Bd. of Managers of Cathedral Tower Condo. v. Sendar Assocs. LLC, INDEX NO. 601602/2013
| Decision Date | 20 May 2014 |
| Docket Number | INDEX NO. 601602/2013 |
| Citation | 2014 NY Slip Op 33846 (U) |
| Parties | BOARD OF MANAGERS OF CATHEDRAL TOWER CONDOMINIUM, Plaintiff, v. SENDAR ASSOCIATES LLC and ADAM KATZ, Defendants. |
| Court | New York Supreme Court |
ORIGINAL
SHORT FORM ORDER
Present: HON. TIMOTHY S. DRISCOLL Justice Supreme Court
Papers Read on this Motion:
This matter is before the court on the motion filed by Defendants Sendar Associates LLC ("Sendar") and Adam Katz ("Katz") ("Defendants") on January 6, 2014 and submitted on March 7, 2014, following oral argument before the Court. For the reasons set forth below, the Court grants Defendants' motion to the extent that the Court dismisses the first and second causes of action and dismisses all claims asserted against Defendant Katz personally, and otherwise denies the motion.
Defendants move for an Order, pursuant to CPLR §§ 3211(a)(1), (a)(5) and (a)(7), dismissing the Verified Complaint ("Complaint").
Plaintiff Board of Managers of Cathedral Tower Condominium ("Board" or "Plaintiff") opposes the motion.
The Complaint (Ex. A to Shemtoob Aff. in Supp.) alleges as follows:
The Cathedral Tower Condominium ("Condominium") was created by Declaration dated September 30, 2004, made by the Sponsor, Sendar. It is an unincorporated association of unit owners owning real property located at 514 West 110th Street, New York, New York 10025 and consists of 49 residential units, 48 locker units, 1 storage unit and 1 laundry unit. Katz is the member of Sendar, and the Principal of the Sponsor.
The Offering Plan contains a Certification of Sponsor and Principals ("Certification"), pursuant to which Defendants jointly and severally certified that the Offering Plan, and documents that amend and supplement it will, inter alia, 1) set forth the detailed terms of the transaction and will be complete, current and accurate; 2) afford potential investors, purchasers and participants an adequate basis on which to found their judgment; 3) not omit any material fact; and 4) not contain any false representation or statement.
The Complaint sets forth relevant provisions of the N.Y.C. Administrative Code ("Code") § 26-703, which mandates that a Sponsor of a Condominium conversion provide a minimum Reserve Fund for the Condominium. Pursuant to Code § 26-703(b), this funding can be accomplished in one of different ways, either by lump sum deposit equal to 3% of the total price (Code § 26-703(b)(i)), or through installments to be made over a statutorily prescribed time period, pursuant to a statutorily-prescribed calculation (Code § 26-703(b)(ii)).
Plaintiff alleges that the funding of the Condominium's Reserve Fund was incorrect because the Sponsor used the incorrect price in calculating its funding obligation. Plaintiff alleges that the Sponsor was required to fund "3% of the sum of the cost of all units in the offering at the last price which was offered to tenants in occupancy prior to the effective date" (Compl. at ¶ 19), and that the calculation of the "last price" is made by reference to relevant provisions in the Offering Plan, and the Fourth Amendment to the Plan dated February 14, 2005 which announced new offering prices for all of the units, as set forth in revised Schedule A.Plaintiff alleges that, as a result of the Sponsor's use of incorrect prices in calculating the required contribution to the Reserve Fund, the Reserve Fund has been underfunded in an amount of no less than $522,760.00. Plaintiff alleges, further, that all Unit Purchasers signed purchase agreements that incorporated the obligations made by Defendants in the Offering Plan for the Condominium, and the Offering Plan contains a section titled "Reserve Fund" which sets forth Defendants' contractual obligation to properly fund the Reserve Fund according to law.
The Complaint contains four (4) causes of action: 1) a request for a declaratory judgment declaring that Defendants have failed to fund the Reserve Fund in an amount which is 3% of the sum of the cost of all units in the offering at the last price which was offered to tenants in occupancy prior to the effective date, 2) a request for an injunction directing Defendants to make additions to the Reserve Fund which calculates 3% of the Total Price as $1,346,048.00, and 3) the third and fourth causes of action which allege breaches of the Offering Plan.
In support of Defendants' motion, Lida Shemtoob ("Shemtoob"), an officer of Sendar and member of the Board, provides copies of the Complaint, as well as the following documents, designated Exhibits B-U: Cathedral Tower Offering Plan, Sections A through GG; Section D of the Offering Plan titled "Offering Prices and Related Information - Schedule A;" Document 10A of Offering Plan (Sponsor Certification); First Amendment to Offering Plan dated June 10, 2004; Fourth Amendment to Offering Plan dated February 14, 2005; Fifth Amendment to Offering Plan dated April 21, 2005; Letter to Office of New York State Attorney General dated August 5, 2005; Sixth Amendment to Offering Plan dated August 19, 2005; Proof of Service of Sixth Amendment of Offering Plan; Eighth Amendment to Offering Plan dated April 24, 2006; Twelfth Amendment to Offering Plan dated September 21, 2010; Thirteenth Amendment to Offering Plan dated September 6, 2011; Fourteenth Amendment to Offering Plan dated August 30, 2012; Fifteenth Amendment to Offering Plan dated September 16, 2013; Proof of Deposits by Sendar into Cathedral Tower's Reserve Fund; Cathedral Tower's Financial Statements, April 30, 2013 and 2012; Cathedral Tower's Financial Statements, April 30, 2012 and 2011; Cathedral Tower's Financial Statements, April 30, 2011 and 2010; Cathedral Tower's Financial Statements, April 30, 2009 and 2008; and a copy of a summons and complaint in an action titled Sendar Associates v. Board of Managers of Cathedral Tower Condominium, Nassau CountyIndex Number 601316/13.
In opposition to the motion, Steven McGarry ("McGarry"), the President of the Board, affirms that he has been a member of the Board since 2005, and became its President in 2010. McGarry submits that the documentary evidence submitted establishes that the Sponsor did not fund 3% of the "total price" (McGarry Aff. in Opp. at ¶ 10), as required by statute, because the Sponsor used the "total initial Insider Prices to residential tenants" (id.). McGarry affirms that the last price that the Sponsor offered to tenants in occupancy was established in Revised Schedule A, which is Exhibit B to the Fourth Amendment to the Offering Plan ("Fourth Amendment"). The Offering Price set forth in Revised Schedule A is higher than both the "Initial Inside Price" and "Initial Outside Price" found in the initial Schedule A (id. at ¶ 11), and the Initial Inside Price did not last beyond 90 days following the initial presentation of the Offering Plan to tenants in occupancy. As a result of the miscalculation of the total price, as required by statute, the Sponsor underfunded the Reserve Fund.
McGarry submits, inter alia, that 1) there is no merit to Defendants' argument that Plaintiff's claims are barred by the statute of limitations because the Board's claims did not accrue until June 2010, which is five years and 30 days after the closing of the conversion on May 20, 2005; and 2) Defendants' waiver and laches arguments are without merit because the Sponsor "dominated the affairs of the Condominium through July 2010" (McGarry Aff. in Opp. at ¶ 17) and continues to be involved in Condominium matters and, since unit owners took control of the Board in July 2010, the Board has acted diligently to investigate and assert its rights against the Sponsor.
In reply, Shemtoob affirms that the financial statements submitted, which the Board approved, acknowledge that the Sponsor was obligated to establish a Minimum Reserve Fund for the Condominium in the amount of $823,288, and that the Sponsor funded the unpaid balance of the Minimum Reserve Fund. Shemtoob affirms that these financial statements were discussed at the Board's meetings, in the presence of the Board's accountants, and then issued with the Board's approval.
Defendants also provide an affidavit of Alan L. Kazlow ("Kazlow"), an attorney whose practice is devoted to the conversion of properties to cooperative and condominium ownership.Kazlow affirms that he authorized the Offering Plan dated May 20, 2004, and its Amendments. Kazlow affirms that "[t]he Attorney General's acceptance and filing of the Fifth Amendment necessarily is a finding that the two Tenant-purchasers being counted toward effectiveness entered into Purchase Agreements without discriminatory inducements and, as a result, the prices in the Fourth Amendment were offered to only Outsiders" (Kazlow Reply Aff. at ¶ 31). Kazlow submits, therefore, that the Initial Insider Price in Schedule A of the Plan was the last price to Tenants in occupancy prior to the effective date for purposes of computing the amount of the Reserve Fund under the Reserve Fund Law.
Defendants submit that Sendar deposited the correct sum into the Reserve Fund, using the installment method of paying into the Reserve Fund. They argue that the Sixth Amendment, which the New York State Attorney General accepted for filing, calculated the Minimum Reserve Fund...
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