Yisroel SPIRA, Petitioner, v. Jennifer DOUGLAS, “John Doe,” “Jane Doe,”, Respondents.
After oral argument, the decision and order on this motion is as follows:
This summary holdover proceeding concerns a certain cooperative apartment and the pending motions require the court to examine an infrequently utilized portion of Article 7 of Real Property Actions and Proceedings Law (“RPAPL”) as well as the application of Article 9 of New York State's adoption of the Uniform Commercial Code (“UCC”) to cooperative security interests.1
Procedural History and Arguments
Petitioner, Yisroel Spira (“Petitioner”) alleges herein that he is entitled to possession of the subject cooperative apartment as a new lessee after having been issued stock in the cooperative corporation and executing the corresponding proprietary lease for the premises. The parties agree that 3875 Owners Corp. (“Co-Op”) is the cooperative corporation for the subject building. The Petition further alleges that Respondent, Jennifer Douglas (“Respondent”), was the former shareholder and proprietary lessee whose shares in the premises were transferred by extrajudicial sale held by the cooperative corporation at which Petitioner was the successful bidder. (Petition at 2, 4.) The Petition further alleges that Respondent remains in possession of the premises without permission of the Petitioner, or Co-Op, after the term for which the premises were to be occupied which expired on the date of the extrajudicial sale. (Id.)
Respondent interposed a written Answer which claims, inter alia, that the Petitioner lacks standing to bring this summary proceeding, that her lease agreement with the cooperative corporation was never properly terminated, and that she is the shareholder of the shares for the subject premises. (Answer at 9, 12, 14.) After multiple adjournments over a period of six months, including to allow Respondent to seek representation from Neighborhood Association for Inter-Cultural Affairs (“NAICA”) and Mobilization for Justice (“MFJ”) legal services, Respondent has moved pro se for dismissal of the Petition pursuant to CPLR 3211(a)(7) and RPAPL 741, as well pursuant to CPLR 3212 and RPAPL 721.2
Specifically, Respondent argues that the Petition fails to state a cause of action under RPAPL 741 in the following ways: (1) that the Petition pleads conflicting dates that Petitioner “became entitled” to possession of the subject premises — the date of the July 20, 2018 extrajudicial sale and May 31, 2019 — the date when he was issued the proprietary lease and stock by the cooperative; (2) that the petition fails to state the relationship between the parties' with regard to the premises; and (3) that the Petitioner failed to plead a termination of Respondent's lease, attach such a notice to the petition, or plead any lease clause which would allow the cooperative to terminate the proprietary lease. (Douglas aff at 19.) She argues that a non-judicial auction of shares of her cooperative stock does not serve to terminate her proprietary lease because Article 9 of the Uniform Commercial Code is a statute that deals with personal and not real property. With respect to the application for summary judgment, Respondent argues that Petitioner as a purchaser of cooperative stock at an extrajudicial sale is without standing to bring this proceeding under RPAPL 721.
In its opposition papers, Petitioner argues that RPAPL 711(1) and 721(10) confers on him standing to bring this proceeding and that the Petition sets out a cause of action under RPAPL 711(1), which allows for the maintenance of a summary holdover proceeding where “[t]he tenant continues in possession of any portion of the premises after the expiration of his term, without the permission of the landlord or, in a case where a new lessee is entitled to possession, without the permission of the new lessee.” (RPAPL 711 [emphasis provided].) Petitioner attaches a copy of a stock certificate in his name for 80 shares of the cooperative corporation allocated to the subject apartment and a copy of a proprietary lease agreement with the cooperative corporation for the premises. (Petitioner's exhibit D.) Arguing that “there is no dispute that Respondent's lease was terminated by the cooperative corporation” (affirmation of Petitioner's counsel at 20), Petitioner attaches a copy of a complaint filed by Respondent in a Supreme Court proceeding against the Co-Op in which Respondent alleged that “3875 Owners Corporation ․ performed a wrongful termination of the lease and transferred plaintiff's allocation of the shares back to their Corporation” under a subheading entitled “Wrongful Termination of Lease.” (Petitioner's exhibit C at 4.) Respondent has not disputed filing such complaint. Petitioner cites to Fed. Home Loan Mtge. Assn v. Perez, 40 Misc. 3d 1, 968 N.Y.S.2d 317 [App. Term, 2d Dept. 2013) for support of the proposition that Respondent is a holdover tenant under RPAPL 711(1) and asks the court to search the record before it and to grant summary judgment in its favor.
In reply, Respondent reiterates her argument that article 9 of the UCC cannot be used as basis for a holdover proceeding, also cites to Perez for support, and disputes that she has admitted “in this case nor any other” that her proprietary lease has been terminated. (Reply aff of Respondent at 9.) Neither party attached a copy of the proprietary lease between Respondent and the cooperative corporation to their papers.
Oral argument was heard on December 18, 2019.
Petitioner is correct in that the cited statutes confer upon him the standing to bring this summary holdover proceeding. RPAPL 711(1), which is quoted above, allows the commencement of a summary proceeding by “a new lessee ․ entitled to possession.” Section 721(10) of the RPAPL, which is entitled “Person who may bring a proceeding,” states that a “proceeding may be brought by ․ [t]he lessee of the premises, entitled to possession.” The legislative history of those sections indicate that they were specifically enacted to permit a new lessee to maintain directly a proceeding against a holdover tenant. (L 1963, c 305; Rep of Law Rev Commn, 1963 Leg Doc No 65[H] [“Their purpose is to permit a lessee to maintain summary proceedings for the recovery of real property in any case where he is entitled to possession.”]; see also Hispano Americano Advertising Inc. v. Dryer, 112 Misc. 2d 936, 448 N.Y.S.2d 128 [Civ. Ct., N.Y. County 1982].) The issuance of the corporate shares by the Co-Op to Petitioner, along with the execution of the corresponding proprietary lease is sufficient to satisfy the “threshold determination” allowing Petitioner “access to the courts to adjudicate the merits of [this] particular dispute.” (Roberts v. Health & Hosps. Corp., 87 A.D.3d 311, 318, 928 N.Y.S.2d 236 [1st Dept. 2011]; see e.g. Fed. Natl. Mtge. Assn. v. Tenenbaum, 63 Misc. 3d 313, 92 N.Y.S.3d 574 [Nassau Dist. Ct. 2019].) There is no requirement contained in the statute that Petitioner serve any termination notice prior to commencement of a proceeding under RPAPL 711(1). (See Mullman v. Hogan, 121 Misc. 2d 719, 468 N.Y.S.2d 839 [Civ. Ct., N.Y. County 1983]; cf. Fed. Natl. Mtge. Assn. v. Tenenbaum, 63 Misc. 3d 313, 324, 92 N.Y.S.3d 574 [Nassau Dist. Ct. 2019] [“Generally, there is no need to serve a holdover tenant with notice upon the expiration of the lease term, but this rule is subject to the terms of the lease.”]; 221 E. 10th St., Inc. v. Walker, 1992 N.Y. Misc. LEXIS 717 [Civ. Ct., N.Y. County 1992], citing Hendrickson v. Lexington Oil Co., 41 A.D.2d 672, 340 N.Y.S.2d 963 [2d Dept. 1973]; see also Waring Barker Co. v. Santiago, 1998 N.Y. Misc. LEXIS 749 [App. Term, 1st Dept. 1998].)
Relatedly, Respondent's reading of the holding of Perez that the Housing Court “lacks subject matter jurisdiction in cases of a non-judicial auction of coop shares” is overly broad. (Respondent's reply aff at 6.) There are important distinctions between the facts in the current proceeding, and in Perez, as well as with those present in its First Department companion Fed. Natl. Mtge. Assn. v. Simmons, 48 Misc. 3d 24, 12 N.Y.S.3d 487 (1st Dept. 2015). The courts in Perez and Simmons both held that assignees of successful bidders for cooperative stock at UCC Article 9 sales could not maintain proceedings against the alleged former shareholders under any argued subsection of RPAPL 713.3 The first relevant distinction, at least in Simmons, is that the UCC Article 9 sale followed a shareholder's default on a loan secured by her shares and proprietary lease. (Simmons, 48 Misc. 3d at 25, 12 N.Y.S.3d 487.) The auction was carried out by the lending agency pursuant to a loan agreement and not by, as is alleged here, the relevant cooperative corporation pursuant to the terms of a proprietary lease. (Id.) While it is not entirely clear from the body of the decision, the court can deduce, from the nature of the petitioner therein, that the same is true of Perez. Although Respondent argues here that her lending agency, JP Morgan Chase Bank (“Chase”), is the only “entity with rights to foreclose and auction the shares” (Respondent's aff at 8), it is possible, however, for a cooperative corporation to create a security interest in shares and a proprietary lease. (See generally Vincent Di Lorenzo, New York Condominium and Cooperative Law Second Edition § 11:6 [Nov 2019 update].) The New York UCC states that:
“A cooperative record that provides that the owner of a cooperative interest has an obligation to pay amounts to the cooperative organization incident to ownership of that cooperative interest and which states that the cooperative organization has a direct remedy against that cooperative interest if such amounts are not paid is a security agreement creating a cooperative organization security interest.”
(UCC 9-102; see also UCC 9-102[b]-[e] [defining “cooperative interest,” “cooperative organization,” “cooperative organization security interest” and “cooperative record”].)4
More importantly, however, in neither Perez nor Simmons were there any allegations that the cooperative corporation took any steps to terminate its lease with the former shareholder or offer a lease to the petitioner therein. The court in Perez wrote: “Tenant is not a licensee. Rather he entered into a possession as a tenant under a proprietary lease. If that lease has been terminated — and there is no allegation that is has — tenant is in possession as a holdover tenant. He is not in occupancy pursuant to a license.” (40 Misc. 3d at 3, 968 N.Y.S.2d 317 [emphasis added].) Similarly, citing to Perez, the Simmons court wrote: “Indeed, so far as shown on this record, the nonparty cooperative neither terminated respondent's lease nor issued a new lease naming the petitioner as the tenant-shareholder.’ To the extent that the cooperative refuses to do so, petitioner's remedy is in another forum at another time.” (48 Misc. 3d at 26, 12 N.Y.S.3d 487 [emphasis added].)
The facts alleged in the Petition before this court are different from those in Perez and Simmons, namely the Petitioner does not here rely on any subsection of RPAPL 713, but instead on RPAPL 711(1) alleging that Respondent is a holdover tenant who remains in possession “following the expiration of [Respondent's] term” on the date of the UCC sale, and that he is the new proprietary lessee, “entitled to possession” of the subject premises by virtue of stock certificate and proprietary lease agreement with the Co-Op. (RPAPL 711; see Petition at 4.)
Recently, in Fed. Natl. Mtge. Assn. v. Tenenbaum, the court held that because the petitioner, a foreclosing lender, had since been issued stock and a proprietary lease for the subject premises from the cooperative corporation, a prior decision dismissing a proceeding between the parties, which was commenced before execution of the proprietary lease did not have res judicata effect. (63 Misc. 3d at 321, 92 N.Y.S.3d 574.) In Tenenbaum, finding that the transfer of shares and the proprietary lease by the cooperative to a corporate entity was prohibited by the proprietary lease between the cooperative corporation and the corporate petitioner, the court held that a trial was necessary to determine whether the transfer to the corporate entity-petitioner therein was “appropriate.” (Id. at 324, 92 N.Y.S.3d 574.) That court also questioned why the shares and lease were not transferred to an individual because “[t]he designated individual would have been able to commence a summary proceeding [under RPAPL 711(1)] provided that the terms and conditions of the lease were complied with.” (Id. at 323-324, 92 N.Y.S.3d 574 [emphasis added].) In the instant proceeding, the shares and proprietary lease have purportedly been properly transferred to a designated individual. However, as in Tenenbaum, a trial is necessary herein to determine whether the Respondent had received proper notice under the proprietary lease. (Id. at 324, 92 N.Y.S.3d 574.)
Accordingly, and because, in evaluating the sufficiency of a pleading under CPLR 3211(a)(7), the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true and determine only whether the facts as alleged fit within any cognizable legal theory, the Respondent's motion to dismiss for failure to state a cause of action must be denied. (Leon v. Martinez, 84 N.Y.2d 83, 87, 614 N.Y.S.2d 972, 638 N.E.2d 511 ; Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17  [“[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail.”]. “[O]n a motion made pursuant to CPLR 3211(a)(7), the burden never shifts to the nonmoving party to rebut a defense asserted by the moving party.” (Sokol v. Leader, 74 A.D.3d 1180, 1181, 904 N.Y.S.2d 153 [2d Dept. 2010].) Here, Petitioner, as the alleged owner of shares and holder of the proprietary lease, has stated a cause of action under RPAPL 711(1).
Moreover, having found that Petitioner has standing under RPAPL 721(10) to maintain this proceeding, Respondent's motion for summary judgment on paragraphs 9 and 10 of the Answer is likewise denied.
However, whether Respondent's term has expired within the meaning of RPAPL 711(1) depends, first, on whether the cooperative corporation held a valid security interest in Respondent's proprietary lease (see In re McCoy, 496 B.R. 678, 684 [E.D. N.Y. 2011] [“A security interest is only created when the cooperative corporation and the lessee enter an agreement that describes the collateral, the value received by the lessee, and the lessee's rights in the collateral”], citing Fundex Capital Corp. v. Reichard, 172 A.D.2d 420, 568 N.Y.S.2d 794 [1st Dept. 1991]; McMillian v. Park Towers Owners Corp., 225 A.D.2d 742, 640 N.Y.S.2d 144 [2d Dept. 1996] [overturning the lower court's denial of proprietary lessee's motion to preliminarily enjoin cooperative from effecting nonjudicial sale of the lease and shares under UCC Article 9 because the “the mere existence of a proprietary lease, without more, does not establish an enforceable security agreement to which the Uniform Commercial Code applies”]; see also UCC 9-201, 9-203, 9-102[b]-[e], .) Secondly, it depends on whether the procedures for the alleged termination therein were satisfied (see eg Perez, 40 Misc 3d 1, 968 N.Y.S.2d 317 [holding that a UCC Article 9 sale of did not in and of itself result in termination of a proprietary lease]; Tenenbaum, 63 Misc 3d at 324 [denying petitioner's motion for summary judgment and noting “that the proprietary lease between (the cooperative) and the respondents therein had not been provided. What effect, if any, that this lease would have on these proceedings is not clear to the court.”].) Accordingly, the court cannot grant summary judgment in Petitioner's favor.5
This constitutes the decision and order of this court.
1. As the Court of Appeals has written: “The interest in a cooperative apartment is sui generis in modern property law, because it does not fit neatly into traditional property classifications; the interest is represented by shares of stock, which are personal property, yet in reality what is owned is not an interest in an ongoing business enterprise, but instead a right to possess real property. Characterization of an interest in a cooperative apartment, therefore, is not resolved by uncritical resort either to the rubrics governing real property or those governing personal property. Instead, this court, and other courts, have assessed on a case-by-case basis which aspect of this paradoxical interest predominates, in order to determine the applicability of a particular rule of law or statutory scheme.” (Matter of Carmer, 71 N.Y.2d 781, 784, 530 N.Y.S.2d 88, 525 N.E.2d 734  [internal citations and quotation marks omitted].)
2. NAICA never appeared for Respondent. On August 14, 2019 the file jacket indicates that the Court adjourned the proceeding because Respondent represented that MFJ had told her they would represent her. On the adjourned date, the file jacket indicates that MFJ informed the court that it had determined not to represent Respondent. Three months later, on the date of oral argument, an attorney for MFJ appeared in the courtroom at 10:45 a.m. requesting another adjournment. The attorney in the courtroom was unaware that MFJ had previously declined representation and was unaware that there was a fully briefed motion before the court. Under the circumstances, the court determined to go forward with oral argument. Nothing precludes MFJ from now appearing for trial.
3. The Perez and Simmons courts entertained arguments under RPAPL 713(1), (5), and (7).
4. Attached to Respondent's motion at exhibit D is a May 1, 2000 Loan Security Agreement made with Chase Manhattan Bank (“Chase”) which granted Chase a security interest in Respondent's right, title and interest in and to her shares in the Co-Op and her proprietary lease therefore (Respondent's exhibit D at 4.A.) In her agreement with Chase, Respondent represented that “no person or company has any interest in, lien or encumbrance on, or claim against, the Security, or any right to sell all or any part of the Security if I fail to pay any debt I owe to them, except the [Co-Op].” (Respondent's exhibit D at 14 [emphasis added].) The rules governing priority of liens in the NY iteration of the UCC delineate that “a cooperative organization's security interest has priority over all other security interest in a cooperative interest.” (UCC 9-322[h] [entitled “Special priority rules: cooperative interests”].)
5. While both of these claims were made by Respondent in her Supreme Court action against the Co-Op (Petitioner's exhibit C), no stay of this Housing Court proceeding has been granted by that court.
Karen May Bacdayan, J.
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