Norton v 360 Riverside Owners Corp.
Annotate this CaseDecided on December 4, 2011
Supreme Court, New York County
Richard C. Norton, GARY M. SCHOCKER and HARRY PRINTZ, Plaintiffs,
against
360 Riverside Owners Corp., COOPER SQUARE REALTY, INC., MARIA PATTERSON and John Doe and/or Jane Doe, defendant members of the Board of 360 Riverside Owners Corp., Defendants.
104406/11
ATTORNEY FOR THE PLAINTIFF :
Firm: YUEN ROCCANOVA SELTZER & SUERD
Address : 132 NASSAU STREET, STE. 1300
NEW YORK, NEW YORK
10038
ATTORNEY FOR THE DEFENDANT :
Firm: WOLF HALDENSTEIN ADLER / ET AL
Address : 270 MADISON AVENUE
NEW YORK, NEW YORK
10016
Doris Ling-Cohan, J.
Defendants move, pursuant to CPLR 3211 (a) (1), (7) and 3016 (b), to dismiss the complaint. Plaintiffs cross-move, pursuant to CPLR 3212, for summary judgment: (1) granting judgment in favor of plaintiffs Richard C. Norton (Norton) and Gary M. Schocker (Schocker) in the amount of $31,953.75, plus interest from January 12, 2011, with respect to the first cause of action; (2) granting judgment to plaintiff Harry Printz (Printz) in the amount of $52,666.75, plus interest from December 20, 2010, with respect to the first cause of action; and (3) setting the matter down for inquest to assess all remaining damages.
[*2]
BACKGROUND
The complaint alleges three causes of action, all concerning a "flip tax" imposed by the cooperative board upon the sale of the plaintiffs' shares: (1) that the flip tax is not authorized by the cooperative's by-laws; (2) that the flip tax violates the provisions of the New York Business Corporation Law (BCL) § 501 (c); and (3) breach of fiduciary duty asserted as against defendants Maria Patterson (Patterson), the president of the cooperative's board, and the other board members. In essence, plaintiffs claim that, until they sold their shares, they were not aware of the flip tax imposed by the cooperative, which they maintain was never validly authorized.
Norton and Schocker moved into the building, located at 360 Riverside Drive, New York, New York, in or about December, 1986. Motion, Ex. 2. Printz moved into the building in or about September, 1995. Motion, Ex. 3.Paragraph C (vii) of the Second Amended Offering Plan, dated January 28, 1983, affixed to each of plaintiffs' proprietary leases, states, in pertinent part:
"All sums due from the Lessee to the Lessor by reason
of any flip tax' that may be fixed by the Directors on
the transfer of this lease and the shares to which it is
appurtenant, provided, however, that no such flip tax'
may be imposed on any transfers made by the Sponsor or
other holders of Unsold Shares"
Motion, Exs. 2, 3 and 4.
The method employed by the cooperative for determining the amount of the flip tax is to subtract from the sales price the original purchase price, attorney's and brokerage fees, and then assess 5% of that resulting amount as the flip tax. Motion, Ex, 5 (Letter dated March 1, 1984, calculating the flip tax on apartment 12D in the building).
In May of 1992, the managing agent for the building, now known as defendant Cooper Square Realty, Inc. (Cooper Square), sent a notification entitled Resale Package to all shareholders, which outlined, among other things, the method for calculating the flip tax. Motion, Ex. 6. That same month, Norton was treasurer of the board. Motion, Ex. 7. Defendants state that since Norton first became a member of the board in 1988, at which time he was appointed treasurer, and was responsible for reporting the cooperative's finances to its accountants (Motion, Ex. 8), it is inconceivable that Norton was unaware of the building's flip tax. Motion, Ex, 9 (Cash flow statement from December 31, 1988, initialed by Norton, specifying income from flip taxes) and 10. In support of their contentions, defendants have attached copies of board minutes, in which Norton explained about estimates he had made with respect to the apartment transfer fees. Motion, Ex. 12.
Printz also served as treasurer for the board, and minutes [*3]of the board meeting of October 25, 1999, indicate Printz reporting that the building was doing quite well on flip tax collections. Motion, Ex. 13. In addition, in February of 2004, Printz acquired rights to a portion of public hallway space, that was incorporated into his leased space, about which he wrote to the board that he believed
"the option proposal is genuinely in the best interests
of the building as a whole, for the following reasons ...
if I must sell, the option will make it easier for me
to close a good deal soon, which will benefit the
building in the form of a substantial flip tax."[FN1]
Motion, Ex. 14.
Defendants aver that the flip tax has been in place in the building for many years prior to plaintiffs' acquisition of their shares, that the tax has always been assessed equally according to the formula previously stated, and that Norton and Printz were both well aware of the flip tax prior to instituting the present action.
The attorney for defendants has provided an affirmation in which he states that he, along with board members, did an exhaustive search of the cooperative records, but were unable to find the original meeting in which the flip tax was authorized. Counsel stated that the board's records for the early 1980s were disorganized and not maintained in any chronological order. However, counsel has provided the minutes of the board meeting of October 10, 2000, to which Printz attended as a director, at which the cooperative's flip tax policy was confirmed. Counsel avers that, despite the missing minutes of the original meeting at which the flip tax was approved, other documents evidence that the flip tax had been adopted and regularly implemented by the board.
In plaintiffs' cross motion, Printz avers that whether or not he and Norton were aware of the existence of a flip tax, the true question is whether a flip tax was actually enacted by the required board and/or shareholder action. Printz maintains that, despite the documents provided by defendants, they have failed to provide any documentation evidencing that the flip tax was voted and approved by the cooperative's board of directors. Hence, claims Printz, on behalf of plaintiffs, defendants have failed to establish the legal validity of the building's flip tax.
Printz asserts that, when he was in the process of selling his shares, he made repeated requests of the Board, Cooper Square and Patterson, personally, to provide him with the cooperative's documents enacting the flip tax, but that those documents were [*4]not forthcoming, despite the assurances from Cooper Square and Patterson that the documents would be provided. At the time that the sale was in progress, Printz objected to the method that the board was using to calculate his flip tax, because they were not including the cost of his improvements to the apartment as part of his cost basis.
In reply, defendants state that plaintiffs have not opposed the branch of their motion seeking to dismiss the second cause of action for an alleged violation of BCL § 501 (c), nor dismissal of the complaint asserted as against Cooper Square. Therefore, defendants argue that the second cause of action and the causes of action asserted as against Cooper Square should be dismissed.
Defendants also assert that, until Printz was told that the cost of his improvements would not be included in the calculation of his basis, Printz accepted the fact that a flip tax would be assessed.
Lastly, defendants maintain that plaintiffs' cross motion is procedurally defective, since they moved for summary judgment prior to issue being joined.
DISCUSSION
CPLR 3211 (a), "Motion to dismiss cause of action,"states that:
"[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that:
(1) a defense is founded on documentary evidence; or
***
(7) the pleading fails to state a cause of action ... ."
As stated in Ladenburg Thalmann & Co., Inc. v Tim's Amusements, Inc. (275 AD2d 243, 246 [1st Dept 2000]),
"the court's task is to determine only whether
the facts as alleged, accepting them as true
and according plaintiff every possible favorable
inference, fit within any cognizable legal theory
(Leon v Martinez, 84 NY2d 83, 87-88 [1994]).
Dismissal pursuant to CPLR 3211 (a) (1) is
warranted only if the documentary evidence
submitted conclusively establishes a defense to
the asserted claims as a matter of law (id., at 88)."
To defeat a pre-answer motion to dismiss pursuant to CPLR 3211, the opposing party need only assert facts of an evidentiary nature which fit within anycognizable legal theory. Bonnie & Co. Fashions, Inc. v Bankers Trust Co., 262 AD2d 188 (1st Dept 1999). Further, if any question of fact exists with respect to the meaning and intent of the contract in question, based on the documentary evidence supplied to the motion court, a dismissal pursuant to CPLR3211 is precluded. Khayyam v Doyle, 231 AD2d 475 (1st Dept 1996). [*5]
That branch of defendants' motion seeking to dismiss the third cause of action for breach of fiduciary duty asserted as against Patterson and the other members of the board is granted.
The only allegation in the complaint asserted as against Patterson is the conclusory statement that she knew that the flip tax was not properly authorized but, nonetheless, insisted on collecting it on behalf of the cooperative.
"Under the business judgment rule, which applies to
the directors of residential cooperative corporations,
absent a showing of discrimination, self-dealing or
misconduct by board members, corporate directors are
presumed to be acting in good faith and in the
exercise of honest judgment in the, lawful and legitimate
furtherance of corporate purposes. Thus, without a
showing of a breach of fiduciary duty to the corporation,
judicial inquiry into the actions of corporate directors
is prohibited, even though the results show that what
[the directors] did was unwise or inexpedient [emphasis
added, internal citations omitted]."
Jones v Surrey Cooperative Apartments, Inc., 263 AD2d 33, 36 (1st Dept 1999); Board of Managers of 25 Charles Street Condominium v Seligson, 85 AD3d 515 (1st Dept 2011).
In order to overcome the protections of the business judgment rule, plaintiffs are required to allege that a director committed an independent tort in addition to the wrongs alleged against the cooperative as a whole. Peacock v Herald Square Loft Corp., 67 AD3d 442 (1st Dept 2009); 16 E. 96th Apt. Corp. v Neubohn, 50 AD3d 397(1st Dept 2008) Konrad v 136 E. 64th St. Corp., 246 AD2d 324 (1st Dept 1998). Here, the complaint lacks the specificity to meet this requirement, since it alleges that Patterson, and the other unnamed directors, were collecting the flip tax on behalf of the cooperative. Consequently, the complaint is dismissed as against Maria Patterson and the members of the board.
That branch of defendants' motion seeking to dismiss the complaint asserted as against Cooper Square is also granted. Cooper Square acted as the management agent for the building, and there is no allegation that it was in any way independently responsible for the imposition of the flip tax. Moreover, Cooper Square became the management agent many years after the flip tax was allegedly implemented and, consequently, cannot be held responsible if it was improperly established.
That branch of defendants' motion which seeks to dismiss the first and second causes of action asserted as against 360 Riverside Owners Corp. is denied.
BCL § 501 (c) permits the imposition of a flip tax which has been validly adopted pursuant to the terms of the offering plan, proprietary lease and by-laws, considered in conjunction with one [*6]another. Mogulescu v 255 West 98th Street Owners Corp., 135 AD2d 32 (1st Dept 1988). Here, the question remains as to whether the documents presented with defendants' motion to dismiss, conclusively establish that the flip tax was validly adopted. The court concludes that they do not.
All of the documents indicate that the cooperative imposed a flip tax of 5% of the profit, as it calculated it, on the sale of the shares, but the underlying authorization is missing from the motion papers. Even though defendants' counsel provided an affirmation detailing the diligent search that was made for those documents, the submitted documentary proof is insufficient to establish that dismissal is warranted, at this juncture, on this pre-answer motion to dismiss. Thus, the court must deny this branch of defendants' motion.
Plaintiffs' cross motion for summary judgment is denied as premature, since issue has yet to be joined. See Yoda, LLC v National Union Fire Ins. Co. of Pittsburgh, Pa., 50 AD3d 492, 492 (1st Dept 2008)(a judgment "on the merits must at least await the filing of an answer"); CPLR §3212.
CONCLUSION
Based on the foregoing, it is
ORDERED that the portion of defendants' motion seeking to dismiss the causes of action asserted as against Cooper Square Realty, Inc. and the third cause of action asserted against Maria Patterson and John Doe and/or Jane Doe defendant members of the Board of 360 Riverside Owners Corp. is granted and the complaint is severed and dismissed as against said defendants with costs and disbursements to said defendants as taxed by the Clerk of the Court; and it is further
ORDERED that the portion of defendants' motion seeking to dismiss the complaint asserted as against 360 Riverside Owners Corp. is denied; and it is further
ORDERED that defendant 360 Riverside Owners Corp. is directed to serve an answer to the complaint within 20 days after service of a copy of this order with notice of entry; and it is further
ORDERED that plaintiffs' cross motion is denied; and it is further
ORDERED that counsel are directed to appear for a preliminary discovery conference in Room 428, 60 Centre Street, on January 27, 2012, at 9:30 A.M.; and it is further
ORDERED that documentary discovery shall be exchanged within 30 days of entry of this order.
Dated: ________
____________________________
Doris Ling-Cohan, J.S.C.
Footnotes
Footnote 1: While this may constitute an admission by plaintiff, such was not argued by the parties, nor briefed.
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