New York City—New York Supreme Court Judge Saliann Scarpulla on Tuesday issued a decision denying dissident shareholders’ motion to block the sale of Starrett City, the largest federally subsidized multifamily development in the US. The property, also referred to as Spring Creek Towers, comprises 46 buildings and 5,581 apartments on 153 acres in Brooklyn.
A contract had been signed by the buyer, a joint venture between Brooksville Company LLC and Rockpoint Fund Acquisitions, L.L.C.
The plaintiffs opposing the sale include the stepchildren of defendant Carol Deane, who is the managing partner of Starrett City Associates, as well as two corporations: San Francisco, CA-based Belveron LLC, and Portland, ME-based Lower Income Housing Corporation. The corporations own a 12% interest in Starrett City and had previously attempted to outbid Brooksville and Rockpoint.
The original lawsuit filed on Sept. 28 claimed the sale price was not high enough. It alleged the processes through which Carol marketed the property, selected buyers and obtained Starrett City partnership consent to the sale were flawed. The complaint asserted that relevant information was not disclosed.
Carol is the widow of Disque Deane, the real estate mogul who developed Starrett City. As reported in GlobeSt.com, seeds of acrimony were part of the case’s drama as Carol had been a college friend of a daughter of Disque—before he left his wife to marry her.
Real estate attorney William P. Walzer, a partner at Davidoff, Hutcher & Citron, is not involved in the Starrett City lawsuit, so provided an objective explanation of this latest legal development.
“The plaintiffs’ case has not been dismissed,” Walzer tells GlobeSt.com. “The judge merely denied the preliminary injunction.”
Walzer says Judge Scarpulla went through the traditional three-part analysis in considering whether to block the sale. First, she determined there was no irreparable harm. “She said, ‘You are alleging the price is inadequate. If it turns out that you are right, that can be compensated with money. I’m not going to stop the sale from going through. If you’re right, you’ll get damages,’” says Walzer.
Second, the judge looked at the evidence presented as to whether the plaintiffs were likely to eventually prevail at trial, based on the merits of their case. Walzer notes the judge suggested the information provided to the partners to obtain consent for the sale was enough and that Carol did not breach any fiduciary duties.
Finally, Justice Scarpulla balanced the equities in the case. She did not determine an injunction was needed looking at whether any of the parties acted wrongly or were involved in self-dealing.
“I think the decision makes a lot of sense based on the well worn factors that are involved in preliminary injunctions,” says Walzer. In particular, the judge adhered to the business judgment rule, a legal doctrine which protects business directors from civil liability and avoids the judiciary’s second guessing managers’ decisions.
Because the development provides subsidized housing, Starrett City could not be priced too high without a threat of jeopardizing the rent affordability for tenants. On the other hand, there is also the simultaneous pressure to maximize profits for the shareholders.
Adding another wrinkle, because Starrett City receives government funding, the sale will need approval of state and federal agencies. As President Donald Trump inherited a 4% ownership interest in the development, the New York Times reported he stands to make approximately $14 million with the sale. Trump appointee, US Secretary of Housing and Urban Development Ben Carson, would need to sign off on the sale.
Walzer notes that any potential governmental conflicts of interest complaint would be in a separate lawsuit.
As for Belveron and Lower Income Housing Corporation’s ambitions to acquire the property—Wolzer says, “I don’t think that’s in the cards.”
The plaintiffs could continue with the lawsuit, discover more about the process for the buyer selection, the factors used in choosing the buyer, and the other offers received. With this information, they may try to obtain monetary damages.
“But these are very expensive lawsuits and it’s going to require a bundle to get there,” he says.