New York Real Estate and Business Law :: Moulinos & Associates

In a stunning decision, the condominium sponsor of the Rushmore Condominium in Manhattan has been ordered to return $16 million worth of down payments to potential buyers based on the fact that the sponsor failed to effectuate the first closing of the condominium by September 1, 2008 as stated in the Offering Plan.

The sponsor conceded that it did not effectuate the first closing by the date stated in the Offering Plan.  However, it argued however that its attorneys, at the prestigious law firm of Stroock & Stroock & Lavan, made a scrivener’s error, and that the Offering Plan should have read that unless the first closing took place by September 1, 2009, the buyers could terminate their agreements.  A” scrivener’s error” is legal terminology for a law firm’s mistake. The Court did not agree with the sponsor and stated that, after carefully reviewing all extrinsic evidence in regard to the offering, it could not find any indication that there was a “meeting of the minds” that the buyer and sponsor intended the date to be September 1, 2009 instead of September 1, 2008.

The decision is important as it hold sponsor’s accountable for every representation made in an Offering Plan.  The case is cited as CRP/Extell Parcel I, L.P. v. Cuomo, (NY Supreme Court Index #113914-2010).

Property owners in New York City who believe they are being overcharged or incorrectly assessed taxes against their property by the NYC Department of Finance have until March 1, 2012 to file an application with the NYC Tax Commission to have their assessment corrected for the coming tax year of 2012/13.

The NYC Department of Finance doesn’t always properly calculate property taxes.  Errors are made in assessing the value of the property and, in many instances, even the type of property that is assessed.  For example, the Department of Finance may tax a property at a commercial tax rate because the property is mis-classified as a commercial property and not a residential one.  The remedy available to a property owner is to file an application with the NYC Tax Commission to correct the value of the property from which the assessment calculation is made or the tax classification of the property.

The process can be drawn out and complicated. It does not require a hearing, although in certain instances one is recommended.  The result however may be a reduction in a property’s assessed taxes which, in the long term, may result in substantial savings to the property owner.

The U.S. Congress is currently considering enacting new legislation to combat foreign websites which infringe on U.S. copyright content, such as movies, songs and t.v. shows, by essentially blacklisting those websites.  The legislation, known as the Stop Anti-Piracy Act (SOPA), is already very controversial. It prompted many websites, such as Wikipedia and Reddit, to shut down last Wednesday in protest of SOPA.

Why are websites such as Wikipedia against SOPA?  Essentially, there are some pitfalls in this legislation which could have unintended adverse effects for U.S. users.  For example, any U.S. internet user who accesses or links to a site that has copyrighted content, uploaded illegally, could be punished.  This means that a violation of SOPA would occur if a link appears on Youtube which directs a user to a foreign site containing a U.S. movie or song which is not obtained legally.

Another pitfall would arise if a U.S. user stores information on a web site, which provides cloud storage or video hosting,  and that web site also contains copyright infringed material.  This would cause the web site to become blacklisted by the U.S. government and thereafter not be accessible to the U.S. user.

Most web sites argue that the uploading of copyright infringed material is hard to track and that SOPA would punish those sites where there is no intent to harbor such materials.  In light of the protests, the U.S. government has promised to review SOPA.  Stay tuned.

In a matter involving internet law, a photography studio was hired by a couple to take wedding pictures of the bride and groom pursuant to a contract.   When the studio posted on is website pictures of the bride, in her underwear, taken just prior to the wedding, the bride sued the studio for violation of privacy and civil rights laws.

The Court in Bostwick v. Christian Oth Inc., found that the terms of the contract between the parties allowed the studio to post all pictures taken of the bride and groom on its website.  There was no further consent required from the couple for the pictures to be posted. Additionally, the pictures were not deemed advertising and, even if they were, they would still allow them to be posted and the terms of the contract granted the studio the right to do so.

While violent crimes have fallen during the past decade, the boom in real estate, and even the real estate depression, has afforded ill-intended individuals the opportunity to engage in fraudulent practices involving real estate.

A type of fraud which has become very common involves the fraudulent transfer of title to properties.  Most times, the fraudulent transfer of a person’s property, to a third party, involves someone who knows the homeowner.  It can be a mortgage broker who the property owner visited to inquire about a loan.  It can even be a lawyer who knows the homeowner will not become aware of the fraudulent transfer.  Often times it involves children taking advantage of elderly parents to transfer title of property from their parents’ name into their own name.  Most of this is accomplished by having someone forge the name of a homeowner on a deed or fraudulently inducing the property owner to sign a deed under false pretense.  Many such cases have recently been prosecuted by authorities in New York.

In the State of California however this type of fraudulent practice is becoming more difficult.  The State has implemented a “Fraud Notification Program” which notifies a property owner every time there is a transfer of title of their property.  Once the homeowner is notified of a transfer, they can take immediate action and notify the authorities if the transfer was fraudulent.

This type of program would be very effective in New York however its implementation may be difficult.  Each county in New York State is responsible for recording deeds transferring title of property and the City Register of New York is responsible for doing so for all five boroughs.  Accordingly, if the State does not take an initiative to follow the lead of California, the City of New York should and can do so on its own.

In a landmark decision issued this week, the New York State Court of Appeals ruled that private claims of fraud brought by individual investors under the Martin Act are not precluded. In the case, entitled Assured Guaranty (UK) Ltd. v. J.P. Morgan Investment Management Inc., the plaintiff brought claims against J.P. Morgan for breach of fiduciary duty and violations of the Act stemming from J.P. Morgan’s mismanagement of a financial portfolio.

The Martin Act is an existing law in New York State which authorizes the Attorney General to investigate and enjoin fraudulent practices in the market of stocks, bonds, securities as well as condominium sales in New York.  The Act grants the Attorney General investigatory and enforcement powers. Many individual condominium purchasers in the past five (5) years have brought lawsuits against sponsors of newly built condominiums alleging that they were defrauded by false representations made by sponsors under the Martin Act.   Sponsors often claimed that private individuals could not bring a claim under the Martin Act because the statute only authorized the Attorney General to bring such suits for fraud.

However, the Court of Appeals’ ruling this week stated that the Martin Act “does not expressly mention or otherwise contemplate the elimination of common-law claims” which were brought by private individuals.  Previously, the Appellate Division had ruled that only the Attorney General can sue for violations under the Martin Act.  The most notable ruling in a case involving a claim against a condominium sponsor was in Kerusa Co. LLC v. W10Z/515 Real Estate.

The Court of Appeals’ ruling in Assured Guaranty (UK) Ltd., effectively upturns the lower Court’s decision in Kerusa and now paves the way for condominium unit owners to file suits against sponsors for violations of the Martin Act.

An elderly woman, who resides in a cooperative apartment building which bars residents from maintaining window air conditioning units, was allowed to keep her window unit based on her asthmatic condition.

The cooperative, which has central air conditioning in all units, demanded that the woman, Ms. Clara Feldman, remove her unit because she had installed it without co-op board approval and in breach of her proprietary lease.  Ms. Feldman explained that she suffers from asthma and that she needs her own unit to remove dust, pollens and airborne allergens from her unit.

The Court sided with Ms. Feldman and maintained that due to her medical condition, she was entitled to maintain her own air conditioning unit and that any effort by the cooperative to remove the unit would violate the Fair Housing Amendment Act.  Even though Ms. Feldman could not prove that she was handicapped, the Court still believe that she was entitled to keep the unit for medical reasons.

The case is cited as Feldman v. The Cryder House, (NY Sup.Ct. Queens Cty Index #16570/06).

In the action of Katz 737 Corp. v. Cohen, where our office represented the defendants, Lester Cohen and Carol Cohen, the landlord sued the Cohens for fraud claiming that they intentionally under-reported their income to the Department of Housing and Community Renewal (“DHCR”) to circumvent the rules and maintain a rent stabilized unit at 737 Park Avenue, New York, New York.  Carol Cohen is a prominent New York City real estate broker who previously worked for the Corcoran Group.  The DHCR had already ruled that the Cohens were entitled to maintain their unit and conducted no investigation into the alleged under-reporting of income.

The Court ruled that the landlord sought to have the Court improperly intervene and go beyond the authority of the DHCR and rule on a matter which was exclusively within that agency’s jurisdiction.  The Court strongly indicated that the action was baseless and summarily dismissed the action.

A limited liability company (LLC) is often formed by its members to conduct business as the members see fit.  Its organization and structure is generally left to the discretion of the members who are free to negotiate any terms which they deem are appropriate for the operation of the LLC.

When their business concludes, or when the LLC is to be dissolved either voluntarily or judicially, the members’ main task is to engage in the “winding up” of the LLC.  This involves concluding all business of the LLC prior to dissolving it.

The responsibilities of the members in winding up the LLC should be outlined in the LLC’s operating agreement. However, if the operating agreement does not specifically set forth those responsibilities, the members may proceed to conduct such activities associated with the winding up as is defined by New York law.  Specifically, New York’s Limited Liability Company Law §703 states that members, in winding up an LLC, may “prosecute and defend suits, whether civil, criminal or administrative, settle and close the limited liability company’s business, dispose of and convey the limited liability company’s property, discharge the limited liability company’s liabilities and distribute to the members any remaining assets of the limited liability company, all without affecting the liability of members including members participating in the winding up of the limited liability company’s affairs”.

Where the terms of an operating agreement do not contain practical terms for winding up an LLC, the members may ask a court to intervene and exercise its discretion in allowing those activities which are reasonable to effectuate the winding up of the LLC.

A Manhattan judge has allowed a claim brought against a cooperative to proceed on the basis that the cooperative engaged in price fixing by refusing to approve a shareholder’s sale.

In Chappell v. Trump Plaza Owners Inc., (NY Sup. Ct. Index #102282/11), the plaintiff-shareholder sought to sell her cooperative unit.  The cooperative refused to even interview the shareholder’s prospective purchaser.  The plaintiff in her suit claimed that the cooperative board acted in bad faith by trying to force her to default so it could acquire her shares for a below-market price and flip them for a profit in order to shore up its own ailing finances.

The Court refused to dismiss the suit stating that the plaintiff had set forth a valid claim for breach of fiduciary duty.  While the Court recognized that a cooperative may act in its best interests by restricting the sale of cooperative shares, such power is not unlimited.  The court decried what it believed was, not a restriction on the sale of cooperative shares but, the effective prohibition on transferability itself.

The ruling itself was unique because it is the first time a court has agreed to examine a decision by a cooperative to refuse to approve the sale of cooperative shares based on price.  As is well known, a cooperative reserves the right to deny the sale of a unit, and its appurtenant shares, if it believes the sales price is too low and may affect the overall value of the cooperative itself.  The plaintiff in this case alleged that the sale of her shares were at a market value price.