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Justice Friedman slams ESDC for "yet another failure of transparency," says 10-year buildout wasn't justified, requires ESDC to make new findings

Citing "what appears to be yet another failure of transparency" on the part of the Empire State Development Corporation (ESDC), a state Supreme Court justice today handed Atlantic Yards opponents and critics their first clear-cut victory.

Justice Marcy Friedman ruled (decision below) that, while the ESDC claimed that a ten-year buildout (as promised in the Modified General Project Plan, or MGPP) of the project was reasonable, it failed to address the impact of the Development Agreement, which it had kept under wraps and which allows 25 years before penalties kick in for the project as a whole.

That means the ESDC has not yet studied the community impacts of a 22-acre, 17-building project whose construction could last 25 years, and it will be subject to further arguments in court.

Friedman also wrote that, while the ESDC claims that the term "commercially reasonable efforts" can be used to ensure that Forest City Ratner proceeds with the project, the term is so vague as to be essentially unenforceable. She also criticized "the totally incomplete representations" in previous ESDC legal papers.

"We are thrilled with the Court's decision," said,Candace Carponter, chair of Develop Don't Destroy Brooklyn's (DDDB) Legal Committee in a DDDB statement. "It has laid bare the pattern of lies and deception by ESDC and Forest City Ratner that underlie this project. We have always contended that the project will take decades to complete, if ever and the supposed public benefits of affordable housing and open space would never happen. Instead we are faced with decades of developer created blight in an area that may never be redeveloped due to ESDC's and FCRC's malfeasance."

"The BrooklynSpeaks sponsors hail the court’s decision as a victory for all of the communities who have been shut out of the Project’s decision-making process," said Jo Anne Simon, Democratic Leader of Brooklyn’s 52nd District. "It vindicates years of concerns expressed by the communities surrounding Atlantic Yards that the State of New York never properly assessed the impacts of this Project, and seems to have labored mightily to avoid doing so."

The ESDC has not responded to a request for comment.

“Nothing was announced today that’s going to impact construction,” Jeff Linton, a spokesman for Forest City Enterprises, told Bloomberg Business Week. Well, not current construction, but it could impact future construction.

New findings necessary--what's the impact?

A ruling like this might have had much more of an impact had it come in March, when Friedman considered an earlier version of the case, before arena construction began.

Now it's unclear whether the ruling will fundamentally change anything.

Friedman did not stay construction of the arena or associated infrastructure. She noted that the petitioners seek a stay in the event of a favorable decision on the pending reargument, but they have not moved for reargument, nor is the record regarding the current state of construction factually developed.

She granted the motions of the petitioners--groups associated with DDDB and BrooklynSpeaks (formally the Prospect Heights Neighborhood Development Council and others)--for reargument and renewal of the case.

She remanded the proceedings "to ESDC for findings on the impact of the Development Agreement and of the renegotiated MTA agreement on its continued use of a 10 year build-out for the Project, and on whether a Supplemental Environmental Impact Statement is required or warranted."

Presumably, the ESDC will find a way to justify its decisions--despite the recent acknowledgment by Forest City Ratner that the ten-year buildout was a best-case scenario. (As noted in the Order at bottom, Friedman refused to enter into the record such press statements, despite a request by the petitioners.)

Friedman wrote:
If ESDC concludes, in the face of the Development Agreement and the renegotiated MTA agreement, that a 10 year buildout continues to be reasonable, and that it need not examine environmental impacts of construction over a 25 year period on neighborhood character, air quality, noise, and traffic, among other issues, then it must expressly make such findings and provide a detailed, reasoned basis for the findings.
However, it may be tougher to make such justifications--thus opening up the possibility of extended litigation.

Split among petitioners

Friedman noted that, while the DDDB petitioners oppose continued work on the arena, the PHNDC petitioners are more concerned over the disruptions that would occur "during extended construction of Phase II, and appear to acknowledge that the Arena could be permitted to proceed." (Indeed, in press releases, the two sets of petitioners did not acknowledge each other's role.)

"Justice Friedman's decision puts the entire project in doubt," said Carponter. "ESDC approved the project as an integrated development with a variety of alleged benefits. ESDC cannot proceed with just an arena or only with Phase I without considering the lasting effects of the resulting blight caused by FCRC. Such a truncated project is not what was contemplated or approved by New York State. We call upon ESDC to suspend all construction on this project which is so wasteful of public resources and consider a feasible and comprehensive development that is consistent with the surrounding area."

(Emphasis in original)

Such a request seems unlikely to be met, given that Friedman in March indicated that, as she wrote today, "substantial public and private expenditures had already been made and the Project was already well underway was reluctant."

Said Gib Veconi of the Prospect Heights Neighborhood Development Council, “Until ESDC provides an appropriate response, the petitioners will seek to enjoin so-called ‘interim’, but blighting, project features, such as the razing of existing buildings in the Phase II footprint to create giant surface parking lots.”

The ESDC argument, most likely, would be that the surface parking lot is necessary for the arena.

Governor's role?

Still, the project might now be on the new governor's radar screen. DDDB co-founder Daniel Goldstein said, "With today's ruling it is more evident than ever that the new Governor has a job to do with the Atlantic Yards debacle. The blight Ratner has created in Prospect Heights, Brooklyn can be fixed if Governor Cuomo is willing to take the much needed fresh look at Atlantic Yards that today's Court ruling demands."

From the BrooklynSpeaks side, Howard Kolins, President of the Boerum Hill Association, said, “We further call on the Legislature and the Governor of the State of New York to implement oversight controls for this Project commensurate with its size and the amount of public subsidy it is to receive.”

No evaluation of ten-year buildout

Friedman made a point that she was not ruling on whether a ten-year buildout was plausible:
The court makes no finding, at this juncture, as to the rationality of the 10 year build-out. Its reading of the Development Agreement was undertaken not for the purpose of making a final determination as to the proper construction of the Agreement but for the purpose of determining whether the provisions of the Agreement have relevance to the rationality of ESDC’s decision to continue to use the 10 year build date. The court has concluded that these provisions unquestionably must be addressed.
Tough on ESDC during oral argument

Some hint of Friedman's posture was evident during the June 29 oral argument, during which she put an ESDC lawyer on the defensive, forcing him to acknowledge that there are far fewer penalties for delays in completing the Atlantic Yards project as a whole than those for the first phase, which includes the arena and three towers.

That itself was an unusual reargument of a case that was argued January 19 and decided March 10--a decision in which Friedman criticized the ESDC’s “deplorable lack of transparency” and acknowledged that the ESDC’s use of a ten-year timeframe for the project buildout in the Modified General Project Plan (MGPP) was supported “only minimally.”

The MGPP, approved last September, was amplified and modified by the Development Agreement, signed in December but released in January, after initial oral argument in the case before Friedman.

"The Court properly found that ESDC misrepresented the facts of the contracts and there were no requirements that FCRC complete the project," said DDDB lead counsel Jeffrey S. Baker of the Albany firm of Young, Sommer. "ESDC's lack of transparency was not just with respect to its own deliberations, but extended to trying to hide material facts from the Court. We are very pleased that Justice Friedman did not tolerate that behavior."

Below is an interview with Baker after the June 29 oral argument.

Slamming the ESDC

Friedman today criticized the ESDC for misrepresentation during that earlier phase of the case:
Significantly, although the Development Agreement had been executed as of the date the petitions were heard, ESDC did not then claim that it was unaware, at the time of the approval, that the Development Agreement would provide the 2035 outside completion date for Phase II rather than a 2019 completion date for the entire Project. Rather, at the oral argument, ESDC continued to represent that the terms of the Development Agreement were described in the summary that was in the record before ESDC at the time of the approval. ESDC went so far as to state that this document “summarizes many of the salient elements of the general project plan.” This summary, of course, said nothing about the 2035 outside substantial completion date for the Phase II construction, and merely stated that FCRC was obligated to construct the Project in accord with the MGPP which, in turn, contained the provision that FCRC would be required to use commercially reasonable efforts to complete the Project by 2019.

As noted above, on the reargument motions, ESDC acknowledged for the first time that it was aware, when it reviewed the 2009 MGPP, that a provision for a 2035 substantial completion date for the Phase II construction would be included in the Development Agreement that was to be negotiated. However, ESDC never discussed this provision in its review of the MGPP, and ESDC never disclosed the provision to this court in these Article 78 proceedings for review of ESDC’s determination.
(Emphasis added)

What's "commercially reasonable?

Friedman noted that, while the Development Agreement imposes penalties for delays in the arena or the first three buildings, it is far more gentle regarding Phase II:
In contrast, the Development Agreement does not provide for dates for commencement of Phase II construction other than for commencement of the platform which is needed to support the construction of certain Phase II buildings. The commencement of the platform is not required until the 15th anniversary of the Project Effective Date or 2025.
And, she wrote, the term "commercially reasonable efforts" is not bolstered by "settled authority" regarding "standards for awarding damages or equitable relief for failure to use commercially reasonable efforts to meet construction deadlines."

She noted that, while the Development Agreement provides for liquidated damages in the amount of $10,000 per day or (it's up to the ESDC) $1000 per day, such damages are not only lower than those "available for other specified Events of Default," they also "would require a predicate finding, subject to the legal uncertainties discussed above, that the commercially reasonable efforts provision had been breached."

Was a "hard look" taken at impact of delays? No

Friedman disagreed with the ESDC's contention that reargument and renewal is unnecessary because ESDC has already taken a hard look at the impacts of delays in the construction of the Project saying the Technical Memorandum prepared last year could not establish that an extended schedule would not cause significant impacts not identified in the Final Environmental Impact Statement:
While the Technical Memorandum reached this conclusion, it treated the change in the Project schedule as a change from 2016 to 2019. It assumed a 10 year build-out, stating: “The anticipated year of completion for Phase I of the project has been extended from 2010 to 2014 due to delays in the commencement of construction on the arena block. The anticipated date of the full build-out of the project – Phase II – has been extended from 2016 to 2019 for the same reason.” While the Technical Memorandum also undertook an analysis of the potential for delayed build-out, it did so on the basis of the potential for “prolonged adverse economic conditions”, and not on the basis of a change in the Project schedule to provide for construction beyond 2019, much less over a 25 year period, as to which the Technical Memorandum was silent.
Also, the Tech Memo was too narrow, she wrote:
Moreover, in considering delays due to economic conditions, the Technical Memorandum analyzed environmental impacts on traffic and parking, as well as transit and pedestrian conditions, over a five year period beyond 2019 or until 2024, not an additional 16 year period to 2035. It did not provide a specific number of years for its analysis of other environmental impacts, including delays in the development of open space, extensions of time during which above ground parking lots would remain in existence, impacts on neighborhood character, and effects of prolonged construction.
What about arguments by ESDC and Forest City Ratner that the worst impact would come if the project were built over ten years, given the intensity of such a buildout? Friedman disagreed that it had been addressed:
However, the Technical Memorandum did not compare the environmental impacts of intense construction over a 10 year period with the impacts of ongoing
construction over a 25 year period. It did not address, and the record thus lacks any expert opinion or analysis of, the impact of a potential 25 year delay in completion of the Project.
Opening the record to belated Development Agreement

In legal papers filed before the oral argument in June, the petitioners pointed out that Friedman had refused to allow the Development Agreement to be added to the record as she contemplated her initial decision during the winter.

Today, she addressed that issue in a footnote, acknowledging a "misapprehension":
The court notes that petitioners, not ESDC, brought the Development Agreement to this court’s attention after submission but before decision of the Article 78 petitions. The court rejected the proffer based on its misapprehension that petitioners were raising a new argument, not before ESDC at the time of its approval of the MGPP, that the Development Agreement that was subsequently negotiated did not provide adequate guarantees that the Project would be built within the 10 year period. As held above, the Development Agreement is not received on that issue but in order to correct the incomplete record furnished to this court as to the terms regarding deadlines that would be included in the Development Agreement and, hence, the reasonableness of ESDC’s use of a 10 year build-out in approving the MGPP.
The Development Agreement, signed 12/23/09, had clearly been delayed. Part of the master closing documents, it was not released until 1/25/10, was six days after a hearing in a case challenging the MGPP was heard before Friedman.

It was also about three weeks after the ESDC told me the documents would be made available.

Prior decision

In the prior decision, Friedman found that ESDC based its use of a 10-year build-out on three main factors: the opinion of its consultant that the market can absorb the planned units over 10 year period; ESDC’s intent to obtain a commitment from Forest City Ratner to "use commercially reasonable efforts" to complete the project in ten years, and the developer's financial incentive to do so.

So, under the limited standard of review, she was “constrained to hold that ESDC’s elaboration of its reasons for using the 10 year build-out and for not requiring an SEIS was not irrational as a matter of law."

The role of the courts

The Atlantic Yards saga, in cases involving challenges to eminent domain and the project environmental review, has involved judges deferring, sometimes reluctantly, to the findings of an administrative agency.

A court’s review “is limited to whether the agency identified the relevant areas of environmental concern, took a ‘hard look’ at them, and made a ‘reasoned elaboration’ of the basis for its determination,” and "courts may not substitute their judgment for that of the agency for it is not their role to weigh the desirability of any action or to choose among alternatives,” according to two foundational cases.

However, as Friedman noted, "judicial review must be 'meaningful.'"

Atlantic Yards Reargument -- Final Friedman decision

Atlantic Yards -- Friedman Order


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