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Newell Funding LLC v. Tatum

January 21, 2009


The opinion of the court was delivered by: Cheryl J. Gonzales, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Petitioner commenced this holdover proceeding seeking possession of the cooperative apartment occupied by respondents. On May 6, 2008, petitioner served a ten-day notice to quit on respondents which stated that petitioner purchased the shares of stock for respondents' apartment on April8, 2008, and the respondents' proprietary lease interest was extinguished as a result of the sale. Respondents were directed to vacate the apartment by May 20, 2008 and when they did not vacate the instant summary proceeding was commenced.

In their answer, respondents interposed six affirmative defenses. Petitioner then moved to strike respondents's affirmative defense of lack of personal jurisdiction and respondents cross moved for an order dismissing the proceeding. The Honorable Timmie Elsner granted petitioner's motion, and denied respondent's cross motion stating that there were questions of fact as to petitioner's standing to commence this proceeding and whether Overslav Posters Limited was a necessary party.

At trial petitioner, a private lending company, presented evidence that in 2005 and 2006 it made two loans to Overslav Ltd. which totaled $300,000.00. According to Robert Stockel, petitioner's managing member, Overslav was seeking to expand from the poster business to making watches which bore the likeness of different mayors. Respondents, the sole shareholders of Overslav, signed promissory notes securing the loans with their shares of stock in the cooperative apartment. Petitioner sent respondents a ten day notice to cure and informed them in a letter dated January 12, 2007, that their loan was in default.

Petitioner subsequently sought to foreclose on the loan, and respondents unsuccessfully moved for injunctive relief to stop the sale of the shares at auction. Petitioner purchased the shares for $10,000.00 on April 8, 2008 at an auction on the steps of the courthouse which was also attended by respondent William Tatum. Since that date respondents have not paid any maintenance fees to the cooperative.

Ms. Veronica Johnson, an Assistant Property Manager since 2005 with RY Management Agency which manages the cooperative, testified that the cooperative recognized that as of April 8, 2008 respondents were no longer the owners of the shares allocated to the apartment in which they reside. Ms. Johnson stated that although the cooperative recognizes petitioner as the owner of the shares, no new stock certificate has been issued because there has been no closing between petitioner and a new owner. Petitioner's request for a new stock certificate was denied by the cooperative. The rules of the cooperative permit only residential occupancy and do not allow investors or sponsors to maintain a proprietary interest in the cooperative. According to Ms. Johnson, a bank may own shares for a limited period of time if it planned to sell the shares within a specified period, but the bank will not be allowed to have anyone occupy the unit. In addition, Ms. Johnson testified that petitioner had not requested approval pursuant to paragraph 3(b) of the Recognition Agreement to transfer its interest in the apartment.

With regard to Overslav Ltd., Ms. Johnson claimed that the cooperative had no knowledge of the corporation's existence or that it operated out of respondents' apartment. The cooperative rules permit only residential occupancy and Ms. Johnson stated that legal proceedings would have been commenced against respondents had the cooperative been made aware that Overslav Ltd. operated out of the subject apartment.

Chris Singleton petitioner's employee, testified that he visited respondents' apartment on two occasions in order inspect the apartment to determine its condition and assess its value. Mr. Singleton stated that on his first visit in 2005 he was shown around the entire apartment by respondents, and he was able to observe the balcony, kitchen, two bathroom and three bedrooms. Mr. Singleton also visited the apartment again in 2007 after respondents defaulted on the loan. On that visit Mr. Singleton only entered the living room. He testified that he never saw any evidence that respondents were conducting business in the apartment. The apartment contained no office furniture or desks but there were plants, a couch and pictures on the walls.

Robert Stockel, petitioner's managing member testified that he never received anything from Overslav Ltd with the address of respondents' apartment. Petitioner introduced into evidence two letters from Mr. Tatum as well as a business card which bore the address 527 Third Avenue, NY, NY.

However Mr. Tatum testified that petitioner only used the address of the cooperative in all its communications which were sent to him. According to Mr. Tatum the Third Avenue address was merely a mail drop and the business shared the apartment address. Mr. Tatum, who purchased the shares of stock in the cooperative in 1977, testified that he was unaware that the cooperative prohibited business activity in the apartments. In addition, Mr. Tatum admitted that he had not paid any maintenance since April 2008.

Petitioner argues that as a result of the foreclosure sale it is the owner of the stock shares allocated to the apartment, and a proper party under RPAPL 713(5). Further, petitioner asserts it has standing to bring this proceeding pursuant to RPAPL§721(3). Petitioner claims that the certificate of sale is evidence of its status as a purchaser at a foreclosure sale. Further, petitioner contends that the fact that the stock certificate and proprietary lease remain in respondents' names and have not been changed to reflect petitioner as the proper party in interest is of no moment since it is clear that the cooperative recognizes petitioner as the rightful owner of the shares. Petitioner asserts that although the rules of the cooperative do permit the stock certificate and proprietary lease to reflect its name instead of respondents there is no question that respondents no longer own the shares.

Respondent counters that petitioner is not the owner or the landlord as alleged in the petition, and lacks standing to maintain this proceeding. Further, respondent contends that testimony alone is insufficient to support petitioner's claim of its status as the owner or landlord, as petitioner must show that it has an interest in the property which gives it the authority to determine who can occupy the property. Despite the foreclosure sale, there is no stock certificate which reflects that petitioner owns the shares appurtenant to the subject ...

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