Sansol Industries, Inc. v. 345 East 56th Street Owners, Inc.

• Decision Date: 09 December 1993
• Citation: 606 N.Y.S.2d 856,159 Misc.2d 822
• Parties: SANSOL INDUSTRIES, INC., Plaintiff, v. 345 EAST 56TH STREET OWNERS, INC., Defendant.
• Court: New York Supreme Court

Page 856

606 N.Y.S.2d 856

159 Misc.2d 822

SANSOL INDUSTRIES, INC., Plaintiff, v. 345 EAST 56TH STREET OWNERS, INC., Defendant.

Supreme Court, New York County IAS Part 53.

Dec. 9, 1993.

Jonathan David Bachrach, New York City, for plaintiff.

Salon, Marrow & Dyckman by George Tzimopoulos, New York City, for defendant.

STEPHEN G. CRANE, Justice:

On February 24, 1993, this court issued an order granting defendant's motion to vacate a notice of pendency. This opinion was to follow.

Plaintiff was the highest bidder at a foreclosure auction of 50 apartments in defendant's co-operative building. For reasons this court previously found sufficient to deny a preliminary injunction to prevent sale to third parties of the stock attributable to these apartments, the defendant rejected plaintiff's high bid. ¹ On October 8, 1992, the preliminary injunction was denied. On November 13, 1992, plaintiff filed a notice of pendency against the proprietary leases for these 50 apartments.

This case presents squarely the very issue that the Court of Appeals reserved for future determination in 5303 Realty Corp. v. O & Y Equity Corp., 64 N.Y.2d 313, 323-324, n. 7 486 N.Y.S.2d 877, 476 N.E.2d 276. The O & Y case held that the sale of stock of a corporation whose sole asset is real property would not support the filing of a notice of pendency. O & Y also teaches that a notice of pendency is strictly limited to suits affecting title to, or possession, use or enjoyment of, real property so that an action to compel specific performance of the sale of stock, albeit representing a beneficial interest in realty, would not support this provisional remedy. Id. at 315-316, 486 N.Y.S.2d 877, 476 N.E.2d 276. Strict compliance with the statute is required. Israelson v. Bradley, 308 N.Y. 511, 516, 127 N.E.2d 313; Chambi v. Navarro, Vives & Cia, Ltd., 95 A.D.2d 667, 463 N.Y.S.2d 218.

Review of the notice of pendency is limited to the pleading on which the device rests pursuant to CPLR 6501. ² Id., 64 N.Y.2d at 320, 486 N.Y.S.2d 877, 476 N.E.2d 276. The complaint at bar contains six causes of action: (1) for money damages for breach of contract; (2) for specific performance of plaintiff's successful bid for the shares allocated to the 50 apartments and their appurtenant proprietary leases; (3) for a constructive trust of the shares; (4) for damages for conversion of the shares; (5) for fraud damages; and (6) for return of plaintiff's deposit and attorney's fees.

Arguably, the second cause of action for specific performance with its objective of obtaining for plaintiff the shares and appurtenant proprietary leases is the only foundation for the notice of pendency. Indeed, plaintiff argues that apartments, not shares, are the substance of the transaction and that it is a fiction to say that the right to enjoyment, use and possession of the apartments themselves are not at stake here. Yet, this self-same observation was made by Jasen, J., in the dissent in O & Y, 64 N.Y.2d at 325, 486 N.Y.S.2d 877, 476 N.E.2d 276: "The essence of the instant transaction does not concern recovery of legal tender, securities, or articles of ordinary commerce, but, rather, the conveyance of real property." When it is recalled that the transaction in O & Y was structured as a sale of stock instead of a direct purchase of the real estate in order to avoid the real estate transfer tax, it becomes patent that the majority in O & Y was rejecting Judge Jasen's invitation to analyze the substance of the transaction. This rejection impels this court to reject plaintiff's identical argument in the case at bar.

We all know that stock in a residential co-operative corporation with its appurtenant proprietary lease is subject to various characterizations as realty or personalty depending upon the purpose of the characterization. See, e.g., Matter of Carmer, 71 N.Y.2d 781, 784-785, 530 N.Y.S.2d 88, 525 N.E.2d 734; Matter of State Tax Comm. v. Shor, 43 N.Y.2d 151, 156-157, 400 N.Y.S.2d 805, 371 N.E.2d 523; Silverman v. Alcoa Plaza Assoc. 37 A.D.2d 166, 168-172, 323 N.Y.S.2d 39; Note, Legal Characterization of The Individual's Interest in a Cooperative Apartment: Realty or Personalty?, 73 ColLRev 250, 263 (1973). The plaintiff claims that the reference in the second cause of action to the proprietary leases appurtenant to the shares for these 50 apartments takes this case out of the realm of personalty and amounts to a claim affecting enjoyment, use or possession of real property. This characterization has already been rejected, however, at least for purposes of CPLR 5203 and the ranking of judgment creditors:

"The ownership interest of a tenant-shareholder in a co-operative apartment is sui generis. It reflects only an ownership of a proprietary lease, and therefore arguably an interest in a chattel real, conditional however upon his shareholder interest in the co-operative corporation, an interest always treated as personal property. The leasehold and the shareholding are inseparable. For some special purposes, the real property aspect may predominate.... But, where priorities of judgment creditors are involved, the stock certificate and lease involved in the typical co-operative apartment transaction fit better, legally and pragmatically, although with imperfect linguistic formulation, into the statutory framework governing personal property. Since a co-operative apartment leasehold, inseparable from co-operative shares, is not a chattel real for purposes of CPLR 5203, Fidelity, did not obtain a lien merely upon docketing its judgment." [citations omitted] State Tax Comm. v. Shor, supra, 43 N.Y.2d at 154, 400 N.Y.S.2d 805, 371 N.E.2d 523.

Accord, Grumman Corp. v. Bd. of Assessors, 2 N.Y.2d 500, 507, 161 N.Y.S.2d 393, 141 N.E.2d 794 ("It is significant to note that nowhere in the Tax Law has the Legislature characterized a leasehold as taxable real property. Such omission is understandable, as a lease for years is deemed personalty."), cert. denied, 355 U.S. 814, 78 S.Ct. 14, 2 L.Ed.2d 31; State Tax Comm. v. Shor, 53 A.D.2d 814, 815, 385 N.Y.S.2d 290, aff'd, 43 N.Y.2d 151, 400 N.Y.S.2d 805, 371 N.E.2d 523 ("The corporation is sole owner of the land and building. It is the stock and not the lease, which is sold. And stock ownership is a prerequisite to procuring a lease.... It necessarily follows then that an interest in a co-operative apartment is not a chattel real...."); Silverman v. Alcoa Plaza Assoc., 37 A.D.2d 166, 172, 323 N.Y.S.2d 39 ("... [A] proprietary lease is no different from any other type of lease. It is personal property."); Gyurek v. 103 E. 10th Owners, 128 Misc.2d 384, 385, 490 N.Y.S.2d 415 (Greenfield, J.) ("It is well settled that a leasehold interest is not an interest in real property, but is deemed to be personalty."). ³ Condominiums, on the other hand, are treated differently. See, Frisch v. Bellmarc Mgt., 190 A.D.2d 383, 597 N.Y.S.2d 962.

The court's conclusion finds further support in several Supreme Court cases. For example, a notice of pendency was vacated in an action for specific performance of the sale of shares of a co-operative apartment since those shares are personal and not real property. La Shannon v. Grinnell Hous. Dev. Fund, Index No. 10442/84, 10/22/84. Similarly, where the plaintiff sought to compel defendants to issue shares of stock and a proprietary lease in a co-operative apartment alleging he was fraudulently induced to enter into an assignment of his subscription agreement, the court vacated the notice of pendency on the ground that the shares of co-operative stock were personalty and thus not a right, title or interest in the property that CPLR 6501 was enacted to preserve. Shapiro v. 420 East Assoc., NYLJ, June 27, 1984, at 7, col 1; see also, Genesis Mgt. Corp. v. Silver, NYLJ, Nov. 16, 1983, at 6, col 4.

The only case that, at first blush, appears to undermine the characterization as personalty of an interest in a residential co-operative is Lawlor v. Densmore-Compton Building Co....