Long Beach loses appeal in fight against $50M lawsuit

Court’s rejection sets stage for trial seeking damages

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The city was dealt another blow last week in its fight against a potentially crippling $50 million lawsuit a developer first filed in 2003: A state appellate court rejected city officials’ appeal of a Supreme Court judge’s decision that the city was in default, paving the way for a trial.

“This is a setback,” read a statement issued by the city. “However, the city will continue to defend its position vigorously during the next phase of the litigation.”

The city had appealed a 2015 ruling by Acting State Supreme Court Justice James McCormack, who granted a motion for a default judgment made by the development firm Sinclair Haberman because the city had failed to file a timely response to the suit’s amended claim for damages in a case that has been wending its way through the courts for nearly 15 years.

The developer is seeking to recoup more than $50 million in damages and profits — as well as interest and legal fees — it claims it lost after 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 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 involved in lengthy mediation with Haberman in 2012 in an attempt to settle the case.

On July 19, the State Supreme Court’s Appellate Division, Second Judicial Department, upheld McCormack’s ruling, stating, “[T]he Supreme Court providently exercised its discretion in finding that the appellants’ proffered excuse [for missing the filing deadline] was not reasonable.”

“This is a major decision here,” said Scott Mollen, an attorney for Haberman. “[The city] lost the appeal, and the impact is that the Habermans can now proceed to the damage portion of the litigation. This ruling eliminates the ability of the city to further delay the liability portion of the case.”

Mollen pointed out that court rulings in favor of Haberman in recent years included one by the Appellate Division of the State Supreme Court in Nassau County, in 2012, that reversed a judge’s decision in 2010 to dismiss most of the case and paved the way for Haberman to move forward with the suit.

A settlement that former Corporation Counsel Corey Klein reached with Haberman, which potentially could have resolved the case, was scrapped in 2015, when the City Council voted to vacate it after city officials claimed that Klein was not authorized to sign the agreement, and that trustees were not consulted or advised about it.

Based on a mediator’s recommendations — and to avoid what could potentially be a crippling financial liability for the city — both parties agreed in 2013 to enter into a “stipulation of settlement” in Nassau County State Supreme Court.

The agreement would have allowed Haberman to seek the zoning board’s approval for a revised project on Shore Road, comprising two 19-story apartment buildings instead of a previously proposed trio of 10-story structures.

According to the agreement, if the zoning board had denied the application, Haberman could have continued with the lawsuit. If the board had granted the application, Haberman would have dropped the suit.

At the time, City Manager Jack Schnirman said that the city disagreed with the terms of the agreement, and hired two law firms to defend the city, the zoning board and city officials in order “to avoid years of litigation at great expense to taxpayers.”

Klein, who is now a City Court judge, declined to comment.

Haberman subsequently reinstated the lawsuit and argued that the city had failed to respond to the amended complaint before the agreement and was therefore in default

“Since the city already reneged on a written settlement agreement,” Mollen said, “the client has very little faith in the city acting in a responsible manner, and fully expects to go to trial. Does any reasonable person believe that [Klein] would sign a settlement agreement on a dispute this significant without having received authority?”

"We’re disappointed in the court’s decision and evaluating what it means and how we move forward,” Robert Spolzino, an attorney representing the city, said of the ruling.

In addition to Morelli, the suit also named former and current zoning board members Len Torres, who is now president of the City Council; Stuart Banschick; Lorraine Divone; Michael Leonetti; Marcel Weber; Michael Fina; and the city’s building commissioner, Scott Kemins. The appellate court disagreed with McCormack’s 2015 decision to remove the individual zoning members from the case and rejected the individual defendants’ claims of “qualified immunity.”

“It means that they can be liable for damages,” Mollen said.

Last week’s ruling sparked concern among some residents about the lawsuit’s financial impact on the city, at a time when another developer, iStar, is threatening the city with a $105 million lawsuit. Last year, the council voted 3-2 to approve a $90.1 million budget, which included a 4.3 percent tax surcharge to cover the remainder of a $20 million judgment the city must pay to two former owners of the Superblock property.

Spolzino said that while Haberman is seeking $50 million, the actual amount of damages has yet to be determined. He added that the city could appeal the ruling with permission from the New York State Court of Appeals, which Mollen said is unlikely.

Asked how the city intends to pay for any final judgment, Spolzino said those discussions were premature. “Damages is now the issue, assuming we’re not allowed to take an appeal,” he said.

“It remains to be seen what the number could be, and that would be up to a judge to decide. Even if we don’t get leave now … there’s a potential for an appeal after damages.”