The administrator of the estate of Carmen Solano has petitioned for turnover by Southbridge Towers, Inc. (“Southbridge”), of interests in the apartment where Ms. Solano resided until her death on July 31, 2015 (the “Apartment”). The administrator now moves for a summary determination that the estate is entitled to such turnover as a matter of law. Southbridge, a private market-rate cooperative corporation, cross-moves for summary denial of the petition. The undisputed material facts and the laws relevant to those facts are as follows. Decedent purchased the Apartment from Southbridge in 1999. Southbridge was then a Limited-Profit Housing Company operating a cooperative development within the State of New York’s “Mitchell-Lama” program (see Article II of the Private Housing Finance Law). The Mitchell-Lama program offered apartments to lower- and middle-income persons for purchase at prices steeply discounted from the existing market rates. Concomitantly, upon surrender to the cooperative (whether at the shareholder’s death or otherwise), the recovery by the shareholder or her estate was limited to the amount of her initial investment. Apartments were sold through waiting lists maintained by the housing company. Section 35 of the Private Housing Law authorized Southbridge, as a Limited-Profit Housing Company in operation for more than 40 years, to dissolve voluntarily and to reconstitute itself (under section 805 of the Business Corporation Law) as a market-rate cooperative corporation. Southbridge initiated the reconstitution process by filing an offering plan (the “Plan”) with the State Attorney General on April 10, 2014 (the “Filing Date”). As a precondition to reconstitution, Southbridge was required to obtain the approval of two-thirds of the then shareholders of record within 180 days of the Filing Date. The prerequisite was satisfied through a shareholder voting process which was completed by September 30, 2014. The next precondition to reconstitution was the execution of Participation Agreements between Southbridge and at least two-thirds of the shareholders of record, which was satisfied by March 3, 2015, i.e., the end of a 90-day period for executing Participation Agreements. A Participation Agreement executed by decedent was accepted by Southbridge within the deadline. The reconstitution of Southbridge was further contingent upon its filing with the State Attorney General within 30 days of March 3, 2015, an amendment to the Plan declaring it to be effective. In the wake of litigation commenced by a number of shareholders who sought to halt the Plan’s implementation, the 30-day deadline was not met. However, on August 31, 2015, the Attorney General’s office nonetheless accepted Southbridge’s Effectiveness Amendment for filing. Finally, on September 10, 2015, the Secretary of State issued a Certificate of Incorporation representing the formal reconstitution of Southbridge. Decedent’s death occurred before the Attorney General’s acceptance of the Effectiveness Amendment for filing and thus before the formal reconstitution was effective. The administrator commenced this proceeding after Southbridge took the position that decedent’s estate has no interest in the Apartment because decedent’s death pre-dated the existence of a reconstituted Southbridge. According to the administrator, decedent’s execution of the Participation Agreement was sufficient to establish the right of her estate to own the post-reconstituted Apartment (i.e., a market-rate apartment), and Southbridge’s refusal to recognize this is wrong as a matter of law for a variety of reasons. The administrator argues that nothing in the Plan points to any requirement that, in order for decedent’s estate to have acquired interest in the reconstituted Apartment, decedent had to have survived until the time Southbridge was reconstituted as a new, market-rate entity. The administrator points out that the Plan’s express reference to the death of a Mitchell-Lama shareholder as a disqualifying factor related only to the counting of shareholder votes toward two-third approval of the Plan. According to the administrator, the Plan’s silence as to a shareholder’s death between the time that shareholder executed a Participation Agreement and the date on which Southbridge was reconstituted is therefore telling and establishes that decedent’s right to own the Apartment as a market-rate property (pursuant to the Participation Agreement) did not die with her. But, in view of a central regulatory provision applicable to every Mitchell-Lama shareholder — which decedent necessarily remained before a reconstituted Southbridge came into existence the Plan had no need to announce that the opportunity to become a shareholder in a reconstituted Southbridge would not survive her if she died prior to such reconstitution. Nor for that matter could Southbridge have altered decedent’s rights as prescribed by the rules governing the Mitchell-Lama program even if Southbridge had wished to do so. That provision is 9 NYCRR 1727-8.3, a rule promulgated by the New York State Department of Housing and Community Renewal, the agency responsible for administering the Mitchell-Lama program. Entitled, “Special succession provisions in the event of the death of a tenant/cooperator,” the rule has a very narrowly defined exception to the general rule that a shareholder’s interests must be surrendered to the cooperative upon the shareholder’s death. The provision reads in relevant part as follows: “Where a…cooperator has died, the lease and the shares of stock for such decedent’s apartment shall be surrendered by the decedent’s estate or survivors for redemption. The housing company upon written request received from any member of such…cooperator’s family who has resided with the…cooperator in the dwelling unit as a primary residence and pursuant to the provisions of [this] section…and the Private Housing Finance Law, shall sell or transfer the shares and the lease to the family member as set forth in [this] section….” The provision indicates that the interests of a Mitchell-Lama shareholder are personal to her and do not devolve upon anyone in privity with her at her death except under a circumstance not present here. Moreover, it is undisputed that the Mitchell-Lama program was conceived to maximize the availability of affordable housing, rather than to offer shareholders the opportunity to realize capital gains from eventual sales of their ownership interest. Thus, as a Mitchell-Lama shareholder, decedent had no reasonable expectation of profiting from her shareholding. On the other hand, as a party to a Participation Agreement executed before Southbridge was reconstituted, decedent acquired the prospect of a windfall (i.e., a right to own a market-rate property that she had previously purchased at a steep discount) once the reconstitution occurred. But she could only expect the same for her successors-in-interest if she lived to the date when the market-rate corporation came into existence, since before that point her interest as a Mitchell-Lama shareholder was personal to her alone. The administrator contends, however, that the logical implication of another agency rule is that the foregoing features of Mitchell-Lama shareholding did not apply to decedent by the time she died. The rule in question is 9 NYCRR 1750.11, entitled “Waiting lists,” and it reads in relevant part as follows: “(a) At least 60 days prior to the effective date of dissolution, the housing company shall submit an affidavit to the division certifying that each person on the waiting list for apartments in the housing development has been advised in writing of the proposed dissolution and whether or not the waiting list will continue to be utilized….” The administrator argues that since Southbridge had discontinued its waiting list prior to decedent’s death,1 limits on shareholders’ interests (as reflected in Rule 1727-8.3) would no longer serve the purpose of maximizing the availability of affordable housing for low — and middle — income persons; there was thus no longer a viable public-policy objective to militate against decedent’s private interest in passing along a market-rate interest to her successors. The administrator’s theory is problematic because it would leave shareholders’ relationships to their shares subject to the vagaries of whether and when a waiting list no longer remained open and whether and at what point public policy was no longer being served by Rule 1727-8.3. But the administrator cites no authority for the proposition that the rule was intended to operate other than as simply as it was written, or that it should cease to apply to a Mitchell-Lama shareholder before an actual reconstitution occurred. Nor does the administrator demonstrate any advantage to the Mitchell-Lama program if its shareholders were left to guess when and if their relationship to their shares had fundamentally changed. Indeed, there is no precedent for such considerations. Instead, the courts have read and applied the rule as an uncomplicated one (see Contacts v. Southbridge Towers, Inc., 162 AD3d 588 [1st Dept. 2018], and cases cited therein). The administrator also argues that the procedure for reconstituting Southbridge would not as a practical matter have been workable if the death of a shareholder had the consequence of reducing the number of shareholders who had approved the Plan. She notes that the filing of the Effectiveness Amendment was the final precondition to issuance of the Reconstituted Certificate of Incorporation, but that the precondition to such filing itself was the execution of a certain number of Participation Agreements. She then reasons that the conditions must be mutually dependent, thus creating a Catch 22 if the death of a shareholder could render an Agreement invalid for purposes of such a tally. The short answer to this reasoning is that the procedure does work, however many or few shareholders such as decedent did not live to see the issuance of a reconstituted Southbridge. The administrator offers no support for the proposition that the issuance of the Certificate itself required that all shareholders who signed a Participation Agreement be alive when the Amendment was filed. In light of the above, there is no need to address petitioner’s estoppel arguments relating to Southbridge’s conduct in relation to the waiting list or delays in the process resulting from some shareholders’ efforts to halt the reconstitution. Accordingly, the administrator’s motion is denied, and Southbridge’s cross-motion is granted. This decision constitutes the order of the court. Dated: September 30, 2019
