Martin Act applies to privatization of Manhattan co-op: high court
11/19/2012 COMMENTS (0)
ALBANY, N.Y., Nov 19 (Reuters) – New York’s attorney general had the authority to reject the proposed privatization of a Mitchell-Lama apartment complex in Manhattan, the state’s top court has ruled.
East Midtown Plaza Housing Company had argued that its privatization plan did not include the “offer or sale of securities” required under the state Martin Act, which gives the attorney general broad regulatory powers over securities transactions. East Midtown Plaza operates a six-building, 746-unit complex between 1st and 2nd avenues and 23rd and 25th streets.
The Court of Appeals on Monday unanimously rejected East Midtown’s argument, holding that the office of former attorney general Andrew Cuomo had the authority to block the plan under the statute because it was not approved by tenants in two-thirds of the complex’s units.
“In short, the changes affecting shareholders are substantial enough to constitute a different investment such that the proposed privatization can fairly be characterized as an ‘offering or sale’ of securities,” Judge Victoria Graffeo wrote for the court.
New York’s 1955 Mitchell-Lama Law offers developers financial incentives, including tax breaks, to put up housing for people with low and moderate incomes. In return, developers agree to a set of regulations governing rent, profit and tenant selection.
East Midtown incorporated as a Mitchell-Lama complex in 1968. Shares were distributed to tenants based on the size of their units, with those in larger units receiving more. The attorney general rejected a 2004 privatization vote, finding that East Midtown had failed to properly file its plan with the state as required by the Martin Act.
A second vote was held in 2009, in which East Midtown failed to garner the support of tenants in two-thirds of the apartments, as required by the company’s certificate of incorporation. The attorney general rejected the plan.
East Midtown in 2010 filed an Article 78 petition seeking a declaration that the Martin Act did not apply. The company argued that it was attempting to amend its certificate of incorporation, not dissolve the corporation and replace it with a private entity that would have issued new shares.
In 2010, former Manhattan Supreme Court justice Emily Jane Goodman, who has since retired, dismissed the claims. The Appellate Division, First Department, last year upheld her ruling.
The Court of Appeals on Monday agreed, finding that under the complex’s rules, the privatization vote must be based on the number of apartments, not the total number of shares.
Chief Judge Jonathan Lippman and Judges Carmen Ciparick, Eugene Pigott, Susan Read and Robert Smith concurred.
George Richardson, who represented East Midtown, said the company was “disappointed” and that the court’s decision is a “phenomenal broadening of the Martin Act.”
The attorney general’s office did not return a request for comment.
The case is East Midtown Plaza Housing Company v. Andrew Cuomo, New York State Court of Appeals, No. 187.
For East Midtown: George Richardson of Sullivan & Worcester.
For the state: Deputy Solicitor General Richard Dearing.
For the East Midtown Tenant-Cooperative Association: Kevin McConnell of Himmelstein McConnell & Gribben.
For the East Midtown Mitchell-Lama Organization: Barry Mallin.
For the New York City Department of Housing Preservation and Development: Victoria Scalzo.