904 Tower Apartment LLC v. Cuomo, Index No. 105022/2010
| Decision Date | 23 May 2014 |
| Docket Number | Index No. 105022/2010 |
| Citation | 2014 NY Slip Op 33493 (U) |
| Parties | 904 TOWER APARTMENT LLC and MADISON APARTMENT 905 LLC, Petitioners v. ANDREW CUOMO, Attorney General of the State of New York, Respondent, MARK HOTEL SPONSOR LLC, Intervenor-Respondent |
| Court | New York Supreme Court |
DECISION AND ORDER
I. INTRODUCTION
Petitioners, purchasers of two suites in a cooperative for which intervenor-respondent Mark Hotel Sponsor LLC was the sponsor, seek to vacate a determination by respondent attorney General of the State of New York dated January 15, 2010, concluding that petitioners forfeited to the sponsor their $2,593,750.00 downpayment for the suites. The sponsor has moved to intervene in the proceeding, C.P.L.R. §§ 1012(a), 7802(d), and to dismiss the amended petition because it fails to state a claim under C.P.L.R. § 7803(3) and fails to join a necessary party, the sponsor. C.P.L.R. §§ 3211(a)(7) and (10), 7803(3), 7804(f). If the court remands the proceeding to respondent, the sponsor moves for permission to appeal. C.P.L.R. § 5701. Petitioners have cross-moved to extend their time to serve their notice of theamended petition and their amended petition on the sponsor and for disclosure regarding the sponsor's actual notice of this proceeding. C.P.L.R. §§ 306-b, 408.
In a stipulation dated June 21, 2013, the parties consented to the sponsor's intervention, and petitioners withdrew their cross-motion for disclosure. At oral argument July 31, 2013, respondent withdrew its objection to petitioners' failure to sign their verified amended petition. For the reasons explained below, the court grants the sponsor's motion to dismiss the amended petition. C.P.L.R. §§ 3211(a)(7), 7803(3), 7804(f).
II. THE SPONSOR'S MOTION TO DISMISS THE PETITION
Since the parties consented to the sponsor's intervention in the proceeding, its motion to dismiss the amended petition based on petitioners' failure to join a necessary party, C.P.L.R. §§ 1003, 3211(a)(10), and petitioners' cross-motion to extend their time to serve the sponsor, C.P.L.R. § 306-b, are moot.
Petitioners applied to respondent May 22, 2009, for return of their $2,593,750,00 downpayment held in escrow. 13 N.Y.C.R.R. § 21.3(l)(3)(vii). New York General Business Law § 352-e and its implementing regulations authorize the State Attorney General to determine disputes regarding downpayments toward purchases of cooperative units that have required the filing of an offering plan with the Attorney General. 13 N.Y.C.R.R. § 21.3(l)(3)(viii)(a). See Madison Park Owner LLC v. Schneiderman, 93 A.D.3d 555 (1st Dep't 2012); Dunlop Dev. Corp. v. Spitzer, 26A.D.3d 180 (1st Dep't 2006). The parties originally focussed on additional financing of $23,345,991.00 for the cooperative's construction, which the sponsor secured on April 1, 2009, and do not dispute that the sponsor failed to amend the offering plan to reflect this loan as required. 13 N.Y.C.R.R. § 18.5(a).
Respondent's determination addressed petitioners' claim that the sponsor's failure to disclose the additional financing constituted a material omission entitling petitioners to rescission of their purchase agreement. In denying petitioners' application, respondent explained that:
Seller asserts, and Purchasers do not dispute, that these loans are "subordinate to the rights of the Cooperative and each and every proprietary lease holder to remain, undisturbed, at the Property [Co-Tenancy and Reciprocal Operating Agreement] and each and every Proprietary Lease entered into by the Cooperative." Response at 7. Consequently, Seller's obtaining of additional financing would not, even if included in an amendment submitted to and accepted for filing by the Attorney General, be "a substantial amendment to the offering plan that adversely affects the purchasers." 13 NYCRR § 18.5(a). Purchasers' further claim that the subordination of the mortgages is irrelevant because of "the additional liens on the building" does not change this result, and is in any event speculative.
Aff. of David A. Pellegrino in Opp'n to Mot. to Dismiss Ex. 3, at 5.
A further ground on which petitioners claim entitlement to rescission of their purchase agreement is the sponsor's unreadiness to close the sale due to its alleged failure to obtain a zoning designation from the New York City Department of Buildings (DOB) that petitioners' suites were for unlimited stays. Respondent's determination addressed this claim bypointing out that the purchase agreement, pursuant to a DOB ruling, authorized the sponsor itself to designate suites for unlimited stays, by simply filing a written designation with DOB, and required the sponsor to do so before or at the closing. Respondent denied petitioners' application on this ground by concluding that petitioners were precluded from claiming the sponsor's noncompliance with the designation requirement, because the sponsor was allowed to comply at the closing, for which petitioners never appeared. Id. at 6-7.
The court may vacate an administrative determination if it "was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion." C.P.L.R. § 7803(3). See Flacke v. Onondaga Landfill Sys., 69 N.Y.2d 355, 363 (1987); CRP/Extell Parcel I, L.P. v. Cuomo, 101 A.D.3d 473 (1st Dep't 2012); Slesinger v. Department of Hous. Preserv. & Dev. of City of N.Y., 39 A.D.3d 246 (1st Dep't 2007). The court may set aside an administrative determination as arbitrary if it is "without sound basis in reason or regard to the facts." Peckham v. Calogero, 12 N.Y. 3d 424, 431 (2009); Testwell, Inc. v. New York City Dept. of Bldgs., 80 A.D.3d 266, 276 (1st Dep't 2010). See Goodwin v. Perales, 88 N.Y.2d 383, 392 (1996); Pell v. Board of Educ., 34 N.Y.2d 222, 231 (1974); Soho Alliance v. New York State Liq. Auth., 32 A.D.3d 363, 364 (1st Dep't 2006). In reviewing an administrative determination, the court may not substitute its judgment for theadministrative body conducting factual evaluations in areas in its expertise. Peckham v. Calogero, 12 N.Y.3d at 431; Flacke v. Onondaga Landfill Sys., 69 N.Y.2d at 363; City Servs., Inc. v. Neiman, 77 A.D.3d 505, 507 (1st Dep't 2010); Cuccia v. Martinez & Ritorto, P.C., 61 A.D.3d 609, 610 (1st Dep't 2009). See Testwell, Inc. v. New York City Dept. of Bldcrs., 80 A.D.3d at 276. In evaluating whether a rational basis supports a determination, the court may consider only the grounds the agency invoked. Rizzo v. New York State Div. of Hous. & Community Renewal, 6 N.Y.3d 104, 110 (2005); Scherbyn v. Wayne-Finger Lakes Bd. of Coop. Educ. Servs., 77 N.Y.2d 753, 758 (1991); Weill v. New York City Dept. of Educ., 61 A.D.3d 407, 408 (1st Dep't 2009); Slesinger v. Department of Hous. Preserv. & Dev. of City of N.Y., 39 A.D.3d 246.
The sponsor must allow petitioners rescission if "there is a substantial amendment to the offering plan that adversely affects the purchasers." 13 N.Y.C.R.R. § 18.5(a)(5). See 13 N.Y.C.R.R. § 21.5(a)(6). A "substantial amendment" includes "an increase . . . in the mortgage amount." 13 N.Y.C.R.R. § 18.5(a)(7). See Knopf v. Abrams, 174 A.D.2d 915, 917 (3d Dep't 1991). Thus the only issue is whether respondent's determination that the additional financing did not adversely affect petitioners, because the lender's security interest in the Mark Hotel was subordinated to the rights of the cooperative and purchasers of units, was arbitrary. Parties to a transaction involving realproperty, such as this additional financing for renovation of the Mark Hotel, may agree to subordinate the parties' rights in the property to the rights of other interested parties, here the cooperative and purchasers of units. See Dime Sav. Bank v. Pesce, 93 N.Y.2d 939, 941 (1999); PETRA CRE CDO 2007-1, Ltd. v. Morgans Group LLC, 84 A.D.3d 614 (1st Dep't 2011).
Petitioners claim that the additional financing, once they learned about it, and despite its subordination to their rights, raised doubts concerning the sponsor's financial ability to complete the Mark Hotel's renovation into luxury cooperative units, thus heightening risks that they would not receive the luxury accommodations they bargained for. A determination whether the omission of this additional financing from the offering plan was material requires consideration of the undisclosed facts' impact on the total mix of relevant information, State of New York v. Rachmani Corp., 71 N.Y.2d 718, 727 (1988); Academy St. Assoc. v. Spitzer, 50 A.D.3d 271, 272 (1st Dep't 2008), and is necessarily a factual question. See 2 Fifth Ave. Tenants Assn. v. Abrams, 183 A.D.2d 577, 578 (1st Dep't 1992); Green Harbour Homeowners' Assn., Inc. v. G.H. Dev. & Constr., Inc., 14 A.D.3d 963, 967 (3d Dep't 2005). While the sponsor's inability to perform its obligations under the parties' purchase agreement is material, Academy St. Assoc. v. Spitzer, 50 A.D.3d at 272; State of New York v. Manhattan View Dev., 191 A.D.2d 259 (1st Dep't 1993), the total mix of relevant information includes petitioners' notice, through the offeringplan and its amendments, of the potential for further loans and renovation work after their purchase closed. The offering plan also expressly disclaimed any assurance that the sponsor would be able to sell all the cooperative units and thus realize that projected revenue to repay the indebtedness. Despite that knowledge, petitioners executed their purchase agreements.
The purpose of the requirement that the sponsor disclose material facts is to afford purchasers "an adequate basis upon which to found their judgment." N.Y. Gen. Bus. Law § 352-e(l)(b); 13 N.Y.C.R.R. § 21.1(b); People v. Lurie, 249 A.D.2d 119, 121 (1st Dep't 1998). Given that purpose and the information in the offering plan and its amendments, respondent...
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