Cooperatives & Condominiums

Co-Op Sponsor Waived Right To Proceeds from Licensing

Jumax Associates v. 350 Cabrini Owners Corp.

NYLJ 12/24/07, p.27, col. 2

AppDiv, First Dept.

(4-1 decision; majority memorandum; dissenting opinion by McGuire, J.)

In an action by co-op sponsor to recover proceeds of a licensing agreement permitting installation of antennae on the building's roof, the sponsor appealed from Supreme Court's dismissal of the complaint and declaration that the co-op corporation had acquired title to the roof by adverse possession. The Appellate Division modified to vacate the declaration that the co-op had acquired title by adverse possession, but otherwise affirmed, holding that sponsor had waived its right to proceeds from the licensing agreement.

Pursuant to the co-op's offering plan (executed in 1986) sponsor, a partnership, retained rights to the roof of the building. In 1995, the co-op entered into a licensing agreement with a cellular telephone company permitting installation of antennae and equipment on the roof. Two of the sponsor's partners served on the co-op board, but neither of the partners asserted any right to the roof area or to the monthly payments until 2002. The partnership contends that one of the partners had forgotten about the retention of roof rights
and the other partner had never
been aware of that retention. Subsequently, the partnership brought this action seeking to recover past and future income from the licensing agreement. The Supreme Court dismissed the complaint and concluded that the co-op corporation had acquired the roof rights by adverse possession. Sponsor appealed.

In modifying, the court first vacated the Supreme Court's adverse possession determination, concluding that there was no evidence that the co-op corporation had made any claim to the roof before 1995. As a result, the statute of limitations could not have run by 2002, when sponsor brought this action, thus precluding any adverse possession claim. The Appellate Division majority nevertheless concluded that the co-op corporation was entitled to dismissal of the complaint because the failure of the sponsor to assert any rights to the proceeds, despite the sponsor's representation and active participation on the co-op board, constituted a waiver of any rights under the licensing agreement.

Justice McGuire, dissenting, argued that waiver must be an intentional relinquishment of a legal right, and that a waiver cannot result from mere negligence or inadvertence. Because the record did not establish any intentional relinquishment, Justice McGuire argued that the sponsor was entitled to trial to determine whether sponsor had waived its right to collect past income from the roof rights.

 

Condo Board Not a Debt Collector Within FDCPA

Barry v. Board of Managers of Elmwood Park Condominium

NYLJ 1/4/08, p. 31, col. 1

Civil Court, Richmond Cty

(Straniere, J.)

In an action by condominium unit owner against the condominium board for violation of CPLR 5020 and the Federal Fair Debt Collections Practices Act (FDCPA), condominium board moved to dismiss the action. The court granted the board's motion, holding that a condominium board is not a debt collector within the meaning of the federal statute.

In December 2005, the condominium board obtained a judgment against unit owner for unpaid common charges. In March 2007, the board caused to be issued an execution directed to the sheriff and any marshal, seeking to enforce the judgment. Unit owner ultimately issued a check to the marshal, and on April 2, unit owner's bank account was debited to satisfy the levy. On April 9, unit owner demanded satisfaction from the condominium board's lawyer. The marshal issued a check to the board's lawyer on May 31, and counsel for the board issued a satisfaction of judgment on June 7. Unit owner then brought this action, contending that the board had violated CPLR section 5020 by failing to issue the satisfaction within 20 days after receiving full satisfaction and contending that the board had violated the FDCPA in its efforts to collect the unpaid common charges.

In dismissing the action, the court first held that because the condominium board did not actually receive payment until May 31, the board had not violated the 20-day provision of CPLR section 5020. The court then turned to the FDCPA and concluded that the obligation to pay common charges is not a debt within the meaning of the statute, but, rather, a statutory obligation that attaches to the unit, not to the particular owner. The court also concluded that even if the common charges did constitute a debt, an exception to the FDCPA precluded the statute's application: the common charges are 'incidental to a bona fide fiduciary obligation.' 15 USC sec. 1692a(6)(F). The court concluded that each of the condominium unit owners are in a fiduciary relationship with all of the other owners, so that the obligation to pay to an agent of those owners is incidental to fiduciary obligation, and, therefore, exempt from the statute. Finally, the court concluded that the condominium association itself cannot be a 'debt collector' within the meaning of the statute because a debt collector undertakes to collect debts on behalf of another. 15 USC sec.1692a(6). Because the condominium association itself is the creditor, it can seek to collect money owed to it without complying with the statute. The court concluded that a management company employed by a condominium association would similarly be exempt from the statute. The court conceded that counsel for the condominium might be a debt collector under the statute, but noted that unit owner in this case had not brought an action against counsel. Hence, the court dismissed unit owner's claim.

COMMENT

Because a condominium board seeking to collect common charges is not collecting 'debts owed to another,' the condominium board is not a 'debt collector' within the meaning of the Federal Debt Collection Practices Act (FDCPA). The statute defines a 'Debt Collector' as 'any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or asserted to be owed ' another.' 15 USC '1692. Since, as the Barry court held, condominium fees are debts owed to the board itself, the board's collection activity would not be regulated by the statute.

At least one federal court has also held that a management company employed by a condominium board is not a debt collector within the meaning of the statute. In Alexander v. Omega, 67 F.Supp2d 1052, the court relied on a statutory exception for '(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ' (iii) concerns a debt that was not in default at the time it was obtained by such person.' 15 USC '1692(a)(6). Because the management company's responsibility for collecting common charges arose before any unit owner's account had fallen into default, the Alexander court held that the management company fell within the statutory exception. See also Azar v. Hayton, 874 F.Supp. 1314.

The Seventh and Tenth Circuits have held, however, that debt collection activities conducted by attorneys for the condominium board fall within the statute's scope. In Newman v. Boehm, 119 F.3d 477 (7^th Cir.1997) and Ladick v. Gemert, 146 F.3d 1205 (10^th Cir. 1998), condominium unit owners had alleged that collection practices employed by the attorneys on behalf of the board violated FDCPA requirements. In both cases, the federal court of appeals rejected the argument by attorneys that common charges did not constitute 'debts' within the meaning of the statute. Both courts concluded that the statutory definition of debt did not require an offer or extension of credit, noting that the statute defines a debt as 'any obligation ' of a consumer to pay money arising out of a transaction in which money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes ' ' 15 USC '1692. But see Azar v. Hayton, 874 F. Supp. 1314 (Florida district court concludes that common charges do not constitute debts, relying on Third Circuit interpretation of statute as requiring extension of credit).

 

Failure to Disclose Dual Agency May Constitute Breach of Fiduciary Duty

Sotheby's Int'l Realty, Inc. v. Black

NYLJ 12/21/07, p. 32, col. 3

U.S. Dist Ct., SDNY

(Lynch, J.)

In an action by real estate broker for a commission on sale of a condominium unit, seller moved to amend its answer to assert an affirmative defense based on broker's breach of fiduciary duty and duty of loyalty. The court granted the motion, holding that seller had raised material issues of fact about whether broker had disclosed its dual agency status.

Seller engaged broker in connection with the sale of his condominium unit. Broker found a buyer for the unit, and sought a commission from the seller. In resisting payment, seller contended that broker had never disclosed that it was acting both as agent for seller and for the buyer. Broker replied that it had disclosed through a 'contact sheet,' a document faxed to seller's attorney, which included contact information for persons involved in the transaction. That contact sheet listed Sotheby International as the broker for both the seller and the purchaser.

In granting seller leave to amend its answer, the court concluded that there was a material issue of fact about whether the 'contact' sheet constituted adequate disclosure of broker's dual agency status. In particular, the court noted that the listing on the sheet did not provide any express warning to seller about the potential consequences of dual agency status, and broker had offered no evidence of any other warning provided to seller. Moreover, even if there had been a warning, broker offered no evidence of seller's consent to dispute seller's assertion that he had never consented to dual representation. As a result, the court concluded that seller's affirmative defense would not be futile, and the court granted leave to amend the answer.

 

Co-Op May Not Restrict Access to Unit

Dhamoon v. 230 Park South Apartments, Inc.

NYLJ 1/3/08, p. 26, col. 1

AppDiv, First Dept.

(4-1 decision; majority opinion by Catterson, J; dissenting opinion by Nardelli, J.)

In an action by co-op unit owner for a declaration that house rules limiting access to her commercial units from the lobby were invalid, and for a preliminary injunction, unit owner appealed from Supreme Court's grant of the co-op's motion to dismiss the complaint. The Appellate Division reversed, reinstated the complaint, and granted unit owner a preliminary injunction, concluding that the co-op board could not adopt house rules that would be valid only if her units and those of her husband were treated as a single entity.

Unit owner owns four commercial units located on the first and second floor of the subject building, and uses those units to operate her gynecology practice. Her husband owns two adjacent units on the first floor, from which he operates a fertility clinic. Unit owner's units have no direct access to the outside of the building; entrance to those units is through the building's lobby. The husband's units, by contrast, do have an external entrance. Responding to two security breaches in 2001, the co-op board enacted a house rule prohibiting patients of any doctor who has an office in the building from waiting in the lobby or using the lobby for access to the doctor's office. Unit owner is the only doctor in the building whose units have no street entrance. The co-op corporation, however, determined that unit owner's patients could obtain access to her units through her husband's fertility clinic, relying on a door between the units that had been installed in 1990. Unit owner brought this action for declaratory relief, but Supreme Court dismissed the complaint and denied preliminary injunctive relief. Unit owner appealed.

In reversing, the Appellate Division held that the co-op board could not treat unit owner's units and those of her husband as a single entity held in joint ownership. The court held that it was not relevant that husband and wife each held executive positions in each other's practices, or that the two practices were owned by a singe corporation. The court concluded that the co-op's house rule had the effect of creating an easement over the husband's property, and that the co-op board hand no power to create such an easement. As a result, the complaint should not have been dismissed, and unit owner was entitled to a preliminary injunction.

Justice Nardelli, dissenting, would have denied preliminary injunctive relief because the statements of husband and wife in prior litigation contradicted their statements in this proceeding about the interrelationship of their practices and the ownership of the units. In light of the contradictory statements, he concluded that unit owner had not demonstrated a likelihood of success on the merits.

Co-Op Sponsor Waived Right To Proceeds from Licensing

Jumax Associates v. 350 Cabrini Owners Corp.

NYLJ 12/24/07, p.27, col. 2

AppDiv, First Dept.

(4-1 decision; majority memorandum; dissenting opinion by McGuire, J.)

In an action by co-op sponsor to recover proceeds of a licensing agreement permitting installation of antennae on the building's roof, the sponsor appealed from Supreme Court's dismissal of the complaint and declaration that the co-op corporation had acquired title to the roof by adverse possession. The Appellate Division modified to vacate the declaration that the co-op had acquired title by adverse possession, but otherwise affirmed, holding that sponsor had waived its right to proceeds from the licensing agreement.

Pursuant to the co-op's offering plan (executed in 1986) sponsor, a partnership, retained rights to the roof of the building. In 1995, the co-op entered into a licensing agreement with a cellular telephone company permitting installation of antennae and equipment on the roof. Two of the sponsor's partners served on the co-op board, but neither of the partners asserted any right to the roof area or to the monthly payments until 2002. The partnership contends that one of the partners had forgotten about the retention of roof rights
and the other partner had never
been aware of that retention. Subsequently, the partnership brought this action seeking to recover past and future income from the licensing agreement. The Supreme Court dismissed the complaint and concluded that the co-op corporation had acquired the roof rights by adverse possession. Sponsor appealed.

In modifying, the court first vacated the Supreme Court's adverse possession determination, concluding that there was no evidence that the co-op corporation had made any claim to the roof before 1995. As a result, the statute of limitations could not have run by 2002, when sponsor brought this action, thus precluding any adverse possession claim. The Appellate Division majority nevertheless concluded that the co-op corporation was entitled to dismissal of the complaint because the failure of the sponsor to assert any rights to the proceeds, despite the sponsor's representation and active participation on the co-op board, constituted a waiver of any rights under the licensing agreement.

Justice McGuire, dissenting, argued that waiver must be an intentional relinquishment of a legal right, and that a waiver cannot result from mere negligence or inadvertence. Because the record did not establish any intentional relinquishment, Justice McGuire argued that the sponsor was entitled to trial to determine whether sponsor had waived its right to collect past income from the roof rights.

 

Condo Board Not a Debt Collector Within FDCPA

Barry v. Board of Managers of Elmwood Park Condominium

NYLJ 1/4/08, p. 31, col. 1

Civil Court, Richmond Cty

(Straniere, J.)

In an action by condominium unit owner against the condominium board for violation of CPLR 5020 and the Federal Fair Debt Collections Practices Act (FDCPA), condominium board moved to dismiss the action. The court granted the board's motion, holding that a condominium board is not a debt collector within the meaning of the federal statute.

In December 2005, the condominium board obtained a judgment against unit owner for unpaid common charges. In March 2007, the board caused to be issued an execution directed to the sheriff and any marshal, seeking to enforce the judgment. Unit owner ultimately issued a check to the marshal, and on April 2, unit owner's bank account was debited to satisfy the levy. On April 9, unit owner demanded satisfaction from the condominium board's lawyer. The marshal issued a check to the board's lawyer on May 31, and counsel for the board issued a satisfaction of judgment on June 7. Unit owner then brought this action, contending that the board had violated CPLR section 5020 by failing to issue the satisfaction within 20 days after receiving full satisfaction and contending that the board had violated the FDCPA in its efforts to collect the unpaid common charges.

In dismissing the action, the court first held that because the condominium board did not actually receive payment until May 31, the board had not violated the 20-day provision of CPLR section 5020. The court then turned to the FDCPA and concluded that the obligation to pay common charges is not a debt within the meaning of the statute, but, rather, a statutory obligation that attaches to the unit, not to the particular owner. The court also concluded that even if the common charges did constitute a debt, an exception to the FDCPA precluded the statute's application: the common charges are 'incidental to a bona fide fiduciary obligation.' 15 USC sec. 1692a(6)(F). The court concluded that each of the condominium unit owners are in a fiduciary relationship with all of the other owners, so that the obligation to pay to an agent of those owners is incidental to fiduciary obligation, and, therefore, exempt from the statute. Finally, the court concluded that the condominium association itself cannot be a 'debt collector' within the meaning of the statute because a debt collector undertakes to collect debts on behalf of another. 15 USC sec.1692a(6). Because the condominium association itself is the creditor, it can seek to collect money owed to it without complying with the statute. The court concluded that a management company employed by a condominium association would similarly be exempt from the statute. The court conceded that counsel for the condominium might be a debt collector under the statute, but noted that unit owner in this case had not brought an action against counsel. Hence, the court dismissed unit owner's claim.

COMMENT

Because a condominium board seeking to collect common charges is not collecting 'debts owed to another,' the condominium board is not a 'debt collector' within the meaning of the Federal Debt Collection Practices Act (FDCPA). The statute defines a 'Debt Collector' as 'any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or asserted to be owed ' another.' 15 USC '1692. Since, as the Barry court held, condominium fees are debts owed to the board itself, the board's collection activity would not be regulated by the statute.

At least one federal court has also held that a management company employed by a condominium board is not a debt collector within the meaning of the statute. In Alexander v. Omega, 67 F.Supp2d 1052, the court relied on a statutory exception for '(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ' (iii) concerns a debt that was not in default at the time it was obtained by such person.' 15 USC '1692(a)(6). Because the management company's responsibility for collecting common charges arose before any unit owner's account had fallen into default, the Alexander court held that the management company fell within the statutory exception. See also Azar v. Hayton, 874 F.Supp. 1314 .

The Seventh and Tenth Circuits have held, however, that debt collection activities conducted by attorneys for the condominium board fall within the statute's scope. In Newman v. Boehm, 119 F.3d 477 (7 th Cir.1997) and Ladick v. Gemert, 146 F.3d 1205 (10 th Cir. 1998), condominium unit owners had alleged that collection practices employed by the attorneys on behalf of the board violated FDCPA requirements. In both cases, the federal court of appeals rejected the argument by attorneys that common charges did not constitute 'debts' within the meaning of the statute. Both courts concluded that the statutory definition of debt did not require an offer or extension of credit, noting that the statute defines a debt as 'any obligation ' of a consumer to pay money arising out of a transaction in which money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes ' ' 15 USC '1692. But see Azar v. Hayton, 874 F. Supp. 1314 (Florida district court concludes that common charges do not constitute debts, relying on Third Circuit interpretation of statute as requiring extension of credit).

 

Failure to Disclose Dual Agency May Constitute Breach of Fiduciary Duty

Sotheby's Int'l Realty, Inc. v. Black

NYLJ 12/21/07, p. 32, col. 3

U.S. Dist Ct., SDNY

(Lynch, J.)

In an action by real estate broker for a commission on sale of a condominium unit, seller moved to amend its answer to assert an affirmative defense based on broker's breach of fiduciary duty and duty of loyalty. The court granted the motion, holding that seller had raised material issues of fact about whether broker had disclosed its dual agency status.

Seller engaged broker in connection with the sale of his condominium unit. Broker found a buyer for the unit, and sought a commission from the seller. In resisting payment, seller contended that broker had never disclosed that it was acting both as agent for seller and for the buyer. Broker replied that it had disclosed through a 'contact sheet,' a document faxed to seller's attorney, which included contact information for persons involved in the transaction. That contact sheet listed Sotheby International as the broker for both the seller and the purchaser.

In granting seller leave to amend its answer, the court concluded that there was a material issue of fact about whether the 'contact' sheet constituted adequate disclosure of broker's dual agency status. In particular, the court noted that the listing on the sheet did not provide any express warning to seller about the potential consequences of dual agency status, and broker had offered no evidence of any other warning provided to seller. Moreover, even if there had been a warning, broker offered no evidence of seller's consent to dispute seller's assertion that he had never consented to dual representation. As a result, the court concluded that seller's affirmative defense would not be futile, and the court granted leave to amend the answer.

 

Co-Op May Not Restrict Access to Unit

Dhamoon v. 230 Park South Apartments, Inc.

NYLJ 1/3/08, p. 26, col. 1

AppDiv, First Dept.

(4-1 decision; majority opinion by Catterson, J; dissenting opinion by Nardelli, J.)

In an action by co-op unit owner for a declaration that house rules limiting access to her commercial units from the lobby were invalid, and for a preliminary injunction, unit owner appealed from Supreme Court's grant of the co-op's motion to dismiss the complaint. The Appellate Division reversed, reinstated the complaint, and granted unit owner a preliminary injunction, concluding that the co-op board could not adopt house rules that would be valid only if her units and those of her husband were treated as a single entity.

Unit owner owns four commercial units located on the first and second floor of the subject building, and uses those units to operate her gynecology practice. Her husband owns two adjacent units on the first floor, from which he operates a fertility clinic. Unit owner's units have no direct access to the outside of the building; entrance to those units is through the building's lobby. The husband's units, by contrast, do have an external entrance. Responding to two security breaches in 2001, the co-op board enacted a house rule prohibiting patients of any doctor who has an office in the building from waiting in the lobby or using the lobby for access to the doctor's office. Unit owner is the only doctor in the building whose units have no street entrance. The co-op corporation, however, determined that unit owner's patients could obtain access to her units through her husband's fertility clinic, relying on a door between the units that had been installed in 1990. Unit owner brought this action for declaratory relief, but Supreme Court dismissed the complaint and denied preliminary injunctive relief. Unit owner appealed.

In reversing, the Appellate Division held that the co-op board could not treat unit owner's units and those of her husband as a single entity held in joint ownership. The court held that it was not relevant that husband and wife each held executive positions in each other's practices, or that the two practices were owned by a singe corporation. The court concluded that the co-op's house rule had the effect of creating an easement over the husband's property, and that the co-op board hand no power to create such an easement. As a result, the complaint should not have been dismissed, and unit owner was entitled to a preliminary injunction.

Justice Nardelli, dissenting, would have denied preliminary injunctive relief because the statements of husband and wife in prior litigation contradicted their statements in this proceeding about the interrelationship of their practices and the ownership of the units. In light of the contradictory statements, he concluded that unit owner had not demonstrated a likelihood of success on the merits.