Tuesday, March 15, 2011

Also in court today: DDDB seeks attorneys' fees for reopening timetable case after Development Agreement withheld & "deceptive, obstreperous conduct"

What if the Empire State Development Corporation (ESDC) and developer Forest City Ratner (FCR) had made sure that the Development Agreement--which gives a 25-year deadline to build Atlantic Yards--was available before a January 2010 court argument, or allowed into the court record shortly thereafter?

The dispute over the timetable is the subject of a court hearing today in the last Atlantic Yards court case, as the case was reopened after it was initially dismissed, only to have the ESDC say it didn't need to have issued a Supplementary Environmental Impact Statement (SEIS) to study to impacts of a 25-year buildout.

And it's also fodder for a companion case before Supreme Court Justice Marcy Friedman, in which lawyers for Develop Don't Destroy Brooklyn (DDDB) seek attorneys fees and sanctions from the opposing lawyers and their clients for withholding the agreement, which the ESDC and FCR saw as key to guaranteeing the professed ten-year timetable.

The details:
Tuesday, March 15, 2:30 PM
New York County Supreme Court
60 Centre Street
Room 335

Was the withholding of the agreement a legitimate disagreement about tactics, or was it frivolous and improper conduct?

Charges about the latter have lead to an unusual and bitter dispute.

Had the document been available, there would have been no need to file a motion to reargue the case--a motion that was partly successful, given that the case was reopened, and continues--argue DDDB lawyers.

In response, the ESDC and FCR, and their attorneys, have vigorously opposed such a request for sanctions, calling it unprecedented.

DDDB, BrooklynSpeaks diverge

While DDDB has stepped back from the main case, which also will be heard today, BrooklynSpeaks has stepped back from an initial motion joining the call for attorneys' fees and sanctions.

Rather, in a Memorandum of Law, BrooklynSpeaks takes pains to state, in a footnote:
The Petitioners do not suggest or mean that counsel for ESDC or FCRC has proceeded other than in good faith in this proceeding. It is the actions of the agency that the Petitioners believe have been less than forthright in its efforts to explain away its decision to adhere to the 10-year construction schedule and withhold the evidence represented by the MTA Agreement and the MDA.
Baker's affirmation

DDDB attorney Jeff Baker, in an affirmation, notes that the court has determined that respondent ESDC engaged in an ongoing "lack of transparency," to which Forest City Ratner not only acquiesced but also "explicitly adopted ESDC's material misrepresentations of fact as its own."

(At another juncture, Friedman used somewhat hedging language, citing "what appears to be yet another failure of transparency.")

Baker states:
Awarding petitioners their attorneys' fees and costs would be particularly appropriate here because respondents engaged in their frivolous conduct under color of state authority for the purpose of avoiding ESDC's statutory obligations and denying petitioners the meaningful judicial review of ESDC's actions to which they are entitled. Simply put, it is patently outrageous that a government agency of New York State would engage in the deceptive, obstreperous conduct which this Court has determined ESDC engaged in herein. An award of petitioners' costs and sanctions is necessary both to reimburse petitioners for their time and costs incurred unnecessarily, and to deter ESDC and its private development partners from engaging in such misconduct in the future.
Baker notes that the initial challenge, after the ESDC's re-approval of the project in September 2009, was based primarily on Forest City Ratner's June 2009 renegotiation of the Vanderbilt Yard deal, as the developer no longer had to put $100 million down to obtain full development rights but could pay $20 million for the land needed for the arena site, and could pay for the rest over 22 years.

Thus, by September 2009, "the assumed ten-year construction timeframe and 2019 completion date were no longer applicable," Baker states, and "purported public benefits" from Phase 2 "were uncertain at best.

The importance of the Development Agreement

ESDC said that it was reasonable to anticipate a ten-year schedule, Baker states:
Central to respondents' arguments were their repeated representations, made in their papers and orally to the Court, that they were in the process of negotiating a "Development Agreement," which would provide reasonable assurances that FCRC would in fact complete the entire Project by 2019. ESDC summarized that argument in its opposition brief as follows:
"What [petitioners] apparently fail to apprehend in painting their dismal picture of the future course of the Project is that there will be an entirely separate set of agreements between FCRC and ESDC, and that under those agreements FCRC will be contractually committed to implementing the 2009 MGPP. (Fact Statement 39.) Among other things, FCRC will be required to use 'commercially reasonable efforts' to complete the Arena and certain Phase 1 buildings in accordance with a specified schedule, and to bring the Project to completion by 2019, with sanctions imposed for any failure to do so."
(Emphasis added by Baker)

Baker notes that such a promise was repeated elsewhere by ESDC, and by FCR.

Thus Friedman relied on such representations to find that, "under the deferential standard of review of agency determinations under SEQRA," ESDC could continue to use the ten-year timetable, "based on its intent to require FCRC to commit to use commercially reasonable efforts to build-out the Project within 10 years."

However, Baker states:
In reality, as the Court is now well aware, respondents' emphatic representations that they were about to enter into a Development Agreement whereby FCRC would be required to use "commercially reasonable efforts" to complete the entire Project by 2019 blatantly misrepresented the relevant terms of that agreement, and were materially misleading.
The Development Agreement, signed in December 2009, was not made available until after the oral arguments in January 2010. Friedman agreed with the ESDC/FCR argument that the record not be enlarged to include the document, so it was introduced only after the case was reargued.

Missing information

Baker cites Friedman's decision from last November:
[ESDC's] papers did not discuss the absence of any deadlines for commencement of the Phase II buildings, were completely silent as to the 2035 outside date, and contained no discussion of the disparate penalties provided for failure to meet the deadlines for Phase I and II construction. ESDC's papers left the inaccurate impression that the commercially reasonable efforts provision was the focus of the Development Agreement, whereas the Agreement in fact contained numerous far more detailed construction deadlines for the Project which cannot be ignored in addressing the rationality of the build-date.
(Emphasis added by Baker)

By the date of the oral argument, Baker charges, ESDC and FCR and their lawyers "knew full well that the Development Agreement provided for Phase II of the Project to extend to 2035 and provided no meaningful penalties or other disincentives to prevent the Project completion date from being stretched out after 2019," but the lawyers misrepresented the argument.

Had the ESDC and FCR been truthful, or consented to the submission of the Development Agreement before Friedman issued her first decision, a new motion would not have been needed.

Costs

Baker calculates 38.8 hours working on the motion, with 19.6 hours by other firm staffers. Although his firm has billed DDDB at reduced rates because of the public interest nature of the work and DDDB's status as a nonprofit organization, attorney's fees should be calculated at the customary hourly rates of attorneys of similar experience and skill, he says.

Thus Baker argues that $600/hour for him and $265/hour for an associate are "equivalent to or substantially lower" than the hourly rates charged by the firms representing the ESDC and FCR.

(I'd note that the latter entities have more people working on the cases.)

Thus, Baker's firm is billing $28,723.44, and co-counsel Randall Rasey is billing $6404.50, for a total slightly over $35,000.

The rationale

Baker notes that courts have discretion to award attorney fees if there is "frivolous" conduct, " when "it is completely without merit in law," "is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injury another," or "asserts material factual statements that are false."

Baker notes that the court has already determined that the ESDC maintained its misrepresentations. He quotes Friedman's decision in November:
ESDC had an obligation to furnish the court in these Article 78 proceedings with a complete and accurate record of the proceedings before ESDC. It is axiomatic that ESDC also had an obligation to accurately summarize the bases for its determination in the proceedings before this court. Thus, once the Development Agreement was executed, ESDC had an obligation to bring it to the attention of this court in order to correct the totally incomplete representations, made in the summary of the Development Agreement and in ESDC's papers in opposition to the Article 78 petitions, as to the terms that were included in [the] Development Agreement regarding the imposition and enforcement of deadlines for completion of the Project.G
(Emphasis added by Baker)

Rasey affirmation

The Rasey affirmation below contains previous legal papers in the case, as well as partly redacted copies of legal bills.

ESDC response by Karmel

ESDC attorney Philip Karmel, in an affirmation, argues that, as explained in an accompanying memorandum of law, pre-litigation conduct--the ESDC's review of the 2009 Modified General Project Plan--"cannot be a basis for an award of costs or sanctions."

He adds that Friedman's decision in November was wrong:
Moreover, it is respectfully submitted that the November Decision reflects a misapprehension as to certain issues pertaining to the lease, development and sale contracts between ESDC and FCRC.

ESDC did disclose the 25-year outside date both to the public, during the public notice period on the 2009 MGPP, and to this Court, in two documents: the Legal Notice and the Project Leases and Disposition Abstract.

...Clearly, a document announcing ESDC's intention to enter into "development Leases" that commence at the point FCRC begins construction of an individual project building, expire when the construction of that building is completed and expire "in any event" no later than a 25-year outside date provides fair notice that the outside date for construction of the affected buildings is 25 years.
Karmel says it's "baseless" to allege that the 25-year outside date was not disclosed, and the court's contrary finding "appears to be the result of a miscommunication."

ESDC never denied the 25-year outside date, he says, but argued that it "does not establish the construction schedule reasonably anticipated by ESDC and FCRC, and that ESDC had a rational basis to assume that the Project would be constructed on a more expeditious schedule."

Nor is it appropriate for sanctions to be imposed because "ESDC allegedly failed to disclose the disparity in the specificity of commencement dates between the Phase I and Phase II buildings," Karmel states, because such information is in the MGPP.

And there was nothing false or misleading about the reference in the MGPP to "commercially reasonable efforts" to complete the Project by 2019, as it "merely expressed ESDC's intention and expectation with respect to the Development Agreement to be negotiated with FCRC in the future. The executed Development Agreement did include such a provision."

While the Court did conclude that the "commercially reasonable efforts" provision would be difficult to enforce, Karmel acknowledges, but that does not establish that the ESDC's statements were false or misleading.

Moreover, the focal point for judicial review is the agency's rationale for an action, and the principal basis for ESDC's conclusions about the timetable was "its assessment of certain key facts about the Brooklyn real estate market," involving population growth, low vacancy rates, and shortage of affordable housing.

Keeping the Development Agreement out of court

Karmel states that ESDC and his law firm had "a good faith and objectively reasonable basis" to argue that Friedman's review should be limited to the administrative record--i.e., documents that had been before the ESDC in June and September 2009.

At the oral argument in January 2010, he notes, petitioners asked that the Court not consider the Development Agreement on the ground it was outside the administrative record--or that it be submitted to the Court for a full evidentiary hearing.

Baker, in a 2/11/10 conference call, sought to submit the Development Agreement to the Court. Karmel objected, saying it was not presented to the ESDC Directors when they acted. The Court agreed.

Karmel says ESDC was not trying to hide the document, as it was submitted in support of a motion to move another case--involving a property owner who claimed an easement--to a State Supreme Court in Brooklyn.

He states:
Ultimately, this Court determined in its November Decision that the Development Agreement is relevant to the judicial review of the Directors' actions in the summer of 2009. In good faith, ESDC consistently took a contrary litigation position as to the relevance of the document to these Article 78 proceedings.
He observes:
It was (and remains) my view that if petitioners have claims that the Development Agreement was in some respect unlawful, they should have challenged that document either in a separate Article 78 proceeding or by seeking leave to file a supplemental petition in each of these proceedings...
In conclusion, Karmel notes that, in opposing these motions, ESDC and his firm must explain to Friedman why they disagree with statements in her decisions, but "I wish to make very clear that I do not intend any disrespect to this Court."

In more than 20 years of government service and private practice, Karmel states, he can't recall a single sanctions motion filed against any of his clients or his firm:
Petitioners' efforts to turn this dispute about an important real estate development project for Brooklyn into a challenge to the integrity of the agency and its law firm is totally unwarranted, and their allegations of "frivolous" conduct have no factual or legal basis.
Braun affirmation

Forest City Ratner attorney Jeffrey Braun, of the law firm Kramer, Levin, states:
There is no merit to petitioners' motions, which seek to exploit a ruling in their favor (which remains in dispute and is the subject of pending motions for permission to appeal) by turning a good-faith disagreement between litigants about the relevance and significance of contract terms into an attack on the integrity of respondents and their counsel.
He states that neither Forest City nor its counsel made false statements, nor did they rely upon the Development Agreement in opposing the petition. And there was a good-faith basis for believing that the agreement was not properly before the court.

Among other things, he adds that there's no legal justification to recover legal fees at hourly rates in excess of their usual rates.

Braun says that "I respectfully disagree with the Court's characterization of the conduct of ESDC and its counsel, and with the" November decision regarding the merits of the cases. But even if that characterization is accurate, "it would not support a conclusion that there has been frivolous conduct in this case."

No false statements made "knowingly"

Like Karmel, Braun cites his long career, in his case in private practice since 1974:
I have never knowingly made a false statement to a court, either in writing or orally. In the cases now before this Court, I neither knowingly made nor knowingly participated in any false factual statement. I find the present motions deeply offensive, and suspect that they are made in bad faith for the purpose of embarrassing the respondents in these cases and their counsel, and perhaps in the hope that the Court will make a fee award that will facilitate further litigation by irreconcilable project opponents who may be finding it increasingly difficult to raise funds to finance further litigation.
(Well, maybe Braun didn't make a false statement knowingly, but he sure lied to a court in January 2008 about project tax revenues, attributing the figures to the environmental impact statement rather than FCR's paid consultant, then was forced to back away from it.)

More significantly, he says, there's no allegation of false statements by Forest City, just that it acquiesced in ESDC's alleged misconduct--which doesn't rise to the level of frivolous conduct.

And even if the Forest City lawyers could be found to have engaged in frivolous conduct, the developer can't be held responsible for "judgment calls made by FCRC's lawyers."

Beyond that, Braun argues that, had the Development Agreement been made available earlier, it would not have saved the petitioners legal fees--rather, there would have been a request for supplemental briefing, with papers "virtually identical" to the ones submitted to support the motion for reargument.

Also, the lawyers should be requesting reimbursement, not seeing a profit; Braun argues that the customary rate should be applied when an attorney is working pro bono, not at a negotiated rate.

Leland motion

Forest City Ratner attorney Richard Leland, who works for the Fried, Frank firm, also filed an affirmation opposing the motions for sanctions. He notes that, in more than 35 years of practice, neither he nor any clients have been the subject of a sanctions motion.

Leland states that charges that Forest City has made a misleading claim that its commitment to the project are undiminished--charges that he says are false--have no bearing on the contractual obligations in the Development Agreement.

Moreover, neither Forest City nor his firm adopted the ESDC's statement of facts.

Baker response

DDDB attorney Baker gets the last word, so far, in a reply affirmation, suggesting that the "voluminous barrage of papers" from his adversaries is mostly of tangential relevance, at best.

He states that, contrary to statements by the ESDC, the petitioners don't seek sanctions for pre-litigation conduct by the ESDC, nor for the ESDC's alleged failure to disclose the 25-year outside date, and nor for telling the court the Development Agreement would contain language requiring Forest City to use "commercially reasonable efforts" to complete the Project within ten years.

Rather, he cites language from Friedman's earlier ruling, that the ESDC in its papers
[left] the inaccurate impression that the commercially reasonable efforts provision was the focus of the Development Agreement, whereas the Agreement in fact contained numerous far more detailed construction deadlines for the Project which cannot be ignored in addressing the rationality of the build-date.
He also cites Friedman's conclusion that the ESDC breached a disclosure obligation
once the Development Agreement was executed, ESDC had an obligation to bring it to the attention of this court in order to correct the totally incomplete representations, made in the summary of the Development Agreement and in ESDC's papers in opposition to the Article 78 petitions, as to the terms that were included in Development Agreement regarding the imposition and enforcement of deadlines for completion of the Project.
"Further, ESDC falsely asserts that I 'reversed' petitioners' position" regarding the Development Agreement, first saying it shouldn't be considered, then saying no, Baker notes.

Rather, his objection was to allowing a reference to the Development Agreement as supporting the ESDC's timetable requirements, given that the agreement wasn't available at the time.

Once the document was made available after a Freedom of Information Law request, "our prompt request to submit that document to this Court was fully consistent with petitioners' positions throughout this case," he states.

Development Agreement "our main thing"

Baker observes:
There is no dispute that ESDC's counsel clearly told the Court that the Development Agreement was "our main thing that we're relying on to guarantee that the project will be completed," despite the terms of the MTA Agreement. The issue of whether and how ESDC could reasonably assume the project would be completed on time was at the heart of these proceedings, and ESDC's refusal to disclose the relevant, material terms of the Development Agreement in this proceeding was, in our view, frivolous and improper.
As to efforts to disparage petitioners' motives, he says, had the Development Agreement been disclosed in a timely fashion, no new motion would have been necessary.

And fee awards are calculated according to prevailing market rates, he says, citing a U.S. Supreme Court case.

He concludes:
People may legitimately disagree about the Project's merits, but citizens surely have a right to expect and agency of the New York State government to conduct litigation in a forthright manner. ESDC and FCRC plainly knew the Development Agreement did not, as this Court has determined, contain meaningful enforcement provisions for timely completion of Phase II of the Project.

Yet, respondents affirmatively chose to obfuscate that issue and, because of their obfuscation, petitioners had to expend additional funds and resources to get a hearing on the Development Agreement before this Court.
Notice of Motion (12.7.10) Re. Attys Fees (00182339)

Affirmation of J. Baker in Support of Motion for Award of Attys Fees (12.6.10) (00182341)

Rasey affirmation

Affirmation of P Karmel (12.21.10) (00183943)

ESDC Brief in Opp (12.21.10) (00183944)

Braun Affirm in Opp to Sanctions Motion (12.21.10) (00183939)

Leland Affirm in Opp to Motion for Sanctions (12.21.10) (00183898)

Reply Affirmation of Jeffrey S. Baker (12.22.10) (00184058)

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