FRIEDMAN, KRAUSS & ZLOTOLOW
Robert N. Fass (RF-9146)
888 Seventh Avenue
New York, New York 10106-0299
(212) 247-5990
Attorneys for Defendant

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

PRELIMINARY STATEMENT

This action raises the question of whether a self-dealing lease between Plaintiff, Bleecker Charles Company (the "Sponsor") and Defendant, 350 Bleecker Street Apartment Corporation (the "Cooperative") for a parking garage (the "Garage") was properly terminated pursuant to the Federal Condominium and Cooperative Conversion Protection and Abuse Relief Act, 15 U.S.C. §§ 3601 et. seq. (the "Abuse Relief Act"). The Plaintiff, and Additional Counterclaim Defendant Bleecker Parking Corp. the "Garage Operator"), seek a declaration that it was not. In response the Cooperative has brought a counterclaim against the Sponsor and the Garage Operator, the sublessor of the Garage space in the Cooperative, for a judgment, inter alia, declaring that the termination was valid and awarding it possession of the Garage.

The Cooperative now cross-moves for partial summary judgment on the issues of whether the Garage portion of the Master Lease was properly terminated, and whether it is entitled to immediate possession of the Garage premises. It is respectfully submitted that no triable issue of fact exists in this regard because, as a matter of law, all requirements of the Abuse Relief Act have been satisfied.

STATEMENT OF FACTS

A.     The Formation of the Cooperative

The facts relating to the initial formation of the Cooperative are not in dispute. The Sponsor converted the Premises to cooperative ownership pursuant to an offering plan dated December 31, 1984, filed with the New York State Department of Law. (the "Plan"). The Plan was declared effective by the New York State Department of Law on April 5, 1985. Title to the Premises was transferred to the Cooperative at a closing held on or about July 31, 1985 (the "Closing"). (Stip. ¶¶ 1, 2 and 3)

B.     The Master Commercial Lease

At the Closing, the Sponsor also caused the Cooperative to enter into the Master Lease between those two parties. The Master Lease covered the two ground floor commercial spaces and the Garage. The term of the Master Lease was 75 years. (Stip. Exhibit C)

C.     The Combination of Cooperative Apartment Units

At the time of the Closing, in addition to the Garage and the commercial space, the Premises contained 138 residential apartments, 137 of which were "cooperative units" as that term is defined in 15 U.S.C. § 3603(12). The remaining apartment, as to which no shares or proprietary lease were issued, was reserved for use by the building superintendent and is not a "cooperative unit." Stip. ¶ 3.

Subsequently, several persons purchased multiple units and combined them into single apartments. In each case the combination was approved by the Cooperative’s Board of Directors as expressly authorized by Article 5, Section 4 of the Cooperative’s By-laws ("Regrouping of Space"). (Affidavit of Mark Lilien, the "Lilien Aff." Exhibit A ) That Article of the By-laws, drafted by the Sponsor, provides in relevant part that the Cooperative’s Board of Directors, upon request of one or more cooperative unit owners: "may in its discretion at any time, permit such owner or owners . . . (1) to subdivide any apartment into two or more apartments: (2) to combined [sic] all or any portions of any such apartments into one or any desired number of apartments; . . ."

These combinations reduced the number of legal dwelling units from 138 to 129, of which 128 were cooperative units. The dates of these combinations have been stipulated to by the parties (Stip., Exhibit G , pp. 2-3).

A reduction of three dwelling units is reflected on the Cooperative’s Certificate of Occupancy. (Stip. Exhibit H). The remaining combinations, however, did not require changes to the Certificate of Occupancy. Effective November 27, 1968, The New York City Charter was amended by Local Law 77 to eliminate the requirement for an amendment of the Certificate of Occupancy when apartments were combined. Thereafter, combinations could be accomplished by the filing of a building application and a copy of the plans showing the alteration. See Department of Buildings, Departmental Memorandum dated February 24, 1969, copy attached to the Lilien Aff. as Exhibit B.) Each of the remaining combinations was accomplished under this new procedure.

In amendments to the Plan, the Sponsor has acknowledged that units in the Cooperative have been combined: "Originally the building contained 137 apartments but certain apartments have since been combined." (Exhibit A to the 17th Amendment to the Plan, Lilien Aff. Exhibit C)

As a result of these unit combinations, the Sponsor’s holdings were not reduced to 25 per centum or less of the units in cooperative until November 5, 1998, when, upon sale of unit 1E, the Sponsor owned 32 of the then existing 130 cooperative units.

D.     The Holders of Unsold Shares

Holders of "Unsold Shares" is a term of art used to designate persons, including the Sponsor, who are holding their units for investment, rather than occupancy. Customarily, and as in this case, the holders of Unsold Shares are successors to the rights and powers of the Sponsor under the Plan. (See generally the description of holders of "Unsold Shares" set forth in the Plan at p. 43, Lilien Aff, Exhibit D). For example, unlike other unit owners, the holders of Unsold Share are permitted to sublet or assign their units without the permission of the Cooperative’s Board of Directors, and are exempt from the payment of sublet or assignment fees. (Cooperative Proprietary Lease at ¶ 38(b), Lilien Aff. E) Moreover, the financial obligations of the holders of Unsold Shares are guaranteed by the Sponsor. (See Plan p.43, Lilien Aff. Exhibit D).

E.     The Sponsor’s Designation of Holders of Unsold Shares

Applicable New York State law and regulation require that all holders of Unsold Shares be designated as such by the Sponsor. As stipulated by the parties, the owners of two units were so designated here. On or about December 1, 1988 the owners of unit 2L, Shirley and Anthony Lomanto were "designated a purchaser and holder of unsold shares" by Kenneth B. Newman, acting on behalf of the Sponsor. On or about July 31, 1985, the owner of unit 6A, Kathleen Giannetti, now known as Kathleen Iwanczuk, was similarly designated by Kenneth B. Newman, acting on behalf of the Sponsor. (Stip ¶¶ 11, 12, Exhibits I and J).

In or about January 2000, the law firm of Schechter & Brucker, P.C. who was then assuming the duties of corporate transfer agent, inquired of the Sponsor concerning the current status of the owners of apartments 2L and 6A. The inquiry was made because the corporate records obtained by the Schecter firm indicated that these owners had not been paying sublet fees. (Lilien Aff., ¶ 7). In response, by letter dated January 21, 2000 (Lilien Aff., Exhibit F), Kenneth B. Newman confirmed in no uncertain terms that the owners of both units had been designated as holders of Unsold Shares, who were exempt from such fees:

Neither the Lomantos nor Ms. Giannetti were strangers to the Sponsor. From the time that the Lomantos purchased their unit, Shirley Lomanto was employed by Kenneth B. Newman, P.C. whose sole principal is Kenneth B. Newman. Mr. Newman is the liquidating partner of the Sponsor. (Stip ¶ 11). Mr. Newman is the "sole Managing Partner of Bleecker Charles Company. . . . He is an attorney admitted to the Bar of the State of New York, and represents the Sponsor as counsel [with respect to the Plan] and other matters. . . . The Selling Agent, Kenneth B. Newman Realty Corp., a domestic corporation, is controlled by Kenneth B. Newman." (Plan, p. 69, "Identity of the Parties," Lilien Aff. Exhibit D) Kenneth B. Newman Realty Corp., also acted as the Cooperative’s managing agent. (Plan, p. 67, "Identity of the Parties," Lilien Aff. Exhibit D) Mr. Newman was also past a member of the Cooperative’s Board of Directors and was its President. (Lilien Aff. ¶ 8) All of Mr. Newman’s entities operated from a single office – the same office in which Ms. Lomanto is employed. (Lilien Aff. ¶ 8)

Ms. Iwanczuk, nee Giannetti, was, from November 1, 1969 to November 1, 1999, a full time employee of the law firm of Blumenthal & Lynne. Blumenthal & Lynne is the landlord for Mr. Newman’s entities. Blumenthal & Lynne was the Sponsor’s counsel in connection with the Plan. (Stip. ¶ 12) "Blumenthal & Lynne . . . represents the Sponsor in this matter and has prepared the Plan and related documents. (Plan, p. 69, "Identity of the Parties," Lilien Aff. Exhibit D)

Both Ms. Lomanto and Ms. Iwanczuk, nee Giannetti, assisted Mr. Newman in a clerical capacity with his administration of the Cooperative and the Plan. For example Ms. Iwanczuk, nee Giannetti, notarized the Sponsor’s certification of compliance with the provisions of Article 23-A of the General Business Law. (Lilien Aff. Exhibit G) Both Ms. Lomanto and Ms. Iwanczuk would, on occasion be the persons who mailed notices of cooperative shareholder meetings. Both would, on occasion, notarize the affidavits of service for such notices. (See Lilien Aff. Exhibit H)

In sum, both Ms. Lomanto and Ms. Iwanczuk, nee Giannetti, were loyal employees of entities closely related to the Sponsor, whose livelihood depended on the good will of the Sponsor or the Sponsor’s law firm. They could reasonably be expected to support the Sponsor’s position in this matter, and in fact, they both did so by refusing to vote in favor of the termination of the Garage portion of the Master Lease.

F.     The Unsold Shareholder’s Control of the Cooperative

The Sponsor and the persons designated by the Sponsor were granted significant rights regarding control and direction of the Cooperative. These rights survived and were independent of the Sponsor’s control of the Cooperative’s Board of Directors. Theses powers include:

These powers are precisely those recognized by the Second Circuit as indicia of "special developer control" within the meaning of the Abuse Relief Act. See Point IV, below.

G.     The Vote to Terminate the Garage Portion of the Master Lease.

On June 1, 2000, the Board of Directors of the Cooperative sent a Notice to all shareholders of a meeting of unit owners to be held on June 27, 2000 to vote on the proposed termination of the Garage portion of the Master Lease. (Lilien Aff. ¶ 4)

Neither the Abuse Relief Act, nor the New York State Business Corporation Law required that notice be given to the Sponsor, who was not permitted to vote at the meeting. (See Point II, below) Nevertheless, despite the Sponsor’s statement to the contrary, a copy of the notice was sent to the Sponsor and to the other holders of Unsold Shares. (A contemporaneous record of the mailing of the

Notice was made by Board member Mark Lilien. (Lilien Aff. Exhibit I)

At the meeting held on June 27, 2000, the Garage Lease was terminated by a vote of owners of not less than two-thirds of the units other than the units owned by the developer or an affiliate of the developer. (Stip. ¶ 14) The termination became effective 90 days later on September 29, 2000. 15 U.S.C. § 3607(d).

The purpose of the Abuse Relief Act is well established:

181 East 73rd Street Co. v. 181 East 73rd Tenants Corp., 954 F.2d 45, 47 -8 (2d Cir. 1992).

The provision of the Abuse Relief Act relevant to the termination here is 15 U.S.C. § 3607(b) which provides in relevant part:

The Sponsor and the Garage Operator do not dispute that the Master Lease was entered into after October 8, 1980, is between such unit owners or such association and the developer and is for a period of more than three years. We turn then to the Abuse Relief Act’s remaining requirements.

POINT II

NOTICE TO THE SPONSOR OF THE MEETING AT
WHICH THE LEASE IS TERMINATED IS NOT REQUIRED

The Sponsor suggests that the June 27, 2000 vote to terminate the Master Lease was not effective because the Sponsor did not receive notice of the meeting at which the vote was taken. The evidence here is that the Notice was sent. This evidence gives rise to a presumption of receipt which may not be refuted by a mere denial of receipt. Mount Vernon Fire Ins. Co. v. East Side Renaissance Associates, 893 F. Supp. 242, 245-46 (S.D.N.Y. 1995) The Court need not address the issue, however, since the question is entirely irrelevant to the outcome. The law is well established that notice to the Sponsor is not required either under the Abuse Relief Act or the New York Business Corporation Law. As stated by this Court, Leisure, J in Coliseum Park Apartments Co. v. Coliseum Tenants Corp., 742 F. Supp. 128, 130-31 (S.D.N.Y. 1990):

(Emphasis added.)

The same result was reached in the two New York State cases that have examined the issue. In Talia Management Co. v. 1360 Ocean Parkway Owners Corp., 10/3/94 NYLJ 30, (col. 3) (Sup. Ct. Kings Co.) the Court held:

Similarly, in Talia Management Co. v. 200 Corbin Owners Corp., 12/13/95 NYLJ 29, (col. 1) (Sup. Ct. Kings Co. 1995):     

(Emphasis added.)

Simply put, the cases are uniform that Notice to the Sponsor, who is not permitted to take part in the proceedings, is not required.

The Sponsor also suggests that there is an issue of fact as to whether the Garage is "property serving the . . . cooperative unit owners" as required by 15 U.S.C. § 3607(a)(1) because the Garage is open to the public, and does not rent a majority of spaces to the unit owners. This argument has been expressly rejected by the Second Circuit:

Darnet Realty Associates LLC v. 136 East 56th Street Owners, Inc., 214 F.3d 79, 85-86 (2d Cir. 2000).

SPECIAL DEVELOPER CONTROL CONTINUED DESPITE
THE SPONSOR’S LOSS OF CONTROL OF THE COOPERATIVE BOARD

The Sponsor also suggests that the window period of Section 3607(b) opened in July 1988 when an independent board of directors was first elected. Again, the Sponsor’s argument has been rejected by the Second Circuit.     

Darnet Realty Associates LLC v. 136 East 56th Street Owners, Inc. 214 F.3d 79, 83 (2d Cir. 2000); see also, Darnet Realty Assocs., LLC v. 136 East 56th St. Owners, Inc., 153 F.3d 21, 27 (2d Cir.1998).

Additional authority that special developer control is not limited to voting control of the Board of Directors is found in the Southern District’s decision in Coliseum Park Apartments Co. v. Coliseum Tenants Corp., 742 F. Supp. 128, 136 (S.D.N.Y. 1990):

(Emphasis added.)

As discussed supra at page 7, the powers reserved to the Sponsor and other holders of Unsold Shares include veto power over amendments to the by-laws, hiring of employees and expenditures of the Cooperative. These powers, which allowed the Sponsor to "exercise substantial control over the business affairs of the Association," are nearly identical to those found to constitute "special developer control" in Darnet and Coliseum Park. Therefore, the Sponsor’s argument that special developer ended when it lost control of the board must be rejected.

POINT V

THE TERMINATION OF THE GARAGE PORTION OF THE MASTER
LEASE OCCURRED WITHIN THE TWO YEAR WINDOW OF 15 U.S.C. § 3607(b)

The Sponsor contends that the termination of the Garage portion of the Master Lease was not timely because it did not occur within the two year window allowed by 15 U.S.C. § 3607(b). In particular, the Sponsor contends that the window closed on October 16, 1999, two years after the date its holdings were reduced to 25 per centum or less of the units in the "conversion project." In making this argument, the Sponsor contends that it is entitled to count all units that originally existed on the date the Cooperative was created, even though some of these units no longer exist. The Sponsor contends that this must be done because the Abuse Relief Act fixes the unit count as of the date the Premises were first converted to cooperative ownership.

The Sponsor’s argument is flawed in two respects. First, the Sponsor’s contention that the unit count is fixed as of the date of the creation of the Cooperative is without support either in the language of the Abuse Relief Act or the policies underlying the Act. (Stip. ¶ 10, Exhibit G). Second, the Sponsor ignores the fact that the count of units toward the 25 percent limit includes units owned by all "developers." 15 U.S.C. § 3607(b)(2). Under the facts here, the term "developers" includes not only the Sponsor, but also those persons who, in the Sponsor’s own words, were "designated as successors to the sponsor’s unsold shareholder status." (Lilien Aff. Exhibit F)

A. The Number of Units Counted Toward the Developers’ Percentage Must Be the Actual Number of Units Existing During the Period of the Developer’s Control of the Conversion Project

Section 3607(b)(2) provides that any termination may occur only during the two-year period beginning on the date on which:

(Emphasis added.)

As we have shown above in Point IV the developers’ powers of "special developer control" were ongoing. The trigger for the two year window will, therefore, be determined by the date on which the developers owned "25 per centum or less of the units in the conversion project." 15 U.S.C. § 3607(b)(2).

We are in agreement with the Sponsor’s proposition that the above language must be interpreted in accordance with its terms and Congress’s intent so as to effectuate the purpose of the Act to prevent Sponsor abuses. Penny Lane Owners Corp. v. Contour Development Co., Ltd., 2000 WL 178189, 6 (S.D.N.Y.). The interpretation proposed by the Sponsor, however, does violence to both the policies and language of the statute. First, the proposition that the sponsor is entitled to count units that have been extinguished through combinations is directly contrary to the policy that the two year termination window will not open until control of the Cooperative by the Sponsor has ended:

Darnet Realty Associates, LLC v. 136 East 56th Street Owners, Inc., 153 F.3d 21, 25 (2d Cir. 1998) (emphasis added).

Continuing to count units that have been combined and, which therefore, no longer exist, is contrary to Abuse Relief Acts’ premise that practical control by the Sponsor will not end until 75 percent of the units have independent owners. Self-evidently, when units are combined, the number of unit owners present to oppose the Sponsor’s control decreases. By counting units that no longer exist when determining the Sponsor’s 25 per centum ownership, the Sponsor seeks to make it appear that its control is diminishing in like proportion when, in fact, it is not. Simply put, it makes no sense in policy terms to count phantom units that do not exist as though they still had separate owners opposed to the Sponsor’s "working control."

Fixing the count of units as of the date of conversion is also inconsistent with the voting provisions of the Abuse Relief Act. Section 3607(c) provides that the vote to terminate the Garage portion of the Master Lease: "shall be by a vote of owners of not less than two-thirds of the units other than the units owned by the developer or an affiliate of the developer." In other words, the vote is by owner on a "one owner one vote" basis, rather than on a percentage of interest basis. It is apparent that Congress intended that the owner of each unit would have an equal say in the termination regardless of the size of the unit or the number of shares allocated to the unit.

Fixing the count of units as of the date of the conversion directly undermines this one owner one vote concept. Under the Sponsor’s reasoning, the owner of a unit created from the combination of small units would have more than one vote. For example, an owner who created his apartment from three original units would have three votes, while his neighbors would have only one.

The situation would be even more abusive should any apartments be divided into smaller units. In that case, under the Sponsor’s scenario, owners of the new smaller units would be disenfranchised altogether because their units did not exist at the moment of conversion. It is inconceivable that Congress intended to single out such owners by excluding them from the protections of the Abuse Relief Act.

The express language of the Abuse Relief Act also is consistent with the concept that units are to be counted as they exist currently, subsequent to the date of conversion. In this regard, we begin with an analysis of the sections of the Abuse Relief Act primarily relied upon by the Sponsor, § 3603(7), which defines the term "conversion project," and § 3603(12), which defines the term "cooperative unit."

Section 3603(7) provides:

(Emphasis added.)     As the highlighted text indicates, Congress made distinct use of both present and past tense when drafting the section. This distinction was used advisedly in order to convey Congressional intent. The present tense – "has five or more residential units" – is the operative phrase that defines the number of units required for a "conversion project." Thus, by its clear terms, the number of units is to be determined currently, after the conversion takes place. There is no indication that the number of units is frozen in the past at the instant of the initial conversion. The indication is to the contrary.

The past tense – "was used primarily for residential rental purposes immediately prior to being converted"– has no relation to the number of units that must exist in a "conversion project." On the contrary, the purpose of this clause is to exclude from the reach of the statute properties that were not being for residential purposes when they were converted to condominium or cooperative ownership. See, e.g., Park East Apartments, Inc. v. 233 East 6th Street Corp., 143 Misc. 2d 60, 543 N.Y.S.2d 610 (App. Term 1st Dep’t 1989) (holding that a new cooperative building constructed on the site of an old vacant building was not at "conversion project").

Simply put, the use of the past tense in § 3603(7) refers not to the number of units in the conversion project, but to the use of the building at that time. In contrast, the use of the present tense when referring to the number of units is intended to reflect the fact that there were no units until after the conversion occurred.

The same conclusion follows from the language of § 3603(12) which provides:

As in § 3603(7), this section uses the present tense when referring to units. It also looks to the "cooperative documents" for the definition of a cooperative unit. Here, the cooperative documents expressly specify that the number of units can change after the initial conversion by combination or subdivision. Article 5, Section 4 of the Cooperative’s By-laws provides in relevant part that the Cooperative’s Board of Directors, upon request of one or more cooperative unit owners: "may in its discretion at any time, permit such owner or owners . . . (1) to subdivide any apartment into two or more apartments: (2) to combined [sic] all or any portions of any such apartments into one or any desired number of apartments;..." (Lilien Aff. Exhibit A) Thus, the language of § 3603(12) clearly contemplates that the number of units be determined as combined, after the conversion.

The language of § 3603(10), which defines "cooperative project" also supports the argument that the definition of units is not confined to units existing at the time of conversion. That section provides in relevant part:

Again the language referring to the number of units is in the present tense. In addition, the Section requires that units in a cooperative project be subject to separate use and possession. Obviously, once units are combined into a single dwelling unit, that is no longer the case. Thus, again, this section contemplates units existing currently, not units that may once have existed but which are now extinguished.

Therefore, the units to be counted in establishing the Sponsor’s percentage of unit ownership for purposes of determining when the two year window for termination opened are those existing subsequent to the date of conversion, taking into account any combinations or subdivisions. As shown at page 4 above, the occurred on November 5, 1998, when, upon sale of unit 1E, the Sponsor owned 32 of the then existing 130 cooperative units. Accordingly, the termination of the lease here which became effective on September 29, 2000 was timely.

B.     In Determining the Time That the Developers Held 25 per Centum or less of the Cooperative Units, the Units Owned by the Persons Designated as Holders of Unsold Shares Must Be Counted

The "25 per centum" trigger of § 3607(b)(2) refers to ownership not by the Sponsor alone but by all "developers." Section 3603(14) defines "developer" as follows:

It is respectfully submitted that under the facts here the unit owners designated as holders of "Unsold Shares" are "developers within the meaning of §3603(14)(B). As we have shown in Point IV above, holders of Unsold Shares possess the same powers of special developer control enjoyed by the Sponsor. As we will now show, the designated holders are also "successors" to the Sponsor as also required by §3603(14)(B).

Two cases have considered the issue of whether holders of Unsold Shares are to be consider "successors" within the meaning of the Act. Judge Lowe was the first to address the issue in 305 East 40th Garage Corp. v. 305 East 40th Owners Corp. 833 F. Supp. 991 (S.D.N.Y. 1993). Just as in the case here, the holders of Unsold Shares had been produced by the Sponsor, and the Sponsor had guaranteed their obligations. Judge Lowe also gave consideration whether the parties in question who could be expected to vote in favor of termination. "Indeed, the stranger should be expected to favor termination of a contract that robs the owners' association of the fullest exploitation of its assets." Id. at 994.

Influenced by these factors Judge Lowe gave a broad interpretation to the term "successor":

Six years later, in 136 East 56th Street Owners, Inc. v. Darnet Realty Associates, 1999 WL 47328 (S.D.N.Y.), Judge Sand was confronted with the same issue, but very different facts. In that case the holder of Unsold Shares had not been produced by the Sponsor, the Sponsor had not guaranteed the holder’s financial obligations, and the holder had, in fact, voted in favor of the garage lease termination. While he gave recognition to Judge Lowe’s reasoning (Id. at n. 11), Judge Sand concluded that the facts of the case mandated a more narrow test:

136 East 56th Street Owners, Inc. 1999 WL 47328 at 6-7 (emphasis added).

Id. (emphasis added). Judge Sand’s decision in this regard was affirmed by the Second Circuit "for the reasons given by the district court." Darnet Realty Associates LLC v. 136 East 56th Street Owners, Inc., 214 F.3d 79, 84 (2d Cir 2000).

Here, unlike the situation confronting Judge Sand, the holders of Unsold Shares are persons "who can be expected, by virtue of its relationship with the developer, to share the original developer's interest in maintaining the self-dealing lease." 136 East 56th Street Owners, Inc. 1999 WL 47328 at 6. The holders of Unsold Shares here were produced and designated by the Sponsor, their financial obligations were guaranteed by the sponsor. Both Ms. Iwanczuk and Ms. Lomanto were employees of the Sponsor’s managing partner or the Sponsor’s law firm. Under the circumstances, it could reasonably be expected that the holders would support the Sponsor’s position regarding the termination of the Garage portion of the Master Lease – and, in fact both Mr. and Ms. Iwanczuk and Mr. and Ms. Lomanto did not vote in favor of termination. In this way they acted against their own economic interests in order to retain solidarity with the Sponsor’s interests. This is precisely the situation to which the Abuse Relief Act was meant to apply.

To hold to the contrary would make it far too easy for Sponsor’s to avoid their obligations under the Abuse Relief Act by assigning units to friendly holders of Unsold Shares who will support the Sponsor’s control and vote against termination of any self-dealing lease. The Court’s have routinely rejected such Sponsor attempts to circumvent the Abuse Relief Act. See, e.g., Darnet Realty Associates LLC v. 136 East 56th Street Owners, Inc., 214 F.3d 79, 85-86 (2d Cir. 2000) (rejecting the Sponsor’s claim that opening the garage to the public destroys its status as property serving the cooperative unit owners); 2 Tudor City Place Associates v. 2 Tudor City Tenants Corp., 924 F.2d 1247 (2d Cir. 1990) and Penny Lane Owners Corp. v. Contour Development Co., Ltd., 2000 WL 178189 (S.D.N.Y.) (holding that Sponsor’s may not avoid their obligations under the Abuse Relief Act by assigning the garage lease to third parties).

Nor should the Sponsor and the holders of Unsold Shares by permitted to avoid the reach of the Abuse Relief Act by claiming that they lost their status as holders of Unsold Shares because of their own failure to register as broker dealers or file Plan amendments as required by Martin Act Regulations. Since the inception of their ownership, the Iwanczuks and the Lomantos exercised all the rights of holders of Unsold Shares. They have never, for example, sought permission of the Board to sublet. They never paid any sublet fees. As late as January 21, 200, the Sponsor reaffirmed their status as holders of Unsold Shares in writing. (Lilien Aff. Exhibit F). For the Sponsor to now claim that holders never should have so acted is ludicrous. It would be a policy disaster if holders of Unsold Shares could rely on their own violations of the Martin Act (Article 23-A of the General Business Law) – which is a consumer protection statute – to aid the Sponsor in circumventing the reach of a second consumer protection statute, The Abuse Relief Act. To state such a proposition is to reject it.

Therefore, the units to be counted in establishing the developers’ percentage (25% or less) of unit ownership for purposes of determining when the two year window for termination opened include the two units owned by the holders of Unsold Shares. Not taking into account the combined units, the window opened on November 5, 1998, when the developers owned 34 of the original existing 137 cooperative units. If one calculates the percentage with the combined units, the window opened on May 18, 2000, when the developers owned 32 of the then existing 128 units. In either case, the termination here, which became effective on September 29, 2000, was timely.

CONCLUSION

For the foregoing reasons it is respectfully requested that Plaintiff’s and Additional Counterclaim Defendant’s motion for summary judgment be denied, and that Defendant’s cross-motion for summary judgment be granted.

Dated: New York, New York
           May 18, 2001

Respectfully submitted,

FRIEDMAN, KRAUSS & ZLOTOLOW

By:_____________________________

Robert N. Fass (RF-9146)
888 Seventh Avenue
New York, New York 10106-0299
(212) 247-5990