author: Chief Judge Lippman. Smith, J.

text:
    [23 NE3d 997, 998 NYS2d 729]
    Lorraine Borden, on Behalf of Herself and All Others Similarly Situated, Respondent, v 400 East 55th Street Associates, L.P., Appellant. Yanella Gudz, on Behalf of Herself and All Others Similarly Situated, Respondent, v Jemrock Realty Company, LLC, Appellant. Elisa Downing et al., on Behalf of Themselves and All Others Similarly Situated, Respondents, v First Lenox Terrace Associates et al., Appellants.
    Argued October 14, 2014;
    decided November 24, 2014

      POINTS OF COUNSEL

      Rosenberg & Estis, PC., New York City (Jeffrey Turkel and Dani Schwartz of counsel), for appellant in the first above-entitled action.
    I. Respondent cannot evade CPLR 901 (b) by purporting to waive treble damages under Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-516 (a). (Cox v Microsoft Corp., 8 AD3d 39; Pesantez v Boyle Envtl. Servs., 251 AD2d 11; Asher v Abbott Labs., 290 AD2d 208; Matter of H.O. Realty Corp. v State of N.Y. Div. of Hous. & Community Renewal, 46 AD3d 103; Wolfisch v Mailman, 182 AD2d 533; Matter of 508 Realty Assoc., LLC v New York State Div. of Hous. & Community Renewal, 61 AD3d 753; Matter of Nagobich v New York State Div. of Hous. & Community Renewal, 200 AD2d 388.) II. A tenant’s attempt to waive a benefit granted under the Rent Stabilization Law of 1969 for any purpose, including evasion of CPLR 901 (b), is void as against public policy and barred by Rent Stabilization Code (9 NYCRR) § 2520.13. (Estro Chem. Co. v Falk, 303 NY 83; In re Berry Estates, Inc., 812 F2d 67; Sylvester v Bernstein, 283 App Div 333, 307 NY 778; Jazilek v Abart Holdings LLC, 10 NY3d 943; Riverside Syndicate, Inc. v Munroe, 10 NY3d 18; Matter of Badem Bldgs. v Abrams, 70 NY2d 45; Roberts v Tishman Speyer Props., L.P., 62 AD3d 71, 13 NY3d 270; Drucker v Mauro, 30 AD3d 37, 7 NY3d 844; 390 W. End Assoc. v Harel, 298 AD2d 11; Cvetichanin v Trapezoid Land Co., 180 AD2d 503.) III. Even if respondent is allowed to waive a benefit granted by the Rent Stabilization Law of 1969, class certification should have been denied because respondent is not an adequate or typical representative of the class. (City of Rochester v Chiarella, 65 NY2d 92; Small v Lorillard Tobacco Co., 94 NY2d 43; Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344; Burns v Volkswagen of Am., 118 Misc 2d 289; Globe Surgical Supply v GEICO Ins. Co., 59 AD3d 129.) IV Allowing a plaintiff to waive statutory penalty damages to evade CPLR 901 (b), under any circumstance or statute, violates CPLR 901 (b) and its legislative intent. (Burns v Volkswagen of Am., 118 Misc 2d 289; Sperry v Crompton Corp., 8 NY3d 204; 72A Realty Assoc. v Lucas, 101 AD3d 401.) V. Respondent cannot meet the required commonality and superiority elements. (Gawez v Inter-Connection Elec., Inc., 9 Misc 3d 1107[A], 2005 NY Slip Op 51443[U]; Daniel v New York State Div. of Hous. & Community Renewal, 179 Misc 2d 452; Osarczuk v Associated Univs., Inc., 82 AD3d 853; Rosenfeld v Robins Co., 63 AD2d 11; CLC/CFI Liquidating Trust v Bloomingdale’s, Inc., 50 AD3d 446.)

      Bernstein Liebhard LLP, New York City {Christian Siebott, Gabriel G. Galletti and Heather V. Lynch of counsel), for respondent in the first above-entitled action.
    I. CPLR 901 (b) does not bar this case from being maintained as a class action under Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-516. (Weinberg v Hertz Corp., 116 AD2d 1; Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604, 77 NY2d 801; Cox v Microsoft Corp., 8 AD3d 39; Pesantez v Boyle Envtl. Servs., 251 AD2d 11; Ridge Meadows Homeowners’ Assn. v Tara Dev. Co., 242 AD2d 947; Life & Casualty Ins. Co. of Tenn. v McCray, 291 US 566; Sperry v Crompton Corp., 8 NY3d 204; Sicolo v Prudential Sav. Bank of Brooklyn, N.Y., 5 NY2d 254.) II. New York public policy and Rent Stabilization Code (9 NYCRR) § 2520.13 do not prevent respondent from waiving penalty damages. (Estro Chem. Co. v Falk, 303 NY 83; Matter of Matinzi v Joy, 60 NY2d 835; Georgia Props., Inc. v Dalsimer, 39 AD3d 332; Park W. Mgt. Corp. v Mitchell, 47 NY2d 316; Jazilek v Abart Holdings LLC, 10 NY3d 943; Riverside Syndicate, Inc. v Munroe, 10 NY3d 18; Matter of 85 E. Parkway Corp. v New York State Div. of Hous. & Community Renewal, 297 AD2d 675; Krebs v Canyon Club, Inc., 22 Misc 3d 1125[A], 2009 NY Slip Op 50291[U]; People ex rel. McLaughlin v Board of Police Commrs. of City of Yonkers, 174 NY 450.) III. This action satisfies CPLR 901 (a)’s five requirements for class certification. (Kudinov v Kel-Tech Constr. Inc., 65 AD3d 481; City of New York v Maul, 14 NY3d 499; Friar v Vanguard Holding Corp., 78 AD2d 83; Daniel v New York State Div. of Hous. & Community Renewal, 179 Misc 2d 452; Osarczuk v Associated Univs., Inc., 82 AD3d 853; Roberts v Tishman Speyer Props., L.P., 89 AD3d 444; Pludeman v Northern Leasing Sys., Inc., 74 AD3d 420; Globe Surgical Supply v GEICO Ins. Co., 59 AD3d 129; Pruitt v Rockefeller Ctr. Props., 167 AD2d 14; Ackerman v Price Waterhouse, 252 AD2d 179.)

      Belkin Burden Wenig & Goldman, LLP, New York City {Magda L. Cruz, Sherwin Belkin and Steven Kirkpatrick of counsel), for appellant in the second above-entitled action.
    I. Plaintiff is barred from class certification under CPLR 901 (b) and cannot waive statutory penalties. (Sperry v Crompton Corp., 8 NY3d 204; Matter of H.O. Realty Corp. v State of N.Y. Div. of Hous. & Community Renewal, 46 AD3d 103; Matter of Myeong Cheol Kim v New York State Div. of Hous. & Community Renewal, Off. of Rent Admin., 249 AD2d 478; Matter of 10th St. Assoc. LLC v New York State Div. of Hous. & Community Renewal, 34 Misc 3d 1240[A], 2012 NY Slip Op 50484[U]; 212 W. 22 Realty v Fogarty, 1 Misc 3d 905[A], 2003 NY Slip Op 51517[U]; Asher v Abbott Labs., 290 AD2d 208; Rudgayzer & Gratt v LRS Communications, Inc., 6 Misc 3d 20, 22 AD3d 148; Klapak v Pappas, 79 AD2d 602; Matter of Empire Blue Cross & Blue Shield Customer Litig., 164 Misc 2d 350; Mohassel v Fenwick, 5 NY3d 44.) II. Plaintiff failed to establish her entitlement to class certification under CPLR 901 (b). (Ackerman v Price Waterhouse, 252 AD2d 179; Globe Surgical Supply v GEICO Ins. Co., 59 AD3d 129; Pludeman v Northern Leasing Sys., Inc., 74 AD3d 420; Cardona v Maramont Corp., 2009 NY Slip Op 32695[U]; Consolidated Rail Corp. v Town of Hyde Park, 47 F3d 473; Bloom v Cunard Line, 76 AD2d 237; Alix v Wal-Mart Stores, Inc., 16 Misc 3d 844, 57 AD3d 1044; Small v Lorillard Tobacco Co., 94 NY2d 43; Gordon v Ford Motor Co., 260 AD2d 164; Gaynor v Rockefeller, 15 NY2d 120.) III. Plaintiffs motion for class certification should have been denied on procedural grounds. (Rebibo v Axton Owners, Inc., 2012 NY Slip Op 30109[U]; Guzman v Mike’s Pipe Yard, 35 AD3d 266.)

      Bernstein Liebhard LLP, New York City {Christian Siebott, Gabriel G. Galletti and Heather V. Lynch of counsel), for respondent in the second above-entitled action.
    I. CPLR 901 (b) does not bar this case from being maintained as a class action under Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-516. (Weinberg v Hertz Corp., 116 AD2d 1, 69 NY2d 979; Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604, 77 NY2d 801; Cox v Microsoft Corp., 8 AD3d 39; Pesantez v Boyle Envtl. Servs., 251 AD2d 11; Ridge Meadows Homeowners’ Assn. v Tara Dev. Co., 242 AD2d 947; Klapak v Pappas, 79 AD2d 602; Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344; Hauptman v Helena Rubinstein, Inc., 114 Misc 2d 935; Life & Casualty Ins. Co. of Tenn. v McCray, 291 US 566.) II. New York public policy and Rent Stabilization Code (9 NYCRR) § 2520.13 do not prevent respondent from waiving penalty damages. (Drucker v Mauro, 30 AD3d 37, 7 NY3d 844; 390 W. End

      Assoc. v Harel, 298 AD2d 11; Estro Chem. Co. v Falk, 303 NY 83; Matter of Matinzi v Joy, 60 NY2d 835; Georgia Props., Inc. v Dalsimer, 39 AD3d 332; Manocherian v Lenox Hill Hosp., 84 NY2d 385; Riverside Syndicate, Inc. v Munroe, 10 NY3d 18; 390 W. End Assoc. v Harel, 298 AD2d 11.) III. This action satisfies CPLR 901 (a)’s five requirements for class certification. (Kudinov v Kel-Tech Constr. Inc., 65 AD3d 481; Roberts v Tishman Speyer Props., L.P., 62 AD3d 71, 13 NY3d 270; SAP V/ATLAS 845 WEA Assoc. NF LLC v Jannelli, 30 Misc 3d 75; Pludeman v Northern Leasing Sys., Inc., 74 AD3d 420; City of New York v Maul, 14 NY3d 499; Dabrowski v Abax Inc., 84 AD3d 633; Friar v Vanguard Holding Corp., 78 AD2d 83; Gersten v 56 7th Ave. LLC, 88 AD3d 189; Adler v Ogden CAP Props., LLC, 42 Misc 3d 613; Charron v Wiener, 731 F3d 241.) IV Appellant’s procedural arguments are groundless. (Cohn v Goldman, 76 NY 284; P.T. Bank Cent. Asia v Chinese Am. Bank, 229 AD2d 224; Wilder v May Dept. Stores Co., 23 AD3d 646; Ackerman v Price Waterhouse, 252 AD2d 179; Rebibo v Axton Owner LLC, 2012 NY Slip Op 30109[U]; Katz v NVF Co., 100 AD2d 470; Surowitz v Hilton Hotels Corp., 383 US 363; Advanced Magnetic Closures, Inc. v Rome Fastener Corp., 607 F3d 817; Guzman v Mike’s Pipe Yard, 35 AD3d 266; Tishman Constr. Corp. of N.Y. v City of New York, 280 AD2d 374.)

      Pryor Cashman LLP, New York City (Todd E. Soloway, David C. Rose, Joshua D. Bernstein and Bryan T. Mohler of counsel), and Michael B. Kramer & Associates, New York City (Michael B. Kramer of counsel), for appellants in the third above-entitled action.
    I. CPLR 901 (b) bars class actions to recover the statutory penalties imposed by Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-516 (a). (Sperry v Crompton Corp., 8 NY3d 204; Mohassel v Fenwick, 5 NY3d 44; Matter of Raritan Dev. Corp. v Silva, 91 NY2d 98; Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577; Riley v County of Broome, 95 NY2d 455; Matter of Astoria Gas Turbine Power, LLC v Tax Commn. of City of N.Y., 14 AD3d 553; Matter of Chemical Specialties Mfrs. Assn. v Jorling, 85 NY2d 382; Bender v Jamaica Hosp., 40 NY2d 560; Vallone v Delpark Equities, 95 Misc 2d 161.) II. A class action plaintiff cannot waive a penalty imposed under the Rent Stabilization Law of 1969. (Cox v Microsoft Corp., 8 AD3d 39; Pesantez v Boyle Envtl. Servs., 251 AD2d 11; Asher v Abbott Labs., 290 AD2d 208; Sperry v Crompton Corp., 8 NY3d 204; Drucker v Mauro, 30 AD3d 37; Riverside Syndicate, Inc. v Munroe, 39 AD3d 256, 10 NY3d 18; Extell Belnord LLC v Uppman, 113 AD3d 1; 390 W. End Assoc.
      v Harel, 298 AD2d 11; Avon Bard Co. v Aquarian Found., 260 AD2d 207; Jazilek v Abart Holdings LLC, 10 NY3d 943.)

      Emery Celli Brinckerhoff & Abady LLP, New York City (Matthew D. Brinckerhoff scab Hayley Horowitz of counsel), and Himmelstein McConnell Gribben Donoghue & Joseph, New York City (William Gribben, David Hershey-Webb and Ronald S. Languedoc of counsel), for respondents in the third above-entitled action.
    I. Plaintiffs may forgo the class-wide pursuit of treble damages under Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-516 (a). (Matter of H.O. Realty Corp. v State of N.Y. Div. of Hous. & Community Renewal, 46 AD3d 103; Amerelay, Inc. v Directomat, Inc., 7 AD2d 388; Pierpoint v Hoyt, 260 NY 26; Mitchell v New York Hosp., 61 NY2d 208; Matter of New York, Lackawanna & W. R.R. Co., 98 NY 447; Lex 33 Assoc. v Grasso, 283 AD2d 272; Extell Belnord LLC v Uppman, 113 AD3d 1; Riverside Syndicate, Inc. v Munroe, 10 NY3d 18; Estro Chem. Co. v Falk, 303 NY 83.) II. CPLR 901 (b) does not prohibit plaintiffs’ class action. (Commonwealth of the N. Mariana Is. v Canadian Imperial Bank of Commerce, 21 NY3d 55; Roberts v Tishman Speyer Props., L.P., 13 NY3d 270; Sperry v Crompton Corp., 8 NY3d 204; Cox v Microsoft Corp., 8 AD3d 39; Ridge Meadows Homeowners’ Assn. v Tara Dev. Co., 242 AD2d 947; Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604; Pesantez v Boyle Envtl. Servs., 251 AD2d 11; Weinberg v Hertz Corp., 116 AD2d 1; Krebs v Canyon Club, Inc., 22 Misc 3d 1125[A], 2009 NY Slip Op 50291[U]; Lamarca v Great Atl. & Pac. Tea Co., Inc., 16 Misc 3d 1115[A], 2007 NY Slip Op 51424[U], 55 AD3d 487.) III. Allowing this action to proceed furthers the policies of Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-516 (a) and CPLR article 9. (Mohassel v Fenwick, 5 NY3d 44; Leider v Ralfe, 387 F Supp 2d 283; Brzychnalski v Unesco, Inc., 35 F Supp 2d 351; Pruitt v Rockefeller Ctr. Props., 167 AD2d 14; Liechtung v Tower Air, 269 AD2d 363; Sperry v Crompton Corp., 8 NY3d 204; Roberts v Tishman Speyer Props., L.P., 13 NY3d 270; 72A Realty Assoc. v Lucas, 101 AD3d 401; Dugan v London Terrace Gardens, L.P., 34 Misc 3d 1240[A], 2011 NY Slip Op 52501[U], 101 AD3d 648; Friar v Vanguard Holding Corp., 78 AD2d 83.)
   OPINION OF THE COURT

Chief Judge Lippman.

We hold that CPLR 901 (b) permits otherwise qualified plaintiffs to utilize the class action mechanism to recover compensatory overcharges under Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]), even though Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) § 26-516 does not specifically authorize class action recovery and imposes treble damages upon a finding of willful violation. We find the recovery of the base amount of rent overcharge to be actual, compensatory damages, not a penalty, within the meaning of CPLR 901 (b). We also do not believe it contravenes the letter or the spirit of the RSL or CPLR 901 (b) to permit tenants to waive treble damages in these circumstances — when done unilaterally and through counsel.

Facts and Procedural History

In all three of these putative class actions, plaintiffs are current or former tenants of separate apartment buildings in New York City who seek damages for rent overcharges. They allege that their units were decontrolled in contravention of RSL § 26-516 (a) because their landlords accept tax benefits pursuant to New York City’s J-51 tax abatement program (now Administrative Code of City of NY § 11-243). To qualify for the J-51 program exemption, landlords must relinquish their rights under the decontrol provisions of the RSL while they benefit from the exemption.

Plaintiffs’ claims arose out of this Court’s decision in Roberts, where we held that a landlord receiving the benefit of a J-51 tax abatement may not deregulate any apartment in the building pursuant to the luxury decontrol laws (13 NY3d at 286). Prior to Roberts, the New York State Division of Housing and Community Renewal (DHCR) took the position that where participation in the J-51 program was not the sole reason for the rent-regulated status of a building, particular apartments could be luxury decontrolled. As a consequence, many landlords decontrolled particular apartments in their buildings, charging tenants market rents, while at the same time receiving J-51 tax abatements. In Roberts, we did not address the legitimacy of the putative class action, but we now address the issue.

All plaintiffs initially sought treble damages in their complaints, but then waived that demand through attorney affirmation. Because of the number of plaintiffs from each building who seek damages for rent overcharges, the question arises whether these claims can properly be brought as class actions.

The Borden defendant appeals from a unanimous Appellate Division order affirming a Supreme Court grant of plaintiff’s motion for class certification (Borden v 400 E. 55th St. Assoc., L.P., 105 AD3d 630 [1st Dept 2013]). The Supreme Court held that CPLR 901 (b) permits waiver of penalties and “allow[s] the claims for compensatory damages only to continue” (Borden v 400 E. 55th St. Assoc. L.P., 34 Misc 3d 1202[A], 2011 NY Slip Op 52322[U], *5 [Sup Ct, NY County 2011]). The court found that treble damages are not mandatory because the “trebling penalty is not available where a landlord can prove that the overcharge was not willful,” and “the post Roberts jurisprudence has rejected the trebling of damages . . . because the market rents were charged in accordance with DHCR rules and regulations” (id.). Further, any class member wanting to seek treble damages would be able to opt out of the class to protect his or her interests (2011 NY Slip Op 52322[U], *4). The Appellate Division agreed, concluding that plaintiff properly waived treble damages under RSL § 26-516 (a), and the waiver permitted her to bring her claims as a class action under CPLR 901 (b) (Borden, 105 AD3d 630 [1st Dept 2013]).

In Gudz, defendant appeals an Appellate Division order affirming, by a 3-2 vote, the Supreme Court grant of class certification (Gudz v Jemrock Realty Co., LLC, 105 AD3d 625 [1st Dept 2013]). As the record in Gudz indicates, Supreme Court also rejected the argument that the RSL mandates treble damages, remarking that “[c]ourts have consistently held that plaintiffs may waive the penalty portion of a statute that would otherwise render the action ineligible for class certification.” The Appellate Division majority concluded the same, finding that waiver of the treble damages provision does not violate CPLR 901 (b) or the RSL because CPLR 901 (b) allows waiver of a penalty, and the RSL does not mandate treble damages (see Gudz, 105 AD3d at 625-626). Because “treble damages are not the sole measure of recovery” and a landlord may overcome the presumption of willfulness, the penalty was not mandatory and plaintiffs claim for overcharges and interest did not fall within the definition of a penalty under CPLR 901 (b) (id. at 625-626). “[E]ven though such recovery is denominated a penalty by the RSL,” it is not a penalty “because [claims for overcharges and interest] lack a punitive, deterrent and litigation-incentivizing purpose and are, in fact, compensatory” (id. at 626 [citation omitted]). The dissenting Justices contended that plaintiffs waiver of the treble damages remedy “ circumvent [ed] the clear intent of CPLR 901 (b), which is to preclude the maintenance of a class action suit seeking a penalty” (id. at 627). Conceding that plaintiffs request for the first third (the base amount) of the treble damages award was compensatory, the dissenters maintained, however, that the RSL mandated the imposition of treble damages pursuant to the presumption that an overcharge is willful and asserted that any waiver of the RSL’s provisions was void (id. at 627-628). They also disputed the protection that an opt-out clause would provide, contending that members may be bound by a waiver they did not make and be unable to take advantage of all the remedies available to them {id. at 629).

The Downing defendants appeal an Appellate Division order reversing the Supreme Court dismissal of plaintiffs’ complaint. In granting defendants’ motion to dismiss, Supreme Court asserted that CPLR 901 (b) prohibited class actions for claims seeking penalties, and the RSL forbade waiver of treble damages. In reversing and reinstating the complaint, the Appellate Division majority held that the class action could be brought under CPLR 901 (b) because plaintiffs waived treble damages and “even where a statute creates or imposes a penalty, the restriction of CPLR 901 (b) is inapplicable where the class representative seeks to recover only actual damages and waives the penalty on behalf of the class” provided that class members have the opportunity to opt out of the class to seek punitive damages (Downing v First Lenox Terrace Assoc., 107 AD3d 86, 89 [1st Dept 2013]). The court also concluded that a unilateral waiver complies with the Rent Stabilization Code’s prohibition of any agreement to waive its provisions (see id. at 89-90). The majority remanded for further proceedings to evaluate whether the allegations satisfy factors for class certification under CPLR 901 (a).

In each case, the Appellate Division certified a question to this Court.

Discussion

Rent Stabilization Law § 26-516 (a) states, in relevant part, that any landlord “found ... to have collected an overcharge above the rent authorized for a housing accommodation . . . shall be liable to the tenant for a penalty equal to three times the amount of such overcharge” but “[i]f the owner establishes by a preponderance of the evidence that the overcharge was not willful, the state division of housing and community renewal shall establish the penalty as the amount of the overcharge plus interest” (RSL § 26-516 [a]). It provides that “[i]n no event shall such treble damage penalty be assessed against an owner based solely on said owner’s failure to file a timely or proper initial or annual rent registration statement” (RSL § 26-516 [a] ). Further, “no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint is filed” and “[n]o penalty of three times the overcharge may be based upon an overcharge having occurred more than two years before the complaint is filed” (RSL § 26-516 [a] [2]).

CPLR 901 (b) prohibits any claim for penalties to be brought as a class action. It states, “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action” (CPLR 901 [b]). The language of CPLR 901 (b) itself says it is not dispositive that a statute imposes a penalty so long as the action brought pursuant to that statute does not seek to recover the penalty.

This view is bolstered by the legislative history of CPLR 901 (b) , which provides that the statute requires a liberal reading and allows class-action recovery of actual damages despite a statute’s additional provision of treble damages (Sponsor’s Mem, Bill Jacket, L 1975, ch 207). Assemblyman Fink, the bill’s sponsor, explained the purpose of CPLR 901 (b), stating that “[t]he bill . . . precludes a class action based on a statute creating or imposing a penalty . . . unless the specific statute allows for a class action,” but “[a] statutory class action for actual damages would still be permissible” (Sponsor’s Mem at 2, Bill Jacket, L 1975, ch 207 [emphasis added]). In other words, “if the members of a class who would be entitled to a penalty sue only for their actual damages, they may do so in a class action” (Mem of St Consumer Protection Bd at 4, Bill Jacket, L 1975, ch 207). Waiver does not circumvent CPLR 901 (b); on the contrary, the drafters not only foresaw but intended to enable plaintiffs to waive penalties to recover through a class action. Citing this Court’s decision in Moore v Metropolitan Life Ins. Co. (33 NY2d 304, 313 [1973]), in which we commended the legislature for its “comprehensive proposal to provide a broadened scope and a more liberal procedure for class actions,” the legislature intended for CPLR 901 (b) to be interpreted liberally, and be a stark contrast from the former statute “which fail[ed] to accommodate pressing needs for an effective, flexible and balanced group remedy” (Sponsor’s Mem at 1, Bill Jacket, L 1975, ch 207; see also City of New York v Maul, 14 NY3d 499, 509 [2010] [requiring liberal interpretation of class action statute]).

The legislature paid particular attention to the Bankers Association and Empire State Chamber of Commerce when devising CPLR 901 (b) and their fear that plaintiffs would receive penalties far above their “actual damages sustained” (Mem of Empire St Chamber of Commerce at 3-4, Bill Jacket, L 1975, ch 207; see Mem of NY St Bankers Assn, Bill Jacket, L 1975, ch 207). The legislature added CPLR 901 (b) specifically to address this fear, intending to limit class actions to actual damages. It is abundantly clear that plaintiffs seek a refund, i.e. actual damages, which CPLR 901 (b) did not intend to bar.

From a policy standpoint, permitting plaintiffs to bring these claims as a class accomplishes the purpose of CPLR 901 (b). Preemptively responding to the argument raised by defendants here, the State Consumer Protection Board emphasized the importance of class actions:

“The class action device responds to the problem of inadequate information as well as to the need for economies of scale” for “a person contemplating illegal action will not be able to rely on the fact that most people will be unaware of their rights — if even one typical person files a class action, the suit will go forward and the other members of the class will be notified of the action either during the proceedings or after a judgment is rendered in their favor” (Mem of St Consumer Protection Bd at 1, Bill Jacket, L 1975, ch 207).

Where a statute imposes a nonmandatory penalty, plaintiffs may waive the penalty in order to bring the claim as a class action — such as was the case for consumer fraud actions brought under section 349 (h) of the General Business Law in the case of Cox v Microsoft Corp. (8 AD3d 39 [1st Dept 2004]; see also Ridge Meadows Homeowners’ Assn. v Tara Dev. Co., 242 AD2d 947 [4th Dept 1997]; Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604, 606 [2d Dept 1987]). Although the statute prescribed $50 minimum damages to be awarded for a violation, the plaintiffs only sought actual damages, rendering CPLR 901 (b) inapplicable. Although CPLR 901 (b) intended to restrict the types of cases that could be brought as class actions, in our cases the CPLR is not contravened by allowing waiver because plaintiffs will not receive a windfall. They will only receive compensatory damages in the form of a refund of rent overcharges. In addition to prohibiting treble damages where the landlord disproves willfulness, the RSL carves out other instances where treble damages may not be applied, such as for rent registration filing errors (RSL § 26-516 [a]).

Defendants compare the language of the RSL to other statutes to support their contention that waiver is unavailable because the RSL mandates the assessment of treble damages. They contend that unless the landlord proves the overcharges were not willful, treble damages must be assessed, and this lack of discretion implies that no party may waive treble damages. However, the RSL’s treble damages are only applied where defendant fails to disprove willfulness under the low standard of preponderance of the evidence in contrast to a statute like General Business Law § 340 (5), where treble damages are the sole measure of recovery available to a private party and are awarded upon a finding of liability alone. Notably, in another Appellate Division case, a plaintiff in a General Business Law § 340 (5) case could not waive the treble damages provision to be certified as a class, the court saying “[treble damages] are mandatory, i.e., not discretionary or contingent upon a finding of bad faith” (Asher v Abbott Labs., 290 AD2d 208, 209 [1st Dept 2002]; see also Sperry v Crompton Corp., 8 NY3d 204, 213 [2007] [finding treble damages under General Business Law § 340 (5) to be a penalty within the meaning of CPLR 901 (b) but not addressing waiver]).

While RSL § 26-516 designates both the rent overcharge and treble damages as “penalties,” the Administrative Code and the DHCR simultaneously refer to the rent overcharge as an “overcharge award” (RSL § 26-516 [a] [2]; DHCR Policy Statement 95-1 [Dec. 6, 1995]) and a “refund payment” (Administrative Code of City of NY § 26-413 [referring to rent control as opposed to rent stabilization]). The RSL also clearly distinguishes between the compensatory “award” for which a four-year statute of limitations applies and the “penalty of three times the overcharge” for which a two-year statute of limitations applies (RSL § 26-516 [a] [2]). A plaintiff bringing an overcharge claim outside the two-year statute of limitations window would be prohibited from recovering treble damages, but could still recover actual damages.

Regardless of the nomenclature, even if the Administrative Code and Policy Statement had consistently called the compensatory overcharge a penalty, the Administrative Code’s terminology alone would not be dispositive. Judge Cardozo eruditely observed that although a statute spoke of a payment due “as a penalty,” it is only so “in a loose sense” and “[f]orms and phrases of this kind, accurate enough for rough identification or convenient description, do not carry us very far” in determining the statutory meaning (Cox v Lykes Bros., 237 NY 376, 380 [1924]). Continuing, he cautioned us “to remember that the same provision may be penal as to the offender and remedial as to the sufferer” and “[t]he nature of the problem will determine whether we are to take one viewpoint or the other” (id. at 380). As Judge Cardozo alluded, the word penalty does have a specific definition that does not apply to actual damages. “[A] statute imposes a penalty when the amount of damages that may be exacted from the defendant would exceed the injured party’s actual damages” (Vincent C. Alexander, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C901:ll at 104 [2006 ed]).

This Court signaled that the “determination of whether a certain provision constitutes a penalty may vary depending on the context” (Sperry, 8 NY3d at 213). In Sperry, where we found the treble damages provision of General Business Law § 340 (5) constituted a penalty, we also found that “one third of the award unquestionably compensates a plaintiff for actual damages” while “the remainder necessarily punishes . . . violations, deters such behavior (the traditional purposes of penalties) or encourages plaintiffs to commence litigation” (Sperry, 8 NY3d at 214). We disallowed class action recovery in Sperry, but the plaintiff plainly sought treble damages, refusing to waive the penalty (id. at 215). Plaintiffs here seek that first third of the treble damages award, which we have determined is a compensatory form of relief.

This Court has already found the same provision of the RSL to provide compensatory forms of relief — the provision serves to make the tenant whole, in addition to granting a separate punitive award of treble damages. As we stated in Mohassel v Fenwick, the provisions of RSL § 26-516 (a), which “establish the penalty as the amount of the overcharge plus interest . . . are designed . . . to compensate the tenant” (5 NY3d 44, 50 [2005] [emphasis added]). There, we held that “[t]he imposition of prejudgment interest ensures that injured tenants will be made whole” (Fenwick, 5 NY3d at 51). Reading the interest provision as punitive would be “inconsistent with the purpose of overcharge proceedings to fully compensate tenants when owners fail to comply with rent stabilization requirements” (Fenwick, 5 NY3d at 51). We emphasized that the award refunded the tenant since the landlord “had the use of the tenant’s money . . . while the tenant was deprived of it” (Fenwick, 5 NY3d at 52). The same circumstance arises here where the landlord overcharges a tenant, holds that money for a time, and then must pay it back. When a store overcharges a customer who later brings in the receipt seeking a refund of the overcharge, no one could argue that repayment penalizes the store — the money always belonged to the customer. As we found in Fenwick, we find here that the first third of the treble damages award merely compensates the tenant and CPLR 901 (b) does not apply to such a nonpunitive claim.

It is ironic that landlords here argue that tenants must bring multiple actions for the greatest (treble) damages. They also cite the State’s long history of protecting tenants’ rights when arguing that waiver contravenes the purpose of the RSL.

Defendants alternatively argue that even if treble damages are not mandatory, tenants’ waiver of the provision contravenes the language and intent of section 2520.13 of the Rent Stabilization Code, which prohibits an agreement waiving any provisions of the RSL (9 NYCRR 2520.13). But tenants may waive a provision unilaterally (not through an agreement with the landlord), and still comply with the letter and the spirit of the law. The Rent Stabilization Code says as much when it allows tenants to withdraw claims through a negotiated settlement, or with the approval of the DHCR or a court, or where the tenant is represented by counsel (9 NYCRR 2520.13). Where courts have denied a tenant’s waiver, the evidence demonstrated that the landlord and tenant were either colluding to deregulate apartments or that the tenants were being manipulated by contracts of adhesion (see Drucker v Mauro, 30 AD3d 37, 39 [1st Dept 2006]).

Here, there is no evidence that tenants are being coerced to waive the treble damages provision or that there is any collusion between the landlords and the tenants. The tenants by themselves, and in opposition to the landlords’ wishes, are opting to waive treble damages because they believe they will be more protected through a class action that finds that deregulation was illegal and gives them compensation for the overcharges. This protects tenants and preserves rent regulation, fulfilling the most significant purpose of the RSL. The tenants’ waiver here is unilateral, supported by court order, and made with representation by counsel.

As the lower courts noted, treble damages would be unavailable to the tenants because a finding of willfulness is generally not applicable to cases arising in the aftermath of Roberts. For Roberts cases, defendants followed the Division of Housing and Community Renewal’s own guidance when deregulating the units, so there is little possibility of a finding of willfulness (Borden, 34 Misc 3d 1202[A], 2011 NY Slip Op 52322[U] [Sup Ct, NY County 2011]). Only after the Roberts decision did the DHCR’s guidance become invalid.

Although the dissenters in Roberts predicted numerous cases would arise out of the Roberts decision, the ubiquity of the wrong must be addressed, and that their foresight has proved correct supports class certification for reasons of judicial economy.

As to the question of whether the putative classes meet the standards for class certification, the nature of CPLR 901 (a) places determination of those factors “within the sound discretion of the trial court” (Small v Lorillard Tobacco Co., 94 NY2d 43, 52-53 [1999]) and “reviewable by us only for an abuse of discretion” (Corsello v Verizon N.Y., Inc., 18 NY3d 777, 791 [2012], rearg denied 19 NY3d 937 [2012]; City of New York v Maul, 14 NY3d 499, 509 [2010]). In Borden and Gudz, the courts below thoroughly evaluated the five prerequisites that CPLR 901 (a) requires to be satisfied before a class may be certified, and thus the Appellate Division did not abuse its discretion in affirming those determinations. The prerequisites are:

“(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 which predominate over any questions affecting only individual members;
“(3) the claims or defenses of the representative parties are typical ... of the class;
“(4) the representative parties will fairly and adequately protect the interests of the class; and
“(5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy” (see CPLR 901 [a]).

As to the first factor, numerosity, the legislature contemplated classes involving as few as 18 members (Mem of St Consumer Protection Bd at 8 n 11, Bill Jacket, L 1975, ch 207) where the members would have difficulty communicating with each other, such as where “barriers of distance, cost, language, income, education or lack of information prevent those who are aware of their rights from communicating with others similarly situated” (Mem of St Consumer Protection Bd at 3, Bill Jacket, L 1975, ch 207). Such reasoning would apply to the cases here, where tenants have moved out of the building. In these cases, the classes range in size from 53 to over 500 members, well above the numerosity threshold contemplated by the legislature and approved by courts (Consolidated Rail Corp. v Town of Hyde Park, 47 F3d 473, 483 [2d Cir 1995] [“numerosity is presumed at a level of 40 members”]).

As to predominance and typicality, the predominant legal question involves one that applies to the entire class — whether the apartments were unlawfully deregulated pursuant to the Roberts decision (Borden, 105 AD3d at 631). It should be noted that the legislature enacted CPLR 901 (a) with a specific allowance for class actions in cases where damages differed among the plaintiffs, stating “the amount of damages suffered by each class member typically varies from individual to individual, but that fact will not prevent the suit from going forward as a class action if the important legal or factual issues involving liability are common to the class” (Mem of St Consumer Protection Bd at 3, Bill Jacket, L 1975, ch 207).

The courts’ evaluation of the adequacy of each representative was more than sufficient. Having found no substantiated conflicts between the tenants and a representative with “adequate understanding of the case,” and competent attorneys (Borden, 105 AD3d at 631), we conclude that allowing tenants to opt out of the class avoids any question of the adequacy of the class representation pursuant to CPLR 901 (a) (Pesantez v Boyle Envtl. Servs., 251 AD2d 11, 12 [1st Dept 1998]). Finally, to preserve judicial resources, class certification is superior to having these claims adjudicated individually.

In conclusion, maintaining the actions as class actions does not contravene the letter or the spirit of the CPLR or Rent Stabilization Law. Accordingly, in each case, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Smith, J.

(dissenting). Defendants argue that these are actions “to recover a penalty” because the treble damages remedy in Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) § 26-516 (a) is not waivable; because even if it were waivable under the statute that authorizes it, Rent Stabilization Code (9 NYCRR) § 2520.13 prohibits a waiver; and because in any event, even without trebling, the remedy provided by RSL § 26-516 (a) is a penalty. None of these arguments is without merit, but I will not stop to consider the first two, because I am satisfied that the third is correct. An action under RSL § 26-516 (a) to recover a rent overcharge, whether trebled or not, is “an action to recover a penalty . . . created or imposed by statute” and therefore “may not be maintained as a class action” (CPLR 901 [b]). (It is not disputed that the RSL, though technically a chapter of the Administrative Code of City of NY [tit 26, ch 4], is a “statute” within the meaning of the CPLR provision.)

The simplest and best reason to hold that even the untrebled remedy is a penalty is that the statute says it is. Section 26-516 (a) says:

“Subject to the conditions and limitations of this subdivision, any owner of housing accommodations who ... is found ... to have collected an overcharge above the rent authorized for a housing accommodation subject to this chapter shall be liable to the tenant for a penalty equal to three times the amount of such overcharge. ... If the owner establishes by a preponderance of the evidence that the overcharge was not willful, the state division of housing and community renewal shall establish the penalty as the amount of the overcharge plus interest” (emphasis added).

It could hardly be said more plainly that the authors of the RSL considered “the amount of the overcharge plus interest”— without trebling — to be a “penalty.”

Our cases make clear that, in deciding whether a particular remedy is a penalty or not, the label chosen by the authors of the legislation in question is ordinarily dispositive. “[T]his Court has stated that, where a statute expressly denominates an enhanced damages provision to be compensatory in nature, it will not be deemed a penalty” (Sperry v Crompton Corp., 8 NY3d 204, 212-213 [2007] [citing cases]). The reverse should also be true; where the statute says a remedy is a penalty, it is one. At least, we would not be justified in rejecting the legislative label unless it were plain that it is a misnomer — that the single overcharge remedy, though called a penalty, is in fact a purely compensatory remedy. Here, there is ample justification for the legislative choice to call this remedy a penalty.

While of course single-damages remedies are usually compensatory, the remedy provided by this RSL provision is unusual, because it awards monetary relief to people who have not, in economic reality, been damaged by the landlord misconduct of which they complain. In fact, these plaintiffs and others similarly situated are in a real sense beneficiaries of that misconduct. Where, as here, a landlord illegally charges a free-market rent for a rent-stabilized apartment, the result is that the apartment will be rented to someone able and willing to pay the market rent. If the landlord had complied with the law, the apartment would have been more affordable and many more tenants would have been happy to rent it — assuming that it had become vacant at all. It is most unlikely that any of the present plaintiffs, all of whom signed market-rent leases for their apartments, could have obtained the same apartments at the legal rent. But the statute, by requiring the overcharge to be refunded to them, effectively gives them what they could not have obtained; they are getting not compensation, but a significant windfall.

I am not criticizing the legislative choice to give this windfall to these plaintiffs. The choice makes sense — but only if the statute is seen not as compensating injured tenants, but as penalizing landlords. By being deprived of the money they have illegally received, the landlords are punished for their unlawful conduct (though, because the misconduct was not wilful, the punishment is only one third as severe as it would otherwise be) and they and other landlords are deterred from future violations of the law. The result of this penalty, in the legislative scheme, is that landlords will be induced to comply with the rent limitations imposed by law and people who — unlike the present plaintiffs — cannot pay market rents will be able to find affordable housing.

I therefore conclude that the authors of RSL § 26-516 (a) had, at least, a reasonable basis for calling the untrebled remedy that plaintiffs here are seeking a “penalty.” Because it is a penalty, it may not be recovered in a class action.

In Borden v 400 E. 55th St. Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.

Opinion by Chief Judge Lippman. Judges Graffeo and Rivera concur; Judge Read concurs in result for reasons stated in the memorandum at the Appellate Division (105 AD3d 630 [2013]); Judge Smith dissents in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.

In Gudz v Jemrock Realty Co., LLC: Order affirmed, with costs, and certified question answered in the affirmative.

Opinion by Chief Judge Lippman. Judges Graffeo and Rivera concur; Judge Read concurs in result for reasons stated in the memorandum at the Appellate Division (105 AD3d 625 [2013]); Judge Smith dissents in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.

In Downing v First Lenox Terrace Assoc.: Order affirmed, with costs, and certified question answered in the affirmative.

Opinion by Chief Judge Lippman. Judges Graffeo and Rivera concur; Judge Read concurs in result for reasons stated by Justice Richard T. Andrias at the Appellate Division (107 AD3d 86 [2013]); Judge Smith dissents in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.

      . General Business Law § 349 makes deceptive acts and practices unlawful, stating that
      “any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions. The court may, in its discretion, increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or knowingly violated this section” (General Business Law § 349 [h]).

      . General Business Law § 340 (5) prohibits monopolies and states that “any person who shall sustain damages by reason of any violation of this section, shall recover three-fold the actual damages sustained thereby, as well as costs not exceeding ten thousand dollars, and reasonable attorneys’ fees.”


source: Caselaw Access Project

author: Rivera, J.

license: Public Domain

text:
    [23 NE3d 1008, 998 NYS2d 740]
    Kimso Apartments, LLC, Successor by Merger to Kimso Apartments, Inc., et al., Respondents, v Mahesh Gandhi, Appellant, and Arlington Filler et al., Respondents.
    Argued October 21, 2014;
    decided November 25, 2014

      POINTS OF COUNSEL

      Heller Horowitz Feit, EC., New York City (Eli Feit and Stuart A. Blander of counsel), for appellant.
    I. There can be no prejudice suffered by a party, as a matter of law, from the grant of a motion to conform the pleadings to the proof to assert a claim against the party as to which claim a formal judicial and informal judicial admission of liability has already been made by the party. (715 Ocean Parkway Owners Corp. v Klagsbrun, 74 AD3d 1314; Dinizio & Cook, Inc. v Duck Cr. Mar. at Three Mile Harbor, Ltd., 32 AD3d 989; Cave v Kollar, 2 AD3d 386; Gonfiantini v Zino, 184 AD2d 368; Thailer v LaRocca, 174 AD2d 731; Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18; Mal Dunn Assoc. v Kranjac, 145 AD2d 472; People v Brown, 98 NY2d 226;
      Zegarowicz v Ripatti, 77 AD3d 650; Urraro v Green, 106 AD2d 567.) II. If plaintiffs’ appeal is granted, on the ground that the settlement agreement did not broadly release all claims of the parties, then Mahesh Gandhi is entitled to judgment on his other counterclaims, which were dismissed by the trial court.

      Wilson Elser Moskowitz Edelman & Dicker, LLP, White Plains (.Robert A. Spolzino of counsel), for respondents.
    I. CPLR 3025 (c) does not permit a party, under the guise of amending the pleadings to conform to the proof, to interpose after trial an entirely new claim that directly contradicts the claim asserted in the pleading. (Hoenig v Westphal, 52 NY2d 605; Hirsch v Stewart, 63 AD3d 74; Matter of Georgian Ct. Apt. Masis Parseghian v Assessor of Town of Orangetown, 182 AD2d 978; Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18; Dittmar Explosives v A. E. Ottaviano, Inc., 20 NY2d 498; Murray v City of New York, 43 NY2d 400.) II. The Appellate Division acted properly within its discretion in reversing and denying leave to amend. (Krichmar v Krichmar, 42 NY2d 858; Murray v City of New York, 43 NY2d 400; Matter of Von Bulow, 63 NY2d 221; Levo v Greenwald, 66 NY2d 962; Mayers v D’Agostino, 58 NY2d 696; Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18; 715 Ocean Parkway Owners Corp. v Klagsbrun, 74 AD3d 1314; Bevilacqua v City of Niagara Falls, 66 AD2d 988; Dinizio & Cook, Inc. v Duck Cr. Mar. at Three Mile Harbor, Ltd., 32 AD3d 989; Gonfiantini v Zino, 184 AD2d 368.) III. Plaintiffs made no judicial admissions establishing liability on defendant’s counterclaim for money damages under the settlement agreement. (Bingham v New York City Tr. Auth., 99 NY2d 355; Feigelson v Allstate Ins. Co., 31 NY2d 913; Telaro v Telaro, 25 NY2d 433; Mendrzycki v Cricchio, 58 AD3d 171; Chalasani v Neuman, 64 NY2d 879; Schoenborn v Kinderhill Corp., 98 AD2d 831; People v Brown, 98 NY2d 226; Imprimis Invs. v Insight Venture Mgt., 300 AD2d 109; Perkins v Volpe, 146 AD2d 617, 74 NY2d 791; Matter of Kriete v Port Auth. of N.Y. & N.J., 208 AD2d 1075.) IV Defendant should have been estopped by the inconsistent position he took before the IRS from arguing that the settlement agreement released his obligation under the promissory notes. (Mahoney-Buntzman v Buntzman, 12 NY3d 415; Mikkelson v Kessler, 50 AD3d 1443.) V Defendant is not entitled to recover on his counterclaims. (Parochial Bus Sys. v Board of Educ. of City of N.Y., 60 NY2d 539; Hecht v City of New York, 60 NY2d 57; Cognetta v Valencia Devs., Inc., 8 AD3d 318; Phoenix Acquisition Corp. v Campcore, Inc., 81 NY2d 138.)
   OPINION OF THE COURT

Rivera, J.

Defendant/counterclaim plaintiff Mahesh Gandhi appeals an order of the Appellate Division that modified Supreme Court’s judgment by denying Gandhi’s application to amend his pleading to assert a counterclaim for payments Gandhi alleges are due to him under a settlement agreement. We conclude, as a matter of law, the Appellate Division abused its discretion in denying the amendment, and reverse and remit.

I

The underlying litigation in this appeal is based on claims that have roots in a now dissolved real estate business partnership between Gandhi, and his two associates, counterclaim defendants Arlington Filler and Darshan Shah. The individuals formed and held equal one-third interests in three corporations, Kimso Apartments, Inc., Poonam Apartments, Inc., and 185-225 Parkhill Corp. The corporations purchased residential properties in Staten Island, New York, consisting of multi-rental unit apartment buildings which were regulated and subsidized as affordable housing by the United States Department of Housing and Urban Development (HUD).

The corporations secured a $20 million loan from HUD, $11 million of which was allocated to rehabilitate and improve the properties to maximize rentals under the federal Section 8 housing subsidy program. The remaining $9 million was loaned to Gandhi, Filler and Shah as shareholder loans, evidenced by several promissory notes, of which Gandhi received $2,970,000 pursuant to the notes he signed and for which he made regular interest payments.

Over time, in 2001, Filler and Shah began to suspect that Gandhi, who was the daily manager of the corporations, was conspiring to overcharge for supplies and repairs. As the distrust towards Gandhi grew, Filler and Shah removed Gandhi as manager. Litigation among them and the corporations soon followed. In May 2002, Gandhi filed a petition in state court to compel arbitration of disputes between them. The following month the corporations brought an action in federal court against Gandhi for, inter alia, breach of fiduciary duty and conversion based on his alleged theft from the corporations. Gandhi then filed a second state action for breach of contract, conversion, and breach of fiduciary duty.

In August 2002, the parties executed a settlement agreement to end the state and federal actions. Pursuant to this settlement agreement, Gandhi sold his one-third interest in the corporations, along with other entities, to Filler and Shah for $1,648,000, to be paid in 120 equal monthly installments of $20,000, including interest. As relevant here, the agreement contained a provision stating that the corporate and individual parties

“agree to hereby release, acquit, and forever discharge each other ... of and from any and all claims, known and unknown, counterclaims, actions, causes of action . . . whatsoever of any kind, from the beginning of time until the present that they now have or that may accrue that are the subject of the [parties’] lawsuits herein.”

The agreement, however, did not expressly state whether it extinguished Gandhi’s shareholder loan obligation under the notes.

The corporate successors in interest to Kimso, Poonam and Parkhill, similarly named and now controlled solely by Filler and Shah, made 23 monthly payments to Gandhi, totaling $460,000. Although Gandhi ceased paying interest on the notes, initially, the corporations did not seek payments. Finally, in November 2003, the corporations declared the notes due and in default, and sent Gandhi a demand notice.

The corporations then filed this action, seeking declaratory judgment that the corporations have a common-law right to offset the remaining amount they owed Gandhi under the settlement agreement against the money Gandhi owed the corporations on the shareholder loan notes. The complaint expressly asserted that, “if Plaintiffs fail to make the full payments to Defendant [Gandhi] as specified under [the settlement agreement], Plaintiffs would be in default of that agreement and Defendant Gandhi would be entitled to all its remedies in that Agreement.”

Gandhi answered, seeking rescission of the settlement agreement and reinstatement as a shareholder in the corporations, and asserting various other counterclaims. He also named Filler and Shah as individual counterclaim defendants, along with several other corporate entities.

Several months later, in September 2004, the corporations ceased making the monthly payments as required by the settlement agreement. Thereafter, the corporations’ request for an offset against money they owed Gandhi, and Gandhi’s counter demand for money owed based on the corporations’ termination of payments, continued as the focus of the litigation, as reflected in the parties’ amended pleadings and motion practice.

The corporations’ amended complaint repleaded their demand for declaratory judgment and specific payments based on the offset cause of action. As before, the corporations asserted that they were entitled under their common-law right to offset the amount they owed Gandhi pursuant to the settlement agreement against the amount he owed them under the notes. They further stated they “are jointly and severally liable for the amounts due” Gandhi under the settlement agreement, and “if Plaintiffs fail to make the full payments to Defendant as specified under [sic] Settlement Agreement, Defendant may allege that Plaintiffs are in default of the Settlement Agreement and that Defendant would be entitled to all his remedies thereunder.”

In response, Gandhi’s amended answer asserted numerous counterclaims, and again sought rescission and corporate shareholder status reinstatement. However, he did not assert a counterclaim for back payments under the agreement. Two years later, the court granted plaintiffs partial summary judgment, dismissing Gandhi’s rescission claims.

The corporations subsequently moved and cross-moved for summary judgment on the declaratory judgment causes of action. Ghandi opposed and cross-moved for summary judgment, seeking dismissal of the declaratory judgment causes of action, and demanding judgment for him on his counterclaims, and “judgment in [his] favor for the amounts due from [the corporations] under the Settlement Agreement, with interest and attorneys fees.” In his supporting affidavit, Gandhi asserted that “plaintiffs acknowledge that they entered into a settlement agreement with me . . . , and that they presently owe me in excess of $1 million (exclusive of accrued interest) under the terms of the settlement agreement.”

Plaintiff Parkhill opposed Gandhi’s cross motion, claiming that Gandhi failed to assert his demand for payments under the settlement agreement in his amended answer. Gandhi responded that he was not required to “affirmatively plead this relief as a counterclaim” because, “[u]pon dismissal of [the corporations’] ‘set-off claims, it naturally followed] that [he would be] entitled to immediately recover the undisputed monthly payments currently due and owing to him under the Settlement Agreement, with interest and attorneys fees.” In October 2009, Supreme Court denied the corporations’ motions as premature and denied Gandhi’s motion with leave to renew after discovery.

In October 2010, approximately a month before trial, respondents filed a motion in limine seeking to preclude Gandhi from presenting evidence of, or making a claim for, payments allegedly due to him under the settlement agreement. Gandhi opposed, arguing he did not “assert an affirmative claim for past-due settlement payments” because “the payments have always been an acknowledged obligation of the [corporations].” Gandhi further asserted that “it is well-settled that pursuant to CPLR § 3025 (c), pleadings may be conformed to the proof at any time, even during or after trial.” The court denied the motion, reserving decision until the conclusion of trial.

At trial, the court permitted the introduction of evidence regarding the settlement agreement and back payments allegedly owed to Gandhi. Counsel for plaintiff Parkhill questioned Gandhi about his negotiations with Filler and Shah concerning the buyout provision in the settlement agreement. The corporations also successfully proffered the settlement agreement into evidence. Gandhi testified as to the payments he was promised under the settlement agreement.

Before resting, Gandhi moved to conform the pleadings to the proof, seeking to assert a counterclaim for money currently owed him under the settlement agreement. Plaintiff Poonam opposed, claiming prejudice based on Gandhi’s delay in asserting the counterclaim, and asserting that Gandhi’s claims were time-barred.

Supreme Court granted Gandhi’s motion to amend, and subsequently entered judgment in his favor on the counterclaim against the corporations for $2,186,787. After finding that the settlement agreement encompassed a release of all claims, including the claims on the notes, Supreme Court reasoned that the payments due Gandhi under the settlement agreement,

“although not plead [sic] by [Gandhi] in his counterclaims [have] been an intrinsic counterclaim since the onset of this litigation. [The corporations’] claim that they were entitled to withhold payments under the Settlement Agreement because they were entitled to payment under the Notes, while [Gandhi] raised the opposite as his defense. The inverse of that argument would then state that if this Court does not find the Corporations are entitled to repayment under the Notes, the Settlement Agreement payments must be due. Based upon this logic, the issue of the past due Settlement Agreement payments was present in the litigation from the very start, even though not specifically pled, and thus amendment of the answer is not prejudicial.” (2011 NY Slip Op 34149[U], *9-10 [2011].)

The court entered a sum-certain judgment because it was undisputed that the corporations ceased making payments under the settlement agreement in September 2004. The court further denied the corporations’ request for a declaratory judgment, and denied all remaining claims and counterclaims.

Plaintiffs appealed the grant of the amendment request, and Gandhi cross-appealed from the dismissal of his claim for costs and legal fees. The Appellate Division modified the judgment on the facts, and in the exercise of its discretion reversed Supreme Court’s judgment on Gandhi’s counterclaim. (Kimso Apts., LLC v Gandhi, 104 AD3d 742 [2d Dept 2013].) The Appellate Division concluded Supreme Court should have denied Gandhi’s request as barred by the doctrine of laches based on his extensive delay in seeking leave to amend. It further concluded that “the belated amendment” prejudiced the corporations by denying them the opportunity to present their defenses to the counterclaim (id. at 744). We granted Gandhi leave to appeal (22 NY3d 854 [2013]) and now reverse.

II

Under CPLR 3025, a party may amend a pleading “at any time by leave of court” (CPLR 3025 [b]), “before or after judgment to conform [the pleading] to the evidence” (CPLR 3025 [c]). A request to amend is determined in accordance with the general considerations applicable to such motion, including the statute’s direction that leave “shall be freely given upon such terms as may be just” (CPLR 3025 Ob]; see Murray v City of New York, 43 NY2d 400, 405-406 [1977]). This favorable treatment applies “even if the amendment substantially alters the theory of recovery” (Dittmar Explosives v A. E. Ottaviano, Inc., 20 NY2d 498, 502-503 [1967], citing CPLR 3025 [b], and Weinstein-Korn-Miller, NY Civ Prac ¶¶ 3013.05, 3025.26, 3025.28).

This Court has in the past recognized that, absent prejudice, courts are free to permit amendment even after trial (Murray, 43 NY2d at 405 [“(w)here no prejudice is shown, the amendment may be allowed ‘during or even after trial’ ”], citing Dittmar, 20 NY2d at 502, and David D. Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3025:15 at 487 [1974 ed]). Prejudice is more than “the mere exposure of the [party] to greater liability” (Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18, 23 [1981]). Rather, “there must be some indication that the [party] has been hindered in the preparation of [the party’s] case or has been prevented from taking some measure in support of [its] position” (id.). The burden of establishing prejudice is on the party opposing the amendment (see Caceras v Zorbas, 74 NY2d 884, 885 [1989]; see also Siegel, NY Prac § 404 [5th ed]).

Applications to amend pleadings are within the sound discretion of the court, and that of the Appellate Division (Krichmar v Krichmar, 42 NY2d 858, 860 [1977]). Courts are given “considerable latitude in exercising their discretion, which may be upset by us only for abuse as a matter of law” (Matter of Von Bulow, 63 NY2d 221, 224 [1984]; see also Murray, 43 NY2d at 405 [courts considering motions to conform pleadings pursuant to CPLR 3025 are afforded “the widest possible latitude” in allowing such an amendment]). Nevertheless, we have found such an abuse of discretion where the Appellate Division reversed a trial court’s grant of an amendment and the record established that the opposing party suffered “no operative prejudice” as a result of the mere omission to plead a defense (id.).

Here, we are compelled to conclude that the Appellate Division abused its discretion because there was no prejudice to the corporations that supports denial of Gandhi’s request to amend. The corporations’ action for declaratory judgment was based on its claim of a common-law right of setoff, which they asserted should be applied against the money they owed to Gandhi. They stated expressly in their amended complaint that they were “jointly and severally liable for the amounts due [Gandhi]” under the settlement agreement, and if they failed to pay, they would be in default of its terms. As a general matter, statements in the corporations’ pleadings that they owed Gandhi the settlement money constitute formal judicial admissions (see Clason v Baldwin, 152 NY 204 [1897]; see also GMS Batching, Inc. v TADCO Constr. Corp., 120 AD3d 549, 551 [2d Dept 2014] [“Facts admitted in a party’s pleadings constitute formal judicial admissions, and are conclusive of the facts admitted in the action in which they are made”]; Levy v Delaware, Lackawanna & W. R.R. Co., 211 App Div 503, 505 [4th Dept 1925] [“an admission in an original pleading is evidence of the fact admitted”]; Jerome Prince, Richardson on Evidence § 8-215 at 523-524 [Farrell 11th ed 1995]; Fisch, New York Evidence § 803 at 474 [2d ed]). These assertions are “conclusive upon the party making [them]” (id.), and the corporations did not seek from the court to be relieved of the consequences of these admissions (see Levy, 211 App Div at 506; see also Prince, § 8-215 at 524; Fisch, § 803 at 474).

Given that the corporations built the litigation strategy for their declaratory judgment cause of action on the fact of their admitted payment obligations to Gandhi, they may not turn around and seek to assert defenses to those admissions. In other words, after arguing from the beginning of the lawsuit that the entire sum of money they owed Gandhi should be reduced by the money he owed them, they cannot now claim prejudice resulting from Gandhi’s demand for outstanding payments due him under the settlement agreement.

In addition to the corporations’ admissions, they also elicited evidence at trial that established the terms of the settlement agreement and their payment obligations to Gandhi — the very obligations that are the basis for Gandhi’s counterclaim. This Court found similar facts sufficient to overcome a claim of prejudice in Murray (43 NY2d at 400).

In Murray, defendant City of New York failed to assert as a defense that the plaintiff’s exclusive remedy was under workers’ compensation and after the plaintiff rested, the City sought to dismiss based on that defense. The trial court granted the City’s motion to conform the pleadings to the proof and dismissed the complaint. The Appellate Division reversed, finding “the trial court improvidently granted the city’s motion to conform the pleadings to the proof at the late stage at which the workmen’s compensation defense was first interposed” (43 NY2d at 404). This Court then reversed, concluding that the Appellate Division abused its discretion because under the circumstances there was no “operative prejudice” to the plaintiff where the plaintiff had submitted evidence that was the basis for the City’s defense (id. at 405). We further explained that “[w]hen a variance develops between a pleading and proof admitted at the instance or with the acquiescence of a party, such party cannot later claim . . . surprise [ ] or prejudice [ ] and the motion to conform should be granted” (id., citing Donner v Baker, 11 AD2d 905 [4th Dept 1960], Embien Props., Inc. v Emmadine Farms, Inc., 282 App Div 1047 [2d Dept 1953], Berkenstat v Oliver, 275 App Div 679 [2d Dept 1949], Audley v Townsend, 126 App Div 431, 434 [2d Dept 1908], and 6 Carmody-Wait 2d § 34.44 at 127). Moreover, we found it was a common practice that “[u]nder such circumstances, even appellate courts have taken it upon themselves upon review to amend the pleadings to conform to the proof” (Murray, 43 NY2d at 405, citing Matter of Pittsford Gravel Corp. v Zoning Bd. of Town of Perinton, 43 AD2d 811, 812 [4th Dept 1973], Harbor Assoc. v Asheroff, 35 AD2d 667 [2d Dept 1970], Di Rosse v Wein, 24 AD2d 510, 511 [2d Dept 1965], and Weinstein-Korn-Miller, NY Civ Prac ¶¶ 3025.27, 3025.31).

The plaintiff corporations in the appeal before us presented evidence during the trial of the buyout and the settlement agreement terms. Thus, as in Murray, the corporations submitted evidence which was the basis for defendant Gandhi’s claim that he was entitled to payment for all outstanding payments under the settlement agreement. That the corporations objected to Gandhi’s admission of evidence about the overdue payments does not affect our analysis because the corporations had to submit evidence of the payments owed to Gandhi — i.e., the settlement agreement — to succeed on their offset claim. Moreover, as Supreme Court stated, an adverse decision on their claim meant that they owed Gandhi.

While a delay in seeking to amend a pleading may be considered by the trial court, it does not bar that court from exercising its discretion in favor of permitting the amendment where there is no prejudice (Dittmar, 20 NY2d at 503). The statute permitted Gandhi to request leave “before or after judgment to conform [the pleading] to the evidence” (CPLR 3025 [c]), and absent prejudice to the corporations the request should have been granted (see Murray, 43 NY2d at 405, citing Dittmar, 20 NY2d at 502).

Under the circumstances of this case, where the corporations admitted that they owed Gandhi the unpaid installments under the settlement agreement and the trial evidence established as much, there was no operative prejudice to the corporations in allowing Gandhi’s amendment to assert the counterclaim for all outstanding payments. Therefore, the Appellate Division abused its discretion by reversing Supreme Court’s grant of the application to amend.

m

The order insofar as appealed from should be reversed, with costs, and the case remitted to the Appellate Division for consideration of issues raised but not determined on the appeal to that court.

Chief Judge Lippman and Judges Graffeo, Read, Smith, Pigott and Abdus-Salaam concur.

Order, insofar as appealed from, reversed, with costs, and case remitted to the Appellate Division, Second Department, for consideration of issues raised but not determined on the appeal to that court.

      . Section 8, or “[t]he Housing Choice Voucher Program,” “is a federally-funded program that provides rental assistance to eligible low-income families to find affordable housing in the private rental market” (see New York City Housing Authority, Section 8 Assistance, http://www.nyc.gov/html/nycha/html/ section8/section8. shtml).

      . Under the payment structure for these shareholder loans, the individuals’ respective interest payments on the notes were offset by the corporations’ interest payments on loans from the individuals to the corporations.

      . Plaintiffs Kimso, Poonam and Parkhill demanded to setoff $1,055,394, $1,120,926, and $1,027,000, respectively, with interest, for a total of $3,203,320.

      . Gandhi’s answer named as corporate counterclaim defendants Amity Park Associates, Drew Investment, Inc., Unithree Management, Inc., Unithree Investment Corp., Unithree Services Corp., and Eveready Security, Inc.

      . Plaintiffs further sought return of money Gandhi allegedly misappropriated from the corporate entities named as counterclaim defendants in Gandhi’s answer.


author: Chief Judge Lippman.

text:
    [23 NE3d 1016, 998 NYS2d 748]
    In the Matter of Delilah Rigano, as Administrator of the Estate of Nicholas Rigano, Deceased, Respondent, v Vibar Construction, Inc, Appellant. (Proceeding No. 1.) In the Matter of Vibar Construction Corp., Appellant, v Fawn Builders, Inc, et al. Respondents. (Proceeding No. 2.)
    Argued November 18, 2014;
    decided December 16, 2014

      POINTS OF COUNSEL

      Jeffrey Rizzo, Bronx, and Michael F.X. Ryan, Cortlandt Manor {Carl F. Lodes of counsel), for appellant.
    Appellant Vibar Construction, Inc. substantially complied with section 9 of the Lien Law when it named Fawn Builders, Inc., the original owner of the subject property, in its mechanic’s lien rather than respondent Nick Rigano, the actual owner of the subject property. (Matter of Fibernet Telecom Group v East Coast Opt. Servs., 195 Misc 2d 461; Matter of Carnegie Hill N. LLC v Diontech Consulting Inc., 25 Misc 3d 1203[A], 2009 NY Slip Op 51958[U]; Matter of Marshall Constr. Co. v Brookdale Hosp. Ctr., 68 Misc 2d 20; Tri-State Sol-Aire Corp. v Lakeville Pace Mech., 221 AD2d 519; Matter of Kleet Lbr. Co. [DMC Mgt.], 197 AD2d 576; Matter of Tri Quality Mech. Corp. v Chappastream Corp., 138 AD2d 610; PM Contr. Co. v 32 AA Assoc., 4 AD3d 198.)

      Deren, Genett & Macreery, P.C., Katonah {John Brian Macreery of counsel), for respondent.
    The notice of mechanic’s lien is materially, and fatally, defective. (PM Contr. Co. v 32 AA Assoc., 4 AD3d 198; Matter of Kleet Lbr. Co. [DMC Mgt.], 197 AD2d 576; Tri-State Sol-Aire Corp. v Lakeville Pace Mech., 221 AD2d 519; Gates & Co. v National Fair & Exposition Assn., 225 NY 142; Covino v Alside Aluminum Supply Co., 42 AD2d 77; Homemakers, Inc. v Williams, 100 AD2d 505; A. A. Sutain, Ltd. v Montgomery Ward & Co., 22 AD2d 607; Matter of Fibernet Telecom Group v East Coast Opt. Servs., 195 Misc 2d 461; Matter of Tri Quality Mech. Corp. v Chappastream Corp., 138 AD2d 610; Matter of Niagara Venture v Sicoli & Massaro, 77 NY2d 175.)
   OPINION OF THE COURT

Chief Judge Lippman.

The issue on this appeal is whether a notice of mechanic’s lien can be amended nunc pro tunc to reflect the name of the true owner of the property or whether the misnomer invalidates the lien. Here, the true owner is the sole shareholder of the listed owner, the conveyance of the property in question from the listed owner to the true owner was not at arm’s length, and the public and certainly the true owner here were on notice that a lien had been placed on the property. The subject notice of lien also provided means for third parties to contact the true owner. And, significantly, the true owner and listed owner consented to the underlying work that allegedly went uncompensated. Under the particular circumstances presented, the misnomer is a misdescription that does not constitute a jurisdictional defect and is curable by amendment.

George Vignogna (the sole shareholder of Vibar Construction Corp.) and Nick Rigano (the sole shareholder of Fawn Builders, Inc.) were business partners for over 35 years before deteriorating business conditions in 2007 led to disputes concerning the construction contract at issue here. Their relationship had consisted of Rigano, through Fawn Builders, Inc., purchasing property and Vignogna, through Vibar Construction Corp., developing the property. The parties would split the profits and rarely reduced their agreements to writing, trusting in their long-term business relationship to help them avoid any conflict. During their last project, Vibar constructed a common driveway to access the Pound Ridge, New York property in question and maintains that Rigano and Fawn Builders failed to compensate it for the construction of the road. The record shows that Rigano consented to construction of the driveway as demonstrated by the construction and easement agreement the parties signed in 2006 (signed by Rigano individually and for Fawn Builders as president).

Vibar filed a notice of mechanic’s lien on the property to recover the cost of constructing the road. The notice provided that Fawn Builders owned the property, when it was actually owned by Rigano, Fawn Builders’ sole shareholder and president.

Rigano sought to have the lien discharged on the ground that he, not Fawn Builders, owned the property, asserting a jurisdictional defect that invalidated the lien. Rigano had indeed acquired title to the property when, on February 14, 2007, he, as president of Fawn Builders, transferred the property from Fawn Builders to himself, as an individual. The deed stated that Rigano and Fawn Builders were located at the same address, and Rigano signed the deed as “president” of Fawn Builders.

Vignogna petitioned to amend the notice of lien, arguing that naming Fawn Builders as the owner of the lot was a “misdescription” that did not warrant invalidating the lien. He noted that at all times during the parties’ partnership, Rigano owned property in his corporation’s name. He also contended that the transaction in which the land was transferred from Fawn Builders to Rigano was not one for consideration, noting that Rigano was the sole beneficial owner of Fawn Builders and signed the deed as president of Fawn Builders, and that there was no indication of any transfer tax having been paid.

After initially holding in favor of Vignogna, and concluding that the notice “substantially complied” with the Lien Law requirements, on reargument and renewal, Supreme Court granted Rigano’s petition and discharged the mechanic’s lien.

The Appellate Division affirmed, holding that “[w]hile a failure to state the true owner or contractor or a misdescription of the true owner will not affect the validity of a notice of lien, a misidentification of the true owner is a jurisdictional defect which cannot be cured by an amendment nunc pro tunc” (Matter of Rigano v Vibar Constr., Inc., 109 AD3d 829, 831 [2d Dept 2013] [internal quotation marks and citations omitted]). The Court held that the notice was jurisdictionally defective because it “completely misidentified the true owner of the subject premises,” citing its own precedent in Matter of Tri Quality Mech. Corp. v Chappastream Corp. (138 AD2d 610 [2d Dept 1988]) and Tri-State Sol-Aire Corp. v Lakeville Pace Mech. (221 AD2d 519 [2d Dept 1995]) (id,.). This Court granted leave to appeal (22 NY3d 857 [2013]).

Article 2 of the Lien Law provides that it “is to be construed liberally to secure the beneficial interests and purposes thereof’ (Lien Law § 23), which include “providing] security for laborers and materialmen and . . . providing] notice and a degree of certainty to subsequent purchasers” (Matter of Niagara Venture v Sicoli & Massaro, 77 NY2d 175, 181 [1990]). It states that “substantial compliance . . . shall be sufficient for the validity of a lien and to give jurisdiction to the courts to enforce the same” (Lien Law § 23) and “[a] failure to state the name of the true owner . . . or a misdescription of the true owner, shall not affect the validity of the lien” (Lien Law § 9 [7]). The Lien Law also authorizes amendment provided it does not “prejudice . . . an existing lienor, mortgagee or purchaser in good faith” (Lien Law § 12-a [2]). Thus, read together, it explicitly provides that it should be construed liberally, states that a misdescription of the true owner shall not invalidate a lien, and allows amendment where a third party would not be prejudiced.

The Court is mindful of the power a lien gives to the holder over another’s property, and, because of the potential for abuse, it must be understood that the Lien Law does not sanction amendment without confirmation that the true owner and listed owner are closely related and there was consent to the construction work. In Gates & Co. v National Fair & Exposition Assn., we emphasized that

“[i]t was not the legislative intent to give a lien upon the property through the filing of any notice describing it; it was intended that such a lien should be acquired as against the title or interest of the person party to or assenting to the agreement under which the work was done” (225 NY 142, 156 [1919] [emphasis added]).

We conclude that the Lien Law authorizes the type of amendment sought under the specific circumstances here where the defect is plainly a misdescription and not a misidentification.

Even with a defect in the naming of the property owner, Lien Law § 9 “preserved] the validity of the lien so far as the person named as owner and against whom a lien is asked in fact, may have some title or interest” (Gates, 225 NY at 156). The Gates court permitted amendment where the true owner purchased most of the property under the lien (id. at 155), and there was “common consent” by the parties as to the construction work (id. at 153). Although the true owner of the property in Gates had changed its name from “Empire City Trotting Club” to “Empire City Racing Association” before purchasing the property, and the lien listed the previous corporate name, amendment was allowed because the two corporations were the same entity (see id. at 155). The Court recognized that the misnomer “would give to the public substantially the same notice of the lien [on the property] as if the exact name . . . had been used, or at least . . . would put a person examining the lien docket upon inquiry as to the intent and scope of the lien” (id.). The Court simultaneously denied amendment to another lien where the listed owner was one of many stockholders of the corporate owner (see id. at 156). Whereas the first was a misdescription, the second was a misidentification, which amounted to a jurisdictional defect invalidating the lien.

The First and Third Departments correctly allow amendment where the listed owner is closely related to the true owner, there was consent to the construction work, and a third party would not be prejudiced. In PM Contr. Co. v 32 AA Assoc., the First Department permitted amendment where the listed owner was named 32 AA, but the property had been transferred to 32 Sixth, an entity completely controlled by 32 AA, as its sole board member (see 4 AD3d 198, 199 [1st Dept 2004]). The two companies shared the same address and agent for service of process and no consideration was paid to transfer the property from 32 AA to 32 Sixth (see id. at 199-200). Agreeing with Supreme Court that the lien misdescribed the true owner, as opposed to misidentifying it (such as when naming a party with no relationship to the true owner and with no interest in the property), the First Department also reasoned that the “transaction . . . was not one at arm’s length,” no innocent third-party purchaser was prejudiced by the defect, and “deem[ed] 32 AA and 32 Sixth to be one and the same entity for present purposes” (id.).

The Third Department followed the liberal interpretation required by the Lien Law when it allowed amendment in Matter of Carboline Co. v Gold, where the listed owner was a corporation owned by three individuals who, together, owned the property (see 94 AD2d 921 [3d Dept 1983]). The listed owner also signed the contract for the construction materials, showing clear consent to the work (see id.). The court characterized this “misdescription of the true owners” as “the kind of failure which subdivision 7 of section 9 of the Lien Law is intended to protect” by allowing amendment (id.).

In contrast, the present, stricter construction contravenes the intent of the statute. Here, the true owner, Rigano, and the listed owner, Fawn Builders, are closely related, as the deed to the property made clear. Rigano and Fawn Builders had the same interest and control over the property in question — Rigano owned 100% of Fawn Builders. Significantly, the transfer of the property was not accomplished in an arm’s length transaction — no transfer tax was paid and Rigano merely conveyed the property to himself from his corporation. Further, Rigano had notice of the lien because he shares an address with Fawn Builders. Naming Fawn Builders gives, at the very least, inquiry notice to the public that there is a lien on the property, and a correct address to contact the true owner. And Rigano, who appears to have consented to a substantial majority of the work done on the property, signing as an individual and for Fawn Builders as its one and only shareholder, understood that a lien could be placed on the property upon a failure to pay for the work. This notice of lien would not have caught Rigano off guard. Finally, no third-party purchaser was or would be prejudiced by this amendment.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matters remitted to the Appellate Division for consideration of the other issues raised but not determined on the appeal to that court.

Judges Read, Smith, Pigott, Rivera and Abdus-Salaam concur.

Order reversed, with costs, and matters remitted to the Appellate Division, Second Department, for consideration of issues raised but not determined on the appeal to that court.