Charron v. Wiener

12-2834(L)
Charron v. Wiener

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

August Term, 2012

(Argued: April 22, 2013 Decided: September 30, 2013)

Docket Nos. 12-2834-cv(L), 12-2907-cv(CON)

MARJORIE CHARRON, THEODORE CHARRON, ANDRES MARES-MURO,
RAYMOND ANDREW STAHL-DAVID, KIM POWELL,
on behalf of themselves and all others similarly situated,

Plaintiffs-Appellants,

ENRIQUE SUAREZ, HAMIDA MOUMOUNI, DIOGENES ABREU,

Objectors-Appellants,

BUYERS AND RENTERS UNITED TO SAVE HARLEM, ANTHONY CASANOVAS, KAREN
FLANNAGAN, TRACEY MOORE, RUSSELL TAYLOR, DIANE TRUMMER,

Plaintiffs,

ALL OTHERS SIMILARLY SITUATED,

Plaintiffs-Appellees,

— v. —

1
 JOEL WIENER, PINNACLE GROUP NY LLC,

Defendants-Appellees,

PINNACLE GROUP CORPORATION, PINNACLE GROUP, LLC,

Defendants.*

B e f o r e:

CALABRESI, LIVINGSTON, and LYNCH, Circuit Judges.

__________________

Class representatives and objectors appeal from an order of the United

States District Court for the Southern District of New York (Colleen McMahon,

Judge) approving a class settlement, pursuant to Federal Rule of Civil Procedure

23(e), of Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New

York State Consumer Protection Act claims of fraud in setting and charging

illegally high rents to tenants of rent-regulated apartments in New York City.

They argue that the district court erred by failing to adequately protect the

interests of absent class members who held certain types of claims and by

*
The Clerk of Court is respectfully directed to amend the official caption in
this case to conform with the caption above.

2
otherwise abusing its discretion in approving the settlement as fair under the

factors laid out in Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974).

AFFIRMED.

HAROLD F. MCGUIRE (Kenneth Rosenfeld, James M. Baker, Matthew J.
Chachère, Northern Manhattan Improvement Corporation Legal
Services, Harvey David Epstein, David A. Colodny, Urban
Justice Center, New York, New York, on the brief), Yankwitt &
McGuire, LLP, White Plains, New York, for Objectors-
Appellants.

MARC IAN GROSS, Pomerantz Grossman Hufford Dahlstrom & Gross
LLP, New York, New York, for Plaintiffs-Appellants.

RICHARD F. LEVY (Joshua H. Rubin, Marisa K. Perry, Katherine A.
Neville, on the brief), Jenner & Block LLP, New York, New York,
for Plaintiffs-Appellees.

MITCHELL A. KARLAN, Gibson, Dunn & Crutcher LLP, New York, New
York, for Defendants-Appellees.

GERARD E. LYNCH, Circuit Judge:

This appeal presents us with a unique variant of the more common general

question of when a class-action settlement requires subclassing of the plaintiff

class to ensure adequacy of representation pursuant to Federal Rules of Civil

3
Procedure 23(e) and (a)(4). The district court certified the plaintiff classes, which

comprise more than 20,000 current and former occupants of rent-regulated

apartments in New York City, pursuant to Rules 23(b)(3) (damages) and (b)(2)

(injunctive relief). The settlement that was eventually approved by the district

court provides no damages relief for claims that tenants were overcharged rent

by prior landlords, rather than by defendants, or for claims for rent overcharges

that predate July 11, 2004 (together, the “Excluded Overcharge Claims”).

Appellant objectors to the settlement contend that the lack of separate

representation for tenants with Excluded Overcharge Claims during settlement

negotiations violated Rule 23 and constitutional due process, and that the district

court was therefore required to establish subclasses for tenants who had such

claims. Because we reject that contention, and because we also conclude that the

settlement was fair, reasonable, and adequate, as required by Rule 23(e)(2), we

affirm the judgment of the district court.

BACKGROUND

I. Plaintiffs’ Allegations

On September 14, 2007, plaintiffs Marjorie Charron, Theodore Charron,

Andres Mares-Muro, Raymond Andrew Stahl-David, and Kim Powell, along

4
with Buyers and Renters to Save Harlem, Anthony Casanovas, Karen Flannagan,

Tracey Moore, Russell Taylor, and Diane Trummer, filed an amended complaint

in the United States District Court for the Southern District of New York. That

complaint, as amended again on October 24, 2007, alleged that defendants had

engaged in a conspiracy to fraudulently increase rents payable by tenants in over

400 buildings they owned in New York City, in violation of the Racketeer

Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968, and the New

York Consumer Protection Act (“NYCPA”), which prohibits “[d]eceptive acts or

practices in the conduct of any business,” N.Y. Gen. Bus. Law § 349(a).

Specifically, plaintiffs alleged that defendants Pinnacle Group NY LLC, Pinnacle

Group Corporation, and Pinnacle Group, LLC (collectively, “Pinnacle”)1 and its

principal, Joel Wiener, charged tenants higher rents than allowed by New York

City rent regulations,2 refused to acknowledge tenants’ succession rights,

1
Only Pinnacle Group NY LLC was named as an appellee.
2
Certain apartments in New York City are “rent-stabilized,” meaning that
New York City regulations define how much their rent can be raised upon
renewal of a lease by a tenant, as well as how much their rent can be raised when
a new tenant moves in. See, e.g., N.Y. Rent Stabilization Code §§ 2521-22.
Regulations also provide that where a prior landowner overcharged a tenant for
rent, a subsequent landowner shall generally be responsible for all overcharge
penalties. See Gaines v. N.Y. State Div. of Hous. & Cmty. Renewal, 90 N.Y.2d

5
misrepresented tenants’ rent payment histories, filed meritless eviction suits, and

otherwise harassed tenants. The complaint alleged that defendants did so in

order to raise rents above legally chargeable levels and to drive tenants out of

rent-regulated units, leading to the deregulation of those units and thus allowing

defendants to sell the units or charge new tenants a higher, market-rate monthly

rent.

II. Class Certification

On June 30, 2009, plaintiffs moved pursuant to Federal Rules of Civil

Procedure 23(b)(2) and 23(b)(3) to certify a class of approximately 20,000 former

and current residents of Pinnacle-owned buildings. On behalf of the class, they

sought compensatory, punitive, and statutory (treble) damages, as well as

attorney’s fees. They also sought injunctive relief prohibiting defendants from

engaging in the conduct alleged in the complaint, appointment of an

independent monitor to supervise defendants’ compliance, and regular audits of

defendants’ books. Plaintiffs’ proposed class was defined in the Second

545, 547 (1997). This “carryover liability” derives from the requirement that
landlords “keep and preserve sufficient records to determine the legal rent at all
times,” which ensures that “a successor landlord would always be able to
ascertain whether the previous owners had been guilty of overcharges and
protect itself accordingly.” Id. at 549 (citations ommitted).

6
Amended Complaint as

All persons who, at any time from July 11, 2004 to the date
of certification, leased an apartment in the City of New
York directly or indirectly owned in whole or in part by
the Pinnacle Enterprise. This class seeks certification of
claims for declaratory and injunctive relief, and for
damages pursuant to 18 U.S.C. § 1962(d) and New York
General Business Law § 349(h).

Pls.’ Second Am. Compl. ¶ 151 (emphasis added).

On April 27, 2010, the district court certified two classes: an injunctive-

relief class comprising all current residents of rent-regulated apartments owned

by Pinnacle, and a damages class comprising “all persons who, at any time

between July 11, 2004 and the date of this opinion [April 27, 2010], were tenants

in rent-regulated apartments in New York City directly or indirectly owned in

whole or in part by” Pinnacle. Charron v. Pinnacle Group N.Y. LLC, 269 F.R.D.

221, 244 (S.D.N.Y. 2010). The district court found that the proposed injunctive-

relief class satisfied Rule 23(a)’s four requirements – numerosity, commonality,

representativeness, and adequacy of representation – as well as Rule 23(b)(2)’s

requirement that injunctive relief be appropriate to the class as a whole. The

district court found that while the proposed damages class satisfied Rule 23(a)’s

requirements, it did not satisfy Rule 23(b)(3)’s requirement that questions of law

7
or fact common to the members of the class predominate, given the members’

individualized issues relating to injury and causation.3 However, even though

the action as a whole failed to satisfy Rule 23(b)(3)’s predominance requirement,

the district court nonetheless certified a class that was limited to certain common

liability issues that did satisfy Rule 23(b)(3)’s predominance and superiority

requirements. See Fed. R. Civ. P. 23(c)(4) (“[A]n action may be brought or

maintained as a class action with respect to particular issues.”).

III. The Settlement

After class certification but before any discovery on the merits of the claims

had taken place, the parties engaged in extensive settlement negotiations under

the supervision of a magistrate judge (Ronald L. Ellis, Magistrate Judge). The

parties were represented by prominent law firms –- the class by Jenner & Block,

and Pinnacle by Gibson, Dunn & Crutcher. Class counsel were assisted by

Andrew Scherer, an expert in New York landlord-tenant law and rent regulation

statutes, and the author of the treatise Residential Landlord-Tenant Law in New

York. See Charron v. Pinnacle Group N.Y. LLC, 874 F. Supp. 2d 179, 189

3
The district court rejected plaintiffs’ proposed solution to divide the class
into four subclasses, finding that such division would not resolve the
predominance issue.

8
(S.D.N.Y. 2012).

Negotiations began in the fall of 2010 and a preliminary formal settlement

agreement was reached on August 9, 2011. On August 17, 2011, the magistrate

judge approved the settlement. Under the settlement, Pinnacle agreed to

maintain “best practices,” enforced by a court-appointed claims administrator,

with respect to: setting initial rents for new tenants and rent increases for existing

tenants; eviction proceedings against tenants; repairs and tenant services; and

staff training. Pinnacle was also required to undergo an audit of a random

sample of its leases issued from 2008 to 2010 and, depending on the outcome of

that audit, potentially to submit to a more extensive audit of all its leases from

that period.

Pinnacle also agreed to institute a claims process to pay damages for past

rent overcharges as well as for “harassment” claims. Under this system, to be

administered by a court appointee, tenants alleging rent overcharge claims may

recover their actual damages or, if they can prove willfulness on the part of

Pinnacle, double damages. For harassment claims, tenants may recover the

greater of a pre-set penalty ranging from $500 to $1500 or their actual damages.

The process is informal: tenants may prove their claims through a simple form

9
and are not required to adhere to traditional rules of evidence. Pinnacle further

agreed to pay a total of $2.5 million to certain community legal services

organizations and other nonprofit groups, to enable them to provide assistance to

tenants wishing to participate in the claims process.

Finally, Pinnacle agreed to pay class counsel $1.25 million in attorney’s fees

and another $200,000 in expenses.

Importantly for purposes of this appeal, the settlement excluded certain

types of claims. In particular, two subgroups of claims otherwise included by the

class definition were excluded from the settlement. First, the settlement provided

damages relief only for rents set by Pinnacle after July 11, 2004.4 Second, the

settlement specified that, under the claims administration process, it would be “a

defense to any allegation of overcharge” that Pinnacle “relied on a rent registered

by a prior owner with the New York State Division of Housing and Community

Renewal . . . or contained in documentation from a prior owner of the [tenant’s]

building.” J. App’x at 276-77.

4
A rider later clarified that class members “are barred from seeking,
through the claims process provided in the Agreement, money damages for
individual rent overcharge claims based on” rent set before July 11, 2004. J. App’x
at 425.

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 Following an extended notice period with substantial outreach to class

members, only about 1% of the class members opted out or objected to the

settlement. Of the more than 20,000 class members, only 118 objected, and 141

opted out; 56 submitted unsolicited letters in support of the settlement. Id. at

190.

After conducting a fairness hearing, the district court issued a 54-page

opinion approving the settlement. Id. It found that notice of the proposed

settlement was adequate, that the settlement was fair, adequate, and reasonable

pursuant to Rule 23(e), and that there were no intra-class conflicts.

DISCUSSION

Appellants, the initial class representatives as well as three other class

members who objected to the settlement, now challenge both the fairness,

adequacy, and reasonableness of the settlement and the adequacy of the class

members’ representation.

I. Standard of Review

A district court’s approval of a class action settlement is reviewed for

exceeding its discretion. McReynolds v. Richards-Cantave, 588 F.3d 790, 800 (2d

Cir. 2009). A district court abuses its discretion when its decision rests on an

11
error of law or a clearly erroneous factual finding, or when its decision cannot be

located within the range of permissible decisions. In re Literary Works in Elec.

Databases Copyright Litig., 654 F.3d 242, 249 (2d Cir. 2011). In class settlement

cases, we accord the trial judge’s views “great weight” because of her position

“on the firing line,” where she is “exposed to the litigants, and their strategies,

positions and proofs,” Joel A. v. Giuliani, 218 F.3d 132, 139 (2d Cir. 2000) (internal

quotation marks omitted), and we will “disturb a judicially-approved settlement

only when an objector has made a clear showing that the District Court has

abused its discretion,” D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001)

(internal quotation marks omitted). We review factual findings relating to the

settlement for clear error and issues of law de novo. McReynolds, 588 F.3d at

800.

II. Analysis

A. Fairness of the Settlement

Federal Rule of Civil Procedure 23(e)(2) provides that a court may approve

a class action settlement only if it is “fair, reasonable, and adequate.” Fed. R. Civ.

P. 23(e)(2). The court must review the negotiating process leading up to the

settlement for procedural fairness, to ensure that the settlement resulted from an

12
arm’s-length, good faith negotiation between experienced and skilled litigators.

See McReynolds, 588 F.3d at 803-04; D’Amato, 236 F.3d at 85.

The court must also evaluate substantive fairness, considering the nine

Grinnell factors set forth in Detroit v. Grinnell Corp.:

(1) the complexity, expense and likely duration of the
litigation; (2) the reaction of the class to the settlement;
(3) the stage of the proceedings and the amount of
discovery completed; (4) the risks of establishing
liability; (5) the risks of establishing damages; (6) the
risks of maintaining the class action through the trial; (7)
the ability of the defendants to withstand a greater
judgment; (8) the range of reasonableness of the
settlement fund in light of the best possible recovery;
[and] (9) the range of reasonableness of the settlement
fund to a possible recovery in light of all the attendant
risks of litigation.

495 F.2d 448, 463 (2d Cir. 1974) (citations omitted), abrogated on other grounds by

Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000); see also

McReynolds, 588 F.3d at 804.

The district court carefully analyzed each factor in its thorough opinion,

finding that “[o]n balance, the Grinnell factors weigh[ed] heavily in favor of final

approval of the Settlement Agreement.” Charron, 874 F. Supp. 2d at 196. It

found that eight of the nine factors weighed in favor of approval, while the ninth

13
(defendants’ ability to withstand a greater judgment) was neutral. Id. at 201. We

cannot say that the district court’s well-reasoned conclusion constituted an abuse

of discretion, especially given the deference we accord to trial courts in these

situations. See Joel A., 218 F.3d at 139. The district court’s reasoning is set out in

detail in its opinion, and only a few of the factors require further discussion on

appeal.5

1. The Need for Further Discovery

Appellants argue that concluding the settlement before merits discovery

“infected the analysis of virtually every other Grinnell factor” to their detriment.

We conclude, however, that the discovery conducted was sufficient to permit the

district court to evaluate the claims and settlement. Objectors to a settlement

have no automatic right to discovery or an evidentiary hearing in order to

substantiate their objections. See, e.g., Malchman v. Davis, 761 F.2d 893, 897-98

(2d Cir. 1985), abrogated on other grounds by Amchem Prods., Inc. v. Windsor,

521 U.S. 591 (1997). Instead, where objectors raise “cogent factual objections to

5
To the extent that appellants argue that notice was inadequate and that
the district court therefore improperly weighed the reaction of the class to the
settlement, the district court’s opinion adequately explained why the notice
provided to the class was sufficient. Charron, 874 F. Supp. 2d at 192-94.

14
the settlement,” id. at 897 (internal quotation marks omitted), and prior discovery

was insufficient or nonadversarial, we instruct district courts “to exercise

particular care to see to it that the non-assenting plaintiff [or, by logical extension,

objecting class member] has had a full opportunity to develop the basis for his

objection.” Saylor v. Lindsley, 456 F.2d 896, 901 (2d Cir. 1972); cf. Maywalt v.

Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir. 1995) (“The ultimate

responsibility to ensure that the interests of class members are not subordinated

to the interests of either the class representatives or class counsel rests with the

district court.”).

Here, the district court treated the objections seriously, delaying the

fairness hearing many months, requiring revised notice and a 20-building

sampling, and ordering the parties to answer detailed questions about the effects

of the settlement on various hypothetical class members – actions that imposed

significant cost and burden on Pinnacle and on Class Counsel. While the district

court denied the objectors’ request for lease and rent registration histories for

each of the buildings in the sampling, it did so because the objectors could not

articulate why they needed the information to substantiate their objections.

Ultimately, the preliminary discovery did not bear out the opponents’ objections.

15
On this record, we cannot find that the district court exceeded its discretion by

declining to order further discovery and approving the settlement based on the

information before it.

2. The Risks of Maintaining a Class Action

Appellants argue that the district court heavily relied on the specter of

decertification if the case were to proceed without explaining why the Supreme

Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), posed a

significant risk of decertification in this specific case. The district court

concluded, after examining the facts of this case and recent jurisprudence

interpreting Dukes, that there was a “substantial chance” that a motion to

decertify the class would succeed were the settlement to be rejected, and that this

possibility weighed strongly in favor of approval.

It is unnecessary, and would be inappropriate, for us to conduct a purely

hypothetical discussion of the ultimate merits of a potential decertification

motion. Given defendants’ repeated statements that they will immediately move

for decertification if the settlement is rejected, the large size of the class, the

complicated and diverse claims asserted by plaintiffs, and the heightened legal

uncertainty necessarily injected by significant recent Supreme Court authority

16
relevant to the propriety of class certification, however, we cannot find that the

district court abused its discretion in finding that the class faced significant risks

of decertification, that decertification would drastically reduce the chances of any

member of the class achieving meaningful relief, and that the litigation risks

attendant to these possibilities weighed heavily in favor of the fairness of a

settlement under which plaintiffs achieved substantial benefits that (as in any

settlement) fell short of what they might have hoped to achieve.6

In conclusion, the district court’s careful review of the settlement warrants

the great deference we normally accord to trial court findings with respect to the

fairness of class action settlements. The district court did not simply rubber-

stamp the settlement on the basis of boilerplate findings, but wrote a long and

careful opinion after engaging in a serious process to air and examine the

objections to the settlement. Appellants’ claims that the district court’s balancing

of the Grinnell factors was inadequate boil down to the usual contention that the

6
One further issue, raised by appellants not in connection with the overall
fairness of the settlement but in the context of their claims of inadequate
representation, bears on but does not ultimately affect our analysis of the fairness
of the settlement. That issue, which concerns a possible error in calculating the
statute of limitations applicable to the class’s RICO claims, is discussed in note 9,
below.

17
settlement did not get enough for the class. We find no fault in the district

court’s rejection of that contention.

B. Adequacy of Representation

Federal Rule of Civil Procedure 23(a)(4) requires that in a class action, “the

interests of the class” must be “fairly and adequately protect[ed].” Fed. R. Civ. P.

23(a)(4). To ensure that all members of the class are adequately represented,

district courts must make sure that the members of the class possess the same

interests, and that no fundamental conflicts exist among the members. In re

Literary Works, 654 F.3d at 249; see also Denney v. Deutsche Bank AG, 443 F.3d

253, 268 (2d Cir. 2006). Adequacy of representation must be determined

independently of the fairness of the settlement: “Rule 23 requires protections

under subdivisions (a) and (b) against inequity and potential inequity at the

precertification stage, quite independently of the required determination at

postcertification fairness review under subdivision (e) that any settlement is fair

in an overriding sense.” Ortiz v. Fibreboard Corp., 527 U.S. 815, 858 (1999); see

also Amchem, 521 U.S. at 622 (“Federal courts . . . lack authority to substitute for

Rule 23’s certification criteria a standard never adopted – that if a settlement is

‘fair,’ then certification is proper.”).

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 Where a fundamental conflict exists that goes “to the very heart of the

litigation,” Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco

Managed Care, L.L.C., 504 F.3d 229, 246 (2d Cir. 2007), it can be cured by

dividing the class “into homogeneous subclasses . . . with separate representation

to eliminate conflicting interests of counsel.” Ortiz, 527 U.S. at 856. Such

subclassing may provide a key “structural assurance of fair and adequate

representation for the diverse groups and individuals affected,” Amchem, 521

U.S. at 627, and “serve[s] to inhibit appraisals of the chancellor’s foot kind – class

certifications dependent upon the court’s gestalt judgment or overarching

impression of the settlement’s fairness,” id. at 621.

Appellants argue that the settlement in effect created two subclasses with a

fundamental conflict: (1) those who may bring their rent overcharge claims

before the Claims Administrator, and (2) those with Excluded Overcharge

Claims, whose rents (a) were set unlawfully high before Pinnacle took over their

buildings, or (b) were set on or before July 11, 2004. Appellants argue that

because the settlement discriminates against members with Excluded Overcharge

Claims, it creates a fundamental conflict of interest among these two subclasses.

They argue that because the two subclasses were not separately represented, as

19
required by Rule 23(a)(4) and Ortiz, the settlement must be vacated.

As a preliminary matter, we note that unlike the situation in Amchem,

Ortiz, and In Re Literary Works, the settlement here was not being approved at

the same time that the class was being certified. Where settlement and

certification proceed simultaneously, courts must give heightened attention to

the requirements of Rule 23(a). See Ortiz, 527 U.S. at 848-49; Amchem, 521 U.S. at

620; In Re Literary Works, 654 F.3d at 249. That is so because the certification of a

mandatory settlement class “effectively concludes the proceeding save for the

final fairness hearing,” and there is thus a heightened risk of conflating the

fairness requirements of Rule 23(e) with the independent requirement of

“rigorous adherence to those provisions of the Rule designed to protect

absentees,” such as Rules 23(a) and (b). Ortiz, 527 U.S. at 849 (internal quotation

marks omitted).

Here, by contrast, appellants seek to challenge a subsequent settlement on

Rule 23(a) grounds, asserting conflicts never raised at the certification stage. In its

April 27, 2010 order certifying the class in anticipation of litigation, the district

court carefully considered each 23(a) factor, including adequacy of

representation, and deemed them to be satisfied. At that stage, no party argued

20
that there were intra-class conflicts based on the nature of the different claims

held by different class members. Nor did any appellant ask for separate

representation. Rather, plaintiffs argued that Class Counsel could adequately

protect the interests of the class. To be sure, appellants argue that class conflicts

arose after certification, during the course of settlement negotiations that

concluded in August 2011. To the extent these conflicts were not apparent at

certification, and assuming they were, indeed, “fundamental,” Rule 23 and due

process would require renewed scrutiny of the suitability of the class. See, e.g.,

Fed. R. Civ. P. 23(c)(1)(c) (“An order that grants or denies class certification may

be altered or amended before final judgment.”); Fed. R. Civ. P. 23(c)(5) (“When

appropriate, a class may be divided into subclasses that are each treated as a class

under this rule.”); Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985)

(“[T]he due process clause of course requires that the named plaintiff [in a class

action] at all times adequately represent the interests of the absent class

members.”). Cf. Joel A., 218 F. 3d at 140 (holding objection to settlement on

adequacy of representation grounds waived where the “perceived differences

[among] subclass members were apparent when the subclasses were certified”

and no objection was made at time of certification decision). However, in this

21
specific and factually complex situation, we do not find a fundamental conflict

between class members necessitating separate representation.

First, it is important to distinguish, as appellants for the most part do not,

the RICO claims that were brought as part of this case from any potential rent

overcharge claims under New York City rent stabilization law, which were not

included in plaintiffs’ complaint. Under New York City law, landlords of rent-

regulated apartments must charge the correct rent under the complicated rent

stabilization rules. See, e.g., N.Y. Rent Stabilization Code §§ 2521-2522. Class

members who were overcharged are entitled, like other regulated tenants, to

reimbursement for such overcharges, regardless of whether the overcharge was

intentional, negligent, or the product of reasonable mistake.

The complaint in this case does not allege individualized claims of

erroneously charged rents in violation of the stabilization rules. Indeed, it is

difficult to see how such claims could possibly be brought on a class basis, since

the sole issue in each individual’s claim would be the correctness of that tenant’s

rent, based on the specific rent history of that apartment and its conformance to

the correct calculation under the rules. Instead, the complaint alleges that the

entire class was victimized by defendants’ conduct of a single RICO enterprise

22
based on fraud and extortion. While the damages suffered by class members will

vary, and will in many cases be based on the extent to which the relevant

criminal conduct affected the rent paid by individual tenants, defendants’ liability

is based on fraudulent or other predicate criminal conduct.

Thus, in assessing the argument that various overcharged rent claims were

excluded from the settlement, it is important to recognize that claims of rent

overcharges as such were never part of the case in the first place. The claims that

were addressed by the settlement are based on conscious wrongdoing by

defendants themselves, including among other things fraudulent rent

overcharges. To the extent that the settlement excludes overcharges resulting

from rents erroneously set (whether fraudulently or otherwise) by prior

landlords not affiliated with Pinnacle or the RICO enterprise alleged in the

complaint, it excludes claims that are far more tenuous against defendants, and

that (except to the extent defendants could be shown to have acted with

fraudulent intent) were not part of the case at all.

Second, the settlement does not, by its terms, exclude any tenant, or type of

tenant, from the claims process. It instead provides that no class member can

bring Excluded Overcharge Claims through that process. Whether some

23
members are wholly excluded from the claims process depends on how many

members have only Excluded Overcharge Claims. Appellants have not been able

to estimate with any reliability the number of class members, if any, who may be

in that category. The fact that a large number of class members have leases that

pre-date Pinnacle, or that pre-date the cutoff, does not answer that question.

Those members may still be eligible for harassment or eviction-related damages

against Pinnacle, or may have rent overcharge claims related to post-2004 illegal

rent overcharges.7

Appellants have not demonstrated that a significant number of class

members’ claims were excluded from the settlement. While appellants argue that

77% of the class may have Excluded Overcharge Claims, based on a

representative sampling done by defendants in 2012, that number does not

suffice to distinguish the alleged subclasses. To the contrary, it suggests that the

exclusion of these claims affects not a unique subclass of the certified damages

class, but the vast majority of class members. Appellants were unable to quantify

7
For example, tenants who were improperly overcharged for capital
improvements after 2004, or as to whom Pinnacle engaged in other unlawful
rent-setting practices during that period, may bring such overcharge claims
through the claims process.

24
how many class members had rent overcharge claims that come within the

claims process, how many had only Excluded Overcharge Claims but

nonetheless could recover on other claims (such as harassment claims), and how

many class members, if any, were left without any claims for damages that could

be brought in the claims process. Given that the settlement provides the

considerable benefit of a streamlined claims process that is open to all members

of the class, and that it has not been shown that any significant number of class

members are excluded from benefitting from that process by the exclusion of

certain types of relatively weak claims, we cannot find that the exclusion of those

claims creates a fundamental conflict among class members sufficient to require

the creation of separate subclasses.

Third, while the settlement does not provide relief for the Excluded

Overcharge Claims, it does not extinguish them, or release Pinnacle from liability

for overcharge claims under New York City rent regulations. This case therefore

does not present the situation the Supreme Court faced in Amchem, Ortiz, and In

re Literary Works, where the defendants were released from liability on certain

claims that the settlements disfavored. Here, appellants remain free to bring the

Excluded Overcharge Claims against defendants in other fora, presumably New

25
York state courts.8 At the same time, all class members are entitled to bring post-

2004 overcharge claims based on Pinnacle’s conduct via the claims process

established by the settlement, without bearing the burden of proving that any

overcharge was based on fraud.

Fourth, unlike in In Re Literary Works, the exclusion of certain claims here

8
Appellants argue that their state rent overcharge claims may no longer be
viable given the statute of limitations set forth in N.Y. C.P.L.R. § 213-a. Such
statute of limitations issues, however, do not render the settlement unfair to class
members. There may be many defenses to potential rent overcharge claims, but
those defenses are independent of the settlement, which does not add to
whatever burdens potential tenant-plaintiffs would otherwise have. Given that
rent stabilization claims were not alleged in plaintiffs’ complaint, it was a
reasonable decision by class counsel to leave the resolution of those claims (and
whatever defenses may be asserted against them) to whatever forum is
appropriate to hear them.
Moreover, to the extent that rent claims are implicated in the class action,
any applicable statute of limitations may have been tolled during the pendency
of this case. See Cullen v. Margiotta, 811 F.2d 698, 719 (2d Cir. 1987) (“New York
courts have, in the interest of avoiding court congestion, wasted paperwork and
expense, long embraced the [equitable tolling] principles of [American Pipe &
Constr. Co. v. Utah, 414 U.S. 538 (1974)].” (internal quotation marks omitted)),
overruled on other grounds by Agency Holding Corp. v. Malley-Duff & Assocs.,
Inc., 483 U.S. 143 (1987). The excluded claims are, as a matter of law, either
barred by the statute of limitations or not, and tenants wishing to bring those
claims either did or did not act reasonably in failing to file rent overcharge claims
on the assumption that the statute of limitations on such claims, which were not
directly brought as part of the RICO class action complaint, was tolled by the
pendency of that complaint. The settlement itself does not, and need not, resolve
such issues, and the settlement itself does not release or otherwise impair those
claims.

26
does not “provide[] strong evidence . . . of inadequate representation.” 654 F.3d

at 256. As discussed above, claims based on rents set by prior landlords do not

easily fall within plaintiffs’ core allegations of a RICO enterprise. Pinnacle’s

potential liability under New York law for prior landowners’ overcharges on a

“carryover liability” theory that sounds in negligence does not satisfy RICO’s

requirement of conscious wrongdoing. Similarly, while appellants argue that

their pre-2004 claims would not be barred by RICO’s or the NYCPA’s statutes of

limitations due to equitable tolling, the very need to litigate the applicability of

equitable tolling make these claims weaker than post-2004 claims.9

9
Appellants argue that if, by excluding pre-2004 claims, the settlement
meant to exclude claims that were barred by the relevant statutes of limitations, it
should have excluded pre-2003 claims, as RICO’s statute of limitations (unlike
NYCPA’s) is four years, not three. See Agency Holding Corp., 483 U.S. at 156.
While any error is regrettable, we fail to see its relevance to the inquiry into
adequacy of representation. As noted above, the exclusion of time-barred rent
overcharges from the settlement did not provide strong evidence of inadequate
representation because such claims were weaker than timely claims, given the
necessity of arguing equitable tolling. Any error in determining the cut-off date
does not change the analysis.
The July 2004 cutoff was predicated on the date chosen by plaintiffs for the
beginning of the class period, which in turn was validated by the district court’s
earlier order denying defendants’ motion to dismiss, which had ruled that
“plaintiffs may not assert any claims which accrued prior to July 11, 2004.” J.
App’x at 148. As the district court recognized in its order approving the
settlement, the cut-off date “was not determined in the context of the [s]ettlement
negotiations; I fixed it [ ] back in 2010, before the [s]ettlement was on the table.” J.

27
 Finally, all class members who presently reside in Pinnacle-owned housing

benefit from the injunctive measures provided for in the settlement, which

require Pinnacle to agree to maintain “best practices,” enforced by a court-

appointed claims administrator, with respect to setting initial rents, setting rent

increases, eviction proceedings, repairs and other services, and staff training.

All class settlements value some claims more highly than others, based on

their perceived merits, and strike compromises based on probabilistic

assessments. See, e.g., Weinberger v. Kendrick, 698 F.2d 61, 78 (2d Cir. 1982)

(approving settlement that paid more for federal claims than for state law claims,

finding that state law claims were less valuable because they would have been

App’x at 667. Counsel on both sides appear to have negotiated the settlement in
the shadow of the district court’s earlier rulings. Even if such rulings were
erroneous, settlements may be based on the parties’ expectations that stem from
predicted, or prior, judicial rulings about the merits of the case. For the same
reasons discussed above, therefore, any alleged subclass of post-2003, pre-2004
claims did not require separate representation.
This apparent error, however, does factor into our Rule 23(e) inquiry into
the reasonableness of the settlement. While the possibility that some claims were
erroneously excluded bears on Grinnell factor 8, the reasonableness of the
settlement compared to what the parties could have received in litigation, the
other Grinnell factors, especially the risk of decertification, still weigh heavily in
favor of the settlement. Accordingly, any possible error in this regard does not
undermine our conclusion that the district court’s approval of the settlement was
not an abuse of discretion.

28
more difficult to prove in court, and “that it was not unfair for the settlement’s

distribution formula to reflect this”). If these types of compromises automatically

created subclasses that required separate representation, the class action

procedure would become even more cumbersome than it already is, and would

create even more transaction costs in the form of legal fees. We find that given

the increased difficulty of litigating the Excluded Overcharged Claims, their

exclusion from the settlement was reasonable and does not create serious intra-

class conflicts or indicate inadequate representation by Class Counsel.

In summary, we find that a fundamental conflict did not exist between the

members of the class, and that the Class Counsel’s representation was adequate

under Rule 23(a)(4). It was therefore not necessary to divide the class into

subclasses with separate representation.

C. Objections by All Named Plaintiffs

Finally, to the extent that appellants argue that the rejection of the

settlement by all five remaining named class representatives requires its rejection

by the Court, we cannot agree. As our sister circuits have noted, the assent of

class representatives is not essential to the settlement, as long as the Rule 23

requirements are met. See Elliott v. Sperry Rand Corp., 680 F.2d 1225, 1226, 1228

29
(8th Cir. 1982); Kincade v. Gen. Tire & Rubber Co., 635 F.2d 501, 508 (5th Cir.

1981) (“[T]he assent of named plaintiffs is not a prerequisite to the approval of a

settlement.” (internal quotation marks omitted)); Laskey v. Int’l Union, 638 F.2d

954, 957 (6th Cir. 1981) (“Accepting a settlement over the objections of the named

representatives is not necessarily an abuse of discretion.”); Flinn v. FMC Corp.,

528 F.2d 1169, 1174 n.19 (4th Cir. 1975). “Class counsel is supposed to represent

the class, not the named parties: that the named parties objected does not prove

the settlement was unfair or that the class counsel acted improperly.” Laskey,

638 F.2d at 956. We believe those cases correctly state the law.

CONCLUSION

Plaintiffs’ complaint represented a daring and unconventional effort to

turn New York City rent violations into RICO claims that could be pursued on a

class-wide basis. The ensuing litigation has achieved significant benefits for the

class, particularly in its injunctive aspects, against significant odds. While the

settlement has its own unconventional aspects, and leaves much to be desired

from the standpoint of the more militant members of the class (including the

named plaintiffs), those less favorable aspects of the settlement are largely

attributable to the precariousness of plaintiffs’ claims. The district court

30
thoroughly and carefully reviewed the settlement and concluded that it was a fair

and sensible way to resolve these claims. We cannot conclude that the district

court exceeded its discretion when it did so. Nor can we conclude that the

necessary compromise of some of the claims theoretically available to class

members created a conflict of interest, or demonstrated inadequate

representation, sufficient to require the creation of separately-represented

subclasses.

For the foregoing reasons, we AFFIRM the judgment of the district court.

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