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Class Action Defense Cases-Sperry v. Crompton: New York Law Precludes Class Action Lawsuits That Seek To Collect Penalties Unless Expressly Allowed By Statute

CPLR 901(b) Precludes Antitrust Class Action Lawsuits Because Treble Damages Award Under the Donnelly Act is a Penalty New York Court of Appeals Holds

Plaintiff filed a putative class action against various defendants seeking damages under New York’s antitrust statute (the Donnelly Act) and deceptive practices statute, and an unjust enrichment theory, alleging that defendants overcharged tire manufacturers for chemicals used in the processing of rubber for tires. Based on the Donnelly Act, the class action complaint prayed for treble damages, costs and attorney fees. Sperry v. Crompton Corp., ___ N.E.2d ___, 2007 WL 527726 (N.Y. February 22, 2007) [Slip Opn., at 2-3.]. Defense attorneys moved to dismiss the class action. The trial court granted the motion, holding that “CPLR 901(b), which precludes a class action to collect a penalty unless specifically authorized by statute, barred the Donnelly Act claim.” Id., at 3. The lower court dismissed the remaining counts on grounds not relevant here. The New York Court of Appeals affirmed.

Plaintiff argued that a treble damages award under the Donnelly Act did not constitute a penalty within the meaning of CPLR 901(b), citing both New York law and federal case law that treble damages in antitrust actions “are primarily remedial in nature.” Sperry, at 3-4. The Court of Appeals disagreed. The High Court found it “evident” that the Legislature intended the penalty exception in CPLR 901(b) to preclude class action relief “where individual plaintiffs were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages), unless a statute expressly authorized the option of class action status.” Id., at 9. The Court explained at page 9, “This means sense, given that class actions are designed in large part to incentivize plaintiffs to sue when the economic benefit would otherwise be too small, particularly when taking into account the court costs and attorneys’ fees typically incurred.”

The Court of Appeals held that the treble damages provision of the Donnelly Act constituted a penalty. The statute “does not state that such damages are compensatory,” and while “one third of the award unquestionably compensates a plaintiff for actual damages, the remainder necessarily punishes antitrust violations, deters such behavior . . . or encourages plaintiffs to commence litigation – or some combination of the three.” Sperry, at 9-10. Importantly, the New York court (1) refused to follow U.S. Supreme Court opinions holding that antitrust damages are “remedial” in nature, because those cases did not address whether “treble damages should be considered a ‘penalty’ for purposes of a particular statute,” id., at 11-12, and (2) refused to decide whether the lawsuit could proceed as a class action if plaintiff waived treble damages and limited his recovery to actual damages as not properly before the Court, because plaintiff “has consistently sought treble damages throughout this litigation and has not previously attempted to waive them to pursue only actual damages,” id., at 12.

NOTE: This was apparently a matter of first impression, as the New York Court of Appeals noted “we have never construed the term ‘penalty’ within the meaning of CPLR 901(b), nor have we had occasion to characterize the treble damages provision under the Donnelly Act,” Sperry, at 7-8.

Download PDF file of Sperry v. Crompton