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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

PLAINTIFF'S MEMORANDUM IN OPPOSITION TO
DEFENDANT'S CROSS-MOTION FOR SUMMARY
JUDGMENT AND IN FURTHER SUPPORT OF
ITS OWN MOTION FOR SUMMARY JUDGMENT

                               TABLE OF CONTENTS

                                                                       Page

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . .ii

I.   THE WINDOW OPENED NO LATER THAN
     OCTOBER 16, 1997 AND CLOSED NO LATER THAN
     OCTOBER 16, 1999, LONG BEFORE THE MOST
     RECENT VOTE TO TERMINATE THE GARAGE LEASE.  . . . . . . . . . . . . 7

     A.    The Act Defines the Number of Units in the Conversion Project
           In Terms of the Units Designated in the Sponsor's Offering
           Documents and That Number of Units Has Always Been 137  . . . 8

     B.    The Co-op's Position Relies Upon Irrelevant and
           Misread Defined Terrns in the Act . . . . . . . . . . . . . .11

     C.    The Voting Provisions of §3607(c) Do Not
           Support The Co-op's Reading of §3607(b)(2) . . . . . . . . . 16

     D.    The Co-op's Positions Contradict the Act's
           Express Mandates, Policies and Goals of the Act  . . . . . . 18

II.  NEITHER THE SINGLE UNIT OWNED BY THE LOMANTOS
     NOR THE IWANCZUKS IS ATTRIBUTABLE
     TO THE SPONSOR . . . . . . . . . . . . . . . . . . . . . . . . . . 21

III. SPECIAL DEVELOPER CONTROL TERMINATED
     IN OCTOBER 1987 WHEN AN INDEPENDENT
     BOARD WAS ELECTED . . . . . . . . . . . . . . . . . . . . . . . . .26

IV.  THE GARAGE DOES NOT PRIMARILY
     SERVE THE CO-OP'S UNIT OWNERS. . . . . . . . . . . . . . . . . . . 29

V.   THE SPONSOR IS ENTITLED TO TAKE
     DISCOVERY WITH RESPECT TO THE ACTUAL
     VOTE TAKEN AT THE JUNE 27, 2000 MEETING
     AND ON WHETHER THE MEETING WAS LEGALLY
     INEFFECTIVE FOR LACK OF PROPER NOTICE. . . . . . . . . . . . . . . 31

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34


                               TABLE OF AUTHORITIES

                                                                      Page(s)

                                     CASES

2 Tudor City Place Assocs. v. 2 Tudor City Tenants Corp.,
     924 F.2d 1247 (2d Cir.),
     cert. denied, 502 U.S .822 (1991) . . . . . . . . . . . . . . . . 29, 33

136 E. 56th St. Owners, Inc. v. Darnet Realty Assocs. LLC.
     1999 W L 47328 (S.D.N.Y.Feb.1,1999), aff'd sub nom
     Darnet Realty Assocs., LLC v. 136 E. 56th St. Owners, Inc.,
     214 F.3d 79(2d Cir.2000) . . . . . . . . . . . . . . . . . . . . .22, 23

305 E 40th Garage Corp. v. 305 E. Owners Corp.,
     833 F. Supp.991 (S.D.N.Y. 1993). . . . . . . . . . . . . . . .22, 23, 28

Barnan Assocs. v. 196 Owner 's Corp.,
     797 F.Supp.303(S.D.N.Y. 1992) . . . . . . . . . . . . . . . . . . . . 27

Block v. Magee,
     146 A.D.2d 730 (2d Dep't 1989). . . . . . . . . . . . . . . . . . . . 32

Board of Managers v. Infinity Corp.,
     21 F.3d 528(2d Cir.1994). . . . . . . . . . . . . . . . . . . . . . . 11

Coliseum Park Apartments Co. v Coliseum Tenants Corp.,
     742 F.Supp.128 (S.D.N.Y.1990) . . . . . . . . . . . . . . . . . . . . 28

Cromwell Assocs. v. Oliver Cromwell Owners, Inc.,
     941 F.2d 107(2d Cir.1991) 
     cert. denied, 502 U.S.822(1991). . . . . . . . . . . . . . . . .  29, 30

Darnet Realty Assocs., LLC v. 136 E. 56th St. Owners, Inc.,
     153 F.3d 21 (2d Cir.1998) . . . . . . . . . . . . . . . . 26, 28, 30, 31

Darnet Realty Assocs., LLC v. 136 E. 56th St. Owners, Inc.,
     214 F.3d 79 (2d Cir. 2000)  . . . . . . . . . . . . . . . 22, 23, 26, 29

Dinicu v. Groff Studios Corp.,
     257 A.D.2d 218 (1st Dep't 1999) . . . . . . . . . . . . . . . . . . .  9

Goldfield Corp. v. General Host Corp.,
     29 N.Y.2d 264 (1971). . . . . . . . . . . . . . . . . . . . . . . . . 32

In re J.A. Maurer, Inc.,
     77 N.Y.S.2d 159 (Sup. Ct. Queens Co. 1947). . . . . . . . . . . . . . 33

Levandusky v. One Fifth Ave. Apt. Corp.,
     75 N.Y.2d 530 (1990). . . . . . . . . . . . . . . . . . . . . . . . .  9

Park E. Apts., Inc. v. 233 E. 86th St. Corp.,
     529 N.Y.S.2d 674 (Civ. Ct. N.Y. Co. 1988),
     aff'd, 543 N.Y.S.2d 610 (1st Dep't 1989). . . . . . . . . . . . . . . 20
 
Park S. Tenants Corp. v. 200 Central Park Assocs. LP,
     748 F. Supp. 208 (S.D.N.Y. 1990),
     aff'd per curiam, 941 F.2d 112 (2d Cir. 1991) . . . . . . . . . . . . 28
 
Rego Park Gardens Assoc. v. Rego Park Gardens Owners, Inc.
     570 N.Y.S.2d 550 (2d Dep't 1991). . . . . . . . . . . . . . . . . . . 32
 
Wapnick v. Seven Park Ave. Corp.,
     658 N.Y.S.2d 604 (1st Dep't 1997) . . . . . . . . . . . . . . . . . 32
 
West 14 St. Commercial Corp. v. 5 W. 14th St. Owners Corp.,
     815 F.2d 188 (2d Cir.),
     cert. denied,  484 U.S. 850
     and 484 U.S. 871 (1987) . . . . . . . . . . . . . . . . . . . . . . . 29
 


                        STATUTES AND OTHER AUTHORITIES

15 U.S.C. § 3603(5). . . . . . . . . . . . . . . . . . . . . . . . . . 14, 15

15 U.S.C.§ 3603(7) . . . . . . . . . . . . . . . . . . . . . . 12, 13, 14, 15

15 U.S.C.§ 3603(10). . . . . . . . . . . . . . . . . . . . . . . . 12, 14, 15

15 U.S.C.§ 3603(12). . . . . . . . . . . . . . . . . . . . . . . .3, 5, 8, 15

15 U.S.C.§ 3603(14). . . . . . . . . . . . . . . . . . . . 11, 22, 23, 24, 25

15 U.S.C.§ 3603(14)(8) . . . . . . . . . . . . . . . . . . . . . . . . . .  6

15 U.S.C.§ 3607(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 29

15 U.S.C.§ 3607(b) . . . . . . . . . . . . . . . . . . .2, 16, 19, 21, 24, 26

15 U.S.C.§ 3607(b)(2). . . . . . . . . . . . . . . . 3, 7, 12, 13, 15, 16, 21

15 U.S.C.§3607(c). . . . . . . . . . . . . . . . . . . . . 16, 17, 31, 32, 33

15 U.S.C.§ 3607(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

H.R. Conf. Rep. 96-1420. . . . . . . . . . . . . . . . . . . . . . . . . . 15

S. Rep. No. 96-736, reprinted in 1980 U.S.C.C.A.N. 3506. . . . . . . . . . 15

New York Business Corporation Law § 605(a) (McKinney's 2000) . . . . . 31, 32

New York Business Corporation Law § 606 (McKinney's 2000). . . . . . . . . 32

N.Y.C.C.R. § 18.3(h)(3). . . . . . . . . . . . . . . . . . . . . . . . . . 11

New York Multiple Dwelling Law § 60(1)(b). . . . . . . . . . . . . . . . . 29

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

PLAINTIFF'S MEMORANDUM IN OPPOSITION TO
DEFENDANT'S CROSS-MOTION FOR SUMMARY
JUDGMENT AND IN FURTHER SUPPORT OF
ITS OWN MOTION FOR SUMMARY JUDGMENT

          Plaintiff Bleecker Charles Company ("the Sponsor") submits this memorandum (a) in further support (by way of reply) of its motion for summary judgment declaring void and unenforceable the July 19, 2000 notice ("the Notice") from defendant 350 Bleecker Street Apartment Corporation ("the Co-op") purporting to terminate that portion ("the Garage Lease") of an Agreement of Lease dated July 31, 1985 ("the Master Lease") for the public parking garage ("the Garage") located at 350 Bleecker Street in Manhattan ("the Property") under the Condominium and Cooperative Conversion Protection and Abuse Relief Act, 15 U.S.C. §§3601-3616 ("the Act") and granting corollary relief, and (b) in opposition to the Co-op's cross-motion for summary judgment declaring the Notice effective under the Act and granting corollary relief. [1]

          Under §3607(b) of the Act, the effective date of the Notice would be October 18, 2000, 90 days after the Notice was mailed to the Sponsor on July 19, 2000. See Stipulation of Undisputed Facts dated March 15, 2001 ("Stip."), ¶15. In claiming that the effective date would be September 29, 2000, the Co-op is simply misreading §3607(b). See Defendant's Memorandum, dated May 18, 2001 ("Def. Mem.") at 8, 20 and 25.

          In either case, the Notice was too late. If terminable under the Act, the Garage Lease was terminable only during the two-year window period established by §3607(b) of the Act. The Sponsor has shown that this statutory window period opened no later than October 16, 1997, when the Sponsor's ownership of units in the Property crossed §3607(b)'s 25% threshold. On that date, the Sponsor owned 34 of the 137 residential units in the Property or 24.8% of such units. See Plaintiff's Memorandum in Support of Its Motion for Summary Judgment, dated March 15, 2001(" Pl. Mem.") at 15-20.

          In fact, on June 24, 1999, within the two-year window - and on written notice to the Sponsor - the Co-op held a meeting, had an open discussion, and voted not to terminate the Garage Lease. The window period then closed about four months later on October 16, 1999, two years after it had opened.

          It was not until June 2000 that the Co-op's board of directors ("the Board") decided to hold another meeting, decided not to send the required written notice to the Sponsor, decided to solicit proxies in advance of any discussion at the meeting, and, not surprisingly, claimed to have obtained the requisite number of votes to terminate (while refusing to allow the Sponsor to inspect the ballots or proxies).

          But, as shown in our moving brief (Pl. Mem. at 15-20) and below, that vote was not only improper, it was too late under the terms of the very statute that created the right to terminate. Section 3607(b) of the Act speaks in terms of the number of "units in the conversion project" for determining when the 25% ownership threshold has been crossed. The "conversion project" refers to the Property; there is no dispute about that. The term "units" is defined, for cooperatives, in §3603(12) by reference to the "unit . . . as specified in the cooperative documents." There is also no dispute that the only number of cooperative units that has been designated in the cooperative documents since conversion of the Property to cooperative ownership in 1985 is 137.

          Ignoring both the definition of "cooperative unit" and the policy reasons supporting the Sponsor's plain reading of §3607(b)(2), the Co-op now argues that the number of "units" in the denominator of the fraction for calculating §3607(b)(2)'s 25% threshold may be something other than those units "specified in the cooperative documents." The Co-op's latest theory is that each Board approval of a physical combination or division of units requires a change in the denominator of that fraction and that therefore the window period was deferred from October 16, 1997 to November 5, 1998, by which point, according to the Co-op, the number of units to be included in the denominator was reduced from 137 to 130 units (Def. Mem. at 4, 20). The Co-op's contention (Def. Mem. at 16-20) that the number of units rises and falls for this statutory purpose introduces an ever-changing variable not supported by the Act's language and is rife with practical and policy difficulties. (See below at 18-21;see also Pl. Mem. at 17-20.)

          In Point I(A) below (at 8-11), the Sponsor shows that, through the defined term "cooperative unit," the Act defines the "units in the conversion project" in terms of the units actually designated by the Sponsor in its cooperative documents and recognizes the Sponsor's right to control the number of units by the definition of "developer." Moreover, even if the unit owners had the right to change the number of units, which they do not, the Sponsor will show (at 8-9) that the number of units in the conversion project has always been 137. The Sponsor's offering plan, as amended, has always so provided, and the unit owners' ownership documents - their proprietary leases ("Proprietary Leases") and related share certificates ("Related Shares") - have always designated the original 137 units as the only units in the conversion project, even after unit owners have physically combined contiguous apartments.

          Furthermore, it is highly unlikely that the owners who combined apartments or those who may have purchased them would agree to change the number of units in the cooperative documents. Such changes would adversely affect their rights to retain, refinance or resell their units. These financial considerations of the unit owners were never disclosed to those voting at the latest vote to terminate the Garage Lease.

          In Points I(B) and (C) below (at 11-17), the Sponsor shows that the Co-op has not provided any sensible response to our plain language reading of the Act or to the policy reasons supporting that plain reading. We show further that, under the terms of the Act, it is only the developer who sets that initial unit number, that the unit owners may not alter it, and that the word "has" in the definition of "conversion project," - on which the Co-op inappropriately places so much weight - was added by the Conference Committee only to clarify the overall scope of the Act, that is, the Act was to apply only to structures with five or more residential units at the time of conversion. There is no evidence that the word "has" in that provision was intended to redefine the term "cooperative unit" inconsistently with its specific definition in §3603(12) or to confer upon unit owners - or developers - the ability to control the opening of the window period by manipulating the number of units within the meaning of that sub-section.

          In Point I(D) below (at 18-21), the Sponsor will demonstrate that accepting the Co-op's interpretation for calculating the denominator to §3607(b)(2)'s 25% threshold leads to incongruous results that defy the Act's express mandates, policies and goals. Specifically, accepting any three of the Co-op's arguments would introduce opportunities for manipulation and an unwanted complexity into the Act and result in an increase of litigation that could be resolved only by reference to varying state and local laws as well as cooperative boards' varying policies and actions.

          The Co-op, when calculating the Sponsor's ownership of units, also tries to increase the numerator in the calculation of the 25% threshold above the 34 units actually owned by the Sponsor when the window period opened on October 16, 1997. The Co-op contends that the units owned by (i) Anthony and Shirley Lomanto ("the Lomantos"), co-owners of Unit 2L, and (ii) Anatole and Kathleen Iwanczuk ("the Iwanczuks"), co-owners of Unit 6A, are attributable to the Sponsor, because the Lomantos and Ms. Iwanczuk (but not Mr. Iwanczuk who later became her husband) were designated as so-called "holders of unsold shares" under the Co-op's by laws ("the By-laws"). However, as demonstrated in Point II below (at 21-25), the Co-op's contention (i) does not establish that either or both of the Lomantos or the Iwanczuks are "successors" to the Sponsor under §3603(14)(B) of the Act, because they neither offered to sell or sold units nor had the authority to exercise special developer control. Nor do they, as additionally required under a recent Second Circuit decision, have any interest in the Garage Lease or its profits.

          Under Points III, IV and V below (at 26-34), the Sponsor will show, that, even if the Co-op could prevail on either or both of the contentions treated in Points I and II below, the Co-op's cross-motion for summary judgment should still be denied. First, the Co-op cannot prove the Act's three other requirements to establish that the Notice was effective. Second, the Sponsor is entitled to formal discovery on at least two of these three requirements and on issues concerning the voting at the June 2000 meeting.

          In Point V(A) of its memorandum, the Co-op contends that the 137 units existing in the conversion project when it was converted to cooperative ownership in 1985 is not the denominator of the fraction for calculating when the Sponsor first owned 25% or fewer "units in the conversion project," within the meaning of §3607(b)(2) of the Act. See Def. Mem. at 15-20.

          The Co-op has repeatedly changed its definition of "unit" in disregard of the Act's definition of "cooperative unit." It first asserted in its counterclaim that any physical combination of units providing access from one unit to another qualifies as a relevant combination. See Affidavit of Dale A. Schreiber, sworn to March 14, 2001 ("Schreiber Aff."), Ex. 2 [the Co-op's Counterclaim] at ¶¶34-42. Then, in the Stipulation of Undisputed Facts, the Co-op changed its position, asserting that the relevant combinations were those resulting in only one kitchen in the combined apartments (the so-called "legal" ones that complied with the requirements of the New York City Building Code). See Stip., Ex. G, n."*". [2]

          Now, conceding that there are no governmental records to reflect the "legal" effective date of combinations, because the New York City Building Department has not, since at least 1968, issued amended certificates of occupancy to reflect the effective dates of "legal" apartment combinations, the Co-op argues that the paper trail can be found in the Board's approval of certain physical combinations. See Def. Mem. at 3, 19 n.7.

          By offering three different ways of counting units that trigger the opening of the window period - all physical combinations, Building Department-approved combinations, and Board-approved combinations - the Co-op would introduce unwanted complexity into the 25% ownership calculation. All of the Co-op's suggestions for determining when the Sponsor's ownership crosses the 25% threshold could be resolved only by extensive litigation over the applicable criteria and proof of each asserted combination. As the Sponsor has demonstrated, the Act was designed to be readily self-executing with minimal judicial enforcement and not be susceptible to manipulation by either the developer or the unit owners. See Pl. Mem. at 17-19. The Co-op's vacillations highlight insurmountable legal flaws in its argument.

          The Co-op's combination argument simply disregards basic facts stipulated by the Co-op in the Stipulation as they relate to the definition of the term "cooperative unit" in §3603(12) of the Act, which provides:

          The term "cooperative documents" includes the Sponsor's offering plan for the conversion, as well as the Proprietary Leases and the Related Shares issued by the Co-op to all unit owners, including the Sponsor. The Co-op has stipulated to the facts (a) that the Sponsor's offering plan has always provided for 137 units (Stip., ¶¶1, 3) and (b) that the Co-op "has not changed the Unit designations, the Proprietary Leases or Related Shares since the dates of their original sales to their present owners" (Stip., ¶10).

          These facts fix the number of units in the conversion project "as specified in the cooperative documents" at 137 units. These undisputed - indeed stipulated - facts dispatch the Co-op's combination argument.

          Realizing that the "cooperative documents" refute its contention, the Co-op originally reserved the position in the Stipulation that "[the Co-op] and its shareholders intended to revise, and the managing/transfer agent should have revised these [unit] designations, the Proprietary Leases and Related Shares but failed to do so in accordance with applicable law." (Stip., ¶10.) The Co-op's papers, however, may be searched in vain for reference to any such legal requirement, because none exists.

          By-law §5(4), cited by the Co-op (at Def. Mem. at 3) does not provide any such legal requirement. This By-law merely confirms the Board's discretionary authority to allow or disallow physical combinations and subdivisions of "apartments," not units. However, even in the absence of this By-Law, any board of directors of any cooperative or condominium association would possess this authority under the business judgment rule. See, e.g, Levandusky v. One Fifth Ave. Apt. Corp., 75 N.Y.2d 530, 537 (1990); Dinicu v. Groff Studios Corp., 257 A.D.2d 218, 222-23 (lst Dep't 1999). There is no evidence that Congress desired to attach any consequences under the Act to a board of directors' exercise of this routine authority.

          By-law §5(4) does not eliminate the need for the Board to obtain the consent of the unit owners before amending either their Proprietary Leases or Related Shares to combine their multiple units into a single unit. The unit owners have no reason to give their consent, particularly as doing so would adversely affect their right to resell their separate units to separate purchasers or refinance their units. For this reason, the unit owners, if properly advised, would likely resist any effort by the Board to have their multiple units redesignated as a single unit. Thus, it is not true that the units involved in combinations "no longer exist" or have been "extinguished" (Def. Mem. at 15-18). The Co-op's contrary assertion is a disservice to the unit owners whose interests the Co-op purports to represent.

          Even if the Co-op's latest legal position were correct and the number of units in the conversion project could change each time the Board approved a combination of two or more apartments or a division of an apartment into two or more apartments, the Co-op has failed to support its position with any factual record. In its cross-motion, the Co-op does not identify or affix a single minute of the Board approving a single combination of units or apartments. In fact, not a single minute of the Board memorializing any approval of any combination of contiguous apartments exists. See Newman Reply Aff., ¶3. Nor has the Co-op shown that its managing agent or transfer agent was ever requested to change unit designations on Proprietary Leases or Related Shares.

          In the end, the Act makes clear that the developer, not the unit owners, determines how many units there are in the "conversion project." The definition of "developer," insofar as it defines "successors" who are treated as "developers" under the Act, specifically includes those successors of the developers "who [possess] authority to exercise special developer control in the project including the right to: add, convert, or withdraw real estate from the cooperative or condominium project. . . ." 15 U.S.C. §3603(14) (emphasis added). The Act contemplates that only the developer possesses authority to determine the number of units in the "conversion project." [3] In Board of Managers v. Infinity Corp., 21 F.3d 528, 531 -33 (2d Cir. 1994), the Second Circuit recognized the developer's authority to determine the content of the "conversion project" - a case in which the developer was permitted to exclude the garage completely. [4]

          The Co-op raises two textual arguments to try to overcome the plain reading of the defined term "cooperative unit" under §3603(12) as being those units designated in the Sponsor's offering plan and the unit owners' Proprietary Leases and Related Shares and therefore the "units in the conversion project" relevant to the opening of the window period under §3607(b)(2) of the Act.

          Both arguments are based upon misreadings of two defined terms, "conversion project" in §3603(7) and "cooperative project" in §3603(10), that are also irrelevant for purposes of defining "units" under §3607(b)(2) for window opening purposes. See Def. Mem. at 17-20.

          The Co-op's first argument is based upon a strained reading of the word "has" in the definition of "conversion project." That term is irrelevant for present purposes. There is no dispute about the identity of the "conversion project"; it is the Property. The dispute is how to identify and count "units" for the calculation of the 25% threshold of §3607(b)(2). The Co-op's second argument is based upon a clearly incorrect reading of the term "separate use and possession" in the definition of "cooperative project," a term not even used in §3607(b)(2), but one that again indisputably refers to the Property.

          First, the Co-op argues for a strained interpretation of the verb "has" in §3603(7) of the Act, which provides in relevant part as follows:

          The Co-op appears to argue (Def. Mem. at 18) that, because Congress used the present tense verb "has" in defining "conversion project" in §3603(7), it must have intended the denominator used in the 25% calculation of §3607(b)(2) to be a frequently moving target.

          There is no support in the legislative history for this strange result. Had Congress intended to create a malleable denominator, it could have done so directly by adding to §3607(b)(2) the phrase "units in the conversion project as designated or redesignated from time to time by the Board of Directors of the cooperative association or condominium association" or words of similar import. But Congress did not.

          Rather, a closer examination shows that Congress's use of the past and present tense in the definition of "conversion project" was intended only to define the type of structure to which the Act would apply and did so in terms of a minimum number of units. The use of the past tense, as reflected in the phrase "was used primarily for residential purposes immediately prior to conversion," refers to the type of pre-conversion structure, i.e., one used as a residence, covered by the Act. [5] The use of the present tense "has" in the phrase "which has five or more units" merely describes the minimum number of units that must exist at the moment of conversion before the Act comes into play.

          Thus, if the structure had five or more residential units at the time of conversion, the structure was to be covered by the Act; if not, the structure did not warrant regulation. As stated in the Senate Report (S. Rep. No. 96-736, at 49, reprinted in, 1980 U.S.C.C.A.N. 3506, 3556), the five unit limit was adopted "because the economics of the conversion process have restricted conversions almost exclusively to larger multi-family rental properties."

          Specifically, §3603(7) makes clear that the Act contemplates only two types of "conversion projects:" (i) "cooperative projects" as defined in §3603(10) and (ii) "condominium projects" as defined in §3603(5).

          As these definitions emphasize, the "conversion project" under §3603(7) must be either a "cooperative project" or a "condominium project" and both must have "five or more residential units," which are either "cooperative units" or "condominium units." These "residential units" cannot be "cooperative units" or "condominium units" until the conversion has actually occurred. Thus, the verb "has" in the §3607(7)'s definition of "conversion project" can refer only to the configuration of the residential structure upon conversion, not at a later date. [6]

          Second, the Co-op (Def. Mem. at 20) argues that the term "separate use and possession" in the definition of "cooperative project" (§3603(10)) means that physically combined apartments are no longer "separate" and therefore should be treated as combined for purpose of determining the number of "units in the conversion project" under §3607(b)(2). This reading is clearly wrong.

          The term "five or more residential cooperative units . . . subject to separate use and possession" in the definition of "cooperative project" in §3603(10) is used to distinguish those units from the common elements; the words mean only that, to be covered by the Act, the structure must contain at least five residential units that are "subject to separate use and possession" i.e., areas that are not for common use by other unit owners. Indeed, the term "common elements" is defined in §3603(3) to mean "all portions of the cooperative or condominium project, other than the units designated for separate ownership or for exclusive possession or use." [Emphasis added.] [7] Similarly, the term "exclusive use and possession" in the definition of "cooperative unit" (§3603(12)) is used merely to distinguish the residential units from the common elements, not to set forth a way to count the number of such units for purposes of §3607(b)(2).

          The legislative history contains no that the separate ownership or exclusive use language was intended to affect the number of units for counting purposes under §3607(b). To construe that language in this manner would require ignoring §3603(12)'s definition of "cooperative unit" being "as specified in the cooperative documents."

          Section 3607(c) provides that a vote to terminate "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." The Co-op interprets this to mean that "the vote is by owner on a 'one owner one vote basis'. . . ." (Def. Mem. at 17). However; the Co-op does not attempt to supply any basis for this ipse dixit. In fact, its argument lacks any textual or policy justification.

          First, the language of §3607(c) clearly counts "votes" by "units," not by "owners of units." The Co-op's reading would contradict this express requirement by effectively enfranchising "unit owners," rather than "units."

          The Co-op's argument also necessarily implies that the number of "units in the conversion project" for purposes of window-opening under §3607(b)(2) would be determined by the number of unit owners, not the number of units eligible to cast separate votes. Thus, the Sponsor, although owning 106 units upon conversion (See Stip., Ex. B), would be treated as owning merely one unit and the window period would open automatically upon the conversion. Congress clearly intended quite the opposite.

          Second, in this case, the Board itself counted votes by the original 137 units, not some net number of combined units, in announcing the vote for termination of the Garage Lease. See Stip., ¶¶13-14.

          Third, the Co-op's construction of the voting provisions (one owner, one vote, irrespective of the number of units owned by unit owner) would allow unit owners to subdivide their acquired units in order to create more voters. This device could be used to muster additional votes in favor of termination of a lease or contract subject to the Act and thereby foster manipulation of the opening of the window period.

          The Co-op's position, in addition to finding no sensible support in the Act's text, would lead to results undesirable and unintended by Congress.

          1.     The Co-op's position would introduce complexity and uncertainty into the determination of exactly when the window period begins. Any test (and the Co-op has suggested three in this case alone) other than the original number of units specified in the cooperative documents would engender costly litigation over both the correct method to adopt and its application to particular fact situations. The suggestion that combinations approved by the Board are to be used ignores the reality that approval may be granted and the work done much later, or not at all. It also ignores the reality that boards differ in their procedures and record-keeping. The Act's application should not vary from building to building.

          Moreover, the Co-op contention that the unit combinations are effected "legally" when the unit owner files a building application and approved plans in accordance with Local Law 77 (Def. Mem. at 3) suffers from similar flaws. The mere filing of such an application before construction begins does not constitute board or governmental ("legal") recognition that the combination has occurred. Similarly, the Co-op reliance on the Stipulation for dates of combinations without providing a precise calendar date (in some instances giving only a year) for any "legal" combination also highlights the uncertainty as to when these combinations actually occurred. See Stip, Ex. G.

          Since the Act provides a uniform federal standard, State land use regulations or other State law peculiarities cannot be used to trigger the opening of the window period. Pl. Mem. at 19 n.7.

          2.     Under the Co-op's ever-changing denominator theory, the window period can open and close more than once because a developer's percentage can fluctuate above and below the 25% level. Congress did not intend this uncertainty. Allowing for it to occur would produce nightmarish results for both unit owners and developers.

          Illustrative of this point is the situation with Units 3D and 3E. The Co-op erroneously asserts that these apartments became one unit on some unspecified date in June 1996, while admitting that these apartments were not accessible to each other (Stip., Ex G, schedule entitled Dates Unit Altered, entry 4). On December 16, 1997, there would have been 132 units of which the Sponsor would have owned 33 or 25% and the window period would have opened. Id. Then, in April 1998, with the combination of Units 6K and 6L, the denominator would have decreased to 131 units and the Sponsor's ownership would have increased to 25.19%, exceeding the 25% threshold. Thus, the window period would have closed in less than a year and the Sponsor's ownership percentage would have oscillated over and under the statutory threshold resulting in the concomitant opening and closing of the window period. These results are contrary to §3607(b)'s mandate that the window period open only once and then for two years. Pl. Mem. at 18. [8]

          3.     Under the Co-op's reading of §3603(7), a cooperative apartment building with fewer than five units, and therefore exempt from the Act, could become subject to the Act decades after the conversion if unit owners subdivide their units. Thus, unit owners desiring to terminate a lease made at a time when the developer had every right to rely upon the security of that deal (because the Act did not apply to the residential structure), would suddenly have a right to challenge the lease under the Act. Such a result could not have been intended by Congress.

          Moreover, under the Co-op's reading, the structure would become subject to the Act if it were expanded by substantial new construction to include five or more units - even if this occurred 20 or 40 years after the conversion - in violation of Congress's clear intention that the Act not apply to new construction. See Park E. Apts., Inc. v. 233 E. 86th St. Corp., 529 N.Y.S.2d 674, 679 (Civ. Ct. N.Y. Co. 1988), aff'd, 543 N.Y.S.2d 610, 611 (lst Dep't 1989).

          4.      The Co-op's theory would delay the window opening, in direct opposition to most unit owners' desires and Congress's intent. For example, if a developer had sold 74% of 100 original units, unit owners would rightfully expect the window period to open on the developer's next sale. But, if the Co-op's position were adopted, each time units are "legally" combined, the developer's percentage ownership would increase, thus delaying the opening of the window period and encouraging the denial of legitimate owner requests to combine apartments. Here, the effect of the Co-op's combination arguments delays the opening of the window period from October 16, 1997 to November 5, 1998 - a period during which two or three combinations actually occurred (Stip., Ex. G, entries 6, 7 and 8).

          The "whichever occurs first" mandate of §3607(b) requires the opening of the window period at the earlier of the end of special developer control or the crossing of the 25% ownership threshold. That mandate implies that Congress wanted to raise and resolve the terminability under the Act of a covered lease or contract at the earliest possible time. That mandate is violated by the Co-op's combination argument.

          5.      Unit owners who do combine apartments will have their multiple units re-designated as a single unit under the Co-op's scheme. This will reduce their freedom to sell their units separately in the future, should they need or want to do so. The banks financing the combined units would likely object to redesignations of their borrower's units, as such redesignations would impair the resale value of those units and therefore the value of the bank's collateral. The financing documents would have to be changed and, depending upon market conditions at that time, the unit owners may have to agree to less favorable financing terms and provide more collateral.

* * * * * * * * * * * * * * *

          For all these reasons, the Co-op's ever-changing denominator contentions should be rejected, and summary judgment should be granted to the Sponsor.

          In contending that the Lomantos and the Iwanczuks are "successors" to the Sponsor within the meaning of §3603(14) of the Act, and that their single units are therefore deemed to be "owned" by the Sponsor under §3607(b)(2) (Def. Mem. at 20-25), the Co-op has disregarded the express requirements of the definition of "developer" in §3603(14) and the Second Circuit's controlling decision in Darnet Realty Assocs., LLC v. 136 E. 56th Street Owners Inc., 214 F.3d 79, 85 (2d Cir. 2000), affirming 136 E. 56th St. Owners, Inc. v. Darnet Realty Assocs., LLC, 1999 WL 47328, at * 6 (S.D.N.Y. Feb. 1, 1999) (Sand, D.J.)) (Darnet II).

          Under §3603(14)'s definition of "developer," not every "successor" to the developer is a statutory "developer." See 305 E. 40th Garage Corp. v. 305 E. 40th Owners Corp., 833 F. Supp. 991, 994-995 (S.D.N.Y. 1993) (Lowe, D.J.). In order to qualify as a "developer," the Act requires a "successor" to have "authority to exercise special developer control," including such rights as the right to "maintain" a sales office or management offices. Furthermore, §3603(14) specifically requires a "successor" to be one who offers to sell "units" (in the plural). [9]

          Contrary to the Co-op's contention, Judge Lowe categorically rejected the notion that any unit owner who has been designated by the developer as a "holder of unsold shares" is automatically a "successor" to the developer. Indeed, Judge Lowe's holding in 305 E. 40th Garage Corp. was perfectly consistent with the rationale of the Second Circuit in Darnet II. Judge Lowe dealt with a "successor" that had purchased, on a bulk basis, all units that the original developer was unable to sell to third-parties soon after the conversion. The purchased units constituted 38.1 % of the units in the project. Id. at 992-93. This bulk purchaser "successor" stepped into the role of the original developer.

          In Darnet II, the Second Circuit agreed with Judge Sand's opinion at the trial court level and with Judge Lowe in 305 E. 40th Garage Corp. that mere succession in ownership of multiple, bulk-purchased units was not enough for a holder to qualify as a "successor." The second Circuit held that the holder could not be a "successor" in that case, because it did not "succeed the original developer in interest pertaining to the self-dealing contract itself." 214 F.3d at 85. As Judge Sand pointed out, the original developer, much like the developer in 305 E. 40th Garage Corp., made a bulk sale of many of the units that it could not sell to third-party buyers. However, unlike the bulk purchaser in 305 E. 40th Garage Corp., the bulk buyer in Darnet II did not take over the developer's role. See Darnet II at 1999 WL 47328, at *6 n.11. Darnet II is therefore a fortiori in the Sponsor's favor here, where there has been no bulk sale to either or both of the Lomantos or Iwanczuks.

          The Lomantos and the Iwanczuks do not meet the standards of Darnet II. The Co-op does not dispute that neither has an interest in the Master Lease, the Garage Lease or any profits derived by the Sponsor from either, that neither had "special developer control" nor had the right to "maintain" a sales office or management offices, and that each of them owns but one unit. That should end the matter.

          Nonetheless, the Co-op argues that they are persons, who, in the words of Judge Sand in Darnet II, id. at * 6, "can be expected, by virtue of its relationship with the developer, to share the original developer's interest in maintaining the self-dealing lease." See Def. Mem. at 23-24. That dictum is simply not the test for a "successor" under §3603(14). See 214 F.3d at 84. In fact, the Second Circuit, while quoting generously from Judge Sand's opinion did not quote that particular dictum. See 214 F.3d at 84.

          In all events, the Co-op has failed to demonstrate that either the Iwanczuks or the Lomantos satisfy both the express requirements of §3603(14) and the test approved in Darnet II. First, neither the Iwanczuks nor the Lomantos ever possessed "special developer control," without which a "successor" can never be a "developer" under §3603(14). Second, neither Ms. nor Mr. Iwanczuk ever had any direct relationship with the Sponsor or its liquidating partner Mr. Newman. See Stip., ¶12. [10] They certainly never shared the Sponsor's interest in maintaining the Garage Lease. The fact that Ms. Iwanczuk, as an employee of a law firm representing the Sponsor in the conversion during 1984 and 1985, notarized Co-op documents in 1984 (Lilien Aff., Ex. G) is too inconsequential to be considered relevant for this purpose. Third, Mr. Lomanto never had any such relationship and Ms. Lomanto was merely a secretarial employee at the law firm of Mr. Newman, the Sponsor's liquidating partner. See Stip., ¶11. Ms. Lomanto's assumed sense of loyalty to Mr. Newman simply does not meet the standard of interest in the Garage Lease required by either the express language of §3603(14) or by the test approved in Darnet II.

          The failure of either the Lomantos or the Iwanczuks to vote in favor of termination does not make them "successors" to the Sponsors as a matter of law. They simply cannot be "successors" unless they had "special developer control" and the right to "maintain" a sales office or management offices. See 15 U.S.C. §3603(14). Moreover, their failure to vote is explained by the fact that no notice of the meeting was sent to them. See Lilien Aff., Ex. I; Lomanto Aff, ¶4 [11]

          Finally, the fact remains that neither the Iwanczuks nor the Lomantos are holders of unsold shares under New York law and that therefore the Co-op's argument that holders of unsold shares are necessarily successors fails on its own terms. See Pl. Mem. at 24-25. Neither couple took the steps required to become bona fide holders of unsold shares in conformity with the applicable regulations. [12] This failure to act, which has been completely under their control, cannot be attributed to anything within the Sponsor's power and therefore cannot be blithely disregarded as the Co-op attempts to do.

          By the shareholder vote held on October 21, 1987, the shareholders of the Co-op elected an independent Board, consisting of six unit owner residents and Mr. Newman, a designee of the Sponsor. See Newman Reply Aff., ¶2; Ex. 1. The Sponsor has asserted the two-year window period under §3607(b) actually opened in October 1987, thereby closing some ten years before the Notice was purportedly effective. The Co-op's papers do not dispute that the Board has been independent since October 1987. Instead, it contends that this event did not open the window period because the Sponsor allegedly retained "special developer control" by virtue of a combination of specific By-law and Propriety Lease provisions. Def. Mem. at 13-15.

          The Co-op is correct in stating that "special developer control" is not limited to voting control over a board of directors and such control may be found in bylaw and proprietary lease provisions. SeeDef. Mem. at 14. However, the Co-op's summary of the By-laws and Proprietary Lease provisions it relies upon to establish "special developer control" is incomplete. See Def. Mem. at 7. When properly quoted and read, these provisions do not constitute either singly or in the aggregate "special developer control." They simply do not "retain [for the Sponsor] significant clout over [the Co-op's] affairs independent of [the Sponsor's] direct voting influence over [the Co-op's] Board." Darnet II, 214 F.3d at 83 (quoting Darnet Realty Assocs. v. 136 E. 56th St. Owners, Inc., 153 F.3d 21, 27 (2d Cir. 1998) (Darnet I)).

          The supposed "power to veto" (Def. Mem. at 7) granted by §51 of the Proprietary Lease and By-laws §II(6) are not Sponsor veto powers at all. See Lilien Aff., Ex. E at §51, Ex. A at §II(6). Both provisions require a 75% vote of shareholders (so long as the holders of unsold shares have at least 25% of the shares of the Co-op) for increasing the number or type of employees, additional services requiring increased expenses in excess of 125% of the original budget, or capital expenditures not required to comply with legal requirements. This supermajority provision was designed to protect the Co-op's solvency and reflects an interest held by all shareholders. This expense control mechanism that benefits all unit owners, including the Sponsor, does not constitute "special developer control." See Barnan Assocs. v. 196 Owner's Corp., 797 F. Supp. 302, 307 (S.D.N.Y. 1992) (Conner, D.J.) (finding developer's control over building's general maintenance expenses benefitted all unit owners and was not evidence of "special developer control.")

          The Co-op also misconstrues By-law §10(3) (Lilien Aff., Ex. A §10(3)), which provides as follows:

          The Co-op's claim (Def. Mem. at 14-15) that the restriction of the second sentence of §10(3) constitutes "special developer control" is inaccurate, this restriction is merely a mechanism to prevent repeal of the By-law set out in the first sentence. The first sentence, in turn, merely codifies the Sponsor's right to prevent changes in the By-laws that adversely affected shares and proprietary leases securing Sponsor-financing for unit owners. [13] This right is consistent with the protection any commercial bank would expect and therefore does not constitute an instrument for exercising "clout" over the Co-op's Board.

          Similarly, the Co-op cannot find fault with §6 of the Proprietary Lease protecting holders of unsold shares from Proprietary Lease changes that adversely affect their rights as holder of unsold shares or with any residuum in By-law § 10(3) that functions similarly. These provisions merely prevent repeal of the rights of holders of unsold shares recognized as legally protectable by Title 13 of the New York Code, Rules and Regulations. See PL. Mem. at 24-25; Newman Aff., ¶¶ 3, 4. No case holds that such provisions constitute "special developer control."

          Courts in this District have taken inconsistent approaches concerning the application of the Second Circuit's "significant clout" test in Darnet. As it observed in Darnet I, the Second Circuit has yet to decide "whether each (or any) of those decisions drew the line at precisely the right place." 153 F.3d at 27. [14]

          We urge that, for the reasons given above, this Court conclude that the Sponsor's "special developer control" ended on October 21, 1987, when the Sponsor relinquished control of the Board and that the window to terminate the Garage Lease closed two years later.

          Contrary to the Co-op's contention (Def. Mem. at 12-13), Darnet II does not hold that parking garages in Manhattan are per se "property serving the . . . cooperative unit owner," within the meaning of §3607(a)(1). Unless Darnet II established a per se rule, the Co-op's summary judgment cross-motion must be denied as premature, because the Sponsor has not had an opportunity to take discovery to determine (a) the extent to which unit owners own and use motor vehicles and (b) the history of their actual use of the Garage at relevant times. [15]

          For many years, the test in the Second Circuit for determining whether a parking garage appurtenant to a New York City apartment building is "property serving" the unit owners has been whether or not the garage provides "services primarily for the benefit of unit-owners." West 14th St. Commercial Corp. v. 5 W. 14th St. Owners Corp., 815 F.2d 188, 198 (2d Cir.) cert. denied, 484 U.S. 850 and 484 U.S. 871 (1987); Cromwell Assoc. v. Oliver Cromwell Owners, Inc., 941 F.2d 107, 111 (2d Cir.), cert. denied, 502 U.S. 822 (1991); 2 Tudor City Place Assoc. v. 2 Tudor City Tenants Corp., 924 F.2d 1247, 1252 (2d Cir. 1991). This standard was further amplified by the Second Circuit's "current use" test, which refers to the use of the garage at the time of the termination vote. See Cromwell Assoc., 941 F.2d at 1 12 (citing cases).

          Darnet II did not eliminate this analysis. Instead, Darnet II held simply that the lack of a garage use preference did not automatically remove the property from that type of property that serves unit owners. Darnet II, 214 F.3d at 86 (stating that "[w]e hold . . . that a parking garage 'with or without tenant preferences' is 'property serving the . . . unit owners'"). This still leaves open the question whether a parking garage appurtenant to the building used exclusively or primarily by the public is covered by the Act, where, as here, the unit owners simply do not use or own motor vehicles or have any meaningful need for the parking garage at or about the time a vote is taken. [16]

          Thus, lacking, as it does, a factual basis for determining that the Garage was a "property serving" the Co-op's unit owners, the Co-op's summary judgment motion is premature and the Sponsor is entitled to discovery to determine what the "current use" of the Garage was at the time the vote was taken. See Cromwell Assoc., 941 F.2d at 112.

          On June 27, 2000, the Board held a meeting of its shareholders to vote upon a resolution calling for the termination of the Garage Lease under the Act. Stip., ¶13. According to the announced results, based upon 137 units, 87 unit owners voted in favor of termination, 20 such unit holders were said to have abstained, and the Sponsor's 30 units were excluded under §3607(c) (Stip., ¶¶13-14). The required two-thirds vote was 72 units.

          However, first, the Co-op has refused to give the Sponsor access to the ballots and/or proxies used for this vote. See Newman Reply Aff., ¶6. The Sponsor is therefore entitled to take discovery on whether or not the announced count was correct. See Darnet I, 153 F.3d at 23. Moreover, to the extent that combination units were treated as multiple votes as opposed to a single vote, the Sponsor is entitled to discovery to determine whether or not the two-thirds threshold was met on this basis. [17]

          Second, the Sponsor has a defense, requiring further discovery based upon the Co-op's failure to give it (the Iwanczuks and the Lomantos) written notice of the meeting as required by New York Business Corporation Law ("BCL"), §605(a) and By-laws, §1(2).'8 If state law governed the "vote" taken under §3607(c), the Notice would have been void as given pursuant to any improperly enacted shareholder resolution. See Goldfield Corp. v. General Host Corp., 29 N.Y.2d 264, 269 (1971). Under BCL §606, where the notice of a meeting is improperly given, the impropriety is not waived by the shareholder's participation in the meeting itself. Block v. Magee, 146 A.D.2d 730, 733 (2d Dep't 1989). [19]

          As the Co-op notes (Def. Mem. at 10- 11), lower courts interpreting the Act have not incorporated by reference applicable State voting requirements in determining whether there has been a "vote of unit owners" under §3607(c) of the Act. [20] These scattered holdings, however, do not countenance a tactic by the Board deliberately to bypass both the Sponsor and those unit owners the Board believes will support the Sponsor's position. Yet, the Co-op asserts the explicit proposition that the Board may act in this manner to avoid facing an issue of fact as to the propriety of the manner in which it convened the June 27, 2000 meeting. [21]

          Section 3607(c) requires a vote of unit owners. That vote must comport with some legal standard. Congress did not ordain a shareholder approval regime under which unit owners merely had to signify their approval of termination of a contract or lease by written consents obtained by the proponents of termination. Section 1(2) of the Co-op's By-laws and BCL §605(a) both require that notice of a shareholder meeting be sent to all shareholders, or at least those eligible to vote. The reasons are obvious: the best decisions are taken in a deliberative format, where all contending interests are represented. See In re J.A. Maurer, Inc., 77 N.Y.S.2d 159, 161 (Sup. Ct. Queens Co. 1947).

          The propriety of the Co-op's actions must be measured against undisputed facts. In 1999, when the Board gave notice to the Sponsor and allowed the Sponsor to marshal its arguments against termination both before and at the shareholders meeting, the shareholders rejected the termination proposal. Newman Reply Aff., ¶5. The tactics the Board employed in calling and conducting the meeting held on June 27, 2000 were designed to prevent another defeat.

          While Congress endowed cooperative unit owners with a powerful termination option, it likely expected the unit owner decision-making process to be fair and deliberative. Therefore, the Co-op's deliberate disregard of both its own By-laws and New York law should at least warrant discovery and a hearing.

Conclusion

          The Sponsor's motion for summary judgment should be granted, because - on the undisputed facts - the window period clearly closed before the Notice was to be effective by its own terms for the reason set forth in Points I and II above. If not granted for the Sponsor, summary judgment for the Co-op should nevertheless be denied to the Co-op for all the reasons set forth.

Dated: New York, NY
            June 22, 2001

[1]         This memorandum is supported by the Reply Affidavit of Kenneth Newman ("Newman Reply Aff."), sworn to June 21, 2001, and the joint affidavit of Shirley Lomanto and Anthony Lomanto, sworn to June 21, 2001 ("Lomanto Aff."). Mr. Newman's moving affidavit, sworn to March 12, 2001, is referred to as "Newman Aff."

[2]         The number of "apartments" shown on the Co-op's Amended Certificates of Occupancy has changed from 138 to 135. Stip., Ex. H. If the "apartments" shown on these certificates were deemed to be "units" for purposes of §3607(b)(2), the window period would have opened on December 16, 1997, rather than October 16, 1997, and the window period would have still closed long before the Notice was sent or purported to be effective.

[3]         New York's cooperative offering regulations (13 N.Y.C.C.R. §18.3(h)(3)) recognize, consistently with the Act, that "no change will be made in the size or number of units . .,except by amendment to the plan."

[4]         The Co-op asserts inaccurately that the Sponsor, "[i]n amendments to the Plan, . . . has acknowledged that units in the Cooperative have been combined." Def. Mem. at 4. The quoted statement appears at page 6 in the footnotes to the financial statements for the calendar year prepared by the Co-op's accountants Feldman, Gutterman, Meinberg and Company annexed as a required exhibit to the Sponsor's Seventeenth Amendment to the Offering Plan. Lilien Aff., Ex. C. However, in the amendment, the Sponsor expressly disclaims the financial statements and specifically notes that it does not "make any representation as to the adequacy, accuracy or completeness of the same or any item therein." Id. at p. 2.

[5]         The use of the past tense "was used" in conjunction with the phrase "immediately prior to conversion" captures renovations and reconfigurations of residential space in the residential structure made by the developer for purposes of facilitating the conversion to cooperative or condominium ownership.

[6]         The Act's drafting history reveals that the insertion of the phrase "which has five or more residential units" in §3603(7) was a last minute, belt-and-suspenders effort to clarify that the Act did not cover conversion projects having fewer than five units at the time of conversion. The Senate's version of the Act did not include the reference to "five or more residential units" in its definition of "conversion project," leaving that coverage limitation for the Act to be borne by the subordinate definitions of the terms "cooperative project" and "condominium project," each of which was limited, as in the final version, to those having five or more units. See S. Rep. 96-736 at 74-75, reprinted in 1980 U.S.C.C.A.N. 3581-82. The Conference Committee added the phrase, "which has five or more residential units" phrase to the definition of "conversion project" merely "to clarify that the real estate must have 5 or more residential units in each residential structure. . . ." See H.R. Conf. Rep. 96-1420 at 164, 1980 U.S.C.C.A.N. at 3709.

This last minute insertion accounts for §3603(7)'s somewhat clumsy syntax. The Conference Committee's insertion left the resulting definition with two "whichs" whose juxtaposition defies proper grammatical rules. The resulting text reads "'conversion project' means a project, which has five or more residential units, which was used primarily for residential rental purpose. . . ." [Emphasis added.] Once the Conference Committee's insertion in §3603(7) is understood as a repetition of the same phrase already in §§3603(5) and (10), any confusion vanishes: the term "conversion project" is left to incorporate the definitions of "cooperative project" and "condominium project" and their respective five "cooperative" or "condominium" "unit" requirements, which clearly speak to the time of conversion.

[7]         The distinction between "separate" and "common" property is reemphasized by §3603(10)'s definition of the term "cooperative project," which further describes the common property of the cooperative association to be "the undivided assets of the cooperative association which are appurtenant to the unit . . . ."

[8]         Thus, even under the Co-op's theory, the window period remained open until December 16, 1999 and the Notice would have been too late. Since, if the Court were to accept the Co-op's theory in general terms, the Sponsor can challenge treating Units 3D and 3E as a valid combination, the Co-op's cross-motion must be denied on this basis alone.

[9]         In this case, both the Lomantos and the Iwanczuks possess only, and have possessed only, one unit each. For that reason alone, they cannot be the kind of "successor" contemplated by Congress. See Stip., 11, 12.

[10]         Without a finding that both the Iwanczuks and the Lomantos are "successors" to the Sponsor and that therefore the Sponsor is deemed to "own" their units under §3607(b) of the Act, the window period still closed nearly a year before the Notice could become effective. Specifically, on the assumption that the Sponsor prevails on the unit combination contentions and only the Lomantos are found to be such successors of the Sponsor, the window period would have opened on December 16, 1997 with sale of Unit 6K (rather than October 16, 1997 with the sale of Unit LA), which would have reduced the Sponsor's unit ownership to 33 of 137 units (or 24.08%), and would have closed on December 16, 1999 (rather than October 16, 1999), still well before the Notice was to become effective on October 18, 2000. See Stip., Ex. G.

[11]         The Co-op's failure to give the Iwanczuks or the Lomantos notice of the meeting is consistent with its pleaded admission that the Co-op did not send them notices for the meeting held on June 24, 1999, at which the shareholders voted not to terminate the Garage Portion. See Schreiber Aff., Ex.2 [The Co-op's Counterclaim] at 59 ("On June 1, 1999, an officer and member of the Board of Directors of the Cooperative sent a Notice to all shareholders of a meeting of a unit owners not affiliated with the developers to be held on June 24, 1999 . . . .") The Co-op was then claiming that the Lomantos and the Iwanczuks were affiliates of the Sponsor, a position that the Co-op has since withdrawn.

[12]         It is irrelevant for purposes of the Act that Mr. Newman may have advised the Co-op's counsel erroneously that the Lomantos and/or the Iwanczuks were holders of unsold shares. Def. Mem. at 4 at 5. Whether they are is a question of New York law and not one based upon privately held opinions. More germane is the fact that the Sponsor, in filing the Seventeenth Amendment to the Sponsor's offering plan (Lilien Aff., Ex. C at Exhibit C, Schedule of Maintenance Paid on Unsold Shares), did not list either the Lomantos or the Iwanczuks as holders of unsold shares.

[13]         Only once such financing has occurred and it ended years before the window period opened (Newman Reply Aff., 4).

[14]         Coliseum Park Apts. Co. v. Coliseum Tenants Corp., 742 F. Supp. 128, 130 (S.D.N.Y. 1990), 305 E. 40th Garage Corp., 833 F. Supp. at 97, and Park S. Tenants Corp. v. 200 Central Park Assocs. LP, 748 F. Supp. 208, 213 (S.D.N.Y. 1990), aff'd per curiam, 941 F.2d 112 (2d Cir. 1991) have found a mix of by law and lease provisions including similar terms to constitute "special developer control." The Second Circuit, as noted, has not yet ruled either upon the mix or individual components of such provisions.

[15]         As the Co-op correctly observes, New York Multiple Dwelling Law, §60(1)(b) permits a resident of a covered dwelling to be assigned a parking space in the appurtenant garage within 30 days of his or her written request for an assigned space. Def. Mem. at 13 n.6. The fact that residents of the Property in this case could have demanded assigned parking spaces over the 16 years since its conversion to cooperative ownership and that the Garage has nonetheless primarily served the public during that time indicates that, in this case, the Garage does not primarily serve unit owners.

[16]         Darnet II did note that parking garages in Manhattan can be "veritable gold mine[s]" and that unit owners could benefit from the profits derived by their cooperative from operating the building parking garage by using such profits to reduce the cooperative's operating expenses. 214 F.3d at 85-86. If this were the case here, such a showing would be insufficient to prove that a parking garage primarily serves the Co-op's unit owners. Whether the garage serves the unit owners depends upon the physical function fulfilled by the garage in providing life quality to resident unit owners. In this regard, it is germane that the Second Circuit has recognized that developer-retained garage leases are not intrinsically harmful to unit owner interests because the financial advantages provided by such leases enable the developer to "substantially lower prices" to unit purchasers. Darnet I, 153 F.3d at 24 n.5. The "primarily serves" test properly balances the Act's basic concerns with the potentially beneficial aspects of leases that satisfy the self-dealing definitional criteria of the Act.

[17]         The effect of combinations on the vote derives from the fact that the subtraction of a common integer from both the numerator and denominator of a fraction will reduce the absolute value of the fraction. For example, if the integer 1 is subtracted from both the numerator and denominator of the fraction 3/4, the result is 2/3. In concrete terms, the Co-op claims there were 128 units (Def. Mem. at 3), of which the Sponsor then had 30 units, or 98 relevant units for purposes of the two-thirds requirement. On this assumption, the Co-op would have to show 66 valid votes in favor of termination to meet its burden of proof. In turn, on the same assumptions, the Sponsor would have to demonstrate 22 of the 87 asserted votes in favor of termination were invalid.

[18]         The Sponsor did not receive notice of the meeting by mail (Newman Aff., 5, Ex. 2). The Co-op's contrary assertion (Lilien Aff., 4; Ex. I) merely creates an issue of fact. Moreover, the same situation exists as to the Lomantos, who swear that they did not receive notice of the meeting (Lomanto Aff., 4), despite the Co-op's contrary assertion (Lilien Aff., 4; Ex. I). The Co-op does not claim to have mailed notice of the meeting to the Iwanczuks (Lilien Aff., Ex. I, the Co-op's mailing affidavit, which nowhere mentions the Iwanczuks or their Unit 6A).

[19]         Because the Lomantos and the Iwanczuks were clearly entitled to vote on the issue of termination of the Garage Lease, the Co-op cannot defeat the Sponsor's challenge to the vote on the grounds that it was not entitled to vote. The Co-op does not argue, as it could not, that either the Lomantos or the Iwanczuks were "affiliates" of the Sponsor and therefore were ineligible to vote. Pl. Mem. at 24 n. 9 (second paragraph).

[20]         The first sentence of §3610 of the Act, its savings provision, appears to allow the incorporation of applicable State law, when it "does not abridge, deny, or contravene any standard for consumer protection established under" the Act. New York has deliberately and for many years, both before and after the enactment of the Act in 1980, applied the governance provisions of the BCL to cooperative corporations formed under New York law. See, e.g., Wapnick v. Seven Park Ave. Corp., 658 N.Y.S.2d 604, 606 (lst Dep't 1997); Rego Park Gardens Assoc. v. Rego Park Gardens Owners, Inc., 570 N.Y.S.2d 550, 552 (2d Dep't 1991). There is nothing intrinsically contraventive of the Act in upholding the requirements of BCL §605 or By-law §1(2). In this case, based upon the Co-op's legal position regarding the opening of the window period under the Act, the Co-op had more than enough time to notice another meeting once it received notice from the Sponsor (Newman Aff., lT5, Ex. 2) that the meeting had not been properly convened and yet did not choose to hold another election to resolve doubts about the fairness of the election upon which the Notice was based.

[21]         In 2 Tudor City Place Associates v. 2 Tudor City Tenants Corp., 924 F.2d 1247, 1254 (2d Cir. 1991), the Second Circuit held that conclusory allegations of fraud in the vote will not support the developer's right to discovery. Here, the situation is quite different where the proponents of termination lost the previous year's vote and then, in the election in issue, failed to give proper notice and adopted tactics to stifle informed debate among unit owners.

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