Sulcov v. 2100 Linwood Owners, Inc.

• Citation: 696 A.2d 31,303 N.J.Super. 13
• Decision Date: 23 June 1997
• Docket Number: CO-O,INC,BEN-DAVID
• Parties: Sidney and Evelyn SULCOV, Lila Kahan, Irving and Lulu Kaufman, Stephan and Maxine Sands, and Morton and Shirley Mock, individually and on behalf of former subscribers/purchasers of the common stock of 2100 Linwood Owners, Inc., similarly situated, Plaintiffs-Respondents, v. 2100 LINWOOD OWNERS, INC., a Corporation of the State of New Jersey and Board of Directors, John Doe and Jane Doe, representing the Board of Directors, Defendants-Appellants. Joel and Francine ZELNIK, Eli Rosen, Hortense R. Lawn, Harvey and Dorothy Staub, and Neal Hartmann, individually and on behalf of former subscribers/purchasers of the common stock of Mediterranean Towers West Owners, Inc., Plaintiffs-Respondents, v. MEDITERRANEAN TOWERS WEST OWNERS, INC., a Corporation of the State of New Jersey and Board of Directors, and John Doe and Jane Doe, representing the Board of Directors, Defendants-Appellants. Maryann McINTYRE, Helen and Hal Miles, Susan J. Haber, John Rush, and James Villamana, individually and on behalf of former subscribers/purchasers of the common stock of 1170 Apartment Corp., similarly situated, Plaintiffs-Respondents, v. 1170 APARTMENT CORP., a Corporation of the State of New Jersey and Board of Directors, John Doe, and Jane Doe, representing the Board of Directors, Defendants-Appellants. Barbara, and Abdollah Yamani, individually and on behalf of former subscribers/purchasers of the common stock of Bridge Plaza Co-Op, Inc., similarly situated, Plaintiffs-Respondents, v. BRIDGE PLAZA, a Corporation of the State of New Jersey and Board of Directors, John Doe and Jane Doe, representing the Board of Directors, Defendants-Appellants. Stanley and Diane HABER, individually and on behalf of former subscribers/purchasers of the common stock of Regency Co-Op, Inc., Plaintiffs-Respondents, v. REGENCY, a Corporation of the State of New Jersey and Board of Directors, John Doe and Jane Doe, representing the Board of Directors, Defendants-Appellants. Bruce BRONSTER and Rudolph Mosca, ind
• Court: New Jersey Superior Court – Appellate Division

Page 13

303 N.J.Super. 13

696 A.2d 31

Sidney and Evelyn SULCOV, Lila Kahan, Irving and Lulu

Kaufman, Stephan and Maxine Sands, and Morton and Shirley

Mock, individually and on behalf of former

subscribers/purchasers of the common stock of 2100 Linwood

Owners, Inc., similarly situated, Plaintiffs-Respondents, v. 2100 LINWOOD OWNERS, INC., a Corporation of the State of New

Jersey and Board of Directors, John Doe and Jane

Doe, representing the Board of

Directors, Defendants-Appellants.

Joel and Francine ZELNIK, Eli Rosen, Hortense R. Lawn,

Harvey and Dorothy Staub, and Neal Hartmann, individually

and on behalf of former subscribers/purchasers of the common

stock of Mediterranean Towers West Owners, Inc., Plaintiffs-Respondents, v. MEDITERRANEAN TOWERS WEST OWNERS, INC., a Corporation of the

State of New Jersey and Board of Directors, and

John Doe and Jane Doe, representing the

Board of Directors,

Defendants-Appellants.

Maryann McINTYRE, Helen and Hal Miles, Susan J. Haber, John

Rush, and James Villamana, individually and on behalf of

former subscribers/purchasers of the common stock of 1170

Apartment Corp., similarly situated, Plaintiffs-Respondents, v. 1170 APARTMENT CORP., a Corporation of the State of New

Jersey and Board of Directors, John Doe, and Jane

Doe, representing the Board of

Directors, Defendants-Appellants.

Barbara BEN-DAVID, and Abdollah Yamani, individually and on

behalf of former subscribers/purchasers of the

common stock of Bridge Plaza Co-Op, Inc., similarly situated, Plaintiffs-Respondents, v. BRIDGE PLAZA CO-OP, INC., a Corporation of the State of New

Jersey and Board of Directors, John Doe and Jane

Doe, representing the Board of

Directors, Defendants-Appellants.

Stanley and Diane HABER, individually and on behalf of

former subscribers/purchasers of the common stock

of Regency Co-Op, Inc., Plaintiffs-Respondents, v. REGENCY CO-OP, INC., a Corporation of the State of New

Jersey and Board of Directors, John Doe and Jane

Doe, representing the Board of

Directors, Defendants-Appellants.

Bruce BRONSTER and Rudolph Mosca, individually and on behalf

of former subscribers/purchasers of the common

stock of Northbridge Park Co-Op Inc., similarly situated, Plaintiffs-Respondents, v. NORTHBRIDGE PARK CO-OP, INC., a Corporation of the State of

New Jersey and Board of Directors, John Doe and

Jane Doe, representing the Board of

Directors, Defendants-Appellants.

Superior Court of New Jersey,

Appellate Division.

Argued March 10, 1997.

Decided June 23, 1997.

Richard E. Brennan, Morristown, for defendants-appellants (Shanley & Fisher, attorneys; Mr. Brennan, of counsel; R. Scott Eichborn and Dona Feeney, on the brief).

Howard M. Nashel, Hackensack, for plaintiffs-respondents (Nashel, Kates, Nussman, Rapone & Ellis, attorneys; Mr. Nashel, Joel M. Ellis, Hackensack, and Mukesh M. Patel, Philadelphia, PA, on the brief).

Before Judges PETRELLA, WALLACE and KIMMELMAN.

The opinion of the court was delivered by

WALLACE, J.A.D.

This appeal presents an issue of first impression in New Jersey with respect to the validity of "flip fees," "flip taxes," "transfer fees," or "transfer taxes" (transfer fees) paid to a cooperative corporation when stock shares in cooperatives are transferred. Six class action suits against six cooperative apartment corporations in Fort Lee were filed in November 1989, and consolidated. Plaintiffs challenged the validity of transfer fees and sought refunds from defendants. On cross-motions for summary judgment, the motion judge held that the transfer fees were "invalidly promulgated" because all defendants had failed to provide for transfer fees in particular governing documents, as required by N.J.S.A. 14A:7-12(2). The remaining issues were tried before a different judge who found in favor of plaintiffs and entered an order for the return of all transfer fees charged plus interest.

On appeal defendants contend that (1) the transfer fees were valid; (2) the court erred in denying their request to change provisions of notices to class members; (3) they were entitled to recoupment; (4) the court failed to set forth a procedure for distribution of unclaimed funds; and (5) prejudgment interest was not warranted. In addition, in their reply brief defendants argue for the first time that in the alternative, this court's ruling should be made purely prospective. Except with regard to Northbridge Park Co-Op, Inc., and the computation of prejudgment interest, we affirm.

I

Plaintiffs are present or former shareholders of one of the defendant cooperative corporations who seek the invalidation and return of the fees paid upon transfer of their shares. The six defendants are not-for-profit cooperative real estate corporations created before 1988 under the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq.

The structure of cooperative apartment ownership is described in Drew Assocs. of NJ v. Travisano, 122 N.J. 249, 255-56, 584 A.2d 807 (1991). Briefly, a building owner becomes a sponsor by creating a corporate entity, which purchases the property and issues stock allocated according to the estimated relative value of each of the cooperative apartments. Id. at 255, 584 A.2d 807. Purchasers of shares acquire individual housing units and have an exclusive right of occupation, represented by a proprietary lease. Ibid. The tenant-shareholder pays a monthly carrying charge which represents a proportional share of the mortgage payment, common expenses, and taxes. Ibid.

Briefly, we now recite the facts pertinent to each defendant.

2100 LINWOOD AVENUE OWNERS, INC.

2100 Linwood Avenue Owners, Inc. (2100 Linwood) filed its Certificate of Incorporation (Certificate) on January 22, 1982. In its Offering Statement filed with the Agency, the corporation established a working capital fund for repairs, improvements, or other corporate purposes. The first amendment to the Offering Statement dated October 6, 1982, provided for a transfer fee:

Sale of Shares by Persons Other Than Sponsor--Any seller of a block of shares and the Proprietary Lease ¹ allocated thereto, other than the Sponsor, its designee, or the Apartment Corporation, shall pay, upon the first such sale, the sum of $1,500 to the Working Capital Fund of the Apartment Corporation.

This sum was changed to $500 by the second amendment to the Offering Statement dated January 5, 1983, and then to $1,000 by the third amendment, dated February 25, 1983. The fourth amendment dated July 22, 1983 provided that any original tenant-purchaser who had contracted to sell prior to the date of the third amendment would pay only a $500 fee.

The by-laws authorized the board of directors generally to determine the cash requirements of the cooperative. Specifically, the by-laws authorized the board of directors to "impose any maintenance or other charge (regular or special) for the purposes of making any capital or major improvement or addition, unless required by law," and to adopt rules for managing the affairs of the corporation as it deemed proper, provided those rules were not inconsistent with state law, the Certificate or the by-laws. The by-laws also authorized the board "to fix by resolution and to collect, before any assignment of a proprietary lease or any reallocation of shares takes effect, reasonable fees to cover the corporation's expenses and attorneys' fees in connection with such proposed assignment, or reallocation, or both, as the case may be." Effective September 1, 1993, the by-laws were amended to provide for a transfer fee of $5 per share. However, prior to the 1993 by-law amendment the by-laws did not expressly provide for transfer fees.

The proprietary lease provided in section 16 as a condition of assignment All sums due from the Lessee shall have been paid to the Lessor, together with a sum to be fixed by the Directors to cover reasonable legal and other expenses of the Lessor and its managing agent in connection with such assignment and transfer of shares....

The parties stipulated on December 2, 1994 that this plaintiff class paid transfer fees from 1984 to 1993 in the amount of $163,500.

MEDITERRANEAN TOWERS WEST OWNERS, INC.

Mediterranean Towers West Owners, Inc. (Med West) filed its Certificate on March 21, 1980 and amended it in December 1989. Its Offering Statement was apparently dated August 5, 1980. The first amendment to the Offering Statement dated January 20, 1981 provided that one of its purposes was to amend the by-laws by adding a new Article XIV to require transfer fees. The amendment provided for a $500,000 increase in the Working Capital Fund and for a transfer fee of $1,500 on the first sale by a nonsponsor:

Sale of Shares by Persons Other Than Sponsor. Any seller of a block of shares and the Proprietary Lease allocated thereto, other than the Sponsor, its designee, or the Apartment Corporation, shall pay, upon the first such sale, the sum of $1,500.00 to the Working Capital Fund of the Apartment Corporation.

A Board Resolution approved September 10, 1984, increased the transfer fee to $2,500. According to resident Barry Cash, a board member between 1989 and 1991 and a current member at the time of his 1994 testimony, the admissions committee that interviewed prospective buyers routinely discussed the transfer fee. A handout letter also stated that a $2,500 transfer fee was to be paid at closing. The by-laws of Med West are similar in pertinent part to those of 2100 Linwood. The proprietary lease of Med West also contained a section similar to that of 2100 Linwood in that it provided for conditions of assignment, including certain fees on transfer to cover expenses. The parties stipulated that the plaintiff class for Med West paid transfer fees from 1983 to 1994 in the amount of $964,375.

1170 APARTMENT CORP.

1170 Apartment Corp. (1170 Apartment) filed its Certificate on or about January 24, 1980. Its Offering Statement was not included in the record. It presented a notice of annual meeting of...