Time for an update: it looks like the mistake will cost Stroock’s client millions. The Wall Street Journal reports:
A long-simmering dispute between Extell Development Co. and individuals who agreed to buy condominiums in one of the developer’s new luxury Manhattan buildings ended Friday when the New York Attorney General ordered Extell to refund $15 million in down payments.
The ruling is a setback for the New York-based developer, which stands to lose more than $100 million in apartment sales, according to person familiar with the matter.
It is also a potential embarrassment for the white-shoe law firm Stroock & Stroock & Lavan, which prepared the offering plan for the building. The plan included a mistake that contributed to the ruling in favor of the buyers.
In our last post about this situation, several ATL commenters offered legal analysis. How did they fare?
Not very well. To all the Stroock defenders who confidently predicted that this was a case of “scrivener’s error” and that the mistake would be set aside, you were wrong.
To refresh your recollection, here’s an explanation of the error:
Both the buyers and the sponsors agree that there was an error in a date in the offering plan, a document painstakingly prepared by a major New York law firm [Stroock & Stroock & Lavan]. Now they are debating whether the mistake was a trivial clerical error that should simply be ignored, or a one-time opportunity for Rushmore buyers to back out and recover their deposits or negotiate a better deal….
Under state regulations, a sponsor is required to provide an operating budget for the first year of a new condominium, so buyers know what to expect when they move in. If the first closing does not occur by the end of the budget year, the sponsor is required to submit a new budget, and give the buyers a right to rescind their contracts.
At the Rushmore, somebody goofed. The offering plan promised to give buyers a right to back out of the plan if the first closing did not occur before the first day of the budget year, Sept. 1, 2008, rather than Sept. 1, 2009, after the last day. The first closing occurred in February 2009.
Extell (and Stroock) tried to argue that the switch in year was a minor clerical error that should not be given effect. But the New York AG didn’t buy it:
Extell has said the date was intended to be Sept. 1, 2009, and the documents contained a trivial clerical error. Attorney Richard N. Cohen, who represented a group of buyers, argued that the buyers relied on the date.
In its ruling, the attorney general said Extell “has provided no evidence that the parties intended a Sept. 1, 2009 date.”
Will Extell turn around and sue Stroock, to recover some of the $15 million it will have to refund to buyers — or the $100 million in sales that it might lose? Stay tuned.
New York Developer Must Refund Deposits to Luxury-Condo Buyers [Wall Street Journal]