The Real Deal New York

One Mad. bankruptcy judge moves creditor disputes back to NY

Move forces part of case to start from scratch in state court after 1.5 years in bankruptcy court
By David Jones | January 22, 2012 12:00AM

Judge Kevin Gross, in an opinion released yesterday, said the case involving the luxury tower at 23 East 22nd Street, is placing an untold burden on his courtroom and cited an inability and unwillingness of the various parties to resolve several key disputes in the bankruptcy. The decision forces part of the case to start from scratch in New York State Court after 1.5 years in Bankruptcy Court in Delaware.

“These adversary proceedings are extremely contentious and there is minimal cooperation among the parties,” Gross wrote in his opinion. “It’s fair to say the parties won’t agree on what day it is.”Attorney Barry Slotnick, who represents several creditors, led by Mitchell and Barbara Kraus, who initiated One Madison Park’s involuntary bankruptcy in 2010, said he planned to pursue his claims in State Supreme Court.

“We will commence an action with regard to the fact that we’re owed many millions of dollars — or four apartments,” Slotnick told The Real Deal.

Slotnick initiated the bankruptcy case in Delaware because the condo developers were incorporated there, and by moving the case to Bankruptcy Court, Slotnick had a better chance of collecting money owed to his clients. In state court, the senior lenders would have taken nearly all of the money without having to pay out junior creditors.

IStar Financial filed to foreclose on One Madison Park in 2009 after defaulting on more than $200 millions in loans. As The Real Deal  first reported, Ira Shapiro, the original co-developer of the property has been under investigation for forgery and other charges after millions of dollars in private loans and other funds were allegedly misappropriated and individual apartments to multiple parties in return for private loans designed to complete the condo.

Amalgamated Bank, a junior lender at the property, acquired the defaulted debt at the building and brought in Related Cos., to take over the property.  Eventually an agreement was worked out to allow Related and Ziel Feldman’s HFZ Group to complete the project after a lengthy legal fight in Bankruptcy Court.

A source familiar with the case noted that the judge plans to continue hearing the main arguments in the bankruptcy case, and a reorganization plan is expected to be completed later this year under the same judge.

“These are individual unit claimant disputes where the venue is being changed,” said a source familiar with the case. “It still looks like we will be out of bankruptcy in a few months.”

Feldman, who had not actually read the judge’s opinion when reached by The Real Deal, agreed that the decision would have no impact on the central bankruptcy case.

But, other lawyers in the case noted that serious disputes remain not only over title to the individual apartments, but over the very land that the condo sits on.

“This is a setback that clearly will slow them down, but might wind up finding a final resolution,” said Herrick Feinstein attorney Ray Hannigan, who represents McDonald’s, which owned some of its land under the condo building and was promised a retail space at the property.