425 East 86th Street

Note: As this matter is getting increasingly involved, updates related to 425 East 86th Street are now on a separate site: http://425East86th.com  which also has additional background information about the building. For convenience, this information will remain here for the time being.

Unfortunately, I am involved in another, very different type of adventure – a dispute with our co-op board. After buying our dream apartment  from the estate of the noted restauranteur, Elaine Kaufman, a dispute arose with our Co-op board. They concern two independent issues 1) Our rights to inspect the co-ops records; and 2) Our rights and obligations with respect to the roof and terrace of our apartment. The Co-op seems to have argued we don’t have exclusive use of the terrace surrounding our apartment despite what we see as clear language in the lease and other documents.  The board also seems to have assigned us significant additional liability beyond what is in the proprietary lease and what has been asked of other shareholders.

We have never sued anyone before in our lives, but our apartment is our single largest investment. We can’t afford to walk away from it. The dispute has become public and much misinformation has been spread. Consequently, we believe it is appropriate to provide the basic documents related to the disputes in a convenient manner. We believe the court filings also document the risks of investing in 425 East 86th Apartment Corp. We hope the sunlight of public disclosure will prove, as it often is, to be the best disinfectant.

I. Financial Disclosure Concerns at 425 East 86 Street:  

A. We have concerns about the accuracy and completeness of 425 East Street Co-Op’s (formally “425 East 86 Apartments Corp.”) financial statements for the past few years. Specifically:

  • A large part of the proceeds from the 425 East 86th Street Co-Op’s 2012 refinancing were paid-out to Standard Waterproofing, a company owned by former board president Frank Chaney‘s brother-in-law, for fasçade and roof work.
  • At the time, current board president David Munves was treasurer or co-treasurer, and the relationship between Chaney and Standard Waterproofing was not disclosed to shareholders or in the Co-Ops audited financials;
  • The 425 East 86th Street Co-op made limited disclosures about the arrangement in a revision to the 2014 financials in the summer of 2015 – only after I pieced  together the relationship (via NYC dept of building records and Internet searches) three years after the work began and asked the accountant to make the necessary corrections.
  • Not only are there questions about the quality of Standard Waterproofing’s work, but there are concerns related to the scope and substance of the limited disclosures about this arrangement belatedly made in 2015;
  • An analysis of the 425 East 86th Street Co-Op’s Board meeting minutes at Douglas Elliman’s offices suggests inconsistencies and/or incompleteness between the explanation released in 2015 and the Board meeting minutes. Attached is a detailed follow-up letter to the building’s accountant Shavelson Neuman & Co. on August 18th 2015 outlining those concerns.
  • Additional concerns are outlined in a follow-up document request  these including an apparent lack of disclosure of asbestos liabilities and large discrepancies between sworn affidavits to the city about the cost of major projects and the amounts disclosed on the Co-op’s audited financials.  The board president’s disappointing response to my request.

B. Update (12/13/15): 42 East 86th’s Co-op’s corporate attorney e-mailed me a response letter. Essentially, the Co-op’s attorney’s letter says:

  • It would be cost prohibitive to allow the building’s accountant to respond to requests from individual shareholders. I may ask the managing agent (who unlikely knows the details of GAAP including ASC 850 which details required related party disclosures), but it incorrectly argues that the request is related to information we demanded  in a subpoena they are challenging, so the managing agent won’t discuss the issue with me in any case.
  • Remarkably, the letter also says that NY Corporate Business Law nullifies the Co-Op’s contractual obligation in paragraph 5 of the proprietary lease to allow shareholders to inspect the Co-Op’s books of account.  Such a statement, in my view, says volumes  about the Co-Op’s approach to transparency and corporate governance.

C. Update (12/16/15)  My attorney’s response. So far there has been no reply.

D. Update (01/14/16): As the 425 East 86th Co-op refused to respond, we had little option other than to file an Article 78 proceeding  to obtain the information.

E. Update (02/02/16): Unbelievably, 425 East 86th Street Co-op decided to spend resources to fight the Article 78 proceeding so they could avoid giving information to a shareholder!

F. Update (02/23/16): Our response to the 425 East 86th Co-op’s attempt to dismiss the Article 78 proceeding.

G. Update (02/29/16): 425 East 86th Street Co-op’s final response to support their motion to dismiss. Even more amazingly, the assistant property manager, Kaswaree Narine, signed a sworn affidavit claiming not to understand the term “books of account” even though the Co-op’s own proprietary lease requires the Co-op and property manager to maintain the Co-op’s books of account and make the complete books of account available for shareholder inspection.

H. Update (04/04/16): 425 East 86th Co-op’s attorney’s  letter to judge  saying we could not arrive at an agreement on document production and including our prior communication on the issue.

I.  Update (04/05/16): Our response to Co-op’s letter.

J. Update (4/18/16): Judge’s decision. Interesting decision. The judge apparently did not think the Co-ops refusal to provide access to the books of account due to their belief NY law conflicted with this request  was a refusal to provide any specific document. At the same time, the decision affirmed that we have the rights to inspect the broader category of the Co-op’s books and records and pointed to the specific case.

K. Update (5/25/16): After significant back and forth, the Co-op allows us to inspect copies of a sub-set of its books and records. Unbelievably, they actually paid a Statin Island security firm, EOT Associates, to send a retired NYC police detective, Kenneth Rinaldi, to sit in the room the whole time and hover over us while we read! It was  an obvious attempt  to intimidate us. It would have been funny, it it hadn’t cost shareholder a few thousand dollars. The information we reviewed further supported our concerns about the Co-op’s accounting practices and left us with several additional questions about the Co-op’s lack of disclosure regarding environmental issues. We will be following-up on these.

L. Update (9/20/2016) Attached is a follow-up document inspection request we believe, raises significant health and safety concerns about the building. Board President David Munves’ disappointing, but not unexpected response.

M. Favorable court decision (5/2/2017). Coop must provide access to both sides of general ledger and allow us to make copies etc. This is a significant step forward for NY Coop shareholders. Hopefully it provides guidance for responsible Coop boards and avoids the need for other shareholders to go through this process.

II. Roof-Terrace Litigation – 425 East 86th Street:

Shortly after we moved in, we were told the board passed new rules that would place large additional obligations and liabilities on us related to the roof terrace area outside out unit. We understand, from our attorneys and real estate brokers who have looked into the details, that these new obligations make our apartment generally unsellable. We were unable to reach any agreement with the Co-op and were forced to litigation, something we have ever done before in our lives.

As one can see below, an enormous amount of legal resources has been spent on a rather simple issue of contract law. We believe the Co-op board is trying to stonewall us into caving under the pressure of legal fees as opposed to seeing an equitable resolution to a problem. Given the magnitude of our investment, we have little choice but to continue. Prior to litigation, the Co-op board even turned-down their own long-time attorney’s proposal that would have settled the issue at minimal expense – a proposal we accepted! The Co-op board also terminated court-ordered mediation, even though the mediator seemed to be making significant progress.

Even more troubling is that the Co-op’s legal document and court statements seem to deny we have exclusive use of the terrace that wraps around the apartment, despite a prior board decision that settled the matter! We never expected to have to expend years of litigation to defend our investment from the actions of the Co-op board.

Outdoor Deck of Elaine Kaufman, owner of Elaine's East Side Manhattan apartment shown here on Thursday, August 6th, 2009.

Outdoor Deck of Elaine Kaufman, owner of Elaine’s East Side Manhattan apartment shown here on Thursday, August 6th, 2009. (NY Post, Photographer – Lorenzo Ciniglio)

Documents related to the litigation are below:

I. Musey’s complaint (includes copy of proprietary lease and disputed new roof/terrace rules) —>> Summons and Complaint with Index Number

The body of the complaint is only 17 pages (double spaced). The appendix contains a copy of the proprietary lease and the new “Roof/Terrace Rules” that are the subject of the dispute.

II. 425 East 86th’s Answer with Counterclaim —>>Answer with Counterclaims 9.19.14-T. Peterson

The above document is the Building’s Sept 19, 2014 response and counterclaim for legal fees,

III. Musey’s Response to 42 East 86th Counterclaim —>> Answer to Counterclaim Musey v 425 East 86th Street

The above document is Musey’s response to the Building’s counterclaim asking for legal fees.

IV.  425 East’s Motion to Dismiss —>> Motion to Dismiss Memo

A. 425’s Affidavits in Support of Motion to Dismiss —>> Co-Op-Affidavits

B. 425’s Exhibits for is Motion to Dismiss —>>Co-Op Motion to Dismiss Exhibits

The above documents contain the Co-Ops argument for their Motion to Dismiss.

V. Musey Opposition to Motion to Dismiss and Motion for Summary Judgment —>> Musey-Motion for Summary Judgment and Opp to Motion to Dismiss

A. Musey’s Affidavits in Support of Opposition to Defendants Motion to Dismiss and in favor of Motion for Summary Judgment —>> Musey-Affidavits

 B. Exhibits for Opposition to Motion to Dismiss and for Motion for Summary Judgment  —>> Musey-Exhibits

The above documents contain Musey’s arguments for his Opposition to Defendants Motion to Dismiss and his arguments for his Motion for Summary Judgment.

VI. 425 East 86th Reply Memorandum in Further Support of Motion to Dismiss and in Opposition to Summary Judgment —>> 425 Motion to dismiss-final

A. 425 East’s Affidavits in Support of Reply Memorandum in Further Support of Motion to Dismiss and in Opposition to Summary Judgment —>> Chaney-Daley-Affidavit-2

B. Exhibits for Report Memorandum in Further Support of Motion to Dismiss and in Opposition to Summary Judgment —>> E-mails-and-Inspection-Report-2-Exhibits-R-and-S

VII. Musey’s Memorandum of Law in Further Support of Plaintiff’s Motion for Summary Judgment —>> Musey – Memo of Law in Further Support of Pl. for SJ_2.25.15

A.  Musey’s Affidavit in Support (with Exhibits) —>> Aff. of Musey in Further Support of Pl. Motion for SJ_2.25.15

B. Sugarman’s Affidavit in Support (with Exhibits) —>> Affi of SS in Support of Pl Motion for SJ_.2.25.15

VIII. Ruling on Summary Judgement and Motion to Dismiss —>> Summary-Judgement-and-Motion-to-Dismiss-Decision

IX. Musey’s Appeal Pre-argument —>> Musey-Appeal-Pre-Argument

X. 425 E. 86th Corp’s Appeal Pre-argument —>> 425-East-86th Appeal-Pre-Argument

XI. Musey’s Motion Memorandum of law in support of motion to reargue and leave to replead —>> Musey-Memo-of-Law-in-Support-of-Reargue-Leave-to-Replead

A. Proposed Amended Complaint —>> Proposed Amended Complaint

B. Key Exhibits to Proposed Amended Complaint —>> Key Exhibits

XII. 425. E. 86th Corp’s Opposition Memorandum of law and Cross Motion to Reargue —>> 425-East-86th-Memo-in-Opposition-and-in-support-of-Cross-motion

XIII. Musey’s Memorandum of Law in Reply —>>Musey-Memo-In-Reply

A. Affidavits in support —>> Affidavits

B. Exhibits not included as they are Items IV and VI above.

Complaint Header Info

Index Number:  157316/2014;  Date Purchased: 7/25/2014

 

 

J. ARMAND MUSEY, Plaintif

-against-

425 EAST 86 APARTMENTS CORP.,

DOUGLAS  ELLIMAN PROPERTY MANAGEMENT,

FRANK E. CHANEY, Defendant

PATRICIA CARBON, Defendant

DAVID  MUNVES, Defendant

MICHAEL P. CONSIDINE, Defendant

SUZANNE  KEANE (JULIG), Defendant

JENNIFER KREUGER, Defendant

GEORGE  GREENBERG, Defendant

ALEXANDER H. SHAPIRO, Defendant; AND

LESLIE SPITALNICK, Defendant