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Class Certification Not Available When Action Seeks Payment of a Nonwaivable Penalty

The Second Department, reversing Supreme Court, determined the respondent county’s request for class certification should not have been granted because the action sought payment of a penalty.  The county was seeking to act on behalf of 55 other governmental agencies to recover a “hotel tax” which allegedly was not fully paid by the appellants, online sellers of hotel accommodations:

Pursuant to CPLR 901(b), “Unless 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.” “However, 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, and individual class members are allowed to opt out of the class to pursue their punitive damages claims” … . Nonetheless, the “waiver” exception to CPLR 901(b) does not apply where a penalty is mandatory and cannot be waived … .

Here, the plaintiff cannot obtain class certification of this action because, under the plaintiff’s own Hotel Tax law, it is required to recover a “penalty” of 5% of the amount of the tax allegedly due from the appellants within the meaning of CPLR 901(b), the recovery of which in a class action is not specifically authorized in the Hotel Tax law, and the imposition of which cannot be waived, as conceded by the plaintiff’s representative during the deposition. Accordingly, the Supreme Court should have denied the plaintiff’s motion pursuant to CPLR article 9 for class certification of this action. County of Nassau v Expedia Inc, 2014 NY Slip Op 06050, 2nd Depy 9-10-14

 

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