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Because the Landlord Engaged in Fraud, the Four-Year Rent-Overcharge Statute of Limitations Runs Back Four Years from When the Rent Overcharge Action Was Brought/Criteria for Collateral Estoppel Explained (Not Met Here)/Question of Fact Re: Piercing Corporate Veil

The Court of Appeals, in a full-fledged opinion by Judge Read, over a dissent, determined that the four-year statute of limitations in rent-overcharge actions, where the landlord engaged in fraud, does not begin to run when the first overcharge payment is made, but rather extends back four years from when the overcharge action is brought.  Here there was evidence the landlord used a fictitious tenant and rent to justify the rent charged the tenants.  The landlord argued the tenants’ action was time-barred because it was brought more than four years after the first overcharge payment was made. In addition to the statute-of-limitations ruling, the Court of Appeals held the collateral estoppel doctrine was not correctly applied by the courts below and there was a question of fact whether the corporate veil should be pierced due to the principal’s control over the corporate-landlord and the principal’s fraudulent acts:

Julie Conason (Conason) and Geoffrey Bryant (Bryant) (collectively, tenants) are the rent-stabilized tenants of an apartment in a residential building in Manhattan. Megan Holding LLC (Megan) is the building’s owner and tenants’ landlord. … Conason asserted an overcharge claim against Megan in April 2009, almost five and one-half years after she occupied the apartment under a vacancy lease. The principal issue on this appeal is whether CPLR 213-a’s four-year statute of limitations completely bars this claim. Because of the unrefuted proof of fraud in the record, we conclude that section 213-a merely limits tenants’ recovery to those overcharges occurring during the four-year period immediately preceding Conason’s rent challenge, and that the lawful rent on the base date must be determined by using the default formula devised by the New York State Division of Housing and Community Renewal (DHCR or the agency) … . * * *

CPLR 213-a fixes a four-year statute of limitations for claims of residential rent overcharge; specifically, this provision states that

“[a]n action on a residential rent overcharge shall be commenced within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of any overcharge may be based upon an overcharge having occurred more than four years before the action is commenced. This section shall preclude examination of the rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action” (emphasis added) (CPLR 213-a; see also Rent Stabilization Law [Administrative Code of City of NY] § 26-516 [a] [2]; Rent Stabilization Code [9 NYCRR 2520.6 [f]; 2526.1 [a] [2]). * * *

Collateral estoppel comes into play when four conditions are fulfilled:

“(1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was actually litigated and decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits” … . … . …

Civil Court’s findings of fraud are not entitled to preclusive effect because two of the four prerequisites for collateral estoppel are unmet: the issues in Civil Court (breach of the warranty of habitability) and Supreme Court (evidence of fraud sufficient to render the rent on the base date unreliable) are not identical (the first condition), and findings of fraud were not necessary to support the judgment entered on the April 8th order, which awarded tenants rent abatement on account of Megan’s breach of the warranty of habitability and directed Megan to remedy code violations (the fourth condition). Conason v Megan Holding LLC, 2015 NY Slip Op 01553, CtApp 2-24-15

 

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Elements of Civil Antitrust Action Under the General Business Law (Donnelly Act) Explained; Corporate Officers Can Be Individually Liable

The Fourth Department determined there were questions of fact re: the civil antitrust action and the related individual liability of corporate officers:

… [T]he court erred in granting those parts of defendants’ motions for summary judgment dismissing the fourth cause of action against them, alleging unfair competition and restraint of trade in violation of General Business Law § 340 (1) (hereafter, Donnelly Act), and we therefore modify the judgment accordingly. … “A party asserting a violation of the Donnelly Act is required to (1) identify the relevant product market; (2) describe the nature and effects of the purported conspiracy; (3) allege how the economic impact of that conspiracy is to restrain trade in the market in question; and (4) show a conspiracy or reciprocal relationship between two or more entities” … . The Court of Appeals has recognized, however, “that neither the Donnelly Act nor the Sherman Act, after which it was modeled, has been interpreted as prohibiting every agreement that has the effect of restraining trade, no matter how minimal. Instead, as construed by State and Federal courts, the antitrust laws prohibit only unreasonable’ restraints on trade” … . * * *

“[C]orporate officer[s] can also be held liable in civil antitrust actions” under the Donnelly Act, and there are triable issues of fact regarding their participation in the alleged corporate antitrust violations … . Radon Corp of Am Inc v National Radon Safety Bd. 2015 NY Slip Op 01365, 4th Dept 2-13-15

 

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“Local Authority,” Within the Meaning of the Public Authorities Law, Defined

The Fourth Department determined petitioner, Operation Oswego County, was a “local authority” subject to reporting and oversight requirements of respondent, the New York Authorities Budget Office.  The court defined what a “local authority” is:

A “local authority” under the Public Authorities Law includes “a not-for-profit corporation affiliated with, sponsored by, or created by a county, city, town or village government” (§ 2 [2] [b]). Petitioner is a not-for-profit corporation that acts as a local development corporation by establishing and implementing economic development strategies for Oswego County (County). We agree with respondent that petitioner is a local authority inasmuch as it is affiliated with and/or sponsored by the County … . The record establishes that the County regularly gives grants to petitioner, which comprise the majority of its budget. …[T]he term “sponsor” means, inter alia, ” a person or an organization that pays for or plans and carries out a project or activity’ ” (id. at 1404, quoting Merriam-Webster On-line Dictionary [emphasis added]). The County has also given interest-free loans to petitioner. Furthermore, a County official serves as a voting member of petitioner’s board, and several County officials serve as ex-officio, non-voting members of petitioner’s board. Considering the totality of the circumstances …, we conclude that petitioner is a local authority as defined in the Public Authorities Law. Matter of Operation Oswego County Inc v State of New York Auths Budget Off, 2015 NY Slip Op 01358, 4th Dept 2-13-15

 

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Criteria for Deceptive Business Practices Explained

The Fourth Department determined that the defendant's (One Source's) violation of General Business Law 349 had been proven. Defendant had misled car-purchasers by informing them they were required to purchase an extended service contract or warranty as a condition of a loan.  Only at the closing of loan were the purchasers informed they could waive the warranty.  The court explained the elements of a section 349 violation:

Pursuant to section 349, deceptive business acts or practices are unlawful, and a ” [petitioner] under section 349 must prove three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the [consumer] suffered injury as a result of the deceptive act' ” … . With respect to the second element, an act or practice that is deceptive or misleading in a material way is defined as a representation or omission “likely to mislead a reasonable consumer acting reasonably under the circumstances” … . Contrary to respondents' contention, we conclude that petitioner established that second element, i.e., that One Source's actions were likely to mislead a reasonable consumer. One Source's actions were misleading in a material way in light of the fact that the consumers at issue were dependent on One Source to find them the financing to purchase their vehicles, and they were willing to pay for a warranty in order to obtain their loans. People v One Source Networking Inc, 2015 NY Slip Op 01068, 4th Dept 2-4-15


Shareholder Should Not Have Been Awarded Damages Individually Re: a Derivative Cause of Action

The Second Department determined Supreme Court erred in awarding damages to a shareholder individually because the shareholder had sued on behalf of the closely held corporation:

A shareholder of a corporation, even of a closely held corporation, may not recover in his or her individual capacity for wrongs committed against the corporation, and any recovery obtained pursuant to a derivative cause of action asserted by a shareholder is obtained for the benefit of the injured corporation … . Sakow v Waldman, 2015 NY Slip Op 00742, 2nd Dept 1-28-15

 

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Criteria for Piercing the Corporate Veil Explained/Appellate Review Powers Re: a Bench Trial Described

The Second Department determined Supreme Court (in a bench trial) had properly pierced the corporate veil to find the owner personally liable.  The court described the criteria for piercing the corporate veil and noted that, in reviewing a bench trial, the appellate court has the same fact-finding powers as the trial court:

“In reviewing a determination made after a nonjury trial, the power of this Court is as broad as that of the trial court, and we may render a judgment we find warranted by the facts, bearing in mind that in a close case, the trial court had the advantage of seeing and hearing the witnesses” … .

“The general rule . . . is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability” … . The doctrine of piercing the corporate veil is an exception to this general rule, allowing the imposition of individual liability on owners for the obligations of their corporation “to prevent fraud or to achieve equity” … . “A plaintiff seeking to pierce the corporate veil must demonstrate that a court in equity should intervene because the owners of the corporation exercised complete domination over it in the transaction at issue and, in doing so, abused the privilege of doing business in the corporate form, thereby perpetrating a wrong that resulted in injury to the plaintiff” … . AZTE Inc v Auto Collection Inc, 2015 NY Slip Op 00711, 2nd Dept 1–28-15

 

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Petitioners, Who Did Not Represent a Majority of the Elected Board of Directors, Did Not Have Standing the Seek Dissolution of the Corporation Under Business Corporation Law 1102/Criteria for Common-Law Dissolution Not Met

The Second Department determined Supreme Court correctly found that the petitioners did not have standing to seek dissolution of the corporation pursuant to Business Corporation Law 1102.  However, the Second Department found Supreme Court erred when it granted the petition under a common-law dissolution theory, a ground not raised by the parties and not applicable under the facts:

…[T]he Supreme Court properly determined that [petitioners] lacked standing to seek dissolution of Candlewood pursuant to Business Law § 1102, since they do not represent a majority of the corporation’s duly elected board of directors … . However, as the appellants correctly contend, the court should have dismissed the petition rather than grant the petition for dissolution on a ground that was not raised by the petitioners and was inapplicable to the circumstances. “[T]he remedy of common-law dissolution is available only to minority shareholders who accuse the majority shareholders and/or the corporate officers or directors of looting the corporation and violating their fiduciary duty” … . The petitioners did not allege that a majority of shareholders, the directors, or the officers looted the corporation or breached a fiduciary duty to … a minority shareholder. Matter of Candlewood Holdings Inc …, 2015 NY Slip Op 00533, 2nd Dept 1-21-15

 

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Supreme Court Properly Denied a Motion to Approve a Settlement of a Proposed Non-Opt-Out Class Action—Shareholders Who Objected to the Settlement Were Entitled to Opt Out to Preserve Their Damages Claims

The Second Department, over an extensive dissent, determined Supreme Court had properly denied defendant’s motion, made jointly with the plaintiff, to approve a settlement of a proposed non-opt-out class action.  The majority concluded that shareholders who objected to the settlement were entitled to “opt out” to preserve their damages claims, as the Court of Appeals held in Matter of Colt Indus Shareholder Litig, 77 NY2d 185.  The Second Department explained the facts of the case as follows:

The instant appeal arises from a merger between the defendant On2 Technologies, Inc. (hereinafter On2), a publicly held Delaware corporation that developed video compression technology, and Google, Inc. (hereinafter Google), the global technology conglomerate specializing in Internet-related services. On August 4, 2009, On2 entered into a merger agreement with Google and Oxide, Inc., a subsidiary of Google, pursuant to which Google agreed to acquire each share of On2 common stock in exchange for 60 cents worth of Google Class A common stock. At that time, the proposed transaction was valued at approximately $106.5 million.

On August 7, 2009, the plaintiff, on behalf of himself and other similarly situated shareholders of On2, commenced the instant action, alleging that On2’s board of directors breached its fiduciary duties to the shareholders by, inter alia, failing to ensure that the shareholders would receive maximum value for their shares. Among other things, the plaintiff sought certification of a class to prosecute the matter as a class action, a declaration that the merger agreement was unlawful and unenforceable, rescission of the merger agreement, and injunctive relief. In August 2009, other shareholders of On2 (hereinafter collectively the Delaware plaintiffs) commenced similar actions in the Delaware Court of Chancery.

On February 22, 2010, the parties to this action, as well as the Delaware plaintiffs, proposed a settlement, pursuant to which they agreed that “solely for the purpose of effectuating the [s]ettlement,” the instant action “may be maintained . . . as a non-opt out class action.” The settlement provided, inter alia, for dismissal of the New York and Delaware actions in their entirety, with prejudice, and a release of “any and all” merger-related claims. The proposed settlement class encompassed “all persons and entities who held shares of the common stock of On2 . . . at any time between August 4, 2009 and February 19, 2010.”

Upon notice of the proposed settlement to all record holders of On2 common stock, 226 of those shareholders filed objections to the proposed settlement. The objectors contested the proposed settlement, claiming that it contained “an astonishingly broad” release that would “unlawfully restrict” and “unduly burden” the rights of shareholders to pursue their own individual claims for damages. Following a fairness hearing, the Supreme Court denied approval of the settlement because it did not afford nonresident class members the opportunity to opt out of the settlement in order to preserve their right to assert claims for damages. We affirm.  Jinnaras v Alfant, 2015 NY Slip Op 00335, 2nd Dept 1-14-15

 

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Complaint by Members of a Congregation against the Congregation’s Board of Trustees Stemming from the Termination of a Rabbi Reinstated—Criteria for Motions to Dismiss, Statutory Interpretation Principles, Criteria for Stating a Defamation Cause of Action, and the Qualified Immunity Afforded Board Members by the Not-for-Profit Corporation Law Discussed in Some Depth

The Second Department, in a full-fledged opinion by Justice Dickerson, reversed Supreme Court's dismissal of a complaint against the congregation's board of trustees by members of the congregation alleging causes of action stemming from the board's termination of a Rabbi. The Second Department held Supreme Court had not properly interpreted the Religious Corporations Law and the congregation's by-laws (Supreme Court had erroneously concluded the board had the power to act as it did under the statute and by-laws). The court further held the complaint sufficiently alleged malice in support of the defamation cause of action and sufficiently alleged the qualified immunity afforded board members by the Not-for-Profit Corporation Law may not apply.  The court discussed the criteria for a motion to dismiss pursuant to CPLR 3211, statutory interpretation principles, the elements of defamation, and the qualified immunity afforded board members by the Not-for-Profit-Corporation Law in some depth. Only a portion of the statutory-interpretation discussion is quoted here.  Supreme Court had interpreted the statutory phrase “The trustees … shall have no power to settle or remove or fix the salary of the minister…” to refer only to the trustees' actions concerning “the salary of the minister.”  The Second Department interpreted the phrase to mean the trustees have no power to “settle,” “remove,” or “fix the salary of” the minister:

We conclude that a more natural reading of the provision “[t]he trustees . . . shall have no power to settle or remove or fix the salary of the minister” (Religious Corporations Law § 200) establishes that “settle or remove” do not modify “the salary of the minister.” Rather, a more natural reading of this passage would be that the terms “settle,” “remove,” and “fix the salary of” all modify “the minister.” Under this reading, the trustees have no power to settle, or hire, the minister; they have no power to remove, or terminate the engagement of, the minister; and, finally, they have no power to fix the salary of the minister.

Under the Supreme Court's interpretation of the relevant language, the words “settle” and “fix” would have the same meaning, thus rendering one of these terms superfluous. ” Words are not to be rejected as superfluous where it is practicable to give each a distinct and separate meaning'” (…see McKinney's Cons Laws of NY, Book 1, Statutes § 231). Moreover, the Supreme Court's interpretation would lead to the somewhat unnatural provision for the “removal” of a clergyperson's salary. Furthermore, the use of the word “or” to separate each of the three terms suggests an intent to distinguish three distinct concepts.

Additionally, our interpretation of the statute, prohibiting the trustees from settling or removing the minister, or fixing his or her salary, is supported by the consistent, and quite similar, language set forth in Religious Corporations Law § 5. We note in this regard that ” [a] statute or legislative act is to be construed as a whole, and all parts of an act are to be read and construed together to determine the legislative intent'” … . Kamchi v Weissman, 2014 NY Slip Op 09109, 2nd Dept 12-31-14


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Privatization of a Mitchell-Lama Cooperative Housing Corporation Is Not a Taxable Conveyance Subject to the Real Property Transfer Tax

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, determined that the reconstitution of a cooperative housing corporation [Trump Village], changing from a Mitchell-Lama corporation pursuant to the Private Housing Finance Law [PHFL] to a corporation pursuant to the Business Corporation Law, was not a conveyance of real property subject to the Real Property Transfer Tax [RPTT]. The NYC Department of Finance characterized the change as a taxable conveyance and was seeking over $21,000,000 in tax and penalties.  The Court of Appeals held that the amendment to the certificate of incorporation did not create a new corporation and that the amended certificate did not constitute a deed:

In support of their position that the privatization of Trump Village is a taxable event, defendants argue that an amendment to a certificate of incorporation is a “deed.” Defendants also assert that Trump Village is a new corporation and that there was actually a conveyance of real property to a different corporation, with Trump Village being both the grantor and grantee. However, defendants’ construction of the RPTT cannot be reconciled with the plain language of the statute. Furthermore, even if there were any ambiguities regarding the application of the RPTT to this situation, “doubts concerning [a taxing statute’s] scope and application are to be resolved in favor of the taxpayer”… . Thus, we reject defendants’ strained interpretation of section 11-2102(a) of the Administrative Code of the City of New York. …

Trump Village …, is the same corporation that was named in the original certificate of incorporation. The Business Corporation Law distinguishes between amending a certificate of incorporation (§ 801 et seq.) and formation of a corporation (§ 401 et seq.). Section 801 (14) provides that a certificate of incorporation may be amended “to strike out, change or add any provision . . . relating to the business of the corporation, its affairs, its right or powers . . . .”…

The PHFL provides that a Mitchell-Lama corporation “may be voluntarily dissolved” and “[t]hat upon dissolution, title to the project may be conveyed in fee to the owner or owners of its capital stock or to any corporation designated by it or them for that purpose, or the company may be reconstituted pursuant to appropriate laws relating to the formation and conduct of corporations”(PHFL § 35 [3][emphasis added]). Accordingly, there are two options for the process of privatization, and plaintiff chose the second option – – reconstitution through amendment of its certificate of incorporation [FN1]. Defendants posit that the legislature intended the word “reconstitute” to mean the same thing as “reincorporate.” However, as long ago as 1857, it was recognized that reincorporation “cannot be deemed the formation of a new corporation, but should be regarded as the continuation of the existing one”… . Trump Vil Section 3 v City of New York, 2014 NY Slip Op 08788, CtApp 12-17-14

 

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