too speculative to guide interpretation of the proprietary lease and by-laws. Between the two choices -- interpreting ambiguities in the drafter's favor, and interpreting them against the drafter and implying the regulatory five-year limit -- the Court finds the latter to be more sound.
The proprietary lease and the by-laws are in conflict, and that conflict is resolved in favor of the 25%-based limit of the by-laws. The Holders retained special developer control until their ownership dropped below 25% of outstanding shares, which did not occur until March 1987. The period for termination under § 3607 did not expire until March 1989. 305 Owners delivered notice of termination of the garage lease in June 1988. The termination was timely.
305 Garage contends that § 3607 of the Act violates the Due Process Clause of the Fifth Amendment to the United States Constitution. The Court rejects that contention.
Challenges to the constitutionality of the Act have already been brought. None has succeeded.
The same procedural due process argument now raised by 305 Garage -- that § 3607 unconstitutionally enables termination of contracts without judicial hearing -- was found unlikely to succeed on its merits in a state court action for injunctive relief. 233 East 68th Street Corp. v. Park East Apartments, Inc., 131 Misc. 2d 242, 499 N.Y.S.2d 853, 856-57 (Sup. Ct.), aff'd, 123 A.D.2d 536, 506 N.Y.S.2d 658 (App. Div. 1986).
Contractual obligations can be a form of property protected against deprivation without due process of law, although the contours of that property interest are yet to be settled. See Ezekwo v. NYC Health & Hosps. Corp., 940 F.2d 775, 782-83 (2d Cir. 1991); Walentas v. Lipper, 862 F.2d 414, 418 (2d Cir. 1988). Despite any uncertainty in details, it is safe to assume that outright termination of a contract rises to "the level of a property interest entitled to the protections afforded by the Due Process Clause." Ezekwo, 940 F.2d at 783.
Due process requires notice and an opportunity to be heard. Fuentes v. Shevin, 407 U.S. 67, 80, 32 L. Ed. 2d 556, 92 S. Ct. 1983 (1972). Section 3607 requires notice of termination ninety days prior to termination.
This requirement satisfies the Due Process Clause. Notice is explicitly required, and an opportunity to be heard is implicit in the ninety day period.
305 Owners characterizes 305 Garage's position as resting on an economic substantive due process argument. 305 Garage denies that, but certain of its statements suggest otherwise. For example, 305 Garage complains of the "conspicuous absence of any modicum of judicial review or flexibility in Section 3607." Pl.'s Mem. at 26. 305 Garage thus complains not only about the supposed lack of notice or opportunity to be heard, but also about the fact that a hearing would not serve much purpose because § 3607 empowers an owners' association to terminate a contract for any reason or no reason. That is a complaint grounded in substance, not procedure -- it is a matter of substantive, not procedural, due process. Substantive due process has, of course, been abandoned as a basis for judicial review of economic legislation.
Notice and an opportunity to be heard might indeed seem useless to a party whose contract can be terminated for no reason. But notice and an opportunity to be heard are not useless. Not all contracts are subject to termination under § 3607, and the notice provisions of § 3607(d) can be of great use when a contract that falls outside § 3607 is at stake. See, e.g., 181 East 73rd Street Co. v. 181 East 73rd Street Tenants Corp., 954 F.2d 45, 49-50 (2d Cir. 1992) (rejecting ratification claim); 2 Tudor City, 924 F.2d 1247 (rejecting claim that owners' association was not a party to original contract, and rejecting disclosure defense); West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 197-201 (2d Cir. 1987) (finding requirements of § 3607 met and rejecting tenant negotiation defense).
The Court respects the quandary of parties who wish to contract with developer-controlled owners' associations. A contract terminable unilaterally and at will might seem to be not worth the paper on which it is written. The option, however, is not to escape the statute through judicial review. The option is to not enter the contract. Thus, it may be that § 3607 undermines the incentive to contract with developer-controlled owners' associations. But legislation is not unconstitutional just because it unwisely discourages economic activity.
Section 3607 is not unconstitutional. Procedural due process requires notice and an opportunity to be heard, which § 3607 provides.
305 Owners moves for dismissal of 305 Garage's claim that the right to terminate the lease was waived by execution of an estoppel certificate by 305 Owners' board of directors in December 1987. 305 Owners cites 181 East 73rd Street, 954 F.2d at 50, for the proposition that the power to waive, like the power to terminate, resides in the shareholders, not the board. 305 Garage responds that 181 East 73rd Street is distinguishable because the estoppel certificate there was executed prior to the owners' termination vote, whereas 305 Owners' board executed a certificate after the owners' termination vote. That argument is frivolous. The essence of 181 East 73rd Street concerns who executes the waiver, not when it is executed. The board of 305 Owners had no more authority to waive the right to terminate than the board in 181 East 73rd Street.
305 Garage also asserts that the termination vote by 305 Owners was "effectively rescinded by virtue of the shareholders' having permitted nearly a full year to elapse" between the vote and delivery of notice. Pl.'s Reply at 28. 305 Garage cites no authority for a "nearly a full year" shelf life rule for termination votes under § 3607. Perhaps some principle of contemporaneity should be articulated, but the facts of the present case do not call for it.
305 Garage's estoppel claims have no merit.
305 Garage's motion for summary judgment is denied.
305 Owners' motion for partial summary judgment on the issues of timeliness of termination, constitutionality of 15 U.S.C. Section 3607, and estoppel is granted.
Discovery in this case concluded on June 30, 1992. The Joint Pre-Trial Order was to be submitted on or before July 30, 1992. The Court has yet to receive the Joint Pre-Trial Order. The parties are hereby ordered to submit their Joint Pre-Trial Order on or before October 15, 1993.
It Is So Ordered.
Dated: New York, New York
September 16, 1993
Mary Johnson Lowe
United States District Judge