BELLSTELL PARK AVENUE LLC v. SEVEN PARK AVENUE CORP (2019)

This case concerns the legal status of shares in a cooperative apartment building located at 7 Park Avenue in New York County. Plaintiff, Bellstell 7 Park Avenue, L.L.C. (Belstell), holds all the unsold shares in that building. Bellstell seeks a declaration that defendant, Seven Park Avenue Corporation, impermissibly determined that Bellstell had lost its unsold-shareholder rights with respect to one of the apartments that Bellstell owns in the building.

Belstell now moves for summary judgment under CPLR 3212 on its claim for declaratory relief (motion sequence 001). Instead of cross-moving for summary judgment, Seven Park Avenue filed its own, separate motion for summary judgment (motion sequence 002), seeking to dismiss Belstell's complaint and to declare that Belstell no longer enjoys unsold-shareholder rights with respect to the apartment at issue.

Motion sequences 001 and 002 are consolidated here for disposition.

BACKGROUND

A. The Definition and Treatment of “Unsold Shares” in the Cooperative

The building at issue in this case was converted into a cooperative building by its then-owner, Seven Park Associates, beginning in 1982. Most of the shares in the cooperative were subscribed before the closing date of the conversion offering plan. The offering plan treats those shares that remained unsubscribed as of the closing date as “unsold shares.”

As relevant here, once sold by the co-op sponsor (here, Seven Park Associates) to one or more individuals under certain requirements of the offering plan, a block of unsold shares “retain[s] their character as such (regardless of transfer) until ․ the holder of such shares (or a member of his family) becomes a bona fide occupant of the apartment” to which the shares are allocated. (See Proprietary Lease, NYSCEF No. 58, at 31 [¶ 38 [b]].)

Under the uniform co-op lease, the holders of unsold shares enjoy rights in addition to those ordinary shareholders have. Among other things, an apartment lessee who holds a block of unsold shares may sublet the apartment or assign the lease without approval of the coop's board of directors or other shareholders, as would ordinarily be required. Only the building's managing agent's approval is required. (Id. [¶ 38 [c]].)

B. The Cooperative Shares at Issue Here

In 1987, Seven Park Associates sold all the unsold shares to an individual named Alvin Rosenthal in accordance with the offering plan's terms. In 1998, Rosenthal sold all his unsold shares to Bellstell. Bellstell executed leases for all the apartments to which the unsold shares were allocated. The cooperative offering plan was amended to reflect that Bellstell was now the holder of the outstanding unsold shares (and had leased the corresponding apartments).

Bellstell is a New York limited-liability company. Its sole member now is a New York corporation named Beni Internazionali (U.S.A.) Inc. (Beni). Beni's sole shareholder is an Italian corporation named Edilverde e Beni Internazionali S.p.A. (Edilverde). (Complaint, ¶ 7).

In November 2015, with the approval of defendant Seven Park Avenue's managing agent, Bellstell sublet one of its leased apartments to an individual named Ciro Campagnoli. Campagnoli and his sister each hold a 50% contingent remainder interest in Edilverde (with their father holding a 100% interest during his lifetime). Campagnoli occupied the apartment on and off until January 2017.

C. The Dispute Over Those Shares

In April 2017, Seven Park Avenue's counsel wrote to Bellstell, informing it that Campagnoli qualified as a family member of Bellstell for purposes of ¶ 38 of the co-op lease, and therefore that the shares corresponding to the apartment that Campagnoli had occupied would no longer be treated as “unsold shares.”

After Bellstell's objections to this conclusion proved unavailing, Bellstell brought this action, seeking a declaratory judgment that Campagnoli was not—and could not be—a family member of Bellstell, and therefore that the apartment's shares retained their “unsold shares” status. Bellstell now moves for summary judgment on its claims under CPLR 3212 (motion sequence 001). Seven Park Avenue also moves for summary judgment, seeking dismissal of Bellstell's claims and a declaration that the apartment's shares are no longer “unsold” within the meaning of the lease and the offering plan (motion sequence 002).

DISCUSSION

The parties' respective summary-judgment motions are, in substance, a motion and cross-motion addressing the same issue—whether the shares corresponding to the apartment occupied by Campagnoli are still “unsold shares.” This court treats the two motions together.¹

Ordinarily, in a summary-judgment motion, the movant must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact. (Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986].) Once this showing is made, the burden then shifts to the party opposing the motion to produce evidentiary proof sufficient to establish the existence of material issues of fact that require a trial of the action. (Id.)

There is no material dispute of fact in this case, however. The question is, instead, whether this court may determine the status of the disputed shares as a matter of law. To resolve this question, this court must apply ordinary contract principles to interpret the relevant terms of the controlling cooperative documents. (See Kralik v. 239 E. 79th St. Owners Corp., 5 N.Y.3d 54, 59, 799 N.Y.S.2d 433, 832 N.E.2d 707 [2005].) Both parties here effectively treat the co-op lease as the controlling document.

The particular issue this case presents appears, as Bellstell contends, to be one of first impression.² This court therefore begins with the language of the lease itself, which provides that unsold shares retain their status until “the holder of such shares (or a member of his family) becomes a bona fide occupant of the apartment.” (NYSCEF No. 58, at 31.)

Bellstell contends first that “member of his family” appears most naturally to refer only to individual, natural persons and that there is no basis to extend its scope to apply to artificial persons like limited-liability companies, which cannot be said in ordinary usage to have “family members.” (See NYSCEF No. 36, at 10.) On the other hand, as Seven Park Avenue rightly points out in response (see NYSCEF No. 65, at 15), this very language, read literally for all it is worth, might indicate that artificial persons like limited-liability companies cannot hold unsold shares in the first place, precisely because they do not have families. That interpretive issue, to be sure, is not properly before this court now, and the court therefore does not reach it or how the court's resolution of the status of an LLC's contested shares in a particular case might be affected by principles of waiver or estoppel.³ At a minimum, though, the fundamental interpretive tension here inclines this court against giving significant weight to the argument that because LLCs by definition do not have family members, LLCs cannot be subject to the bona-fide-occupant restriction on unsold shares.

That said, as Bellstell also argues (see NYSCEF No. 36, at 10-11), interpreting this provision of the lease to extend to individuals who have some connection to an LLC (or corporation) holding unsold shares would create a host of difficulties—in particular, determining how close the connection must be for an individual to be considered a member of the LLC's “family.” Those difficulties exist, so to speak, both “vertically” (when the individual in question has a share of the LLC's control only through multiple levels of corporate ownership) and “horizontally” (when the individual is only one of a number of members or officers of the LLC, or shareholders of the corporation that is a member of the LLC).

Seven Park Avenue's papers do not attempt to remedy the difficulties inherent in defining “member of his family” is context. At most, Seven Park Avenue emphasizes that in this particular case, Campagnoli “is a principal [of Bellstell] and member of the family which owns and controls Bellstell.” (NYSCEF No. 51, at 14-15; accord NYSCEF No. 65, at 12-13.) Seven Park Avenue fails, however, to explain why a court should deem an LLC's officers—as opposed to its members—to be the LLC's family, nor which officers should count if so. Seven Park Avenue also does not indicate when (or why) it is appropriate to look through the corporate form and treat the individuals ultimately exerting control over the LLC as the LLC's family.

Put simply, this court sees no principled or practical means of defining when an individual's ties to an LLC should suffice to make them a “family member” of the LLC for purposes of determining when the individual's occupancy of an apartment strips the apartment's shares of unsold-share status under the lease at issue here. The court therefore concludes that as a matter of law, the only reasonable reading of “member of his family” in ¶ 38 (b) of the lease is that this language does not encompass individuals connected to LLCs or corporations that hold unsold shares.⁴

Seven Park Avenue also asserts that Campagnoli also qualifies as a family member of Bellstell by virtue of ¶ 40 of the co-op lease. (See NYSCEF Nos. 51, at 15-16; NYSCEF No. 65, at 13-14.) Paragraph 40 provides that the “references herein to the Lessee ․ shall be deemed to include the executors, administrators, legal representatives, legatees, distributes and assigns of the Lessee.” (NYSCEF No. 58, at 32.) Seven Park Avenue claims that Campagnoli is a manager of Bellstell, that he has the authority as a manager to bind his principal through his actions, and that this authority makes him a “legal representative” of Bellstell for purposes of ¶ 40, such that in occupying the apartment at issue he stood in Bellstell's shoes for purposes of ¶ 38 (b). This court is not persuaded.

“Legal representative” is a term of art with a far narrower meaning than Seven Park Avenue gives it here. A “legal representative ․ in the ordinary sense” is “one ‘who manages the legal affairs of another because of incapacity or death’ ”—not merely “an agent, but a principal who has been assigned the rights and obligations of the party” itself. (Kese Industries v. Roslyn Torah Found., 15 N.Y.3d 485, 490, 914 N.Y.S.2d 704, 940 N.E.2d 530 [2010], quoting Black's Law Dictionary, at 1416-1417 [9th ed. 2009].)

Seven Park Avenue does not supply any reason why this court should disregard the ordinary, limited scope of the term “legal representative.” Indeed, the language of ¶ 40 itself confirms that this term is being used in the conventional sense. “Legal representative” in ¶ 40 appears in a list of parties formally “assigned the rights and duties” of the lessee, whether through a written instrument or a court filing “associated with Surrogate's Court practice”—i.e., executors, administrators, legatees, distributees, and assigns. (Id. at 491-492, 914 N.Y.S.2d 704, 940 N.E.2d 530.) Each term denotes a party that has taken on the legal rights and responsibilities of the party itself in some form, not merely one who is serving as a high-level agent of the party. Campagnoli was not a “legal representative” of Bellstell within the meaning of ¶ 40 of the co-op lease.⁵

This court therefore concludes as a matter of law that under the uniform co-op lease, Campagnoli's occupancy of the apartment at issue in this case did not affect the “unsold share” status of the apartment's corresponding co-op shares.⁶

For the foregoing reasons, it is hereby

ORDERED that Seven Park Avenue's motion for summary judgment and declaratory relief (motion sequence 002) is denied; and it is further

ORDERED that Bellstell's motion for summary judgment and declaratory relief (motion sequence 001) is granted; and it is further

ADJUDGED AND DECREED that Campagnoli's occupancy of an apartment leased by Bellstell did not extinguish that apartment's “unsold share” status under ¶¶ 38 and 40 of the uniform co-op lease.

FOOTNOTES

1.   Seven Park Avenue also seeks summary judgment dismissing Bellstell's complaint on the ground that it is untimely. But as Bellstell correctly points out, Seven Park Avenue did not raise the statute of limitations in its answer or in a CPLR 3211 motion, and thereby waived this defense. (See CPLR 3211 [e].)

2.   Seven Park Avenue asserts that the Appellate Division, First Department, addressed the matter in LJ Kings, LLC v. Woodstock Owners Corp., 46 A.D.3d 321, 848 N.Y.S.2d 42 (1st Dept. 2007). This court disagrees. Seven Park Avenue relies on the court's statement in that case that since it was undisputed that plaintiff had “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.” (Id. at 322, 848 N.Y.S.2d 42.) But LJ Kings dealt with a completely different issue, involving plaintiff's possible waiver of its status as a holder of unsold shares. As the quotation above reflects, the court's passing reference to a “family member” of plaintiff LLC, came in a passage that simply recited the different requirements of the co-op lease provision at issue without considering their proper scope and interpretation, precisely because those requirements were not at issue in the case.

3.   Seven Park Avenue suggests that “if this Court reads paragraph 38 as literally as Bellstell requests, Bellstell must lose its status as a holder of unsold shares for all shares it owns.” (NYSCEF No. 65, at 15 [emphasis added].) But Seven Park Avenue neither cross-moved for that broader form of relief in motion sequence 001 nor moved for that relief on motion sequence 002 (see Notice of Motion, NYSCEF No. 38 [seeking a declaration only that the apartment occupied by Campagnoli lost its status as an unsold-share apartment]; accord NYSCEF No. 65, at 18 [same].)

4.   Seven Park Avenue asserts that this conclusion “would open up a gigantic loophole which would permit entity holders of unsold shares to avoid their obligations under the leases and have their principals and representatives occupy investment apartments without consequence in derogation of the parties' intentions as expressed in proprietary leases.” (NYSCEF No. 65, at 11.) But this assertion merely begs the basic interpretive question at hand. (The court also notes that although issues relating to “unsold share” status have been litigated many times in the 14 years since the Court of Appeals decided Kralik, the asserted problem of “entity holders of unsold shares ․ avoid[ing] their obligations” under “proprietary leases” has never arisen before.)

5.   Seven Park Avenue contends in motion sequence 002 that Bellstell impliedly conceded the merits of Seven Park Avenue's interpretive argument about 40 of the lease by failing to challenge those arguments in Bellstell's opposition to summary judgment. (See NYSCEF No. 66, at 2 & n 2, 5-6.) This court declines to hold Bellstell to any such implicit concession—particularly not when the 40 argument is itself strained at best.

6.   The court therefore does not reach Bellstell's alternative argument that Seven Park Avenue acted in bad faith and without authority in assertedly acting to remove that “unsold share” status—or the analytically prior question whether Bellstell could raise that argument at summary judgment without having asserted it in the complaint (see Compl, NYSCEF No. 2, at 4-8).

Gerald Lebovits, J.