Supreme Court, New York County, New York,
Trial Term, Part XII.
Ethel RICHARDS et al., Plaintiffs,
v.
Doris KASKEL et al., Defendants.
Larry BERMAN, Petitioner,
v.
Mr. & Mrs. Joseph SMITH, Respondents.
Norman LEBEAU, Petitioner,
v.
Rose KATZ and Toby Katz, Respondents.
Julio and Ana Cuomo TANGELOFF, Petitioners,
v.
Eugene F. SITTERLY, Respondent.
Dorothy CRASTO, Petitioner,
v.
Helen MARKS, Respondent.
Ligia TRUJILLO, Petitioner,
v.
Frank SZILVASSY and Maria Szilvassy, Respondents.
Seymour GOLDSTEIN and Ruth Goldstein, Petitioners,
v.
Irene DE REGIS, Respondent.
Murray BRESLOW and Betty Breslow, Petitioners,
v.
Alan MORRILL and Dorothy Morrill, Respondents.
Feb. 23, 1972.
Tenants brought action for declaratory judgment that plan under which apartment
building was to become cooperative was in violation of Rent Stabilization Law
and for incidental relief. Defendant cooperative corporation cross-claimed
against sponsor of plan and holdover summary proceedings brought by holders of
proprietary leases against occupants of apartments involved were removed to
Supreme Court and consolidated for trial with basic action. The Supreme Court,
New York County, Jacob Markowitz, J., held that where, after erroneous
statements by sponsor of plan to effect that adequate number of tenants had
purchased shares to make plan effective, 47 additional agreements were signed by
tenants, Attorney General's subsequent declaration of effectiveness of plan was
tainted.
Judgment entered accordingly.
West Headnotes
[1] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[1] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
Words "then in occupancy" in statute providing that plan under which apartment
building is to become a cooperative will not be declared effective unless and
until 35% of tenants then in occupancy have agreed to purchase dwelling units or
the stock entitling them to proprietary leases for such dwelling units mean in
occupancy at time plan is declared effective. Administrative Code, § YY51-6.0,
subd. c(9)(a).
[2] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[2] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
To comply with statute providing that plan under which apartment building is to
become a cooperative will not be declared effective unless 35% of tenants then
in occupancy have agreed to purchase dwelling units or stock entitling them to
proprietary leases for such dwelling units, purchasers were not required to be
in occupancy of apartments purchased by them, but only in occupancy of any
apartment in building. Administrative Code, § YY51-6.0, subd. c(9) (a).
[3] Securities Regulation 323
349Bk323 Most Cited Cases
Martin Act does not curtail county Supreme Court's inherent jurisdiction in law
and equity to deal with allegations of fraud, deceit, misrepresentation and
breach of fiduciary obligations. General Business Law § 352 et seq.
[4] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[4] Landlord and Tenant 354
233k354 Most Cited Cases
(Formerly 233k278.4(2))
That plan under which apartment building is to become a cooperative is accepted
by Attorney General is an administrative determination of sufficiency which is
to be given great weight by any reviewing court. Administrative Code, § YY51-
1.0 et seq.
[5] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[5] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
Statute which provides that plan under which apartment building is to become a
cooperative will not be declared effective unless 35% of tenants then in
occupancy have agreed to purchase dwelling units or stock entitling them to
proprietary leases for such dwelling units does not require purchases by 35% of
tenants in occupancy at date of presentation of plan, but rather purchase of
dwelling units by 35% of tenants in occupancy when plan is declared effective.
Administrative Code, § YY51-6.0, subd. c(9)(a).
[6] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[6] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
Attorney General's acceptance of sponsor's declaration that plan under which
apartment building was to become a cooperative had become effective would not be
upset on ground that only 155 tenants had qualified as purchasers whereas under
statute requiring 35% of tenants of apartments other than those vacant and not
under lease to agree to purchase dwelling units or stock entitling them to
proprietary leases, 155.05 purchases were called for. Administrative Code, §
YY51-6.0, subd. c(9) (a).
[7] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[7] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
Sponsor can properly institute procedures to turn apartment building to
cooperative ownership and profit motivations and fair sales techniques within
the law, do not impair implementation of this objective, but requirements of
statute and regulation must be substantially complied with, at risk of otherwise
forfeiting rights to declare plan effective. Administrative Code, § YY51-1.0
et seq.
[8] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[8] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
Inducements, which were made to encourage tenants to agree to buy shares in
proposed apartment building cooperative, which pertained to discounts for cash
purchases and financing plans, and which were offered publicly and to all
tenants in occupancy, did not constitute discriminatory inducements and use of
such inducements was not contrary to wage stabilization policy. Administrative
Code, § YY51-1.0 et seq.
[9] Landlord and Tenant 278.8
233k278.8 Most Cited Cases
[9] Landlord and Tenant 353
233k353 Most Cited Cases
(Formerly 233k278.4(2))
Where, after erroneous statements by sponsor of plan, under which apartment
building was to become a cooperative, to effect that adequate number of tenants
had purchased shares to make plan effective, 47 additional agreements were
signed by tenants, Attorney General's subsequent declaration of effectiveness of
plan was tainted.
**584 *436 Dreyer & Traub, New York City (Samuel Kirschenbaum, New York City,
of counsel), for defendants Kaskel, Schrages, Blum and Chase Manhattan Bank as
executors.
Lindenbaum & Young, Brooklyn, for defendant Real Estate Industry Stabilization
Assn. of New York City.
**585 J. Lee Rankin, Corp. Counsel, New York City, for defendant Albert A.
walsh.
Pollak, Swartz, Bendes, Stark & Amron, New York City, for defendant 360 E. 72nd
Street Owners.
Luster, Gaier & Luster, New York City, for petitioners Lebeau and Tangeloff.
Leon Brickman, Brooklyn, for petitioners Crasto, Trujillo and Breslow.
Leventritt, Lewittes & Bender, New York City, for petitioner Berman.
Herman R. Agins, New York City, for petitioner Goldstein.
Berger, Kramer & Levenson, New York City (Martin M. Berger, New York City, of
counsel), for plaintiffs.
JUDGMENT
JACOB MARKOWITZ, Justice.
Plaintiffs are tenants of apartments in 360 East 72nd Street, New York, New
York. They bring this action for a declaratory judgment that a plan under which
the building has become a cooperative was in violation of the Rent Stabilization
Law of 1969 and therefore null and void, and for incidental relief.
The action is against the sponsor of the plan (Estate of Alfred L. Kaskel), the
cooperative corporation (360 E. 72nd Street Owners Incorporated), the
Administrator of the New York City Housing and Development Administration, and
the Real Estate Industry Stabilization Association of New York City, Inc.
The cooperative corporation has amended its answer to include a cross claim
against the sponsor, the former owner of the building. In turn, the sponsor has
moved to dismiss the cross claim on the grounds that it may not properly be
interposed in this action, and that it fails to state a cause of action.
Six holdover summary proceedings, originally brought in the Civil Court of the
City of New York by holders of proprietary leases against the occupants of the
apartments involved, were removed to this court and consolidated for trial with
the basic action. The answers in the summary proceedings raise the defense that
the plan to convert the building to cooperative ownership was not validly
declared effective under the Rent Stabilization Law. The parties to the summary
proceedings have stipulated that the petitioners have proven a prima facie *437
case. Hence, the dispositive issue in the summary proceedings is also whether
the cooperative plan was, or was not, in violation of the Rent Stabilization
Law.
The original plan is dated October 31, 1969. It was presented to the tenants
beginning November 5, 1969. It was twice amended and then **586 declared
effective by the sponsor as of November 17, 1970. On March 12, 1971, the
Attorney General ruled that the sponsor had improperly included duplicate
purchases in computing whether it had reached the necessary 35% Of tenant
occupants who had agreed to purchase dwelling units. The Attorney General
directed that sales be suspended pending acceptance for filing of an amendment
negating the premature declaration of effectiveness and offering to rescind all
agreements executed on or after November 17, 1970. The sponsor complied with
this directive.
The plan was again declared effective on or about May 4, 1971, as of April 20,
1971, under an amendment accepted for filing by the Attorney General. The
cooperative corporation took title on May 27, 1971.
The building is a Class A multiple dwelling subject to the Rent Stabilization
Law of 1969 (Title YY of the Administrative Code of the City of New York). It
has 454 residential apartments. When the plan was presented in November of
1969, there were eleven vacancies--35% Of the 443 occupied apartments amounts to
155.05.
Section YY51--6.0 of the Administrative Code deals with the Real Estate
Industry Stabilization Association and the code to be adopted by the
association. Subdivision c(9) of this section provides that an owner shall not
refuse to renew a tenant's lease except where he intends to demolish the
building, or he has submitted to and the Attorney General has accepted for
filing a plan to convert the building to cooperative or condominium ownership.
The owner must present the offering plan to the tenants in occupancy, and must
also file a copy of the plan with the Housing and Development Administration.
The subdivision sets out a series of mandatory provisions in any such plan (9a
to 9f). Pertinent to present purposes are subsections 9a and 9b reading:
'(a) the plan will not be declared effective unless and until thirty-five per
cent of the tenants then in occupany have agreed to purchase dwelling units or
the stock entitling them to proprietary leases for such dwelling units with no
discriminatory repurchase agreement or other discriminatory inducement; (b) the
tenants in occupancy at the time of the offering shall have *438 the exclusive
right to purchase their dwelling units or the shares allocated thereto for
ninety days after the offering, during which time a tenant's dwelling unit shall
not be shown to a third party unless he has, in writing waived his right to
purchase; * * *.'
[1] I construe the words 'then in occupancy' in subsection c(9)(a) to mean in
occupancy at the time the plan is declared effective (see Kovarsky v. Housing
and Dev. Adm., N.Y. Co. Index #20711--1970, N.Y.L.J., 2/26/71, p. 19, col. 3,
aff'd 37 A.D.2d 917, 324 N.Y.S.2d 867).
**587 On April 20, 1971, there were 48 vacancies (Exh. H; cf. Exh. 44, par. 3,
stating that there were 51 vacancies on that date). 35% Of the 406 tenants
'then in occupancy' amounts to 142.10.
Exhibit 5 lists 165 claimed qualifying purchasers as of April 20, 1971. Of
these, 6 purchasers did not consummate their purchases, 11 bought apartments
vacant on April 20, 1971, and 12 others were not in occupancy on that day of the
apartments they purchased.
[2] Thus, 23 of the listed qualifying purchasers were not in occupancy of the
purchased apartments on April 20, 1971. On the other hand, 13 of the purchasers
not in occupancy of the apartments they bought were occupants of other
apartments in the building. My reading of the local law is that occupancy of
Any apartment in the building was sufficient to comply with the quoted provision
of the Rent Stabilization Law (Adm.Code, YY51--6.0, subd. c(9) (a)). This
leaves 10 apartments purchased by non-residents and 6 unconsummated
transactions--a total of 16. Hence, at least 149 purchasers qualified as
'tenants in occupancy' as against the required 142.10, so that, absent other
invalidity in the implementation of the plan, it qualified under the law and may
not be upset (see: Schumann v. 250 Tenants Corp., 65 Misc.2d 253, 317 N.Y.S.2d
500).
Plaintiffs argue that resident purchasers of apartments other than their own
may not be counted when computing the 35% Needed to declare the plan effective
(Code of Real Estate Industry Stabilization Association of New York City, Inc.,
s 61(4(a))). The Code bears some evidence to the contrary (Code, s 61(4(a),
(ii)(iii)(iv))). If, however, the Code provision that for the plan to be
declared effective 35% Of the tenants then in occupancy must 'have agreed to
purchase Their dwelling units' (italics supplied), is to be read as urged by
plaintiffs, it is inconsistent with the Rental Stabilization Law and
consequently inoperative (8200 Realty Corp. v. Lindsay, 27 N.Y.2d 124, 129--
130, 132, 313 N.Y.S.2d 733, 736--737, 738, 261 N.E.2d 647, 649--650, 651; Major
v. Waverly & Ogden, Inc., 7 N.Y.2d 332, 336, 197 N.Y.S.2d 165, 168, 165 N.E.2d
181, 184; *439Picone v. Comm. of Licenses, 241 N.Y. 157, 149 N.E. 336; Schumer
v. Caplin, 241 N.Y. 346, 350--351, 150 N.E. 139, 140; Tropp v. Knickerbocker
Village, 205 Misc. 200, 211--212, 122 N.Y.S.2d 350, 361--362, aff'd 284 App.Div.
935, 135 N.Y.S.2d 618).
The Rent Stabilization Law permits the plan to be declared effective when 35%
'of the tenants then in occupancy have agreed to purchase dwelling units'. It
does not require that these tenants purchase Their own dwelling units. The word
'their' was added by the Code. If the addition is deemed to delimit the local
law, it is legislative in character and impermissible (8200 Realty Corp. v.
Lindsay, supra, 27 N.Y.2d p. 132, 313 N.Y.S.2d p. 738, 261 N.E.2d p. 651; Tropp
v. Knickerbocker Village, supra, 205 Misc. pp. 211--212, 122 N.Y.S.2d pp. 361--
362).
**588 We reach more troublesome problems, to be adjudicated in the light of
applicable legal rules gradually crystalizing as more of cases of this character
come before the courts (8200 Realty Corp. v. Lindsay, supra, 27 N.Y.2d 124, 313
N.Y.S.2d 733, 261 N.E.2d 647; Coolidge v. Kaskel, 16 N.Y.2d 559, 260 N.Y.S.2d
835, 208 N.E.2d 780; Northridge Coop. v. 32nd Ave. Construction Corp., 2 N.Y.2d
514, 523, 526--528, 530--531, 161 N.Y.S.2d 404, 408, 411--413, 414--415, 141
N.E.2d 802, 805, 807--808, 809--810; Shore Terrace Cooperative, Inc. v. Roche,
25 A.D.2d 666, 268 N.Y.S.2d 278; Northridge Coop. v. 32nd Ave. Const. Corp., 10
A.D.2d 244, 197 N.Y.S.2d 991, aff'd 9 N.Y.2d 818, 215 N.Y.S.2d 765, 175 N.E.2d
344; Schumann v. 250 Tenants Corp., 65 Misc.2d 253, 317 N.Y.S.2d 500; Gantzhorn
v. Yorkville House Co., N.Y.L.J. 10/13/71, p. 2, col. 4, aff'd 38 A.D.2d 691,
327 N.Y.S.2d 998; see also General Bus.Law, s 352--e).
[3][4] The Martin Act (General Business Law, Art. 23--A) has not curtailed this
court's inherent jurisdiction 'in law and equity to deal with allegations of
fraud, deceit, misrepresentation and breach of fiduciary obligations,
irrespective of the statutory requirements' (Schumann v. 250 Tenants Corp.,
supra, 65 Misc.2d p. 257, 317 N.Y.S.2d p. 505). On the other hand, 'the fact
that the plan was accepted is an administrative determination of (its)
sufficiency which is to be given great weight by any reviewing court' (Id., p.
259, 317 N.Y.S.2d p. 507).
[5] Plaintiffs point to the provision in the original plan calling for
purchases by 35% Of the tenants in occupancy At the date of the presentation of
the plan to make the plan effective, and argue that this percentage of the
tenants then in occupancy did not buy shares in the cooperative corporation. The
difficulty with this position is that plaintiffs' rights do not flow from the
plan. They flow from the Rent Stabilization Law and the Code. These call for
the purchase of dwelling units by 35% Of tenants in occupancy when the plan is
declared Effective, not when it was presented.
With this statutory requirement the sponsor did comply, assuming the absence of
fraud, coercive device or discriminatory *440 repurchase agreements or other
discriminatory inducements given those included in the computation of the 35%.
[6] Plaintiffs also point to the provisions of subdivision 4(a) of section 61
of the Code specifying that the base for computing the required 35% Shall be all
residential apartments in the building other than those vacant and not under
lease when the plan was presented. As already indicated, 11 of the 454
apartments in the building were vacant when the plan under study was presented.
Under this formulation, 155.05 purchases were called for. By the same section,
however, (as under the Rent Stabilization Law) Consummated purchases are not the
criterion. A plan becomes effective **589 when 35% 'of the tenants then in
occupancy Have agreed to purchase' dwelling units. On this basis, 155 tenants
qualified as purchasers, as against the needed 155.05.
I am not prepared to upset the ruling of the Attorney General accepting the
sponsor's declaration that the plan had become effective because of the lack of
.05 per cent (see: Schumann v. 250 Tenants Corp., supra, 65 Misc.2d 253, 317
N.Y.S.2d 500). I consider the difference De minimis.
We confront, therefore, whether the practices complained of By plaintiffs
violated the Rent Stabilization Law.
[7] Without question, the sponsor could properly institute procedures to turn
the building to cooperative ownership. Equally, indisputably, profit
motivations, and fair sales techniques within the law, did not impair the
implementation of this objective. 'But by the same token the defendants must
comply substantially with the requirements of statute and regulation, at the
risk of otherwise forfeiting their rights' to declare the plan effective
(Gilligan v. Tishman Realty & Constr. Co., 283 App.Div. 157, 160, 126 N.Y.S.2d
813, 816, aff'd 306 N.Y. 974, 120 N.E.2d 230).
[8] The determinative issue is whether the subject plan or its implementation
'was so permeated with fraud or illegality in its conception, inception or early
presentation as to warrant a declaration that the plan itself is illegal'
(Ibid., p. 161, 126 N.Y.S.2d p. 816; see also People ex rel. McGoldrick v.
Sterling, 283 App.Div. 88, 126 N.Y.S.2d 803).
The original offering price of the building to the cooperative corporation, in
November of 1969, was somewhat less than $26,000,000. For lack of sales, the
price was reduced, in May of 1970, by the first amendment of the plan, to
$23,507,200. In addition, tenants in occupancy were offered three inducements
to buy shares:
*441 1) The exclusive right for 90 days to buy shares for cash at a discount of
30% From the list price.
2) To finance purchases through the sponsor of up to 50% Of the cash sales price
over a period of seven years, at 7 1/2%, under a self liquidating plan, at a
discount of 20% From the list price.
3) Reduction of the required down payment from 10% Of the purchase price to
$1.00 a share.
Still the shares did not sell.
In August of 1970, a second amendment was promulgated. The 30% Discount for
cash purchases was continued for another 90 days. The proposed financing plan
was improved, for the additional period, so that a tenant in occupancy could
finance up to 75% Of the cash sales price and receive a discount of 25%. In
addition, in respect of any **590 purchase agreement by a tenant in occupancy
within the 90 days period, the sponsor promised to cause the shares to be
repurchased within two years after title passed to the cooperative corporation,
provided the purchaser surrendered his apartment.
If the option to sell was exercised within seven months of the closing, the
resale price was the full list price; if after seven months from the closing the
resale price was the amount paid for the shares by the tenant.
Finally, the sponsor promised to pay any increase during the first two years
following the closing, in the expenses of the cooperative corporation over the
amounts estimated.
Since these inducements were offered publicly, and to all tenants in occupancy,
they may not be held to constitute discriminatory inducements (Northridge Coop.,
Sec. #1 v. 32nd Ave. Constr. corp., 10 A.D.2d 244, 249, 197 N.Y.S.2d 991, 995,
aff'd 9 N.Y.2d 818, 215 N.Y.S.2d 765, 175 N.E.2d 344; S.Ct. 2 N.Y.2d 514, 161
N.Y.S.2d 404, 141 N.E.2d 802, aff'g 286 App.Div. 422, 142 N.Y.S.2d 534; Schumann
v. 250 Tenants Corp., supra, 65 Misc.2d 253, 264, 317 N.Y.S.2d 500, 511).
Moreover, I see nothing inherently wrong with the progressive gestures to
'sweeten the pot' to attract purchasers. This, in itself, is not contrary to
stabilization policy.
The second 90 days period expired on November 10, 1970. By that date only 83
tenants had bought shares.
An all-out effort was thereupon put under way by the sponsor to get the
requisite number of agreements. Within seven days thereafter, the sponsor
decided that he had the necessary number of agreements.
As noted, the plan was declared effective by the sponsor on November 17, 1970,
but the Attorney General refused to accept the declaration to that effect. After
hearings, he ruled (on *442 March 12, 1971) that the sponsor had failed in its
objective and that the declaration of effectiveness was premature. Also, as
noted, the Attorney General directed that all offerings and sales be suspended
pending acceptance by his office of an amendment disclosing that the declaration
of effectiveness was without effect and 'making an offer of rescission of all
agreements executed on or after November 17, 1970'.
While referring to the claims by tenants that coercive efforts had been
utilized to obtain some of the purchase agreements made just prior to November
17, 1970, the Attorney General did not pass on these claims, leaving open the
problem of improper acts prior to that date.
By a third amendment to the plan, dated March 22, 1971, the sponsor complied
with the Attorney General's directive. In line with the Attorney General's
directive, it gave the tenants the right to rescind purchase agreements executed
after November 17, 1970. **591 Moreover, it gave tenants in occupancy on
November 5, 1969, (when the plan was promulgated) 30 more days to buy shares for
cash at a 25% Discount or under the 75% Self-liquidation loan program, but with
a discount of 20%.
A little more than a month later, on April 27, 1971, the sponsor again declared
the plan effective. The amendment to the effect was accepted for filing by the
Attorney General, on May 4, 1971.
[9] To vitiate the plan, plaintiffs rely on the sales made on November 11th and
12th of 1970, based on statements made by the sponsor that the plan had gone
'over the top'. I give credence to the testimony of several witnesses that
beginning November 10, 1970, it was so represented by the sponsor's
representatives. If the sales on November 11th and 12th were the result of this
representation, and it was without basis, they should be excluded from the count
for the purposes of the Rent Stabilization Law (Gilligan v. Tishman Realty &
Constr. Co., Supra, 283 App.Div. 157, 161--163, 126 N.Y.S.2d 813, 816--819).
Once the word was passed that the requisite 35% Had signed up, other tenants,
to protect their homes, inevitably joined the buyers. If the representation was
inaccurate, and knowingly made, it was a form of economic duress (see: Austin
Instrument v. Loral Corp., 29 N.Y.2d 124, 130--131, 324 N.Y.S.2d 22, 25--26, 272
N.E.2d 533, 535--536), with repercussions which may very well have permeated the
program in its entirety, but which, at the very least, seriously and adversely
affected the rights of the tenants who did not buy, the plaintiffs in this
action.
*443 Botein, J., thereafter P.J., put it well in Gilligan v. Tishman Realty &
Constr. Co., supra, 283 App.Div. 157, 162--163, 126 N.Y.S.2d 813, 818:
'Obviously, the most obsessing fear of a tenant confronted with a cooperative
proposal, and the most paralyzing weapon in the arsenal of the promoter, is the
possibility that 80% (here 35%) of the tenants will purchase stock and that
immediate application will be made for the eviction of the non-purchasing
tenants. In a tight rental market, when it is most difficult to obtain
comparable dwelling space, tenants check the sales to their co-tenants; and it
they feel that substantial progress is being made toward procuring the dreaded
80% (here 35%), many will perforce capitulate.
'The incidence of these eight repurchase agreements is more significant than
their mere arithmetic ratio to the seventy-two apartments in the building. As
of June 25, 1951, almost a month after the outside date originally given by
Realty to the tenants to make their decisions, only sixteen apartments had been
sold. * * * It may be that the repurchase agreements represented a device to
stampede the entrenched tenants into acceptance of the plan.'
The picture before me is phenomenally similar. The subject plan was
promulgated on November 5, 1969. As noted, over a year later, **592 on November
10, 1970, despite repurchase and other inducements offered the tenants, only 83
tenants (out of approximately 142 to 156 needed) deemed the benefits
sufficiently attractive to execute purchase agreements. On November 10th and
11th, 1970, statements were nevertheless made by the sponsor in the lobby of the
building and elsewhere that an adequate number of tenants had purchased shares
to make the plan effective; and a champagne party was scheduled for November
12th. No wonder than that on November 11th and 12th of 1970, 47 agreements were
signed unconditionally by tenants and two additional agreements were made by
tenants subject to later confirmation (Plaintiffs' Exh. 7). Eight of these
thereafter resold their shares to the sponsor. [FN*]
FN* The court is informed by counsel for the sponsor that as of February 1,
1972, 281 apartments were sold and that of these 281 apartments 59 were resold
to the sponsor.
Actually, the plan had not gone 'over the top' on November 10, 1970; even with
the additional agreements the requisite number was not reached--as thereafter
officially found by the Attorney General.
The damage was not repaired by the order of the Attorney General permitting
rescission of the agreements made after *444 November 17, 1970. The parties to
the 49 agreements made on November 11th and 12th were not granted the right of
rescission. Absent rescission, the covered tenants were bound by the
agreements; to rescind, they would have had to institute expensive suit, or
exercise their rights under the buy-back agreement and move out of the building.
For present purposes, we need not decide precisely the number of tenants who
bought shares because of this conduct; nor need we decide precisely which of
these tenants would have bought shares in any event. Whatever the precise
number, I am convinced that while the plan may be binding on those who purchased
shares, sufficient of the purchasing tenants did succumb to the sponsor's
pressure to subvert the provisions of the Rent Stabilization Law. Techniques had
been used by the sponsor beyond permissible salesman's puffing.
Accordingly, the agreements of November 11th and 12th, 1970, tainted the
declaration of effectiveness of April 20, 1971, making Section YY51--6.0c (9) (
a) of the Administrative Code inapplicable to the non-purchasing tenants in
occupancy of their apartments on November 5, 1969. Plaintiffs are entitled to
judgment so declaring.
In fashioning relief, we deal only with the rights of the non-purchasing
tenants under the Rent Stabilization Law; except as the plan affects the local
law, the validity or invalidity of the plan, qua plan, need not be adjudicated.
(see: Ortega v. Lefkowitz, 66 Misc.2d 438, 321 N.Y.S.2d 17, aff'd 38 A.D.2d 792,
328 N.Y.S.2d 1008).
Those who participated in the plan and the cooperative corporation stand in a
different posture. The building was not rent controlled **593 prior to the
adoption of the Rent Stabilization Law of 1969; until its adoption, tenants of
the building were entitled only to possessory and other rights given them by
contract or lease, oral or written, within the scope of general landlord and
tenant law. With its adoption, there were added the limited additional rights
granted by the local law. Until they agreed to purchase shares under the
cooperative plan, its provisions did not expand, or contract, these rights. When
they did, their rights were governed by other rules of law.
On the other hand, non-purchasing tenants are entitled to the possessory rights
granted them by contract and those added by the Rent Stabilization Law and the
Code adopted thereunder. The provisions of the cooperative plan as such did not
enlarge or diminish these rights.
Judgment may be entered directing the cooperative corporation, as present owner
of the building, to enter into leases *445 with each of the non- purchasing
tenants entitled thereto and so demanding, granting him his present rights under
the Rent Stabilization Law (Administrative Code of City of New York, s YY51--1.0
Et seq.). Existing proprietary leases are declared subject to the rights of
non-purchasing tenants in occupancy on November 5, 1969, who have not vacated
their apartment since that date. Proprietary lessors shall be entitled to
receive the rents payable by such tenants. The summary proceedings before the
court are dismissed, without costs and without prejudice to renew on grounds not
inconsistent with this decision.
There remains for disposition the cross claim of the cooperative corporation
and the sponsor's motion to dismiss the cross claim. The corporation alleges
that if plaintiffs are successful, it no longer will be a qualified cooperative
corporation under the Rent Stabilization Law and the Code promulgated
thereunder, it and its stockholders will be deprived of substantial benefits
under the Internal Revenue Code, and many of its stockholders will be entitled
to rescind their purchase agreements. It seeks damages and a judgment declaring
the rights of all the parties Inter se.
Since I have refrained from adjudicating the validity of the plan, qua plan,
(indeed, the plan, as such, may be effective) and considering the substantial
difference between the factual and legal problems presented, under the complaint
and under the cross complaint, I decline to render a declaratory judgment or to
decide the demand for incidental relief under the cross claim (CPLR, s 3001).
The motion to dismiss the cross claim is granted, and the cross claim is
dismissed, without costs and without prejudice to the rights of the cooperative
corporation, or any of its stockholders, to bring such action or actions, in law
or in equity, as they, or any of them, may be advised.
330 N.Y.S.2d 582, 69 Misc.2d 435
END OF DOCUMENT
Supreme Court, New York County, New York,Trial Term, Part XII.Ethel RICHARDS et al., Plaintiffs,v.Doris KASKEL et al., Defendants.Larry BERMAN, Petitioner,v.Mr. & Mrs. Joseph SMITH, Respondents.Norman LEBEAU, Petitioner,v.Rose KATZ and Toby Katz, Respondents.Julio and Ana Cuomo TANGELOFF, Petitioners,v.Eugene F. SITTERLY, Respondent.Dorothy CRASTO, Petitioner,v.Helen MARKS, Respondent.Ligia TRUJILLO, Petitioner,v.Frank SZILVASSY and Maria Szilvassy, Respondents.Seymour GOLDSTEIN and Ruth Goldstein, Petitioners,v.Irene DE REGIS, Respondent.Murray BRESLOW and Betty Breslow, Petitioners,v.Alan MORRILL and Dorothy Morrill, Respondents.
Feb. 23, 1972.
Tenants brought action for declaratory judgment that plan under which apartment building was to become cooperative was in violation of Rent Stabilization Law and for incidental relief. Defendant cooperative corporation cross-claimed against sponsor of plan and holdover summary proceedings brought by holders of proprietary leases against occupants of apartments involved were removed to Supreme Court and consolidated for trial with basic action. The Supreme Court, New York County, Jacob Markowitz, J., held that where, after erroneous statements by sponsor of plan to effect that adequate number of tenants had purchased shares to make plan effective, 47 additional agreements were signed by tenants, Attorney General's subsequent declaration of effectiveness of plan was tainted.
Judgment entered accordingly.
West Headnotes
[1] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[1] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
Words "then in occupancy" in statute providing that plan under which apartment building is to become a cooperative will not be declared effective unless and until 35% of tenants then in occupancy have agreed to purchase dwelling units or the stock entitling them to proprietary leases for such dwelling units mean in occupancy at time plan is declared effective. Administrative Code, § YY51-6.0, subd. c(9)(a).
[2] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[2] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
To comply with statute providing that plan under which apartment building is to become a cooperative will not be declared effective unless 35% of tenants then in occupancy have agreed to purchase dwelling units or stock entitling them to proprietary leases for such dwelling units, purchasers were not required to be in occupancy of apartments purchased by them, but only in occupancy of any apartment in building. Administrative Code, § YY51-6.0, subd. c(9) (a).
[3] Securities Regulation 323349Bk323 Most Cited Cases
Martin Act does not curtail county Supreme Court's inherent jurisdiction in law and equity to deal with allegations of fraud, deceit, misrepresentation and breach of fiduciary obligations. General Business Law § 352 et seq.
[4] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[4] Landlord and Tenant 354233k354 Most Cited Cases (Formerly 233k278.4(2))
That plan under which apartment building is to become a cooperative is accepted by Attorney General is an administrative determination of sufficiency which is to be given great weight by any reviewing court. Administrative Code, § YY51- 1.0 et seq.
[5] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[5] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
Statute which provides that plan under which apartment building is to become a cooperative will not be declared effective unless 35% of tenants then in occupancy have agreed to purchase dwelling units or stock entitling them to proprietary leases for such dwelling units does not require purchases by 35% of tenants in occupancy at date of presentation of plan, but rather purchase of dwelling units by 35% of tenants in occupancy when plan is declared effective. Administrative Code, § YY51-6.0, subd. c(9)(a).
[6] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[6] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
Attorney General's acceptance of sponsor's declaration that plan under which apartment building was to become a cooperative had become effective would not be upset on ground that only 155 tenants had qualified as purchasers whereas under statute requiring 35% of tenants of apartments other than those vacant and not under lease to agree to purchase dwelling units or stock entitling them to proprietary leases, 155.05 purchases were called for. Administrative Code, § YY51-6.0, subd. c(9) (a).
[7] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[7] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
Sponsor can properly institute procedures to turn apartment building to cooperative ownership and profit motivations and fair sales techniques within the law, do not impair implementation of this objective, but requirements of statute and regulation must be substantially complied with, at risk of otherwise forfeiting rights to declare plan effective. Administrative Code, § YY51-1.0 et seq.
[8] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[8] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
Inducements, which were made to encourage tenants to agree to buy shares in proposed apartment building cooperative, which pertained to discounts for cash purchases and financing plans, and which were offered publicly and to all tenants in occupancy, did not constitute discriminatory inducements and use of such inducements was not contrary to wage stabilization policy. Administrative Code, § YY51-1.0 et seq.
[9] Landlord and Tenant 278.8233k278.8 Most Cited Cases
[9] Landlord and Tenant 353233k353 Most Cited Cases (Formerly 233k278.4(2))
Where, after erroneous statements by sponsor of plan, under which apartment building was to become a cooperative, to effect that adequate number of tenants had purchased shares to make plan effective, 47 additional agreements were signed by tenants, Attorney General's subsequent declaration of effectiveness of plan was tainted. **584 *436 Dreyer & Traub, New York City (Samuel Kirschenbaum, New York City, of counsel), for defendants Kaskel, Schrages, Blum and Chase Manhattan Bank as executors.
Lindenbaum & Young, Brooklyn, for defendant Real Estate Industry Stabilization Assn. of New York City.
**585 J. Lee Rankin, Corp. Counsel, New York City, for defendant Albert A. walsh.
Pollak, Swartz, Bendes, Stark & Amron, New York City, for defendant 360 E. 72nd Street Owners.
Luster, Gaier & Luster, New York City, for petitioners Lebeau and Tangeloff.
Leon Brickman, Brooklyn, for petitioners Crasto, Trujillo and Breslow.
Leventritt, Lewittes & Bender, New York City, for petitioner Berman.
Herman R. Agins, New York City, for petitioner Goldstein.
Berger, Kramer & Levenson, New York City (Martin M. Berger, New York City, of counsel), for plaintiffs.
JUDGMENT
JACOB MARKOWITZ, Justice.
Plaintiffs are tenants of apartments in 360 East 72nd Street, New York, New York. They bring this action for a declaratory judgment that a plan under which the building has become a cooperative was in violation of the Rent Stabilization Law of 1969 and therefore null and void, and for incidental relief.
The action is against the sponsor of the plan (Estate of Alfred L. Kaskel), the cooperative corporation (360 E. 72nd Street Owners Incorporated), the Administrator of the New York City Housing and Development Administration, and the Real Estate Industry Stabilization Association of New York City, Inc.
The cooperative corporation has amended its answer to include a cross claim against the sponsor, the former owner of the building. In turn, the sponsor has moved to dismiss the cross claim on the grounds that it may not properly be interposed in this action, and that it fails to state a cause of action.
Six holdover summary proceedings, originally brought in the Civil Court of the City of New York by holders of proprietary leases against the occupants of the apartments involved, were removed to this court and consolidated for trial with the basic action. The answers in the summary proceedings raise the defense that the plan to convert the building to cooperative ownership was not validly declared effective under the Rent Stabilization Law. The parties to the summary proceedings have stipulated that the petitioners have proven a prima facie *437 case. Hence, the dispositive issue in the summary proceedings is also whether the cooperative plan was, or was not, in violation of the Rent Stabilization Law.
The original plan is dated October 31, 1969. It was presented to the tenants beginning November 5, 1969. It was twice amended and then **586 declared effective by the sponsor as of November 17, 1970. On March 12, 1971, the Attorney General ruled that the sponsor had improperly included duplicate purchases in computing whether it had reached the necessary 35% Of tenant occupants who had agreed to purchase dwelling units. The Attorney General directed that sales be suspended pending acceptance for filing of an amendment negating the premature declaration of effectiveness and offering to rescind all agreements executed on or after November 17, 1970. The sponsor complied with this directive.
The plan was again declared effective on or about May 4, 1971, as of April 20, 1971, under an amendment accepted for filing by the Attorney General. The cooperative corporation took title on May 27, 1971.
The building is a Class A multiple dwelling subject to the Rent Stabilization Law of 1969 (Title YY of the Administrative Code of the City of New York). It has 454 residential apartments. When the plan was presented in November of 1969, there were eleven vacancies--35% Of the 443 occupied apartments amounts to 155.05.
Section YY51--6.0 of the Administrative Code deals with the Real Estate Industry Stabilization Association and the code to be adopted by the association. Subdivision c(9) of this section provides that an owner shall not refuse to renew a tenant's lease except where he intends to demolish the building, or he has submitted to and the Attorney General has accepted for filing a plan to convert the building to cooperative or condominium ownership. The owner must present the offering plan to the tenants in occupancy, and must also file a copy of the plan with the Housing and Development Administration.
The subdivision sets out a series of mandatory provisions in any such plan (9a to 9f). Pertinent to present purposes are subsections 9a and 9b reading: '(a) the plan will not be declared effective unless and until thirty-five per cent of the tenants then in occupany have agreed to purchase dwelling units or the stock entitling them to proprietary leases for such dwelling units with no discriminatory repurchase agreement or other discriminatory inducement; (b) the tenants in occupancy at the time of the offering shall have *438 the exclusive right to purchase their dwelling units or the shares allocated thereto for ninety days after the offering, during which time a tenant's dwelling unit shall not be shown to a third party unless he has, in writing waived his right to purchase; * * *.'
[1] I construe the words 'then in occupancy' in subsection c(9)(a) to mean in occupancy at the time the plan is declared effective (see Kovarsky v. Housing and Dev. Adm., N.Y. Co. Index #20711--1970, N.Y.L.J., 2/26/71, p. 19, col. 3, aff'd 37 A.D.2d 917, 324 N.Y.S.2d 867).
**587 On April 20, 1971, there were 48 vacancies (Exh. H; cf. Exh. 44, par. 3, stating that there were 51 vacancies on that date). 35% Of the 406 tenants 'then in occupancy' amounts to 142.10.
Exhibit 5 lists 165 claimed qualifying purchasers as of April 20, 1971. Of these, 6 purchasers did not consummate their purchases, 11 bought apartments vacant on April 20, 1971, and 12 others were not in occupancy on that day of the apartments they purchased.
[2] Thus, 23 of the listed qualifying purchasers were not in occupancy of the purchased apartments on April 20, 1971. On the other hand, 13 of the purchasers not in occupancy of the apartments they bought were occupants of other apartments in the building. My reading of the local law is that occupancy of Any apartment in the building was sufficient to comply with the quoted provision of the Rent Stabilization Law (Adm.Code, YY51--6.0, subd. c(9) (a)). This leaves 10 apartments purchased by non-residents and 6 unconsummated transactions--a total of 16. Hence, at least 149 purchasers qualified as 'tenants in occupancy' as against the required 142.10, so that, absent other invalidity in the implementation of the plan, it qualified under the law and may not be upset (see: Schumann v. 250 Tenants Corp., 65 Misc.2d 253, 317 N.Y.S.2d 500).
Plaintiffs argue that resident purchasers of apartments other than their own may not be counted when computing the 35% Needed to declare the plan effective (Code of Real Estate Industry Stabilization Association of New York City, Inc., s 61(4(a))). The Code bears some evidence to the contrary (Code, s 61(4(a), (ii)(iii)(iv))). If, however, the Code provision that for the plan to be declared effective 35% Of the tenants then in occupancy must 'have agreed to purchase Their dwelling units' (italics supplied), is to be read as urged by plaintiffs, it is inconsistent with the Rental Stabilization Law and consequently inoperative (8200 Realty Corp. v. Lindsay, 27 N.Y.2d 124, 129-- 130, 132, 313 N.Y.S.2d 733, 736--737, 738, 261 N.E.2d 647, 649--650, 651; Major v. Waverly & Ogden, Inc., 7 N.Y.2d 332, 336, 197 N.Y.S.2d 165, 168, 165 N.E.2d 181, 184; *439Picone v. Comm. of Licenses, 241 N.Y. 157, 149 N.E. 336; Schumer v. Caplin, 241 N.Y. 346, 350--351, 150 N.E. 139, 140; Tropp v. Knickerbocker Village, 205 Misc. 200, 211--212, 122 N.Y.S.2d 350, 361--362, aff'd 284 App.Div. 935, 135 N.Y.S.2d 618).
The Rent Stabilization Law permits the plan to be declared effective when 35% 'of the tenants then in occupancy have agreed to purchase dwelling units'. It does not require that these tenants purchase Their own dwelling units. The word 'their' was added by the Code. If the addition is deemed to delimit the local law, it is legislative in character and impermissible (8200 Realty Corp. v. Lindsay, supra, 27 N.Y.2d p. 132, 313 N.Y.S.2d p. 738, 261 N.E.2d p. 651; Tropp v. Knickerbocker Village, supra, 205 Misc. pp. 211--212, 122 N.Y.S.2d pp. 361--362).
**588 We reach more troublesome problems, to be adjudicated in the light of applicable legal rules gradually crystalizing as more of cases of this character come before the courts (8200 Realty Corp. v. Lindsay, supra, 27 N.Y.2d 124, 313 N.Y.S.2d 733, 261 N.E.2d 647; Coolidge v. Kaskel, 16 N.Y.2d 559, 260 N.Y.S.2d 835, 208 N.E.2d 780; Northridge Coop. v. 32nd Ave. Construction Corp., 2 N.Y.2d 514, 523, 526--528, 530--531, 161 N.Y.S.2d 404, 408, 411--413, 414--415, 141 N.E.2d 802, 805, 807--808, 809--810; Shore Terrace Cooperative, Inc. v. Roche, 25 A.D.2d 666, 268 N.Y.S.2d 278; Northridge Coop. v. 32nd Ave. Const. Corp., 10 A.D.2d 244, 197 N.Y.S.2d 991, aff'd 9 N.Y.2d 818, 215 N.Y.S.2d 765, 175 N.E.2d 344; Schumann v. 250 Tenants Corp., 65 Misc.2d 253, 317 N.Y.S.2d 500; Gantzhorn v. Yorkville House Co., N.Y.L.J. 10/13/71, p. 2, col. 4, aff'd 38 A.D.2d 691, 327 N.Y.S.2d 998; see also General Bus.Law, s 352--e).
[3][4] The Martin Act (General Business Law, Art. 23--A) has not curtailed this court's inherent jurisdiction 'in law and equity to deal with allegations of fraud, deceit, misrepresentation and breach of fiduciary obligations, irrespective of the statutory requirements' (Schumann v. 250 Tenants Corp., supra, 65 Misc.2d p. 257, 317 N.Y.S.2d p. 505). On the other hand, 'the fact that the plan was accepted is an administrative determination of (its) sufficiency which is to be given great weight by any reviewing court' (Id., p. 259, 317 N.Y.S.2d p. 507).
[5] Plaintiffs point to the provision in the original plan calling for purchases by 35% Of the tenants in occupancy At the date of the presentation of the plan to make the plan effective, and argue that this percentage of the tenants then in occupancy did not buy shares in the cooperative corporation. The difficulty with this position is that plaintiffs' rights do not flow from the plan. They flow from the Rent Stabilization Law and the Code. These call for the purchase of dwelling units by 35% Of tenants in occupancy when the plan is declared Effective, not when it was presented.
With this statutory requirement the sponsor did comply, assuming the absence of fraud, coercive device or discriminatory *440 repurchase agreements or other discriminatory inducements given those included in the computation of the 35%.
[6] Plaintiffs also point to the provisions of subdivision 4(a) of section 61 of the Code specifying that the base for computing the required 35% Shall be all residential apartments in the building other than those vacant and not under lease when the plan was presented. As already indicated, 11 of the 454 apartments in the building were vacant when the plan under study was presented.
Under this formulation, 155.05 purchases were called for. By the same section, however, (as under the Rent Stabilization Law) Consummated purchases are not the criterion. A plan becomes effective **589 when 35% 'of the tenants then in occupancy Have agreed to purchase' dwelling units. On this basis, 155 tenants qualified as purchasers, as against the needed 155.05.
I am not prepared to upset the ruling of the Attorney General accepting the sponsor's declaration that the plan had become effective because of the lack of .05 per cent (see: Schumann v. 250 Tenants Corp., supra, 65 Misc.2d 253, 317 N.Y.S.2d 500). I consider the difference De minimis.
We confront, therefore, whether the practices complained of By plaintiffs violated the Rent Stabilization Law.
[7] Without question, the sponsor could properly institute procedures to turn the building to cooperative ownership. Equally, indisputably, profit motivations, and fair sales techniques within the law, did not impair the implementation of this objective. 'But by the same token the defendants must comply substantially with the requirements of statute and regulation, at the risk of otherwise forfeiting their rights' to declare the plan effective (Gilligan v. Tishman Realty & Constr. Co., 283 App.Div. 157, 160, 126 N.Y.S.2d 813, 816, aff'd 306 N.Y. 974, 120 N.E.2d 230).
[8] The determinative issue is whether the subject plan or its implementation 'was so permeated with fraud or illegality in its conception, inception or early presentation as to warrant a declaration that the plan itself is illegal' (Ibid., p. 161, 126 N.Y.S.2d p. 816; see also People ex rel. McGoldrick v. Sterling, 283 App.Div. 88, 126 N.Y.S.2d 803).
The original offering price of the building to the cooperative corporation, in November of 1969, was somewhat less than $26,000,000. For lack of sales, the price was reduced, in May of 1970, by the first amendment of the plan, to $23,507,200. In addition, tenants in occupancy were offered three inducements to buy shares: *441 1) The exclusive right for 90 days to buy shares for cash at a discount of 30% From the list price. 2) To finance purchases through the sponsor of up to 50% Of the cash sales price over a period of seven years, at 7 1/2%, under a self liquidating plan, at a discount of 20% From the list price. 3) Reduction of the required down payment from 10% Of the purchase price to $1.00 a share.
Still the shares did not sell.
In August of 1970, a second amendment was promulgated. The 30% Discount for cash purchases was continued for another 90 days. The proposed financing plan was improved, for the additional period, so that a tenant in occupancy could finance up to 75% Of the cash sales price and receive a discount of 25%. In addition, in respect of any **590 purchase agreement by a tenant in occupancy within the 90 days period, the sponsor promised to cause the shares to be repurchased within two years after title passed to the cooperative corporation, provided the purchaser surrendered his apartment.
If the option to sell was exercised within seven months of the closing, the resale price was the full list price; if after seven months from the closing the resale price was the amount paid for the shares by the tenant.
Finally, the sponsor promised to pay any increase during the first two years following the closing, in the expenses of the cooperative corporation over the amounts estimated.
Since these inducements were offered publicly, and to all tenants in occupancy, they may not be held to constitute discriminatory inducements (Northridge Coop., Sec. #1 v. 32nd Ave. Constr. corp., 10 A.D.2d 244, 249, 197 N.Y.S.2d 991, 995, aff'd 9 N.Y.2d 818, 215 N.Y.S.2d 765, 175 N.E.2d 344; S.Ct. 2 N.Y.2d 514, 161 N.Y.S.2d 404, 141 N.E.2d 802, aff'g 286 App.Div. 422, 142 N.Y.S.2d 534; Schumann v. 250 Tenants Corp., supra, 65 Misc.2d 253, 264, 317 N.Y.S.2d 500, 511). Moreover, I see nothing inherently wrong with the progressive gestures to 'sweeten the pot' to attract purchasers. This, in itself, is not contrary to stabilization policy.
The second 90 days period expired on November 10, 1970. By that date only 83 tenants had bought shares.
An all-out effort was thereupon put under way by the sponsor to get the requisite number of agreements. Within seven days thereafter, the sponsor decided that he had the necessary number of agreements.
As noted, the plan was declared effective by the sponsor on November 17, 1970, but the Attorney General refused to accept the declaration to that effect. After hearings, he ruled (on *442 March 12, 1971) that the sponsor had failed in its objective and that the declaration of effectiveness was premature. Also, as noted, the Attorney General directed that all offerings and sales be suspended pending acceptance by his office of an amendment disclosing that the declaration of effectiveness was without effect and 'making an offer of rescission of all agreements executed on or after November 17, 1970'.
While referring to the claims by tenants that coercive efforts had been utilized to obtain some of the purchase agreements made just prior to November 17, 1970, the Attorney General did not pass on these claims, leaving open the problem of improper acts prior to that date.
By a third amendment to the plan, dated March 22, 1971, the sponsor complied with the Attorney General's directive. In line with the Attorney General's directive, it gave the tenants the right to rescind purchase agreements executed after November 17, 1970. **591 Moreover, it gave tenants in occupancy on November 5, 1969, (when the plan was promulgated) 30 more days to buy shares for cash at a 25% Discount or under the 75% Self-liquidation loan program, but with a discount of 20%.
A little more than a month later, on April 27, 1971, the sponsor again declared the plan effective. The amendment to the effect was accepted for filing by the Attorney General, on May 4, 1971.
[9] To vitiate the plan, plaintiffs rely on the sales made on November 11th and 12th of 1970, based on statements made by the sponsor that the plan had gone 'over the top'. I give credence to the testimony of several witnesses that beginning November 10, 1970, it was so represented by the sponsor's representatives. If the sales on November 11th and 12th were the result of this representation, and it was without basis, they should be excluded from the count for the purposes of the Rent Stabilization Law (Gilligan v. Tishman Realty & Constr. Co., Supra, 283 App.Div. 157, 161--163, 126 N.Y.S.2d 813, 816--819).
Once the word was passed that the requisite 35% Had signed up, other tenants, to protect their homes, inevitably joined the buyers. If the representation was inaccurate, and knowingly made, it was a form of economic duress (see: Austin Instrument v. Loral Corp., 29 N.Y.2d 124, 130--131, 324 N.Y.S.2d 22, 25--26, 272 N.E.2d 533, 535--536), with repercussions which may very well have permeated the program in its entirety, but which, at the very least, seriously and adversely affected the rights of the tenants who did not buy, the plaintiffs in this action.
*443 Botein, J., thereafter P.J., put it well in Gilligan v. Tishman Realty & Constr. Co., supra, 283 App.Div. 157, 162--163, 126 N.Y.S.2d 813, 818: 'Obviously, the most obsessing fear of a tenant confronted with a cooperative proposal, and the most paralyzing weapon in the arsenal of the promoter, is the possibility that 80% (here 35%) of the tenants will purchase stock and that immediate application will be made for the eviction of the non-purchasing tenants. In a tight rental market, when it is most difficult to obtain comparable dwelling space, tenants check the sales to their co-tenants; and it they feel that substantial progress is being made toward procuring the dreaded 80% (here 35%), many will perforce capitulate. 'The incidence of these eight repurchase agreements is more significant than their mere arithmetic ratio to the seventy-two apartments in the building. As of June 25, 1951, almost a month after the outside date originally given by Realty to the tenants to make their decisions, only sixteen apartments had been sold. * * * It may be that the repurchase agreements represented a device to stampede the entrenched tenants into acceptance of the plan.'
The picture before me is phenomenally similar. The subject plan was promulgated on November 5, 1969. As noted, over a year later, **592 on November 10, 1970, despite repurchase and other inducements offered the tenants, only 83 tenants (out of approximately 142 to 156 needed) deemed the benefits sufficiently attractive to execute purchase agreements. On November 10th and 11th, 1970, statements were nevertheless made by the sponsor in the lobby of the building and elsewhere that an adequate number of tenants had purchased shares to make the plan effective; and a champagne party was scheduled for November 12th. No wonder than that on November 11th and 12th of 1970, 47 agreements were signed unconditionally by tenants and two additional agreements were made by tenants subject to later confirmation (Plaintiffs' Exh. 7). Eight of these thereafter resold their shares to the sponsor. [FN*]
FN* The court is informed by counsel for the sponsor that as of February 1, 1972, 281 apartments were sold and that of these 281 apartments 59 were resold to the sponsor.
Actually, the plan had not gone 'over the top' on November 10, 1970; even with the additional agreements the requisite number was not reached--as thereafter officially found by the Attorney General.
The damage was not repaired by the order of the Attorney General permitting rescission of the agreements made after *444 November 17, 1970. The parties to the 49 agreements made on November 11th and 12th were not granted the right of rescission. Absent rescission, the covered tenants were bound by the agreements; to rescind, they would have had to institute expensive suit, or exercise their rights under the buy-back agreement and move out of the building.
For present purposes, we need not decide precisely the number of tenants who bought shares because of this conduct; nor need we decide precisely which of these tenants would have bought shares in any event. Whatever the precise number, I am convinced that while the plan may be binding on those who purchased shares, sufficient of the purchasing tenants did succumb to the sponsor's pressure to subvert the provisions of the Rent Stabilization Law. Techniques had been used by the sponsor beyond permissible salesman's puffing.
Accordingly, the agreements of November 11th and 12th, 1970, tainted the declaration of effectiveness of April 20, 1971, making Section YY51--6.0c (9) ( a) of the Administrative Code inapplicable to the non-purchasing tenants in occupancy of their apartments on November 5, 1969. Plaintiffs are entitled to judgment so declaring.
In fashioning relief, we deal only with the rights of the non-purchasing tenants under the Rent Stabilization Law; except as the plan affects the local law, the validity or invalidity of the plan, qua plan, need not be adjudicated. (see: Ortega v. Lefkowitz, 66 Misc.2d 438, 321 N.Y.S.2d 17, aff'd 38 A.D.2d 792, 328 N.Y.S.2d 1008).
Those who participated in the plan and the cooperative corporation stand in a different posture. The building was not rent controlled **593 prior to the adoption of the Rent Stabilization Law of 1969; until its adoption, tenants of the building were entitled only to possessory and other rights given them by contract or lease, oral or written, within the scope of general landlord and tenant law. With its adoption, there were added the limited additional rights granted by the local law. Until they agreed to purchase shares under the cooperative plan, its provisions did not expand, or contract, these rights. When they did, their rights were governed by other rules of law.
On the other hand, non-purchasing tenants are entitled to the possessory rights granted them by contract and those added by the Rent Stabilization Law and the Code adopted thereunder. The provisions of the cooperative plan as such did not enlarge or diminish these rights.
Judgment may be entered directing the cooperative corporation, as present owner of the building, to enter into leases *445 with each of the non- purchasing tenants entitled thereto and so demanding, granting him his present rights under the Rent Stabilization Law (Administrative Code of City of New York, s YY51--1.0 Et seq.). Existing proprietary leases are declared subject to the rights of non-purchasing tenants in occupancy on November 5, 1969, who have not vacated their apartment since that date. Proprietary lessors shall be entitled to receive the rents payable by such tenants. The summary proceedings before the court are dismissed, without costs and without prejudice to renew on grounds not inconsistent with this decision.
There remains for disposition the cross claim of the cooperative corporation and the sponsor's motion to dismiss the cross claim. The corporation alleges that if plaintiffs are successful, it no longer will be a qualified cooperative corporation under the Rent Stabilization Law and the Code promulgated thereunder, it and its stockholders will be deprived of substantial benefits under the Internal Revenue Code, and many of its stockholders will be entitled to rescind their purchase agreements. It seeks damages and a judgment declaring the rights of all the parties Inter se.
Since I have refrained from adjudicating the validity of the plan, qua plan, (indeed, the plan, as such, may be effective) and considering the substantial difference between the factual and legal problems presented, under the complaint and under the cross complaint, I decline to render a declaratory judgment or to decide the demand for incidental relief under the cross claim (CPLR, s 3001).
The motion to dismiss the cross claim is granted, and the cross claim is dismissed, without costs and without prejudice to the rights of the cooperative corporation, or any of its stockholders, to bring such action or actions, in law or in equity, as they, or any of them, may be advised.
330 N.Y.S.2d 582, 69 Misc.2d 435
END OF DOCUMENT