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

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.

The National Arts Club, based in Manhattan, sought to terminate the tenancies and memberships of three of its members on the basis of various improprieties.  The Board of Directors of the Club reached out by telephone to other board members and sought their approval on terminating the tenancies and memberships.  No formal resolution was issued and no formal board meeting took place.

The members then sought court intervention to enjoin the termination of their tenancies and membership based on the Directors’ failure to follow the procedures of the corporate by-laws which required a board meeting and/or a corporate resolution for such actions.  The Court agreed with the members and ruled that the actions of the Club were invalid.  It stated that where a corporation seeks a remedy imposed by disciplinary hearings which may include forfeiture of vested rights and privileges, rigid adherence to the procedures is required.

The case in which this decision was rendered is James v. National Arts Club, (Sup.Ct.NY Index #109945/11).

Normally, property is acquired by the transfer of a person’s interest in property to another person.  This is done voluntarily.  However, a person can acquire an interest in the property of another party involuntarily, and without compensation, through a process called adverse possession.  This is done by controlling and claiming an interest in a property adversely, or contrary, to the rights of the owner for a specific period of time.

In New York, to prevail on a claim of adverse possession, a plaintiff must establish that his possession of the disputed property was hostile and under a claim of right, actual, open, notorious, exclusive and continuous for 10 years. These elements must be established by clear and convincing evidence. All that is required is a showing that the possession constitutes an actual invasion of or infringement upon the owner’s rights.  For example, a person who fences off a portion of an owner’s property for ten years, and claims it as his own, will acquire the property by adverse possession after ten years unless the owner takes action to disclaim the actions of the other person.

Cases involving adverse possession are property disputes which are deemed complex by the courts.  The evidence which is normally reviewed by the courts is factually intense.  A real estate attorney will need to rely on witnesses, documents and past events over a period of at least ten years to prove adverse possession on behalf of his client.  An important point to note is that a person can never acquire government property by adverse possession.

A buyer of a cooperative apartment, whose application for approval of the purchase was rejected by the cooperative board, may bring a claim against the cooperative for discriminating against him because he was an unmarried male.

In Lax v. 29 Woodmere Boulevard Owners Corp., (EDNY 10-cv-4008), the plaintiff sought to purchase a cooperative apartment unit and submitted his board application with all the requisite materials, references and tax returns requested by the board.  He appeared to be a well qualified candidate for board approval.  Notwithstanding this, the cooperative board rejected his application, initially on the basis that the sales price was too low.   When the plaintiff offered to pay a higher price for the unit, the board replied that it would not approve the sale no matter the sales price. The plaintiff was subsequently informed by an insider of the cooperative that the board had a bias towards single men owing to previous problems with single male coop owners.

The plaintiff then filed suit on the basis that he was denied board approval for the discriminatory reason that he was a male and unmarried.  This theory, known as the “sex plus” discrimination theory is often advanced in employment claims however not in housing discrimination cases.  After the cooperative sought to dismiss the “sex plus” discrimination theory, the Court ruled that such a claim can also be applied to housing discrimination cases.

This was the first time a Court has allowed the “sex plus” discrimination theory to apply to housing cases.

An employee of French bank Societe Generale (“SG”) saw his efforts to obtain a bonus, commensurate with prior year bonuses, denied based on the fact that the employee had not signed an employment agreement addressing the payment of bonuses since 1994.

In Levion v. Societe Generale, (SDNY 09 Civ. 5800 (RJS)), the employee quit his employment with the bank in 2007.  The employee claimed that he and SG negotiated a contract providing him with an annual nondiscretionary bonus, and that SG breached that contract when it reduced his expected 2006 bonus and refused to pay him a “pro rata” bonus for 2007 after he resigned.  The employee also claimed that SG breached the compensation agreement by failing to include revenues from particular transactions.

The last employment agreement executed between SG and the employee was in 1994.  Since that time, the employee received bonuses pursuant to a specific formula sued by SG to calculate bonuses.  When the employee resigned his position in 2007, he demanded a pro-rata bonus based on the same specific formula which was applied by SG since 1994.

The Court however found that the employee was not entitled to such a bonus, even though there was 12 years of bonus payment consistent with a specific method.  Specifically, the Court found that, under New York law, “entitlement to a bonus only exists where the terms of the relevant contract require it.” Simply put, if no contract exists which proscribes a specific bonus payment or plan, then an employee is not entitled to such a bonus.  Plaintiff was found to have invited the Court” to ramble through a forest of emails, testimony, draft agreements, and correspondence,” none of which demonstrated the existence of a definite contract between the parties.

The Court’s decision was by District Judge Richard J. Sullivan.

In a ruling from the Court’s bizzare part, a judge has refused to impose liablity against the MTA for injuries suffered by a passenger who jumped out of the way to avoid a rodent.

In McHugh v. Metropolitan Transit Authority, (Supreme Court, NY County, Index # 100513/09) Mr. McHugh suffered injuries on a Metro North platform in Grand Central Station, Manhattan, after he jumped to avoid a rat which was running his way. Mr. McHugh claimed that the MTA was responsible for his injuries because it failed to maintain the Station in a reasonably safe condition, free of rodents.  The Court however found that the MTA was not liable because it had no prior notice of any rodents which may have caused Mr. McHugh’s injuries.   Exterminator reports which were recovered during discovery disclosed that the Station was the subject of “lots of flies and bugs” but amazingly no rodents.  Without evidence of any prior notice of rodent infestation, the Court refused to hold the MTA liable as it was deemed to have acted reasonably in keeping Grand Central safe.