Thursday, December 17, 2009

Judge, deferring to MTA version of the case, dismisses lawsuit challenging revision of Vanderbilt Yard deal

As I wrote last week, the case challenging the Metropolitan Transportation Authority's revision of the Vanderbilt Yard deal with Forest City Ratner was an uphill battle for the plaintiffs, given that the legal standard are highly deferential to the agency.

State Supreme Court Justice Michael Stallman, in a ruling issued yesterday, dismissed the case. He wrote that not only did the plaintiffs--AY opponents Develop Don't Destroy Brooklyn, joined by four elected officials and the Straphangers Campaign--not have standing to challenge the alleged violation of the Public Authorities Accountability Act (PAAA), even with standing they couldn't make their case.

They charged that the PAAA, passed in 2005, requires an independent appraisal of the property and that a seller seek out competitive offers.

DDDB said it was considering an appeal and pointed to the MTA's willingness to leave $80 million on the table--money the agency asserts it will ultimately get--at a time of severe service cuts.

Stallman, in deferring to the MTA's version of the case, agreed that the limited response to the original 2005 RFP--only Extell responded along with Forest City Ratner--was due to "the unusual nature and scope of the project" rather than FCR's inside track.

Agreeing with the MTA

Stallman agreed with the MTA that the original plan and revised deal were essentially the same, subject to two modifications: the $100 million price would instead be $20 million down for the arena block, with the rest paid over 22 years, and the replacement railyard was value-engineered.

He also agreed that the process by which only two developers answered the RFP in 2005 was fair.

He left out the generous 6.5% interest rate granted Forest City Ratner and the extended time to operate a temporary railyard. He didn't comment on the rather surprising suggestion, by MTA CFO Garry Dellaverson, that FCR had the MTA over a barrel, rather than vice versa, given the developer's need to get the deal done in order to reap tax-exempt bonds by the end of the year.

Stallman didn't comment on the implication that the requirement of Forest City Ratner to leave an $86 million letter of credit to complete a railyard valued at $147 million cast doubt on the total valuation of the deal by the MTA and developer.

(Yes, the MTA would still have development rights, should FCR walk.)

And while the MTA argues that the 2005 Forest City Ratner bid ($100 million cash, after an initial offer of $50 million) was overall more valuable than the bid from rival Extell ($150 million cash), there's no way to fully compare them, because the MTA never let Extell develop its bid and thus offer comparable or greater noncash elements.

Standing

A non-bidder does not have standing to challenge the award of a contract by a public authority, Stallman wrote. The claim that elected officials represent users of the transit system who might be affected by the project is vague, without specific injury or interest required for standing.

As for DDDB, Stallman said that one claim for standing--that it aims to promote accountability--is "so broad and vacuous as to erase the concept itself." And he said DDDB's public statement of a competing offer at the June 24 board meeting was not a formal, detailed plan, and DDDB had not proven that it met the criteria of an RFP.

Otherwise, he said, opponents of other projects could claim to be last-minute bidders "and thereby bootstrap standing to challenge the determination."

In other words, the only aggrieved party was the losing bidder, Extell.

Allowing standing?

The petitioners argued that, because the contract award process and project are matters of public concern, the court should relax the requirements of standing.

Stallman disagreed, but wrote that he recognized there might be a larger issue at stake:
It is not for this Court of first instance to depart from the recognized rules of standing. Nevertheless, this Court is troubled that, were standing interpreted too restrictively, hypothetically there could be no way of judicially challenging what could be a clear violation of the appraisal and bidding provisions of the PAAA (e.g., if a rogue agency gave away land or contract, without appraisal or any public bidding process, to an official's relative or a political crony). It is appropriately within the province of the Court of Appeals to consider whether a different standard for standing should be applied to the subject provisions of the PAAA.
So Stallman did get to the merits of the case, observing that a long appeal limited to the standing issue, without an adjudication of the merits, would not be in the public interest, and noting that the issues of standing and merits are intertwined.

Need for an appraisal and a fair RFP?

Stallman disagreed with Forest City Ratner that no appraisal was required. He wrote:
Ratner, given the broad, remedial purpose of the PAAA, an appraisal was required. Assuredly, given the unusual nature and scope of the project, only two experienced developers--FCRC and Extell--came forward in response to the RFP in 2005, and the MTA, for rational reasons, not subject to review here, rejected Extell's bid.

...The MTA had a rational basis for believing no other responsible developer would come forward, and for continuing to negotiate with FCRC to refine the plan and bring it to fruition, without yet again initiating a new bidding process.
Yes, that decision is not subject to review, but the limited response might be attributed not to "the unusual nature and scope of the project"--remember, the bidders were bidding to develop the Vanderbilt Yard, not the Atlantic Yards project--but the fact that Forest City Ratner had been anointed the site 18 months earlier.

The robust responses to an RFP for the Hudson Yards site and to a similar request for the Willets Point site suggest much greater developer interest when one developer doesn't have an inside track.

A new plan?

Early in the decision, Stallman observed:
The resolution cannot be analyzed as a separate, newly minted plan in a vacuum. Rather, it was the culmination of a long negotiation process, prolonged by the extensive public land use process and debate, including environmental review and public hearings concerning the entire Atlantic Yards project, many lawsuits and the vicissitudes of planning and financing such a large development process, which was further complicated by the onset of the national economic crisis in the summer and autumn of 2008.
Later, he added:
If every change were to be viewed as a new plan so as to trigger anew each mandated review process, no development plan could ever reach final approval--let alone ultimate completion.
He said there was no dispute that a new appraisal would have estimated the site to be worth less than the 2005 appraisal. And he agreed that the value of Forest City's obligations had increased.

What he didn't examine--because it wasn't part of the case--was whether Extell's bid could have been more valuable:
To the extent that the petitioners suggest that there were legal infirmities in the 2005 RFP and the proposal selection process, the rejection of the Extell bid, or the 2006 SEQRA environmental review, or the December 13, 2006 MTA Board resolution which, in essence, affirmed the substance of the FCRC proposal, those determinations become final when taken and are not subject to review here.
He noted that the PAAA has an exception which allows public bidding to be bypassed if the disposal of the property is intended to further public welfare or economic development, and that the MTA had determined that.

He then deferred the Court of Appeals, which "found that the Atlantic Yards project constituted a public use." More precisely, the Court of Appeals deferred to the ESDC's finding of a public use.

Responding to the charges

Stallman wrote that the petitioners had not demonstrated that the plan gives the MTA less than the estimated market value and had not shown that the MTA did not attempt to "obtain such competition as was feasible under the circumstances," saying that the "process began with an open, competitive RFP."

The economic downtown and declining market "would have made solicitation of new bids a futile and unreasonable gamble," a statement challenged by the response in Willets Point. And, he wrote, it might have exposed the MTA to litigation by FCR.

The four elected officials named as plaintiffs are State Senator Velmanette Montgomery, Assemblymember Jim Brennan, Assemblymember Joan Millman, and City Council Member Letitia James. The case was known as Montgomery, et al vs. MTA.

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