Clark v Ise Holding Group, LLC

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Clark v Ise Holding Group, LLC 2004 NY Slip Op 30380(U) July 7, 2004 Supreme Court, New York County Docket Number: 101233/04 Judge: Louis B. York Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT 9F THE STATE OF NEW YORK - NEW YORK COUNTY PRESENT : Bon . I~OUI S B . YORK PART 2 Justice Index No.: 101233/04 --------------i----------------------------x I MICHAEL CLARK, !PANSY HAMES, PAM BRANCH, BARBARA KNISPED, WINSTON DZOSE, ALEXANDRA HODGES, AMES HODGES, NITSAN CHOREV, GARRETT JOHNSON, CHARMAINE JOHNSON, GEMMA CAMPBELL, CORELLI E. GEIFiER, DETRA BUSH, MATTHEW GRACE, and JILL MACOMBER, individually, and on behalf of HAMILTON HEIGHTS CONDOMINIUM, DECISION/ORDER 1 ' Plaintiffs, i l ! against ISE HOLDING GROUP, LLC, AGA MANAGEMENT I CORP., EIAL GIR Z, JACOB AGARWAL, and JACOB AZOULAY, Defendants. -------------------------------------------x REQUEST FOR INJUNCTION In this dispute regarding the management of the Hamil ton Heights Condomijium (the "Condominium"), plaintiffs currently move for preliminary\ and Group, LLC ("Girtz"), ("Azoulay") ,. I ("IIE"), Jac[b to management of th permanent injunctions AGA Management Agarwal prevent Corp. ("Agarwal"), defendants from against ("AGA"), and ISE Holding Eial Jacob participating Girtz Azoulay in the Condominium, controlling the Condominium's Board of Managers (the "Board"), and for a full accounting of all monies spent and receiv d by the defendants during their management of the [* 2] ~or Condominium. the reasons below, the Court grants permanent injunctive relief. BACKGROUND I I Pursuant to an Offering Plan that took effect in April 1988, II • 441 West 15l5t Street Associates, Inc. sell apartments comprised of 19 Units {the 4~1 "Units") in {the "Sponsor") offered to the Condominium, which is and 443 West 1s1st Street. Each building contains for a total of 38 Units. According to plaintiff Jill I Macomber's affidavit, Paragraph 8, the Offering Plan contained an I express provisipn that the Sponsor would relinquish control of the Board by "the I e~rlier of five years after the first closing ... or I the sale of sev~nty-five ... \ the Offering Plan, percent of the Units." In violation of the Sponsor continued to hold a controlling three of five s ats on the Board until the sale of its interest in the Condominium to defendant ISE at the end of 2001. ISE therea·ter "hired" defendant AGA to manage the property. Plaintiffs asse t Girtz, defendanit and defendants do not contest that defendant Agarwal, and defendant Azoulay are the sole principals of both ISE and AGA. ISE and/or GA called for an annual meeting of the Unit owners in January, 200 , and ISE elected three of the five members of a new Board. Neit\er ISE nor AGA called for an annual meeting in January, 2003, a d after requests by plaintiffs, a meeting was held on November 18, 2003. Plaintiffs presented a slate of candidates 2 [* 3] for the Board lt this meeting, but plaintiffs assert that Board I member Girtz prevented a vote to appoint new Board members. I ISE and/o~ AGA failed to present annual certified financial I I I statements for riscal years 2001 and 2002. Dennis C. Fedechko, CPA ( "Fedechko") presented a combined statement for these years to Unit owners in Exhibit Sept~mber, A "Management of ·the has I 2003. Fedechko's cover letter, Order to elected to Show Cause, omit as shown in contained substantially the all line, of the I I disclosures andlthe statements of cash flows required by generally accepted accounlting principles." Fedechko also stated that report form was "prresenting in the of financial his statements information tha~ is the representation 6f management," and that he i I I could not "express an opinion or any other form of assurance on I . them." Plaintiffs assert that the Condominium by-laws require a certified finan,ial statement, and that the statement submitted by Fedechko does not qualify as such. Fedechko agrees that it is not certified, I but \claims in the Affirmation in Opposition that a certified f inandial statement is impractical as its cost would exceed $15,000. DISCUSSION Contrary to defendants' claim, ISE is a "sponsor." The rule in New York is clea "Sponsor shall be deemed to include owners of at least 10 20 percent of the total number of units in the condominium, wh chever is less, 3 which are not purchased for [* 4] occupancy by t e owner of one or more members of his or [sic] immediate family ... " 13 NYCRR §23.1. ISE and/or AGA own 19 units in I ( 50 percent of}: the Condominium, and are therefore sponsors as a matter of law. [t is irrelevant what documentation ISE filed with the New York S~ate Department of Law, or what privity ISE or AGA have with the p~ior Sponsor. Defendants: claim that they are "purchasers for investment or resale." The only place this court has located classification is in 13 NYCRR §18.3 [x], pertaining condominiums. to l defendants asse t cooperatives, not Therl a a section of the code Furthermore, that they have failed to register as broker- dealers as necelsitated by sponsor status, §23.3[w]. such is nothing in this and cite to 13 NYCRR section pertaining to registration as a broker-dealer. Defendants broadly sketch a host of requirements they have not undertaken that are necessary in their view to be classified as sponsors, but lacking citations for these claims, tJis court decides the present action based on the statutory langua\ge in 13 NYCRR §23 .1, above. Furthermore, there will be irreparable injury to the plaintiffs should a preliminary injunction be denied. Defendants do not rebut plaint'ffs' assertion that ISE and AGA·de facto control the Condominium If defendants continue to exert such control as sponsors and in violation of the Condominium's by-laws, the Condominium resi ents in 443 15ist Street will be perpetually locked 4 [* 5] out of the dec·sion-making processes that a condominium board of managers structure is intended to support. Plaintiffs cannot determine where their payments are going I unless an it~mized principles is done. accounting following general acc6unting It is unfair to ask Unit owners to blindly I I trust the manag~ment of the building in which they live {and part of which they own) to defendants. To require defendants to produce I a certified accqunting of the Condominium's income and expenses is simply to request that ISE and AGA conf orrn to the Condominium by\ laws. While Fe,echko' s affidavit claims that a full certified accounting statement will cost upwards of $15,000, in light of the and the Condominium's uncertain financial condi ion, the court requires that defendants produce an independent cert'fied statement from a certified public accountant. Defendants l1aim that the business judgment rule as applied in Levandusky precludes judicial review of the Condominium Board's I governance in this case. Levandusky v. One Fifth Avenue Apt. Corp., 75 N.Y.2d 530, distinguishable 554 N.Y.S.2d from the present 807 case, (1990). Levandusky because the is condominium board in Levandu ky had been elected by unit owners. In the present case, this doeslnot hold true for the majority of the Board. Additionally, Le andusky stands for the proposition that a court cannot review lard decisions "unless a resident is able to demonstrate a br ach of [the board's fiduciary] duty." Id. at 538, 5 [* 6] 812. A board f managers, the court noted, "must act for the benefit of the ;residents collectively" as part of its duty. Id. I Plaintiff's Order to Show Cause and affidavits include a litany of i I grievances, such as the Board's failure to consult with residents regarding building rep~:iirs, preferential tr~atment alterations, elections, and for residents of ISE-controlled Units. These I I complaints, takkn as a whole, point to a probable breach of the I I ISE/AGA-controlled Board's fiduciary duty. Furthermor~, "the business judgment rule does not foreclose inquiry by the jourts into the disinterested independence of those members of the bFard chosen by it to make the corporate decision on its behalf ... ~ndeed the rule shields the deliberations and I I conclusions of the chosen representatives of the board only if they I possess a disinterested independence and do not stand in a dual relation which prevents an unprej udicial exercise of judgment." Auerbach v. Benhett, 47 N.Y.2d 619, 631, 419 N.Y.S.2d 920, 927 (1979). See alsol Van Camp v. Sherman, 132 A.D.2d 453; 517 N.Y.S.2d 152 (1987) ~ the present representatives do stand in a case, ISE dual relation: and/or AGA Board ISE/AGA corporate interests are in conflict with the interests of the Condominium as a whole. defendants' Such conflict Boa d business judgmenlL duties ~ule prevents and an unprejudiced responsibilities. As exercise such, of the elucidated in Levandusky does not prevent this court from beviewing the actions of the Condominium's Board. I i 6 [* 7] Defendants also claim that Girtz, Agarwal and Azoulay cannot I be individually named as defendants in this case, because the corporate veil prevents individual corporation members from suit. I I However, "absent an effective rebuttal from defendants ... plaintiff's claims that the individual defendant[s] control both of i .the corporate d~fendants ... suffice to state a claim for piercing I the ... corporat~ veil." Clark Construction Corp. v. BLF Realty I Holding Corp., 2002). Here, 300 A.D.2d 49, tpere plaintiffs' assrrtions controlled by t~e It offends ability recourse to has been that no 751 N.Y.S.2d 19, defense defendant 20 rebuttal corporations (1st Dept. to counter are wholly individually named defendants. fhe judicial conscience to allow a corporation the usu~p by 49, control ·I · · ii d ivi d ua 1 of a · uni t condominium owners and b ase d eliminate so 1 e l y on any th a t corporation's failure to comply with filing regulations. Defendants assertion that luch are the realities of corporate governance illuminates theih failure to grasp the concept of a condominium and the bevy of New kork regulatibns that ensure unit owners' control I . of their own destinies as property holders. For the realons stated above, it is ORDERED and ADJUDGED that a permanent injunction be issued as follows: 1) that AG be removed as 7 the managing agent for the [* 8] Condominium in favor of Onix Sosa's Magaw Management, LLC; 2) that two ISE-appointed Board members, be they defendants, their agents Board, and representatives, be removed from the Condominium's o~ I plaintiffs Barbara Knispel and Alexandra Hodges be tha~ appointed to the Board until the next Board election cycle as I required by 3) that Condominium's by-laws; and th~ d~fendants produce a certified accounting statement within 4 5 days of service of a copy of this order with notice of 1 entry, to be completed by an accountant other than Mr. Fedechko, ! I for fiscal years 2001, 2002 and 2003, and present the statement to the newly reconktituted Board. Enter: 8

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