MEMORANDUM OF LAW IN OPPOSITION (Motion #1) - MOL from Objectors April 23, 2021 (2024)

 
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 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF FULTON ______________________________________________________ In the Matter of the Application of FULMONT COLLEGE ASSOCIATION, INC. a not-for-profit corporation, Petitioner Index No.EF2021-08996 For Approval of the Sale of All or Substantially All of the Assets of Fulmont College Association, Inc. Pursuant to Not-for-Profit Corporation Law §§ 510 and 511. Memorandum of Facts and Law in Response to Petition of Fulmont College Association, Inc. INTRODUCTION Interested Parties and Objectors Bianca Alicea of Amsterdam and William Petrosino of Amsterdam respectfully submit this memorandum in opposition to the Petition of Fulmont College Association (“Fulmont” or “Petitioner”) to object to the sale of the real property currently used as student dormitories at Fulton-Montgomery Community College (“FMCC” or “the College”) at 588 County Highway 146 (“the Property” or “FMCC Dorms”). Because all FMCC students are members of the Fulmont College Association, Ms. Alicea is and has been a member since 2017 when she started her nursing studies at FMCC. As a member of the corporation, Ms. Alicea also has a recognized interest in these proceedings under Non- Profit-Corporation Law § 511(b). Mr. Petrosino as a long-time area resident and the owner of a substantial number of rental properties in the area, is also an interested person under the statute, which provides that “Any person interested, whether or not formally notified, may appear at the hearing and show cause why the application should not be granted.” NCPL § 511(b).1 1 Thus, while the statute makes clear that “member[s], officer[s] and director[s]” are the only interested persons entitled to court-ordered notice, it includes no restriction on the type of interested persons who may appear and show cause why a petition should not be granted. This 1 1 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 Objectors urge the Court to deny the Petition and dismiss the action for the reasons outlined below, including but not limited to: (1) Petitioner’s failure to comply with either N.Y. Non-Profit Corporate Law Sections 510 & 511 or its own bylaws in purporting to obtain the approval of its board of directors, (2) Fulmont’s choice of the Property’s broker. The broker in this transaction was Michael Sampone2, a director at FMCC’s Foundation and a past president of the FMCC board of directors, which was not disclosed to the Court. Mr. Sampone and his company were also granted “sole broker” status3 which means Mr. Sampone represented both Fulmont and the buyer in this transaction, yet there is no evidence this inherent conflict of interest was ever disclosed to the Fulmont board of directors or the Fulmont members; (3) the concerning lack of marketing of the Property. An affidavit attached to the Petition contends, for instance, that the Property was marketed through a Multiple Listing Service that cannot be found and does not appear to actually exist, and the sales contract evinces an intent to keep the sale of the Property a secret (unless disclosure was necessary under the law)4. As further detailed below, all of these issues led to a sales price significantly below the Property’s appraised value and resulted in a transaction that is not fair and reasonable to the corporation or its members, nor does it further the purpose of the corporation. I. FULMONT’S BOARD APPROVAL IS FATALLY FLAWED. The Petition is fatally flawed as to Fulmont Board authorization because (a) Petitioner failed to convene a quorum of its entire board, (b) failed to obtain the required number of votes from the board of directors for approval of the sale, and (c) failed to ensure the makeup of the broader interpretation of “interested person” is also consistent with the purpose of the statute, which is to ensure that a sale of corporation assets is “fair and reasonable to the corporation and that the purposes of the corporation or the interests of the members will be promoted.” NPCL § 511(d). 2 Exh. G to the Petition, at 13, Section 9.6 3 Exh. J to the Petition, at 1. 4 Exh. G to the Petition, at 5, Section 3.4 2 2 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 board was in compliance with the corporate bylaws at the time of the vote. A. The Petition Must be Denied Because Fulmont’s Board Did Not Have a Quorum When it Voted on the Sale. Fulmont bylaws are very specific that: “there shall be a board of directors comprised of 14 individuals . . .” Exh. B to Petition, at 3, Art. V(1)(emphasis added). The requirements for a quorum are also clear and require “the presence in person of a majority of the members of the Board of Directors.” Id., at 6, Art. VI(5)(emphasis added). Therefore, a valid vote on a resolution requires a quorum of 8 of the 14 board members who are required by the bylaws to convene in person to vote. According to Fulmont’s resolution5, just seven (7) directors attended the meeting for the vote on the sale, one short of a quorum and not enough to give the board the authority to vote. Exh. O to Petition, at 2. B. The Petition Must be Denied Because Fulmont Failed to Comply with Section 510 of the Not-for-Profit Corporation Law. Without a quorum, Fulmont could not even legally hold a vote on the sale of the FMCC dormitories, yet it pushed ahead and now attempts to gain Court approval of a sale of substantially all of Fulmont’s assets when the transaction was never approved by a majority of Fulmont’s entire board, much less by the two-thirds majority required by statute. Under Section 510(a)(2) of the Not-for-Profit Corporation Law, if no members6 of the corporation are entitled to vote on the sale, the sale “shall be authorized by the vote of at least two- thirds of the entire board.” Fulmont’s bylaws do not entitle members of the corporation to vote on sales of real property owned by Fulmont and Petitioners admit they needed a two-thirds vote of the board members. Therefore, pursuant to §510(a)(2) a vote by two-thirds of the entire board in favor of the sale was needed to authorize the sale. But in this case, only seven (7) members of 5 Fulmont’s resolution acknowledges the requirement for a two-thirds vote to sell the Property, but fails to meet that requirement. Exh. O to the Petition, at 1. 6 Fulmont is a membership corporation with members consisting of all currently registered FMCC students and all currently employed FMCC employees. 3 3 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 Fulmont board voted to approve the sale, a number that does not even make up a quorum of the directors, much less the two-thirds vote of the entire board of directors required for valid authorization of the sale. Fulmont’s petition indicates they construe a quorum as a majority of the board members currently sitting without filling vacancies, but a quorum under the Non-Profit Corporation Law is “a majority of the entire board” (NPCL § 707) with “entire board” defined as “the total number of directors entitled to vote which the corporation would have if there were no vacancies”. NPCL § 102; and see N.Y. Gen. Constr. Law § 41(same). Thus, Fulmont failed to comply with either the quorum requirement or the “two thirds” vote requirement of Section 510(a)(2) for the sale of substantially all of its assets and its Petition must be denied. See Nat'l Church of God of Brooklyn, Inc. v. Carrington, 56 Misc. 3d 1215(A), 65 N.Y.S.3d 492 (N.Y. Sup. Ct. 2017)(invalidating transfer of property where the sale was accomplished in violation of Section 510); In re Religious Corps. & Ass'n. Divestment of Prop., 2 Misc. 3d 1003(A), 784 N.Y.S.2d 923 (Sup. Ct. 2003)(dismissing petition where organization did not have a quorum when it voted on the sale of property and the number of directors voting in favor of the sale fell short of Section 510 requirements); In re Trapasso Oldsmobile, Inc., 4 N.Y.2d 133, 139, 149 N.E.2d 515, 517 (1958)(dispositions of property are void where they are done in violation of statutory laws related to quorums and votes, or where they violate the bylaws of the corporation). C. The Makeup of Fulmont’s Board Does Not Comply with Its Bylaws, Rendering the Board Without Authority to Vote. The Board as constituted also has no authority to vote because it currently has only eleven (11) directors, while the bylaws mandate 14 directors. In addition, the make-up of the board is contrary to the mandate in the bylaws for a board comprised of: a. Eight directors selected by virtue of their positions as the president of the Student Senate Association, the Assistant Treasurer of the Student Senate 4 4 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 Association, the President of the faculty organization or his/her designee, the Chairperson of the education support personnel organization or his/her designee, the President of the building and grounds organization or his/her designee, the Vice President for Administration and Finance, Vice President for Student Affairs and the President of the College or his/her designee. b. Four directors selected by the membership from among the student members of the corporation. c. Two directors selected by the membership from among the faculty members of the corporation. Exh. B to the Petition, at 3(emphasis added). Put another way, the bylaws require six (6) FMCC student directors, three (3) FMCC faculty members, and five (5) directors from the FMCC administration. The current board has just two (2) students (Sebah Alak & Destiny Prather), three (3) faculty members (Patrick Grande, Alexandra Henderson & Karlyn Labate), and five (5) directors representing the administration (Vincent DePalma, Kane Kelley, Kelly Natoli, Debra Shang, Gregory Truckenmiller, and Gregg Wilbur). With just two of the six required directors from the student membership of Fulmont, the current board does not have the authority to approve the sale on Petitioner’s behalf. See e.g. The Home of the Sages of Israel, Inc., No. 153111/2015, 2017 WL 4647783, at *8 (N.Y. Sup. Ct. Oct. 16, 2017)(denying the sale of property and dismissing petition where the makeup of petitioner’s board membership did not comply with its bylaws and therefore the board had no authority to act). II. THE SALE IS NOT FAIR AND REASONABLE OR IN THE INTEREST OF FULMONT OR ITS MEMBERS. Not-For-Profit Corporation Law § 511(d) provides that the court may authorize the sale if it appears to the court's satisfaction that “the consideration and the terms of the transaction are fair and reasonable to the corporation and that the purposes of the corporation or the interest of the members will be promoted”. Levovitz v. Yeshiva Beth Henoch, Inc., 120 A.D.2d 289, 295–96, 508 N.Y.S.2d 196, 200 (1986). Factors which the court should consider in evaluating whether a transaction to sell all the 5 5 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 assets of a charitable corporation is “fair and reasonable” include (1) whether the seller exercised due diligence in deciding to sell, in selecting the purchaser, and negotiating the terms and conditions of the sale; (2) the fairness of the procedures used by the seller in making its decision including whether appropriate expert assistance was used; (3) whether all potential conflicts of interest were disclosed, including but not limited to conflicts of interests of board members and experts retained by the seller; and (4) whether the seller will receive reasonably fair value for its assets. Manhattan Eye, Ear & Throat Hosp. v. Spitzer, 186 Misc.2d 126, 715 N.Y.S.2d 575 (N.Y. Sup. 1999). Here, consideration of these factors weigh heavily against approval of Fulmont’s sale to Dan Vann Properties. A. Fulmont Did Not Exercise Due Diligence in Selecting the Purchaser or Negotiating the Terms and Conditions of the Sale. Fulmont’s failure to exercise due diligence is demonstrated by among other things: (1) a sale price that is well below the appraised value of the Property, (2) the sale to an entity that has no experience managing multi-family properties and that offers a tenant application that potentially exposes the entity (and FMCC and Fulmont) to liability under the Fair Housing Act, (3) hiring a board member, Michael Sampone, of the FMCC Foundation as “sole broker” representing both Fulmont and any buyer, while failing to insist on even basic marketing efforts, and (4) negotiating a one-sided Commission Agreement that obligates Fulmont to pay Mr. Sampone and his company a $77,000 commission even if the sale ultimately falls through. 1. The Low Sales Price Is Due to Fulmont’s Failure to Contract for Even Minimal Marketing Efforts for the Property. Fulmont submits the affidavit of one of the brokers from Pyramid Brokerage Group of Albany, Inc. (“Pyramid”) who claims without explanation that ADA compliance issues suppressed the sale price. The affidavit then outlines Mr. Sampone’s efforts to the market the property between the end of 2019 and October 2020, which included: 6 6 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 a. Marketing the property through the Fulton County Multiple Listing Service (“MLS”)7, but there is no evidence that a Fulton County MLS actually exists.8; b. Placing phone calls to seven entities in Fulton and Montgomery counties. Four of the entities Pyramid called serve the sick or disabled and require ADA compliance but would have no need for dormitory-style residential housing, while an additional two calls9 were made to the Fulton and Montgomery counties’ industrial development agencies (“IDAs”) that generally focus on industrial property, not residential housing; More illuminating may be the efforts not taken to market the property: a. No advertising was done, nor does it appear that the broker ever posted the Property on Pyramid’s own website10; b. No listing on a multiple listing service.11 A search of the GlobalMLS listing history reveals that the Property was not listed there,12 nor was the Property listed on CIREB, the site for Commercial and Industrial Real Estate Brokers of Upstate New York, serving the Greater Capital Region; Petrosino Aff, at ¶7. c. In fact, aside from Pyramid’s assertion that the Property was listed with the elusive and seemingly non-existent “Fulton County MLS”, there is no evidence that the Property was actually posted for sale on any active multiple listing service; Indeed, the sale of the Property was so secret that Fulmont and the buyer Dan Vann Properties (“Dan Vann”) entered into a confidentiality clause in the sales contract agreeing “that the transaction described in this Agreement is of a confidential nature and shall not be disclosed except to Permitted Outside Parties or as required by law.” Exh. G to the Petition, at 5, Section 3.4. 7 Exh. I to Petition, at 2, ¶6. 8 Petrosino Aff., at ¶7. No such company exists in the New York Entity Database (https://tinyurl.com/6juhetbk) nor can any similar names be found in phone listings or Internet searches. 9 Pyramid also claims to have made calls to unidentified “developers and investors.” Exh. I to Petition. 10 See Exh. I to Petition. 11 Pyramid claims the property was listed with Fulton County MLS, but as stated above, there is no evidence such an MLS exists. 12 GlobalMLS is the multiple listing service of the Greater Capital Area Region serving Albany, Fulton, Montgomery, Rensselaer, Schenectady, Warren and Washington Counties. 7 7 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 Because the Property was not marketed in any traditional way, investors including objector Bill Petrosino, who lives and works in the community, never knew the FMCC dorms were up for sale. Mr. Petrosino owns and manages a company that is one of the largest landlords of multiple-family properties in the area, and he actively searches for opportunities like the one posed by the sale of Fulmont’s dorms. He has for more than 30 years purchased and managed many dozens of apartment units in multi-family properties (including large apartment complexes) in Montgomery County and has a reputation as a fair landlord and a good steward of the properties he owns and manages. He has also converted many properties for use as multi-family apartments. When either large multi-family properties or buildings suitable to be converted to multi-family properties come on the market in the area, owners, realtors and even banks often contact Mr. Petrosino and he regularly conducts his own searches. His searches during the 2019-2020 time period never turned up any reference to the Property and no one from Pyramid or Fulmont or Mr. Sampone ever contacted Mr. Petrosino. Based only on the information he has been able to glean from the court filings, if the property went back on the market Mr. Petrosino would be interested in the Property at a price much closer to the appraised value. Affidavit of William Petrosino (“Petrosino Aff.”) at ¶¶ 3-9. 2. Fulmont Has Not Disclosed that It Chose as a Broker a Director of the FMCC Foundation. Nowhere in its Petition does Fulmont disclose that a prominent member of FMCC’s Foundation Board of Directors13, Michael Sampone, was the “sole broker” on the deal and, of course, he is also one of the Pyramid brokers splitting the $77,000 commission. Exh. J to Petition, at 1. Nor does Fulmont explain how this retention came about or what procedures were 13 Michael Sampone is listed in the contract as one of the brokers on the deal, but is omitted from the Petition. Mr. Sampone became a director for the FMCC Foundation board after serving on the FMCC Board of Directors, including a stint as chair of the FMCC board. 8 8 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 used to choose a broker, or why Pyramid began marketing the property in late 2019 but did not enter into any agreement with Fulmont until October 2020. There is no evidence that Fulmont shared the information about Mr. Sampone with its own board, and nothing about Mr. Sampone or the “sole broker” status was included in the resolution drafted for board approval of the sale. This, coupled with the one-sided Commission Agreement (Exh. J to Petition) entitling Mr. Sampone and Pyramid to collect the full $77,000 commission even if the sale falls through, raises grave concerns about Fulmont’s due diligence in dealing with the broker. 3. The Purchaser Has No Experience Owning or Managing Apartment Complexes. Like many property investors, the purchaser, Daniel Roth of Dan Vann Properties, has been wary of being a landlord for multi-family properties, as he recounts on his website: [Dan’s first rental property] was a four unit rental house located in a very undesirable class C location. Plagued with constant issues Dan realized that this type of investment strategy was not beneficial or rewarding for him. Dan sold this property in 2006 and started investing in single family homes. Since then Dan has purchased, renovated and leased numerous properties throughout Montgomery and Fulton Counties. Exh. 1 hereto. As demonstrated on Mr. Roth’s website, he has continued to buy, flip and/or rent out single-family properties ever since, with the only exception being a commercial building he markets for office and retail space in Amsterdam. http://www.danvannproperties.com/. Dan Vann has no multi-family apartments. This is important because Fulmont claims, without any evidence in the record, that Dan Vann plans to use the property as student-housing and says this is “consistent with the purposes of the Corporation.” Further, the FMCC admissions office is already using FMCC resources to collect the names of potential renters for Dan Vann from the FMCC pool of registering students. Exh. 2 hereto. But Fulmont did not require any other assurances (binding or otherwise) about the Property’s use in the sales contract, meaning the Purchaser could convert it to a different use without notice and face no consequences, leaving FMCC students 9 9 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 without any housing close to campus. Without such housing, the closest rental properties are 5-6 miles away from campus. Petrosino Aff., at ¶10. Inexperience can also of course lead to other problems, including dissatisfied students and a bad experience that reflects negatively on FMCC. It can also result in legal problems. Here, Dan Vann’s tenant application14 (among other things) asks tenants if they’ve ever been arrested, which is a question that the federal department of Housing and Urban Development (“HUD”) long ago warned is a probable violation of the Fair Housing Act, since a “housing provider with a policy or practice of excluding individuals because of one or more prior arrests (without any conviction) cannot satisfy its burden of showing that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest.” https://www.hud.gov/sites/documents/HUD_OGCGUIDAPPFHASTANDCR.PDF, citing https://www.hud.gov/sites/documents/PIH2015-19.PDF. Asking about convictions is also problematic. Id. Because FMCC is referring students to Dan Vann, any such violations could also be imputed to the college and to Fulmont, which hardly furthers the corporate purpose of either entity. CONCLUSION For all of the above reasons, the proposed sale is not fair and reasonable to Fulmont and its members, nor will the sale promote the real interests of the Fulmont corporation and its members. Therefore, the Objectors herein respectfully request that the Court deny the instant Petition to sell the dormitory property and dismiss the Petition. 14 Exhibit 3 hereto. 10 10 of 11 FILED: FULTON COUNTY CLERK 04/23/2021 01:32 PM INDEX NO. EF2021-08996 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/23/2021 April 23, 2021 Respectfully submitted, _/s/Teresa Monroe________ Teresa Monroe James L. Monroe MONROE LAW LLP 90 State Street, Suite 700 Albany, New York 12207 (518) 676-0206 (phone) (518) 320-8038 (fax) jamesmonroe@monroelawllp.com tmonroe@monroelawllp.com (Attorneys for Defendant/Cross-Plaintiff) 11 11 of 11 

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