Tuesday, February 19, 2008

"Substantial legally enforceable penalties"? FCR's claims about CBA raise doubts

In the pre-appeal papers in the legal case challenging the Atlantic Yards environmental impact statement, Forest City Ratner Executive VP MaryAnne Gilmartin makes a curious claim about the Atlantic Yards Community Benefits Agreement (CBA), repeating a claim made last April in legal papers by her predecessor, Jim Stuckey:
These commitments are only a handful of those contained in the Agreement, but all of the Agreement's commitments have teeth in the form of substantial legally enforceable penalties for a failure by FCRC to fulfill its obligations.
(Emphasis added)

Those penalties aren't necessarily substantial. Rather, the CBA sets up binding arbitration and then the possibility of litigation, acknowledging that "monetary damages may not be an adequate remedy for defaults under this Agreement by Developer."

Only in one instance are monetary damages specified: $500,000 to be used by BUILD (Brooklyn United for Innovative Local Development) to fund the Pre-Apprentice Training initiative should the developer default.

Despite some discussion and press coverage that suggested that the developer could pay ACORN $500,000 to get out of the affordable housing obligation, that's not the case. Then again, it's not clear if ACORN could force performance of the commitment.

An ACORN spokesman has said that "we believe we have a strong legal argument for injunctive relief," meaning fulfullment of the obligation. Then again, as noted, the CBA signatories acknowledge that monetary relief may not be adequate.

Other CBAs

Note that the enforcement provisions of other CBAs are not necessarily any more stringent. The enforcement section of the Staples Center CBA in Los Angeles--which on the whole is more of a model given the diversity of groups and real negotiations--is vague.

The enforcement section of the CBA regarding the Los Angeles Airport contains some language similar to the AY CBA, but it does not acknowledge that monetary relief may not be adequate. Rather, it states that courts can't award money damages, but can order the airport to expend funds to comply with its obligations under the agreement.

AY CBA

The enforcement section of the AY CBA is below.

60-day Right to Cure

First, the developer would get 60 days:

If, after review of the ICM report by the Executive Committee, the Coalition members believe that a Developer is in default of this Agreement, the appointed Coalition Representative shall provide written notice to Developer of the alleged default; offer to meet and confer in a good-faith effort to resolve the issue; and provide Developer sixty days to cure the alleged default commencing with the date of the notice (unless additional time is specifically provided for in this Agreement).


Mediation

Then the Independent Compliance Monitor (ICM), about which nothing has been heard since the March 2007 announcement that one was being sought, would pick a mediator:

To the extent that there is any disagreement regarding a Default by a Developer of its obligations under this Agreement, the Coalition members and the Developer will first attempt to resolve the disagreement at a special meeting of the Executive Committee. If the parties are unable to resolve the disagreement(s) at the meeting, either of the parties may request mediation by notice to the ICM, who shall pick an appropriate, independent mediator. Developer shall pay the reasonable costs of a mediator for the dispute resolution, and each party will bear its own fees and other costs, if any. The mediation period shall not exceed the sixty-day cure period referred to above.


Remedies

In the event that Developer is allegedly in Default under the terms of this Agreement, the Coalition members may elect, in their sole and absolute discretion, to waive the Default or to pursue either binding arbitration, or judicial remedies, each as described in this Section. These remedies may be pursued only after exhaustion of processes described in Section XII, Part A(i) and B above, except where an alleged default may result in irreparable injury, in which case the Executive Committee may immediately pursue the remedies described in this Section X.(C).


The Coalition members may act jointly to enforce or individually regarding the specific areas for which they are responsible.

Binding Arbitration

Each party would pay their own fees, but the developer would pay for the arbitrator:
Any Coalition member, as provided in Section XII, Part (C) 1 above, may seek binding arbitration to enforce any term of this Agreement that has allegedly been breached by Developer. Arbitration shall be conducted in Brooklyn, New York, conducted by a single arbitrator selected by the Brooklyn Bar Association under the rules of the American Arbitration Association. Developer shall pay the costs of the arbitrator. Each Party shall bear its own fees and other costs. The Coalition members may seek arbitration relief ordering, and the arbitrator shall have the power to order, affirmative equitable and/or affirmative injunctive relief, temporary or permanent, requiring Developer to comply with this Agreement or monetary damages.


Court Action

If they go to court, however, the CBA signatories would have to pay their own way:
Any Coalition members as provided in Section XII, Part (C) 1 above, may, alternatively, file a claim in a court of competent jurisdiction in Kings County, New York to enforce any term of this Agreement that has allegedly been breached by Developer and Developer consents to the jurisdiction of such court. The Coalition members may seek judicial relief ordering, and the court shall have the power to order, affirmative equitable and/or affirmative injunctive relief, temporary or permanent, requiring Developer to comply with this Agreement or monetary damages; it being acknowledged that monetary damages may not be an adequate remedy for defaults under this Agreement by Developer. Each Party shall bear its own fees and costs of court enforcement.
(Emphasis added)

1 comment:

  1. These do not sound like“substantial legally enforceable penalties.”

    In order to make an agreement specifically enforceable in court one should include a strongly worded “specific enforcement clause.” A strongly worded “specific performance clause” in a contract would NOT say that:

    “it being acknowledged that monetary damages MAY not be an adequate remedy for defaults under this Agreement by Developer.“ - “The Coalition members MAY seek judicial relief ordering, and the court shall have the power to order, affirmative equitable and/or affirmative injunctive relief, temporary or permanent, requiring Developer to comply with this Agreement OR monetary damages.”

    A strongly worded specific enforcement clause worded SHOULD be worded in a fashion like this:

    “It is acknowledged that monetary damages WILL NOT be an adequate remedy for defaults under this Agreement by Developer. Accordingly, the Coalition members WILL BE ENTITLED to judicial relief ordering, and the court shall have the power to order, specific performance and other affirmative equitable and/or affirmative injunctive relief, temporary or permanent, requiring Developer to comply with this Agreement.”

    A liquidated damages clause specifying $500,000 (a half MILLION) as the damages can actually serve to decrease and contain the potential liability for F.C. Ratner. In the scheme of the things the cumulative subsidies paying Ratner for “public benefit clearly will exceed at least $1.5 BILLION. Proportionately, a half million penalty for failure to provide agreed upon public benefit is only .03%- a minuscule fraction of a single percent. If community benefit agreements were enforceable do you believe that a court might think to award something more substantial?

    This does not sound like a “substantial” penalty to me.

    That’s my opinion as a lawyer.

    ReplyDelete