Opinion
SP-59-2009.
Decided on July 21, 2009.
FINGER FINGER, White Plains, NY, Attorneys for Petitioner.
CHRISTOPHER INZERO, ESQ., White Plains, NY, Attorney for Respondents.
In this summary holdover proceeding involving shares and a proprietary lease in a co-operative apartment, Respondent/Tenant Carol Arancio ("Respondent", "Tenant" or "Arancio") has moved for summary judgment. Petitioner/Landlord 210-220-230 Owners Corp. ("Petitioner", "Landlord" or the "Co-Operative") opposes Tenant's motion and has, in turn, cross-moved for summary judgment, which Tenant likewise opposes. This proceeding and the instant motion and cross-motion revolve around Apartment 4M at 210 Pelham Road, New Rochelle, New York, ("Apt. 4M" or the "Apartment"), including the history of its ownership since the inception of the Co-Operative, and the status of the current owner of the Apartment's shares. The fulcrum of both the motion and cross-motion is the issue of whether Tenant Arancio is or was a holder of unsold shares, such that she did not require the approval of the Co-Operative before attempting to transfer her shares or subletting her Apartment.
Introduction.
A holder of unsold shares is a favorite of cooperative law. Both parties agree that a holder of unsold shares is not subject to many of the cooperative's rules and regulations that bind other shareholders. In particular, as is at issue in the instant case, a holder of unsold shares who has not occupied his or her apartment need not obtain the permission of the cooperative's board to sublet his or her apartment, or sell his or her shares to a particular individual. See, e.g., Kralik v. 239 E. 79th Street Avenue Corp. 5 NY3d 54 (2005); Craig v. Riverview East Owners Inc., 156 AD2d 157 (1st Dept. 1989). Whether a particular shareholder is a holder of unsold shares is determined by the cooperative documents, such as the offering plan and propriety lease. Accordingly, the qualification for being deemed a holder of unsold shares may vary depending upon the corporate document provisions of a given cooperative. See Kralik v. 239 E. 79th Street Avenue Corp. 5 NY3d 54 (2005).
Generally, pursuant to such cooperative documents, in order to enjoy the elevated status of a holder of unsold shares, a shareholder or his or her direct predecessor in interest must have obtained shares in an apartment that was occupied at the time of cooperative conversion, never occupied it himself or herself, and the original purchaser of the occupied apartment's shares must have been either "produced" by the sponsor at the cooperative's closing as a purchaser/holder of unsold shares, or, after such cooperative's closing, "designated by" the cooperative's sponsor as a holder of unsold shares. See Sassi-Lehner v. Charton Tenants Corp. 55 AD3d 74 (1st Dept. 2008); LJ Kings, LLC v. Woodstock Owners Corp. 46 AD3d 321 (1st Dept. 2007). The issue presented in the instant case is whether Arancio should be deemed a holder of unsold shares, or, put simply, just another shareholder subject to all the pertinent rules of the Co-Operative. In order to address that question, a review of the background of this Co-Operative as it relates to Apt. 4M and the factual and procedural history of it and this proceeding is in order. Most factual aspects of this somewhat tangled history are not in dispute and are summarized as follows.
Factual and Procedural History
The original offering plan for the Co-Operative (the "Offering Plan") was issued in May, 1982 and amended several times thereafter. It is undisputed that various amendments to the Offering Plan, including amendments issued in September 1985 and May 1986 (annexed as exhibits to Respondent's motion papers), list the shares corresponding to various apartments in the Co-Operative — including Apartment 4M — as "unsold", and that all such shares were, at that time, "held by the Sponsor." In September 1986, Respondent's predecessors in interest, Rachel Arancio (Tenant's mother) and Arancio, jointly purchased the shares in Apartment 4M from the Co-Operative's sponsor (the "Sponsor") for $35,000.00. While the contract of sale does state that the Apartment is "currently occupied by the existing tenant," it does not expressly state that the purchase of its shares is for investment, or that the shares acquired are "unsold shares". Nor does the contract state that Rachel Arancio and Respondent are designated or deemed by the Sponsor to be holders of unsold shares by virtue of such purchase. The "existing tenant" who occupied Apt. 4M on the date of sale died thereafter and since that time, subtenants have been in occupancy. For purposes of deciding the instant motion and cross-motion, the Court will assume that neither Arancio nor her mother ever occupied the Apartment.
Following Rachel Arancio's death in 2000, a new stock certificate for Apt. 4M was issued to Respondent in her name alone. Subsequent to such share reinsurance, Respondent sought to sell her shares to Robert M. Anastacio ("Anastacio"). It is undisputed that the various Co-Operative rules and regulations proscribe sales or subletting without prior permission of the Co-Operative's Board. Respondent first sought to obtain Petitioner's approval of Anastacio as purchaser, but her efforts were rejected by the Co-Operative. Arancio then allegedly borrowed $80,000.00 from a company, Consolidated Resources LLC ("Consolidated"), and secured the loan by a pledge of her stock in Apt. 4M. Anastacio is the principal of Consolidated. When Arancio defaulted on her loan payments, Consolidated claimed ownership of the shares and sought to have the Co-Operative recognize it as their owner and as such, permit Anastacio, as Consolidate's principal, to enter into a Proprietary Lease for the Apartment. The Co-Operative refused to do so on the ground that neither Consolidated nor Anastacio had ever been approved by its Board as purchaser or proprietary lessee.
Consolidated then commenced an action against the Co-Operative in New York Supreme Court, Westchester County (Index No. 13246/2005) seeking inter alia, to have the Court declare that Board approval by the Co-Operative was not required since Consolidated was a holder of unsold shares and therefore not subject to board approval of potential purchasers or subtenants (the "Consolidated Action"). As various papers filed by plaintiff in the Consolidated Action reflect, Consolidated based its contention that it was a holder of unsold shares on the claim that it had acquired the shares from Respondent Arancio who allegedly was, at the time of the stock pledge and before, a holder of unsold shares. After extensive motion practice, a non-jury trial was held before the Honorable Nicholas Colabella, who rendered the following Decision and Order:
"In this nonjury trial plaintiff seeks a judgment directing the defendants to transfer shares or that approval was not needed and that the shares were unsold shares. The complaint is dismissed. Plaintiff failed to prove a prima facie case."
Decision and Order dated September 29, 2008.
In late November 2008, shortly after Justice Colabella's decision, Petitioner served a "Ten (10) Day Notice to Cure" (the "Notice") upon Respondent. Petitioner alleged that Arancio had breached the Co-Operative's By-Laws and violated the Propriety Lease by, in essence, failing to obtain Petitioner's permission before subletting the Apartment or transferring her shares to Consolidated.
Undaunted by both Justice Colabella's decision and Petitioner's Ten Day Notice, Respondent Arancio wrote to the President of the Co-Operative, Joseph DeCicco, by letter dated December 21, 2008, to advise him that she was formerly a holder of unsold shares and that such shares had been transferred to Consolidated in accordance with an agreement with Consolidated that it refrain from foreclosing on her loan. She also asserted that "[a]s a holder of unsold shares, I did not require Board approval for this transfer." Two weeks later, Consolidated, by its principal Robert Anastacio, also wrote to Board President DeCicco protesting that the Co-Operative had "harassed" the subtenant then occupying Apt. 4M, and maintaining that Consolidated "is the holder of unsold shares in [Petitioner] and the rightful owner of the lease on Apt. 4M, 210 Pelham Road, New Rochelle, New York."
In January 2009, Petitioner commenced the instant holdover proceeding seeking possession of Apt. 4M and a warrant of eviction for the reasons set forth in its Notice. On January 16, 2009, Tenant served a Verified Answer. In her Answer, Arancio denied the material allegations of the Petition and asserted several affirmative defenses including, most notably, that Arancio had transferred her shares and lease and had not needed Board permission to do so because she had been a holder of unsold shares. She alternatively alleged that should such transfer by her to Consolidated be deemed ineffective, she would nonetheless remain a "holder of unsold shares" not subject to the Co-Operative's rules which she had allegedly violated.
Shortly after her answer was filed, Arancio served the instant motion for summary judgment. By her motion, Arancio contends, in essence, that by virtue of her and her mother's purchase of shares from the Co-Operative in an occupied apartment, she and her mother, and following her mother's death, Arancio alone, were holders of unsold shares and therefore not subject to various Board restrictions and requirements with respect to subletting or transfer. Arancio argues that since she had never occupied the apartment or otherwise engaged in any conduct that would strip her of her status as a holder of unsold shares, Petitioner is foreclosed from maintaining the instant proceeding.
In February, 2009, Petitioner filed an opposition to Arancio's motion and a Cross-Motion for Summary Judgment By its opposition and Cross-Motion, Petitioner raises two principal contentions; that Justice Colabella's decision established that Consolidated, as Arancio's successor, was not a holder of unsold shares, and that since Arancio and Consolidated are in privity for res judicata / collateral estoppel purposes, Arancio should be collaterally estopped from re-litigating the purported unsold shares issue here. Petitioner also maintains that regardless of Justice Colabella's decision, Arancio is not and has never been a holder of unsold shares because neither she nor she and her mother jointly were ever "designated by [the Sponsor]" as a holder of unsold shares as allegedly required by the pertinent corporate documents.
Respondent disputes both such contentions, arguing that Justice Colabella's decision, albeit after trial, was not dispositive of the issue of whether Consolidated was a holder of unsold shares since the Court only held, in general terms, that Consolidated had failed to prove a prima facie case. In any event, Respondent argues, Arancio and Consolidated are not in privity for res judicata/collateral estoppel purposes, and therefore Arancio is free to litigate here the issue of her alleged status as a holder of unsold shares. Arancio also maintains that the mere purchase by her of shares in an occupied apartment was sufficient to bestow upon her the status of a holder of unsold shares under the applicable corporate documents; an explicit designation by the Sponsor, Respondent maintains, is not required.
After the motion and cross-motion were filed, the Appellate Division, Second Department, ruling in the Consolidated Action, decided an appeal from a prior denial of the Co-Operative's motion for summary judgment in that case. The Second Department held, in essence, that regardless of whether or not Consolidated was a holder of unsold shares, the Co-Operative should have been granted summary judgment based upon Consolidated's failure to comply with the Co-Operative's requirements regarding pledges of its shares. In accordance with that decision, Arancio is now the holder of the shares and the proprietary lease for the Apartment. The issue of whether Arancio was or is a holder of unsold shares was not decided by the Second Department, but left for another day. That day is upon us now.
Discussion
The Motion and Cross Motion boil down to two issues:
(1) Whether, for purposes of applying the doctrines of collateral estoppel and res judicata to Justice Colabella's decision, such decision was rendered on the merits and, if so, whether Arancio is in privity with Consolidated and therefore estopped from re-litigating the issue of whether she is a holder of unsold shares; and,
(2) Whether Arancio's predecessor in interest — she and her mother — were "designated by [the Sponsor]" as holders of unsold shares pursuant to the Offering Plan and other pertinent corporate documents, such that Arancio now enjoys that status.
(1) With respect to the first issue, even assuming, arguendo, that Justice Colabella decided on the merits that Consolidated was not a holder of unsold shares, which Respondent disputes, the issue of whether Arancio was or is in privity with Consolidated is not free from difficulty. As even these contentious parties must concede, Arancio — the party against whom Petitioner herein seeks to apply collateral estoppel and thus deny her the ability to litigate whether she is a holder of unsold shares based on Justice Colabella's decision — was not a party to the Consolidated Action. Under such circumstance, the law generally proscribes the application of collateral estoppel or issue preclusion because to do so would "deny [Arancio] a hearing and raise issues of due process". ( Siegel, NEW YORK PRACTICE, p. 736 (3d Ed. 1999) ("[T]he law is adamant that the doctrine may not be used against one who is not a party to the first action because that would deny that person a hearing and raise issues of due process.").
An exception to this general rule obtains when the party sought to be precluded is in "privity" with the party who lost in the first action. Id. at 737; People v. LoCicero, 14 NY2d 374 (1964). Since Arancio and Consolidated — or for that matter, Consolidated's principal, Anastacio, lack the type of relationship that would constitute privity as a matter of law — "such as decedent/representative, trustee/beneficiary, guardian/ward, committee/incompetent and the like" — determining whether such parties are in privity often revolves around issues of fact. ( Siegel, NEW YORK PRACTICE, p. 737). In the instant case, Petitioner contends that since both this litigation and the Consolidated Action were allegedly controlled by Anastacio and law firms retained by him, Arancio should be deemed in privity with Consolidated — a claim which Arancio disputes. In view of this Court's decision reached on the second issue set forth above and as discussed in detail below, this Court need not resolve these issues of fact pertaining to privity and the application of collateral estoppel here.
However, whether or not there is a sufficiently intimate relationship between Arancio and Consolidated or Anastasio to constitute privity for collateral estoppel purposes and thereby saddle Arancio with the consequences of Consolidated's prior litigation strategy, the decision of Judge Colabella — made after trial with knowledgeable counsel on both sides — may certainly be used to inform this Court on the central issue that Judge Colabella perforce decided: whether Consolidated, as putative successor to Arnacio, was the holder of unsold shares. The fact that Judge Colabella necessarily decided this issue is evident not only from the albeit perfunctory decision itself, but from the complaint and affidavits submitted by Consolidated and Anastacio in that case as well. For example, the complaint filed by Consolidated sought a judgment "[d]eclaring Plaintiff the owner of 216 shares of the stock of Defendant cooperative corporation and the holder of the proprietary lease for unit 4M" based principally on the following allegation:
"That the shares are [sic] owned by Carole Arancio in the cooperative were "unsold shares as defined in the offering plan of the Defendant cooperative corporation". That pursuant to the terms of the offering plan and the rules of the cooperative corporation the owner of unsold shares and leases may sell or assign their interest in their shares and leases and may further sublet their apartment without permission of the cooperative."
( Consolidated Action, Complt., Par. 11.).
In addition, affidavits filed by Anastacio in support of Consolidated's motion for summary judgment in that action make clear that Consolidated's case was based principally, if not exclusively, on the contention that Consolidated's predecessor Arancio was a purchaser and holder of unsold shares:
Carole A. Arancio was the purchaser of unsold shares pursuant to the original function of the cooperative corporation. Pursuant to the cooperative plan unsold shares and the leases acquired by a holder of unsold shares may be sold or assigned by them at such prices as they may determine or their apartment may be sublet. A copy of the relevant portion of the plan is annexed as Exhibit "B". "(Anastacio affid, sworn to Sept. 15, 2005 at par. 4).
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Defendants have forwarded alleged default notices to Carole A. Arancio claiming that she is in default under the terms of her proprietary lease for having sublet the premises. Those notices have been responded to and again those responses have been ignored. This Court should be aware that Carole A. Arancio and Plaintiff herein as the holder of unsold shares, has the absolute right to sublet the premises pursuant to the cooperative plan and the proprietary lease.. Copies of the relevant portions of the plan are annexed as Exhibit "F"."
( Id.; emphasis supplied).
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I also refer this court to the affirmation of my attorney submitted herewith which addresses the legal arguments in opposition to Defendant's motion but also addresses the prior proceedings and the materials produced by them in discovery. Defendants have failed to produce any documentation which would support their claim that the shares owned by Carole Arancio and subsequently transferred to Consolidated Resources LLC are not "unsold" shares as defined by the cooperatives own bylaws, offering plan and the amendment thereto and is consistent with the current state of the law in New York".
(Anastacio affid., sworn to Sept. 20, 2005 at par. 5).
The fact that after trial, Justice Collabella held that Consolidated had failed to prove a prima facie case is also significant, since any claim that either Consolidated or Arancio once had but thereafter lost its status as a holder of unsold shares would have necessarily been an affirmative defense to be proven by Co-Operative — not a claim decided through evidence adduced by Consolidated in its case in chief. Accordingly, the prima facie case which Consolidated "failed to prove" must necessarily have been related to its main contention — that Consolidated, through its predecessor in interest Arancio, was a holder of unsold shares by virtue of Arancio's original purchase of shares in an occupied apartment from the Sponsor.
Thus, Justice Colabella's decision in Consolidated lends support to the conclusion reached by this Court, as discussed below: that Arancio is not a holder of unsold shares since neither she nor her mother were ever "designated" as such by the Sponsor as required by the Offering Plan of the Co-Operative.
(2) Since 2005, any analysis of the issue of whether a particular shareholder in a co-operative is a holder of unsold shares and therefore free of many of the strictures contained in the co-operative rules and by-laws must begin with the seminal case of Kralik v. 239 E. 79th Street Owners Corp. 5 NY3d 54 (2005). Under Kralik the question of whether a particular shareholder is a holder of unsold shares will turn, not upon the disclosure provisions of the Martin Act (Gen. Buis. Law Art 23-A) or some other regulation extraneous to the genesis of the cooperative itself, but upon the documents central to the creation of the cooperative corporation and its relationship to its shareholders — namely the co-operative's certificate of incorporation, offering plan, and proprietary lease. As the Kralik Court held;
"This appeal stems from a longstanding dispute over the rights of plaintiffs George and Sara Kralik as proprietary lessees and owners of the shares of the corporation purchased from the cooperative's sponsor as unsold shares. We conclude that whether plaintiffs are holders of unsold shares should be determined solely by applying ordinary contract principles to interpret the terms of the documents defining their contractual relationship with the cooperative corporation.
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In short, the terms of the controlling documents — not Part 18 [of the General Business Law Regulations] — determine whether plaintiffs are holders of unsold shares. Plaintiff's status must be decided by applying the usual rules of contract interpretation to those documents."
Id. at 57, 59.
In the instant case, an examination of the central Co-Operative documents that mention unsold shares — here, the Offering Plan and Proprietary Lease — reveals that in order to be considered a holder of unsold shares in Petitioner, the purchaser of shares in an occupied apartment must have been either a "financially responsible individual" . . . "produced" by the Sponsor "[o]n the Closing Date" of the Co-Operative, or "after the closing", such purchaser must have been "designated by [the Sponsor]" as a "holder of Unsold Shares." (Offering Plan, pp. 33-34). The Proprietary Lease, in turn, refers to the Offering Plan to determine who will be considered holders of unsold shares (see Proprietary Lease, par. 38).
Thus, the determination of whether the initial purchasers of the shares in Apt. 4M — Respondent and her mother — were holders of unsold shares revolves around the following issue: whether the Offering Plan and Proprietary Lease should be interpreted so as to confer that preferred status upon a purchaser of shares from the Sponsor simply by virtue of the fact that the shares represented ownership in an occupied apartment; or, on the other hand, whether some affirmative, overt act or statement by the Sponsor — either at the time of purchase or thereafter, to explicitly "designate" the purchaser as acquiring or having acquired the status of a holder of unsold shares, is mandated. In view of certain undisputed facts of this case, this question is presented in bold relief.
It is undisputed that the shares purchased by Arancio and her mother were for an occupied apartment, and that prior to the sale, the shares attributed to that Apartment were listed as "unsold shares" by the Sponsor in amendments to the Offering Plan. It is also undisputed that while the contract of sale between Petitioner and Respondent described Apartment 4M as "occupied", it did not delineate its shares as "unsold shares" nor, more significantly, did the contract describe the purchaser, upon sale, as a "designated" holder of unsold shares. In addition, it is undisputed that the purchase of shares in Apartment 4M was effected after the closing of the Co-Operative corporation. Thus, Arancio and her mother were not, by definition, "financially responsible individual[s]" . . . "produced" by the Sponsor at "the Closing". Therefore they did not qualify as holders of unsold shares pursuant to that provision of the Offering Plan. Since the purchase occurred post-closing, Arancio and her mother could be deemed holders of unsold shares under the Offering Plan only if they had been "designated by [the Sponsor]" as holders of unsold shares.
The cases following and applying Kralik have not directly addressed the specific issue posed here, i.e. whether the initial purchaser of an occupied apartment after the cooperative's closing must be, in some overt manner, "designated by "[the Sponsor]" as a holder of unsold shares if the corporate documents so provide, or whether the mere purchase of shares in an occupied apartment bestows that status. However, virtually all such courts — including, most recently, the First Department in Sassi-Lehner v. Charton Tenants Corp. , 55 AD3d 74 (1st Dept. 2008) — that have addressed the question of whether a shareholder was a holder of unsold shares, have, at the least, stated that the original purchaser of shares in an occupied apartment must have been "designated by the sponsor" as a holder of unsold shares in order for it or a bona fide subsequent purchaser to have that status.
In Sassi-Lehner, plaintiffs were transferees from their parents who had acquired shares in an occupied apartment at a foreclosure sale. Plaintiffs sought to be declared holders of unsold shares and therefore not subject to various restrictions contained in the co-operative rules and bi-laws. The offering plan of defendant's cooperative contained a provision similar to the
Offering Plan provisions at issue here: that a shareholder may be deemed a holder of unsold shares if such shareholder acquired the shares directly from a person who was "produced" by the sponsor at the closing as a financially responsible person or, post-closing, from "individuals designated by it [the Sponsor] as holders of unsold shares". Since plaintiffs acquired their shares at a foreclosure sale, they were not "produced" by the sponsor at the closing; nor were they "designated" by the sponsor "as a holder of unsold shares" post-closing. Accordingly, the Court held that plaintiffs did not enjoy the status of holders of unsold shares. As the Court held:
"The Kralik Court reiterated the basic concept that a determination as to whether a party is holder of unsold shares should be made "solely by applying ordinary contract principles to interpret the terms of the documents defining their contractual relationship with the cooperative corporation." ( Id. at 78).
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"In applying the principles of basic contract interpretation, we find that, in this case, the definition of holder of unsold shares cannot be understood without reference to the offering plan since the proprietary lease unequivocally states that "[t]he term Unsold Shares' means and has exclusive reference to the shares of the [l]essor which were issued to the [s]ponsor or individuals produced by the [s]ponsor pursuant to the [o]ffering [s]tatement-[p]lan of [c]ooperative [o]rganization" (emphasis added). . . .
The offering plan "under which the [l]essor acquired the [l]easehold to the building" provides that "unsold shares" are those shares not sold by the closing date; that is, shares allocated to apartments occupied by nonpurchasing tenants at the time of conversion. Further, the offering plan provides that those unsold shares would either be acquired by the sponsor or they would be issued to a "financially responsible individual person or persons" produced by the sponsor at the time of closing. (emphasis added). Additionally, the sponsor may at any time after closing assign such blocks of shares and proprietary leases to individuals designated by it as holders of [u]nsold [s]hares." (emphasis added). Finally, the offering plan mandates that "no later than the third anniversary of [c]losing, the [s]ponsor must have assigned all [u]nsold [s][hares . . . to individuals designated by it as holders of unsold shares." ( Id. at 79; emphasis added).
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" [S]ince the plaintiffs acquired the shares from their parents who purchased the shares at a foreclosure sale from Fannie Mae, who was not designated by the sponsor as a holder of unsold shares, the plaintiffs cannot be recognized as holders of unsold shares." Id. @ 81; emphasis added).
See also e.g. 515 Avenue I Tenants Corp. 44 AD3d 707, 708 (2d Dept. 2007) ("The controlling documents failed to demonstrate that the plaintiff had been designated a holder of unsold shares, with all the rights emanating therefrom. Thus, the plaintiff failed to demonstrate a likelihood of uccess on the merits."); LJ Kings, LLC v. Woodstock Owners Corp. 46 AD3d 321 , 322 (1st Dept. 2007) ("There being no dispute that plaintiff purchased its shares from a designated holder of unsold shares, that no bona fide purchaser has purchased the apartment for occupancy, and that neither plaintiff nor any immediate family member ever occupied the apartment, plaintiff is clearly a holder of unsold shares under the controlling documents, i.e. the offering plan and proprietary lease, notwithstanding any noncompliance with Martin Act requirements applicable to holders of unsold shares.") cf. Mittman v. Netherland Gardens Corp. 55 AD3d 512 (1st Dept. 2008).
Consistent with the reasoning of the First Department in Sassi-Lehrner, an unstated but apparent purpose behind requiring an explicit designation of a purchaser as a holder of unsold shares is that given the advantage of possessing the status of a holder of unsold shares, the determination of whether to confer that status upon a particular purchaser — such as Arancio and her mother — may well have been bargained for between the purchaser and the sponsor. The provisions of the Offering Plan in this case relating to the sale by the Sponsor of unsold shares imply as much by requiring an affirmative act by the Sponsor. If the sale of shares was effected at the Co-Operative's closing, the purchaser must have been "produced by [the Sponsor]", and if the sale was effected post-closing, the purchaser must have been "designated by [the Sponsor]" as a holder of unsold shares (Offering Plan, @ pp. 33-34) (emphasis supplied). Indeed, to explicitly recognize that a purchaser of shares would enjoy the status of a holder of unsold shares would be as simple as so indicating in the contract of sale between the sponsor and purchaser, something not done here. Had the Petitioner, the Respondent and her mother done so, then this, and similar litigations may well have been obviated since at least the seminal issue — whether the original purchaser was a designated holder of unsold shares — would be evident, thus underscoring the benefit of such a bright line rule.
More importantly, however, a purchaser of shares in an acquired apartment in the Co-Operative at issue here must have been plainly labeled as a holder of unsold shares in order to enjoy that status because, put simply, the talismanic corporate documents say so. Under such documents — particularly the Offering Plan — the focus is on the holder, not the shares themselves. In the instant case, the Offering Plan provides that the Sponsor must "designate" the purchaser as a holder of unsold shares, thus mandating an affirmative act by the Sponsor to evidence that the purchaser has that status. The dictionary definition of the verb to "designate" supports the view that an affirmative act of characterization by the Sponsor — and a characterization of not only the shares, but the person acquiring them as well, is required. The plain language of the Offering Plan so indicates. The AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (Houghton Mifflin 1981) sets forth three definitions of the verb "to designate", each of which lend credence to this conclusion:
"1. To indicate or specify; print out;
2. To give a name or title to; characterize;
3. To select from a particular duty, office or purpose; appoint."
Thus, according to the plain terms of the Offering Plan, the Sponsor from whom shares of an occupied apartment are purchased must "specify" or "characterize" the purchaser as a holder of unsold shares in order for the purchaser to enjoy that status. This the Sponsor failed to do here.
Arancio principally relies upon paragraph 38 of the Propriety Lease rather than the provisions of the Offering Plan — a reliance misplaced by virtue of the relationship and relative importance of the two documents and the explicit deference of the former to the latter. A cooperative's offering plan is a seminal corporate document. Absent such plan and its approval by the initial apartment owners/shareholders, the cooperative cannot come into being. It describes and defines the overall relationship between and among shareholders and, in turn, between them and the sponsor. See DI LORENZO, NEW YORK CONDOMINIUM AND COOPERATIVE LAW, § 4.1, 4.8 (1995). On the other hand, the Propriety Lease — albeit another important document — is limited to defining the ongoing relationship between each lessee and the cooperative corporation.
Perhaps for this reason the Propriety Lease frequently defers to the Offering Plan to resolve the definition and import of vital terms used in the Proprietary Lease. This deference is evident in the instant case in the area of unsold shares and who may be deemed a holder of them. Section 38 of the Propriety Lease — the provision upon which Arancio relies — explicitly refers to the "Plan of cooperative organization of the Lessor" ( i.e. the Offering Plan) in determining what shares should be deemed unsold shares — namely, "shares of the Lessor which was issued to the Lessor's grantors or individuals produced by the Lessor's grantors pursuant to the Plan of cooperative organization of the Lessor". (Proprietary Lease, @ par. 38) (emphasis supplied). In other words, it is the Offering Plan, not the Proprietary Lease, that controls as to the question of who initially held unsold shares, and how such designation as holder of unsold shares was made. As the First Department recently held in interpreting a similar provision in a propriety lease and offering plan in Sassi-Lehner v. Charlton Tenants Corp. 55 AD3d 74 , 79 (1st Dept. 2008).
"In applying the principles of basic contract interpretation, we find that, in this case, the definition of holder of unsold shares cannot be understood without reference to the offering plan since the proprietary lease unequivocally states that "the term Unsold Shares' means and has exclusive reference to the shares of the [l]essor which were issued to the [s]ponsor or individuals produced by the [s]ponsor pursuant to the [o]ffering [s]tatement — [p]lan or [c]ooperative [o]rganization" (emphasis added). Thus, to accept the plaintiff's suggestion that this Court should simply overlook the words "pursuant to the offering statement" found in Paragraph 38(a) is contrary to the plain language of the proprietary lease and to basic principles of contract interpretation. RM 14 FK Corp. v. Bank One Trust Co., N.A., 37 AD3d 272, 274, 831 NYS2d 120, 123 (2007) (contracts are to be interpreted so that no portion of the contract is rendered meaningless)." (Emphasis added).
The First Department also recognized in the earlier case of James R. Craig v. Riverview East Owners, Inc. 156 AD2d 157, 158 (1st Dept. 1989), in examining a similar proprietary lease provision, that while" paragraph 38 of the proprietary lease" contains a definition of the term holder of unsold shares, that "provision does not create rights" but only "extinguishes them" in the event that an unoccupied apartment becomes occupied by the purchaser:
"Nor do we agree with petitioners that paragraph 38 of the proprietary lease is dispositive of the status of their cooperative shares. While this provision includes a definition of the term "holder of unsold shares", its operation is merely to extinguish the rights of a holder of unsold shares if those shares become the property of someone, including the holder, "for bona fide occupancy", however that phrase may be interpreted. This provision, therefore does not create rights, it merely extinguishes them".
Indeed, in view of the fact that the determination of whether a particular shareholder is a holder of unsold shares will potentially adversely affect other apartment owners/shareholders by depriving them, through their elected board, of influence over who will or will not purchase or reside in such apartment, it is fitting that the Court look to the document that created and governs a broader set of relationships, the Offering Plan, as opposed to the binary Proprietary Lease. Thus, according to the corporate documents which, under Kralik, alone control, it is the purchaser, not solely the shares purchased, who must be characterized as a holder of unsold shares. This was not done here; while various documents such as the Proprietary Lease or the contract of sale reflect that the shares purchased by Respondent's predecessors were of an occupied apartment and therefore presumably unsold, no document proffered by Respondent "characterizes", "designates" or "names" her or her mother as a holder of unsold shares. The plain language and import of the Offering Plan as applied here is thus clear: Arancio is not a holder of unsold shares since she and her mother were not "designated" as such at the time of their purchase of Apartment 4M's shares.
Parenthetically, the Court notes that the cases upon which Respondent principally relies, Mittman v. Netherlands Gardens Corp. , 55 AD3d 512 (1st Dept. 2008) and Likohas v. 200 East 36th Street Corp., 48 AD3d 245, (1st Dept. 2008), do not advance her position but are consistent with the view that some overt designation by the sponsor or cooperative is required in order for the purchaser of shares in an occupied apartment to obtain the status of a holder of unsold shares. In both Mittman and Likohas, the sponsor or co-operative recognized, either at or shortly after the shares in an occupied apartment were purchased, that the shares were "unsold shares" and that the purchaser was a "holder of unsold shares", thus effectively "designating" them as such. Clearly, neither is or was the case here.
Conclusion
Respondent has adduced no evidence that she and her mother were specifically "designated by [the Sponsor]" as holders of unsold shares. Accordingly, their successor — Arancio — may not be so deemed under the plain meaning of the operative corporate document, the Offering Plan. Moreover, Tenant clearly failed to comply with the board requirements that she obtain the board approval before subletting her apartment.
Accordingly, Respondent's motion for summary judgment is hereby denied, and Petitioner's cross-motion for summary judgment is granted. Settle Order.
The foregoing constitutes the Decision and Order of this Court.