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The Board of Managers of the Mason Fisk Condominium, Etc v. 72 Berry Street

June 26, 2011

THE BOARD OF MANAGERS OF THE MASON FISK CONDOMINIUM, ETC.,
PLAINTIFF,
v.
72 BERRY STREET, LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Cogan, District Judge.

MEMORANDUM : DECISION AND ORDER

Before me is a motion to dismiss an action brought under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701, et seq. ("ILSA"), for lack of standing and on other grounds. Because I find that plaintiff lacks standing and this Court is without jurisdiction, I do not reach defendants' other arguments.

BACKGROUND

This litigation arose out of a sale of condominium units and the subsequent discovery of alleged structural defects in the building. The action is brought by the Residential Board of Managers of the Mason Fisk Condominium against several defendants under ILSA, and under state law claims over which the Board seeks to have the Court exercise supplemental jurisdiction. The sponsor defendants, 72 Berry Street, LLC., Meshberg Martin, LLC, 72 Berry Street Holdings LLC, Matthew Landau, Justin Meshberg, and David Martin, converted a factory building into 26 residential units. They sold 25 of the units pursuant to individual purchase agreements that incorporated an offering plan marketing the building as one that was "luxur[ious], sleek, and hip."

According to the offering plan, the sponsor would complete the construction of the units in compliance with the applicable building codes, using materials of substantially similar or better quality than those specified in the plan. When the purchasers started moving into their apartments, the complaint alleges, they began noticing design and construction defects. The Board retained an architect, who subsequently issued a report detailing the purported issues, including lack of fire protection within and between units, windows of inferior quality, lack of sound insulation between apartments, poor ventilation, and improper installation of heat pumps and wooden floors. Additionally, the complaint alleges that the sponsor failed to apply for a "J-51" real estate tax exemption despite promising to use "best efforts" to ensure that the building qualified.

The Board claims that the sponsor conceded its failure to comply with fire-safety codes, but denied responsibility for any of the other deficiencies. Eight months ago, the sponsor initiated state court litigation for reasons that are disputed by the parties. In its brief, the Board claims that it was commenced "the day after a 'standstill' agreement with the Board expired, seeking to blame the Board for its purported inability to access the building to perform fire-safety remediation." The sponsor claims that it felt compelled to seek court intervention when the Board blocked it from performing necessary repair work in one of the units.

The defendants move to dismiss the action for lack of jurisdiction or, alternatively, to stay it in favor of the parallel state court proceeding.

DISCUSSION

ILSA was "designed to prevent false and deceptive practices in the sale of unimproved tracts of land by requiring developers to disclose information needed by potential buyers." Flint Ridge Development Co. v. Scenic Rivers Ass'n of Oklahoma, 426 U.S. 776, 778 (1976).

Congress, "in passing the statute, desired to protect purchasers from unscrupulous sales of undeveloped home sites, frequently involving out-of-state sales of land purportedly suitable for development but actually under water or useful only for grazing." Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444, 1447 (11th Cir. 1985). "Existing laws, although able to deter and punish some abuses, were seen as deficient in critical respects." Bodansky v. Fifth on the Park Condo, LLC, 635 F.3d 75, 79 (2d Cir. 2011).

The Board brings this action under 15 U.S.C. §§ 1703 and 1709 of ILSA. Section 1703(a) requires developers and agents to issue to prospective purchasers property reports and prohibits any "untrue statement of a material fact" or any material omission in those reports. The enforcement provision of ILSA, § 1709, allows purchasers and lessees to institute an action for damages and injunctive relief. A "purchaser" is defined by ILSA as an "actual or prospective purchaser or lessee of any lot in a subdivision." 15 U.S.C. §1701(10).

Defendants move to dismiss the action for lack of standing. The complaint describes the Board -- the only plaintiff in this action -- as "the entity with the sole authority pursuant to [N.Y. Real Property Law § 339dd] to bring claims on behalf of itself and on behalf of individual Purchasers of Units relating to the Common Elements of the Condominium or issues affecting more than one unit." Defendants argue that that this state law provision is insufficient to grant the Board standing under ILSA.

"The core component of the requirement that a litigant have standing to invoke the authority of a federal court is an essential and unchanging part of the case-or-controversy requirement of Article III." DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 (2006) (citation and internal quotation marks omitted). Standing requires a concrete and particularized injury that is either actual or imminent, one that is "traceable to the challenged action . . . and redressable by a favorable ruling." Monsanto Co. v. Geertson Seed Farms, 130 S. Ct. 2743, 2752 (2010). Although the standing inquiry often turns on the nature of the claim asserted, the focus is "on whether the plaintiff is the proper party to bring the suit." Raines v. Byrd, 521 U.S. 811, 818 (1997). "The aim is to determine 'whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf.'" United States v. Vazquez, 145 F.3d 74, 81 (2d Cir. 1998) (quoting Warth v. Seldin, 422 U.S. 490, 498-99 (1975)). "Because standing is challenged on the basis of the pleadings," the Court must accept as true all the material allegations in the complaint and construe it in favor of the Board. W. R. Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100, 106 (2d Cir. 2008) (internal quotation marks and citation omitted). In the complaint, the Board describes damages to individual unit owners but is silent on how the Board itself was injured. Under the ILSA cause of action, the Board seeks rescission, refunds, costs for "each purchaser for whom this action is brought," and injunctive relief and damages "for itself and for the purchasers." Presumably, because injury to the Board is not pled in the complaint, defendants have assumed in their motion that the Board cannot meet its injury-in-fact requirement of standing without invoking associational standing. See generally Sierra Club v. Morton, 405 U.S. 727, 739 (1972) (holding that an organization whose members are injured may represent those members even where the organization itself cannot show injury).

The Court in Hunt v. Washington Apple Advertising Commission, 432 U.S. 333, 343 (1977), held that an association has standing to bring suit on behalf of its members when: "(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual ...


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