511 West 232nd Owners v. Jennifer Realty Co.

• Decision Date: 09 August 2001
• Parties: (A.D. 1 Dept. 2001) 511 West 232nd Owners Corp., et al., Plaintiffs-Respondents-Appellants, v. Jennifer Realty Co., etc., et al., Defendants-Appellants-Respondents. 4025 : FIRST JUDICIAL DEPARTMENT
• Court: New York Supreme Court — Appellate Division

Page 34

729 N.Y.S.2d 34 (A.D. 1 Dept. 2001)

511 West 232nd Owners Corp., et al., Plaintiffs-Respondents-Appellants, v. Jennifer Realty Co., etc., et al., Defendants-Appellants-Respondents.

4025

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE DIVISION: FIRST JUDICIAL DEPARTMENT

August 9, 2001

Beatrice Lesser, of counsel (David L. Berkey and Stanley B. Dreyer, on the brief, Gallet Dreyer & Berkey, LLP, attorneys) for plaintiffs-respondents-appellants,

Mark N. Axinn, of counsel (Bruce A. Langer, on the brief, Brill & Meisel, attorneys) for defendants-appellants-respondents.

Joseph P. Sullivan, P.J., Angela M. Mazzarelli, Betty Weinberg Ellerin, Alfred D. Lerner, John T. Buckley, JJ.

LERNER, J.

In this action to compel the sponsor of a cooperative conversion to sell unsold shares of cooperative units it has held for more than ten years, we are called to decide the issue of whether the sponsor had a contractual duty to dispose of unsold units within a reasonable time. The record dictates that the question must be answered in the affirmative.

Plaintiffs are the cooperative corporation ("co-op") that owns 511 W. 232nd Street, Bronx, N.Y. and six shareholder/ proprietary lessees thereof. Defendant, Jennifer Realty Co. is the co-op sponsor and the individual defendants are Jennifer's principals and also members of the co-op's Board of Directors ("Board"). Although the co-op closing took place on July 15, 1988, Jennifer holds "Unsold Shares" representing more than 62% of the corporate stock, allocated to 41 of its 66 units.

Section 1 of the non-eviction plan obligated Jennifer to offer bona fide tenants in occupancy the right to purchase the shares allocated to their units, which offer was to remain in effect for 90 days. Thereafter, Jennifer was free to accept subscription agreements from tenants and non-tenants alike. The plan further provided that the sponsor would acquire any shares which were not sold or fully paid for by the closing date and would enter into proprietary leases for the apartments to which the unsold shares were allocated. It is undisputed that Jennifer Realty fulfilled this obligation and paid all maintenance due on its units.

In 1998, plaintiffs became aware that defendants rejected a purchase offer on a vacant apartment. Shortly thereafter, this action was commenced seeking to compel Jennifer Realty to sell unsold shares it has held for more than ten years. Plaintiffs' complaint asserts seven causes of action sounding in: common law fraud; breach of fiduciary duties; breach of contract; equitable relief of injunction to compel Jennifer to sell its units; violation of General Business Law §§ 349 and 350 resulting in actual damages to the individual plaintiffs; intentional violation of General Business Law §§ 349(h) and 350(e)(3) warranting a treble damage award and attorneys' fees to individual plaintiffs; and, injunctive relief. The gravamen of the complaint is that while the plan offered all 66 units for sale, Jennifer, which has not filed the requisite amendments with the Attorney General since 1996, retained all of its unsold shares, renting the appurtenant units at a profit, notwithstanding that plaintiffs were led to believe by Section 24 of the plan (addressed as "Sponsor Profit") and by material omissions that Jennifer would sell them at the earliest opportunity, but in no event later than when each unit became vacant. Plaintiffs further allege that by adopting this policy, the individual defendants breached their fiduciary duties as Board members of the co-op.

Defendants moved to dismiss the complaint in its entirety based on documentary evidence consisting of the plan, subscription agreement and the proprietary lease. The IAS court granted the motion with respect to the third cause of action for breach of contract and sustained the other causes of action. The court reasoned that the parties' obligations to each other were contained exclusively in the plan and subscription agreement, and that the plan did not reveal any promise by the sponsor to sell the shares within any particular time frame.

It is undisputed that the New York Legislature has not imposed any statutory obligation on sponsors to dispose of all or a specified number of unsold shares in a cooperative or units in a condominium after the offering plan has become effective. Indeed, a sponsor's statutory obligations are primarily found in the Martin Act and the Condominium Act. Therefore, to determine if the sponsor has an obligation to dispose of the units, we must look to the plan and subscription agreement.

An offering plan is a contract between the sponsor and the unit purchasers (61 West 62 Owners Corp. v Harkness Apartment Owners Corp., 222 A.D.2d 358). Its purpose is to sell cooperative apartments within a building. The benefits of ownership include the promise of greater stability in tenant vacancy, and enhanced communal ownership. Such contracts typically contain both express and implied promises (11 Williston, Contracts at 1295 [3d 1968]). Implied promises are recognized when either the promises are so clearly within the contemplation of the parties that it is...