The Real Deal New York

Co-op City board sues DHCR, says it botched investigation into ex-management

Riverbay Corporation wants department to reopen probe into Marion Scott Real Estate

October 11, 2016 06:14PM
By Miriam Hall and Kyna Doles

Co-op City in the Bronx

Co-op City in the Bronx

Riverbay Corporation, the board that oversees Co-Op City, the country’s largest housing co-operative, has sued the New York State Division of Housing and Community Renewal, claiming the agency failed to properly investigate the complex’s former manager, Marion Scott Real Estate.

In November 2014, Riverbay fired Marion Scott Real Estate from operating the 15,000-unit residential complex, alleging that it mishandled its duties, failed to correctly insure the complex, and negotiated contracts without approval. The DHCR investigated the allegations but called off the probe in June, saying it would no longer look into allegations that Marion Scott Real Estate mismanaged the apartments.

Riverbay Corporation, which has 15 residents and a DHCR representative on its 16-seat board, is asking the New York State Supreme Court to vacate that decision and force the department to recommence the investigation. In a petition lodged Friday, it also requested that the DHCR make their findings public and modify the date the contract between Marion and Riverbay was terminated. The lawsuit also names Marion Scott Real Estate.

“Notwithstanding 400 pages of overwhelming documentary evidence of [Marion’s] misconduct, DHCR took no action against [Marion],” the complaint states.

In February 2014, Riverbay settled a $40 million lawsuit brought by nearly 2,000 employees who claimed unpaid wages. That suit was settled for $6.5 million, and Riverbay placed the blame at Marion Scott Real Estate’s feet, alleging it violated state and federal employment laws. In December of 2014, Marion filed a lawsuit against Riverbay alleging the housing co-op began a “systematic campaign” to oust it. A judge granted Marion a partial summary judgment in June, which Riverbay is appealing.

After running the 35-building Mitchell Llama community itself in 2015 and most of 2016 and drawing the ire of the United States Department of Housing and Urban Development, Riverbay hired Douglas Elliman to be the day-to-day manager.

HUD, the primary insurer of the complex’s $621.5M, claimed its agreement with Wells Fargo Bank required that an outside firm manage day-to-day operations.

Representatives for Riverbay, the DHCR and Marion Scott Real Estate could not be immediately reached for comment.