Former tenants who sued a national apartment management company for failure to return a security deposit failed in their attempt to certify a class action lawsuit on behalf of others who may have been in the same boat.

The Massachusetts security deposit statute imposes numerous restrictions on landlords who require security deposits from residential tenants. Noncompliance can be costly to landlords. 

Under the statute, residential security deposits cannot exceed one month’s rent. Landlords must give residential tenants written receipts for security deposits, and statements of condition with specific statutory language, signed under the pains and penalties of perjury. Landlords must hold the security deposits in special accounts beyond the reach of their creditors and notify tenants of the bank holding the deposits within 30 days. 

Tenants are entitled to yearly notices identifying banks holding deposits and account numbers. Interest must be paid to tenants annually. Landlords that use security deposits to cover unpaid rent or damage to apartments must follow detailed procedures. For egregious violations of the statute, courts can order landlords to pay triple the security deposit to tenants. 

Small residential landlords with few apartments often inadvertently violate the statute. But even sophisticated landlords who manage hundreds of apartments can get tripped up by the statute, as recently occurred in Henry v. Bozzuto Management Co.

Dispute Over Damages to Unit 

Bozzuto Management Co. has developed, acquired, or built approximately 50,000 apartments, and manages over 78,000 residences in 10 states, including a residential property in Danvers where Jon and Molly Henry were tenants. After the Henrys terminated their lease, Bozzuto claimed that the Henrys had damaged their apartment. Bozzuto improperly refused to return their $1,250 security deposit, in clear violation of the statute. 

Nearly one year later, the Henrys sent Bozzuto a demand letter under Massachusetts General Laws Chapter 93A, which protects consumers and businesses from unfair and deceptive trade practices. They demanded that Bozzuto pay the Henrys, and all “similarly situated” tenants, triple their security deposits, and that Bozzuto agree to refrain from further violations of the security deposit statute. 

Bozzuto sought to make amends, offering the Henrys first $2,500, then $3,875, to settle the matter. The Henrys rejected those offers. They instead sued Bozzuto for violations of the security deposit statute and unfair and deceptive trade practices, seeking triple their security deposit and attorney’s fees. 

A lawsuit of this nature would normally be a minor irritant to a property management firm like Bozzuto, but the Henrys asked the court to certify their case as a class action involving other “similarly situated” Bozzuto tenants. Bozzuto faced possible liability for triple damages for hundreds of tenant security deposits, all because it failed to return the Henrys’ $1,250. 

The Henrys sought to depose Bozzuto to discover evidence that Bozzuto may have mishandled tenant security deposits at 22 other properties, but the Housing Court was unwilling to accommodate the Henrys’ fishing expedition before their case was certified as a class action. The Henrys then filed a motion for class certification, and Bozzuto countered with a motion for summary judgment. The Housing Court denied the motion for class certification, and allowed Bozzuto’s motion for summary judgment, dismissing the case against Bozzuto. The Henrys appealed. 

Only ‘Argument and Speculation’ 

The Appeals Court decided the appeal last month. It disagreed with the Henrys’ claim that their lawsuit warranted class certification. The Appeals Court noted that Massachusetts public policy favors class certification when defendants commit unfair and deceptive practices against consumers, but courts have broad discretion when ruling on motions for class certification. The Appeals Court found that the Henrys offered little more than “argument and speculation” about possible violations involving other tenants. Therefore, the Appeals Court upheld the housing court’s denial of class certification. 

However, the Appeals Court overturned the dismissal of the Henrys’ suit for violations of the security deposit statute and unfair and deceptive trade practices, because Bozzuto had clearly violated the security deposit statute. The Appeals Court ruled that the Housing Court should have entered judgment for the Henrys for the $3,875 offered by Bozzuto to settle the dispute. 

Christopher Vaccaro

As to the claim against Bozzuto for unfair and deceptive trade practices, the Appeals Court vacated the Housing Court judgment, and remanded the case to the Housing Court to determine whether Bozzuto’s $3,875 settlement offer was reasonable enough to limit Bozzuto’s liability for its misconduct. 

Bozzuto dodged a bullet when the courts denied class certification. If the Henrys had produced evidence that Bozzuto mishandled other tenant security deposits, their class action might have been certified, with disastrous results for Bozzuto. Instead, Bozzuto should be able to resolve the Henrys’ lawsuit without great difficulty.  

In any event, this case is another reminder of the risks landlords take when they disregard the Massachusetts security deposit statute. 

Christopher R. Vaccaro, Esq. is a partner at Dalton & Finegold, L.L.P. in Andover. His email address is cvaccaro@dfllp.com.