator was alleged to have doublebilled tenants by partially or completely charging tenants for utilities for common amenities (washer dryer area, clubhouses) as well as charging tenants for utilities to their units. Tenants in a RUBS situation are usually required to accept management’s calculations without knowing where the numbers came from, the overall calculations and how their units relates to them, and whether the calculations are actually fair. We discuss this concept extensively in the book on this website “How to Sue Your Landlord.” To obtain a copy, click on the graphic to the right of this text.
  • Another allegation was that the landlord charged fees in the lease agreement that had no basis in state law.
  • The landlord was alleged to have misrepresented facts in order to maximize the amount that could be charged to tenants for early termination fees, extra fees and the like
  • It was alleged that the landlord abused their discretion by not treating all tenants the same. For example, they forgave fees and penalties for some tenants and not others.
  • Another class action allegation was that the landlord charged excessive daily rates for all holdover tenants in an attempt to get them to move on the first of the month and avoid potentially losing an entire month rent. Example: A tenant whose lease expires (holdover tenant) is charged three times the daily rate of rent. By the 10th of the month the tenant has paid the entire month rent at which point they move out. The apartment is cleaned and the new tenant moves in on the 15th, allowing the operator to collect one and a half month’s rent on the apartment for that month.
  • The apartment operator was alleged to have charged a flat rate late fees ($50-75) that exceeded their actual costs or the usury rate for the state.
  • The apartment operator was alleged to have used “hold harmless” type laws in their lease to deflect liability back to the tenant for injuries that occurred on the property, in violation of state statutes.

As you can see from this large list of allegations, there were many complaints against this particular landlord. The plaintiffs won a considerable court decision against the apartment operator

Tenants could often use class-action lawsuits against landlords. We’ve previously used security deposits as a prime example of an issue where class actions could be filed. But in looking at the allegations above, there are many other issues that tenants can raise as well. Because of the treble damages and the fact that many people are affected, the amounts involved can be huge. This is an area that is ripe for tenant litigation against landlords. If tenants will organize in tenant unions and associations, there is a lot of low hanging fruit here.

 

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