Wednesday, March 24, 2010

Ratner's bogus claim of "34 lawsuits," a skewed legal playing field, and video of the ESDC winning ugly (including a dodge regarding belated blight)

Last week and this one I'll try to compensate slightly for the failure of any metro columnists to show up and glean insights from the rich spectacle of the Barclays Center groundbreaking March 11.

As a profession, lawyers get a lousy rap, and the constraints of the field--notably an adversarial system in which winning trumps justice--contribute to depression.

At the groundbreaking, however, developer Bruce Ratner, trained as a lawyer, boosted his brethren and, lying, claimed victory in 34 lawsuits.

Winning ugly

I'll get to the bogus number below, but the key thing to remember is that, while Forest City Ratner and its partner Empire State Development Corporation (ESDC) did win, they won ugly.

Real ugly.

Just this month, Supreme Court Justice Marcy Friedman criticized the ESDC's “deplorable lack of transparency.”

In February 2009, Appellate Division Justice James Catterson, while concurring in a decision favoring the ESDC, wrote:
I reject the majority's core reasoning, that a perfunctory "blight study" performed years after the conception of a vast development project should serve as the rational basis for a determination that a neighborhood is indeed blighted.
In 2008, Forest City Ratner lawyer Jeffrey Braun acknowledged that, in a legal document, he had misleadingly attributed a revenue projection to the state rather than to a consultant retained by FCR.

And, as described below, ESDC attorney Philip Karmel couldn't offer a convincing answer when asked during the Court of Appeals oral argument last October to explain the discrepancy between the December 2003 announcement of the project and a much later announcement that the site was blighted.

In fact, Karmel's justification--not noticed at the time--relied on a document kept secret rather than publicly released. Either way, the Court of Appeals majority ignored it.

At the groundbreaking

Ratner, in the midst of his 17-minute speech at the groundbreaking, appeared expansive. "And then nothing would be complete without talking about lawyers, lawyers, and more lawyers," he said, drawing laughter. "A hundred and fifty of them. New York's finest."



All the lawyers

Ratner sped up his delivery like a carnival barker: "Real estate lawyers, litigators, environmental lawyers, M&A lawyers, lawyers representing government, all their agencies, bond lawyers, bank lawyers, sports lawyers."

"And I'll tell you something," he said, slowing down. "These lawyers, unlike other lawyers, give the profession a great name. So I want to thank every single lawyer."

That drew healthy applause. There must have been a lot of lawyers there.

And nearly all were on Ratner's payroll. Remember, all the contract lawyers working for the ESDC were paid for by the developer, as were the environmental consultants. (See. p. 8 of the MOU.)

How many lawsuits?

Ratner moved on. "Then, of course, lawsuits and more lawsuits. Thirty-four lawsuits," he claimed, gesturing with a pointed index finger. "Thirty-four wins--and no losses." He grinned. "C'mon, Nets. We need that court record."

The crowd cheered.

"Thank you, all you brilliant litigators," he declared, beaming. "You're incredible."

His number wasn't even close. There might have been 34 rulings of some sort, but closer to ten lawsuits. Develop Don't Destroy Brooklyn counts eight lawsuits, and I'd add another three filed by tenants of two rent-stabilized buildings.

From the eminent domain case

It was less brilliant lawyering than a skewed playing field and a passive judiciary that allowed the New York State Court of Appeals to uphold the ESDC in the Atlantic Yards eminent domain case.

Consider the 10/14/09 oral argument. (Here's the full video.) The key question in the excerpts below was whether a longstanding designation of the Atlantic Terminal Urban Renewal Area (ATURA) justified the blight designation on adjacent blocks of Pacific and Dean streets.

ESDC attorney Karmel said yes, but stumbled under withering questions from Judge Robert Smith, the only member of the court who dissented from the ruling upholding the use of eminent domain.

Notably, Karmel claimed that a March 2005 memo mentioning ATURA somehow justified the use of blight for a project announced in December 2003. Moreover, the memo he referenced was not publicly released and only unearthed via a Freedom of Information Law (FOIL) request.

In the decision (PDF), Smith wrote:
According to the petition in this case, when the project was originally announced in 2003 the public benefit claimed for it was economic development -- job creation and the bringing of a professional basketball team to Brooklyn. Petitioners allege that nothing was said about "blight" by the sponsors of the project until 2005; ESDC has not identified any earlier use of the term. In 2005, ESDC retained a consultant to conduct a "blight study." In light of the special status accorded to blight in the New York law of eminent domain, the inference that it was a pretext, not the true motive for this development, seems compelling.
The majority opinion ignored the issue of pretext.

Also, it ignored the delay in announcing blight as a justification for eminent domain.

The issue of pretext

The action picks up as Karmel wound down his argument that the court shouldn't even be hearing the case, and Chief Judge Jonathan Lippman asked him to address the merits of the case.



"I'd like to talk about public use," Karmel said in his somewhat grating voice, consulting a sheet of paper, "and I'd really like to start with the issue of pretext, which is one of their arguments." He pointed to Matthew Brinckerhoff, attorney for the property owners and renters. "Counselor didn't get a chance to get to that, in his presentation."

In other words, Brinckerhoff spent too much time arguing about old cases that might--in a longshot--imply stricter state rules on public use, without getting to the issue of a sweetheart deal.

"Here, the appellants concede that more than half the project side is blighted," Karmel continued. "It was deemed blighted by the city of New York in 1968 as part of the Atlantic Terminal--"

Smith interrupted him: "Let's just take the other half."

Karmel gestured with his right hand. "Your Honor, in addition to the ATURA designation in 1968, the record also establishes that the project site as a whole is blighted, uh, there's--"

Smith interrupted again. "Is there anywhere that--well, the project site as a whole, it does say that. Does anything say the three southern blocks are blighted?"

"Yes, Your Honor," Karmel replied evenly. "I would refer Your Honor to page 134 of the record. That is a map of the project site. It has every lot on the project site. And it indicates which lots on the project site were found to have indicia of blight. The Blight Study is very system--

Increasing skepticism

"One or more blighted characteristics," Smith interrupted skeptically, referencing the peculiar language of the Blight Study.

"That is correct," Karmel responded.

"Why don't they just say blighted properties?" Smith asked.

Karmel, hesitating slightly, dodged the question: "Well, I think that the Blight Study provides objective information about each lot, each of the 73 lots on the project site. It has photographs, very objective factual information."

Smith, interrupting, was quizzical. "But there's a photograph--there are two photographs of Pacific Street, going east and west on Pacific Street," he said, gesturing to indicate boundaries. "You just glance at it and you see a ruined sidewalk over here and a perfectly normal-looking building over there. It really looks as though Pacific Street was the boundary of the blighted area. And that was the boundary of the urban renewal area. I guess what I'm asking you is: Have you gerrymandered this area to fit what the developer wanted to build on, rather than take an area of real blight?"

"No, Your Honor," Karmel responded calmly, citing the magic term--"rational basis"--that keeps courts from interfering with agencies like the ESDC: "The Blight Study establishes that the project site is blighted and ESDC had a rational basis for its determination that it was a substandard and insanitary area."

Developer-driven?

Smith began talking before Karmel finished. "In principle, suppose I'm a developer and I want to develop on an area which is half blighted and half not. Can I--I buy the property as much as I can, hoping to condemn the rest, and I go to the government and I say, I want you to condemn this and they can condemn the whole thing, even though half of it isn't blighted?"

"Well, I think it depends on the facts of the individual case," Karmel responded, not wanting to be drawn into a bright-line rule. "I think it's very well-established from the Kaskel case of this court that blight is looked at on the area as a whole and not every individual lot needs to be blighted. In this case--"

"But even if the area is one that the developer put together?" asked Smith.

"Well, this gets to the issue of pretext, Your Honor, and I really want to address that straight on," said Karmel energetically. "I think that--the leading pretext case from this court is Denihan Enterprises. In Denihan Enterprises, the city of New York was going to condemn two-thirds of a city block. Its stated public purpose was the construction of public parking. But the project was only going to create 17 public parking spaces. So the court said there seemed to be an inadequate nexus between the stated public purpose and what the project would in fact achieve. That's the kind of case where pretext is something that needs to be analyzed--"

Belated blight

Smith interrupted: "He"--referencing Brinckerhoff--says you didn't discover blight until you were two years into the project."

"That's not correct, Your Honor," responded Karmel, prompting rival Brinckerhoff to furrow his brow.

Karmel briefly lost his bearings: "The... um... [pause]... It's--the Blight Study was prepared as part of the preparation for the public hearing--"

Smith intervened: "Wasn't this originally seen as a community development project until the lawyers told somebody you've got to find blight or you can't condemn the land?"

"Absolutely not," Karmel responded firmly. "There is nothing whatseover in the record about that."

"Well, obviously, there's nothing about what the lawyers said," Smith responded, unconvinced. "Where does the word blight appear before--at the time this thing was announced, and people were holding press conferences, where does the word blight appear?"

Karmel strained for an example: "Your Honor, for example, one of the two memorandum of understanding [MOU] that was signed in 2005 refers to the Atlantic Terminal Urban Renewal Area. It is well-known that this was an area that had previously been targeted for urban renewal and, um..."

He paused, seeking his bearings.

"But I would like to go back to this issue of pretext," he said.

Lippman then intervened, beginning a new line of questioning.

Looking at the MOUs

Nobody noticed how devious Karmel's explanation was and, when I covered the oral argument on a daily deadline, I didn't have time to check.

However, when Karmel cited one of the two MOUs signed in February 2005, the one mentioning ATURA--and thus hinting at blight--was not publicly released by governmental parties but instead kept under wraps.

That MOU emerged only in August 2005 following a Freedom of Information Law request by Develop Don't Destroy Brooklyn. The main project MOU, publicly released in March 2005, said nothing about ATURA, much less blight.

More on blight

Later in the argument, Smith quizzed Karmel about blight, and extracted a remarkable admission.



"If I could just switch gears for a moment," Smith said. "We talked before for a moment about blight, whether it's blighted. Are you asking us to follow Kelo [vs. New London] and say that any public use is good enough or do you acknowledge that you have to show blight here to justify use of the eminent domain power?"

"The result in this case is the same whether you follow Kelo or whether you don't follow Kelo," Karmel responded. "The project here was approved as a Land Use Improvement Project and a Civic Project under the Urban Development Corporation Act. The ESDC found that the project site was a substandard and insanitary area and that finding is--was rational and is supported by the record."

All property vulnerable?

Smith asked a sly question, in an echo of a much-quoted line from Justice Sandra Day O'Connor's dissent in Kelo: "But let me go... Is it the law in New York that if I own a house in an area that the government thinks could be improved, and I have a perfectly nice house and it's a clean house and there's nothing particularly wrong with the area but it could better, it could be more vibrant, there could be more dynamic businesses--is that enough for the government to take the house?"

"Under New York State constitutional law, yes," Karmel responded without hesitation, a devastating confirmation that New York laws might be a bit skewed to the condemnor.

"What case says that?" Smith asked.

Karmel responded, "I would say the leading case for that proposition would be Courtesy Sandwich Shop case from the New York Court of Appeals. That case approved the condemnation of 13 blocks of Lower Manhattan to build a World Trade Center, with idea that World Trade Center would be a tremendous economic engine for New York."

"So I think that case would support that," he said, gaining steam and reminding the judge of the importance of judicial deference. "But that is not the doctrine we're relying upon in this case. In this case, we're relying on the finding of the agency which is supported by the record and reviewed by this court on rational basis review, that the project site is a substandard and insanitary area."

"And it's extremely well-established for many many decades that that is an adequate constitutional basis," Karmel concluded confidently.

"Okay, Counsel," pronounced Lippman.

"Thank you," Karmel replied, a verbal spring in his step.

Cleaning up

Brinckerhoff, having reserved five minutes for rebuttal, had a lot of ground to cover, with no time to remind the court of Karmel's MOU muddle. The clip above includes one of his two final points.

"If I may, there are two other separate and independent reasons that justify a rejection of the Determination and Findings in this case," Brinckerhoff said, his style more conversational than that of Karmel. "One of them is the fact that ESDC concedes it made no effort to analyze and did not compare the amount of private benefit to the developer as compared to the notion of public benefit in this case. Under this court's precedents, from Denihan to Waldo's and even before, it's been made crystal clear that, whenever there's a clear private beneficiary, as there is here, and even if it's a public purpose justification, that there has to be some comparison of those benefits.

"And in Denihan," Brinckerhoff continued, "where a public park being created, which is a classic public use... this court held that, because in the end, the private benefits outweighed the public benefit of a public park, a claim was stated--"

Lippman intervened: "So is it based on the biggest part of the project being the market rate housing, is that basically why you were saying--"

Need for a record

Brinckerhoff responded, "It's that there is nothing in the record indicating that there was any analysis whatsoever--"

Lippman: "But in terms of the percentage of the project--"

"Do you have to quantify it in some way?" asked Judge Susan Read.

"It does not have to be mathematically quantified, but the analysis must be done, we're talking about a very--" Brinckerhoff responded.

Read was quizzical: "They needed to do something with percentages?"

"They had to at least say what they thought the private benefit was," Brinckerhoff said. " And here we have some sense of it. The IBO [New York City Independent Budget Office] released in June updating the one that was--"

Need for an evaluation

Lippman interrupted, "But we know, in your adversary's words, that a significant part of the project is the private benefit, that we know without putting percentages--"

"Correct, correct, but that weighing has to be done," Brinckerhoff responded.

"There has to be an evaluation," Lippman said in his avuncular voice.

"There has to be an evaluation," Brinckerhoff confirmed.

There was no evaluation, neither by the ESDC nor by the Court of Appeals.

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