OPINION OF THE COURT
In this action to compel the sponsor of a cooperative conversion to sell unsold shares of cooperative units it has held for more than 10 years, we are called to decide the issue of whether the sponsor had a contractual duty to dispose of unsold units within a reasonable time. The record dictates that the question must be answered in the affirmative.
Plaintiffs are the cooperative corporation (co-op) that owns 511 West 232nd Street, Bronx, New York and six shareholder/ proprietary lessees thereof. Defendant, Jennifer Realty Co. is the co-op sponsor and the individual defendants are Jennifer’s principals and also members of the co-op’s Board of Directors (Board). Although the co-op closing took place on July 15, 1988, Jennifer holds “Unsold Shares” representing more than 62% of the corporate stock, allocated to 41 of its 66 units.
Section 1 of the non-eviction plan obligated Jennifer to offer bona fide tenants in occupancy the right to purchase the shares
In 1998, plaintiffs became aware that defendants rejected a purchase offer on a vacant apartment. Shortly thereafter, this action was commenced seeking to compel Jennifer Realty to sell unsold shares it has held for more than 10 years. Plaintiffs’ complaint asserts seven causes of action sounding in common-law fraud; breach of fiduciary duties; breach of contract; equitable relief of injunction to compel Jennifer to sell its units; violation of General Business Law §§ 349 and 350 resulting in actual damages to the individual plaintiffs; intentional violation of General Business Law § 349 (h) and § 350-e (3) warranting a treble damage award and attorneys’ fees to individual plaintiffs; and, injunctive relief. The gravamen of the complaint is that while the plan offered all 66 units for sale, Jennifer, which has not filed the requisite amendments with the Attorney General since 1996, retained all of its unsold shares, renting the appurtenant units at a profit, notwithstanding that plaintiffs were led to believe by section 24 of the plan (addressed as “Sponsor Profit”) and by material omissions that Jennifer would sell them at the earliest opportunity, but in no event later than when each unit became vacant. Plaintiffs further allege that by adopting this policy, the individual defendants breached their fiduciary duties as Board members of the co-op.
Defendants moved to dismiss the complaint in its entirety based on documentary evidence consisting of the plan, subscription agreement and the proprietary lease. The IAS court granted the motion with respect to the third cause of action for breach of contract and sustained the other causes of action. The court reasoned that the parties’ obligations to each other were contained exclusively in the plan and subscription agreement, and that the plan did not reveal any promise by the sponsor to sell the shares within any particular time frame.
It is undisputed that the New York Legislature has not imposed any statutory obligation on sponsors to dispose of all or a specified number of unsold shares in a cooperative or units
An offering plan is a contract between the sponsor and the unit purchasers (
We find that the IAS court improperly dismissed plaintiffs’ third cause of action for breach of contract since the sponsor made an implied promise to sell the unsold units within a reasonable time. In 1988, when the plan was initially executed, it was generally understood to be the practice of sponsors to diligently market and dispose of their units as soon as circumstances permitted. It was the intention of plaintiffs to reap the benefits of cooperative ownership. However, after 1990, the real estate market took a significant downturn, thereby rendering co-op sales difficult and unprofitable. Plaintiffs are now in a situation where they are unable to sell or refinance their purchased units, must subsidize repairs for Jennifer Realty’s rental units, and are forced to live in a building populated by transient tenants. The parties understood that all units would not be sold initially; however, it was intended that all would eventually be sold. While the market slump was unanticipated, it did not alter the purpose of the plan, which was to form a stable cooperative. Thus, plaintiffs have a viable breach of contract claim and there exists an issue as to whether defendants’ 10-year delay was reasonable.
In light of the reinstatement of the breach of contract claim, plaintiffs’ fraud-based claims must be dismissed inasmuch as
Further, plaintiffs’ common-law and General Business Law §§ 349 and 350 fraud claims must be dismissed since they have no standing to raise Martin Act claims. The Attorney General has exclusive jurisdiction to prosecute sponsors who violate the disclosure requirements of the act (see, CPC Intl. v McKesson Corp.,
Accordingly, the order of the Supreme Court, Bronx County (Jerry Crispino, J.), entered June 29, 2000, which, to the extent appealed and cross-appealed from, denied defendants’ motion to dismiss plaintiffs’ fraud, breach of fiduciary duty, permanent injunction and General Business Law §§ 349 and 350 claims, but granted the motion with respect to plaintiffs’ third cause of action alleging breach of contract, should be modified, on the law, to grant the motion with respect to plaintiffs’ common law fraud and General Business Law §§ 349 and 350 claims, to deny the motion with respect to plaintiffs’ third cause of action for breach of contract and to reinstate that cause, and otherwise affirmed, without costs.
Sullivan, P. J., Mazzarelli, Ellerin and Buckley, JJ., concur.
Order, Supreme Court, Bronx County, entered June 29, 2000, modified, on the law, to grant defendants’ motion with respect to plaintiffs’ common-law fraud and General Business Law §§ 349 and 350 claims, to deny the motion with respect to plaintiffs’ third cause of action for breach of contract and to reinstate that cause, and otherwise affirmed, without costs.