Tenants’ class action can proceed over application fee

Rejection of settlement offer doesn’t moot case

Eric T. Berkman//March 1, 2023

A Superior Court judge has ruled that a prospective tenant could bring a putative class action against a landlord for charging an illegal, nonrefundable application fee even though the landlord had offered to settle with the plaintiff and three other putative class members for everything they could expect to recover in a lawsuit.

The defendant landlord argued that because it had offered to pay plaintiff Matthew Gutwill and three class members three times the amount of the illegal fee plus attorneys’ fees — all that they would purportedly be entitled to under the security deposit statute, G.L.c. 186, §15B, and/or Chapter 93A — Gutwill lacked standing to maintain the action.

But Judge David A. Deakin disagreed, emphasizing that there could be other putative class members not yet identified and thus the class action remained viable.

“Inland Residential’s argument that Gutwill lacks standing … is suspect in its structure,” Deakin wrote, denying the landlord’s motion to dismiss for failure to state a claim. “Were Inland Residential’s argument to prevail, then a defendant alleged to have violated the security deposit statute — or, indeed, any other similar consumer protection statute — could simply settle individual claims as they arose and ensure that the defendant would never face a class action lawsuit.”

The nine-page decision is Gutwill v. Inland Residential Real Estate Services, LLC, Lawyers Weekly No. 12-005-23.

‘Correct in its reasoning’

Plaintiffs’ counsel James W. Simpson of Framingham said the judge was correct in his reasoning since there could still be other putative class members besides the plaintiffs who did not get their money back, given that the statute protects not just people who actually become tenants but those who are applying.

“Now, at least we get to find out whether or not all the money [charged by the landlord] was returned and how many applicants this happened to,” Simpson said. “It may be after discovery that they revisit this at summary judgment. But for purposes of a motion to dismiss, the judge was correct in determining this was still an active case and there were still active plaintiffs despite the landlord’s argument that he gave the money back.”

Simpson also pointed out that if there is a violation, the consequence is triple damages.

“So merely returning 500 bucks [to others who may have been charged the fee] doesn’t necessarily make them whole,” he said.

Meghan K. Daley and Brian J. Palmeri, of Stamford, Connecticut, represented the landlord. They were not available for comment.

But local attorneys who have handled consumer protection class actions in the landlord-tenant context agreed with the decision.

“The decision by Judge Deakin is right on the money,” said Matthew J. Fogelman of Newton Center. “Companies who flagrantly violate the security deposit statute must be held accountable, and a class action is the right mechanism to seek justice for all of those harmed by the wrongful conduct.”

Joshua W. Gardner of Boston said efforts by defendants to insulate their illegal conduct by trying to pick off a named plaintiff rarely work.

“Named plaintiffs in consumer, employment or other class cases chose to serve as a class representative not for the small amount of their recovery, but in order to secure systemic change by the defendant — be it their landlord or employer,” Gardner said. “Efforts to pick them off just reinforce that their landlord or employer is a bad actor and that the case should be pursued until the defendant stops its illegal conduct. … The better route is always a reasonable approach to a class-wide settlement.”

Boston lawyer Kevin T. Peters said the practice of picking off putative class representatives is well known among members of the class action bar.

“That’s why I endeavor to get a non-binding commitment from my class representatives to put the class’s interests ahead of their own,” Peters said.

He also said the ruling was consistent with the established principle that an offer of judgment under Rule 68 of the Rules of Civil Procedure does not moot class action claims or deprive a class action plaintiff of standing.

“If a defendant cannot negate standing by making an offer of judgment, it is inconceivable that a settlement offer can,” Peters said.

Meanwhile, Boston’s Michael Brier said the case illustrates how important it is for the landlords in Massachusetts to understand the security deposit statute, which prohibits many practices — such as the charging of application fees — that are common in other states.

“As Gutwill demonstrates, rectifying the mistake after the fact by way of an offer to fully compensate a putative class plaintiff may not be enough, as under Massachusetts law a plaintiff may still serve as a class representative despite the settlement offer.”

Brier said there is still the possibility of defeating class certification, which can render the case moot in some circumstances, but opposing certification is an expensive undertaking with uncertain results.

Illegal fee

In November 2021, Gutwill submitted an application to rent a two-bedroom apartment at the Cirrus Apartment Complex in Ashland.

Inland Residential, which owned the complex, required Gutwill to pay $500 when he submitted the application. The fee was nonrefundable, and Cirrus would not process the application without it.

Gutwill paid the fee but ultimately decided not to rent the apartment.

On Jan. 24, 2022, Gutwill requested a refund. The next day, Cirrus’ property manager emailed him to let him know it would be mailing him a refund check.

The following day, Simpson, Gutwill’s attorney, sent a Chapter 93A demand letter seeking the return of the $500 plus treble damages, attorneys’ fees and costs. The letter sought the same relief for the members of a putative class of all similarly situated people.

Gutwill v. Inland Residential Real Estate Services, LLC

THE ISSUE: Could a prospective tenant bring a putative class action against a landlord for charging an illegal, nonrefundable application fee after the landlord had offered to settle with the plaintiff and three other putative class members for everything they could expect to recover in a lawsuit?

DECISION: Yes (Middlesex Superior Court)

LAWYERS: James W. Simpson of Framingham (plaintiffs)

Meghan K. Daley and Brian J. Palmeri, of Winget, Spadafora & Schwartzberg, Stamford, Connecticut (defense)

On March 1, 2022, Cirrus responded by offering to pay $1,500 a piece plus 12-percent interest to Gutwill and to three others it identified as paying a similar fee when applying for an apartment they ultimately did not rent.

Cirrus also offered to pay Simpson $750 in attorneys’ fees and to negotiate a greater amount of counsel fees conditioned on a review of Simpson’s billing in connection with his representation of Gutwill and the putative class.

Gutwill filed a putative class action against Inland Residential in Middlesex Superior Court three weeks later, seeking damages for violation of the security deposit statute and Chapter 93A.

Inland Residential moved to dismiss, arguing that because it offered to pay Gutwill and the three identified putative class members what they could hope to recover in a lawsuit, Gutwill lacked standing to maintain the action individually or as a class representative.

No lack of standing

Deakin first found that Gutwill had standing to maintain his action individually, distinguishing Gutwill’s situation from that of the plaintiff in Henry, et al. v. Bozzuto Management Company, a 2020 Appeals Court decision holding that when a defendant tendered the maximum recovery to which the plaintiff would have been entitled under the security deposit statute, there was nothing left to litigate regarding the plaintiff’s claim.

“Inland Residential’s argument fails … because, in Henry, the Appeals Court’s holding rested on the plaintiffs’ failure, in that case, in ‘their attempt to certify a class,’” Deakin said, referring to the numerosity requirement for class certification. “As a result, in Henry, the plaintiffs ‘retain[ed] an interest only in their individual claims.’ This is not the case, however, in situations in which a ‘plaintiff’s class claims had not been foreclosed.’”

As for Gutwill’s standing to bring a class claim, Deakin noted that Inland Residential did not challenge Gutwill’s ability to establish the prerequisites for class certification at this stage in the litigation.

“[T]he heart of Gutwill’s lawsuit is that Inland Residential’s charging of an application fee to Gutwill — and at least three others — is not an ‘innocent mistake,’ but, rather, an ongoing practice that violates G. L. c. 186, § 15(1)(b),” Deakin said. “At this early stage, Inland Residential has not met its burden of demonstrating that Gutwill is not entitled to discovery to resolve this dispute.”

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