The Real Deal New York

Turtle Bay crane collapse developers file $100M malpractice suit

June 21, 2011 01:00PM
By David Jones

The developers of a troubled Turtle Bay condominium tower filed a $100 million malpractice lawsuit against two high-powered law firms Cozen O’Connor and Blank Rome for allegedly giving them bad zoning advice prior to the fatal March 2008 crane collapse that killed seven people at the East 51st Street site.

The developers, led by former firefighter James Kennelly of Kennelly
Development, alleged in a suit filed June 13 in New York state Supreme
Court that their former zoning lawyers provided flawed legal opinions,
which led them to overestimate the value of the property, leading to the
eventual default of $70 million in loans with Arbor Realty Trust.

“Cozen and Blank Rome’s incorrect analysis of the applicable zoning
regulations and their failure to conduct sufficient and adequate due
diligence caused plaintiff to overestimate the value or potential value of
the project,” attorney Rex Whitehorn, representing Kennelly, wrote in
the complaint, “and plaintiff made irreversible decisions with respect to
financing while relying on plaintiff’s advice.”

The case centers on whether the 303-309 East 51st Street project could be
developed under a so called “tower-on-base” configuration, in which a high-rise building is built on top of a smaller, denser building that acts like an
anchor or could be built as a stand-alone tower “as of right,” without going
through any additional modification or demolition work that would require
public hearings or approval from regulatory boards.

Kennelly originally bought several parcels on East 51st Street
and several
other sites on Second Avenue
, to make way for a 42-story high rise condo
that would be the largest residential building on the block. 

Neighborhood critics argued that Kennelly’s project violated several
zoning ordinances prior to the accident and raised questions about how the
Department of Buildings approved such a project in the first place. DOB
Commissioner Patricia Lancaster resigned
about six weeks after the crane
collapse.

The suit follows a similar action in May, when Arbor Realty Funding, the
lender on the project, filed a $69 million suit against the law firm of Herrick
Feinstein.

In that suit, Arbor accused Herrick of malpractice for allowing it to make
$70 million in short-term bridge loans, which the bank later had to foreclose
on after the accident. Herrick officials countered that they were not the
developer’s official land use lawyers, and warned Kennelly to get a full
analysis from a land-use specialist to advise it on whether it could build the
tower on a split lot. Herrick filed an answer to the complaint last month.

Following the accident, DOB ruled that it approved the site “in error” and
would not allow completion of the project under its current configuration.
Arbor later foreclosed on the project, losing more than $32 million on the
sale of the debt to investor Ziel Feldman of HFZ Capital.

A Cozen O’Connor spokesperson said: “We have not yet been served with
the complaint. When that occurs, we will respond accordingly.”

Blank Rome officials declined to comment.

Neither Kennelly nor his attorney, Whitehorn, were immediately available
for comment.

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