Weigel v 30 W. 15th St. Owners Corp.

[*1] Weigel v 30 W. 15th St. Owners Corp. 2008 NY Slip Op 50926(U) [19 Misc 3d 1128(A)] Decided on May 2, 2008 Civil Court Of The City Of New York, New York County Kern, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 2, 2008
Civil Court of the City of New York, New York County

Andrew Weigel, Plaintiff,

against

30 West 15th Street Owners Corp., THE BOARD OF DIRECTORS OF 30 WEST 15TH STREET OWNERS CORP., JOHN FAISON, MATT GOLDBERG, RICH FLASTER, JENNIFER LEMAIGRE, KEITH GORDON, JILL WOLLER AND STEVE LARI, Defendants.



300594TSN/07



The attorneys involved were:

Robert T. Anker, Esq.

30 Broad Street

New York, NY 10004

Attorney for plaintiff

Edward M. Cuddy III

Snow Becker Krauss P.C.

605 Third Avenue, 25th Floor

New York, NY 10158

Attorney for defendants

Cynthia S. Kern, J.

Plaintiff has brought the present motion for reargument of this court's prior decision granting defendants' motion for summary judgment dismissing plaintiff's action to recover the transfer fee he paid upon the sale of his cooperative apartment. He argues that this court incorrectly interpreted the current state of the law by not recognizing that the amendment to Business Corporation Law section 501(c) overturned the decision of the Court of Appeals in Fe [*2]Bland v Two Trees Management Co., 66 NY2d 556 [1985]. According to plaintiff, the amended BCL section 501(c) requires that there be an amendment of the offering plan or the proprietary lease for a transfer fee to be imposed. As will be explained more fully below, this court grants plaintiff's motion for reargument and, upon reargument, adheres to its original decision dismissing plaintiff's action.

Initially, this court finds the imposition of a transfer fee based on a percentage of the sales price paid for the cooperative does not implicate BCL 501(c). This specific issue was addressed by the First Department in McCabe v Hoffman, 138 AD2d 287 (1st Dep't 1988) and by the Court of Appeals in Fe Bland. In McCabe, which was decided after BCL 501(c) was amended, the First Department specifically held that: [C]ontrary to the Supreme Court's conclusion that Febland v. Two Trees Management Corp., supra, invalidated a transfer fee which was based upon a percentage of the sales price, a reading of FeBland clearly reveals that the flip tax was not found to violate Business Corporation Law 501(c) on that ground, and indeed, in 330 West End Apartment Corporation v. Kelly, 66 NY2d 556, 498 N.Y.S.2d 336, 489 N.E.2d 223, the companion matter to FeBland, the transfer fee, which was proportional to the profit earned by the assigning shareholder, was not deemed to violate section 501(c). Rather the transfer fee in 330 West End was held unlawful because it was not authorized by either the corporation's bylaws or proprietary lease.

Id. at 95. In Fe Bland, the Court of Appeals found the imposition of the transfer tax by a cooperative which varied depending on whether the assignor was an original purchaser from the sponsor or an outsider and whether he had been an owner for a period of five years or more did violate section 501(c) of the BCL but it did not make any finding in the companion case that the imposition of a transfer fee based on a percentage of the profit earned by the assigning shareholder violated BCL section 501(c). In the instant case, just as in the 330 West End case decided by the Court of Appeals, the transfer fee was based on a percentage of the profit. Therefore, just as in the 330 West End case, the transfer fee does not implicate section 501(c) of the BCL. As a result, the court does not need to reach the question of whether the transfer tax is in compliance with the requirements of the amended BCL 501(c).

Even assuming arguendo, that BCL section 501(c) is applicable, the court finds that the adoption of the transfer fee by the defendant does not violate the amended BCL. BCL section 501(c) originally provided that "Subject to the designations, relative rights preferences and limitations applicable to separate series, each share shall be equal to every other share of the same class." In Fe Bland, the Court of Appeals held that a transfer fee imposed in the cooperative's bylaws, which divided the shareholders into four categories, and charged an amount which "differed depending upon whether the assignor was a purchaser from the sponsor or an outsider and whether he had been an owner for five or more years" violated BCL section 501( c). In response to the decision in Fe Bland, the legislature amended BCL section 501(c) to provide that : Subject to the designations, relative rights, preferences and limitations applicable to separate series, each share shall be equal to every other share of the same class. With respect to corporations owning or leasing residential premises and operating the same on [*3]a cooperative basis, however, provided that maintenance charges, general assessments pursuant to a proprietary lease, and voting, liquidation or other distribution rights are substantially equal per share, shares of the same class shall not be considered unequal because of variations in fees or charges payable to the corporation upon sale or transfer of shares and appurtenant proprietary leases that are provided for in proprietary leases, occupancy agreements or offering plans or properly approved amendments to the foregoing instruments.

In the court decisions which have considered the validity of transfer fees after the Court of Appeals decision in Fe Bland and after the amendment of BCL 501(c) in response to the decision in Fe Bland, the courts have held that BCL 501(c), as amended, "permits the imposition of a transfer fee which has been validly adopted pursuant to the terms of the offering plan, proprietary lease and bylaws, considered in conjunction with one another, despite the fact that the charges assessed may not be equal per share or that the holders of certain shares retain certain benefits not available to the other shareholders." Mogelescu v 255 West 98th Street Owners Corp., 135 AD2d 32 , 39[1st Dept 1988]. See also Meichsner v Valentine Gardens Cooperative, Inc., 137 AD2d 797, 798 (2nd Dep't 1988). In Meichsner, the Second Department held that "the Legislature, in response to doubt generated by the decision in Fe Bland v. Two Trees Mgt. Co. (Supra.), amended Business Corporation Law section 501(c), effective July 24, 1986, to authorize an exception to the statutory per share proportionality requirements in residential cooperative corporations to permit unequal charges, provided that the transfer fee has been validly adopted pursuant to the terms of the offering plan, proprietary lease and bylaws, considered in conjunction with one another." See also Pello v 425 E. 50 Owners Corp., New York Law Journal, 4/14/08 (Sup. Ct. NY Co.) ("Imposition of a flip tax may be effected by amendment to the co-op bylaws, and it is not necessary that the proprietary lease also be amended"). Based on the foregoing, and the reasons stated in this court's original decision, this court finds that the cooperative in the instant action was allowed to impose the transfer tax by properly amending its bylaws as there was nothing in the proprietary lease or offering plan which prohibited the imposition of a transfer tax or was inconsistent with the imposition of a transfer tax.

Based on the foregoing , this court grants reargument and, upon reargument, adheres to its original decision. This constitutes the decision and order of the court.

Dated:May 2, 2008___________________

J.C.C.