Not everyone has the stomach for a lawsuit — taking an otherwise private disagreement into the public realm and submitting it to the cool evaluation of the court.
But sometimes situations are untenable, and parties consider judicial intervention the only recourse. The resulting lawsuits can have a broad impact, reaching beyond the businesses involved to encompass the industry as a whole.
Consider the condominium contract dispute that could affect the way New York City developers handle purchase agreements for new condos. Or the suit between residential brokers whose failed alliance could become fodder for a jury trial. Or a federal agency’s offensive against a slew of major banks over mortgage-backed securities.
On these pages, The Real Deal profiles some of the biggest active legal battles in the New York City real estate community.
Roberts v. Stuyvesant Town
Stuy Town tenants, led by Amy Roberts (left), sued Jerry Speyer’s (right) Tishman Speyer and others.Last month, a state appeals court ruled in favor of a group of Stuyvesant Town and Peter Cooper Village tenants in a decision that puts MetLife, the former owner of the 80-acre site, on the hook for an estimated $215 million in retroactive rent reimbursements.
MetLife has until early this month to appeal the decision, but will have to petition the high court to take the case, since the lower ruling was unanimous. It’s unclear whether MetLife will go this route. (An attorney for MetLife referred requests for comment to the company, which declined to discuss the case.)
If the insurance giant opts not to appeal, the parties will go back to the trial court to formulate what the rents should be going forward and how much is owed in back rent, sources said.
The case dates back to 2007, when a group of tenants, led by Amy Roberts, lodged a class action alleging that MetLife and Tishman Speyer (which paid a record $5.4 billion for the property in 2006) improperly deregulated the rent-stabilized apartments while taking J-51 benefits. Those tax breaks are provided as incentives for upgrading residential properties.
In March 2009, New York’s highest court, the Court of Appeals, ruled in favor of the tenants. Last month, a state appeals court determined that the earlier decision applied retroactively, meaning that even as a former landlord, MetLife was on the hook for rent reimbursements.
The tenants claim those reimbursements come to $215 million.
Tishman Speyer, which defaulted on its mortgage in 2010, was dropped from the case earlier this year, but special servicer CWCapital Asset Management — which took over the property after Tishman defaulted — is still a defendant.
Representatives for Tishman Speyer declined to comment on the case, as did an attorney for CWCapital.
However, if the ruling is upheld, landlords receiving J-51 tax abatements must ensure that apartments remain rent stabilized or risk lawsuits from tenants, sources say.
“I suspect there’ll be a whole industry of lawyers seeking out tenants and buildings that have paid more than their stabilized rent,” said real estate attorney David Rubin of Golenbock Eiseman Assor Bell & Peskoe.
20 Pine buyers v. 20 Pine developers
In March, nearly 70 homeowners at 20 Pine Street filed a $58.4 million suit claiming the Financial District condominium tower is rife with construction defects, blaming sponsor Africa Israel USA and seemingly every contractor, marketer and executive who ever worked on the building.
The suit, which has never been reported on, is not the first time the 258-unit tower has been the subject of litigation.
In 2009, two buyers sued the 20 Pine developers for alleged violations of ILSA, the Interstate Land Sales Full Disclosure Act. (They reached a settlement in August, court documents showed.) Later that year, Aristone Capital Funding sued developer Shaya Boymelgreen, who is no longer involved with the project, for allegedly defaulting on a $3.2 million construction loan.
That suit was dropped in early 2010; Boymelgreen could not immediately be reached for comment.
Aaron Abraham, a partner at New York law firm Goulston & Storrs, which represents Lev Leviev’s Africa Israel, vowed to fight the most recent homeowner suit, and on Sept. 12, he filed a motion to dismiss the homeowners’ claims.
“The sponsor is working diligently to meet all of its obligations under the offering plan, and will continue to work in good faith with the board and its legitimate counsel to review and address any issues affecting the building,” Abraham said in a statement.
Adam Leitman Bailey, who represents the homeowners, declined to discuss the 20 Pine suit specifically, citing his clients’ request. However, he said, lawsuits over faulty construction at new developments are among the most prevalent to emerge from the condo boom.
“Many buildings were built badly, and corners were cut, and we’ve been litigating these,” Bailey said.
Weinstein and Manhattan Apartments v. Franzblau and A.C. Lawrence
The economic downturn has, of course, spawned plenty of disputes between former business partners.
“In a down market,” said Carl Schwartz, a real estate attorney at law firm Herrick Feinstein, “those suits start showing themselves because people, when they’re losing money, start pointing fingers at each other.”
Yet few pit two firms against each other, or involve the very future existence of a business.
As The Real Deal has reported, Gerald “Jerry” Weinstein, founder of residential rental brokerage Manhattan Apartments, lodged a complaint in July claiming that Leonard Franzblau, a supermarket tycoon with at least a 50 percent stake in the firm, had conspired with rival A.C. Lawrence, which was brought on as a consultant, to push him out of the business.
The suit seeks $10 million, plus punitive damages.
The 83-year-old Franzblau and A.C. Lawrence fired back in August with claims that Weinstein attempted to freeze them out — opening up the firm to financial ruin — and defaulted on a $300,000 loan.
They are seeking $1 million in damages, plus payment on the loan.
The case is on a fast track in order to protect the business, according to Philip Greenberg, the defendants’ attorney, with both parties busy collecting testimony and exchanging documents.
Weinstein and Franzblau, founder of Pioneer Supermarkets, had originally teamed up in 2008, when the latter invested $2 million in Manhattan Apartments. He later hired A.C. Lawrence principals Larry Friedman and Anthony DeGrotta, who are also named as defendants, to help turn the business around.
Franzblau claims he acquired a further 20 percent stake in the firm with an additional $600,000 investment, bringing his total interest in the firm up to 70 percent. But Weinstein disputes the validity of his later investment.
“For a guy who likes to invest in distressed companies, it was a perfect situation,” Greenberg said.
Weinstein and his attorney did not immediately respond to requests for comment.
Stephen Ross v. Bacolitsas
One of the most closely watched real estate cases in the city centers on the battle between developer Stephen Ross and two of his buyers at the Brompton on the Upper East Side.
The dispute is a technical one, which centers on whether ILSA requires developers to ensure that sales contracts — and not merely property descriptions — for new construction are in a suitable form for filing with the city, known in legalese as “recordable” form.
In September 2010, a federal judge ruled that it does, handing a victory to Vasilis Bacolitsas and Sofia Nikolaidou, prospective condo buyers who sued to get out of a $3.4 million condo purchase at the Brompton, developed by Ross’s Related Companies, after signing a sales contract and putting down part of a deposit. The decision let them revoke their contract and recover $520,000.
Now on appeal before the Second Circuit, the decision has drawn cries of protest from the Real Estate Board of New York and the federal Consumer Financial Protection Bureau, both of which filed briefs supporting Related’s interpretation of the law. The Second Circuit, which has jurisdiction over New York and nearby states, heard arguments from both sides last month and could soon issue a ruling.
Requiring developers to write contracts in recordable form would create a lien against the property, scaring off commercial lenders, REBNY argued. REBNY also has concerns that the ruling would make it more difficult for buyers to obtain mortgages.
Bacolitsas and Nikolaidou, however, contend in court papers that developers could easily accommodate the switch to preparing sales contracts, not just property descriptions, in recordable form, since they would not actually have to record the contract, but merely prepare it. “It just changes the practice. It doesn’t hurt anyone,” said Bailey, their attorney.
Mark Edelstein, chair of the real estate finance practice at law firm Morrison & Foerster, said the spate of ILSA lawsuits has already changed developers’ practices. “New condos which are coming out of the ground are very sensitive to the issue,” he said.
This would not be the Second Circuit’s first ruling on ILSA. In March, the court ruled on an ILSA exemption for condos smaller than 100 units, holding that the Fifth on the Park and One Hunters Point condos, in Harlem and Long Island City, respectively, were not exempt from the law, overturning a lower court ruling.
The Apthorp: Mann v. Africa Israel and Broadwell Management
It seems that few projects have triggered as much litigation as the Apthorp, the 163-unit Upper West Side rental building that developer Maurice Mann and Africa Israel USA bought for $426 million in 2006 to convert to luxury condos.
After lenders threatened foreclosure proceedings in 2008, Africa Israel’s Leviev sued to oust Mann as managing partner. Mann agreed to step down, but later responded with his own suit seeking to halt an agreement to restructure the building’s debt.
That suit has since been settled.
But in March, Mann lodged a complaint claiming his former business partners at Africa Israel and his replacement as managing partner, Andrew Ratner of Broadwell Management, reneged on a deal to sell him a specific unit at the condo conversion that at one time was on the market for $12.2 million, according to real estate listings website StreetEasy. A judge is currently considering a motion to dismiss the suit.
On another front, the Apthorp developers are still fighting Anglo Irish Bank, the project’s senior lender, over legal fees for their aborted attempt to block the bank’s sale of the property’s troubled $385 million building loan.
The Apthorp developers sued Anglo, headed by Alan Dukes, in September, claiming the sale of the loan would undermine the conversion.
However, as The Real Dealuncovered, they had previously sworn to the New York attorney general that the sale would not affect the project.
In October, the developers agreed to pay the AG $190,000 in fines for making misleading statements, and let buyers out of existing contracts; they also withdrew the suit.
Anglo has since asked the court to force the Apthorp to foot the bill for its defense — roughly $224,000 — but the Apthorp developers argued they are only on the hook for part of the legal costs, or $30,000 worth.
A spokesperson for the Apthorp declined to comment.
Attorneys for the Apthorp, Anglo and Mann did not return calls seeking comment. David Nathan, who represents Broadwell in the Mann suit, said his client would not comment on pending litigation.
Vilkelis v. The Holmes Team
When plans that are never written down go wrong, they often go very wrong.
In 2008, Barak Realty vice president William Vilkelis and his then-colleagues — veteran agent Catherine Holmes, her husband Thomas Holmes and Jeff Goodman — agreed to join forces under the name “The Holmes Team” and jump to Halstead Property.
Instead, the partnership fell apart, and Vilkelis was asked to leave. In 2009, he sued his former partners, accusing them of fraud and seeking $1 million in unpaid commissions and other damages. Vilkelis’s attorney, Gale Elston, said the next step in the case would hopefully be a trial.
The suit hasn’t grabbed as many headlines as the commission dispute involving Brown Harris Stevens brokers Paula Del Nunzio and Shirley Miller over the $44 million sale of the Duke Semans Mansion, which was settled last December for an undisclosed amount.
But while Vilkelis may not be as high-profile as Del Nunzio, he appears willing to fight.
Now on his fourth version of the complaint, Vilkelis has successfully added Halstead as a defendant (for allegedly withholding about $80,000 in commissions from his time at the firm). Also, a New York state judge decided the Holmes Team was indeed a partnership, against the assertions of the Holmeses and Goodman.
The defendants said in August court papers that they paid Vilkelis his full share of the roughly $126,000 in commissions the team made in 2009 — Halstead kept between 35 and 40 percent of the gross — and blamed his “argumentative and hostile” attitude for the breakup.
They are seeking $1.65 million for the alleged harm to the business.
“It’s ongoing. That’s all I’m going to say about it,” Vilkelis said. “He’s been treated completely unfairly by Halstead and members of the Holmes Team,” Elston said.
“It would be inappropriate for anyone to speak about [the case] at this point,” Catherine Holmes said.
A spokesperson from Halstead declined to comment.
Federal Housing Finance Agency v. the banks
In a bid to recover some of the losses Fannie Mae and Freddie Mac suffered from investing in residential mortgage-backed securities, or MBS, the agency tasked with overseeing the government-sponsored lenders sued 17 banking giants in federal court in New York and Connecticut in September.
The Federal Housing Finance Agency under the Obama administration is claiming that Bank of America, JPMorgan Chase, Deutsche Bank and others understated the risks on $182 billion worth of MBS by misrepresenting the characteristics of the borrowers and properties attached to the loans.
Though the cases are in their early stages, they represent a new front in the vast legal battle stemming from the subprime mortgage crisis. If the FHFA prevails, the banks could be on the hook for billions of dollars.
Critics charge that further attacks on the banks will only prolong the recovery of the housing market, and further freeze up lending.
Bank of America has said that Fannie and Freddie have publicly acknowledged their MBS losses were the result of the downturn in housing prices and the economy.
“Fannie Mae and Freddie Mac were among the most sophisticated, powerful and heavily regulated financial institutions in the U.S. mortgage finance system,” a Bank of America spokesman said in a statement. “Despite this, [they] are now seeking to hold other market participants responsible for their losses.”
The FHFA suits are unrelated to an offensive launched by a coalition of state attorneys general, who are currently in talks with some of the nation’s largest mortgage servicers to resolve claims over improper foreclosure practices.
Representatives for JPMorgan and Deutsche Bank did not immediately return calls, while an FHFA spokesperson could not immediately comment.
Loft owners v. loft tenants
Some of the biggest legal battles are fought incrementally. Such is the case with the city’s loft law.
The city passed the original Multiple Dwelling Law in 1982 as a means to convert formerly industrial buildings with illegal residents — many of them in Soho — into properly certified, rent-stabilized residential buildings. The law applied to properties with tenants living in them in the two years before the law passed (and going forward).
In mid-2010, the city expanded the law to cover a new set of buildings. This also protected a new set of tenants who had lived in their buildings going back to 2008 — a change that largely affected Williamsburg and other gentrifying Brooklyn neighborhoods.
Under the loft law, landlords can opt to deregulate apartments, and charge their current tenants market-rate rent, by buying out the tenants’ “rights and improvements,” essentially paying them for the “sweat equity” they invested to make the property livable.
One of the more impactful loft law cases is now winding through the administrative system, and involves 280 Nevins Street in the Gowanus section of Brooklyn.
At 280 Nevins, the owner purchased the “rights and improvements” from a tenant in 2003. Two years later, the owner leased the unit to a new tenant at market rate. But after the 2010 loft law took effect, that new tenant applied for rent-stabilized status.
In September, an administrative judge sided with the landlord, finding that the unit did not have to be rent stabilized because the “rights and improvement” had already been bought out in 2003. But the final say will come from the New York City Loft Board, chaired by the city’s Department of Buildings commissioner, Robert LiMandri, which could overturn the judge, said Linda Rzesniowiecki, an attorney and loft law expert who is not involved in the case.
“The question here is whether a loft tenant should get a second bite of the apple,” or a second chance to sell “rights and improvements” to landlords under the 2010 loft law, explained Rzesniowiecki.
If the current ruling is reversed in favor of the tenant, it could have widespread implications for landlords. Those landlords who believe their apartments are not rent stabilized could be on the hook, either to reregulate the units or to make a second round of “rights and improvements” payments, she said.
“Depending on what the loft board decides, the purchase of the ‘rights and improvements’ by the landlord could be undone,” she said, particularly for “recalcitrant” landlords who have not yet obtained residential certificates of occupancy.