The Real Deal New York

Judge rules against Extell & Carlyle in Rushmore appeal, orders release of $16M in deposits

By David Jones | January 23, 2012 01:30PM

After nearly three years of litigation in multiple venues, a state Supreme Court judge ruled last week that former Attorney General Andrew Cuomo was correct in his 2010 order for the return of $16 million in disputed escrow deposits at the Rushmore condominium.

Justice Anil Singh, in a 15-page decision, ordered co-developers Carlyle Realty Partners and Extell Development, to return the deposits to 40 buyers at the 80 Riverside Boulevard tower.In February 2009, the buyers asked AG Cuomo to order the refunds after the developers missed a September 2008 deadline to close the deal on the first sale at the 289-unit building, but the developers argued in court filings that the wrong date was published and the oversight was due to an obvious typo, or “scrivener’s error.” They claimed that the buyers only filed for the refunds after the real estate market collapsed demanding a full blown hearing to demonstrate that the buyers never really cared about the actual deadline.

Despite those arguments, Justice Anil Singh agreed with the former AG, who stated there was no scrivener’s error, because the contracts were drafted unilaterally, that the buyers’ intentions cannot be legally considered as evidence and that the developers never provided any evidence to back up the claim that the 2008 deadline was a mistake.

“The court has reviewed the attorney general’s determinations very carefully to determine whether they include any errors of law,” Singh wrote in the Jan. 19 order. “We find no such errors.”

“After over 2.5 years before the attorney general and three different courts, we are very pleased that Justice Singh has agreed with four other judges, and found that the purchasers are entitled to the return of their down payments,” Richard Cohen, attorney for 33 of the 41 condo buyers told The Real Deal in a statement. “We look forward to the escrow agent promptly returning the purchasers’ down payments.”

The developers initially filed an appeal in U.S. District Court, arguing that the entire proceedings at the AG’s office were a violation of due process under the U.S. Constitution. They claimed that there was no opportunity to have cross-examination, discovery and other wide ranging exchanges of evidence at the hearings. They were repeatedly rejected on appeal, and rushed into state court to file the Article 78 suit, which is used in NY State court to appeal local and state administrative hearings.

If successful on appeal, the developers wanted the AG to let them change the language in the offering plan to reflect what they said was their true intent, of a Sept. 1, 2008 closing date. They also wanted the chance to cross examine all of the buyers to find out whether they relied on that deadline to determine whether they wanted their deposits back.

After Cuomo was elected governor, the case was handed off to the then new AG, Eric Schneiderman.

Attorney Andrew Weltchek, who is not involved in the case, said the developers had a tough argument to make because the courts are reluctant to interfere in administrative hearings, such as escrow disputes.

A spokesperson for Schneiderman said the office was reviewing the case, and did not have any immediate statement.

Ed Normand, a partner at Boies, Schiller & Flexner, which represents the developers in this case, said he would have to check with his clients before commenting. Officials at Extell and Carlyle were not immediately available for comment.

  • Riversider

    Guess what, if you write a contract, you have to do what it says!!!!

  • Holly

    I agree with Riversider. The developer presents the contract. Buyer signs it. Then the developer years later says they had a typo. How convenient! I think the buyers should have received their refunds years ago and the developer then could have sold the units. Now he is stuck with 40 more units because of pure greed. Shameful. He has a great building and everyone loves the amenities — he just did not handle the situation in a smart manner.

  • Riversider

    Actually Holly, they’ve already sold most of the units that were under contract to other buyers. That’s how crooked these guys are. They already made money on the units, and tried to keep the deposits of people that will get nothing in return.

  • Holly

    Riversider, then that is really developer despicable behavior. To not return deposits if they all ready sold the unit is completely 100% unacceptable. One of their salespeople actually said: the buyers just wanted their deposit back because the market changed. She was convinced it was not the date. Young and naive. As if anyone would believe that. A contract is a contract. Just typical developer behavior. Greed sometimes is not good. The developer ending up hurting his reputation and a reputation is something that is hard to build up after a disaster like this. He should have acted in a more respectful manner towards the buyers.

  • There is the wider matter of continuity of possession and integrity of escrow. NYSCPLR requires that the Sponsor maintain individual IOLA escrow accounts at the prevailing rate – pennies at current levels- but – this is important, the concept of escrow may not be violated – that is – it is an oxymoron to say that escrow funds are fungible, which Extell has attempted to claim in some of its filings. This opens the door for punitive damages – especially if the sponsor turned around and later sold these same units to others. Come on Rich do your stuff – The very concept of escrow in our world of LLCs is to ensure that developers don’t leverage and Ponzi their escrows – which we all know they’ve been doing for decades, which is how they always get into trouble. Barnett is far from alone in having been accused of this, Macklow, Swig, and many other developers share that stage. Isn’t it interesting that DOS requires all sort of licensing and fees from agents and brokers but a developer is not licensed, and is exempt from open listing and many other forms of expense and accountability placed on the shoulders of appraisers, real estate agents, and mortgage brokers.