Bauer v Beekman Intl. Ctr. LLC

[*1] Bauer v Beekman Intl. Ctr. LLC 2013 NY Slip Op 51474(U) Decided on August 16, 2013 Supreme Court, New York County Silver, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 16, 2013
Supreme Court, New York County

Geri Bauer, Plaintiff,

against

Beekman International Center LLC, Defendant.



110211-2011



Himmelstein, McConnell, Gribben, Donoghue & Joseph

Elizabeth Donoghue, Esq.

15 Maiden Lane, 17th Floor

New York, New York 10038

Attorneys for Plaintiff

D'Agostino, Levine, Landesman & Lederman, LLP

Bruce H. Lederman, Esq.

345 Seventh Avenue, 23rd Floor

New York, New York 10001

Attorneys for Defendant

George J. Silver, J.

Plaintiff Geri Bauer ("plaintiff") alleges in her verified complaint that she purchased a condominium unit in the newly constructed building located at 315 East 51st Street, New York, New York ("the building") on February 4, 2002. Plaintiff subsequently purchased two additional units in the building on January 18, 2002. The complaint alleges that the sponsor of the building, defendant Beekman International Center LLC ("Beekman"), filed an initial offering plan on September 22, 2000 with the New York State Department of Law wherein it offered for sale 65 residential units. Plaintiff alleges that the offering plan included an implied promise on the part of Beekman to sell all unsold units within a reasonable time. The complaint also alleges that the [*2]"Special Risks to Purchasers" section of the offering plan did not disclose that there was a risk that Beekman would retain the unconditional right to rent rather than sell units. It is further alleged that Beekman has not filed any amendments to the offering plan since April 4, 2004, has allowed the offering plan to lapse, and has not sold any of the units that were unsold on that date but has instead leased many, if not all, of the unsold units. Plaintiff alleges

1. Check one: ...............................CASE DISPOSEDNON-FINAL DISPOSITION

2. Check as appropriate: MOTION IS:GRANTEDDENIEDGRANTED IN PARTOTHER

3. Check as appropriate: .................SETTLE ORDERSUBMIT ORDER

DO NOT POSTFIDUCIARY APPOINTMENTREFERENCE

that Beekman breached the implied promise in the offering plan that it would sell all unsold units within a reasonable time. Plaintiff alleges that Beekman's breach of the implied promise to sell has defeated the primary purpose of the contract which was to allow for the timely sale of a sufficient number of units so as to create a fully viable condominium and to turn control of the condominium board over to the plaintiff and the other units owners. The complaint alleges that Beekman's actions have frustrated plaintiff's and other unit owner's ability to sell her units, discouraged lenders from offering reasonable financing or refinancing terms and caused plaintiff's and other unit owner's common charges to increase. Plaintiff's first cause of action is for breach of contract and her second cause of action is asserted derivatively on behalf of the other unit owners of the building and alleges that Beekman's breach has caused damages to the common elements of the building. Plaintiff demands a money judgment in the amount of $1,000,000; a judgment directing Beekman to specifically perform its contractual obligations, a declaratory judgment that Beekman is in default of its obligations under the offering plan; and an injunction directing Beekman to immediately file amendments to the offering plan, directing Beekman to offer all unsold units for sale immediately, directing Beekman to sell all unsold units within a time provided by the court, and directing Beekman and its members to relinquish any seats held on the condominium board. Beekman now moves pursuant to CPLR § 3212 for an order granting it summary judgment and dismissing plaintiff's complaint. To the extent that any of plaintiff's claims survive dismissal, Beekman also moves for an order consolidating this action with Board of Managers v Bauer, Index No. 108432-2009 and Bauer v Beekman International Center, Index No. 590540-2010. Beekman also moves for a protective order against disclosure of business information Beekman contends is confidential. Plaintiff opposes the motion and cross-moves for summary judgment and to amend her complaint to allege that a pre-litigation demand made upon the condominium's board of directors, if required, would have been futile.

In support of the motion, Beekman's managing member, Denis Herman ("Herman"), avers that the original offering plan was accepted for filing by the New York State Department of Law on September 22, 2000. The original offering plan recited that there were 65 residential apartments, including one reserved for the resident manager, and 3 commercial units. Out of the 64 residential units originally offered for sale, 35 have been sold and Beekman retains the remaining 29 residential units as rental units. According to Herman, units were sold between 2002 and 2005 at prices between $1,000,000 and $5.7 million dollars. Herman also states that units have recently been sold or refinanced. According to Herman, the offering plan is not current and Beekman is not currently offering any residential units for sale, although it may resume selling activity in the future by making the appropriate filings.

Plaintiff states in her affidavit that the offering plan does not disclose that Beekman has the unfettered right to stop the sale of units and to rent them to tenants for profit. Plaintiff argues that if the offering plan did make such a disclosure, she would not have purchased a unit. Plaintiff contends that Beekman, not the owners, retains control over the condominium through [*3]its retention of large block of units. Plaintiff claims that the presence of rental tenants in the building has resulted in increased electrical usage resulting in a $100 increase in the monthly electric charge, as well as an increase in wear and tear in the building.

Plaintiff's accountant avers that the sponsor and various board members were late in paying common charges but were not charged late fees whereas plaintiff has routinely been charged a $1,000 per month late fee.

Analysis

It is well-settled that on a motion for summary judgment, the moving party has the initial burden of demonstrating, by admissible evidence, its right to judgment (Bendik v Dybowski, 227 AD2d 228 [1st Dept 1996]). The burden then shifts to the opposing party, who must proffer evidence in admissible form establishing that an issue of fact exists warranting a trial (id.). "On a motion for summary judgment, the court should accept as true the evidence submitted by the opposing party" (Pellegrini v Brock, 2009 NY Slip Op 6721 [1st Dept]). Summary judgment is a drastic remedy that should only be employed where no doubt exists as to the absence of triable issues (Leighton v Leighton, 46 AD3d 264 [1st Dept 2007]). The key to such procedure is issue-finding, rather than issue-determination (id.).

In 511 W. 232nd Owners Corp. v Jennifer Realty Co., the Appellate Division, First Department stated that an offering plan between a cooperative sponsor and unit purchasers is a contract, the purpose of which is to sell apartment units within a building so as to form a stable cooperative (285 AD2d 244, 247 [2001]). The Appellate Division held that the sponsor made an implied promise within the offering plan to sell unsold units within a reasonable time and that the sponsor's failure to do so gave rise to a viable breach of contract claim by the co-op board and tenant-owners against the sponsor. The Appellate Division granted the sponsor leave to appeal. The sponsor appealed and the Court of Appeals affirmed the order of the Appellate Division (98 NY2d 144, 773 NE2d 496, 746 NYS2d 131 [2002]). In so doing, the Court noted that it was addressing only the sufficiency of the breach of contract cause of action, not its merits. The Court of Appeals held that by alleging that the sponsor failed to exercise good faith and deal fairly in fulfilling the terms and promises contemplated by the offering plan, the plaintiffs had sufficiently pleaded a valid breach of contract cause of action. The Court explained that the covenant of good faith and fair dealing that is implied in all New York contracts was especially critical in cooperative conversions "because purchasing tenants and sponsors do not deal as equals in terms of access to information or business acumen and thus, tenants often lack equal bargaining power" (id. at 153 [internal citations omitted]).

In December 2006 the New York State Attorney General's Office issued regulations in response to Jennifer Realty. 13 NYCRR 20.3 [c] [1] requires offering plans for newly constructed, vacant or non-residential condominiums to disclose whether the "sponsor is reserving the right to rent rather than sell units and whether sponsor is limiting its right to rent rather than sell based on objective criteria, such as a significant decline in market prices of a specific percentage and the conditions upon which the sponsor will resume sales." If the sponsor is reserving an unconditional right to rent rather than sell, the cover of the offering plan must state in bold print "Because Sponsor is retaining the unconditional right to rent rather than sell units, this plan may not result in the creation of a condominium in which a majority of the units are owned by owner-occupants or investors unrelated to the sponsor." The regulations also require the offering plan to disclose, in the special risks section, "that because the sponsor is not limiting the conditions under which it will rent rather than sell units, there is no commitment to sell more than the 15 percent necessary to declare the plan effective and owner-occupants may [*4]never gain effective control and management of the condominium."

In moving for summary judgment, Beekman argues that Jennifer Realty is not applicable to new construction condominiums because the concerns voiced by the Court of Appeals regarding rent stabilized tenants surrendering their stabilized rights in exchange for shares in a converted cooperative have no application to someone purchasing million dollar condominiums like those in the building. Beekman also argues that plaintiff's claim that the offering plan contained an implied promise to sell all units within a reasonable time is contradicted by the express terms of the offering plan, which Beekman claims reserved its right to rent units. Specifically, Beekman relies upon paragraph 17 of Special Risk section of the offering plan which states, in pertinent part, "[s]ponsor has reserved the right to rent or lease any Residential Unit prior to closing the sale thereof to the Purchaser thereof or any other party and residents of the Condominium may by comprised of both Unit Owners and tenants leasing from Sponsor." Beekman also cites paragraph 33 of the offering plan which states that there will be a greater number of visitors to the Residential Unit while the sponsor is offering unsold units for sale or lease than would normally be the case and " [n]o representation of warranty is made and no assurance is given as to when such selling an leasing activity will terminate."

In opposition to the motion and in support of the cross-motion, plaintiff argues that her breach of contract is identical in form and substance to the claim raised in Jennifer Realty. Specifically, plaintiff argues that by retaining nearly half the units for rent Beekman has frustrated the fundamental purpose of the offering plan. Plaintiff further contends that the offering plan only reserved to Beekman the right to lease residential apartments until they were sold and that, therefore, Beekman had an implied duty to keep the units on the market and to make good faith effort to sell all the units in the building.

As an initial matter, this court finds that Jennifer Realty is applicable to offering plan at issue here. As discussed above, Jennifer Realty stands for the proposition that, in the posture of a CPLR § 3211 motion to dismiss, a complaint alleging that a cooperative sponsor undertook a duty in good faith to timely sell so many shares in the building as necessary to create a fully viable cooperative sufficiently states a valid cause of action for breach of contract. Jennifer Realty does not hold as a matter of law that there is an implied promise on the part of all cooperative sponsors to sell enough units so as to create viable cooperatives[FN1]. The Court of Appeals expressly noted that the duties of good faith and fair dealing do not imply obligations "inconsistent with other terms of the contractual relationship" (98 NY2d at 154). Contrary to Beekman's contention, the offering plan herein does not reserve to it the unconditional and unqualified right to rent residential units in the building. Rather, Beekman's right to rent units is expressly limited by paragraph 17 of the Special Risk section of the offering plan which gives Beekman the right to rent the 64 units offered for sale by the offering plan only until the close of sale of the units.Thus, implicit in the offering plan is a promise by Beekman that it would, in good faith, endeavor to sell all 64 residential units offered for sale by the offering plan and would retain the right to lease only until such time as all units were sold. Paragraph 17 cannot be interpreted as a warning to unit purchasers that Beekman would retain a significant number of units for lease at market rates and not offer them for sale. Where, as here, there is no express [*5]provision in an offering plan reserving to a condominium sponsor the unconditioned right to rent residential units, an implied promise on the part of the sponsor to create a viable condominium "embraces the pledge that party shall do anything which will the effect of destroying or injuring thee right of the other party to receive the fruits of the contract" (id. at 153). This holding comports with Part 20 of the Attorney General's regulations which, although not in effect when Beekman's offering plan was drafted, is nevertheless instructive on the question before the court. The regulation, which is entitled to deference (see Cole v 1015 Concourse Owners Corp., 70 AD3d 597 [1st Dept 2010]), sets forth the Attorney General's position that any condominium sponsor wishing to retain an unconditional right to rent must do so explicitly and unambiguously in the special risks section of the offering plan.

Since this matter is before the court in the posture of a motion and cross-motion for summary judgment, the court must now address the merits of plaintiff's breach of contract cause of action. Herman, Beekman's managing member, admitted in his affidavit that Beekman breached its implied duty to timely sell all the units in the building when it stopped offering units for sale and allowed the offering plan to lapse. The question, then, is whether Beekman's breach by its retention of 29 units for rent so undermined the offering plan that its fundamental objective -the creation of a viable condominium-was subverted. The case law does not define what constitutes a viable condominium or cooperative. The complaint in Jennifer Realty that the Court of Appeals held sufficiently stated a breach of contract claim alleged that the sponsor's retention of a majority of shares in the cooperative discouraged private lenders from offering reasonable financing terms, which impaired the tenant-owners' ability to resell their apartments at market rates. The complaint further claimed that because most of the apartments were rented rather than owner-occupied, many transients lived in the building thereby causing it increased wear and tear and forcing the cooperative board to charge even higher monthly maintenance fees. Thus, it would appear that in order to make a prima facie showing that the condominium is not viable plaintiff must establish that Beekman's retention of a minority of residential units for lease frustrated plaintiff's ability to resell her units, interfered with plaintiff's ability to obtain favorable financing terms and caused wear and tear to the building for which plaintiff has had to pay increased common charges. Conversely, Beekman is required to show that its retention of units for rent has not frustrated the ability of owners to resell their units or to obtain favorable financing.

Herman's affidavit establishes that less than half of the residential units in the building are currently being leased. Herman's affidavit also establishes that residential units have recently been sold or refinanced. These averments are sufficient to satisfy Beekman's prima facie burden of establishing that the condominium is viable.

In opposition to Beekman's prima facie showing, plaintiff fails to raise a triable issue of fact. Plaintiff's affidavit does not establish that plaintiff has been unable to obtain favorable financing terms because of Beekman's failure to sell all of the residential units, nor does it establish that plaintiff was unable to sell any of the three units she purchased. Rather, plaintiff's complaint contains a formal judicial admission by plaintiff that she was able to sell two of the three units she originally purchased, albeit at an alleged loss, in 2003 (Zegarowicz v Ripatti, 77 AD3d 650 [2d Dept 2010]). Plaintiff's claim that the presence of rental tenants in the building has resulted in increased electrical usage thereby causing an increase in her monthly charge for electricity is speculative and not a substitute for the evidentiary proof in admissible form that is required to establish the existence of a triable question of material fact (Castore v Tutto Bene Rest. Inc., 77 AD3d 599 [1st Dept 2010]). Plaintiff's conclusory and speculative averments that [*6]the presence of rental tenants has resulted in increased wear and tear to the building and that Beekman's claim for hundreds of thousands of dollars in common charges against plaintiff may be a concealed attempt by Beekman to pass along to her the increased operating costs associated with having rental tenants in the building also fail to raise a triable issue of fact. Moreover, because a majority of the units are tenant-owned, the owners have the ability, should they so choose, to gain effective control and management of the condominium through the condominium board. The affirmation of plaintiff's attorney has no probative weight and cannot raise a triable issue (Johnson v Phillips, 261 AD2d 269 [1st Dept 1999]). Plaintiff, therefore, has failed to raise a triable issue of fact in response to Beekman's prima facie showing or to establish her prima facie entitlement to summary judgment on her breach of contract cause of action.

Plaintiff's second cause of action alleging that Beekman's breach of contract has caused damages to the common elements of the building for which the unit owners are entitled to recover is also dismissed as individual units owners like plaintiff lack standing to seek damages for injury to a building's common elements (Board of Mgrs. of the Chelsea 19 Condominium v Chelsea 19 Assoc., 73 AD3d 581 [1st Dept 2010]). It is well settled that the condominium board has the exclusive authority to enforce rights related to common elements (Bradley v 50 Orchard Assoc. LLC, 2012 NY Slip Op 31918 [U] [Sup Ct, New York County]). Plaintiff's proposed amended complaint is also insufficient as it fails to set forth with the required particularity circumstances from which it could be concluded that a demand by plaintiff upon the condominium board to require Beekman to sell the unsold residential units would be futile (Griffith v Med. Quadrangle, Inc., 5 AD3d 151 [1st Dept 2004]). In New York a demand would be futile if the complaint alleges with particularity that (1) a majority of the directors are interested in the transaction, or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction, or (3) the directors failed to exercise their business judgment in approving the transaction (Marx v Akers, 88 NY2d 189, 666 NE2d 1034, 644 NYS2d 121 [1996]). The amended complaint alleges that the condominium board is composed of three members - Herman, Susan Powers and Michael Kriss. Plaintiff alleges that Herman, as Beekman's principal, is interested in the transaction and that Powers and Kriss are interested because Beekman has conferred unique benefits on them, including the waiver of late fees for common charges. A charge of interest must be made with particularity and simply making conclusory allegations of wrongdoing or control, like the ones found in plaintiff's amended complaint, is insufficient to circumvent the requirement of demand (Bansbach v Zinn, 1 NY3d 1, 801 NE2d 395, 769 NYS2d 175 [2003]). While it can be assumed that Herman is interested in the transaction based upon the affidavits he has submitted herein, plaintiff's conclusory allegations with respect to Powers and Kriss do not state with the requisite particularity that they are interested in the transaction or so controlled by Herman so as to make a demand futile. The amended complaint also fails to plead with the requisite particularity that the members had specific information or reason to inform themselves of Beekman's failure to sell all units in the building. The nonspecific allegation that the board members failed to inform themselves of the transaction because the issue was never brought up or discussed at a board meeting is insufficient (see Wandel v Eisenberg, 60 AD3d 77 [1st Dept 2009]). Allegations that the board failed to exercise its business judgment in the affairs of the condominium by allowing the condominium to pay for repairs within units owned by Beekman or for failing to take action against Beekman for its failure to obtain a certificate of occupancy or by allowing the condominium to assess fines against plaintiff are irrelevant on the issue of whether the board should have required Beekman to sell all residential units in the building. While amendment of a pleading should ordinarily be [*7]freely granted, it may be denied where, as here, the proposed amendment is plainly lacking in merit (Sharon Ava & Co. v Olympic Tower Assocs., 259 AD2d 315 [1st Dept 1999]).

Accordingly, it is hereby

ORDERED that defendant's motion for summary judgment is granted and the complaint is dismissed; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly; and it is further

ORDERED that the branches of defendant's motion seeking to consolidate the instant action and for a protective order are denied as moot; and it is further

ORDERED that plaintiff's cross-motion for summary judgment and to amend her complaint are denied; and it is further

ORDERED that the parties are to appear for a status conference on the actions consolidated under Index Number 108432-2009 on October 29, 2013 at 9:30 am in room 422 of the courthouse located at 60 Centre Street, New York, New York 10007; and it is further

ORDERED that defendant is to serve a copy of this order, with notice of entry, upon plaintiff within 20 days of entry.

___________________________

George J. Silver, J.S.C.

Dated:

New York County

Footnotes

Footnote 1: The Court of Appeals noted that the Appellate Division had gone "so far as to hold that the sponsor had undertaken a duty to dispose of the units within a reasonable time" (98 NY2d at 154). The Court of Appeals, however, only held that the breach of contract cause of action withstood the sponsor's motion to dismiss and did address the issue of whether the sponsor impliedly promised to sell all its unsold shares (id.).