Saturday, April 17, 2010

BrooklynSpeaks, citing delayed Development Agreement (and bad KPMG data), also asks Justice Friedman to rehear case challenging 2009 ESDC approval

There's another call for judicial scrutiny of that pesky Atlantic Yards Development Agreement, which gives 25 years to build the project (rather than the ten years officially announced), not released until after an oral argument in January in the case challenging the Empire State Development Corporation's (ESDC) approval of the 2009 Modified General Project Plan (MGPP).

Just as Develop Don't Destroy Brooklyn and 19 allies earlier this month asked Supreme Court Justice Marcy Friedman to reopen the case she dismissed March 10, so too have the members of BrooklynSpeaks and area residents who posed a lawsuit that was combined with the DDDB case.

"Now that the agreement is available," said Jo Anne Simon, Democratic Leader of the 52nd Assembly District, "it’s clear that ESDC’s approval of the Atlantic Yards’ Modified General Project Plan was illegal. The ESDC didn’t require the developer to prepare a Supplemental Environmental Impact Statement (EIS) even though the agency was willing to agree to allow construction to extend well beyond the 10 year period that had been evaluated in the 2006 EIS."

25 years

The Development Agreement was released January 25, but was not permitted to be entered into the record for the case, which was heard on January 19. "How can they talk about a development agreement that doesn't exist publicly?" I asked DDDB attorney Jeff Baker, who responded, in part, "I don't believe it's got any kind of real binding commitments to assure that Phase 2 gets built anywhere near 2019."

A court appearance, if not a hearing, is scheduled for April 29 on these two motions.

Friedman will hold a hearing May 12 on a separate case requesting that the ESDC issue a new Determination & Findings as a predicate for eminent domain, given that case has changed so much since 2006.

Was "commercially reasonable" reasonable?

The legal affirmation (also embedded below) filed by attorney Al Butzel notes that, despite an agreement with the Metropolitan Transportation Authority that allows some 22 years to acquire the railyard site, Friedman relied on the MGPP's statement that leases would require "commercially reasonable efforts" to complete the full project by 2019.

Rather, the Development Agreement "provides new and determinative evidence that the 10-year construction period to which ESDC limited its analysis of construction impacts is (and may always have been) a fiction."

The court, according to the motion to reargue, "accorded an excessive amount of discretion to ESDC when it concluded that the agency's 'continuing use of the 10 year build-out was supported--albeit, in this court's opinion only minimally--by the factors articulate by ESDC.'"

The motion states:
If, in the circumstances of this case, where the documentary evidence showed that the build-out period could extend 20 years or more, the Court allows ESDC to proceed because it intended to include a single phrase--"commercially reasonable efforts"--in its leases that might, under absolutely optimum circumstances, result in a 10 year build-out, it is hard to understand how any judicial review will ever be "meaningful." Equally important--and of even greater concern--if the courts are unable to require agencies to take a "hard look" at the potential environmental impacts of what, based on the documentary evidence, may be 20 years or more of construction, SEQRA will have little meaning at all. All an agency will need to do under these circumstances--or any others where reality suggests an outcome to the agency's disadvantage--is to include a clause in a contract or some equivalent document in its plan (or EIS) and secure an "expert" opinion that a less impactful outcome is possible, and that will foreclose any effective review by the courts.
(Emphases in original)

Moreover, Butzel states, the Development Agreement was part of the administrative record that should've been considered:
If ESDC were now allowed to hide behind the fact that it had only partially disclosed the terms of what it reasonably understood would be the key provisions of the further development agreements, it would make a mockery of the review of administrative actions.
Questioning the experts

A footnote takes aim at a report by KPMG that suggested that the market could absorb the projected units by 2019.

Remember, in her 3/10/10 decision, Friedman wrote, on p. 9:
KPMG concluded that FCRC's residential absorption rate estimates were supported by current market data for condominiums...
But they weren't supported by current market data, because the market data was a lie. As I wrote 3/30/10, while KPMG said that the Oro condo development had sold 75% of its units by the time of the report last August, a 3/29/10 press release indicated that the development had finally reached the halfway mark. And a New York Times article demolished KPMG's claims regarding sales of Richard Meier's One Prospect Park.

Butzel's affirmation states:
For a case in which a court required an agency to reevaluate its conclusions because a report it relied on was wrong, see Hudson River Fisherman's [sic] Ass'n v. Federal Power Commission (2d Cr. 1974).
In that case, the court said:
If, after adequate hearings and expert consideration, the Commission had decided that conclusions reached in the Study Report were correct, this court would be bound by that finding, if supported by substantial evidence, but the petitioners have demonstrated such a grave probability of error that the Commission cannot excuse itself from its obligation under Scenic Hudson I by simply submitting an unsworn statement in a letter from one of the authors of the disputed report as ample evidence to rebut the claimed inaccuracy.
What does "commercially reasonable" mean?

The affirmation also takes aim at the term "commercially reasonable efforts," noting that the term shows up only 12 times in a Lexis review of cases, and none of them are remotely similar:
There is no clear meaning, in short, of what the phrase means. However, can there be any doubt that if the capital markets are restricted, it would be "commercially reasonable" for FCRC to hold off proceeding with development? Yet that is exactly the situation the developer finds itself in now and precisely the reason that it is delaying the start of construction of any components of the Project other than the Arena. And if, as appears to be the case, affordable housing subsidies are not available over the next 10 years in the full amount FCRC requires to buid the 2,250 units it has committed to, can it be doubted that it will be excused from construction some or all of those units on the basis that even using "commercially reasonable efforts," it could not have been in a position to develop them?
Has the horse left the barn?

In the end of her opinion, Friedman suggested, as summarized by Butzel, "that work was already so far advanced that the courts could not fairly intervene at this point."

But most of the money has been spent on the arena--thus making it "entirely appropriate" to require a review of the potential negative impacts of the buildout of the rest of the project and for the project to be modified to reduce those impacts.

25 years or more

While the project could take 25 years, 2035 "is not actually the outside completion date," according to Butzel, because of Unavoidable Delays," including the lack of affordable housing subsidies, labor troubles, or the inability to secure materials or supplies--all likely to occur.

Moreover, given the 12-year deadline for Phase 1, it's unlikely the project would be built in ten years.. The platform over the railyard need not begin for 15 years.

Where are the penalties?

While there are penalties, the only significant ones relate to the failure to build the arena quickly. A penalty of $5 million a year to start one of three required Phase 1 towers is "a pittance" compared to the total project and "probably less than the amount of interest during construction that would be paid if that building was underway."

Other failures to meet scheduling requirements seem to be only $1000 a day:
Here, too, the impression given in the MGPP and reinforced by FCRC's counsel at oral argument was, at the very least, misleading and significantly undercuts the claim that the penalty provisions included in the [Development Agreement] and the individual leases for the building to be constructed as components of the Project would have the effect of causing FCRC to meet a construction schedule that would assure completion of the entire Project by the end of 2019.

Brooklyn Speaks Motion to Reargue MGPP Case

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