Does belatedly-released Development Agreement change nothing? So claims FCR; Justice Friedman faces motions to reopen case regarding AY timeline
So declares Forest City Ratner in a blistering and brazen defense of the ambiguous document, kept under wraps until late January, that sets an outside date to complete Atlantic Yards in 25 years but also seems to obligate the developer to build the project, as promised, in a decade.
(The obligation involves penalties, by my calculation, that are only about $5.5 million for a 15-year delay, on top of $5 million for each of three Phase 1 towers if they're late and $10 million for a late arena.)
The Empire State Development Corporation (ESDC) is a bit more circumspect, stating the agreement's "terms are consistent with the information that was in the administrative record reviewed by this Court." The ESDC blames "petitioners' coordinated scorched-earth litigation strategy of filing multiple motions against the Atlantic Yards Project."
FCR and the ESDC point to clauses in the Development Agreement that point to daily fines for delays of $1000 or $10,000--more likely the former, as noted below--and say those are not trumped by larger penalties for delays in three towers.
Pending legal battle and judicial skepticism
The statements come in legal papers filed before State Supreme Court Justice Marcy Friedman, asked to revisit her March 10 ruling that the ESDC's ten-year timeframe for Atlantic Yards was reasonable, thus not requiring a Supplemental Environmental Impact Statement to reflect the burden of a 25-year project on communities or an annulment of the 2009 Modified General Project Plan (MGPP).
Friedman already has reason to be skeptical of the developer and the ESDC, given that she previously wrote that the latter's rationale was "marginally sufficient to survive judicial scrutiny" and that its consideration last year of plan modifications "lacked the candor that the public was entitled to expect."
And she didn't consider the Development Agreement, signed in December 2009, three months after the project was approved, but released publicly only in January, a week after oral argument in this case.
That delay is another example of a lack of candor, according to the petitioners in the lawsuit, coalitions led by Develop Don't Destroy Brooklyn (DDDB) and BrooklynSpeaks members, which want to get the Development Agreement front and center in court.
Only a "cryptologist," according to BrooklynSpeaks lawyer Al Butzel, could have sussed out the "virtually indecipherable" terms in the documents that preceded the Development Agreement. DDDB attorney Jeff Baker observed:
Where this Court relied on ESDC's representations that FCRC would be held to a binding commitment for completion by 2019, the Development Agreement demonstrated conclusively to the contrary.So, while the petitioners are asking the court to enforce candor on the part of the developer and ESDC, FCR argues that lawsuits such as this "subvert the administrative process" that involves project approval.
Another pending case, similar grounds
This case is separate from another case, scheduled for oral argument on Wednesday, May 12, which also relies on the Development Agreement.
The latter case, filed by several property owners subject to eminent domain--and likely including just two plaintiffs now--argues that the ESDC should not have relied on the 2006 Determination and Findings (D&F) to exercise eminent domain but instead should have issued a new D&F, given changed expectations for the project.
I previewed the arguments on 4/9/10 and covered the brief hearing on 4/12/10; one pending issue is whether the case should be moved to Kings County Supreme Court Justice Abraham Gerges, who already ruled against similar arguments in the effort to block condemnation.
(One plaintiff was not part of the previous case. Thus, according to a petitioners' lawyer, Gerges's decision doesn't moot the case.)
What kind of relief: everything but the arena?
Friedman, in her earlier ruling, said the horse had essentially left the barn, and that any relief regarding Atlantic Yards should rest with the political process.
In legal papers noted below, FCR and the ESDC argue that the project has advanced even further, given the settlements reached last month with several occupants of the project site, and that nullification of the 2009 MGPP would "severely disrupt the project."
DDDB attorney Baker, who asked the court to consider whether enjoining future work was possible, noted that a significant portion of funds expended would be useful regardless of the nature of future development.
That's likely regarding land purchases, demolition, and railyard work, though much if not most of the utility work and recent foundation work is clearly arena-specific.
BrooklynSpeaks attorney Butzel, who noted that much of the investment has been of public funds, wrote that the defenses by ESDC and the judge--large expenditures and the role of the political process--do not, "in the Petitioners' view, justify condoning an illegal action."
While his clients would prefer to see all work stopped, he wrote, their greatest concern regards the parts not yet begun and the ensuing disruption. That sets up a scenario in which work on the arena would be tolerated if future work was enjoined.
Baker, by contrast, wrote that the arena shouldn't be allowed to proceed as a standalone project, given that it had never been considered by itself.
Both Baker and Butzel asked for a hearing, with sworn testimony to clearly establish whether 2019 was a reasonable date, but no hearing has yet been announced. Thus it's more likely Friedman will decide the case based on extant legal motions.
Catch-22 on release of Development Agreement
The belated release of the Development Agreement may stand as a Machiavellian masterstroke; while Friedman refused to evaluate it in her March 10 ruling, both the ESDC and FCR blame the petitioners in this case for failing to bring it up.
Petitioners do not demonstrate that ESDC lacked a rational basis for its intent to require FCRC to make a separate commitment, notwithstanding the MTA agreement, to use commercially reasonable efforts to complete the Project within 10 years.ESDC Attorney Philip Karmel wrote in an affirmation:
To the extent that petitioners now claim that the documentation that was subsequently negotiated does not provide adequate guarantees that the Project will be built within the 10 year period, that issue is not before this court. Under long settled authority, a court reviewing an agency’s determination is confined to the facts and record adduced before the agency.
Petitioners provide no justification for having failed to seek a stay of this proceeding pending their receipt of the Master Closing Documents, for having failed to move this Court to enlarge the record to include the Development Agreement, or for having failed to move this Court to allow them to amend their petition to include allegations pertaining to the Development Agreement.DDDB response: judge said no
In a reply affirmation, DDDB attorney Baker noted that the judge had closed the door. He slammed
the outrageous argument that Petitioners' Motion to Renew should be denied because Petitioners should have presented the December 2009 Development Agreement to the Court before its decision and/or made a motion to expand the record. That argument is belied by the Court's clear direction to counsel that it would not permit any such motion to be filed...BrooklynSpeaks: ESDC was obligated to bring document forward
In at least two conference calls with Court, I requested an opportunity for the Court to order ESDC to produce the Development Agreement (before it was made available by FOIL) and then specifically on a February 11, 2010 conference call I asked if the Court would permit a motion to bring the Development Agreement to the Court's attention since it demonstrated that "commercially reasonable efforts" meant far longer than 2019. The Court refused both requests. In fact on the February 11th call, Justice Friedman was quite adamant that she was only looking at the record as it existed when the ESDC issued its resolutions in September 2009.
Thus it is beyond disingenuous for Respondents to blame Petitioners for not making a more timely motion, when the opportunity for such a motion was precluded. It is Respondents who knew about the existence of the Development Agreement and knew it was not consistent with their representations to the Court who had the obligation to bring it to the Court's attention.
Butzel similarly noted:
In fact, the Petitioners asked the Court to consider the MDA [Master Development Agreement] during a telephone conference call following oral argument, and the Court indicate it would not entertain the submission of any further documents. For the Petitioners, in the face of this advice, to have followed up with a formal motion would not only have been futile--it would also have been disrespectful to Court.Beyond that, he argued:
In our view, moreover, there was an obligation on the part of ESDC and its counsel, knowing the contents of the MDA as they did at the time of the oral argument, to have produced the MDA at that time because of its clear relevance to the issues that were before the court. Indeed, at oral argument, counsel emphasized that it was "the development agreement between ESDC and Forest City that ESDC is relying on to say, yes, this project is going to get built in conformance with the modified general project plan."
However reasonable ESDC may have made its decision seem when it approved the MGPP without an SEIS, the MDA shows that the decision was not, in fact, reasonable and may have involved a misrepresentation of the realities regarding the construction schedule. The Court should not condone the decision in light of those realities, as they now clearly appear.ESDC: project progresses
In his affirmation, Karmel noted that ESDC was expected to achieve vacant possession of the Arena Block by May 7, allowing the draw-down of the $511 million bond proceeds to construct the arena, and accelerated construction.
The rest of the Phase 1 condemnation properties--on the southeast block, Block 1129--are expected to be vacant by June 30 "either as a result of settlements or additional proceedings before Justice Gerges." That block will be used for surface parking and construction staging.
Development Agreement has no impact?
In its memorandum of law (MOL), the ESDC elaborated on the Development Agreement:
Even if this Court were to consider the belated proffer of the Development Agreement, its terms are consistent in all respects with the documents that were before this Court at the time of the Decision and would not have warranted a different conclusion than the one reached in the Decision.The ESDC said there's no case in which a court overturned a lead agency's decision not to prepare an SEIS, given that the decision is left to the agency's discretion. Also, a "thorough 74-page Technical Memorandum" had been released, with a "detailed 36-page response" to comments, according to the MOL.
Nothing in SEQRA or its implementing regulations requires a guaranteed construction schedule.
(I found the Response to Comments not so responsive.)
Ten years reasonable?
According to the MOL, the ten-year timetable is reasonable:
ESDC took a hard look at the proposed 10-year construction schedule from both a constructability and a financial perspective, and reasonably concluded that the schedule had a solid foundation. ESDC's construction consultant (AECOM/Earthtech) reviewed the new activity-specific construction schedule prepared by Turner Construction Company that set forth in detail how the Project would be completed by 2019. AEICOM/Earthech analyzed the new schedule and found it to be reasonable from a construction standpoint. Moreover, recognizing that financial constraints associated with the economic downturn could affect the progress of the Project, ESDC commissioned an additional study by KPMG, a highly experienced accounting and real estate consulting firm, to determine whether the market could absorb the residential units that would be constructed within a 10-year period... KPMG advised ESDC that it was not unreasonable to expect that the market could do so.(I previously wrote about the ESDC's defense when faced with clear evidence that KPMG lied about sales at the Oro condos.)
Also, the ESDC said it looked carefully at whether a delay would result in significant new environmental impacts.
Foreshadowing in the MGPP
Is the Development Agreement "consistent in all respects with the documents that were before this Court," such as the MGPP?
Here's a masterpiece of misdirection, from p. 11 of the ESDC's MOL:
A review of the documents that were before the ESDC Directors at the time of the affirmation of the 2009 MGPP establishes that (i) the 2009 MGPP required FCRC to use commercially reasonable efforts to complete the Project by 2019; and ESDC acknowledged that even with such efforts the Project's construction may be delayed. For example, the 2009 MGPP stated that it was expected that FCRC would commence construction of the first non-Arena building within six months of vacant possession of the Arena Block, but established an outside date requiring that construction of this building begin within three years of that data. Similarly, the 2009 MGPP stated that it was expected that FCRC would commence construction of the second non-Arena building within six months of the commencement of construction of the first non-Arena buidling, but established an outside date requiring that the second building's construction commence no later than the 5th anniversary of the date that vacant possession of the Arena block is achieved. The 2009 MGPP also provides that if FCRC does not commence construction on a particular portion of the project site and if this area is not needed for construction staging or interim surface parking, then the area will be used as temporary public open space.(Emphasis added)
What's missing? The third non-arena building. As I wrote 4/19/10, while the MGPP says each of the three buildings should start within six months of each other, the Development Agreement allows for two-year gaps. The MGPP included no timetable for the third tower, just "on or before a date certain."
However, the Development Agreement (excerpt at right), however, says the third building doesn't have to start for ten years. That casts enormous doubt on the ten-year timetable for the project as a whole.
The MOL notes that the abstract of lease terms distributed last September describe extensions until the 25th anniversary of vacant possession of the Arena Block. That's true, but the penalties and incentives were missing.
Need for "cryptologist"
At several points, the Respondents also argue that the MDA [Master Development Agreement] constitutes nothing new because its provisions were summarized in the MGPP. For example, the lease abstracts attached to the MGPP indicated that leases for individual parcels would run for 25 years. This argument might hold if one were [a] cryptologist, which describes the basic problem. Amidst all the other papers, items such as the 25-year lease term, much less the meaning of such items, were virtually indecipherable, and the extent of the build-out permissiveness--the extremely long periods FCRC is given to even begin, much less finish, the platform and the entire Phase II of the Project--was not disclosed in any way in the MGPP or its attachments. It is only when the MDA was finally made public that anyone outside of ESDC and FCRC could have known that even Phase I would not have to be completed for 12 years (subject, of course, to extensions for Unavoidable Events, Market Conditions and the Housing Subsidy Unavailability) and that subject to the same extension events, Phase II would not have to be completed for 25 years. In Petitioners' view, the Respondents' argument that the court was or should have been aware of these provisions is unsupportable.(Emphasis in original)
Would project take 25 years?
The ESDC MOL states that 25 years merely represents an outside date:
Petitioners' contentions that the Development Agreement contains startling new disclosures about the likely construction schedule for the Project are baseless. Their basic argument boils down to an assertion that because the outside date for completion is 25 years, then it is to be expected that FCRC will drag its heels and defer completion of the Project in which it has invested so heavily until the last allowable date in 2035. But... ESDC based its assessment of the construction schedule not on the outside dates permitted by its agreements with FCRC--which are not intended to and do not function as construction schedules--but on ESDC's independent assessment of (i) the reasonableness of the 10-year construction schedule proposed for the project... and (ii) whether a delay in that schedule would result in significant new environmental impacts that were not disclosed in the FEIS. The Development Agreement does not contain new information bearing on these issues.Do fines enforce a ten-year deadline?
Both the ESDC and FCR point to a clause in the Development Agreement--a clause I'd missed in previous coverage--that they say enforces the ten-year deadline.
The ESDC MOL states:
The DDDB Petitioners assert that the outside dates set forth in Article VIII of the Development Agreement trump the requirement imposed by the last sentence of Section 2.2 that FCRC use commercially reasonable efforts to complete the Project by 2019. This contention is flatly contradicted by the plain language of the Development Agreement, which states that "[f]or the avoidance of doubt, any deadlines or periods set forth in this Article VII for the performance of the work... shall not modify, limit or otherwise impair the obligation of [FCRC] under the last sentences of Section 2.2 hereof."(Emphasis added; click on graphic to enlarge)
Both sets of petitioners allege that the "commercially reasonable effort" provision is not subject to sufficient penalties in the event of FCRC's breach of this contractual covenant. But the Development Agreement provides for stipulated penalties of $10,000 per day for violations of this covenant (DA 17.2(a)(x)) and expressly states that these stipulated penalties are not exclusive. See DA 17.2(d) ("In addition to the remedies set forth in Section 17.2(a), ESDC shall be entitled to any and all remedies available to ESDC at law or in equity under or in connection with this Agreement..., including without limitation, specific performance, injunctive relief, and the recovery by ESDC from [FCRC] of any and all damages, sums, costs, and expenses incurred by ESDC as a result of or connection with [FCRC's] respective Default under this Agreement.").
Would it really be $10,000 a day? Actually, as shown in the excerpt above, non-monetary defaults are reduced to $1000 a day.
Forest City Ratner, in its MOL, is more circumspect about numbers:
Consistent with the MGPP, the Development Agreement obligates FCRC to use "commercially reasonable effort" to complete the project by December 31, 2019. Specifically, the last sentences of 2.2. of the Development Agreement explicitly provides that the contracting FCRC affiliates "agree to use commercially reasonable effort to cause the Substantial Completion of the Project to occur by December 31, 2019 (but in no event later than the Outside Phase II Substantial Completion Date), in each case as extended on a day-for day basis for any Unavoidable Delays." This provision is not a hollow statement, but an affirmative covenant by the FCRC affiliates, the breach of which constitutes an event of default that entitles ESDC to liquidated damages of up to $10,000 per day, in addition to other remedies available at equity and law. Development agreement 17.1(r), 17.2(a)(x).(Emphasis added)
Fines represent "an absolute pittance"
That sets up significant differences: $3.65 million (at $10,000/day) vs. $365,000 (at $1,000/day) over one year; $36.5 million vs. $3.65 million over ten years; and $54.75 million vs. $5.475 million for a 15-year delay.
BrooklynSpeaks attorney Butzel noted:
In fact, the penalty for Phase II Project delays is only $1,000 a day--an absolute pittance which, aside from the fact that Respondents have misinterpreted the sum, will provide absolutely no incentive for FCRC to build any faster than it chooses.General fines take precedence over specific ones?
Forest City Ratner added:
Section 8.1(d) provides that no other provisions trump the "commercially reasonable" provision: The other deadlines and periods set forth in the Development Agreement are not project "start and completion dates," but dates after which ESDC is entitled to additional damages and remedies, on top of the remedies provided for in 17.1(r), if the Project is not completed by December 31, 2019. For example, pursuant to 8.6(d), if the FCRC affiliates fail to complete three Phase I buildings at years 3,5, and 10, they can be subjected to additional penalties of up to $5 million for failure to commence each building on time.Baker, who said there were "effectively no penalties for Phrase II," countered:
Respondents do not explain how the specific provisions of Article VIII of the Development Agreement which have the specific completion dates could be deemed irrelevant and allow ESDC to find FCRC in default of the agreement if the project is not completed by 2019. Where a contract between the parties has such specific language, how could one party seek to enforce a more vague provision? Respondents do not address that issue.Incentives to finish by 2019?
[T]here are enormous financial incentives for FCRC to complete the project in a timely manner, including the loss of its enormous investment in the project and the loss of the opportunity to derive profit from the project's completion... These incentives are only increased by the terms of the Development Agreement.Baker countered:
However, in this litigation, FCRC has not submitted a single affidavit from anyone associated with FCRC making that statement or providing any objective evidence to that effect. There is no evidence to demonstrate that FCRC might [sic] make a sufficient return on its investment with a partially completed Phase I and then seek to abandon or extensively prolong Phase II.I believe the word "not" was missing where [sic] is marked.
Butzel noted that, unlike Forest City Ratner's deal with the Metropolitan Transportation Authority for the Vanderbilt Yard, where the developer had to post $86 million in security, no such security is posted here.
While the ESDC said none is required, Butzel responded that the lack of such security indicates the unreality of the ten-year schedule.
What's commercially reasonable?
One issue at the heart of the case is the term "commercially reasonable," stated in the MGPP as the obligations the ESDC would impose on FCR. According to FCR, courts frequently interpret the term "commercially reasonable efforts" in the context of contractual disputes.
Baker called the promise "meaningless." Butzel noted that none of the cases cited in defense of the term "commercially reasonable" have addressed circumstances similar to this one, where "the issue is one of timing and the MDA itself is filled with one exception after another."
A judgment on the reasonableness of the MTA would be difficult, and "could just as well favor FCRC as ESDC," he wrote.
What's the meaning of a decade?
According to FCR, there's no legal requirement that an agency predict with accuracy the year in which a project will be completed. Rather, a "build year" is an estimate used to help measure environmental impacts.
While the respondents contended that the petitioners had not identified adverse impacts from a construction schedule of 25 years, Butzel said that an expert was not needed:
The impacts on adjoining communities from 25 years of construction will include 15 more years of generated dust, street blockages, noise, empty lots, heavy equipment traffic, diesel emissions and the like.The impact? A poorer quality of life and decreasing property values.
(I previously wrote about the ESDC's claim that a slow buildout would be like Battery Park City, and Michael D.D. White followed up in his Noticing New York blog.)
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Atlantic Yards Development Agreement 17.2