In general, local municipalities control what can be built in their communities. These local rules, however, can be limited or powers checked by state laws that regulate in the same area. One such rule in California is called the Ellis Act and it allows developers to take housing off the rental market if they follow certain rules. In this case, the plaintiffs were tenants who claimed that the developer failed to follow the Ellis Act Rules. Specifically, the defendants had evicted the plaintiffs from their rent-controlled apartments, claiming they were removing the buildings from the rental market under the Ellis Act. The allegation was that the Ellis Act rules were violated because the defendants subsequently listed the units on Airbnb before eventually demolished the buildings for new construction.
The plaintiffs’ claims were based in part on LAMC section 151.25, which incorporates the Ellis Act. Under this provision, if a rent-controlled property is withdrawn from the market but offered for residential rental again within two years, the landlord becomes liable to former tenants for damages. Plaintiffs further argued that all the tenants were similarly situated and therefore entitled to class certification for their case. This would result in all the tenants being entitled to damages from the defendants if they won the case. Alternatively, the defendants argued that liability should be determined on a unit-by-unit basis, requiring a detailed analysis that couldn’t be established with common proof. At trial, the court sided with the defendants, denying class certification.
The appellate court disagreed, concluded that the trial court had made an error in finding, as a matter of law, that common questions of law or fact did not predominate for the class-wide claims for liability. While individualized proof of damages might be necessary, the plaintiffs had suggested methods to manage such issues effectively. Therefore, there remained a reasonable probability that the plaintiffs could satisfy the requirements for class certification, and the court reversed and remanded the case with directions to reinstate the class allegations. Therefore, in terms of class certification, the court found that class resolution was preferable because it would efficiently determine liability for an alleged common scheme, and the potential recovery for each class member was not small, making it likely for each member to come forward.
Ultimately, the court reversed the trial court’s decision, instructing them to reinstate the class allegations and proceed with the case accordingly. The case highlights the risk developers take when attempting to remove properties from the rental market.