Another setback for Long Beach in fight against $50 million lawsuit

Court rejects city's latest motion for appeal in Haberman case

Posted

The city was dealt another blow last week when a state appellate court rejected its request to reargue an appeal in its fight against a potentially crippling $50 million lawsuit a developer first filed in 2003. City officials said they are considering another attempt to appeal the suit before the New York State Court of Appeals.

In July, a state appellate court rejected the city’s appeal of a State Supreme Court judge’s 2015 decision that Long Beach had defaulted on the lawsuit, denying the city the ability to argue in court that it was not liable for damages.

The developer, Sinclair Haberman, is seeking to recoup more than $50 million in damages and profits — as well as interest and legal fees — it claims it lost when Long Beach’s Zoning Board of Appeals revoked its permits to build three oceanfront condominium buildings on Shore Road in 2003, a project that dates back to the 1980s.

In 2015, Acting State Supreme Court Justice James McCormack granted a motion for a default judgment made by Haberman, claiming that the city had failed to file a timely response in 2012 to the suit’s amended claim for damages in a case that has been wending its way through the courts for 15 years. In July, the State Supreme Court’s Appellate Division, Second Judicial Department, upheld McCormack’s ruling, stating that the Supreme Court “exercised its discretion” in finding that the appellants’ excuse for missing the filing deadline was unreasonable.

After the July ruling, the city filed a motion asking the appellate division to allow the city to reargue its appeal or grant it permission to appeal to the New York State Court of Appeals. Both requests were denied on Nov. 20, and Scott Mollen, an attorney for Haberman, said the decision ultimately paved the way for a trial to determine damages.

“This was their last opportunity to try to overturn the default judgment,” Mollen said.

The case became a campaign issue among candidates running for City Council this year in the weeks leading up to the election, who said that the judgment could potentially bankrupt the city. Democratic incumbents Scott Mandel and Chumi Diamond both pledged that the city would continue to fight the damages being sought by Haberman.

In its suit, Haberman alleged that the zoning board bowed to political pressure from unit owners at the adjacent Sea Pointe Towers, at 360 Shore Road — including zoning board Chairman Rocco Morelli — who claimed that their views would be obstructed by the proposed condos, among other complaints.

In appealing McCormack’s ruling, city officials argued that they were not in default and that Long Beach’s former corporation counsel, Corey Klein, was involved in lengthy mediation with Haberman in 2012 in an attempt to settle the case.

An attorney representing the city, Robert Spolzino, said that while Haberman is seeking $50 million, the actual amount of damages has yet to be determined.

“We are fully prepared to defend the damages issue,” Spolzino said. “And if we go that route, you’ll see that play out over many months. Obviously, we would have preferred to win the motion, but it wasn’t unexpected, and we will continue to fight.”

Spolzino also disagreed with Mollen, and said that the city could still request an appeal before the State Court of Appeals, despite the appellate court’s rejection. “We’re evaluating our options now,” Spolzino said.

Mollen said that such a request would likely be rejected.

“It’s extremely unfortunate that a city that is financially fragile may have to deal with a judgment in excess of $50 million,” Mollen said. “The city recently raised taxes to address a [separate] $20 million judgment.”

“If there is a judgment, we have to see how much that is,” Mandel told the Herald last month. “If it requires bonding that will be the conversation. The last resort would, in my opinion, be to raise fees or to raise taxes. We’d have to look at every option available and make a decision that’s in the best interests of the residents.”

Both Mollen and Spolzino said that the city could appeal the amount of damages determined at trial.

Attempts to settle failed after contentious agreement

In 2014, the City Council voted to scrap a settlement that former Corporation Counsel Corey Klein reached with developer Sinclair Haberman in 2013, following a backlash by some city officials.

Former zoning board Trustee Stuart Banschick, then council President Scott Mandel and others claimed that Klein was not authorized to sign what Mandel termed a “terrible” agreement, and that trustees were not consulted or advised about it.

The agreement — which sparked an outcry from residents as well, on the heels of developer iStar’s proposal to build luxury apartment towers on the Superblock — would have allowed Haberman to seek the zoning board’s approval for a revised project on Shore Road that would include two 19-story apartment buildings instead of a previously proposed trio of 10-story structures. If the zoning board denied the application, Haberman could continue with the lawsuit. If the board granted the application, he would drop the suit.

At the time, City Manager Jack Schnirman said that the city disagreed with the terms of the agreement. Haberman subsequently reinstated the lawsuit and argued that the city had failed to respond to an amended complaint before the agreement was reached, and was therefore in default.

As a result, the city hired two law firms in 2014 — each at a rate of $250 per hour — to defend the city, the zoning board and city officials.

Banschick, who is among the officials named in the suit, told the Herald in 2014 that Klein misrepresented to the court that the council and the zoning board had agreed to the settlement. In an email to the Herald in August, Banschick wrote that Klein was “solely” to blame for the default. Scott Mollen, an attorney for Haberman, claims that officials were aware of the agreement and that Klein was authorized to sign off on it. Klein, now a City Court judge, has repeatedly declined to discuss the case, citing the ongoing litigation.

Asked whether Haberman would consider another settlement with the city, Mollen said, “The financial consequences to the city of this litigation are clearly on the irresponsible public officials who allowed local politics to interfere with the rights of a property owner to develop their property.”