People v Huang
Annotate this CaseDecided on April 30, 2014
Supreme Court, Queens County
People of the State of New York, by ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, Petitioner,
against
Thomas Huang a/k/a TOMMY HUANG, ALICE HUANG, HENRY HUANG and 51 MANAGEMENT CORP., Respondents.
702278/2013
Robert J. McDonald, J.
This is a special proceeding commenced on June 17, 2013 by the Attorney General of the State of New York on behalf of The People of the State of New York, against respondents, Thomas Huang, Alice Huang and 51 Management Corp., for engaging in persistent fraud, violating the Martin Act and violating Executive Law § 63(12) in the offer and sale of real estate securities at the Broadway Towers Condominium in Elmhurst, Queens. As part of a settlement of the petition, this Court, on consent, signed a Judgment and Order dated June 25, 2013 in which the respondents, inter alia, were required to forfeit six commercial condominium units and were enjoined from further engaging in the fraudulent and unlawful acts and practices set forth in the petition. In addition, the Court appointed Gary Darche, Esq. as receiver of the six units owned by the respondent, 51 Management Corp., and directed that the receiver take title to the commercial units and promptly hold a public auction to sell the property at fair market value to a third-party purchaser and remit the proceeds, net of costs, to the petitioner. The court also directed the entry of a money judgment against the respondents in the amount of $3,322,743.00 for restitution of illegal profits and unjust enrichment as well as directing the entry of a money judgment in the amount of $1,500,000.00 in civil penalties.
Pursuant to the Court's order, Receiver Darche published a Notice of Sale in both the New York Daily News and the World Journal, a Chinese language newspaper, advising that he would be selling the six commercial condominium units located in the lower level of the Broadway Tower Condominium located at 85-23 Broadway, Elmhurst, New York, at a public auction on October 25, 2013. At the public auction held on October 25, 2013, the movants, Alfred Warren Cheng and Ahmed S. Qasemi successfully bid $640,000 for the six units and tendered $64,000 to the receiver as a downpayment. The Terms of Sale signed by each purchaser on October 25, 2013, state that the premises are sold subject to:
"(a) Any state of facts that an accurate survey of the premises would show;
(b) Easements, covenants, restrictions or reservations or records, and public utility agreements of record, if any;
(c) Zoning restrictions and any amendments thereto according to law, and now in force; Existing tenancies and leases; if any; and/or
(d) Existing violations and orders of any City, Town, or Village, State or Municipal Department, if any; and
(e) The physical condition of the premises at the time of closing."
The buyers, Alfred Warren Cheng and Ahmed S. Qasemi, who were not parties to the underlying proceeding, now move for an order permitting them to intervene in the within action, for an order cancelling and nullifying the judicial sale of the subject property, and for an order directing the Receiver to fully refund their deposit. In his affirmation, counsel for the intervenors, Stephen I. Feder, Esq., states that the six units, although sold as commercial units, are actually [*2]restricted for use as community facility units, meaning that they can only be rented for such uses as non-profit organizations, schools or medical offices and that the buyers were not aware of such restriction at the time they bid at the public auction. Mr. Feder also states that the buyers have only recently discovered that the units are currently occupied by a school and that the school's lease survives the sale.
Counsel for the proposed intervenors claims that the Receiver did not, prior to the sale, announce that there was a lease on the property that survived the sale or that there was a restriction on their use for community facilities. Counsel also claims that the Terms of Sale were not posted on the wall outside the courtroom in Queens Supreme Court where the auction took place. He states that the intervenors bid on what they thought was a normal foreclosure type of sale without having any idea that they were buying subject to a lease that would survive. In addition, counsel claims that the buyers went to the office of Receiver Gary Darche, Esq. prior to the sale and at no time did Mr. Darche tell them that the property was subject to a lease or that there was a restriction on the units for community property use. Counsel argues that the Receiver should be held to a standard requiring him to make full disclosure and that the buyers are entitled to a recession of the sale and return of their deposit because said information was hidden from them. Accordingly, the buyers seek to intervene in the underlying action and seek an order directing Receiver Darche not to release the deposit to the petitioner and not to find the buyers in default for failure to close on the properties.
In his affidavit, Alfred Warren Cheng states that he did not see the Terms of Sale posted on the wall outside of the courtroom on the day of the auction and, in addition, he states that the Terms of Sale were not announced out loud by the Receiver. He states that the first time he found out that there was a lease on the property was after the bidding was over when Mr. Darche told him he was buying the units subject to a lease. He states that if he had known there were restrictions on use of the property he would not have bid as much as he did nor would he have bid at all.
In opposition, Assistant Attorney General Serwat Farooq, Esq. submits a memorandum of law in which he asserts that private litigants may not intervene in an action brought by the New York State Attorney General on behalf of the People of the State of New York pursuant to the Martin Act or Executive Law § 63[12](citing State of New York v McLeod, 45 AD3d 282 [1st Dept. 2007]).
Petitioner also contends that this matter was marked disposed of when the New York State Attorney General obtained a final judgment against the respondents and therefore the non-parties cannot intervene and litigate issues already decided by the Court (citing Coulbourn v Burns, 286 AD 856 [2d Dept. 1955]). In addition, the petitioner argues that intervention is not permissible pursuant to CPLR § 1013 as the purchasers ae claiming a breach of contract or misrepresentation claim against the non-party receiver which involves different facts and different parties than those in the underlying proceeding. The petitioner also claims that the motion is procedurally defective because a motion to intervene must be accompanied by a [*3]proposed pleading setting forth the claim or defense for which the intervention is sought. The failure to submit a proposed pleading is a defect requiring denial of the motion (citing Zehnder v State, 266 AD2d 224 [2d Dept. 1999][the Supreme Court was correct in denying the motion for leave to intervene in the absence of a proposed pleading pursuant to CPLR 1014]).
In addition, with respect to the merits of the intervenors' claim, the petitioner contends that the claim that they were without knowledge of the Terms of Sale is without merit because the purchasers signed a copy of the actual Terms of Sale at the time they tendered the downpayment. The Terms of Sale, which they signed specifically contained a clause, contrary to their contention, that the property was sold subject to zoning restrictions and subject to existing leases and tenancies. Petitioner asserts, therefore, that the purchasers are bound by the Terms of Sale which they signed.
Further, the petitioner contends that there is evidence in the record that the buyers met with Mr. Darche prior to the sale and Mr. Darche gave the buyers the name of the tenant and permitted them to inspect the premises prior to the auction. Counsel asserts that the buyers did in fact contact the tenant and personally inspected the six units prior to the date of the auction. Thus, petitioner asserts that the buyers had the means to discover, pursuant to the terms of the condominium, that the use of the properties was limited to use as community facilities. Further, it is asserted that no information was hidden from the buyers and that the buyers had the means and ability prior to the auction to inquires into the nature of the tenancies (citing Vermeer Owners, Inc. v Guterman, 169 AD2d 442[1st Dept. 1991]). Therefore, it is argued, that because the purchasers failed to exercise due diligence with regard to investigating any restrictions of use on the property they were bidding on, they are not entitled to rescind the terms of the sale.
Gary Darche, Esq. submits an affirmation in opposition to the relief requested by Mr. Qasemi and Mr. Cheng. Mr. Darche states that on September 4, 2013, he met with the buyers who indicated that they were interested in purchasing the units. At that time he gave the buyers the name and phone number of the tenant, Ace Scholars, Inc., as well as the name and number of the school principal. Mr. Darche states that upon his arrival at the Courthouse on October 25, 2013 and prior to the commencement of the auction, he affixed the Terms of Sale to the wall outside Courtroom 25 in Queens County Supreme Court. He also signed an affirmation prior to the auction which states that he did post the Terms of Sale outside Courtroom 25 as a condition for going forward with the auction. He states that when his case was called on the calender there was active bidding on the subject property by Mr. Qasemi and Mr. Cheng who won the auction with a bid of $640,000.00. He states that the bid was made with full knowledge that there were tenants in the property. Mr. Darche also submits a photo depicting the Terms of Sale posted on the wall immediately after the auction was completed.
Marvin D. Skedelsky, Esq., the attorney for Mr. Darche states that the Notice of Sale published in two newspapers clearly states the address of the units being conveyed and their designation as to block and lot. As such, he claims that the buyers had sufficient time to inspect [*4]the public online records of the New York City Building Department which contains the certificate of occupancy for the premises describing the units as community facilities. In addition, the buyers were made aware of the tenants in the building and had the opportunity to speak with them regarding their lease prior to the public auction. Counsel also states that based upon his conversation with Mr. Darche, the Terms of Sale were conspicuously posted outside the courtroom prior to the sale. He also personally observed the Terms of Sale posted outside the courtroom at the conclusion of the bidding. Further, as stated above, the buyers signed a copy of the Terms of Sale in the hallway immediately following the bidding. Counsel contends that the Referee complied with all the provisions of RPL § 231 by publishing the Notice of Sale, posting the Terms of Sale, and conducting a public auction.
Upon review and consideration of the motion by the proposed intervenors, the affirmation in opposition and the reply thereto this court finds that the motion to intervene is denied and the application for an order cancelling and nullifying the sale held on October 25, 2013 and ordering the receiver to refund the deposit tendered by Mr. Qasemi and Mr. Cheng at the auction is denied.
Firstly, the underlying matter has been settled by stipulation between the State and the respondents herein and the matter has gone to final judgment. The movants seek to intervene in this action with regard to a misrepresentation or breach of contract issue against the Receiver who is also not a party to the underlying action. The matter for which intervention is sought is an entirely different issue with different parties than the issue resolved by the stipulation of settlement. Further, as the underlying matter has been settled and disposed of, to permit intervention for the purpose of litigating an entirely different issue would be improper as the movants claims are not related factually or legally to the dispute already resolved by in the underlying action (see CPLR § 1012; CPLR § 1013; State of New York v McLeod, 45 AD3d 282 [1st Dept. 2007][allowing intervention in a settled action would be improper since intervention is a device to allow judicial economies, rather than a technique to permit already-litigated cases to transmute into new cases based on different facts and legal theories that were not adjudicated in the underlying action]; Jiggetts v Dowling, 21 AD3d 178 [1st Dept. 2005]). Further, as pointed out by the petitioner, the failure to include a proposed pleading requires denial of a motion to intervene pursuant to CPLR § 1014 (see Farfan v Rivera, 33 AD3d 755 [2d Dept. 2006]; Zehnder v. State, 266 AD2d 224 [2d Dept. 1999]).
Secondly, even if this court were to permit intervention, the evidence submitted is sufficient to show that the Receiver fully complied with the rules for judicial sale as set forth in RPAPL § 231 and that he properly published Notices for Sale and posted the Terms of Sale outside the Courtroom prior to the time of the auction. The Terms of Sale were also known to the buyers as they signed and ratified same at the time they tendered the downpayment. The Terms of Sale clearly states that the property is sold subject to any zoning restrictions and subject to any existing leases and tenancies. Therefore, it behooved the buyers to exercise due diligence and to search the records, inspect the premises, and inquire as to uses and existing tenancies prior to making a bid. [*5]
The movants' claimed reliance upon an alleged misrepresentation or omission by the Referee was not reasonable where availability of the certificate of occupancy and terms of the existing leases were discoverable by the use of due diligence and were a matter of public record and not within the exclusive knowledge of the Receiver (see Vermeer Owners v Guterman, 169 AD2d 442 [1st Dept. 1991][where a party has means available to him for discovering, by the exercise of ordinary intelligence, the true nature of a transaction he is about to enter into, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations]). Thus, this Court finds that the movants' failed to provide or legal or factual basis for the court to permit a recission of the sale.
Accordingly, for all of the above stated reasons, the motion by the proposed intervenors, Alfred Warren Cheng and Ahmed S. Qasemi, is denied in its entirety.
Dated: April 30, 2014
Long Island City, N.Y
______________________________
ROBERT J. MCDONALD
J.S.C.
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