lease was effectively "entered into" on the date of the Assignment would require the Court to rewrite the plain language of the statute. Clearly, the contract at issue was "entered into" when the landlord, Robert Olnick Associates, and the tenant, Barnan Associates, signed their names to a written lease in 1979. While the contract pursuant to which the cooperative assumed the landlord's obligations under the lease was entered into after the effective date of the statute, the notice of termination in the instant action attempts to terminate only the lease between Barnan and the sponsor executed on August 31, 1979 -- prior to the enactment of the Abuse Relief Act.
Moreover, to interpret the statute in such a manner as would require the application of the Abuse Relief Act to a contract that preceded its effective date would raise serious constitutional questions -- questions that should be avoided absent an express Congressional intent so to apply the statute. See, e.g., Ralis v. RFE/RL, Inc., 770 F.2d 1121, 1126 (D.C. Cir. 1985) ("But, the retrospective imposition of an obligation giving rise to a substantive liability is not likely to be undertaken absent an express Congressional intent to render unlawful an act that was legal at the time it was done."). Such an intent is clearly absent here where Congress limited the termination provision set forth in Section 3607 to contracts "entered into after October 8, 1980."
Even if the Master Commercial Lease were a contract to which the Abuse Relief Act's termination provisions applied, defendant's notice of termination would be ineffective, because the termination date did not fall within two years following the relinquishment of "special developer control." During a cooperative's formative years, the association, by vote of its membership and pursuant to the requirements of Section 3607(b), has the right to cancel a self-dealing contract within two years of the termination of special developer control or the time that the developer owns 25% or less of the cooperative units, whichever occurs first. 15 U.S.C. § 3607(b).
Termination of a contract under Section 3607(a) must be done by a vote of owners of at least two-thirds of the units other than those owned by the developer. 15 U.S.C. § 3607(c). Section 3607(d) provides that "following the unit owners' vote, the termination shall be effective ninety days after hand delivering notice or mailing notice by prepaid United States mail to the parties to the contract."
The two-year period begins to run when special developer control is terminated where, as in the instant case, the developer continues to hold more than 25% of the units. The Act defines special developer control as:
any right arising under State law, cooperative or condominium instruments, the association's bylaws, charter or articles of association or incorporation, or power of attorney or similar agreement, through which the developer may control or direct the unit owners' association or its executive board. A developer's right to exercise the voting share allocated to any condominium or cooperative unit which he owns is not deemed a right of special developer control if the voting share allocated to that condominium or cooperative unit is the same voting share as would be allocated to the same condominium or cooperative unit were that unit owned by any other unit owner at that time[.]
15 U.S.C. § 3603(22).
In West 14th Street Commercial Corp., the Second Circuit equated special developer control with developer domination of the board of directors. 815 F.2d at 200; see also 2 Tudor City, 924 F.2d at 1253 ("Special developer control did not terminate until Tenants elected an independent board of directors."). Defendant in the case at bar insists, however, that while developer domination of the board may be one way of manifesting special developer control, it is not the only way.
According to defendant, special developer control continues to exist because an affiliate of the sponsor is the managing agent of the cooperative pursuant to a management agreement entered into on the date of closing, which cannot be cancelled until 75% of defendant's shares are sold to purchasers for personal occupancy. Defs. Exh. A at 75.
Specifically, defendant notes that pursuant to the management agreement, the managing agent has the power: (1) to maintain, repair, and alter the Building without the board's consent in the event that an "emergency condition" exists; and (2) to contract for services, purchase supplies, pay bills, and control employees without full review by the board. Furthermore, defendant points to provisions in the Plan which limit the board's authority with respect to unsold shares retained by the Sponsor, as well as the board's ability to reduce the number of employees, services, equipment, and insurance coverage until 50% of the shares are owned by the tenant-shareholders. Defendant contends, therefore, that plaintiff continues to exercise control over vital and substantial affairs of the cooperative such as would preclude this Court from determining that Special Developer Control has been relinquished within the meaning of the Abuse Relief Act.
In support of its position, defendant cites Coliseum Park Apartments Co., 742 F. Supp. at 136, in which the court stated:
The Association argues that in the case at bar, the individual proprietary leases, which constitute 'cooperative or condominium instruments' under § 3603(22), contain a manifold grant of powers over the Association to the Developer. These provisions allow the Developer to veto certain decisions made by the Association, inter alia, to increase the number or change the type of employees from those described in the Offering Plan, to restructure or to increase the amount of the indebtedness of the Association, or to make major capital improvements or to levy assessments for such improvements or repairs unless required by law. It is clear to the Court that these retained powers allow the Developer to exercise substantial control over the business affairs of the Association. Without more specific guidance from Congress or the courts, this Court must rule that such powers constitute 'special developer control' under the Act.
No such broad powers are retained by the Sponsor in the instant matter. Rather, the rights to which defendant points serve only to protect the property, not to permit its disposition or substantial modification.
Defendant's citation of the management contract as a right of special developer control is equally unavailing. Congress gave shareholders the right in Section 3607 to terminate management contracts
-- that right should not be taken away by a judicial definition of special developer control that includes management contracts as a right of such control. If the exercise of control through a management contract is considered to be special developer control, the shareholders would lose their power to terminate the contract.
Accordingly, the Court concludes that special developer control in the instant matter was relinquished on September 14, 1989 -- the date the shareholders elected a majority of directors not affiliated with the Sponsor.
Having concluded that the two-year window opened on September 14, 1989, the analysis turns on whether the actual termination, or simply the notice of termination, must be within that window. In 2 Tudor City, 924 F.2d at 1253, the Second Circuit noted that the termination date provided in a notice of termination under the Abuse Relief Act -- and not merely the shareholders' vote -- must fall within the two-year window. Under the statute, the shareholders first vote; then a notice of termination is sent, which is not effective until ninety days after its transmittal. In 2 Tudor City, the Court stated:
The § 3607 termination vote occurred on June 17, 1987. On June 18, the termination notice was mailed to Associates. Under § 3607(d), it became effective ninety days later on September 16, 1987. For the notice to have been timely, 'special developer control' must have existed at least until September 16, 1985.
Id. at 1253. See also 69th Street & 2nd Ave. Garage Assocs. v. 301/69 Owners Corp., 1992 U.S. Dist. LEXIS 2239, 1992 WL 47989, at *3 (S.D.N.Y. Feb. 28, 1992) (2 Tudor City "holds that the termination must be effected within the two-year period. The plain language of the statute clearly indicates this result.").
The Second Circuit's reasoning is supported by the plain language of the Act. A shareholders' vote in and of itself has no effect; likewise, a notice of termination is of no consequence until the specified termination date, which is ninety days after the notice is mailed or hand delivered to the parties to the contract. 15 U.S.C. § 3607(d). Applying that rule to the facts of the case before us, it is clear that the notice of termination was untimely since the effective date of termination, December 12, 1991, was more than two years after the day on which special developer control over the cooperative was relinquished -- September 14, 1989.
In sum, the Court concludes that the notice of termination was of no force and effect since it attempted to terminate a contract which was entered into prior to the effective date of the Abuse Relief Act. In any event, the notice of termination was ineffective, because the termination date did not fall within two years following the relinquishment of special developer control. Accordingly, the court grants plaintiff's motion for summary judgment. Defendant's cross-motion for summary judgment is denied.
Defendant's State Law Counterclaims
Because plaintiff's motion for summary judgment is granted, this Court no longer has pendent subject matter jurisdiction over defendant's state law counterclaims. See United Mine Workers of America v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). The Court finds no diversity or other independent basis of jurisdiction to entertain any such claims. Thus, defendant's state law claims are dismissed.
For the foregoing reasons, plaintiff's motion for summary judgment is granted and defendant's cross-motion for summary judgment is denied. The state law counterclaims are dismissed for lack of jurisdiction. The action is accordingly dismissed.
Dated: New York, New York
July 10, 1992
William C. Conner
United States District Judge