By Daniel Wiessner
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.
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