Zeff v. Greystar California, Inc.

Background

Zachary Zeff filed a proposed class action against Greystar Real Estate Partners, LLC. He alleged that Greystar charged tenants a $100 late penalty when rent or utility-related amounts were late, including a $3.95 monthly administration fee. According to the complaint, Greystar treated utility charges and the administration fee as rent, applied payments first to previously assessed fees, and thereby created repeated or “stacked” late penalties.

Zeff also alleged that Greystar returned his $700 security deposit more than 21 days after he moved out and deducted $127 without providing documentation such as repair bills or receipts. The complaint asserted claims under California Civil Code sections 1671 and 1950.5, California’s Unfair Competition Law, and a restitution or quasi-contract theory. Zeff sought damages, restitution, and a declaration that Greystar’s late-fee and security-deposit practices were unlawful. He proposed an illegal-penalties class and a security-deposit class.

Greystar’s dismissal arguments

Greystar moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, and Rule 12(b)(7), which concerns failure to join a required party. Greystar argued that Bel Albert Holdings, LLC, was the landlord and a party to Zeff’s lease, while Greystar was only the property manager. It contended that Bel Albert had a legally protected interest in the lawsuit, that the court could not provide complete relief without Bel Albert, and that Bel Albert’s absence could create multiple or inconsistent obligations.

Rule 19 ruling

The court denied the Rule 12(b)(7) request. It explained that joinder under Rule 19 generally requires the absent party to claim a legally protected interest related to the lawsuit. Bel Albert had not claimed such an interest. The court further concluded that Bel Albert was not required under Rule 19(a)(1)(A) because the court could provide complete relief between Zeff and Greystar. The court stated that Greystar, as the manager alleged to have directly engaged in the wrongful conduct, could be held jointly and severally liable for those alleged acts and could be enjoined from collecting illegal fees or retaining security deposits.

The court also found that Bel Albert was not shown to have a legally protected interest under Rule 19(a)(1)(B). The challenged provisions were the flat $100 late fee and Greystar’s payment-allocation practice; the court noted that the latter practice did not appear in the lease text and that invalidating the challenged fee would not invalidate the entire lease. The court added that any judgment would not bind Bel Albert in later proceedings.

Plausibility of the claims

For purposes of the Rule 12(b)(6) motion, the court accepted the complaint’s factual allegations as true and viewed reasonable inferences in Zeff’s favor. It held that the allegations plausibly stated a claim under California Civil Code section 1671. That law regulates contract provisions setting damages for breach, and residential liquidated-damages provisions are presumptively void unless the proponent shows that actual damages were extremely difficult to calculate and that the charge reasonably estimated the loss.

The court found a plausible mismatch between Greystar’s $100 fee and its actual losses because the fee was automatically imposed, did not vary with the amount owed or the location of the home, and was allegedly unsupported by any calculation or methodology. The court therefore held that Zeff plausibly alleged that Greystar’s stacking scheme was an unlawful liquidated-damages provision.

The court also held that Zeff plausibly stated a claim under California Civil Code section 1950.5. That section requires the landlord, within 21 days after the tenant vacates, to provide an itemized statement and return any remaining security deposit. Relying on the reasoning described from a California appellate decision, the court concluded that an entity that collects a tenant’s security deposit may be liable for violating the statute, even if it is a property manager rather than the property owner.

The court further held that Zeff plausibly stated an Unfair Competition Law claim under the statute’s “unlawful” prong. Because the alleged late-fee and security-deposit practices could violate sections 1671 and 1950.5, the same alleged conduct could support the unfair-competition claim. The court also concluded that an agent may be liable for wrongful conduct proscribed by statute.

Finally, the court allowed Zeff’s restitution or quasi-contract claim to proceed. Although Greystar was not a party to Zeff’s lease with Bel Albert, Zeff alleged that Greystar retained the money from the penalties and security-deposit deductions. Accepting those allegations at the pleading stage, the court found that Zeff had plausibly alleged that Greystar received a benefit through circumstances that could require restitution.

Declaratory-relief claim and disposition

The court noted that the Declaratory Judgment Act does not create an independent cause of action or an independent basis for federal jurisdiction. Because the court had jurisdiction under the Class Action Fairness Act, it stated that it did not need to analyze the plausibility of Zeff’s declaratory-relief claim.

Judge Edward M. Chen denied Greystar’s motion to dismiss under Rules 12(b)(6) and 12(b)(7). The order disposed of Docket No. 16.