COLISEUM PARK APTS. v. Coliseum Tenants Corp.

• Decision Date: 12 July 1990
• Docket Number: No. 89 Civ. 6981 (PKL).,89 Civ. 6981 (PKL).
• Citation: 742 F. Supp. 128
• Parties: COLISEUM PARK APARTMENTS COMPANY and Professional Office Leasing Associates, Plaintiffs, v. COLISEUM TENANTS CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

742 F. Supp. 128

COLISEUM PARK APARTMENTS COMPANY and Professional Office Leasing Associates, Plaintiffs, v. COLISEUM TENANTS CORPORATION, Defendant.

No. 89 Civ. 6981 (PKL).

United States District Court, S.D. New York.

July 12, 1990.

Rogers & Wells, New York City (James J. Maloney, Hector Gonzalez, of counsel), for plaintiffs.

Weisman, Celler, Spett & Modlin, New York City (John B. Sherman, of counsel), for defendant.

ORDER & OPINION

LEISURE, District Judge:

Plaintiffs Coliseum Park Apartments Company (the "Developer") and Professional Office Leasing Associates (the "Tenant") (collectively, "plaintiffs") bring this action for injunctive and declaratory relief seeking to prevent defendant Coliseum Tenants Corporation (the "Association") from terminating a lease (the "Commercial Lease" or the "Lease") pursuant to the Condominium and Cooperative Abuse Relief Act of 1980, 15 U.S.C. § 3601 et seq. Plaintiffs have filed a motion for summary judgment pursuant to Fed.R.Civ.P. 56 on counts I, II, and VII of the complaint, claiming that the Act does not authorize defendant to terminate the Lease under the pending circumstances, and that even if the Act did authorize the termination, defendant terminated the Lease in an improper and untimely fashion.

BACKGROUND

The Condominium and Cooperative Abuse Relief Act of 1980, 15 U.S.C. § 3601 et seq. (the "Act") was passed by Congress in order to allow cooperative associations to terminate under certain circumstances abusive and self-dealing leases and contracts.¹ The Act permits the unit owners or an association of unit owners to terminate without penalty any contract which (1) provides for the operation or maintenance of a condominium or cooperative; (2) is between the unit owners or any association of unit owners and the developer or an affiliate of the developer; (3) was entered into while the developer controlled the association; and (4) is for a period of more than three years. 15 U.S.C. § 3607(a). Termination pursuant to § 3607(a) must occur within two years of the date on which "special developer control," as defined in the statute, over the association ends, or the developer owns 25% or less of the units in the cooperative, whichever occurs first. 15 U.S.C. § 3607(b). Termination must be approved by two-thirds of the units other than any of the units owned by the developer. 15 U.S.C. § 3607(c).

The principal question raised by plaintiffs' motion for partial summary judgment is whether the Commercial Lease is "between" the Tenant, which is an affiliate of the Developer, and the Association in satisfaction of § 3607(a)(2). As will be discussed below, the Association is not an original party or a signatory of the Lease, and only assumed the duties of landlord under the Lease upon conversion of the properties. In addition, plaintiffs argue that many of the unit owners voted for termination of the Lease by proxy, which is not explicitly authorized by the Act, and that the vote for termination was untimely in violation of § 3607(b). In light of this overview of the relevant legal framework, the Court will now summarize the facts relevant to the pending motions.

Prior to the process of cooperative conversion, the Developer owned commercial and residential property located at 345 West 58th Street and 30 West 60th Street in Manhattan. The Developer had leased out to various tenants four office spaces, a garage, and storage space located at those properties. Affidavit of Bernard Aisenberg, sworn to on January 8, 1990, ¶¶ 4-5 ("Aisenberg Aff.").² On September 17, 1985, the Developer entered into the Commercial Lease with the Tenant, thereby leasing to the Tenant the office, garage, and storage spaces described above, and assigning to the Tenant its interests in the leases previously entered into for those spaces. Aisenberg Aff., ¶ 6. The Developer and the Tenant are closely affiliated entities, managed by the same general partners, and with overlapping groups of limited partners. Aisenberg Aff., ¶ 2.

The Commercial Lease entered into by the Developer and the Tenant provided for a four-year term commencing on October 1, 1985, with the option for automatic renewal by the Tenant for nine consecutive five-year periods. Aisenberg Aff., ¶ 7. For the first three years of the Lease, the Tenant paid the Developer $165,000 per annum, with an increase of 7.77% of the rise in certain operating expenses for each succeeding three-year period. The rent payable by the actual tenants of the spaces to the Tenant was $388,239.84 per annum as of May 1986, or $223,239.84 more than the sum owed to the Developer. Affidavit of Robert Seidelman, sworn to on February 20, 1990, ¶ 6 ("Seidelman Aff.").³

In May 1986, the Developer filed the Amended and Restated Offering Plan (the "Offering Plan"), and thereby commenced the process of conversion of both the commercial and residential properties to cooperative ownership. The Offering Plan disclosed to prospective purchasers that the transfer of title to the property was subject to the Commercial Lease, discussed the material provisions of the Lease, and set forth the relevant provisions of the Act. Aisenberg Aff., ¶ 8. On December 15, 1986, the conversion was completed, and the Developer transferred its leasehold interests in the property to the Association. Simultaneously, Circle Land Corp., the holder of the fee estate in the property, transferred the fee estate to the Association, and the leasehold interest and the fee estate were thereby merged in the possession of the Association. Seidelman Aff., ¶¶ 7-8.

At the time of conversion, all of the Directors of the Association were nominees and agents of the Developer, and the Developer owned a majority of shares in the Association. The Developer continues to own more than 25% of the shares of the Association. In addition, pursuant to the Offering Plan, each proprietary cooperative lease agreement contains explicit provisions granting the Developer substantial powers over the Association. Seidelman Aff., ¶ 11.

On June 28, 1989, the Board of Directors of the Association formally notified all shareholders possessing proprietary cooperative leases that a special shareholders' meeting would be held on July 27, 1989, to vote on whether to terminate the Commercial Lease pursuant to the Act. Seidelman Aff., ¶¶ 12-13. The Association did not formally notify the Developer and the Tenant of the meeting. Such notification is not required by the Act, as only the actual unit owners are authorized to vote on termination of a lease under these circumstances. See 15 U.S.C. § 3607(c); Seidelman Aff., ¶ 13. Two-hundred forty of the 316 unit owners cast votes either by ballot or by proxy. Two-hundred thirty-nine shareholders voted to terminate the Commercial Lease, and one shareholder abstained. Seidelman Aff., ¶ 15. The Association then notified the Tenant that the Lease would be terminated as of December 15, 1989. With the filing of this lawsuit, the parties have stipulated to continue operations under the Lease until the relevant legal disputes are resolved.

DISCUSSION

A. Standard for Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "`Summary judgment is appropriate when, after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party.'" Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8, 10 (2d Cir.1989) (quoting Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391, 102 L.Ed.2d 380 (1988)).

The substantive law governing the case will identify those facts which are material, and "only disputes over facts that might affect the outcome of the suit under the governing law will probably preclude the entry of summary judgment.... While the materiality determination rests on the substantive law, it is the substantive law's identification of which facts are crucial and which facts are irrelevant that governs." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "The judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there does indeed exist a genuine issue for trial." Id. at 249, 106 S.Ct. at 2510; see also R.C. Bigelow, Inc. v. Unilever N.V., 867 F.2d 102, 107 (2d Cir.), cert. denied sub nom. Thomas J. Lipton, Inc. v. R.C. Bigelow, Inc., ___ U.S. ___, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion" and identifying which materials it believes "demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); see also Trebor Sportswear Co. v. Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir.1989). "The burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex, supra, 477 U.S. at 325, 106 S.Ct. at 2553. As the essential facts of the case related to the pending motions are undisputed, the Court is well positioned to decide plaintiffs' motions for summary judgment on the first, second, and seventh counts of the complaint.

B. Motion for Summary Judgment on Count I

In the first count of the complaint, plaintiffs allege that "neither the Association nor any of its unitholders is a party to the Commercial Lease... and the Commercial Lease is, therefore, not a contract within the meaning of Section...