Principals of sponsor not personally liable for certification of condominium offering plan
In a recent ruling of the Appellate Division, First Department, in which Tannenbaum Helpern Syracuse & Hirschtritt LLP represented the sponsor of a condominium conversion offering plan and its principals, the court determined that the mere execution of the offering plan certification by the principals of the sponsor (required by the Martin Act) does not create personal liability against the principals. Board of Managers of the 184 Thompson Condominium v. 184 Thompson Street Owner LLC, 2013 N.Y. Slip Op 03574 (1st Dept. May 16, 2013).
The ruling arose in the context of a dispute between the board of managers of the condominium and the sponsor relating to the sponsor’s creation of the capital reserve fund required by the New York City Administrative Code. The board challenged both the manner of computing the amount of the reserve fund and the credits for capital replacement work taken by the sponsor against the fund. The Appellate Division upheld both the sponsor’s method of computation and its entitlement to credits. The determination of the precise amounts of the fund and the credits was left for trial.
The Appellate Division also rejected the board’s effort to impose personal liability on the sponsor principals for alleged violations of the offering plan and certification. Relying on the Court of Appeals holding in Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 N.Y.3d 236, 246 (2009), the Court held that the certification was mandated by the Martin Act, and that no independent liability can be imposed upon the sponsors “outside of that statute.” Nor could the principals be held “liable under an alter-ego or other veil-piercing theory.”
In light of the First Department’s ruling, several earlier lower court decisions in the Supreme Court, Kings County (The Board of Mgrs. of the 231 Norman Ave. Condominium v. 231 Norman Ave. Prop. Dev., LLC, 36 Misc. 3d 1232[A], 2012 N.Y. Slip Op 51573[U] (Sup. Ct. Kings County 2012); Board of Mgrs. of the Crest Condominium v. City View Gardens Phase II, LLC, 35 Misc. 3d 1223[A], 2012 N.Y. Slip Op 50826 (Sup. Ct. Kings County 2012); Kirkov v. 355 Realty Assoc. LLC, 31 Misc. 3d 1212[A], 2011 N.Y. Slip Op 50600[U] (Sup. Ct. Kings County 2011); Sternstein v. Metro. Ave. Dev. LLC, 32 Misc. 3d 1207[A], 2012 N.Y. Slip Op 51206[U] (Sup. Ct. Kings County 2011)) no longer appear viable and there are no appellate level decisions in the Second Department which support a ruling contrary to that of the First Department.
Here is a link to a copy of the decision in 184 Thompson Street: http://bit.ly/18zrGiw.
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