Trepel v. Diop

May a co-op deny an apartment key to a shareholder and restrict access? The answer was “yes” in Trepel v. Diop where a creditor acquired co-op shares and a proprietary lease with a promise not to occupy or reside in the apartment.

This case presented a curious question of federal jurisdiction. Plaintiff Martin Trepel sued defendant Mourtala Diop for fraud in the sale of certain art works. Diop, who was also being prosecuted criminally by New York State authorities in connection with the same transactions, fled the jurisdiction, and Trepel was awarded a default judgment.

In an effort to satisfy the judgment, Diop’s co-op apartment was attached, and sold at auction by the county sheriff. Trepel himself was the successful bidder. In anticipation of the sale, and in order to expedite the transaction, Trepel agreed with the cooperative, Connaught Towers Corporation, that his acquisition of the rights to the apartment would “not constitute permission of approval to occupy, reside in, or utilize the apartment under any circumstances or for any purpose except its re-sale.” In exchange, Connaught agreed that it would not “require an interview or other personal information regarding Trepel” in order to issue Trepel shares and a proprietary lease. Following the sale, shares and a lease were issued to Trepel.

A dispute then arose between Connaught and Trepel. Connaught refused to issue him a key to the apartment, and insisted that he be escorted to and from the unit, arguing that since Trepel was not entitled to reside in the building without approval by the co-op board, it had to maintain control over his access to the premises. Trepel maintained that Connaught’s restriction on his access interfered with his ability to sell the apartment.

The parties disputed a number of facts concerning the extent to which Trepel had actually taken steps to sell the unit, the number of occasions on which his efforts to visit it were frustrated by building personnel, and the circumstances surrounding those visits. The court said one might think that, because both parties professed a desire to see the apartment re-sold, and Trepel disavowed any intention to do anything other than effectuate a sale, reasonable people in good faith could easily agree to provide Trepel and his realtor or prospective purchasers access to the apartment on reasonable terms, while guaranteeing to Connaught sufficient control over that access to protect its interests. But the parties could not reach such accommodations, and Trepel eventually brought an order to show cause in this case, seeking an order compelling Connaught to provide him with a key to the apartment.

The dispute between Connaught and Trepel involved no federal claim; the division of incidents of ownership between co-op as landlord and a shareholder-tenant was governed exclusively by New York law. There had been no assertion that the amount in question was sufficient to support diversity jurisdiction. In any event, Trepel had not sought to bring a federal lawsuit against Connaught. Rather, he argued that this court had ancillary jurisdiction over his dispute with Connaught in order to enforce its judgment in his favor in the underlying case.

The court said that Trepel was correct that a federal court might assert authority over non-federal claims “when necessary to give effect to the court’s judgment.” The Second Circuit had occasion to apply this principle in an earlier case. There, a dispute had arisen among plaintiffs in a diversity case, counsel of record in the case, and trial counsel, over the distribution of settlement proceeds.

Recognizing that the issues presented in the dispute involved only state-law contract issues, and that the district court would not have had diversity jurisdiction over an independent lawsuit among the parties, the Court of Appeals nevertheless sustained the lower court’s exercise of federal jurisdiction to resolve the dispute. The court found “ample authority” that “a district court acquired jurisdiction of a case or controversy as an entirety, and may, as an incident to the disposition of a matter properly before it, possess jurisdiction to decide other matters raised by the case of which it could not take cognizance were they independently presented.”

Trepel argued that on these principles, ancillary jurisdiction over the present dispute existed, because the apartment was an “asset drawn into the court’s ... control by the principal suit.” This claim, however, was not without its problems. It was true that Diop’s apartment was attached, and thus taken under the court’s power as a way to enforce Trepel’s judgment against Diop. But the execution of the attachment, and the sale of the property at auction, was completed. Trepel now held the property as the purchaser of the apartment at the auction. The judgment sale was completed, and a closing held at which Trepel took possession of the shares and lease formerly owned by Diop. Thus, the defendant’s rights in the property had been extinguished and transferred to Trepel. The court’s order had been satisfied.

While Trepel contended that Connaught was effectively asserting an interest in the property that was the subject of the court’s attachment, Connaught argued, quite plausibly, said the court, that Trepel had gotten what he was entitled to, and that his dispute with Connaught amounted to nothing more than a claim that someone was interfering with his enjoyment of property. The ancillary jurisdiction of the federal court had to stop at some point. Surely, the court said, a federal court would not have jurisdiction over a such an action (called “replevin”) against someone alleged to have stolen another’s property, simply because the owner purchased that property at a judgment sale that resulted from a federal court judgment.

While Connaught’s argument was not without force, the court concluded that it had jurisdiction. The dispute essentially concerned the nature of the property that was the subject of the attachment, and the content of the rights that were transferred with the subsequent sale. Trepel contended that Connaught was not merely interfering with his physical enjoyment of property he acquired as a result of the judgment, but that it was in fact disputing his claim to ownership of that property.

To this extent, the court said that Trepel was correct that the dispute centered on the substance of ownership of the asset that came under the court’s jurisdiction according to its judgment in the underlying litigation. In the judge’s view, that was exactly the kind of dispute that the case law held was within the jurisdiction of the court.

That said, however, the defendants were correct that the substantive rights of ownership conferred by the sale were limited in ways that affect Trepel’s rights of access. The merits of the dispute are governed by New York property law. While in ordinary usage, people speak of “owning” a cooperative apartment, under New York law, such an apartment (unlike a condominium) is not real property. The apartment is leased to its “owner” by the cooperative corporation; what the lessee owns are shares in that corporation. Thus, the transfer of the shares and of the proprietary lease effected the transfer of the property to Trepel.

Ordinarily, however, a co-op will only permit transfer of ownership to a purchaser who it has approved. The acquisition of a co-op apartment by a purchaser in a sheriff’s auction thus creates an anomaly. A New York court confronted with this precise situation had held that, under New York law, a co-op has no right to block the transfer of shares and lease to a judgment creditor. However, according to House v. Lalor, “even though the transfer of the shares and the lease takes place pursuant to operation of law, the co-op still had the right to approve before she takes occupancy. If she attempts to do so, or seeks to transfer her shares to another, either she or her transferee must obtain the approval of the co-op’s Board of Directors. ... This is so because the co-op is entitled to screen and approve persons who wish to become members of their community.” Thus, under New York law, as well as under the agreement between Trepel and Connaught, Trepel had an economic interest in the apartment, but he did not have the right to unfettered use of it.

Connaught therefore could not unreasonably interfere with Trepel’s right to access to the apartment for the purpose of sale. The court decided that along with realtors or prospective purchasers, Trepel had the right to visit the apartment in connection with marketing his interest. At the same time, Connaught was entirely within its rights to impose reasonable restrictions on such access, in order to enforce its own interest in preventing a shareholder who had not been approved by the co-op from occupying the unit.

Although there were factual disputes between the parties, the court said that it was unnecessary to resolve them, because the resolution of the disputes were not material to the court’s conclusions of law. Even viewing the disputed facts in the light most favorable to Trepel, he was not entitled to an order directing Connaught to provide him with a key or enjoining Connaught from interfering with his access or collecting maintenance on the apartment.

First, as a matter of law, Trepel was simply not entitled to keys, since to have provided him with keys would grant him precisely the unfettered unilateral access to the apartment that New York law did not provide. Such an order would effectively give Trepel the power to occupy the apartment. Second, as to injunctive relief, again accepting Trepel’s version of the facts, all that had been established was that on a limited number of occasions, employees of the building had been unavailable or uncooperative with his efforts to secure access. That was unfortunate, in the court’s view, but it did not warrant a conclusion that Connaught was deliberately preventing him from selling the apartment, nor did it persuade the court that it was a necessary or appropriate exercise of its equitable discretion to issue an injunction to secure Trepel’s rights.

At the same time, even accepting Connaught’s version of the disputed facts, it was conceded that Connaught employees had on at least some occasions failed to provide Trepel with reasonable access. Trepel thus had established his entitlement to a declaration that, under the attachment and sale directed by the court, as well as under his agreement with Connaught, he had a right to access to the apartment, at reasonable times and on reasonable notice, for the purpose of showing the apartment to prospective purchasers. The court held that, if Connaught chose to provide such access by having an employee accompany Trepel or his agents on such visits, it could do so, but it must in that case take steps to assure that its employees were aware of Trepel’s rights, and make employees available on reasonable notice to accompany them and provide access.

The court said that it would be unfortunate if the court’s ancillary jurisdiction had to be further imposed upon to police this determination. However, on the principles discussed, it was clear to the court that, if access were unreasonably denied in a way that interfered with the rights delineated above, an application for further equitable relief might at some point be warranted.

Accordingly, Trepel’s motion for an order directing Connaught to provide him with keys to the apartment in question, and for an injunctive relief, was denied. However, his motion for further relief was granted to the extent of the court’s decision.