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Arbor Realty Funding, LLC v. Herrick, Feinstein LLP

Supreme Court of New York, New York County

July 24, 2013

ARBOR REALTY FUNDING, LLC, Plaintiff,
v.
HERRICK, FEINSTEIN LLP, Defendant. No. 651079/2011.

Editorial Note:

This decision has been referenced in a table in the New York Supplement.

Vincent J. Syracuse, Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York, for Plaintiff, Arbor Realty Funding LLC.

John Stephen McDonnell, McDonnell Daly, LLP Lake Success, Stephen Wagner, Cohen, Tauber, Spievack & Wagner P.C., New York, Rex Whitehorn, Rex Whitehorn & Associates, P.C., Great Neck, for Plaintiff, East 51st Street Development Company, LLC.

Frederick B. Warder, Patterson, Belknap, Webb & Tyler LLP, New York, for Defendant, Blank Rome LLP.

Hallie S. Goldblatt, Gerard E. Harper, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, for Defendant, Cozen O'Connor P.C.

Susan T. Dwyer, Herrick, Feinstein LLP, New York, for Defendant, Herrick, Feinstein LLP.

Kriton A. Pantelidis, Gogick Byrne & O'Neill, New York, for Defendant, Garrett Gourlay.

MEMORANDUM DECISION

CAROL R. EDMEAD, J.

In this legal malpractice action, defendant Herrick, Feinstein LLP (" Herrick" ) and defendants Garrett Gourlay and Garrett Gourlay Architect PLLC (" Gourlay" or the " Architect" ) in a related professional malpractice action, move pursuant to CPLR § 602(a), to consolidate for joint discovery and trial three actions pending before this court: (1) Arbor Realty Funding, LLC v. Garrett Gourlay, et al., Index No. 601122/2010 (the " Gourlay Action" ); (2) Arbor Realty Funding, LLC v. Herrick, Feinstein LLP, Index No. 651079/2011 (the " Herrick Action" ); and (3) East 51st Street Development Co., LLC, 968 Kingsmen, LLC and 964 Associates, LLC v. Blank Rome, LLP and Cozen O'Connor, Index No. 651623/2011 (the " Developer Action" ).[1]

Factual Background

The three cases at issue arise from, inter alia, zoning questions concerning the construction and financing of a residential tower at 303-309 East 51st Street, New York, New York (the " Project" ).

The developer of the Project, East 51st Street Development Co., LLC (" East 51st Street" or the " Developer" ) alleges that prior to May 2007, it retained Cozen O'Connor (" Cozen" ) as its legal representative in connection with determining the applicable zoning regulations for the Project, including obtaining necessary approvals from the New York City Department of Buildings (" DOB" ). Also, in May 2007, East 51st Street allegedly retained Blank Rome LLP (" Blank Rome" ) as its legal representative in connection with obtaining zoning permits for the Project (Developer Complaint, ¶¶ 20-21). As part of its engagement of Cozen and Blank Rome, East 51st Street asked each of them to confirm that the proposed Project could be lawfully constructed pursuant to the Zoning Resolution of the City of New York (the " Zoning Resolution" ). Marvin Mitzner, Esq. (" Mitzner" ), while at Cozen, allegedly began the DOB permit application process and continued the process when he left to work at Blank Rome (see Developer's Complaint, ¶¶ 130-131; Transcript, pp. 11-12).[2]

Based on the advice from Cozen and Blank Rome ( via Mitzner) regarding the applicable zoning laws and the ability to obtain permits, in April 2007, East 51st Street sought short-term bridge loans from Arbor Realty Funding, LLC (" Arbor" ) to refinance existing debt obligations and finance certain early development costs of the Project, which East 51st Street described as a " tower" building pursuant the Zoning Resolution (see Gourlay Complaint, ¶¶ 19, 21; Herrick Complaint, ¶ 6, Developer Complaint, ¶ 24). East 51st Street claims that its description of the proposed Project as a " tower" building was based on advice from Mitzner.[3] And, all parties to the loan understood and anticipated that Arbor's short-term bridge loans would be paid off by loans East 51st Street would secure from subsequent " construction lenders" a year later (Transcript, p. 10).

According to Arbor, a " tower" configuration consisting of a building constructed on less than 40% of the zoning lot can virtually rise without height restrictions, and is generally set back at least 10 feet from a wide street and at least 15 feet from a narrow street (Gourlay Complaint, ¶ 36). In contrast, a " tower-on-base" configuration consists of a tower built on top of a low, wide " base" building, which building is 60 to 85 feet high, and extends continuously along the street line (as opposed to being set back from the sidewalk) ( id. ¶ 38). A tower-on-base is typically a smaller building, while a " tower" building (as proposed) can include much more square footage (Transcript, p. 11).

In connection with collecting information to close on the loans, Arbor allegedly retained Herrick, a law firm, to analyze whether the Project could be constructed pursuant to the Zoning Resolution as proposed, and to represent it in closing the loan. Herrick allegedly sought the zoning opinion of Mitzner (as East 51st Street's " zoning counsel" ) as required by Arbor's closing file, but Mitzner was unable to give an opinion in light of his move to a new law firm and instead, suggested that " the next best thing" would be to get a certification from Gourlay (Transcript, pp. 7, 9). On May 2, 2007, Herrick allegedly requested that Mitzner obtain a " zoning certification letter" from Gourlay (the Developer's architect), addressed to Arbor, explaining that the building planned for construction is " as-of-right." (Herrick Complaint, ¶ 34). Herrick allegedly advised Arbor that the opinion from Gourlay would be meaningless as the architect was not a lawyer (Transcript, p. 8)). On May 4, 2007, Gourlay issued a letter addressed to " Arbor Realty Funding LLC" opining that " [The Project] is being developed on an as-of-right basis as a tower (without any height limit) ... and ... is not required to be developed under [New York City's tower-on-base regulations ...." (the " Gourlay Opinion" ). Herrick allegedly reviewed the Gourlay Opinion and assured Arbor of its accuracy. Thus, Arbor closed on the loans days later for a principal amount of approximately $70 million, which were to mature on March 7, 2008.

The DOB issued building permits, and construction of the tower began.

With the loans approaching maturity, in early 2008, East 51st Street sought and obtained preliminary commitments from lenders ( i .e., ULLICO for at least $187 million) for construction and mezzanine financing to repay Arbor and proceed with the next phase of construction (Transcipt, pp. 10-11). The lenders (and the DOB) then began a zoning review of the Project, during which period, Herrick assured Arbor that East 51st Street's interpretation of the Zoning Resolution was accurate (Herrick Complaint, ¶ 60).

According to Herrick, Mitzner " went back to" the DOB and " got the General Counsel of the Department of Buildings to confirm that the approvals given by the technical staff in the Department of Buildings were in fact legally correct, ULLICO notified Arbor on ... March 6th of 2008 that it had overcome its problems with the zoning issues ... [and] was prepared to close .... " notwithstanding the downturn in the economic market (Transcript, pp. 13-14).

However, after completing their due diligence, which uncovered issues concerning the zoning of the Project, in February and March 2008, two of the lenders declined to close on their loans.[4] (Gourlay Complaint, ¶¶ 44, 48). And by this time, the Developer had already completed the foundation ...


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