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SUPREME COURT FOR THE STATE OF NEW YORK

COUNTY OF NEW YORK


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ATLANTIC DEVELOPMENT GROUP LLC,

Plaintiff, Inde)C No.

- against-

605 WEST 42nd LLC, COMPLAINT

Defendant.
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Atlantic Development Group LLC ("Atlantic"), by its attorneys,

Golenbock Eiseman Assor Bell & Peskoe LLP and The Stolper Group LLP, on

knowledge as to its own status and actions, and otherwise upon information and belief,

for its Complaint, alleges as follows:

Nature of the Action

1. This is an action to recover for the breach by an affiiate of The

Moinian Group, a substantial developer of market-rate real estate in New York City, of a

written agreement to purchase more than $40,000,000 in air rights from a developer of

affordable housing, Atlantic, who depends on the revenues from the sale of such rights in

order to finance the construction of affordable housing in the City. The Court should

declare The Moinian Group's affliate to be in breach of the agreement, thereby enabling

Atlantic, as agreed-upon liquidated damages, to recover from escrow $3,075,000, plus

interest, supplied by The Moinian Group affiliate for this very purpose.

The Parties

2. Plaintiff Atlantic is a limited liability company organized under the

laws of the State of New York, and having its principal place of business at 155 Avenue

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of the Americas, New York, New York 10013. Atlantic is one of the leading developers

of affordable housing in New York City, having developed more than 6,500 units of such

housing since 1995.

3. Defendant 605 West 42nd LLC ("605 West 42nd,,) is a limited

liability company organized under the laws of the State of New York, and having its

principal place of business care of Josephson LLC, d//a The Moinian Group ("The

Moinian Group") at 530 Fifth Avenue, Suite 1800, New York, New York 10036. The

Moinian Group is a substantial developer of market-rate real estate in New York City.

605 West 42nd is a special purose entity that was formed, and is beneficially owned, by

The Moinian Group and its principal owner, Joseph Moinian, to develop a high-rise

residential tower at 605 West 42nd Street (on the northwest corner of 11 th Avenue) in

'Manattan.

Air Rights under the Inclusionary Housing Program

4. This dispute arises from the sale of unused floor area development

rights, otherwise known as "air rights," granted by the New York City Department of

Housing, Preservation and Development ("HPD") pursuant to its "Inclusionary Housing

Program."

5. The Inclusionary Housing Program was created in 1987 to promote

and establish economically integrated communities in Manattan, by subsidizing the

development of affordable housing in neighborhoods undergoing new development

(thereby creating a mil( of units for low- and moderate-income residents along with

market-rate apartments), through the issuance of negotiable floor area ratio ("FAR")

bonuses to participants who develop such housing.

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6. The FAR is the City's principal means of regulating the size of

buildings. It refers to the ratio of a building's total floor area 1 to the area of its zoning lot.

Each zoning district in New York City2 has an FAR control, which, when multplied by

the lot area of the zoning lot, produces the ma)Cimum floor area allowable in a building on

that lot. For e)Cample, on a 10,000 square-foot zoning lot in a district with a ma)Cimum

FAR of3.0, the floor area ofa building on that lot cannot e)Cceed 30,000 square feet.

7. The Inclusionary Housing Program provides for increases of the

floor area of residential developments in e)Cchange for the provision of affordable (i. e.,

below market-rate) housing. Under the Program, the FAR increase may be utilized at

another location within the same community districe or within a half-mile of the

affordable housing development.

8. At its most basic, the Program operates as follows: A developer of

affordable housing submits an application to HPD; upon approval of the application, the

developer and HPD enter into a written agreement governing the development of

affordable housing; HPD then authorizes the Department of Buildings to issue a building

permit allowing for a zoning bonus, which the applicant then can sell to a developer of

nearby market-rate housing.

9. The sale of FAR bonuses to market-rate developers often is a

significant component of the e)Cpected revenue stream on which lenders finance

affordable housing projects. The revenues received from the sale of FAR bonuses can

1 The "floor area" of a building is the sum of the gross area of each floor of the building, excluding
mechanical space, cellar space, floor space in open balconies, elevators or stair bulkheads and, in most
zoning districts, floor space used for accessory parking that is located less than 23 feet above curb leveL.
2 A "zoning district" is a mapped residential, commercial or manufacturing district with similar use, bulk
and density regulations.
3 There are 59 community districts in New York City, ranging in size from 900 acres to nearly 15,000
acres and in population from fewer than 35,000 residents to more than 200,000 residents. Each community
district is served by a Community Board, which acts as an advocate for the residents in its district.

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then be applied to pay down the debt and/or other costs of constructing and maintaining

affordable housing projects.

10. The original Inclusionary Housing Program (the "RIO Program"),

which stil e)Cists today, was (and is) confined to those zoning districts in the City that

permit the highest residential density, known as RIO or RIO equivalent districts. Under

the RIO Program, paricipants are granted a floor area bonus of appro)Cimately four

square feet for each square foot of newly-constructed, off-site affordable housing

developed, up to a ma)Cimum FAR bonus of 20%. In RIO and equivalent districts, the

ma)Cimum FAR is 10.0. Thus, under the RIO Program, participants are permitted to sell

the right to increase the ma)Cimum allowable FAR of a building (in a RIO or equivalent

district) to 12.0.

11. In 2005, the City e)Cpanded the Inclusionary Housing Program (the

"E)Cpanded Program") to promote affordable housing in areas other than RIO or RIO

equivalent districts. The E)Cpanded Program applied, and applies, to districts that were

rezoned to encourage housing development in medium and high densities. Such rezoned

districts include Hudson Yards, West Chelsea, the Upper West Side, 125th Street and the

East Vilage/Lower East Side in Manhattan, Greenpoint- Willamsburg, South Park Slope,

Fort Greene and Bedford-Stuyvesant South in Brooklyn, and Maspeth/Woodside,

Jamaica, Dutch Kils and Hunter's Point South in Queens.

12. Unlike the RIO Program, the E)Cpanded Program permits the

coupling of FAR bonuses with other forms of City subsidies, in order to encourage the

development of affordable housing. As a consequence, the FAR bonus granted under the

E)Cpanded Program is less than the FAR bonus granted under the RIO Program. Under

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the E)Cpanded Program, participants receive a floor area bonus of 1.25 square feet for

each square foot of affordable housing developed, up to a ma)Cimum FAR bonus, which

varies from district to district.

The Inclusionary Air Rights Purchase Agreement

13. Effective February 13,2008, Atlantic, as "Seller," and 605 West

42nd, as "Purchaser," entered into an Inclusionary Air Rights Purchase Agreement (as

amended, the "Agreement") governing the sale of floor area development rights (i.e., air

rights) to be granted under the RlO Program (the "Rights") in connection with Atlantic's

development of affordable housing at 513 West 55th Street in Manhattan ("W. 55th

Street"). Specifically, under the Agreement, Atlantic agreed to sell, and 605 W. 42nd

agreed to purchase, 231,762 square feet of floor area bonus to be issued in connection

with W. 55th Street at a price of$176.90 per square foot or a total price of $40,998,697.80

(the "Purchase Price,,).4

14. The Agreement obligated 605 W. 42nd Street to pay into escrow a

deposit of appro)Cimately 10% of the Purchase Price (the "Deposit"). The Deposit was to

be paid in three stages. A "First Deposit," in the amount of $2,050,000, was due upon

e)Cecution of the Agreement. A "Second Deposit," in the amount of$I,025,000, was due

no later than March 15,2008. And a "Third Deposit," in the amount of$I,025,000, was

due no later than May 1,2008. The Deposit was to be paid to an "Escrow Agent,"

identified as the law firm of Bryan Cave LLP ("Bryan Cave"), and held in escrow,

pursuant to the terms of a written escrow agreement (the "Escrow Agreement") attached

4 Under the Inclusionary Housing Program, 605 W. 42nd,s use of


the floor area bonus was limited to a
lòcation in an RIO or equivalent district, either within the same community district or a half-mile ofW. 55th
Street. 605 W. 42nd,s planned residential tower at 605 W. 42nd Street, where 605 W. 42nd clearly intended
to use the floor area bonus, is in an RIO district and within the same community district (Community
District No.4) as W. 55th Street.

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as Emibit A to the Agreement, until the earlier of either (i) 605 W. 42nd,s subsequent

delivery of a letter of credit or (ii) the termination of the Agreement.

15. Pursuant to the Agreement, no later than September 1,2008,605

W. 42nd was required to deliver a clean, irrevocable letter of credit (the "Letter of

Credit") in an amount equal to fifty percent of the Purchase Price to be held by a different

escrow agent, the law firm of Roemer Wallens & Mineu)C LLP ("Roemer"), under terms

substantially similar to those in the Escrow Agreement. The Letter of Credit was to

name Roemer as the beneficiary, be for an initial term of one year with automatic renewal

thereafter and provide that it may be drawn down upon a certification by Roemer that 605

W,42nd is in default under the terms of the Agreement beyond any applicable cure period.

Upon delivery of the Letter of Credit, the Deposit was to be released back to 605 W. 42nd.

16. The Escrow Agreement provides that, within five business days

after receipt of an appropriate notice from Atlantic, the Escrow Agent is obligated to mail

such notice to 605 W. 42nd and that, unless the Escrow Agent receives written objection

from 605 W. 42nd within ten days thereafter, it shall disburse aU proceeds in escrow to

Atlantic. However, if 605 W. 42nd delivers a written objection to the Escrow Agent

within 10 days after the Escrow Agent's mailng of Atlantic's notice, the Escrow Agent is

required to await either (i) a joint instruction from Atlantic and 605 W. 42nd or (ii) a

copy of a final judgment resolving the paries' dispute, before disbursing the escrowed

proceeds.

17. The Agreement contains e)Ctensive provisions regarding either

par's failure to perform. Section 10(c) of the Agreement provides:

In the event that Purchaser fails to deliver the Letter of Credit as required
herein and such default is not cured within twenty (20) Business Days

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after notice, TIME BEING OF THE ESSENCE WITH REGARD TO
SUCH EXTENDED DATE, then, as Seller's sole remedy, this Agreement
may be terminated by Seller upon written notice to Purchaser, in which
event Seller shall cause Escrow Agent to disburse the Deposit to Seller as
its sole and liquidated damages, whereupon neither party shall then have
any other rights or claims against the other arising from or through this
Agreement (other than those rights or claims which are e)Cpressly provided
herein to survive the Closing), it being agreed that Seller's damages are
impossible to ascertain with certainty and said amount represents an
agreed upon liquidation of any and all claims by Seller hereunder.

18. The Agreement further provides that, "(i)n the event a dispute

arises between the parties and any litigation, arbitration or other proceeding is

commenced to enforce the provisions of this Agreement, the prevailng pary in litigation,

arbitration or proceeding shall be entitled to seek, claim and receive from the non-

prevailing pary reasonable attorneys' fees and disbursements, including court costs

through all appeals, incurred by the prevailng pary with respect thereto."

19. Effective August 7, 2008, the paries e)Cecuted an Amendment to

Inclusionary Air Rights Purchase Agreement (the "Amendment"). Among other things,

the Amendment eliminated the obligation of 605 W. 42nd to pay a Third Deposit,

redefined the term "Deposit" to include solely the First and Second Deposits, i. e., a total

of $3,075,000, e)Ctended the deadline by which 605 W. 42nd was obligated to provide the

Letter of Credit (in the amount, enumerated in the Amendment, of $20,499,348) to no

later than November 1, 2008, and provided that the Letter of Credit shall be payable and

provided to the Escrow Agent, Bryan Cave, rather than Roemer.

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605 W. 42od,s Payment of the Deposit, But Failure to
Provide the Letter of Credit in Breach of the Agreement

20. Upon e)Cecution of the Agreement, 605 W. 42nd delivered to the

Escrow Agent the First Deposit in the amount of $2,050,000, which the Escrow Agent

has been holding under the terms of the Escrow Agreement.

21. On or before March 15, Z008, 605 W. 42nd delivered to the

Escrow Agent the Second Deposit in the amount of $1 ,025,000, which the Escrow Agent

also has been holding under the terms of the Escrow Agreement.

22. Under the plain terms of the Agreement, as amended, by no later

than November 1,2008,605 W. 4Znd was obligated to provide the Letter of Credit to the

Escrow Agent. 605 W. 42od, however, did not do so.

23. By letter dated November 4,2008, therefore, Atlantic, in

accordance with the terms of the Agreement, delivered notice to 605 W. 42nd that 605 W.

42nd was in default of the Agreement for failng to deliver the Letter of Credit and that,

unless such default was timely cured, Atlantic would e)Cercise its rights under Section

10(c) of the Agreement (quoted above).

24. 605 W. 42nd Street did not cure its default. In fact, it did not

respond to the default notice at all -- at least not for the ne)Ct si)C weeks.

25. With 605 W. 42nd in default, and having failed to cure that default

within the applicable period of twenty Business Days after having been provided notice,

Atlantic, by letter dated December 5,2008, made written demand upon the Escrow Agent

for the Deposit, plus interest thereon, being held in escrow.

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26. By letter dated December 15,2008,605 W. 42nd delivered a

written objection to Atlantic's escrow demand and demanded that all escrowed property

be relinquished to it.

27. In the face of conflcting instructions, the Escrow Agent, by letter

dated December 19,2008, notified the paries that it would continue to hold in escrow the

Deposit, and all interest thereon, until it receives either written instructions jointly signed

by the parties or a certified copy of a final order directing the Escrow Agent to deliver the

Deposit to one party or the other.

CAUSE OF ACTION
(BREACH OF CONTRACT)

28. Atlantic repeats and realleges paragraphs 1 through 27 hereof, as if

fully set forth herein.

29. Atlantic and 605 W. 42nd entered into the Agreement, pursuant to

which, among other things, 605 W. 42nd agreed to deliver a Letter of Credit in the amount

of $20,499,348 to the Escrow Agent by no later than November 1,2008.

30. 605 W. 42nd breached the Agreement by virtue of failing to deliver

the Letter of Credit to the Escrow Agent by no later than November 1, 2008.

31. In accordance with the terms of the Agreement, Atlantic, by letter

dated November 4, 2008, gave written notice to 605 W. 42nd of 605 W,42nd,s default

under the Agreement. 605 W. 42nd failed to cure its default.

32. Under the plain terms of section 1 O( c) of the Agreement, therefore,

Atlantic is entitled, as liquidated damages, to direct the Escrow Agent to disburse the

entire amount of the Deposit ($3,075,000), plus interest thereon, to Atlantic.

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33. Pursuant to section 1O(f) of the Agreement, Atlantic is further

entitled "to reasonable attorneys' fees and disbursements, including cour costs through

all appeals, incurred" by it in enforcing the terms of the Agreement.

34. Atlantic has performed all of its obligations under the Agreement,

e)Ccept for those obligations for which performance has been e)Ccused or otherwise

rendered inappropriate by reason of 605 W. 42nd,s breach of the Agreement.

WHEREFORE, plaintiff Atlantic Development Group, LLC requests

judgment:

A. Declaring that 605 W. 42nd is in breach ofthe Agreement for

failng to deliver the Letter of Credit and that, pursuant to section 1 O( c) of the Agreement,

Atlantic is entitled to instruct the Escrow Agent to disburse to Atlantic the Deposit (in the

amount of $3,075,000), plus all interest thereon;

B. Awarding Atlantic, as the prevailng party, the reasonable

attorneys' fees and costs it incurred in enforcing the Agreement, including its reasonable

attorneys' fees and costs in connection with this action; and

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C. Awarding such other and further relief as the Court deems just and

proper.

Dated: New York, New York


April 30, 2009

By:
Adam C. . verstein
Pamela . Zimmerman

437 Madison Avenue


New York, New York 10022
(212) 907-7300

-and-

THE STOLPER GROUP LLP


Michael T. Stolper
155 Avenue of the Americas
New York, New York 10013
(212) 337-3502

Attorneys for Plaintif Atlantic


Development Group, LLC

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