FILED: NEW YORK COUNTY CLERK 04/18/ :59 AM INDEX NO /2017 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 04/18/2017

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1 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 A SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - CIVIL TERM: PART WALSAM LLC, WALSAM BOWERY LLC, WALSAM BLEECKER LLC, LAWBER BOWERY LLC, AND BOWERY NEXT GENERATION LLC, Plaintiffs, -against- BOWERY REALTY CORP., LEONARD TAUB, EVA TAUB, - BLEECKER STREET, DOUGLAS BALLINGER, GRJ LLC and GREGORY P. JONES, Defendants. INDEX NO. /0 NEW YORK SUPREME COURT 0 CENTRE STREET NEW YORK, NEW YORK APRIL, 0 B E F 0 R E: X X 0 APPEARANCE S: THE HONORABLE MARGARET A. CHAN, Justice KASOWITZ BENSON TORRES, LLP Attorneys for the Plaintiffs Broadway New York, New York 0 BY: MITCHELL SCHRAGE, ESQ. BY: SHELLEY IVAN, ESQ. GOLDBERG WEPRIN FINKEL GOLDSTEIN, LLP Attorneys for the Defendants 0 Broadway - nd Floor New York, New York 0 BY: MATTHEW E. HEARLE, ESQ. BY: JUSTIN KELTON, ESQ. William Cardenuto Senior Court Reporter of

2 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 THE COURT: Appearance for the record, please. MR. SCHRAGE: Mitchell Schrage of Kasowitz, Benson and Torres, attorneys for the plaintiffs, the Walsam entities. With me is my associate, Shelley Ivan. MR. HEARLE: Matthew Hearle, Goldberg, Weprin, Finkel and Goldstein, 0 Broadway, nd Floor, New York, New York, and with me is my colleague, Justin Kelton. THE COURT: Okay. All right. I checked on your related case, and it's sufficiently different that I'll be keeping this case. So, what is this case about? MR. SCHRAGE: Thank you, your Honor. The short 0 second version, before I get into the longer version, as I said earlier, I represent the Walsam entities, the plaintiffs who own the building -, I believe it is, Bleecker Street here in Manhattan. When we purchased the building, it came with a master lessee. There was a master lease on all the residential units. That master lessee had complete control of the leases and the tenants, took an assignment of all the leases, and under the first paragraph of the master lease, which I believe your Honor has the papers, is my Exhibit D, Paragraph, "The master lessee takes a fee interest in all the residential units." So, our obligation as landlord, the plan was to create two condo -- a two condo unit, commercial and residential, and of

3 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 - Proceedings the master lessee entered into a PSA, purchase and sale agreement, to buy the residential unit, but until that happened, they entered into a master lease, and the only thing that had to happen to have that done is the building had to be sprinkled, and then we can file our condo conversion. These gentlemen represent an LLC whose principal we've been advised is Mr. Jones. I say "advised" because we haven't seen any documents transferring any ownership, but originally it was a Mr. Ballinger. When we bought Mr. Ballinger and his building manager were attempting to get access to these residential units. They acknowledged their obligation, and they were doing it. They got several tenants to give us access. They didn't get all. Mr. Ballinger then instructed his, as per the affidavits of my client attached as exhibits, instructed his building manager to stop all efforts to get access; we're not doing that. We reminded the original master lessee of his obligation, and if you don't get us access, we can't do the sprinkler, and if we can't do the sprinkler, we can't get the condo. He says, I'll tell you what; I'll give you another year extension to do the condo; and let's keeping working on it. In the interim the master lessee, Mr. Ballinger, wanted to sell his interest. He's in this overcharge proceeding. He's getting killed left and of

4 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 right. He wants out. He comes to my client, and he says, Will you buy me out for four million dollars. My client says, I have no interest in buying you out; I don't want to be a residential owner; I bought this for the commercial unit; I bought it because you, the lessee, have a master lease and a purchase and sale agreement to buy the residential; I have no interest in residential; I don't want it. Then we get a threat from Mr. Ballinger; will you please consent to me to assign my purchase and sale agreement and my master lease to Mr. Jones. My client says, why would I do that; you're in breach; you're in breach of your obligation; you're not getting me into the tenants; I can't do the sprinkler; I can't do the condo; I'm not going to consent. So, upon information and belief, Mr. Ballinger and Mr. Jones did an end run, and instead of doing an asset deal, they probably did a stock deal. So, it's the same LLC without our consent. I say "probably" because we've asked for documents, but we haven't gotten any. Our memo of law contains a relevant case law in the State of New York that says when you're considering whether there's an assignment and a need for consent, it's substance over form. So, whether you call it an assignment or a purchase of stock, if the operative agreements call for a consent, you need a consent, and you can't do an end run. They did of

5 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 an end run. So, my client, Peter Weiss, in his affidavit calls the new who we believe to be owner of the master lease and the LLC and the purchase and sale agreement says, "Hi. I'm Peter Weiss. You're Mr. Jones. You got to get me access. Are you going to help me get access?" And the answer was, absolutely not, not only am I not going to give you access, but on the day, your last day that you have to do this, I don't care whether I have an obligation to do it or not, I'm not going to renew; I'm going to hold this intermination; and although I bought from Mr. Ballinger at a depreciated price of two million dollars, I'm going to sue you immediately for seven million dollars; I bought this property to sue you for seven million dollars; so, don't come to me and ask to help you get into these apartments, because I'm not doing it; I'm here to screw you and to aggravate you. So, we have an obligation. We acknowledge the obligation. We have to do a condo conversion. In both the master lease and the PSA says the only thing remaining to do is the sprinkler. They have a fee simple interest. They have an assignment of all the leases. They started getting us into the leases -- into the tenants' apartments to do the work. They stopped. Ballinger stopped. Jones has no intention of doing it. of

6 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 So, here we are, if, in fact, the lease is being outdated on April th, our obligation to convert to condo expires for the sole reason that the people who control the residential units won't get us in there to do the sprinkler. We are now having such terrible irreparable harm specifically. We now end up being a residential landlord, nothing we contracted for. Our memo of law has four cases from the state, recent cases, that indicates that you cannot -- by forcing someone to take on a contractual obligation they did not intend to contract for is irreparable harm, and we would end up now having to take care of these nine residential people who are mad as hell, because of this overcharge proceeding. It's nothing we ever wanted, and the control to get us in there, whether it's by their motion, Mr. Jones' motion compelling his tenants to get us in there to do this work, but we can't do the condo, because of their bad faith and their unclean hands. The CPLR provides -- I'm going to make this as short as possible. This is only a TRO. We want to maintain the status quo come the th. You must prove your likelihood of success. We have causes of action. The last -- causes, and and are relevant to today and the TRO and the PI, and we believe we have a likelihood of success on all four of those. Cause of of

7 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 Action is a breach of the master lease. The documents provide an obligation for some Ballinger and then on Jones to provide access. They have not done that. There's a breach as a result of which we're going to be irreparably harmed. We believe we will succeed on the merits of that cause of action. The th cause of action is breach of good faith and fair dealing could not be clearer. I'm not here to help you; I'm here to sue you and make more money than I paid. We believe we're going to succeed on that cause of action. Cause of Action is for declaration that Mr. Jones has no right to allow this time to condo conversion to expire. He should be obligated to renew it. No access, no sprinklers, no condo, and lastly, Cause of Action is a declaratory judgment that Ballinger's assignment of his interest to Jones is null and void, because the case law in New York is you can't do a back end run. They asked us for our consent. We said, no. They structured it another way and did it anyway. We don't even know how they did it, because we've asked for it, and even if it was somehow allowed and you can buy the stock, there's obligations to provide us copies of the documents to know who the parties are, to know who do we answer to. We have gotten absolutely nothing. Mr. Jones not only said I'm not going to get you access, he changed the locks to the entire building. So, for three months we of

8 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 couldn't even get in and do sprinkler work in the hallways outside of these apartments, because Mr. Jones, fee simple of the residential unit, took complete control. He locked us out. He's controlling this. He wants to get to April th and sue us because that's the only reason he bought this property. So, as I said before, irreparable harm, if the TRO is not granted and the lease and the PSA are terminated, we'll be forced to become a de facto residential landlord and subsume substantial legal obligations and liabilities that we just did not contract for, and our memo of law, as I said, cites the case law that says that irreparable harm. Lastly, the equities are strongly in favor for the TRO. The courts consider the relative prejudice to each party accruing from a grant or denial of a TRO. Plaintiff could have imposed on them legal obligations for which they did not contract while enjoining the termination will not impose any further obligations on Mr. Jones at all. He will just continue to be the master lessee, the landlord, the fee owner until the preliminary injunction hearing is heard. So, since we have complied and met the three pronged test of the CPLR, we respectfully request this Court to grant our TRO. THE COURT: Thank you. of

9 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 MR. HEARLE: Thank you, your Honor. Counsel has said a number of things that are just simply not true. For example, your Honor, let's go back to the beginning of this. There was a purchase and sale agreement that was contingent upon them converting to a condominium. That is true. When that proved to be -- when the seller proved to be incapable of that, the master lease was entered into basically as a placeholder pending the conversion. That was back in 0. They have gotten yearly extensions to get this conversion done. We are now four years later, it having been extended three times, and they are no closer to getting it done. To say that it's just the sprinkler system is not true. There's no support for that in the record. There are actually numerous Alt- permits that were filed for renovation of the floors, renovation of electric systems, sprinkler systems. Those permits have expired. Of course, they have expired because this has gone on forever. The sprinkler system, they filed the plans a month ago, and the DOB rejected them. They sent an back in September saying, can we get access for sprinkler system, and quite to the contrary of what Counsel has suggested, Gregory Jones responded by to counsel's client on November th, "It was good meeting with you. As I conveyed to you at our meeting, I am more than happy to do what I can to provide access to the of

10 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 building for your sprinkler work." Again, December th, "Mark, yes the locks have been changed. Please, let me know when you need access, and I will coordinate with my super to get it to you." On December st, Counsel's client says, "I will like access to both buildings tomorrow at :00 p.m. for myself and my engineer." Later that day, Mr. Jones replied, "What time do you need access? I can get you into the common areas. If you need to get into apartments, I will need more time. I know one of the tenants is away until after New Years." This does not sound like -- I was going to use an expletive -- you. We're not denying access. He is responding to them. Five or six months later, they come in and file their plans with the DOB. The DOB says, your plans are rejected. They now come to the court three days before the contractual deadline, not asking for a TRO, but they are asking for the Court to modify the contract to get another year extension or another period of time. They are nowhere near completion of their project. Sprinkler is a red herring. They are here trying to amend the contract by force, because they have had four years. Their time is up. That is not what a TRO is for, not to rewrite the contract or give them more time to languish away and do nothing like they have done for the past four years. MR. SCHRAGE: Judge -- of

11 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 THE COURT: I was wondering why you didn't bring it Friday. I mean, today is Tuesday. MR. SCHRAGE: This past Friday this wasn't ready. THE COURT: You still have three more days before the contract expired to bring this TRO. MR. SCHRAGE: You mean this coming Friday? THE COURT: Yes. MR. SCHRAGE: One thing that's so important that my colleague just said in his from Mr. Jones. Mr. Jones said in that that if you need to get into the apartments, I need more time. He's acknowledging his obligation to get us into those apartments. He has not got us into one apartment. We have an affidavit from Mark Torre (phonetic) who is our client's property building manager who deals with all of their construction. "Once the sprinklers are done in the apartments, we will have everything done two to three months, permits and everything, but until that is done, we can't do it." Here we have someone acknowledging his obligations to get us in -- see Mr. Peter Weiss' affidavit where Mr. Jones is yelling, I'm not only not going to get you in, I'm going to sue you. So, if you're not going to get me in, and you're acknowledging your responsibility, and you know I can't do the sprinkler, and then I can't do the condo, he of

12 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 said, well, that's why I bought this at a depreciated price; I'm going to sue you and make a lot of money. So, all we need, again, again, we're here for a TRO, not the preliminary injunction. I believe that we have met the three burdens put on us by the CPLR of irreparable harm, likelihood of success and the balancing 0 of the equities. All we're asking for is to maintain the status quo until the preliminary injunction hearing. That's all we're asking. It's so telling that Mr. Jones in his said, if you got to get into the apartments, you got to give me more time. That's what we're talking about. MR. HEARLE: Counsel is taking a snippet, your Honor. The other from my client says, "I still maintain our position that the installation of the sprinkler and the subsequent coordination for access lies with your entity as per your obligations under the net lease. That being said, we will do what we can to assist you in this matter." He's going to throw back in our face that my client was trying to help. That's not an assumption of an obligation. That was somebody who is trying to help. It doesn't sound like bad faith. It doesn't sound like somebody who is trying to screw them. It sounds like somebody who is trying to help, and this was in November and December. It's now April. Where have of

13 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 they been? THE COURT: Where have you been? MR. SCHRAGE: We've been doing the sprinkler work in the rest of the building, in retail space and in the hallways, getting it all done. THE COURT: I thought you couldn't get into the common areas. MR. SCHRAGE: We did after three months. We did before we were working on it and after. Two things, your Honor, Master Lease, Paragraph, "You have a fee interest in the residential." They are the only party in privity to get us in. We have no right to get us in, No.. No., their purchase and sale agreement going back to 0 with our predecessor in interest states in Paragraph. that "The sole condition precedent for filing the proposed declaration is the installation of the sprinklers in - Bleecker building," and lastly, I'm sorry I took a snippet out of the that my colleague read, but his client said, "If you need to get in the apartments, you got to give me more time to get you in." We're asking for the status quo for the next couple of weeks until a preliminary injunction hearing can be done. MR. HEARLE: Your Honor, the last word. That is not the status quo. That's not the status quo. He's asking for you to change the contract. They have this of

14 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 0 deadline since last April which was an extension from the year before that which was an extension from the year before that which was after a year on the contract. MR. SCHRAGE: And the reason it kept on going year after year, Judge, is because Mr. Ballinger and then Mr. Jones continued to breach their obligations in the agreement to get us access, access and then as a fee owner. We have no ability to get in. They have to get us in. THE COURT: Okay. Now, I see that there's another party represented by other attorneys and they are not here, but they do know of this OSC with a TRO? MR. SCHRAGE: They do. Mr. Ballinger's counsel called my office as did Mr. Taub's counsel at Bowery, and the discussion was since the failure to renew and act on the expiration of the condo date is only that of Mr. Jones that they would not be coming. THE COURT: Okay. I just want to clarify that, I'm going to sign the TRO. I think if I don't, if I go the other way, then we really can't bring this back, but it will be a short return date. I understand the owner of the building, Mr. Jones and Mr. Ballinger -- MR. SCHRAGE: The lessee, your Honor. THE COURT: Pardon me? MR. SCHRAGE: The lessee. of

15 FILED: NEW YORK COUNTY CLERK 0//0 0: AM INDEX NO. /0 NYSCEF DOC. NO. RECEIVED NYSCEF: 0//0 THE COURT: I'm sorry. They are anxious to get this done and over with. So, let's try to get this done before June -- oh, Memorial Day weekend. Okay. Can we do this by May th? MR. HEARLE: The sooner the better, your Honor. MR. SCHRAGE: I agree. THE COURT: All right. I'll move it up a week. The th. MR. HEARLE: Very good. THE COURT: So, oral arguments here for May th. My part clerk will schedule it for you. I don't know what I'm up to. Okay. MR. SCHRAGE: Fine. THE CLERK: :00 o'clock, Judge. THE COURT: :00. All right. /. (End of proceedings.) 0 It is hereby certified that the foregoing is a true and accurate transcript of the proceedings. of

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