Matter of Schiller
Annotate this CaseDecided on May 15, 2006
Sur Ct, New York County
In the Matter of the Estate of Angela Schiller, Deceased.
4516/04
Renee R. Roth, J.
Incident to their request for a permanent injunction, the fiduciaries of the estate of Angela Schiller seek a preliminary injunction permitting them to proceed with the scheduled closing of the sale of decedent's shares in a cooperative corporation (the "co-op"). Their petition also asks for determination of the validity of a claim by the co-op against the estate.
The present application arises within the following context. Decedent died on November 30, 2004, in an apartment fire that took her husband's life as well. She was survived by her daughter from a prior marriage and, possibly, by her husband (who may have died shortly after the fire rather than during it). In due course, a proceeding was commenced to probate an instrument under which decedent gave her co-op shares to her husband if he survived her and, after various pecuniary bequests, left her residuary estate to three charities. Preliminary letters for decedent's estate (valued at approximately ten million dollars) were issued on December 10, 2004, to the nominated executors.
Some six months after their appointment, the preliminary executors, in the absence of consent from the daughter and the husband's successor-in-interest, requested court authorization to put the apartment up for sale. They ultimately obtained such authorization under a "so ordered" stipulation among all interested parties. Thereafter, they entered into a contract to sell the apartment for $2,750,000. After the buyer was approved by the co-op board, a closing date was set for May 16, 2006. The co-op, however, has now taken a position which threatens the fiduciaries' ability to close and puts the estate at risk of the adverse consequences of an aborted contract. The co-op is among numerous claimants who allege that decedent's negligence caused the fire. The co-op has informally demanded payment from the fiduciaries to cover alleged damage to the building, increased insurance premiums and miscellaneous other expenses, as well as legal fees incurred in relation to the fire. It is noted that the co-op concedes that it is uncertain as to the damages it ultimately can claim to have suffered (which apparently are subject to recalculation after various contingencies have been eliminated). Nevertheless, the co-op has reported in writing to the fiduciaries that its current estimate of its damages is in the amount of some $120,000, that it expects the fiduciaries to satisfy its claim at or prior to the closing and that it will not permit such closing otherwise.
The papers indicate that the fiduciaries offered to place the amount demanded by the co-op in escrow pending resolution of the dispute. When such offer was refused, the fiduciaries [*2]commenced the present proceeding, in which they ask that the validity of the co-op's claim be determined (SCPA 1809) and that the co-op be enjoined from interfering with the scheduled closing. Both sides appeared at the call of the calendar on the order to show cause seeking a preliminary injunction and submitted various papers.
The co-op maintains that a provision of the parties' proprietary lease entitles it to immediate payment. The terms in question are part of paragraph 16 of the instrument (under the heading, "Assignment") and provide in relevant part as follows:
16. (a) The Lessee shall not assign this lease or
transfer the shares to which it is appurtenant or
any interest therein, and no such assignment or
transfer shall take effect as against the Lessor
for any purpose, until ... (iv) [a]ll sums due
from the Lessee shall have been paid to the Lessor, together with a sum to be fixed by the Directors to cover reasonable legal and other expenses of the
Lessor and its managing agent in connection with
such assignment and transfer of shares (emphasis
added).
The above provision, however, does not support the co-op's position. It cannot reasonably be read as intended to give the co-op the power to hold an approved sale hostage unless and until the shareholder satisfies claims which are unproved, unsettled and unadjudicated. Such a reading would in effect make the instrument a license to use a threat to the shareholder's property (despite its fiduciary relation to him, see Matter of Levandusky, 75 NY2d 530) as leverage for forcing him to make concessions on a disputed claim. Under the only reasonable reading, however, the provision instead gives the co-op the right at closing to be paid only on its liquidated claims (i.e., "sums due") as well as its fees and other expenses relating to the share transfer per se. Indeed, if the language in question were given the meaning urged by the co-op (i.e., giving it the right to demand payment on its unliquidated as well as liquidated claims), such provision would constitute an unreasonable restraint on alienation of property (Chemical Bank v 635 Park Avenue Corp., 155 Misc 2d 433; see Black v Alexander House Residences, Inc., 226 AD2d 186 [when legal fees appeared to have been determined by default judgment in summary proceeding against shareholder, co-op could precondition his closing on payment of such fees, but could no longer do so after judgment was vacated for lack of jurisdiction]).
The co-op purports to distinguish Chemical Bank, supra — in which the shareholder had a claim against the co-op, rather than vice versa — but such distinction does not amount to a meaningful difference. The co-op in Chemical Bank proposed to use its power over a closing as a way to force a shareholder into concessions that he otherwise would not have made. The co-op here proposes to do the same. The co-op tries to distinguish the two cases by arguing that the shareholders here (unlike their counterpart in Chemical Bank) do not have to settle or surrender as the price for going forward with the closing. The co-op insists (without any support from the terms of the proprietary lease, express or implied) that the shareholders here can simply pay "under protest" and seek to recover the funds thereafter. It is observed that the prospect of payment "under protest" appears to have arisen not from the instrument, but rather, only as a [*3]possible concession offered by the co-op during abortive settlement discussions with the fiduciaries.
At least equally important, a payment by the fiduciaries "under protest" would in any event give the co-op/claimant an inordinate litigative advantage, relieving it of its burden of proving liability and damages and shifting the burden of proof to the fiduciaries if they are forced to seek restitution. Accordingly, the co-op's insistence that the fiduciaries will "lose nothing" by caving in to its demand is hollow (particularly in light of the co-op's clear conviction that it on the other hand would "gain something" as a result).
Accordingly, the elements needed to warrant the issuance of a preliminary injunction are present here. First, the fiduciaries have a likelihood of success on the merits of whether an injunction should issue enjoining the co-op from preventing the closing from occurring. Second, the record indicates that the estate will suffer irreparable harm if an injunction is not issued pendente lite, including, inter alia, the loss of a sale in an uncertain market (Chemical Bank v 635 Park Avenue Corp., supra, at 438-39. Cf. Parker v 304 East 73rd Street Corp., 241 AD2d 361).
It is noted that the interim relief sought by the fiduciaries in effect amounts to an injunction that is mandatory as well as prohibitory (requiring cooperation as well as restraint on the part of the co-op) and thus requires special justification (see Rosa Hair Stylists v Jaber Food Corp, 218 AD2d 793). Nevertheless, such an interim mandate is justifiable where, as here, its denial would result in irreparable harm to the applicant (rendering ultimate relief academic) and the granting of it will result in less or no harm to the enjoined party (see SHS Baisley, LLC v Res Land, Inc., 18 AD3d 727; Sure-Fit LLC v C & M Plastics Inc., 267 AD2d 761). In this case, where the estate is solvent, there can be no harm whatsoever to the co-op particularly if the injunction is conditioned on the establishment of an escrow of the disputed amount.
Based upon all the foregoing, it is
ORDERED that Sixty East End Owners, Inc. ("Owners"), and its agent, AKAM Associates, Inc. ("AKAM"), and their agents, employees and attorneys, be, and the same hereby are, pending the final decree in this proceeding, restrained and enjoined from obstructing the pending sale of the shares in the co-op held by the preliminary executors (the "sale") and from requiring the preliminary executors to pay the claim of the co-op as a precondition to a closing of the sale; and it is further
ORDERED that Owners and AKAM respectively provide promptly all documentation (as duly executed by Owners and AKAM) required from them and that they take all other steps required of them (and to direct their agents to take any and all necessary steps) to effectuate the sale as scheduled by the parties to the sale; and it is further
ORDERED that the preliminary executors shall deposit the sum of $135,000 in escrow in an interest-bearing attorney's sub-account of Elaine M. Harrison, counsel to co-preliminary executor Mary Baysinger, under the estate's and Owner's taxpayer identification numbers, said escrow to comprise the undertaking by the estate pursuant to CPLR 6312, subject to further order of the court.
Dated: May 15, 2006______________________
S U R R O G A T E
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