Elias v. Orsid Realty Corp.

• Decision Date: 01 March 2013
• Docket Number: Index No. 106727/2010
• Citation: 2013 NY Slip Op 30419
• Parties: SIMON ELIAS and IZAK SENBAHAR, Plaintiffs v. ORSID REALTY CORPORATION and 75 EAST END OWNERS, INC., Defendants
• Court: New York Supreme Court

2013 NY Slip Op 30419

SIMON ELIAS and IZAK SENBAHAR, Plaintiffs v. ORSID REALTY CORPORATION and 75 EAST END OWNERS, INC., Defendants

Index No. 106727/2010

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 46

DATED: February 8, 2013

FILED: March 1, 2013

DECISION AND ORDER

LUCY BILLINGS, J.S.C.:

I. BACKGROUND

Plaintiffs, the holders of unsold shares in defendant cooperative corporation that owns the building at 75 East End Avenue, New York County, seek a declaratory judgment that sales of their shares are not subject to a "Financing Rule" adopted by the cooperative and defendant Orsid Realty Corporation, the cooperative's managing agent, and applied by the managing agent. Paragraph 38(b) of the cooperative's Propriety Lease authorizes Orsid Realty, not the cooperative itself, to approve the sales of unsold shares. See Likokas v. 200 E. 36th St. Corp., 48 A.D.3d 245, 246 (1st Dep't 2008); Yatter v. Continental Owners Corn., 22 A.D.3d 573, 574 (2d Dep't 2005). Application of the Financing Rule disqualifies any prospective buyer who proposes to finance more than two-thirds of the purchase price. Plaintiffs seek a companion injunction prohibiting Orsid Realty from applying the Financing Rule to the sales of plaintiffs' shares.

Defendants move for summary judgment on plaintiffs' claimfor declaratory relief, declaring in defendants' favor that defendants have permissibly applied their Financing Rule and may continue to apply it, and dismissing plaintiffs' claim for injunctive relief. C.P.L.R. §§ 3001, 3212(b). Plaintiffs cross-move for summary judgment on their two claims. Both sides stipulated that the court may consider their exhibits authenticated and admissible for purposes of summary judgment. These exhibits set forth specific evidentiary facts demonstrating entitlement to a declaratory judgment. Big Four LLC v. Bond St. Lofts Condominium, 94 A.D.3d 401, 402-403 (1st Dep't 2012); Mt. McKinley Ins. Co. v. Corning Inc., 33 A.D.3d 51, 57-58 (1st Dep't 2006); United States Fire Ins. Co. v. American Home Assur. Co., 19 A.D.3d 191, 192 (1st Dep't 2005); 319 McKibben St. Corp. v. General Star Natl Ins. Co., 245 A.D.2d 26, 29-30 (1st Dep't 1997). See Ahead Realty LLC v. India House, Inc., 92 A.D.3d 424, 425 (1st Dep't 2012); Thome v. Alexander & Louisa Calder Found., 70 A.D.3d 88, 99-100 (1st Dep't 2009); Long Is. Light. Co. v. Allianz Underwriters Ins. Co., 35 A.D.3d 253, 254 (1st Dep't 2006).

II. IMPLEMENTATION OF THE FINANCING RULE UNDER THE PROPRIETARY LEASE

Although the cooperative originally adopted the Financing Rule for sales of apartments occupied by shareholders, which ¶ 16 of the Proprietary Lease authorizes the cooperative to approve, nothing prohibits Orsid Realty from consulting with the cooperative regarding the approval of sales of unsold shares or from adopting policies consistent with the cooperative'spolicies. Concomitantly, nothing prohibits the cooperative from communicating its views regarding the approval of sales of unsold shares to its managing agent. Moses v. Brown Harris Stevens Residential Mat., LLC, 279 A.D.2d 257 (1st Dep't 2001); Wiener v. 150 W. End Owners Corp., 298 A.D.2d 385, 386 (2d Dep't 2002).

The Proprietary Lease does limit Orsid Realty's approval process, however, insofar as ¶ 38(b) requires that the managing agent not unreasonably withhold or delay its consent to the sales of unsold shares. Therefore the lease authorizes Orsid Realty's adoption and application of a policy or condition for approval of such sales only if it does not permit unreasonable withholding of consent. Zimiles v. Hotel Des Artistes, Inc., 216 A.D.2d 45 (1st Dep't 1995); Berglund v. 411 E. 57th Corp., 118 A.D.2d 431 (1st Dep't 1986); Himmelberger v. 40-50 Brighton First Rd. Apts Corp., 94 A.D.3d 817, 819 (2d Dep't 2012); Giordano v. Miller, 288 A.D.2d 181, 182 (2d Dep't 2001). See Demas v. 325 W. End Ave. Corp., 127 A.D.2d 476, 478 (1st Dep't 1987); Board of Mgrs. of Oceana Condominium No. Four v. Akodes, 71 A.D.3d 812, 813 (2d Dep't 2010); Zilberfein v. Palmer Terrace Coop., Inc., 18 A.D.3d 742, 744-45 (2d Dep't 2005).

Defendants justify their Financing Rule on the premise that the rule protects the cooperative's interest in the financial stability of its building. As plaintiffs acknowledge, the managing agent, acting on the cooperative's behalf, bears a duty to screen prospective buyers' finances and to reject buyers whose finances are inadequate to protect the interests of thecooperative's current shareholders. The cooperative is interested in assuring future shareholders' ability to pay maintenance charges regularly, as their failure to pay timely imposes a financial burden on other shareholders to make up the shortfall and maintain the cooperative's financial viability. Disapproval of financially weak buyers is thus rationally and legitimately related to the cooperative's interests. Gleckel v. 49 W. 12 Tenants Corp., 52 A.D.3d 469, 470 (2d Dep't 2008). See Keles v. Morningside Hgts. Hous. Corp., 8 A.D.3d 160, 161 (1st Dep't 2004); Stowe v. 19 E. 88th St., 257 A.D.2d 355, 356 (1st Dep't 1999).

Prospective buyers who propose to finance more than two-thirds of the purchase price, however, are not necessarily financially weak. Their finances are not necessarily inadequate to pay maintenance charges regularly or otherwise protect the interests of the cooperative's current shareholders. Allowing Orsid Realty to consider only the percentage of the purchase price prospective buyers propose to finance, to the exclusion of other factors that may bear on the adequacy of the buyers' finances and be rationally and legitimately related to the buyers' financial strength, is contrary to the cooperative's interests: the touchstone of reasonableness in this context. Gleckel v. 49 W. 12 Tenants Corp., 52 A.D.3d at 470. See West v. 332 E. 84th Owners Corp., 68 A.D.3d 499, 501 (1st Dep't 2009); Stowe v. 19 E. 88th St., 257 A.D.2d at 356; Demas v. 325 W. End Ave. Corp., 127 A.D.2d at 478.

Prospective buyers' applications to purchase plaintiffs' unsold shares include the buyers' employment records, income tax statements, contracts of sale, and applications to and commitments from the financing institutions: documents supplied at Orsid Realty's request. Nonetheless, Orsid Realty does not even review prospective buyers' applications if the buyers propose to finance more than two-thirds of the purchase price and therefore fail to satisfy the Financing Rule. Thus Orsid Realty does not consider any of the information in the applications showing the applicants' financial condition and ability to purchase and maintain a cooperative unit: their ability to repay the financing, pay maintenance, and shoulder all other financial obligations of cooperative ownership. Nor does Orsid Realty consider any other factor...