RULING SAYS MTA FACES MILLIONS MORE IN DAMAGES TO RIESE ORGANIZATION IN FULTON STREET CONDEMNATION

January 31, 2012

Appellate Division Previously Affirmed Judgment Against MTA,
Ordering it to Pay $35 Million, Attorney’s Fees
and Expenses For Condemned Property

Warren A. Estis, Michael E. Feinstein of Rosenberg & Estis, P.C. Represented
Riese Organization Restaurant Operators Seeking Costs for Lost Fixtures

New York, NY – January 31, 2012 – (RealEstateRama) — The State Supreme Court has delivered yet another ruling against the Metropolitan Transportation Authority (MTA) on its use of eminent domain in the taking of 194-196 Broadway in Lower Manhattan as part of the Fulton Street Transit Center project.

State Supreme Court Justice Martin Shulman has ruled that three foodservice tenants that leased space in the building and were displaced by the condemnation, can recover damages from the MTA for the value of trade fixtures lost in the condemnation — approximately $15 million according to the tenants.

The tenants — 196 Bway TGI, Inc. (TGI), 196 Bway KFC, Inc. (KFC) and 196 Bway Food Court, Inc. (Food Court) — and were represented by Warren A. Estis, founding partner of Rosenberg & Estis, P.C., and Michael E. Feinstein, a partner in the firm. The tenants and the fee-owner of the building, DLR Properties LLC (DLR), were part of the Riese Organization.

In a condemnation, tenants are entitled to just compensation for the value of their trade fixtures. After the tenants filed claims against MTA for the value of their fixtures, and after the MTA made an advance payment to the tenants of approximately $2 million, the MTA sought to have the claims dismissed. The MTA also demanded a refund of the payments it had already paid.

The MTA claimed that because the tenants and the fee-owner shared certain elements of common control, the tenants’ separate corporate existences should be disregarded, and tenants should be treated as one and the same as the fee owner, DLR, for purposes of the condemnation. DLR, as owner of the building, after trial in its favor, had already been compensated for the value of its fee interest in the property.

Justice Shulman rejected MTA’s contentions, ruling that the tenants were, in fact, distinct corporate entities with separate tenancies in the building, and that the MTA’s claim that they were part of DLR was an inappropriate attempt to “pierce the corporate veil.” The tenants are now entitled to recover the full value of their trade fixtures from the MTA.

“We are pleased with the decision rendered by Justice Shulman,” said Estis. “The MTA’s approach on this matter has been very costly, because on top of the awards against them, the MTA is accruing interest at 9 percent for each year since the condemnation, which took place in 2006.”

This is the just latest is a series of rulings that have rejected MTA’s attempts to deprive the Riese Organization of just compensation for MTA’s condemnation of 194-196 Broadway.

With respect to MTA’s condemnation of DLR’s fee interest in the property, MTA had initially undervalued the property at only approximately $15 million. After the Riese Organization challenged the MTA’s valuation and took the matter to trial, State Supreme Court ruled that the MTA must pay DLR $35.2 million for the condemnation of DLR’s fee interest. The Appellate Division, First Department affirmed that ruling in July 2011.

In addition, because the condemnation award substantially exceeded the MTA’s initial undervaluation, Supreme Court ruled that the MTA was also liable to DLR for its attorneys’ fees and expenses in connection with the condemnation of 194-196 Broadway. The Appellate Division affirmed that ruling in July 2011 as well.

Warren A. Estis and Michael E. Feinstein represented DLR Properties in the previous cases before the Supreme Court and Appellate Division.

Founded in 1979, Rosenberg & Estis, P.C. is widely recognized as one of New York City’s pre-eminent real estate law firms. Rosenberg & Estis, P.C. represents clients in all aspects of real estate development, transactions, financing, litigation, rent regulation and governmental affairs.

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