The Real Deal New York

Extell, Carlyle challenge Rushmore ruling

May 11, 2010 09:48AM
By David Jones

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alternate textThe Rushmore and Gary Barnett, head of Extell

In a last minute and stunning move, the developers of the Upper West Side’s Rushmore condominium filed a federal lawsuit yesterday against state Attorney General Andrew Cuomo seeking to reverse his April rescission order to refund more than $16 million in escrow funds to buyers.

The developers, Extell Development and Carlyle Realty Partners, operating under the name CRP/Extell, also filed a motion in U.S. District Court seeking a temporary restraining order that would block the release of the funds, which include down payments for more than $110 million worth of apartments.

The developers expanded on their previous claims by arguing that a drafting attorney committed a typo or “scrivener’s error,” and claimed that Cuomo’s office failed to allow them to collect evidence or cross-examine the condo buyers on their true motivations for filing the claims, which CRP/Extell claims were to negotiate lower prices in a down market.

“CRP/Extell reasonably understood, including from the attorney general’s failure to issue subpoenas or otherwise seek extrinsic evidence, that the office was planning to limit its consideration of the issues to the text in the offering plan,” wrote Boies Schiller & Flexner attorney Edward Normand, who is representing CRP/Extell. Extell officials were not immediately available for comment nor were lawyers for CRP/Extell.

Lawyers, who said last month they planned to file an Article 78 to appeal the ruling in state court, argued that the AG’s office used “extrinsic” evidence against the developer, notably the failure to provide any evidence to support the argument that they committed a scrivener’s error, however did not allow CRP/Extell to challenge the buyers on their alleged true motivations under the rules of evidence, including the use of subpoenas, depositions and other methods.

Attorney Andrew Weltchek, who is not involved in the case, said that the developers are trying to point to the Cuomo ruling as lacking proper standards and ground rules. He said the developers are trying to get a more “dispassionate” hearing in federal court, and adds the lack of fairness argument is weak, because the AG took over a year to investigate the case and that other developers have been forced to offer refunds after missing deadlines.

“They’re basically saying you can’t have a kangaroo court,” Weltchek said. “You can’t have no advance notice to us about what evidence is required and what kind of standard you’re going to judge the evidence. ”

As The Real Deal previously reported, 41 buyers filed claims to get their deposits refunded from the Rushmore developers because the offering plan provided that rescission would be offered if the first closing failed to take place by Sept. 1, 2008. The developers argued that they intended to provide a one-year window between the projected first closing and the rescission date, and that a one-digit typo caused the error.

Lawyers for certain buyers have argued that CRP/Extell came up with the typo argument to cover for an intentional lack of a one-year window and allege the developers conspired with Stroock & Stroock & Lavan to prevent the buyers from exercising their rescission rights. 

“Continuing Sponsor’s bad faith toward purchasers at the Rushmore, the sponsor has filed a challenge to the Attorney General’s well reasoned decision ordering the return of purchasers’ deposits, making claims that the Attorney General’s regulations are unconstitutional,” said Richard Cohen, who represents 33 buyers, in an emailed statement.

A spokesperson for the Carlyle Group and officials at Stroock declined to comment.

Attorney Marc Held, who represents JPMorgan Chase executive and Rushmore buyer Kelly Coffey, who filed suit against the developers in state court, said the suit is an attempt to drag the case out further.

“It remains troubling that Extell remains in denial of the terms of the offering plan and purchase agreement which they unilaterally drafted,” Held said in an e-mailed statement. “The federal appeal is a further attempt by the sponsor to delay and frustrate the legal process.”

Richard Bamberger, spokesperson for the AG, said the office was “reviewing the paperwork” as it had just received copies of the case, which was hand-delivered to the various parties. Extell officials were not immediately available for comment, nor were lawyers for the developers.

A U.S. District Court judge ordered Stroock not to release the funds
until a May 18 court hearing on the motion for a preliminary
injunction.

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