EAST MIDTOWN, P.2

According to State Senator Liz Krueger, an advocate of Mitchell-Lama housing, the six-building, 746-apartment East Midtown has a book value of $483 million, meaning privatized apartment would sell for an average $650,000 — but there would be 746 fewer affordable-housing units. "The Mitchell-Lama program, which began as a way to spur housing for low- and middle-income New Yorkers, has been giving tax breaks and low-interest mortgages to East Midtown for nearly four decades," Krueger says in a statement. "The upshot is that the law gives residents the chance to make individual profits from their government-subsidized housing."

Canning, who opposes privatization, accused the board of making a self-serving decision by imposing the window-replacement assessment, since, he reasoned, this would increase the value of privatized apartments but would be paid for in part by shareholders who didn't plan to sell. He objected to the Board's use of "our money" to litigate privatization issues and noted that the Board conceded it did not even consider an HDC loan or grant because the co-op would have had to remain Mitchell-Lama program for 15 more years.

Grant's Tomb

East Midtown Plaza's board responded that the Business Judgment Rule shielded its decision to finance the window-replacement project through a bank loan and shareholder assessment. And indeed, the court ruled on Oct. 18, 2011, that the board had acted within the scope of its authority to create the plan, obtain the loan and impose an assessment. The board, said the court, had discretion to choose the method of financing the project, and was not required to apply for an HDC loan or grant and commit to remain in the Mitchell-Lama program for an additional 15 years. The court found that the board's actions pursued a legitimate purpose to maintain the structure of the buildings, and that it acted in good faith in fulfilling its obligations.

But if Canning lost the battle, his fellow anti-privatization shareholders  may have won the war: On June 14, 2011, an appeals court upheld a New York County Supreme Court Judge Emily Jane Goodman's March 16, 2010, ruling that denied East Midtown Plaza's attempt to compel HPD to approve its privatization plan and then State Attorney General Andrew Cuomo to accept it.

One Apartment, One Vote

"The court correctly determined that the Attorney General properly rejected petitioner's second amendment to the offering plan," the appeals court said. "The second amendment inaccurately stated that petitioner's privatization plan had passed, based on a per-share vote counting method, when, in fact, it had not passed in accordance with [HPD's] required per-apartment method. … The court properly determined that HPD's method for counting dissolution votes, i.e., one vote per shareholder, was rational and lawful. Petitioner's Certificate of Incorporation specifies that each shareholder shall be entitled to one vote, regardless of the number of shares held by such holder, 'except as otherwise provided by statute.' The court properly concluded that no statute … provides otherwise." 

Another vote could be taken, of course, and pass on a one-vote-per-apartment basis, which gives studio and other small apartments equal footing with large apartments. Whatever happens, at least the co-op should be getting some nice windows. And if and when your own co-op decides to make that same capital improvement, it's good to know how another one's board pulled it off.

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