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People ex rel. McGoldrick v. Sterling

Supreme Court of New York, Appellate Division

December 8, 1953

THE PEOPLE OF THE STATE OF NEW YORK ex rel. JOSEPH D. MCGOLDRICK, as State Rent Administrator, Appellant, and MONROE JACOBS et al., Interveners, Appellants,
EDWARD C. STERLING et al., Respondents.

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[Copyrighted Material Omitted]

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APPEAL from a judgment of the Supreme Court in favor of defendants, entered October 20, 1953, in New York County, upon a decision of the court on a trial at Special Term (BRISACH, J.).


Robert H. Schaffer of counsel (Norman S. Fenton with him on the brief, attorney), for appellant.

Leonard M. Wallstein, Jr., of counsel (Benjamin Menschel with him on the brief; Wallstein, Menschel & Wallstein, attorneys), for interveners, appellants.

George Brussel, Jr., of counsel (Rosston, Hort & Brussel, attorneys), for respondents.


The question is whether an owner of real property--a multiple dwelling--may cut off the possessory rights of statutory tenants under the State Residential Rent Law (L. 1946, ch. 274, as amd.) by transferring the property to a corporation under a so-called 'co-operative plan' and selling to strangers, without offering to the tenants, the shares allocated to their apartments.

We believe that the statute and regulations by implication do not so permit; that the regulations, as distinguished from the statute, were certainly not intended to so permit; and that, in any event, if the regulations so permit they are invalid and of no effect to that extent, because not in effectuation of the purposes of the statute, and indeed, in contravention thereof.

This is what happened.

Edward C. Sterling had become the sole owner of 1133 Park Avenue, a multiple dwelling with thirty-two apartments. From 1934 to 1953, Mr. Sterling and his family had owned bonds secured by the building--some $306,500 worth out of a total bonded indebtedness of $504,000. In 1953, when the building was in reorganization, Mr. Sterling bid at public auction for the property, and took title on May 21, 1953.

In June, 1953, Mr. Sterling caused 1135 Park Avenue Corporation to be organized under the Stock Corporation Law (not the Cooperative Corporations Law). On June 29, 1953, the 'co-operative plan' was promulgated over the subscription of the managing agents for the building.

The plan provided that of the thirty-two apartments in the building nineteen were allocated to occupant tenants. They would have the privilege of purchasing shares in the corporation allocated to their respective apartments and thereby obtain so-called 'proprietary leases'. As to the remaining thirteen apartments it was provided in the agreement for the sale of

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the building to the newly organized corporation that: 'As part of the consideration for this sale and the conveyance of title by the Seller [Mr. Edward C. Sterling] to the Purchaser, the Organizer of the Cooperative Plan of Organization referred to in the annexed Plan of Cooperative Organization, shall have the right to purchase and acquire 3,335 shares of the stock of the Corporation allocated to apartments: 1-E, 2-E, 3-E, 5-E, 16-E, 1-SE, 1-W, 2-W, 3-W, 6-W, 9-W, 16-W, and PH-W and to execute Subscription Agreements and Proprietary Leases covering said shares and apartments.'

The excepted apartments have been transferred to Mr. Robert D. Sterling, father of the seller. Some of the excluded tenants desire to purchase co-operative interests in their apartments, and at least one of them made a tender to purchase an interest in his at the price scheduled in the plan.

The effect of this 'co-operative plan' is that occupant tenants of the apartments reserved for the 'organizer' were not permitted to purchase 'co-operative' interests in their apartments. The further effect would be that after a two-year lapse as provided in subdivision 3 of section 55 of the Rent and Eviction Regulations of the Temporary State Housing Rent Commission, the stranger purchasers of the shares allocated to the thirteen reserved apartments would be able to obtain certificates of eviction and remove the occupants. So the defendants contend. Indeed, they concede that the purpose of this Sterling plan is to allow the owner's father, Mr. Robert D. Sterling, to whom the reserved apartments were 'sold', to speculate with the reserved apartments, sell them, and make a capital profit.

Upon the trial plaintiffs sought to show, but the evidence was excluded, that the seven residential tenants who were precluded from purchase of co-operative interests in the building were especially selected because of their efforts in the past in resisting rent increases before the Rent Administrator and in making complaints with respect to the maintenance of services.

The Rent Administrator brings this action for judgment enjoining defendants-- members of the Sterling family who participated in the Sterling plan, the newly organized corporation, and the managing agents--from proceeding with the plan. He claims that it was designed illegally to circumvent the statutes and the regulations thereunder. A number of the tenants, excluded from ...

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