DOLPHIN RESIDENTIAL COOPERATIVE, INC., Appellee, v. IOWA CITY BOARD OF REVIEW, Appellant.
No. 13-1031.
Supreme Court of Iowa.
May 15, 2015.
864 N.W.2d 644
Dennis J. McMenimen and Dana L. Oxley of Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellee.
APPEL, Justice.
In this case, the Iowa City Board of Review (Board) appeals from a district court ruling that ordered the Board to reclassify twenty-two multiunit apartment buildings as residential property for tax assessment purposes. Classification of the property as residential would require the Board to tax the property at residential
I. Background Facts and Proceedings.
Dolphin was created on December 22, 2011, when Dolphin caused to be filed articles of incorporation with the Iowa secretary of state seeking to organize as a multiple housing cooperative under Iowa Code chapter 499A. The articles of incorporation listed attorneys Laurie L. Dawley and Dennis J. McMenimen as organizers.1 Both Dawley and McMenimen signed the articles of incorporation. Both Dawley and McMenimen are citizens of the state of Iowa and over the age of eighteen. The articles of incorporation named Vijay J. Bhatt, an out-of-state resident, as the sole initial member of the board of directors. A document entitled “Consent Resolutions of Directors,” listed Bhatt as president, vice president, treasurer, and secretary of the cooperative. The consent resolutions authorized and directed Dolphin to acquire property located at 2401 Highway 6 East in Iowa City, Iowa, which contained four hundred apartment units owned by Dolphin International, LLC (Dolphin International), and RBJ Management, Inc. (RBJ). Finally, the consent resolutions authorized Dolphin‘s issuance of three hundred ninety-nine membership certificates to Dolphin International and one membership certificate to RBJ in exchange for their respective interests in the real estate.
On December 23, the Iowa secretary of state issued a document entitled “Acknowledgment of Document Filed,” acknowledging receipt of the articles of incorporation for Dolphin and confirming such articles were effective as of December 22, 2011. The secretary of state also directed the recording of the articles of incorporation with the Johnson County recorder. By two deeds recorded December 27, Dolphin acquired title to the subject real estate described above and commonly known as Dolphin Lake Point Enclave (the Enclave). These deeds were from Dolphin International, an Illinois limited liability company, and RBJ, an Illinois corporation. The Enclave is an apartment complex in Iowa City that consists of twenty-two buildings comprising four hundred residential apartment units. Thereafter, pursuant to
In January 2012, the Iowa City assessor classified the Enclave as commercial property. Based on the commercial classifica-
In a letter dated April 2, the Iowa City assessor refused to change the classification of the Enclave to residential. The reason given for the refusal was that Dolphin failed to satisfy the statutory requirements of Iowa Code chapter 499A, as interpreted by the Iowa Supreme Court in the Krupp case, in that it did not pass the organizational test. Dolphin was advised of its right to appeal the assessment classification to the Board, which it did.
By notice dated May 25, the Board notified Dolphin that its request to reclassify the Enclave had been denied. The Board found there was “[i]nsufficient evidence to prove that the petitioned property is not assessable, is exempt from taxes, or is misclassified.” Dolphin appealed the Board‘s decision to the district court.
During the course of the appeal, the parties filed cross-motions for summary judgment on the classification issue, with each party resisting the opposing motion. Dolphin argued that it satisfied the organizational test adopted by this court in Krupp because Dawley and McMenimen, as organizers, satisfied the requirements outlined in
The Board emphasized that Dolphin failed to meet the requirements set forth in Krupp because Dolphin was not properly organized under chapter 499A. The Board argued for a “meaningful organizational test.” Specifically, the Board contended that Dolphin failed to meet the statutory requirement of members “organizing themselves,” or the statutory requirement that two adult natural persons be organizers of the cooperative. The Board argued that the two purported organizers of Dolphin, Dawley and McMenimen, were not members “organizing themselves,” as required by
On May 29, 2013, after a hearing on the competing motions for summary judgment, the district court entered its ruling. Relying on the plain language of
The district court granted the summary judgment motion filed by Dolphin and denied the summary judgment motion filed by the Board. It ordered the Board to reclassify the subject property as residential property for tax assessment purposes as of the assessment date January 1, 2012. The Board appealed the ruling of the district court, and we retained the appeal.
II. Standard of Review.
Although ordinarily appeals from decisions of the local board of review are triable in equity,
III. Discussion of Requirement of Organizers for Residential Cooperatives.
A. Introduction. This case involves the proper interpretation of Iowa‘s statute regarding the creation of residential cooperatives. Residential cooperatives have been part of the legal scene for decades. See Richard Siegler & Herbert J. Cooper-Levy, Brief History of Cooperative Housing, in General Materials and Information on Cooperative Housing 1, 1-2 (Nat‘l Ass‘n of Hous. Coops. 1986) (noting that although the concept of housing cooperatives has been around for centuries, “[t]he period of greatest cooperative development... occurred in the aftermath of World War II“). Traditionally, residential cooperatives are a vehicle designed to allow residents “to own, manage, and operate residential apartments without anyone profiting therefrom.” 15B Am. Jur. 2d Condominiums and Cooperative Apartments § 59, at 637 (2011); see City of Newton v. Bd. of Review, 532 N.W.2d 771, 774 (Iowa 1995), overruled on other grounds by Krupp, 801 N.W.2d at 13 n. 1, 15. In many jurisdictions, including Iowa, residential cooperatives may receive favorable tax treatment. See generally Iowa
Since 1947, Iowa has had a statutory framework providing for the formation of residential cooperatives that are eligible to receive favorable tax treatment. See 1947 Iowa Acts ch. 250, § 1 (codified at
B. Statutory Framework for Organization of Cooperatives. Cooperative associations are not a stranger to the Iowa Code. Iowa Code chapters 497 through 499A relate to various types of cooperatives. Each chapter has provisions related to formation of the cooperative.
That brings us to the statutory provisions implicated in this lawsuit. Under
Once the articles of incorporation have been filed with the secretary of state with the required filing and recording fees, “a certificate of incorporation as a cooperative not for pecuniary profit” is issued. Id. The Code further provides that “[u]pon filing such articles the persons signing and acknowledging the same [the organizers] and their associates and successors shall become a body corporate” with various enumerated powers.
C. Iowa Caselaw Regarding Residential Cooperatives. We have had few occasions to consider the statutory provisions related to the formation of residential cooperatives under Iowa Code chapter 499A. There are two cases, however, in which we considered important issues related to the chapter that set the stage for our consideration of the issues in this case.
The first case is City of Newton. The central issue in City of Newton was whether a multistory building containing sixty-three living units was properly assessed as commercial property. 532 N.W.2d at 772-73. We recognized the rental of multiunit dwellings is ordinarily recognized as a profit-oriented enterprise and thus subject to commercial classification for tax purposes. Id. at 773. The question in City of Newton was whether the cooperative status of Park Centre Apartments, the lessee of the building, entitled the residents, and thus Park Centre, to the tax benefits of then
However, as the City of Newton case was pending, the legislative wheels were turning. Prior to handing down the City of Newton decision, the legislature amended
We next considered an appeal of a district court decision that two multiunit apartment buildings were entitled to favorable tax treatment as residential cooperatives in Krupp. In Krupp, the residential cooperatives had only two members, Larry and Connie Krupp. 801 N.W.2d at 11. Although as the only two members of the cooperatives they had ownership interests in the cooperatives, they did not reside in the buildings. Id. at 11. Instead, they subleased the units they owned to subtenants. Id. The district court found that the
On appeal, the board conceded the cooperatives were properly organized under Iowa Code chapter 499A. Id. at 14. The board, however, asked us to look beyond the filing papers and consider the actual operation of the property. Id. Based on our review of the relevant statutes, we rejected an actual use test. Id. at 15. In particular, we noted the legislative history and language in
We further declined the board‘s invitation in Krupp to “pierce the corporate veil.” Id. at 16. We noted that “the doctrine of piercing the corporate veil is a limited one that is employed only on behalf of creditors to reach the personal assets of shareholders of corporations.” Id. In any event, we held there was no evidence in the record that the cooperatives were operating for a profit and even if there had been such evidence, there was nothing in chapter 499A that prevented “a member from leasing out a unit or units with desirable economic terms.” Id.
D. Validity of Organization of Dolphin by Attorneys Dawley and McMenimen. The first issue raised by the Board in this case is that attorneys Dawley and McMenimen were not lawful organizers of the residential cooperative. The Board recognizes that in Krupp we applied an organizational test rather than an actual use test with respect to determining proper tax treatment of a residential cooperative organized under Iowa Code chapter 499A. See id. at 15-16. The Board maintains, however, that although we adopted an organizational test in Krupp, any residential cooperative seeking favorable tax treatment must be properly organized under Iowa Code chapter 499A. According to the Board, because Dawley and McMenimen were not organizing themselves for purposes of “[o]wnership of residential, business property on a cooperative basis” as required by
Dolphin responds that once the papers were filed and approved by the secretary of state, Dolphin came into existence as a residential cooperative and that is the end of the matter under the Krupp organizational test. See 801 N.W.2d at 15-16. It asserts that organizers may be “[a]ny two or more persons of full age, a majority of whom are citizens of the state” under Iowa Code section 499A.1(1) and that attorneys Dawley and McMenimen plainly qualify. Dolphin notes there is no requirement anywhere in
A threshold question is whether Krupp precludes us from considering whether Dawley and McMenimen were qualified organizers of the residential cooperative. We conclude that it does not. In Krupp, the parties stipulated that the residential cooperative was properly organized under Iowa Code chapter 499A. Id. at 14. While Dolphin cites authority for the proposition that we are not bound by the parties’ stipulation of law, see Sanford‘s Estate v. Comm‘r, 308 U.S. 39, 51, 60 S.Ct. 51, 59, 84 L.Ed. 20, 26 (1939),
We now turn to the merits of the Board‘s argument. We begin our analysis with the language of the statute. There is no dispute that Dawley and McMenimen are persons of full age and that they are citizens of the state of Iowa. See
The notion that organizers are not just any person of full age who are citizens is supported not only by the direct language of
In addition, considered in context, it is clear that “organizers” are not merely professional facilitators. As noted above, the organizers cause the articles of incorporation to be filed with the secretary of state.
While Dolphin insists that its lawyers may be organizers even though they have no putative interest in the cooperative, the requirement of two organizers is inconsistent with that theory. If lawyers can be organizers under
The facts of this case also illuminate the nature of the legal requirements for residential cooperatives. The record reveals that two entities, Dolphin International, an Illinois limited liability company, and RBJ, an Illinois corporation, are the owners of the Enclave, the apartment buildings in question. They understandably seek to convert their holdings into a residential cooperative in order to receive favorable tax treatment.
At the time of the attempted conversion, however, there were potential legal problems with Dolphin International and RBJ acting as organizers. First, the statute requires that the organizers be “persons of full age.”
IV. Challenge Under the Dormant Commerce Clause.
Dolphin asserts that the Board understands Iowa Code chapter 499A to impose a residency requirement, namely, that a majority of the initial members must be Iowa residents and that this provision violates the dormant Commerce Clause. Dolphin cites cases that stand for the general proposition that if a statute discriminates against interstate commerce, it may be constitutionally infirm. See Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 578-79, 106 S.Ct. 2080, 2084, 90 L.Ed.2d 552, 559 (1986); Smithfield Foods, Inc. v. Miller, 367 F.3d 1061, 1064-65 (8th Cir.2004); S.D. Farm Bureau, Inc. v. Hazeltine, 340 F.3d 583, 592-93 (8th Cir.2003). Dolphin urges us to avoid an interpretation that gives rise to potential constitutional infirmities. See Simmons v. State Pub. Defender, 791 N.W.2d 69, 88 (Iowa 2010).
We do not base our decision, however, on the citizenship provisions of
V. Conclusion.
For the foregoing reasons, we reverse the summary judgment entered in favor of plaintiff Dolphin and remand for the district court to enter summary judgment in favor of defendant the Board.
DISTRICT COURT DECISION REVERSED AND CASE REMANDED WITH INSTRUCTIONS.
All justices concur except MANSFIELD, J., who concurs specially, and ZAGER and WATERMAN, JJ., who dissent.
MANSFIELD, Justice (concurring specially).
I join in the majority opinion and write separately only because I would go farther. In my view, Krupp was wrongly decided and should be overruled. See Krupp Place 1 Co-op, Inc. v. Board of Review, 801 N.W.2d 9 (Iowa 2011).
Let‘s begin with the underlying reality of what is going on: An Illinois-based commercial landlord is leasing out 400 apartment units in several buildings for profit. Seeking a fifty percent reduction in its property tax bill, that landlord has taken
As the majority opinion explains, two attorneys from the same Cedar Rapids law firm organized the Dolphin cooperative. That law firm apparently represents all three entities — the Dolphin cooperative, Dolphin International, and RBJ. Once the Dolphin cooperative was formed, Dolphin International and RBJ deeded the real estate to it, which then turned around and leased the real estate back to Dolphin International and RBJ.
This commercial enterprise under the direction of a single person is totally different from what we would normally call a “cooperative.” The classic cooperative involves independent persons such as farmers forming a jointly owned entity in order to accomplish something as a group that no one person could do as effectively on his or her own (e.g., buy supplies, market grain, obtain electricity). See, e.g., Merriam-Webster‘s Collegiate Dictionary 275 (11th ed.2003) (defining a cooperative as “an enterprise or organization owned by and operated for the benefit of those using its services“). Instead, we have here the opposite: a single economic enterprise purporting to be divided into independent units in order to get favorable tax treat-
Does this underlying reality matter? I believe it does. There is a well-established doctrine in federal tax law that transactions undertaken only for tax purposes and otherwise lacking economic significance should be disregarded. As the United States Supreme Court has summed up,
This Court, almost 50 years ago, observed that taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed-the actual benefit for which the tax is paid. In a number of cases, the Court has refused to permit the transfer of formal legal title to shift the incidence of taxation attributable to ownership of property where the transferor continues to retain significant control over the property transferred. In applying this doctrine of substance over form, the Court has looked to the objective economic realities of a transaction rather than than to the particular form the parties employed. The Court has never regarded the simple expedient of drawing up papers as controlling for tax purposes when the objective economic realities are to the contrary. In the field of taxation, administrators of the laws and the courts are concerned with substance and realities, and formal written documents are not rigidly binding.
Frank Lyon Co. v. United States, 435 U.S. 561, 572-73, 98 S.Ct. 1291, 1298, 55 L.Ed.2d 550, 560 (1978) (citations omitted)-(internal quotation marks omitted).
[W]here... there is a genuine multiple-party transaction with economic substance which is compelled or encouraged by business or regulatory realities, is imbued with tax-independent considerations, and is not shaped solely by tax-avoidance features that have meaning-less labels attached, the Government should honor the allocation of rights and duties effectuated by the parties.
Id. at 583-84, 98 S.Ct. at 1303-04, 55 L.Ed.2d at 567.
Frank Lyon involved a transaction that did have sufficient economic substance, according to the Supreme Court (although two justices dissented). Id. There, a state bank (Worthen) wanted to erect a multistory bank and office building but could not borrow the funds because of state and federal banking regulations. Id. at 563-64, 98 S.Ct. at 1293-94, 55 L.Ed.2d at 554-55. Worthen entered into a sale-and-leaseback arrangement with a separate company (Lyon), which in turn took out a mortgage. Id. at 564-68, 98 S.Ct. at 1293-96, 55 L.Ed.2d at 555-57. The Court found that this transaction had enough economic substance because “the lessor [Lyon] retain[ed] significant and genuine attributes of the traditional lessor status.” Id. at 584, 98 S.Ct. at 1304, 55 L.Ed.2d at 567.
It is true that Lyon‘s majority shareholder also happened to serve on Worthen‘s board of directors. Id. at 563, 98 S.Ct. at 1293, 55 L.Ed.2d at 554. Yet there was no dispute as to “Lyon‘s substantiality and its independence from Worthen.” Id. at 582, 98 S.Ct. at 1303, 55 L.Ed.2d at 566 (footnote omitted). Nor was it disputed that Lyon had assumed significant risk and that both entities had valid nontax reasons for engaging in the transaction. Id. at 582-83, 98 S.Ct. at 1303, 55 L.Ed.2d at 566-67.
Here, by contrast, there are no genuine third parties. The putative cooperative, directed by Bhatt, consists of a 99.7% interest held by one Bhatt-directed entity and a .03% interest controlled by another Bhatt-directed entity. The three entities have been separated purely for tax reasons, and the ersatz cooperative has no reason for being other than tax reduction.5
The economic substance doctrine has been recognized by state courts. See TD Banknorth, N.A. v. Dep‘t of Taxes, 185 Vt. 45, 967 A.2d 1148, 1157 (2008). In TD Banknorth, the taxpayer established three holding companies for the sole purpose of reducing Vermont tax liability. Id. at 1150-51. In holding that the companies should not be treated as separate for tax purposes, the court emphasized both the taxpayer‘s motivation and the holding companies’ lack of any independent business activity apart from holding certain assets for tax reasons. Id. at 1157-58; see also Shuwa Invs. Corp. v. County of Los Angeles, 1 Cal.App.4th 1635, 2 Cal.Rptr.2d 783, 784-86, 796 (1991) (finding that a stepped transaction intended to avoid property tax reassessment lacked economic substance and would be treated as a single sale); Comptroller of the Treasury v. SYL, Inc., 375 Md. 78, 825 A.2d 399, 415-16 (2003) (finding that subsidiary corporations were formed solely for tax purposes, lacked economic substance, and would be disregarded); Sherwin-Williams Co. v. Comm‘r, 438 Mass. 71, 778 N.E.2d 504, 512 (2002) (“Massachusetts recognizes the ‘sham transaction doctrine’ that gives the commissioner the authority to disregard, for taxing purposes, transactions that have no economic substance or business purpose other than tax avoidance. The doctrine generally works to prevent taxpayers from claiming the tax benefits of transactions that, although within the language of the tax code, are not the type of transactions the law intended to favor with the benefit.” (Footnote omitted.) (Citation omitted.) (Internal quotation marks omitted.)).
In December 1975, the Parshalls founded the Parshall Christian Order (PCO), a religious order dedicated to the advancement of biblical teachings. PCO consists of Robert Parshall, denominated as its chief steward, Joyce Parshall, assistant steward, and the two sons, who are referred to as members. No other person has been a member of PCO or applied for membership. Robert Parshall testified that new members would be welcome to join PCO if they were willing to abide by its rules and take the required oaths. Nothing in the record, however, suggests that PCO has made any effort to recruit additional members. The members of PCO are thus identical to the members of the Parshall family.
Id. at 799.
We explained our reasoning in this way:
Nothing in these definitions suggests that a religious society can consist solely of the members of a nuclear family. Inherent within those definitions is the notion that the various individuals composing a religious society have become associated only through their mutual desire for worship and religious education. Were it not for that desire the association of those particular individuals would not have occurred. Such is obviously not the case with PCO. The members of the Parshall family are not associated only because of their desire for mutual worship; they are associated as a family. They will continue as a group regardless of any religious beliefs they may possess. Because the predominant reason for the Parshalls’ association is not religious pursuit, we conclude that PCO is not a religious institution or society as contemplated by section 427.1(9) [now section 427.1(8) ].
Id. at 802. In summary, we said, “Granting tax exempt status to PCO would exalt form over substance....” Id. at 805.6
No detailed study of chapter 499A is needed to conclude that a purported cooperative arrangement which lacks economic substance does not fall within the purview of the chapter and should not qualify for the
Indeed, a hallmark feature of cooperatives is that they bring together multiple “persons.” See
I acknowledge that Krupp presented a similar situation: The only members of the purported cooperative were the Krupps — presumably a husband and wife — who together owned the entire twenty-four-unit apartment complex. 801 N.W.2d at 11. Hence, as in the present case, there was a unitary economic entity that engaged in legal mitosis purely for tax reasons. As here, the transactions in Krupp lacked economic substance. Krupp, however, rejected the economic substance test in a footnote. Id. at 15 n. 2. For these reasons, I believe Krupp should be overruled.
Krupp gave considerable weight to language in
While this is not an unreasonable interpretation of
To bolster its conclusion, the Krupp court suggested that when the legislature enacted
While City of Newton was pending but before it was decided, the legislature enacted what is now
To read this legislation as undermining the ensuing City of Newton decision seems misguided to me. In all likelihood, if we believed our City of Newton decision was a dead end due to the recent enactment of
Hence, I read the phrase “organized under chapter 499A” in
Additionally, as the debate between the majority and the dissent in this case illustrates, it is difficult to draw a line between organization and operations. They blend into each other. Is a cooperative validly organized under
In the dissent‘s view, favorable tax treatment is simply a matter of getting some paperwork in order. Once the cooperative has been established with the usual boilerplate filings executed by two straw-person nominees, the organizational test has been met and everything else is irrelevant. That can‘t be right. If the dissent were correct, the cooperative would never have to advance beyond its initial formation and would never have to have any members. It could totally flaunt the other requirements of chapter 499A so long as the requirements of
Note that the dissent is consistent and would give the owner of the real estate favorable residential tax treatment even if the “cooperative‘s plans fall through..., it never builds residential units, and it never admits members to the cooperative.” With respect, I think the members of the general assembly would drop their jaws when considering this outcome. This
Yet the dissent has a valid point. Normally we allow new entities to be formed with the aid of organizers or incorporators who serve a largely ministerial role, before being quickly replaced. Doing it any other way is often impractical, because until the entity is up and running it may be unclear who is going to be involved with it. The irony is that under the majority‘s view of the organizational test, it will be harder for bona fide cooperatives to qualify than for Potemkin cooperatives such as Dolphin. It is easier for a faux cooperative to organize itself, as the majority demands, than for a real one to do so.
In sum, I agree with the majority that the cooperative here fails even a limited organizational test. However, going beyond the majority, I would also hold that any such cooperative should be disregarded for tax purposes because it fails the economic substance test. Without doubt, this cooperative was set up only for tax reasons, and it lacks an essential attribute of a chapter 499A cooperative, namely, that its members be economically independent. For these reasons, I would reverse the summary judgment entered by the district court.7
ZAGER, Justice (dissenting).
I respectfully dissent. In my opinion, Dawley and McMenimen were qualified to act as the organizers of Dolphin Residential Cooperative, Inc. (Dolphin) and satisfied the requirements of
The statutory language the majority concentrates on is “organize themselves for the following or similar purposes: Ownership of residential, business property on a cooperative basis.”
The plain language of the statute provides: “Any two or more persons of full age, a majority of whom are citizens of the
Moreover, read in its entirety, chapter 499A clearly does not require the organizers of a residential cooperative to have any direct interest in the cooperative either at the time of its organization or at some point in the future. See Miller v. Marshall County, 641 N.W.2d 742, 749 (Iowa 2002) (“We must read each provision of a statute together, without according undue importance to any single provision.“). Nor does the statute in any way contemplate the de facto member-organizer requirement now imposed by the majority. Chapter 499A clearly distinguishes between organizers, directors, and members, establishing different roles for each. The legislature‘s use of distinct terms to refer to different classes of persons who take part in the process of forming, operating, and participating in a chapter 499A cooperative manifests its intent that these participants serve different functions. See Miller, 641 N.W.2d at 749 (“We assume the legislature intends different meanings when it uses different terms in different portions of a statute.“). The legislature also clearly demonstrated its ability to differentiate between these participants and established different rights and duties for each distinct class. See, e.g.,
Significantly, nothing in chapter 499A requires the organizers of a residential cooperative to continue with the organization in any capacity after they file the articles of incorporation with the secretary of state and the cooperative becomes a corporate body. Under the statute, organizers serve a largely administrative function.
The organizers shall adopt, and sign and acknowledge the articles of incorpo-
ration, stating the name by which the cooperative shall be known, the location of its principle place of business, its business or objects, the number of directors to conduct the cooperative‘s business or objects, the names of the directors for the first year, the time of the cooperative‘s annual meeting, the time of the annual meeting of its directors, and the manner in which the articles may be amended.
Further, outside of
The majority conflates the duties of a cooperative‘s organizers with those of its directors and, by extension, its members. The majority states, “It is thus entirely reasonable to require that organizers with such important powers should have a direct interest in the residential cooperative itself rather than be a bystander with no direct interest in the enterprise.” (Emphasis added.) But are the administrative powers listed above all that important? More significantly, where has the legislature made this judgment in the statute? The answer, of course, is that it hasn‘t.
More fundamentally, under the statute once the cooperative comes into existence, its initial members need not, and perhaps cannot, be ascertained. Thus, it is illogical to read the statute as requiring that the organizers of a cooperative possess an interest in the cooperative, that members be organizers, or that all organizers become members. In fact, after the articles of incorporation are filed with the secretary of state, and before membership certificates are ever issued,
Problematically, the majority‘s logic applies to any two or more individuals who decide to organize themselves as a cooperative, not just these attorney organizers. The purpose of the cooperative may be to purchase undeveloped real estate, build an apartment complex on the real estate, and sell each of the residential units. Perhaps the cooperative‘s plans fall through after acquiring the real estate, it never builds residential units, and it never admits members to the cooperative. Are we to conclude that the cooperative was not properly organized? Is the cooperative not entitled to favorable tax treatment with respect to property acquired and held during that period simply because its plans were unsuccessful? Maybe the organizers never intended to build the apartments, but instead intended to hold the real estate for investment purposes. The point is, in determining whether the cooperative was properly organized, we wouldn‘t look back and make a judgment about the original motive and intent of the organizers. Neither should we make an inquiry about the original motive and intent of the organizers as part of our meaningful organizational test here.
Finally, the majority‘s interpretation of the statute in essence requires that we revive the “actual use” test we explicitly rejected in Krupp only four years ago.
The statute and our decision in Krupp plainly do not contemplate the requirement that an organizer have a direct interest in the cooperative or the de facto member-organizer requirement now imposed by the majority. Thus, in my opinion, Dawley and McMenimen were qualified to act as the organizers of the Dolphin cooperative. Further, Dawley and McMenimen satisfied the organizational requirements of
There is no statutory or logical basis for inquiring into the motive or intent of the organizers of a cooperative, or for considering whether the organizers have some direct interest in the cooperative either at the time of its organization or at some point in the future. Neither is there any statutory or logical basis for the de facto member-organizer requirement now imposed by the majority. The majority‘s new requirements are not supported by the statute and are plainly inconsistent with our holding in Krupp. These considerations should have nothing to do with our analysis.
WATERMAN, J., joins this dissent.