Queens Units Venture, LLC v Tyson Ct. Owners Corp.

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Queens Units Venture, LLC v Tyson Ct. Owners Corp. 2012 NY Slip Op 31390(U) May 18, 2012 Supreme Court, New York County Docket Number: 111568/2011 Judge: Louis B. York Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK PRESENT: I Justice - Index Number: 1115681201 1 QUEENS UNITS VENTURE, LLC INDEX NO. VS. MOTION DATE TYSON COURT OWNERS CORP. SEQUENCE NUMBER : 001 - ' I PART MOTION SEQ. NO. SUMMARY JUDGMENT The following papem, numbered 1 to Notlce of MotlonlOrder to Show Caurs , were h a d on thls motion toffor - Affldavitr - Exhlblts INo(+ IW s ) . INO(8). Anrwerlng AMdavlta - Exhlbltl Rsplylng Amdavltr I Upon the foregoing papers, It Is ordered that thls motion lo ' Y &\ A b\, FILED 1 , ' i NEW YORK cC)@JRK'S OFFICE Dated: I. CHECK ONE: ..................................................................... &CASE DISPOSED " ,?.f' ,t ,J.S.C. *," -prF kot4:hNAl DlSPOSlTiON s; OTHER GRANTED i PART N 'I ........................... MOTION IS: 2. CHECK AS APPROPRLATE: 3. CHECK IF APPROPRIATE: ................................................ $/GRANTED DENIED SUBMIT ORDER 0SETfE ORDER 0DO NOT POST 0FIDUCIARY APPOINTMENT 0REFERENCE +i I [* 2] SUPREME COURT OF THE STATE OF NEW YORK PART 2 COUNTY OF NEW YORK QUEENS UNITS VENTURE, LLC, Plaintiff, INDEX NO. 111568/2011 -against- JUDGMENT & ORDER TYSON COURT OWNERS COW. and ALL AREA REALTY SERVICES, NC., Defendants. FILED MAY 23 2012 LOUIS E. YORK, J.: NEW YORK COlfNT@LJRKS OFFICE Plaintiff Queens Units Venture, LLC, moves for summaryjudgment, pursuan to 3212, declaring that its shares in defendant Tyson Court Owners Corp. (TCOC) have the status of Unsold Shares, and to receive the associated proprietary leases and share certificates. Defendant All Area Realty Services, Inc. (All Area) cross-moves for summary judgment, pursuant to CPLR 3212, dismissing the complaint as against it. Factual Background TCOC owns the residential cooperative building located at 5 North Tyson Avenue, Floral Park, New York (the Building). All Area is the Building s managing agent. The sponsor of the cooperative conversion of the Building pledged 1,556 TCOC shares (the Shares) as security for a $2.3 million bank loan, which was later assigned to plaintiff. See Motion, Exs. E-I. The Shares are allocated to units A2,A5, B1, B3, C1, C2 and C3 in the Building. The sponsor eventually defaulted on the loan, and plaintiff purchased the Shares. Plaintiff commenced the instant action on October 12,20 11, asserting causes of action for a declaratory judgment on the status of the Shares, tortious interference with contract and attorney s fees. Motion, Complaint, Ex. K. The complaint alleges that All Area has not approved 1 [* 3] plaintiffs purchase of the Shares and TCOC has refused to permit transfer of the shares to plaintiff. Id,, 77 26,27. Legal Standard The proponent of a motion for summary judgment must demonstrate that there are no material issues of fact in dispute, and that it is entitled to judgment as a matter of law. DallasStephenson v Waisman,39 AD3d 303,306 (1 Dept 2007) citing Winegrad v New York Univ. Med. Center, 64 NY2d 85 1, 853 (1985). Upon proffer of evidence establishing a prima facie case by the movant, %theparty opposing a motion for summary judgment bears the burden of produc[ing] evidentiary proof in admissible form sufficient to require a trial of material questions of fact. People v Grasso, 50 AD3d 535,545 (lBt Dept 2008), quoting Zuckerman v City ofNew York, 49 NY2d 557, 562 (1980). If there is any doubt as to the existence of a triable issue of fact, summary judgment must be denied. Rotuba Extruders v Ceppos, 46 NY2d 223, 23 1 (1978); Grossman v Amalgamated Hous. Corp., 298 AD2d 224,226 (1 Dept 2002). Plaintiffs Motion for Summary Judgment Plaintiff claims that the Shares are Unsold Shares, defined in TCOC s proprietary lease, section 38 (a), as the shares of the Lessor which were issued to the Lessor s grantor(s) or individuals produced by the Lessor s grantor(s) pursuant to the Plan of cooperative organization of Lessor or to a nominee or designee of such grantor(s) or individual(s); and, all shares which are Unsold Shares retain their character as such (regardless of transfer) until (1) such shares become the property of a purchaser for bona fide occupancy (by himself or a member of his family) of the Apartment to which such shares are allocated, or (2) the holder of such shares (or a member of his family) become a bona fide occupant of the apartment. This Paragraph 38 shall become inoperative as to this Lease upon the occurrence of either of said events with respect to the Unsold shares held by the Lessee named herein or his assignee. Motion, Ex. A. 2 [* 4] The proprietary lease goes on to permit the subletting of the associated apartment and the assignment of its proprietary lease without %heconsents (sic) of the Directors or shareholders. Id., 5 38 (b). The Shares, according to plaintiff, never became the property of a purchaser for bona fide ocwpancy, and neither plaintiff nor the debtor, the sponsor, or a family member, became a bona fide occupant of the associated apartments. Additionally, the cooperative offering plan, at page 55, stated that [alny Unsold Shares and leases acquired by a holder of Unsold Shares may be sold or assigned by him or his apartment may be sublet by him, subject only to the consent of the Managing Agent or successor agent, which consent may not be unreasonably withheld. Motion, Ex. B. As a result, plaintiff requests that the share certificates and the proprietary leases for the Shares be issued to it. Nothing in the proprietary lease requires board approval for such a transaction involving unsold shares, plaintiff maintains. TCOC opposes the motion on several grounds: (1) plaintiff has no standing; (2) no shares or proprietary leases were ever issued to plaintiff; (3) transfer of pledged shares by a secured party is covered by a section of the proprietary lease unreferenced by plaintiff; (4) All Area is an improper party because TCOC s board of directors has full and sole discretion in this matter; and ( 5 ) plaintiff is not entitled to damages or legal fees because it has no rights under the proprietary lease. TCOC characterizes plaintiff merely as an investor, ) not even a shareholder in the first place, it has no basis to assert any rights. Gordon Affirm., 7 4. TCOC cites Sims v Darwood Management, Inc., 147 AD2d 373 (1st Dept 1989), where the prospective buyer-plaintiff of a cooperative apartment sued for specific performance and declaratory relief against the sellers, and the cooperative corporation s board of directors and management company. The sellers held unsold shares allocated to the apartment at issue. The language of the sellers proprietary lease 3 [* 5] mirrored the language of the proprietary lease and the offering plan in the instant action. When the Sims board of directors set certain conditions on the transfer of the shares to the prospective buyer, he brought suit, arguing that the transaction needed the consent only of the Lessor s then Managing Agent, provided the same shall not be unreasonably withheld[,] in the words of the proprietary lease. Sims, 147 AD2d at 374. The court held that this provision of the proprietary lease indicates an intention to benefit the holder of such [unsold] shares by facilitating assignments of the lease, but nothing in this provision suggests an intent to benefit third-party assignees. Id. at 376-377. However, Sims does not offer proper guidance in the instant action, because the plaintiff here is not awaiting delivery of the Shares in order to complete a real estate buy/sell deal, as was the case in Sims. In 2008, Thomas John, the Building s sponsor, borrowed $2.3 million from a bank. At the time, according to All Area s counsel, [tlhe shares that corresponded to those particular [unsold] apartments were deemed to be Unsold Shares and remained under the control and ownership of the Sponsor, Thomas John, who continued to collect the rent. In 2010, the bank, as Seller, assigned and conveyed to plaintiff all right, title and interest of Seller in, to and under all of the documents, instruments, certifications and agreements . . . in connection with the loan . . . made by Seller to Thomas John secured by, inter alia, seven (7) cooperative apartments at 5 North Tyson Avenue, Floral Park, New York. Motion, Ex. E. When John defaulted on his loan, plaintiff gained possession of his collateral, the Shares. The New York State Court of Appeals has conclude[d] that whether plaintiffs are holders of unsold shares should be determined solely by applying ordinary contract principles to interpret the terms of the documents defining their contractual relationship with the cooperative corporation. Kralik v 239 E. 79th St. Owners Corp., 5 NY3d 54,57 (2005). Following Kralik, 4 [* 6] the Appellate Division, First Department, has held that the character of the unsold shares had not changed in that the original buyer from the sponsor was a holder of unsold shares within the meaning of the offering plan, and the shares never lost their character as unsold because the apartment was never occupied by a purchaser for a bona fide oc~upancy.~ Mittman v Netherlund Gardens Corp.,55 AD3d 5 12, 5 13 (1 st Dept 2008). Again, when a party indisputably acquired 80% of the co-op s shares in a bulk purchase from the S ~ Q ~ S sbccessor, it Q ~ S is deemed a sponsor, and . . . is in fact a holder of unsold shares.?, Cole v 1015 Concourse Owners Corp., 70 - AD3d 597,598 (1st Dept 2010); see also L Kings,LLC v Woodstock Owners Corp., 46 AD3d J 321,322 (1st Dept 2007) (L Therebeing no dispute that plaintiff purchased its shares from a designated holder of unsold shares, that no bona fide purchaser has purchased the apartment for ocoupancy, and that neither plaintiff nor any immediate family member ever occupied the apartment, plaintiff is clearly a holder of unsold shares under the controlling documents, i.e., the offering plan and proprietary lease ). All Area cites Sussi-Lehner v Churlton Tenants Corp., 55 AD3d 74 (1st Dept 2008) where the Appellate Division affirmed denial of summary judgment to a plaintiff who was denied closing by a cooperative building s board of directors. Plaintiff argued that its shares transferred from parents and gained through foreclosure were unsold shares and its acquisition of the associated apartment was not subject to board approval. The Court read the proprietary lease s provision for unsold shares as limit[ing] any transfers of unsold shares to those only where the transferor is an individual designated or produced by the sponsor. Sassi-Lehner, 55 AD3d at 8 1. All Area argues that this would preclude recognizing the transfer in the instant action as preserving the status of unsold shares. However, Cole, decided two years later by the Appellate Division, First Department, held that plaintiff was a holder of unsold shares even 5 [* 7] though it was never formally designated as such and has never complied with regulations governing holders of unsold shares. 70 AD3d at 598. Plaintiff completed a discrete transaction assigning it sole interest in the Shares, which had never lost their identity as unsold shares under the tams of TCOC s proprietary lease. This is consistent with the position of UCC 8 9-6 17 (1) that a secured party s disposition of collateral after default transfers to a transferee for value all of the debtor s rights in the collateral. Plaintiffs posture is akin to the prevailing parties in Mittman and Cole, purchasers of shares originating with the sponsor of the cooperative building s conversion. Movement of the Shares through several hands by itself did not affect their identity BS unsold shares as long as they never became the property of a purchaser for bona fide occupancy, and neither plaintiff nor the debtor, or a family member, became a bona fide occupant of the associated apartments. Plaintiff, a transferee for value who acquired all of the debtor s rights in the collateral, is the holder of - unsold shares according to TCOC s proprietary lease section 38 (a). TCOC contends that paragraph 17 of its proprietary lease governs the transfer of shares by a secured party under a foreclosure. Paragraph 17 (a) States: A pledge of this Lease and the shares to which it is appurtenant shall not be a -violation of this Lease; but, except as otherwise provided elsewhere herein, neither the pledgee nor any transferee of the pledged security shall be entitled to have the shares transferred of record on the books of the Lessor, nor to vote such shares, nor to occupy or permit the occupancy by others of the Apartment, nor to sell such shares or this Lease, without first obtaining the consent of the Lessor . . .,, Consent is unneeded if the shares were transferred as a result of a default on a bank loan that financed the purchase of the shares, under paragraph 17 (b) (iii), which reads: If the purchase by the Lessee of the shares allocated to the Apartment was financed by a loan made by a bank . , . and a default or an event of default shall have occurred . . . an individual designated by the Secured Party, or the individual nominee of the individual so designated by the Secured Party, shall be entitled to 6 [* 8] become the owner of the shares . . . . Y? TCOC argues, however, that consent was needed, because Thomas s loan was not used to purchase the Shares. His pledge of the Shares as collateral for the 2008 loan, approximately 19 years after the closing under the offering plan, without TCOC s consent, violated the proprietary lease, and disqualified the proposed transfer of the Shares. Plaintiff contends that reliance on paragraph 17 is unwarrahted, because the requirement ta obtain consent before pledging shares is except[ed] as otherwise provided elsewhere herein, specifically in paragraph 38 (b) addressing unsold shares. Unsold shares are insulated f o the rm consent process described in paragraph 17 by the workings of paragraph 3 8 (b). There is no contractual restraint on plaintiffs attempt to exercise its right to the Shares. TCOC s claims that All Area is an improper party because TCOC s board of directors has full and sole discretion in this matter. All Area similarly contends that it lacks independent discretion over whether or not to transfer shares, Both positions are belied by the words of the offering plan that require the consent of the managing agent to the assignment of unsold s h e s . All Area is, therefore, a proper party to this action, and shall be bound by this decision. TCOC s final objection is to plaintiffs cause of action for attorneys fees. The proprietary lease provides that: If the Lessee shall at any time be in default hereunder and the Lessor shall incur any expense . . . in instituting any action or proceeding based on such default, or defending, or asserting a counterclaim in, any action or proceeding brought by the Lessee, the expense thereof to the Lessor, including reasonable attorneys fees and disbursements, shall be paid by the Lessee to the Lessor, on demand, as additional rent. Motion, Ex. A, 6 28. New York s Real Property Law 6 234 provides a reciprocal right of a lessee/tenant to recover the reasonable attorneys fees and/or expenses incurred by the tenant as the result of the 7 [* 9] failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action. See Due21 v Codon, 84 NY2d 773,780 (1 995) ( T h e overriding purpose of Real Property Law 5 234 was to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense ). In this instance, corporate entities are in dispute. No residential tenant is struggling with a landlord to gain or maintain the family home. Therefore, that part of the plaintiffs motion requesting attorneys fees shall be denied. All Area s Cross Motion for Summary Judgment That part of All Area s cross motion unnecessarily requesting denial of plaintiff s motion is denied in light of the decision above. Additionally, All Area asks for dismissal of all claims as against it, arguing that it does not have any authority or discretion vis-a-vis the transfer of shares. Sklar Afirm., 1 That matter also was addressed above, and All Area shall be bound 7. by this order. Its cross motion, therefore, is denied in the entirety. - Accordingly it is, ORDERED that Queens Units Venture, LLC s motion for summary judgment, seeking a declaration that its shares in defendant Tyson Court Owners Corp. have the status of Unsold Shares, and to receive the associated proprietary leases and share certificates, is granted; and it is further ADJUDGED and DECLARED that the shares allocated to units A2,A5, B1, B3, Cl, C2 and C3, in the building owned by Tyson Court Owners Corp., located at 5 North Tyson Avenue, Floral Park, New York, are Unsold Shares, as defined by the governing proprietary lease, and Queens Units Venture, LLC, holds all right, title and interest to these shares; and it is further 8 [* 10] ORDERED that defendant All Area Realty Services, Inc., issue and deliver the associated proprietary leases and share certificates for these Unsold Shares to Queens Units Venture, LLC, within 14 days of receipt of this order; and it is further ORDERED that the cross motion by defendant All Area Realty Services, Inc., is denied. .DATED: May I s ,2012 ENTER: U J.S.C. 9 NEW YORK COUNTYCLERK'S OFFICE

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