The legal war over 111 West 57th Street is opening along another front. Hedge fund IsZo Capital sued Richard Bianco, the head of the project’s former majority owner AmBase Corp., and his family for failing prevent the tower’s foreclosure and for allegedly scheming to enrich himself at the expense of shareholders.
IsZo, a major shareholder of AmBase, seeks unspecified damages. It also wants to undo a litigation funding agreement that would land Bianco a massive payout if a separate lawsuit against developers Michael Stern and Kevin Maloney is successful.
The suit was filed in New York State Supreme Court in February, and Bianco has until May 11 to respond.
A bit of background: In 2013 AmBase bought a 59 percent stake in the supertall condo project for $56 million. But the Connecticut-based holding company later fell out with the tower’s developers, Stern and Maloney. Amid lawsuits, the tower’s mezzanine loan fell out of balance. Hedge fund Baupost Group agreed to plug the hole with a $100 million loan in late 2016, but Bianco’s AmBase refused to approve the deal. In August 2017 the most junior lender, Spruce Capital, foreclosed on the property. The foreclosure left AmBase with no assets to speak of. The company is appealing the foreclosure and is waging a separate lawsuit against Stern and Maloney, seeking a $136M payout.
IsZo’s lawsuit blames Bianco for the foreclosure. It alleges Bianco refused to approve the Baupost loan unless AmBase would effectively get a multimillion-dollar payout he claimed the company was entitled to, which Stern and Maloney refused. IsZo claims there “was simply no legitimate justification” for the move. “The effect of withholding consent for the refinancing was swift and devastating,” the complaint reads. “Without the refinancing, the loan remained out of balance, and the lenders declared an event of default.”
The lawsuit also claims AmBase received offers for its stake worth more than its initial investment, but refused to sell.
But IsZo isn’t just alleging Bianco made a bad decision. It accuses him of deliberately risking foreclosure because he knew it could end up making him a lot of money. Here’s why: following the foreclosure, AmBase’s board, which is controlled by Bianco and his family members (who are named as co-defendants), signed a litigation funding agreement with Bianco. Bianco agreed to pay for the lawsuits against Spruce, Stern and Maloney. In return, he would get between 30 and 45 percent of any payout if the lawsuit is successful.
IsZo alleges that the funding agreement was Bianco’s “fallback plan all along, and it no doubt had emboldened him to make unrealistic, hardline demands as a precondition of consenting to the refinancing, and to refuse settlement offers that would have returned substantial capital to the Company’s shareholders.” IsZo also claims that the payout promised to Bianco is excessive, and that AmBase would have gotten a much better deal if it had sought outside financing.
In January, AmBase disclosed that it may sell its legal claim on 111 West 57th Street. IsZo seeks a court order blocking any sale to an entity tied to Bianco. Last month AmBase notified shareholders that the company may face ruin amid a funding shortfall.
The Real Deal broke down the company’s story in the November issue. AmBase could not immediately be reached for comment.