At issue is whether a change in timing of a project whose fundamental elements seem unchanged is a fundamental change.
And, depending on which side you consult, it's either a dangerous intervention by the judiciary into agency discretion or the last check on an out-of-control agency that failed to tell the public that it faced 25 years of construction, extended surface parking lots, and lingering vacant lots.
The challenge by two community coalitions was originally dismissed by a state Supreme Court judge, then reopened and ultimately reversed, with that decision unanimously backed by a state appellate court. Now the Empire State Development Corporation, the agency overseeing Atlantic Yards, and developer Forest City Ratner have asked the Court of Appeals to agree to hear an appeal.
Such an appeal is not automatic, given the unanimous nature of the intermediate court's decision, so an agreement to accept the appeal would suggest that the Court of Appeals--which conveniently ignored certain arguments in its November 2009 decision upholding eminent domain for Atlantic Yards--is leaning toward reversal.
If the appeal is denied, then the ESDC would have to conduct the Supplementary Environmental Impact Statement (SEIS) ordered by the lower courts.
The ESDC and Forest City, in their legal motions, argue that the court decisions impose unprecedented and onerous obligations on the state and a project sponsor. They would "render the process for developing long-term projects in the State, which is already very difficult, virtually impossible," the ESDC said.
"Thus, with respect to the Atlantic Yards Project, the lower court's decision casts a shadow of uncertainty" regarding Phase 2 of the project, the agency said.
Even though no progress on such towers has been announced, the delay could "last for years," given the time to draft a Supplementary Environmental Impact Statement [SEIS], finalize it after public comment, and "inevitably" see it challenged in court.
"The Appellate Division's order requiring that a SEIS be prepared to study the impacts of a delay in the Project's construction schedule is an unprecedented expansion of SEQRA [State Environmental Quality Review Act] that would interfere not only with the progress being made on the Atlantic Yards Project, with with the progress of many other large-scale projects that are subject to delays due to adverse economic conditions or other circumstances," ESDC lawyers said.
Forest City argued that the "use of the terms of subsequent contracts for project implementation to impeach the assumed 'build year' that previously was used in the project's environmental review is without precedent under SEQRA."
"Unless overturned, the lower courts' decisions will transform the scope of SEQRA to an unprecedented degree," Forest City said. "To allow delay, without more, to subject a project to a mandatory new environmental review would mean there never would be finality in the process, because projects' environmental analyses would have to be updated repeatedly."
State "arbitrary and capricious"
But is it about delay, or deception? Responded Al Butzel, the attorney for the petitioners (Prospect Heights Neighborhood Development Council, etc.) organized by BrooklynSpeaks, the courts "did not expand the law; they simply enforced it."
It "is a case filled with doubtful actions, unexplained lapses in disclosure and, at bottom, an agency decision that so flew in the face of market realities as to all but render it arbitrary and capricious on its face," he argued. "In such situations, the judiciary alone stands between lawfulness and lawlessness."
"The position taken by the Appellants is, to put it colloquially, 'off the wall,'" he added. "It is not 'novel' or of 'substantial public importance.' It is a wild and unsupportable stab in the dark."
Jeff Baker, the attorney for the petitioners organized by Develop Don't Destroy Brooklyn, similarly contended that "this case does not represent an expansion of SEQRA, but rather it is an example that judicial review in the context of project changes is not a meaningless exercise."
The history and the hidden documents
The case was filed not long after the ESDC re-approved Atlantic Yards in September 2009, allowing the condemnation of the 22-acre site in stages to save Forest City Ratner money.
Similarly, the developer renegotiated its deal for the Metropolitan Transportation Authority's Vanderbilt Yard; instead of paying $100 million upfront for development rights, it would pay $20 million for the part of the yard needed for the arena block; and have 22 years to pay for the rest, with a gentle implied interest rate of 6.5%. Also, the agency agreed to allow a smaller, not larger, replacement railyard, saving the developer perhaps $100 million.
That transaction diminished the likelihood that the 16 towers would be built in the long-professed ten years, though it did not obviate such a possibility.
The case was initially argued 1/19/10 and decided 3/10/10, a day before the arena groundbreaking. In that decision, Supreme Court Justice Marcy Friedman criticized the ESDC’s “deplorable lack of transparency” and said 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.”
In that case, the main document was the MTA agreement. However, there was much more reason for skepticism. The Development Agreement, signed in late December 2009, was not released until January 25, after oral argument in the case.
As Baker stated in legal papers, "I strenuously argued on a conference call with Justice Friedman that the Development Agreement should be considered, but she denied my request, instead relying upon the representations of counsel for ESDC and FCRC that I was misstating its provisions."
Reopening the case
When the Development Agreement was released, it showed a clear contradiction with the professed time frame. So, both sets of petitioners asked Friedman to reopen the case, which she did, acknowledging a misapprehension--though not quite a mistake on her part--about the Development Agreement.
In November 2010, Friedman 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."
The ESDC responded by issuing findings, including a Technical Analysis, that said no such SEIS was needed. Friedman, after hearing oral arguments on 3/15/11, issued her ruling 7/13/11.
Friedman wrote that the ESDC's Technical Analysis does not provide technical studies of the effects of "significantly prolonged construction" but "appears to take the position that it is a matter of common sense that less intense construction will result in lower impacts for conditions such as traffic, noise, and air quality. "
The state and Forest City appealed. The oral argument was held 2/14/12 before the Appellate Division, First Department, in Manhattan, which issued its unanimous decision 4/12/12.
The timetable and the changes
At essence is whether there were, in fact, meaningful changes in the project.
"The modifications approved by ESDC on September 17, 2009," agency lawyers state in the new motion, "did not materially alter the location, size, uses or site plan for the 17-building Project analyzed in the FEIS [Final Environmental Impact Statement] and approved in 2006, but they did give FCRC up to 25 years to complete construction, subject to FCRC's contractual obligation to use commercially reasonable efforts to complete the Project within a 10-year time frame, and certain contingencies."
Actually, the 25-year term was mentioned in the project lease abstracts. The main document approved by the ESDC board, the 2009 Modified General Project Plan (MGPP), did not mention 25 years but stressed a ten-year time frame:
The build-out of the Project is likely to occur in two phases, with the Project elements on the Phase I Site and the Upgraded Yard (collectively, "Phase I") anticipated to be completed by 2014 and the Project elements on the Phase II Site (collectively, "Phase II") anticipated to be completed by 2019.(Emphases added)
...Sponsors expect to commence construction on the first non-Arena building within six months of ESDC's delivery of vacant possession of the Arena Block to the Project Sponsors, but in all cases, on or before the third anniversary of ESDC's delivery of vacant possession of the Arena Block to the Project Sponsors; the second non-Arena building within six months following the commencement of construction on the first non-Arena building, but in all cases, on or before the fifth anniversary of ESDC's delivery of vacant possession to the Arena Block to the Project Sponsors; and the third non-Arena building within six months following the commencement of construction on the second non-Arena building, but in all cases, on or before a date certain agreed to by ESDC and the Project Sponsors. The Project documentation to be negotiated between ESDC and the Project Sponsor will require the Project Sponsors to use commercially reasonable efforts to achieve this schedule and to complete the entire Project by 2019.
Of course there was an inherent contradiction in the above paragraph. If the second non-arena building could wait five years to start, and the third tower some time after that, it would be impossible to construct 16 towers in ten years. Thus the question of "commercially reasonable" would require some illumination.
The FEIS, noted ESDC lawyers, had employed a ten-year schedule because it would "concentrate construction activities"--a not unreasonable point, but one, as their adversaries countered, ignored the cumulative impact of lower-level but longer-lasting construction.
Was SEIS needed?
The focal point of the litigation: did the potential for a longer build-out period warrant a Supplementary Environmental Impact Statement (SEIS), which would have forced the ESDC board to postpone its re-approval of the project until 2010.
That had potential consequences; the time to conduct an SEIS could have cost Forest City more than $100 million, since it would have forced the developer to miss a crucial end-of-2009 deadline to get tax-exempt bonds issued.
As noted in the ESDC legal filing:
The courts below held that ESDC (i) was arbitrary and capricious in examining environmental impacts while continuing to use a 10-year construction schedule... in light of the provisions of the Development Agreement; and (ii) failed to undertake the requisite 'hard look' at the environmental impacts of a potential delay in construction beyond the 10 years.However, ESDC lawyers argue, the courts didn't explain what "technical studies' ESDC should have prepared or how such studies would have provided useful information. And those courts ignored ESDC's determination that a "SEIS would not provide information that would be of material utility."
The ESDC summarized the questions the Court of Appeals should answer, to provide guidance to other agencies evaluating projects:
- Are "unspecified technical studies," rather than existing information, a new environmental assessment and the application of agency judgment, required to study the delay in a major project otherwise unchanged in scope?
- Did lower courts err in not leaning toward ESDC's determination that a SEIS would not be useful
- Did lower courts err in ordering an SEIS, given that ESDC had determined that delay would cause construction activities of reduced intensity over a longer time period
Forest City brief
Forest City lawyers stated:
Because there concededly were no environmentally significant changes to the project's physical components, these cases and the decisions below constitute impermissible collateral attacks on the prior EIS and the prior court decisions sustaining that EIS's adequacy. If allowed to stand, the decisions below would fundamentally transform the administration of SEQRA in its application to previously approved projects that, like most large-scale projects, encounter delay.Beyond the questions raised by ESD, Forest City asks if it's "proper to use transactional documents" that were finalized after the project had been analyzed and approved, to impeach the... assumed future completion date" and was it proper to require "the developer to prove that it has the financial wherewithal to implement the project" by the timetable announced:
Here, moreover, petitioners unmistakably seek to use the delay caused by adverse economic conditions to reopen the 2006 project approvals that previously were sustained by the courts. By definition, a Supplemental EIS is a targeted document of limited scope that is directed at specific new impacts that were not examined in a prior EIS--not a broad reconsideration of an entire project.Forest City pointed to a Develop Don't Destroy Brooklyn press release which said the decision created "the opportunity and impetus to reconsider and change the course of the project." Presumably, that would be part of an SEIS, which is supposed to include an evaluation of alternatives.
Forest City added that the courts ignored a case that said an agency's compliance with SEQRA should be governed by common sense, and another that "protected the finality of determinations made in compliance with SEQRA"
"The lower courts' requirement of proof of the developer's financial capabilities to support an assumed build year is also unprecedented," Forest City added. " SEQRA is an environmental statute... not intended to assess the financial feasibility of a project."
What's the impact?
"The Appellate Division... complain[ed] that ESDC 'failed to consider an alternative scenario in which years go by before any Phase II construction is commenced--a scenario in which area residents must tolerate vacant lots, above-ground arena parking, and Phase II construction staging for decades," Forest City stated.
"However, this criticism overlook the fact that the site of these vacant lots, parking lot and staging areas were included in the project footprint precision because--as this Court recognized in Goldstein v. NYS Urban Dev. Corp [the eminent domain case]--these blocks and the buildings that formerly stood there already were blighted," the lawyers added.
That's a bit specious. Forest City created a significant amount of vacancies because of demolition, thus arresting the process of rehabilitation that, at least in some cases, was planned.
The BrooklynSpeaks response
In his filing, Butzel cited "the misrepresentations and later cover-up by ESDC."
While Justice Friedman initially dismissed the petitions, once she learned that ESDC had allowed Forest City 25 years "but had suppressed that fundamental change in its representations to the Court--she granted reargument."
Both Friedman and the Appellate Division agreed that there was no rational basis for adhering to a 10-year build-out.
Such "realities" were "unmentioned by the appellants," Butzel noted. Thus, this is not a case of courts substituting their judgment for an agency, but rather where "the agency acted irrationally to cover up what it knew to be an unsupported analysis and decision."
"There can be no doubt that well before ESDC approved the 2009 MGPP, the agency recognized that the project would never be completed in the time frame it was using," Butzel wrote, noting that ESDC CEO Marisa Lago, in an April 2009 public appearance, used the term "decades."
The only reference to the Development Agreement was "three short lines" in an exhibit, Butzel wrote, noting that ESDC dismissed it at oral argument: "[N]or did it disclose that there were no required start dates for 10 of 11 Phase 2 buildings, or that 10 buildings would not have to completed for 25 years."
The appellants, Butzel wrote, "contended that ESDC was entitled to reach its conclusions on the basis of 'common sense,' as if it should have been enough for the agency to muse over the potential impacts. ... If this argument were accepted, it would be a license for agencies to comply with SEQRA through simple assertions."
Rather, he noted, the courts identified areas in which further analysis was required, including potential impacts of vacant lots, surface parking, and ongoing impacts of construction.
What about ESDC's conclusion that a SEIS would not provide useful information? The agency, Butzel contended, had failed to identify extended construction as a significant issue, which means the decision not to proceed with an SEIS was arbitrary and capricious on its face.
While the ESDC in its Technical Analysis passed off construction impacts as "temporary," that's "no answer" when construction is likely to extend over many years, Butzel argued, citing the cumulative impact over time.
Moreover, he wrote, the ESDC's Technical Analysis came after-the-fact, and cannot cure the failure of ESDC board to have had such an evaluation when it approved the MGPP.
Does this mean other projects face endless review? "This is nonsense," Butzel wrote. Further review was required here because the agency took a new "action" within the meaning of SEQRA and fundamentally changed the timing of the Project's construction.
The courts "did not expand the law," he wrote. "[T]hey simply enforced it."
Countering Forest City, Butzel wrote that one case cited by the developer concerned revisiting of the "build year," while this case is about the ongoing impacts of a project.
If the Development Agreement were not considered part of the record, he stated, "it would sanction fraud and lack of disclosure" on the part of project sponsors:
The real improprieties were the failure of ESDC and FCRC to disclose the full terms of the MDA [Master Development Agreement] at oral argument, when the Agreement had already been signed; ESDC's incomplete and misleading description of the terms of the MDA at oral argument; and ESDC's initially successful effort to withhold the Agreement from Justice Friedman."This is not an instance where an administrative body made a reasoned decision that might or might not be correct," Butzel concluded.
Instead, ESDC knew its position was wrong, but went ahead and tried to cover up the reality.
The DDDB response
DDDB attorney Baker pointed out how ESDC "continued to insist that the Development Agreement and contained contractual assurances for the promised 'commercially reasonable efforts.'"
When it finally emerged, he wrote:
Justice Friedman also rejected ESDC's argument that the Development Agreement did not materially change the information because the September 2009 summary document provided to the ESDC Board of Directors disclosed the 25-year lease terms. The court noted that ESDC took a completely contrary position in its opposition to the Petition and argued that the 25-year lease term provision was not material or controlling and would not supersede FCRC's contractual obligations to complete the project by 2019."It is well settled that delays alone are insufficient to warrant an SEIS," Baker acknowledged. In this case, however, Forest City "sought a major change in the project to avoid making the necessary financial commitments originally planned in 2006."
"Thus, this case does not represent an expansion of SEQRA, but rather it is an example that judicial review in the context of project changes is not a meaningless exercise," Baker argued.
As for the finances, where the ten-year time frame is belied by the agreement that allows 25 years, "if the agency is continuing to justify its reliance on the shorter time period, there must be a rational basis for that reliance," he stated.
120511 ESDC Motion for Leave to Ct of Appeals
120511 FCRC Motion for Leave to Appeal
Brooklyn Speaks Opposition to Motion to Leave for Appeal
DDDB Opposition to Motion to Leave for Appeal