It was a $22 Million real estate purchase, and it was built on faulty foundations.  In 71 Park Ave. S., LLC v Fox Rothschild LLP  2018 NY Slip Op 32451(U)  October 1, 2018  Supreme Court, New York County  Docket Number: 158900/2017  Judge Saliann Scarpulla determines that one of the entities has no privity (and therefore no case) while the other can (for now) state a cause of action.

“In 2014, NP, a real estate development company, identified two adjacent parcels of land – 71 4th Avenue and 82 East 10th Street – for a potential new development (the “Project”). NP intended to purchase the two parcels, combine them into one lot known as 80 East 10th Street (the “Property”),  and construct a 10-story, 34,300 gross square foot mixed-use building (the “Building”) on the Property.

As the Property was located within a C6-2A zoning district, the proposed Building was subject to certain restrictions regarding the maximum allowable floor area ratio (“FAR”). 1 The maximum allowable FAR varies on whether Inclusionary Housing is included.2 The FAR for the proposed Building, without the Inclusionary Housing bonus, was 5.95. NP states that the maximum permissible FAR for the Building was an important factor in gauging the economic feasibility of the Project, which included the purchase price for the Property.

In June 2014, NP retained SBLM to determine whether the proposed Building design conformed with the requirements set forth in New York City Zoning Resolution § 35-30. SBLM’s principal, George Fanous, allegedly confirmed that the FAR, without Inclusionary Housing, was 6.02.

NP also retained Fox as its legal counsel. On September 5, 2014, NP, through Stewart Osborne (“Osborne”) as its agent, executed an engagement letter (the “Engagement Letter”) with Fox wherein Fox agreed to provide “counsel on zoning matters for 71 4th Avenue … and 82 East 10th Street.” The Engagement Letter specifically identifies “Nava Partners LLC” as Fox’s client and in a section entitled, “Identity of Client,” further states that:

[ t ]he Firm’s only client in the Engagement is the party [Nava Partners LLC]
identified as Client in the first paragraph of this Letter. The Engagement is
not an agreement to represent any of Client’s affiliates, subsidiaries, parents
or related individuals, officers, directors, partners, members, shareholders,
employees, independent contractors or agents (collectively, “Affiliates”)
unless the Firm has specifically agreed to do so in writing. Client agrees
that the Firm’s representation of Client in the Engagement does not give
rise to an attorney-client relationship between the Firm and any of Client’s
Affiliates. ”

“In June 2015, SBLM filed a new building application with the Department of Buildings (“DOB”). The application proposed a Building with a total of25,567 square feet and a 6.02 FAR. DOB rejected the application because the proposed Building’s FAR exceeded the permissible 5.4 FAR for a mixed-use building without an Inclusionary Housing component.

Plaintiffs allege that the fair market value of the Property, using the correct 5.4 FAR, was $14.5 million, significantly less than the purchase price of $22.5 million. Plaintiffs further allege that they grossly overpaid on the purchase price, and that they were forced to pay more than $2 million in development rights to ensure that the Building was compliant with New York City Zoning Resolution§ 35-30. ”

“Here, the documentary evidence plainly and expressly refutes Plaintiffs’ claim of an attorney-client relationship between Fox and 71 Park. NP is the sole client identified in the Engagement Letter, and that letter clearly and unambiguously states that Fox does not represent any of NP’s affiliates, subsidiaries or agents. The Engagement Letter, and the attached Standard Terms, specifically disclaim the creation of an attorney-client relationship between Fox and NP’s affiliates arising out of Fox’s representation. And, contrary to Plaintiffs’ assertion, it was not umeasonable for Fox to narrowly define “client” in the Engagement Letter.

Additionally, the fact that NP allegedly informed Fox of its intention to form a single-purpose entity does not mean that Fox agreed to represent that single-purpose entity, given the Engagement Letter’s limitation on who was the “client.” 5 Notably, the “unilateral belief of a plaintiff alone does not confer upon him or her the status of a client.” Wei Cheng Chang v. Pi, 288 A.D.2d 378, 380 (2d Dept. 2001). Further, despite that the Engagement Letter provided a mechanism by which Fox’s representation could extend to an NP affiliate – i.e., an agreement to such representation by Fox in writing – NP never requested written approval of representation for 71 Park following that entity’s formation. “