Park So. Tenants v. 200 Cent. Park So. Associates, 89 Civ. 8251 (WCC).

• Decision Date: 17 October 1990
• Docket Number: No. 89 Civ. 8251 (WCC).,89 Civ. 8251 (WCC).
• Citation: 748 F. Supp. 208
• Parties: PARK SOUTH TENANTS CORPORATION, Plaintiff, v. 200 CENTRAL PARK SOUTH ASSOCIATES, L.P., Bernard Spitzer, Jack Lipman and Melvin D. Lipman, Defendants.
• Court: U.S. District Court — Southern District of New York

748 F. Supp. 208

PARK SOUTH TENANTS CORPORATION, Plaintiff, v. 200 CENTRAL PARK SOUTH ASSOCIATES, L.P., Bernard Spitzer, Jack Lipman and Melvin D. Lipman, Defendants.

No. 89 Civ. 8251 (WCC).

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

October 12, 1990.

As Amended October 17, 1990.

Teitelbaum, Hiller, Rodman, Paden & Hibsher, P.C., New York City (Robert Hermann, of counsel), for plaintiff.

Lowenthal, Landau, Fischer & Ziegler, P.C., New York City (Robert D. Levin, Annette Ferstenberg, Jonathan Honig, of counsel), for defendant.

OPINION AND ORDER

WILLIAM C. CONNER, District Judge.

Plaintiff Park South Tenants Corporation brings this claim for damages, pursuant to Section 3607 of the Condominium and Cooperative Protection and Abuse Relief Act of 1980 (the "Act"), 15 U.S.C. § 3601 et seq, against defendants 200 Central Park South Associates (the "Sponsor") and Bernard Spitzer, Jack Lipman and Melvin D. Lipman, as individuals and as directors of plaintiff (collectively, the "Directors"). Plaintiff further bases its claim for damages on defendants' alleged breach of their fiduciary duty to plaintiff. This action is presently before the Court on defendants' motion for summary judgment pursuant to Fed.R.Civ.P. 56(c) and for plaintiff's cross-motion for partial summary judgment pursuant to Fed.R.Civ.P. 56(c).

Background

On January 16, 1984, the apartment building at 200 Central Park South was converted from a rental to a cooperative. Defendant 200 Central Park South Associates, a limited partnership whose general partners are Bernard Spitzer, Ann Spitzer, Jack Lipman and Melvin D. Lipman, offered for sale the shares appurtenant to 309 residential units. According to the terms of the offering plan (the "Plan") dated May 2, 1983, which set out the details of the proposed transaction, defendant Sponsor offered for sale 310,118 of the 325,000 authorized shares of the cooperative. Complaint ¶ 5. A copy of the Plan was made available as part of the prospectus package provided each potential buyer by defendant Sponsor. The Plan was declared effective on January 16, 1984 with the sale of approximately 17 percent of the apartment units in the building at closing.

One of the provisions of the Plan was a leasing arrangement whereby defendant Sponsor entered into a master commercial lease (hereinafter the "Lease") with plaintiff covering the indoor parking garage in the apartment building, two retail stores and nineteen professional offices at 200 Central Park South. Complaint, ¶ 7. The lease, as amended, is to run for fifty years from the closing, in ten five-year terms, unless terminated sooner by defendant Sponsor. It prescribes a single unapportioned rent of $400,000 per year for the first five-year term for all of the leased commercial space, increasing each term thereafter by 12 percent of any increase in operating expenses over plaintiff's actual operating expenses for the first year of the preceding five-year term.

Along with plaintiff's by-laws, section O of the Plan stipulates that there be no less than three nor more than seven directors. The Plan further provides that principals of defendant Sponsor or their designees who are in possession of shares in the cooperative that were transferred and not sold to them by defendant Sponsor ("Holders of Unsold Shares") may not elect a majority of the members of the Board of Directors, after (a) fifty percent of the outstanding shares in the cooperative have been sold to persons other than such principals or designees of defendant Sponsor, or (b) five years from the closing date, whichever should occur first. Similarly, plaintiff's governing documents reserve for defendant Sponsor the right to veto certain prescribed actions of plaintiff as long as any Holders of Unsold Shares, including defendant Sponsor, constitute at least 25 percent of the then-outstanding capital stock of the cooperative, for a period of up to five years after closing. Plaintiff, acting by the Board of Directors or otherwise and subject to the veto provisions, cannot, without the consent of the Holders of Unsold Shares, "enter into any new mortgage or contracts of sale or lease of the land or the building, other than as set forth in the Plan." (By-laws, Art. XII, section 2(ii)).

At the first meeting of plaintiff's shareholders, defendant Sponsor, along with defendant Directors, owned a substantial majority of plaintiff's shares and was therefore able to exercise its voting block and elect a majority of plaintiff's five directors. This situation continued until May 8, 1989 whereupon an unaffiliated Board of Directors was elected by the shareholders. Complaint ¶ 14. Defendant Sponsor was required to relinquish and thereafter did relinquish control of the board of Directors soon after January 16, 1989 — five years from the date of the closing as required by the cooperative's governing documents. On or about December 12, 1989, defendant Sponsor was notified by plaintiff that, pursuant to a vote of the shareholders representing 105 of the 120 apartment units and 107,331 of the 123,820 shares entitled to vote at a special meeting held on December 5, 1989, plaintiff elected to terminate that portion of the lease pertaining to the garage, effective ninety days from the date of the notice.¹ Complaint, ¶ 19. Defendant Sponsor relinquished control of the garage as of the end of March, 1990 without protest. Since April 1, 1990, a new garage operator has been managing the premises under an agreement cancellable on thirty days notice.

Plaintiff commenced this action simultaneously with the delivery of the notice of termination on December 12, 1989 and alleges that defendant Sponsor, along with defendant Directors, interfered with plaintiff's rights under 15 U.S.C. § 3607 from the inception of the Lease. Plaintiff further claims that while the Plan, which was accepted for filing by the New York State Department of Law, disclosed the basic terms of the lease, it failed to make reference to the provisions of the Act which concededly permit the termination of the lease by plaintiff and did not refer in any way to the possibility of such a termination by plaintiff or the consequences thereof. Plaintiff seeks relief in the form of damages from the defendants in an amount equal to the profits realized by defendant Sponsor through the operation of the garage from the closing January 16, 1984 up to and including the effective date of the termination of the Garage portion of the Lease March 13, 1990.

Discussion

Standard for Summary Judgment

A party seeking summary judgment must demonstrate that "there is no genuine issue as to any material fact." Fed.R. Civ.P. 56(c); Knight v. U.S. Fire Insurance Company, 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). It must establish that there is a "genuine issue for trial." Id. at 587, 106 S.Ct. at 1356. "In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight 804 F.2d at 11. The inquiry under a motion for summary judgment is thus the same as that under a motion for directed verdict: "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as matter of law." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986).

Defendants' Motion for Summary Judgment

Plaintiff asserts that defendants violated 15 U.S.C. § 3607 "from the time of the Closing up to and including the effective date of the termination of the Garage portion of the Lease ..." Complaint ¶ 22. In requesting damages retroactive to the first day on which the garage portion of the Lease was executed, plaintiff argues that it was blocked from exercising its option to terminate the Lease pursuant to Section 3607 because defendant Sponsor was exercising what plaintiff terms "special developer control" from the inception of the leasing arrangement. Complaint, ¶ 22. In order for plaintiff's claim to survive defendants' motion, the Court must find that, as a matter of law; (a) plaintiff's accrual of the statutory right under Section 3607 to terminate the Lease occurred simultaneously with the execution of the Lease; and if such right accrued as of the inception of the Lease, that (b) defendants' actions from the date of closing until plaintiff's termination of the Lease frustrated the aforementioned right of termination.

(a) Statutory Background

The Condominium and Cooperative Protection and Abuse Relief Act of 1980 was promulgated to abate specific abusive practices occurring in the cooperative and condominium conversion process. See H.R. Conf. rep. No. 96-1420, 96th Cong., 2d Sess. 4 reprinted in 1980, U.S.Code Cong. & Admin.News 3506, at 3707; see also Park East Apartments, Inc. v. 233 East 86th Street Corp., 139 Misc.2d 806, 529 N.Y. S.2d 674 (N.Y.Co.1988), withdrawn, 143 Misc.2d 60, 543 N.Y.S.2d 610 (App. Term, 1st Dept.1989). Section 3067 of the Act, in particular, was a response to the activities of many developers in the 1970's who created "sweetheart" lease arrangements and self-dealing contracts as a condition of sale. See West 14th St. Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 198 (2nd Cir.), cert. denied, 484 U.S. 850, 108 S.Ct. 151, 98 L.Ed.2d 107 (1987).

The legislative history of the Act reveals the effort on the part of Congress to "assure fair and equitable principles are followed in the establishment of ......