Published: September 7, 2011A settlement deal has been reached between lawyers for a large New York City landlord and its rent-regulated tenants, who claimed in a class-action lawsuit that they had been subjected to harassment, unlawful rent increases and aggressive eviction attempts during the real estate boom.
Under the terms of the deal, the landlord, the Pinnacle Group, will pay $2.5 million to legal and tenant-rights groups to help current and former tenants make legal claims for damages. The $2.5 million is separate from any damage awards. A court-appointed claims administrator will hear the complaints and decide whether to award compensation.
The Pinnacle Group, which owns about 15,000 apartment units citywide, must also set up a help line and follow new protocols like carefully notifying tenants of plans to increase rents or start evictions.
Tenant advocates and housing experts hailed the settlement deal, which was reached in early August and announced last week, for strengthening tenants’ legal rights in cases claiming harassment and unlawful evictions.
“This settlement seems to be a significant admission of wrongdoing by Pinnacle,” said Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development, which represents housing groups. He added that the deal confirmed tenants’ assertions that Pinnacle’s “misbehavior, harassing” and causing tenants to overpay their rents “was a key part of their business model.”
But Kenneth K. Fisher, a lawyer for Pinnacle, said the company had settled to avoid the cost of a potentially long trial. “The company has been proud of its record of providing housing for thousands of New York families,” he said, “and never felt the allegations had merit.”
Advocates for residents’ and tenants’ rights have long claimed that people in rent-regulated apartments owned by the Pinnacle Group were widely intimidated as part of the owner’s efforts to empty its buildings to make way for higher-paying tenants.
During the housing boom, scores of apartment buildings in far-flung pockets of the city were bought by what housing advocates described as predatory equity buyers, who paid more than what the buildings’ rent rolls could support. Tenants routinely found themselves showered with eviction notices, and new owners often ended up walking away from buildings after defaulting on their mortgages.
The Pinnacle Group, which spent hundreds of millions of dollars buying hundreds of apartment buildings from May 2004 to May 2006, has consistently denied any wrongdoing, saying it was trying to improve conditions in deteriorating buildings. Yet its practices were scrutinized by lawmakers and law enforcement.
In 2006, Pinnacle and the state attorney general’s office reached a settlement in which a forensic auditor examined rents for each of Pinnacle’s rent-stabilized units. As a result, Pinnacle paid $1 million in rent overcharges and interest to about 300 tenants.
In the class-action case, the plaintiffs claimed that Pinnacle had schemed to harass them. They also said Pinnacle had skirted the state’s rent regulation and other housing laws and had violated federal racketeering laws. In 2010, a federal judge granted the class-action status without addressing whether Pinnacle had violated the racketeering statute. But the judge said that if the tenants’ claims were true, racketeering could indeed have happened.
“It means that if you conspire to violate New York laws and displace tenants from a place you are running, you are subject to violating federal RICO conspiracy laws, and you can be sued,” said Andrew Scherer, author of “Residential Landlord-Tenant Law in New York” and a consultant to the plaintiffs.
News of the deal, which is expected to be completed at a fairness hearing in October, drew mixed reactions from tenants.
Bobby Jones, president of the tenant association at Dunbar, a large complex in Harlem that Pinnacle recently lost to foreclosure, said that the deal was “better than nothing,” but that Pinnacle had wrought lasting damage on the place. About 45 percent of Dunbar’s tenants left their homes or were forced out during Pinnacle’s five-year ownership, he said. Mr. Fisher said that the claim was “factually inaccurate,” and that during Pinnacle’s ownership no units were removed from rent stabilization and that turnover averaged 6 percent a year.
Kim Powell, a tenant leader at an existing Pinnacle building, said she and other named plaintiffs were “totally disappointed” with the deal. Among the issues it left unclear, she said, was who would be eligible for compensation. “The two attorneys may be happy with it, but we’re not,” Ms. Powell said.
Yet Richard F. Levy of the firm Jenner & Block, the plaintiffs’ lawyer, said the deal was in the best interest of the estimated 22,000 people who could be affected. “Certain matters needed to be compromised,” he said, “but this is a very good compromise.”