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At argument over legal fees in Atlantic Yards timetable case, judge seems skeptical of state's defense, warns about rearguing the case, "far-fetched" fears

Maybe the lawyers who won a big case for Atlantic Yards opponents and critics will get the state to pay their fees.

A hearing 12/7/12 had to leave attorneys for two community coalitions, Develop Don't Destroy Brooklyn and BrooklynSpeaks, with optimism about repayment of at least some of the $300,000 in attorneys' fees sought in the case that forced the Empire State Development Corporation (ESDC) to study the community impacts of a potential 25-year Atlantic Yards buildout.

While it's always tricky to handicap oral arguments, Supreme Court Justice Marcy Friedman Friday was distinctly unreceptive to ESDC attorney Philip Karmel. Also, sharp words between Karmel and an adversary after the formal argument indicated lingering bitterness in this hard-fought sequence of cases.

The Equal Access for Justice Act (EAJA) provides that fees and other expenses to the prevailing party "in any civil action brought against the state, unless the court finds that the position of the state was substantially justified or that special circumstances make an award unjust."

Among other defenses, Karmel argued that ESDC was in fact "substantially justified"--albeit ultimately unsuccessful--in arguing it could rationally conclude that the worst impacts of the Atlantic Yards buildout would come in a concentrated ten-year construction period, rather than a potential 25-year buildout, which extend attenuated impacts.

Thus, the ESDC chose to not conduct a requested Supplemental Environmental Impact Statement (SEIS) regarding the second phase of Atlantic Yards.

Rearguing the case?

"We're not here to reargue the case," Karmel declared at one point, during the 45-minute argument at state Supreme Court in Lower Manhattan. (There were all of two spectators, both press, beyond the lawyers involved and their associates.)

"It sounds awfully like you are," Friedman replied sharply, "though I made findings, and they have been affirmed [by an appellate court]."

Friedman added that she didn't merely decide the issue, but also "made findings about the manner in which the record was presented." In other words, she felt the agency behaved in a less than honorable way. As Friedman wrote in a July 2011 decision:
In its findings on the remand, ESDC claims that it disclosed, at the time of its approval of the 2009 MGPP, that the outside dates for construction would extend “well beyond 10 years.” As discussed at length in the court’s November 9, 2010 decision, that claim is patently incorrect. In what the court termed a failure of transparency, ESDC made no mention of the provision in the Development Agreement for a 25 year substantial completion date for Phase II and, instead, repeatedly cited the provision requiring FCRC to use commercially reasonable effort to complete the Project in 10 years. 
A few moments after Friedman's comments, Karmel repeated, "I'm not here to reargue."

"Well, you did it in your brief," Friedman countered, with exasperation.

Leading off

Al Butzel, the attorney for the BrooklynSpeaks coalition, began with his own bit of reargument, reminding Friedman that, when the ESDC in 2009 re-approved the project and assumed it would take ten years, that "flew in the face of the realities of the market," and was contradicted by a public comment by then-ESDC CEO Marisa Lago, who said Atlantic Yards would take "decades."

"Why was it done?" Butzel asked rhetorically. "I believe it was so ESDCC could avoid having to prepare a SEIS," a process that would have delayed approval of the project past a crucial end-of-2009 deadline to have tax-exempt bonds issued to finance the arena.

"In August 2009, ESDC fabricated the position that the project could be completed in ten years," Butzel said. He didn't mention the KPMG report that Karmel said in June 2010 that was "probably the most important factor" in the ESDC’s decision to assume a ten-year buildout. (I've identified blatant lies in the KPMG report.)

"If ESDC had been more honest, or counsel had been more forthcoming, the arena construction would not have started by the time of the first decision," Butzel contended.

Actually, that's murky; while there was site preparation, the formal arena groundbreaking in March 2010 came just after Friedman's first decision.

ESDC a state agency?

Both ESDC and Forest City argued that the ESDC--often described as a state agency in shorthand but formally a public benefit corporation--didn't qualify under the EAJA.

Butzel countered that, not only does the ESDC rely on state funding, it's the successor to the Departments of Commerce and Economic Development.

DDDB attorney Jeff Baker, who noted that it's a "high burden" to succeed in a case challenging the action of a state agency, said that ESDC operates like a state agency in fulfilling its mandate under state environmental review laws.

The EAJA, he said, "provides some relief and a check" on power. His neighborhood clients, he said, raised money via bake sales and small donations. "They deserve to have their attorneys' fees covered," he said.

Baker scoffed at suggestions that a ruling that subjected ESDC to the EAJA would open up a floodgate of cases.

Friedman asked if he'd located any cases that clearly determined if ESDC was subject to the EAJA.

"Neither side has," Baker said.

The sanctions issue

On behalf of his clients, Baker in 2011 argued unsuccessfully for sanctions against ESDC and Forest City Ratner, and their lawyers, for withholding the Development Agreement, thus causing additional legal fees.

Friedman noted that she last year suggested that he consider withdrawing that motion and focus on the pending case.

Baker said his clients felt strongly about the issue. (Butzel did not pursue such litigation.)

"That was certainly well within the clients' rights," Friedman observed neutrally. "All I'm saying is I don't think the decisions on sanctions was in any way determinative" regarding the current case.

"I understand," Baker said.

"I don't view that decision as showing ESDC had a substantial basis for proceeding as it did," she added, using the term from the EAJA.

ESDC case

As Karmel got up, Friedman observed that she would not accept ESDC's attempt at a surreply (an additional reply to a motion filed after the motion has already been fully briefed).

Had any new case law had come down after the petitioners filed reply briefs, she asked Karmel.

No, he confirmed.

Karmel then cited a series of cases, as well as the legislative history, that suggest that ESDC is not a state agency. "The fact that ESDC performs a government function does not make it a state agency," he said, pointing out that the Metropolitan Transportation Authority is not an alter ego of the state.

But he ran aground when he raised the specter of future cases brought under the EAJA. ESDC, he said, is the owner of the 22-acre Atlantic Yards site. (Actually, some is still in private/MTA hands.) Someone who slipped and fell could sue the ESDC and then seek attorneys' fees.

"That really sounds very far-fetched," Friedman observed drily, "that personal injury claims could be subject to the EAJA.... Do you have any authority for that?"

"No, Your Honor," Karmel replied.

Then he provoked Friedman's observations that he was attempting to reargue the case.

Forest City argument

Forest City Ratner attorney Jeffrey Braun added that courts have ruled in many contexts that ESDC was organized to be "a separate entity."

Also, attorneys' fees are supposed to go to the "prevailing party," he noted. "You have to have won most of the case."

"This case was not brought about a Supplemental EIS," he observed. "It was brought to stop the project."

He suggested an offset of fees his client and ESDC expended "to prevent them from stopping the project."

Indeed, the initial lawsuit had three main causes of action, two of which could have stopped the project, so Braun was correct--but with an asterisk.

Had the Development Agreement been part of the record for Friedman's first ruling, before the groundbreaking, her ruling might have significantly affected the project, if not stopped it.

So, if Friedman does award attorneys' fees, the amount of the offset she chooses, if any, may indicate whether she feels the entire process was tainted by failures of transparency and whether she she feels regret about the "misapprehension" she acknowledged in initially rejecting the document from the record.

(Presumably any award of attorneys' fees will be appealed.)

Rebuttal

Butzel got up and pointed out that the cases cited by Karmel did not involve situations where ESDC was acting in a regulatory capacity.

Perhaps sensing Friedman's frustration with ESDC, Butzel began a small fishing expedition: would the court entertain a sanctions motion "for our client at this point?"

Friedman shook her head silently, then stated, "The court is not going to give an advisory opinion."

Baker, in turn, suggested that a case cited by Karmel wasn't on point. Moreover, he said, the slip-and-fall example "is another red herring. EAJA only applies to challenges to agency decision.

Tension in the courtroom

Friedman then asked for an update on the status of the SEIS. After Karmel explained that the SEIS should start this month, the proceedings ended.

The tension did not. As the parties prepared to leave, Karmel, clearly angry, upbraided Butzel for considering a sanctions motion, a step beyond zealous advocacy, in that he was accusing a fellow member of the bar of deception.

Butzel defended his interpretation of the lawyers' actions.

"You have theories," added Karmel's partner Kevin Healy heatedly. "You have speculation."

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