Plaintiff Bleecker Charles Company ("the Sponsor ) submits this memorandum in support of its motion for an order, pursuant to Rule 56, Fed. R. Civ. P., granting summary judgment in its favor, (1) declaring that the notice dated July 19, 2000 ("the Notice") from defendant 350 Bleecker Street Cooperative Corporation ("the Co-op") to the Sponsor purporting to terminate that portion ("the Garage Portion") of an Agreement of Lease dated July 31, 1985 between the Co-op, as landlord, and the Sponsor, as tenant, ( "the Master Lease "), covering a public parking garage ("the Garage") located at 350 Bleecker Street in the City, County and State of New York ("the Building"), pursuant to the Condominium and Cooperative Conversion Protection and Abuse Relief Act, 15 U.S.C. §§ 3601-3616 ("the Act"), was not sent to the Sponsor within the mandatory two-year period after the Sponsor had ceased to own more than 25% of the total residential apartment units in the Building within the meaning of 15 U.S.C.

§ 3607(b)(2) of the Act and that therefore (a) the purported termination of the Garage Portion did not become effective pursuant to 15 U.S.C. § 3607(d) of the Act, (b) the Notice is null and void, and (c) the Co-op is forever barred from seeking to terminate the Garage Portion of the Master Lease under the Act; (2) enjoining the Co-op from ever taking any action pursuant to the Act to terminate the Master Lease or the Garage Portion or from interfering with the Sponsor's and its independent subtenant's possession or enjoyment of the Garage; and (3) dismissing the Co-op's counterclaim with prejudice and costs. [1]

PRELIMINARY STATEMENT

          On July 20, 2000, the Sponsor received the Notice purportedly terminating the Garage Portion effective 90 days after the Sponsor's receipt of the Notice or on October 18, 2000. The Notice and the Co-op's attempt to terminate the Garage Portion, however, were improper under the Act and therefore void. Accordingly, the Sponsor brought this action under the Act for declaratory relief confirming the ineffectiveness of the Notice and for injunctive relief prohibiting any attempted enforcement of the Notice or other attempt to terminate the Garage Portion under the Act.

          To terminate the Garage Portion under the Act, the Act required the Co-op to take action during a strictly determined two-year period ("the window period") beginning no later than the date on which the Sponsor owned "25 per centum or less of the units in the conversion project . . . . " 15 U.S.C. § 3607(b)(2). Because it failed to terminate the Garage Portion within the window period, the Co-op is forever barred by the Act from terminating the Garage Portion.

          Upon the undisputed history set forth in the accompanying Stipulation of Undisputed Facts, it is clear that, as a matter of law, the Sponsor's ownership fell to less than 25% of the total units by no later than October 16, 1997. To comply with the Act, the Co-op therefore had to terminate the Garage Portion on or before October 16, 1999. However, the Co-op's vote to terminate the Garage Portion did not occur until June 27, 2000 and its Notice did not purport to become effective until October 18, 2000 — over a year too late.

STATEMENT OF FACTS

          On or about December 31, 1984, the Sponsor submitted an offering plan for filing by the New York State Department of Law ("Original Plan") to convert to cooperative ownership the land and improvements located at 350 Bleecker Street in the City, County and State of New York, consisting of a seven-story residential apartment building, two ground floor commercial spaces, a laundry room and a public parking garage ("the Property"). Stip., ¶¶ 1 and 3; Schreiber Aff., Ex. 1 at ¶¶ 1 and 6, Ex. 2 at ¶ 1. The Original Plan, as amended, was declared effective on or about April 5, 1985 ("Sponsor's Offering Plan"). Stip.,¶ 2.

          Pursuant to the Sponsor s Offering Plan, the Sponsor conveyed to the Co-op, at a closing on July 31, 1985 ("the Closing"), the fee simple interest in the Property and the Co-op simultaneously issued to the Sponsor proprietary leases ("the Proprietary Leases") and related shares of stock of the Co-op ( "the Related Shares") for 137 of the 138 residential apartment units ("the Units") ("the Sponsor's Units"). Stip., ¶ 3. Unit LG, which was reserved for the Property's superintendent and the laundry room located in the basement were transferred and conveyed outright to the Co-op upon the Closing. Id.

          As the Sponsor's Offering Plan was a non-eviction plan, tenants occupying the Sponsor's Units as of the effective date of the plan were entitled either to purchase their Units at the prices set forth in the plan or to continue in occupancy of their respective Units under their existing leases and any applicable rent stabilization and other statutory rights. Stip., ¶ 4

          At the Closing and as contemplated by the Sponsor's Offering Plan, the Co-op, as landlord, and the Sponsor, as tenant, executed and delivered a lease covering the Building's two ground floor commercial spaces and the Garage ("the Master Lease"). Stip., ¶ 6. The Master Lease set a term of 75 years and a base rent of $86,000 per year payable monthly and certain additional rent based upon increases in real estate taxes and certain increases in the Building's operating expenses. Stip., ¶ 6, Ex. C. Since the execution of the Master Lease, the Sponsor, in addition to subleasing the two ground floor commercial spaces, executed and delivered an Agreement of Lease covering the Garage between itself, as sublessor, and defendant on counterclaim Bleecker Parking Corporation ("the Garage Operator"), as subtenant, on or about November 27, 1996 ("the Sublease"). Stip., ¶ 7, Ex. D. The Sublease expires on April 31, 2012. Stip., Ex. D.

          From the date of the Closing, the Sponsor began to sell the Sponsor's Units to third party buyers. See Stip., ¶ 8, Ex. E. By October 16, 1997, the Sponsor had sold 103 Sponsor's Units reducing the Sponsor's ownership to 34 Units or 24.82% of the Building's 137 Units. Id.

          Two groups of Sponsor's Units sold by the Sponsor are at issue on this motion. See Schreiber Aff., Ex. 2 at ¶¶ 49-56, Ex. 3 at ¶¶ 15- 20. The first group consists of two Units, which the Co-op claims should be included in the total number of Units owned by the Sponsor and therefore counted in the numerator of the fraction used to calculate the Sponsor's ownership percentage. See Schreiber Aff., Ex. 2 at ¶¶ 49-56. The second group consists of nineteen other Units which were, subsequent to the conversion, altered in some fashion to be directly accessible from contiguous units. See Schreiber Aff., Ex. 2 at ¶ 35-42. The Co-op alleges that some sets, but not all, of these altered Units should be treated as a single Unit for purpose of calculating the number of total units in the conversion project, thereby reducing the denominator of the fraction used to calculate the Sponsor's ownership percentage. See id. [2]

          The first group is limited to Units 2L and 6A. Unit 2L was sold to Shirley Lomanto and her husband, Anthony Lomanto ("the Lomantos"), as tenants in common, on or about December 1, 1988 ("the Lomanto Unit"). Stip., ¶ 11. Ms. Lomanto was and is an employee of Kenneth B. Newman. P.C., whose principal Kenneth Newman now is, and has been since at least December 1984, the liquidating partner of the Sponsor. Id; Newman Aff., ¶ 2, Ex.1.

          Unit 6A was sold to Kathleen Giannetti on or about July 31, 1985 and transferred on or about June 16, 1989 to Ms. Giannetti, then known as Kathleen Iwanczuk, and her husband Anatole Iwanczuk ("the Iwanczuks"), as tenants in common ("the Iwanczuk Unit"). Ms. Giannetti was, from November 1, 1969 until November 1, 1999, a full-time employee of the law firm of Blumenthal & Lynne, a Professional Corporation, the landlord to Kenneth Newman, P.C. from at least December 1984 to date and counsel for the Sponsor until July 31, 1985, the date of the Closing. Stip. at ¶ 12.

          The second group consists of Units IH, IJ, 3D, 3E, 3F, 3G, 3H, 4A, 4B, 5W, 5X, 6C, 6D, 6E, 6K, 6L, 6V, 6W and 6X. See Schreiber Aff. Ex. 2 at ¶ 35-42. Each of these Units was sold by the Sponsor to a third party buyer between July 31, 1985 and December 16, 1997 and the alterations were undertaken between 1989 and.2000. See Stip. at Ex. G.

          Following the sale of each of these Units to the third party buyer, the buyer or its successor altered the Units in the following manner to make one or more of the Units accessible from a contiguous unit:

     ·     on or about 1989, a wall was removed between Units 6V and 6W and only one kitchen remains;

     ·     on or about March 1995, a wall was removed between Units 4A and 4B and only one kitchen remains;

     ·     on or about January 1996, a wall was removed between Units 3G and 3H and only one kitchen remains;

     ·     on or about June 1996, Units 3D and 3E were not made contiguously accessible but one kitchen was removed;

     ·     on or about 1997, a door was installed between Unit 6X and previously altered Units 6V and 6W and the second kitchen was retained;

     ·     on or about April 1997, walls were removed between Units 6C, 6D, and 6E, a portion of the hallway was incorporated into Unit 6D and only one kitchen remains;

     ·     on or about April 1998, a portion of the wall was removed between Units 6K and 6L and only one kitchen remains;

     ·     on or about October 1998, a portion of the hallway was annexed as an external vestibule to Units 3D, 3E and 3F and only one kitchen remains;

     ·     on or about March 2000, a portion of a wall was removed between Units 5W and 5X and only one kitchen remains; and

     ·     on or about July 2000, a wall was removed between Units I H and 1 J and only one kitchen remains.

See Stip., Ex. G.

          For these Units, the Unit designations, the Proprietary Leases and Related Shares have not been altered since the closing of the conversion to cooperative ownership, except that, to the extent that hall space was added to a Unit, the Co-op issued additional Related Shares to the owner. [3] Moreover, each of these Units was counted as a separate unit in the Co-op's June 27, 2000 vote to terminate the Garage Portion, notwithstanding the alterations. Stip. ¶ 13.

          As noted, for purposes of this motion, the Co-op takes the position that only those Units which were modified by the removal of all or part of a wall and possess only one kitchen should be considered as a legal combination" for the purposes of reducing the total number of Units in the Building. See Stip., Ex. G.

          During the summer of 1999, the Co-op first attempted to terminate the Garage Portion pursuant to the Act. See Schreiber Aff., Ex. 1 at ¶ 17, Ex. 2 at ¶ 59 - 62. On June 1, 1999, the Co-op purportedly called a meeting of the Co-op's shareholders to vote to terminate the Garage Portion pursuant to the Act. See Schreiber Aff., Ex. 1 at ¶ 17, Ex. 2 at ¶ 59. Neither the Sponsor, the Lomantos nor the Iwanczuks were given notice of this meeting. Id. At a vote held on June 24, 1999, the shareholders did not approve the termination resolution. Id.

          On or about June 6, 2000, unwilling to accept the results of the 1999 vote, the Co-op's Board purportedly sent another notice of another meeting of the shareholders again to vote to terminate the Garage Portion pursuant to the Act. See Schreiber Aff., Ex. 1 at ¶ 18, Ex. 2 at ¶ 63. The Sponsor became aware of this impending vote by mere happenstance. See Schreiber Aff., Ex. 1 at ¶ 18; Newman Aff., ¶ 5, Ex. 2.

          Prior to the meeting, the Sponsor protested the calling of the meeting because the Sponsor, although an owner of 23.5% of the shares of the Co-op, was not given notice of the meeting in violation of the New York Business Corporation Law and the Co-op's Bylaws. Stip., ¶ 13, Ex. B. (Related Shares column); Newman Aff., ¶ 5, Ex. 2. The vote was held on June 27, 2000 and the Co-op's Board declared that the participating Unit owners had voted by a count of 87 to 0, with 20 abstentions, in favor of terminating the Garage Portion. Stip., ¶ 14.

          On July 20, 2000, the Sponsor received a notice dated July 19, 2000 ("the Notice") from the Co-op stating the Co-op had voted to terminate the Garage Portion effective 90 days from the Sponsor's receipt of the Notice or October 18, 2000. Stip., ¶ 15.

          On October 13, 9000, the Sponsor filed this action against the Co-op seeking a judgment declaring the Notice did not terminate the Garage Portion under the Act and seeking an injunction restraining and enjoining the Co-op from ever taking any action to terminate either the Master Lease or the Garage Portion or from interfering with the Sponsor's or the Garage Operator's possession or enjoyment of the Garage. Schreiber Aff., Ex. 1 at ¶1.

          The Sponsor requested that this Court declare the Notice ineffective on one or more of the following grounds:

          (1)     the Notice was not legally effective under § 3607(d) of the Act because it was untimely, such date being more than two years after the earlier of the date on which (a) the Sponsor relinquished "special developer control" or (b) the Sponsor ceased to own more than 25% of the units subject to the Offering Plan, within the meaning of § 3607(b) of the Act;

          (2)     the Garage, being primarily a public facility, was not property that served the unit owners of the Building within the meaning of § 3607(a) of the Act, at the time when (a) the Offering Plan was declared effective, (b) the Notice was sent, (c) the Notice stated it would be legally effective or (d) at any other legally relevant time.

          (3)     the shareholder's vote taken on June 27, ~000 was not taken at a duly called meeting of the Co-op's shareholders and therefore was legally ineffective under

Section 605(a) of the New York Business Corporation Law and Section 1 (2) of the Co-op's

By-laws, as well as § 3607(c) of the Act.

          The Co-op served its answer dated December 29, 2000. See Schreiber Aff., ¶ 3, Ex. 2. In addition to denying the Sponsor's allegations that the Garage Portion was not terminated pursuant to the Act, the Co-op asserted a counterclaim against both the Sponsor and the Garage Operator seeking to declare the Garage Portion terminated and awarding the Co-op possession of the Garage. See id. at Ex. 2, ¶¶ 12- 14. The Sponsor served its reply dated January 12, 2001, on both the Co-op and the Garage Operator. Id. at ¶ 4, Ex. 3. The Garage Operator served its reply to the counterclaim on February 5, 2001. Id. at ¶ 5, Ex. 4.

          By the present motion, [4] the Sponsor seeks summary judgment on only one of the three general grounds described above. For purposes of this motion, the Sponsor reserves its contention that an issue of fact exists about whether or not the window period opened and closed far earlier than October 16, 1997, when the Sponsor ceased to own 25% or more of the Units. The Sponsor reserves all of its other grounds for relief until trial of the action. if its motion for summary judgment is not granted. [5]

          Under the Act, a "cooperative association," such as the Co-op, may seek to terminate a lease, which:

15 U.S.C. § :607(a) (emphasis added).

          All four elements must be present if a lease is "to fall within reach of the Act." West 14th St. Commercial Corp. v. 5 W. 14th St. Owners Corp., 815 F.2d 188. 197 (2d Cir. ), cert. denied 484 U.S. 850, cert. denied, 484 U.S. 871 (1987).

          For leases meeting these requirements, the Act sets forth a specific methodology and schedule under which such leases may be terminated:

          ·     First, any termination "may occur only during the two-year [window] period beginning on the date on which - - (1) special developer control over the association is terminated; or (2) the developer owns 25 per centum or less of the units in the conversion project, which ever occurs first." 15 U.S.C. § 3607(b) (emphasis added).

          ·     Second, the decision to terminate must be voted on and passed by those owning "not less than two-thirds of the units other than the units owned by the developer or an affiliate of the developer." 15 U.S.C. § 3607(c) (emphasis added).

          ·     Third, following the vote, "termination shall be effective ninety days after hand delivering notice or mailing notice by prepaid United States mail to the parties to the contract." 15 U.S.C. § 3607(d). The Second Circuit has held that the termination is effective only if both the vote to terminate and the 90-day period needed to effect termination have occurred prior to the expiration of the two-year window period. 2 Tudor City Place Assocs. v. 2 Tudor City Tenants Corp.. 924, F.2d 1247, 1253 (2d Cir.), cert. denied, 502 U.S. 822 (1991); see also Barnan Assocs. V. 196 Owner's Corp., 797 F. Supp. 302, 308 (S.D.N.Y. 1 992).

          In 1980, when enacting the Act, Congress sought to strike a balance between protecting the needs of cooperative and condominium owners from self-dealing leases and the rights of the developer to obtain a fair return on its investment. See West 14th St. Commercial Corp., 815 F.2d at 190. Courts have acknowledged that this balance should be kept in mind when interpreting the Act. See id, Coliseum Park Apartments Co. v. Coliseum Tenants Corp., 742 F. Supp. 128, 129 n.1 (S.D.N.Y. 1990). However, despite acknowledging this legislative intent, courts have consistently refused to "broaden the relief provided by the Act beyond its literal terms." Board of Managers v. Infinity Corp., 21 F.3d 528, 533 (2d Cir. 1994); Coliseum Park Apartments Co., 742 F. Supp. at 133-34.

          Within this legal framework, the Co-op's attempt to terminate the Garage Portion of the Act was wholly improper. As shown in Point I below, the Sponsor reduced its ownership of Units below 25% by October 16, 1997, requiring an effective termination to occur no later than October 16, 1999. In fact, the vote to terminate did not occur until June 27, 2000 (Stip., ¶ 13) and was therefore too late.

          The Co-op seeks to avoid this result by a strained interpretation of the Act's method for calculating the 25% threshold. First, the Co-op alleges the total number of Units must be measured not on the date the Building was converted to cooperative ownership but that this number should be increased or decreased, after the date of conversion, each time a Unit is combined with or divided from another Unit, depending on the number of kitchens, as many times as such changes occur. See Schreiber Aff., Ex. 2 at ¶ 35-42. Second, the Co-op alleges that the Lomanto and Iwanczuk Units should be added to the total number of Units owned by the Sponsor because they are the Sponsor s "successors," as that term is defined in the Act. Schreiber Aff.. Ex. 2 at ¶¶ 49 57.

          According to the Co-op, the combined effect of both contentions is that the window period did not open until May 18, 2000, [6] thereby making termination of the Garage Portion timely under the Act. Schreiber Aff., Ex. 2 at ¶ 57. As shown in Points I and II below, the Co-op's methodology is wrong as a matter of law.

POINT 1

THE TOTAL NUMBER OF UNITS IN THE CONVERSION
PROJECT MUST BE MEASURED AS OF THE DATE OF CONVERSION

          On October 16, 1997, the Sponsor's ownership was reduced to 32 Units or 24.8% of the 137 Units subject to the Sponsor's Offering Plan. See Stip. Ex. E. Thus. at this point, the Sponsor owned "25 per centum or less of the units in the conversion project" and the window period was opened. See 15 U S C. § 3607(b) (2) (emphasis added).

          In challenging this window-opening calculation, the Co-op first contends that the number of Units in the Building serving as the denominator of the fraction for calculating the Sponsor s ownership percentage must be reduced by one unit for every combination of two units and by two units for every combination of three units occurring after the date of conversion. This position is wrong as a matter of law, as it is contrary to both the Act's plain meaning and Congress s intent behind its passage.

          We start with the Act's text. The relevant "units" for purpose of calculating the Sponsor's ownership percentage are identified in § 3607(b)(2) as those "units in the conversion project" (emphasis added). In turn the term "conversion project" in § 3607(b) is defined by § 3603(7) of the Act as "a project, which has five or more residential units, which was used primarily for residential rental purposes immediately prior to being converted to a condominium or cooperative project" and § 3603(12) defines a "cooperative unit" as "a part of the cooperative property which is subject to exclusive use and possession by a cooperative unit owner....as specified in the cooperative documents" (emphasis added). By its plain meaning, the phrase "units in the conversion project" is defined in terms of the attributes of the building at the time of conversion. To use the number of units in the Building at a time other than at conversion for purpose of calculating the 25% threshold, as the Co-op proposes, would be inconsistent with the Act's definition of the phrase "units in the conversion project."

          The leading Second Circuit cases under the Act reject the notion that any operative phrase of the Act, such as "units in the conversion project," can be construed inconsistently with its express statutory definition in the Act as it appears in § 3607(b)(2). See 136 E. 36th St. Owners, Inc. v. Darnet Realty Assocs., LLC, Nos. 96 Civ. 5864, 98 Civ. 6011, 1999 WL 47328, *6 (S.D.N.Y. Feb. 1, 1999), aff'd, Darnet Realty Assocs., LLC v. 136 East 56th Street Owners, Inc., 214 F.3d 79 (2d Cir. 2000) (Darnet II) (noting that the term "successor" "must be defined in a manner consistent with the Act in which it is used"). This approach is also supported by the general principle of statutory construction that ''a statute is to be considered in all of its parts when construing any one of them." United States v. Dauray, 215 F.3d. 257 (2d Cir. 2000).

          Moreover, reading the phrase "units in the conversion project," as it appears in § 3607(b)(2), inconsistently with the Act's express definition of the phrase "units in the conversion project" would violate the Second Circuit's insistence that the plain language of the Act control. See, e.g., Board of Managers, 21 F.3d at 533 (applying the literal terms of the Act); West 14th St. Commercial Corp., 815 F.2d at 198 (applying plain meaning to definition of "serving the . . . unit owners" in § 3607(a)(1)); Cromwell Assocs. v. Oliver Cromwell Owners, Inc., 941 F.2d 107, 112 (2d Cir. 1991) (noting a preference for the "more natural reading of the statutory language").

          Accepting the Co-op's contention that § 3607(b)(2) requires looking beyond the date of conversion to determine a Sponsor's ownership percentage would also produce absurd results which should, under general principles of statutory construction, be avoided in the absence of clear legislative direction to the contrary. See Dauray, 215 F.3d at 264 (noting that "[a] statute should be interpreted in a way that avoids absurd results.") If the Co-op's interpretation were accepted it would set the stage for manipulation of the opening and closing of the window period by both developers and unit owners. Thus, for example, a developer could either forestall the opening of the window period simply by dividing units retained by the developer after the conversion forcing the unit owners to put the issue of termination to a vote sooner than contemplated by the Act or accelerate the opening of the window period simply by combining units. Conversely, unit owners could either forestall the date which the window period opens by combining units or force the window period open by dividing units.

          The Co-op's construction would violate the Second Circuit s mandate, as expressed in West 14th St. Commercial Corp, that the Act be interpreted in a manner that promotes clarity of its application so that litigation of termination actions is minimized, reflecting, in short, a high legislative priority on reading the Act as a "bright line" statute. 815 F.2d at 200.

          Court involvement cannot be minimized if the ownership formula of § 3607(b)(2) is read in such a way that either the numerator or the denominator used to calculate the 25% ownership percentage is never firmly fixed and the window period can mathematically be opened and closed more than once. Such a construction of § 3607(b)(2) is also totally inconsistent with its directive that the window period opens "only" once during the life of any lease or contract subject to termination under § 3607, which provides that "[a]ny termination under this section may occur only during the two-year [window] period . . . ." 15 U.S.C. § 3607(b) (emphasis added). As the Second Circuit noted in Darnet Realty Assoc., LLC v. 136 E. 56th St. Owners, Inc., 153 F.3d 21, 29-30 (2d Cir. 1998) (Darnet I):

          Congress desire for a self-executing statute would also be frustrated by the Co-op's construction of § 3607(b)(2) because such a construction would embroil the federal courts in fact-finding involving combinations of residential units and their multiple effects over decades after the conversion date on both total units in the conversion project and the number then owned by a developer and by the unit owners. One can envision disputes, as there are in this very case, over what would be considered a true combination (i.e., the actual removal of a wall versus the installation of a door between units, the number of kitchens in the combined units, or how often the two contiguous units were accessed after the alteration) or when the combination was deemed to have occurred (i.e., with board approval, upon completion of construction, upon the issuance of a revised Certificate of Occupancy by the local government's building's department). It stretches the imagination to think Congress intended to involve the federal courts in such disputes, especially in light of the fact that § 3607 was designed as an enabler for cooperatives and condominiums to terminate leases without judicial intervention. See S.Rep. No. 96-736 at 51 (1980), reprinted in 1980 U.S.C.C.A.N. 3506, 3558; West 14thSt. Commercial Corp., 815 F.2d at 200. [7]

          The analysis of the Act used by the Second Circuit's decision in Board of Managers v. Infinity Corp, also provides a strong rationale for rejecting the Co-op's construction of § 3607(b)(2) out of hand. There, the court held that a lease between a developer and third party covering a parking garage in the cooperative apartment could not be terminated under the Act, because the developer had elected to retain the fee interest in the garage rather than convey the garage to the cooperative pursuant to the cooperative conversion plan. See Board of Managers , 21 F.3d at 531-33. The Second Circuit held that, under a plain reading of the Act, the developer was not required to convey the garage to the cooperative and, because it had not in that case, no lease existed between the cooperative and the developer that could be subject to termination under the Act. Id. This judicially created "condominium" defense for the developer recognizes the right of the developer to determine the components of the "conversion project" and therefore the physical components of a multi-residential building to be conveyed to the cooperative upon conversion. Thus, if the developer can determine whether or not a parking garage is included in the "conversion project" in the first instance, the developer can determine how many units are included within the "conversion project." [8] Here, the Sponsor's Offering Plan at the time of conversion included 137 units as the "conversion project" designed by the Sponsor and that should end the matter.

POINT II

NEITHER THE LOMANTOS NOR THE
IWANCZUKS ARE SUCCESSORS TO THE SPONSOR

          The Act also clearly and unequivocably provides that the window period closes no later than the date on which the developer owns 25 per centum or less of the units in the conversion project." 15 U.S.C. § 3607(b)(2) (emphasis added). Since the Act does not specifically define what it means for the developer to "own" a unit, it must be assumed that Congress did not assign the term "owns" any special meaning and that therefore the term should be accorded is plain meaning. Cf West l4th St. Commercial Corp., 815 F.2d at 198. The plain meaning of the word "own" could not be more clear. It simply refers to those units the developer actually owns.

          As there is, and can be no, claim that the Sponsor has any record, beneficial or other ownership of the Lomanto or the Iwanczuk Units, those Units cannot be attributed to the Sponsor for purposes of calculating the Sponsor's ownership of Units under § 3607(b)(2). See Darnet II, 214 F.3d at 84-85.

          In an attempt to escape the obvious, the Co-op nonetheless seeks to attribute the Lomanto and Iwanczuk Units to the Sponsor by contending the Lomantos and the Iwanczuks hold their units as "unsold shares" under New York law regulating unit owner privileges and, by that characterization alone. that they are "successors" to the Sponsor with respect to those units for purposes of the Act. Schreiber Aff., Ex. 2 at ¶¶ 49-36. As shown below, the Co-op's position is frivolous.

A.     "Holders of Unsold Shares" Are Not Per Se Successors of the Developer

          The Co-op first argues that the Lomantos and the Iwanczuks are "successors" of the Sponsor because they are allegedly "holders of unsold shares." This argument completely disregards both the plain meaning of the term "developer" under the Act and courts' interpretation of the meaning of that term.

          Under the Act, the statutory definition of the term "developer" includes one who is (a) a "successor" to a developer and (b) ';who [both] offers to sell or sells his interests in [the] units . . . and who has the authority to exercise special developer control in the project, including the right to: add, convert, or withdraw real estate from the cooperative project . . ., and maintain sales offices, management offices and rental units; exercise easements through common elements for the purpose of making improvements within the cooperative or condominium; or exercise control of the owners' "association." 15 U.S.C. § 3603(14). While the term "successor" itself is undefined by the Act, see 305 E. 40th Garage Corp v 305 E. Owners Corp, 833 F. Supp. 991, 995 (S.D.N.Y. 1993); 136 E. 56th St. Owners, Inc., 1999 WL 47328 at *6, the meaning of the term cannot be divorced from the context in which it is used in the definition of "developer."

          Taking cognizance of the manner in which the term "successor " is qualified in § 3603(14)'s definition of the term "developer," the Second Circuit has recently defined "successor" to mean "a party who not merely succeeds the original developer in time, but who also can be expected to succeed the original developer in interest pertaining to the self-dealing contract at issue." Darnet II 214 F.3d at 85.

          In judicially defining the term "successor" in this manner, the Second Circuit rejected a developer's argument that the window period never opened because another entity had purchased the developer s shares in the cooperative and therefore the developer's interest never fell below 25%. Id. at 84. Adopting the district court's reasoning, the court noted that, if "a party can neither be said to be controlled by the original developer or be the original developer's alter ego, nor be expected for any other reason to share the original developer's interest in the self-dealing lease, the purpose of the statute is not furthered by a continued tolling of the two year window." Id. at 85.

          Thus, for either the Lomantos or the Iwanczuks to qualify as "successors" to the Sponsor, they must be either controlled by the Sponsor and/or share its interest in perpetuating the Garage Portion. Id. Neither of these criteria is met here.

          ·     First, neither the Lomantos nor the Iwanczuks are controlled by the developer. See Stip., ¶¶ 11, 12. In fact, the only connection the Lomantos have with the Sponsor is that Shirley Lomanto is an employee of Kenneth B. Newman, P.C., a separate and distinct business from the Sponsor, a law firm owned and operated Kenneth B. Newman, the liquidating partner of the Sponsor. Stip., ¶ 11. Mr. Lomanto is not asserted to have any connection to the Sponsor. Even more tenuous is the connection between the Iwanczuks and the Sponsor. Ms. Iwanczuk was formerly employed by the landlord of Kenneth B. Newman, P.C., the law firm of Blumenthal & Lynne, a Professional Corporation, and has not been fully employed by that firm since November 1, 1999. Stip., ¶ 12. Mr. Iwanczuk is not asserted to have any connection to the Sponsor. These owners are neither controlled by the Sponsor nor are its alter ego. Cf: 305 E 40th Garage Corp, 833 F Supp. at 995 (fmding two individuals who purchased all of the unsold shares from the developer to be successors of the developer).

          ·     Second, neither the Lomantos nor the Iwanczuks have any interest in perpetuating the Garage Portion. They are not signatories to the Master Lease nor do they derive any benefits from it. See Stip., Ex. C. Absent any unity of interest between the Sponsor and either the Lomantos or the Iwanczuks in the Garage Portion, there cannot be a finding that these individuals are successors of the Sponsor under the Act. Darnet II, 214 F.3d at 85. [9]

          In all events, neither the Lomantos nor the Iwanczuks are "holders of unsold shares" under New York law.

          Under New York law, the designation "holders of unsold shares" has a limited purpose unrelated to the purposes of the Act or to the particular issues relating the units relevant to the calculation of the Sponsor's ownership percentage under the Act. "Holders of unsold shares" are exempt from certain cooperative and condominium regulations requiring unit owners, for example, to obtain approval of the board of directors for subleases (an exemption desired by unit holders holding their units principally for investment) or from board-imposed "flip taxes" when the unit owner sells his or her unit. See, e.g. Pacella v. 107 W 25th St. Corp, 271 A.D.2d 342 (1st Dep't 2000) (finding that shareholder required cooperative corporation's consent to sublet apartments because he was not a holder of unsold shares).

          Under New York law, to be considered a holder of unsold shares the holder must meet certain specific requirements. 13 N.Y.C.R.R. § 18.3(w). Among these requirements, are (a) designation as such by the developer; (b) registration as a broker-dealer; and (c) an amendment of the plan to provide information including their relationship to the developer and any other property in a cooperative or condominium offered for sale by them within the past five years. 13 N.Y.C.R.R. § 18.3(w)(1, 10, 11).

          New York courts have required strict compliance with these requirements. See Pacella, 271 A.D.2d at 342-43; Gorbatov v. Gardens 75th St. Owners Corp., 247 A.D.2d 440, 441 (2d Dep't 1998). These requirements have not been met in this case. See Newman Aff., ¶¶ 3, 4. [10] Thus, as a matter of law, there can be no finding that the Lomantos or the Iwanzcuks are "holders of unsold shares." Pacella, 271 A.D.2d at 342-43.

          For the foregoing reasons, plaintiffs motion for summary judgment should be granted in terms requested by the Sponsor.

Dated:  New York, NY
           March 15, 2001

PROSKAUER ROSE LLP

Dale A. Schreiber (DS-9211)
Allison B. Feld (AF-9464)

1585 Broadway
New York, NY 10036
(212) 969-3000
Attorneys for Plaintiff

     [1]     This motion is supported by a Stipulation of Undisputed Facts dated March 15, 2001 ("Stip."), which sets forth the material facts supporting the present motion, the affidavit of Kenneth B. Newman, sworn to March 12, 2001 ("Newman Aff."), which supplements the Stipulation of Undisputed Facts and the affidavit of Dale A. Schreiber, sworn to March 14, 2001 ("Schreiber Aff."), which sets forth the procedural history of this action.

     [2]     The Co-op has modified the position pleaded in its counterclaim and now contends that the only relevant Units are those for which the intervening walls have either been fully or partially removed and have retained only one kitchen. See Stip., 11 10, Ex. G. By this position, the Co-op has excluded Units that became accessible to each other by the addition of a door between the Units and/or have maintained more than one kitchen. Id. at Ex. G.

     [3]     Generally, cooperatives apportion operating and other expenses, mortgage payments, and real estate taxes to unit owners on the basis of the owner's respective shareholdings. Thus, the issuance of additional Related Shares to owners of Units incorporating hall space reflects the increase in such Unit owner's relative responsibility for such expenses.

     [4]     By a case management order dated January 12, 2001, the Court gave the Sponsor leave to file the present motion. .See Schreiber Aff., ¶ 6, Ex. 5.

     [5]     The Sponsor reserves its right to pursue its claim that the Notice was ineffective on the grounds that the window period actually opened in July 1988, when an independent board of directors for the Co-op was first elected and when the Sponsor asserts that it relinquished special "developer control," as that term is defined at 15 U.S.C. § 3603(22). If this contention is sustained, the window period closed no later than July 1990. See 15 U.S.C. § 3607(b).

     The case management order allows the Co-op to make a cross-motion for summary judgment on its counterclaim that the Notice is effective. If the Co-op does so, the Co-op will bear the burden of establishing, as a matter of law, the alleged powers granted to the Sponsor in the Co-op's Proprietary Lease and By-laws constitute "special developer control" and that, if so, such powers did not expire by operation of law.

     The Sponsor further reserves its right to show that the particular parking garage is primarily a public facility, rather than one that primarily serves the Unit owners, and therefore is not the type of facility, a lease of which is, subject to termination under § 3607(a) of the Act. This issue requires a factual record that addresses, among other things, the extent to which the Unit owners own and use motor vehicles and the history of their actual use of the Garage. The Sponsor believes some formal discovery is necessary on this issue.

     The Sponsor further reserves its right to contest the effectiveness of the June 27, 2000 vote.

     [6]     The Sponsor disagrees that the window period opened on this date based upon the contentions in the Co-op's counterclaim and in the Stipulation of Undisputed Facts and therefore reserves all of its contentions in this regard for the appropriate time.

     [7]     The Sponsor believes that the Co-op intends to argue that the only relevant alterations are those alleged combinations of Units for which New York City Building Code requires an amendment to the Building's Certificate of Occupancy. However, this proposed test still begs the question as to whether the total number of units in a conversion project can be adjusted post-conversion for the purposes of determining the when the window period opens and closes. Accepting the Co-op's position would require this Court to adopt a standard that combinations or divisions of units must comply with state and local law in order to reduce or increase the total number of units. Such a standard, however, would subject interpretation of the Act to the vagaries of state law, which have far different purposes from the Act's. Such arguments have been rejected by the Second Circuit in other, but relevant, contexts. See Cromwell Assocs., 941 F.2d at 111 (holding that "local zoning law is irrelevant [to the application of the Act] because Congress clearly intended to promulgate a uniform standard for use in evaluating terminations of contracts and leases under the Act."); see also Coliseum Park Apartments Co., 742 F. Supp. at 132 (refusing to apply New York State law to interpret who is a "party" to a lease because the "applicability of § 3607 should not vary with the laws of contract and real property in the different states.")

     [8]     The rationale of Board of Managers as applied to the present issue is illuminated by the Act's definition of "cooperative unit" which states, in part, that a cooperative unit includes that which is "specified in the cooperative documents." See 15 U.S.C. § 3603(12).

     [9]     The Co-op has not argued that the Lomantos and the Iwanczuks are "affiliates" of the Sponsor and that therefore these two Units must be considered owned by the Sponsor for the purpose of calculating the 25% threshold. If pursued, any such argument would be unavailing.

First, there is no support, in either the Act itself or in the case law, that the Act allows the aggregation of the ownership of the Sponsor and its "affiliates" for purpose of the 25% calculation. Insofar as § 3607(b)(2) states that the window period opens no later than the date when "the developer owns 25 per centum or less of the units in the conversion project. . ., " § 3607(b)(2) does not permit any such aggregation. (emphasis added). Moreover, the fact that the term "affiliate of a developer" appears in various other provisions of the Act (such as §§ 3607(a) (2), (a)(4) and (c)) and is noticeably absent from § 3607(b)(2) reinforces this plain meaning. Cf. New York v. Exxon Corp, 697 F. Supp. 677, 685-86 (S.D.N.Y. 1998) ("[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.")

Second, even if the Act did aggregate affiliates' units with the Sponsor's units, neither the Lomantos nor the Iwanczuks are "affiliates" of the Sponsor as the Act defines that term. An "affiliate of a developer" includes any one who is "controlled by a developer" such that the developer either "(i) is the general partner, officer, director or employer of the person, (ii) owns, controls or holds with power to vote. . . more than 20 per centum of the voting interests of the person, (iii) controls in any manner the election of a majority of the directors or (iv) has contributed more than 20 per centum of the capital of the person." 15 U.S.C. § 3603(1). Neither the Lomantos' nor the Iwanczuks' relationships with the Sponsor comes close to complying with this definition.

     [10]     Despite publicly available records to the contrary, the Co-op is unwilling to concede that neither the Sponsor, the Iwanczuks nor the Lomantos have fully complied with 13 N.Y.C.R.R. § 18.3(w). Thus, the Sponsor has placed this information in the record through Mr. Kenneth B. Newman's Affidavit.

Copyright © 2010
350 Bleecker Street Apartment Corp.
All rights reserved.