FILED: NEW YORK COUNTY CLERK 08/31/2016 04:34 PM INDEX NO. 653549/2014 NYSCEF DOC. NO. 70 RECEIVED NYSCEF: 08/31/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------------------------------------x MFB REALTY LLC, : : Plaintiffs, : : -against- : : IAN BRUCE EICHNER, LESLIE EICHNER, : STUART EICHNER, SCOTT L. LAGER, T. : PARK CENTRAL, LLC, O. PARK CENTRAL : LLC, PARK CENTRAL MANAGEMENT LLC : and NEW YORK URBAN OWNERSHIP : MANAGEMENT LLC, : : Defendants : ------------------------------------------------------------------x Index No.: 653549/2014 (Scarpulla, J.S.C.) [PROPOSED] VERIFIED AMENDED COMPLAINT Plaintiff MFB Realty LLC ( MFB ), by its attorneys Sinnreich Kosakoff & Messina LLP, as and for its Verified Amended Complaint against defendants Ian Bruce Eichner, Leslie Eichner, Stuart Eichner, Scott L. Lager, T. Park Central, LLC ( T Park ), O. Park Central LLC ( O Park ), Park Central Management LLC ( Park Central ) and New York Urban Ownership Management LLC ( Urban Ownership ) alleges as follows: Nature of the Action 1. T Park was supposed to be a timeshare project and O Park was supposed to be an office project. Plaintiff MFB, through its predecessor in interest, invested only in the timeshare project. When it became apparent that the office project would not be viable, the defendants, who obviously preferred their 100% interest in O Park to their 90% interest in T Park, in bad faith used T Park and its assets to repurpose O Park into a competing timeshare project. The defendants obtained tens of millions of dollars in loans, largely secured by T Park s assets, for this nefarious purpose, which has borne itself out in an approximately 88% decrease in T Park s sales between 2011 and 2013. Moreover, despite this precipitous drop in T Park s sales,
defendants who control the management of both T Park and O Park through their ownership of Park Central, the managing member of both T Park and O Park have not even adjusted the allocated costs between the two entities. 2. The end result of the defendants scheme is to leave T Park paying more for less while financing the build out of O Park into a competing enterprise that has sapped almost all of T Park s sales. This has drastically and tortiously reduced the value of MFB s investment in violation of the defendants fiduciary duty to MFB. 3. In addition, the defendants have also had their operations frozen by the New York State Office of the Attorney General as a result of numerous alleged violations of the Martin Act, including deliberately withholding the offering plan from prospective purchasers, making material misrepresentations as to the equity component of the timeshare units being offered for sale, misrepresenting the extent to which the timeshare units were being offered for rent to the general public, misrepresenting the reservation policies for the timeshare units, failing to disclose its arrangement for the hypothecation or sale of notes in connections with the sale of timeshare units, and the public sale and repurchase of real estate securities without being registered as a securities broker-dealer in the State of New York. This freeze threatens to place T Park and O Park in default under the loan agreements that are primarily secured by T Park s assets, which again has drastically and tortiously reduced the value of MFB s investment in violation of the defendants fiduciary duty to MFB. 4. Overall, the defendants have, in bad faith and with no reasonable justification, breached their fiduciary duty, or aided and abetted the breach of fiduciary duty to MFB by using and diverting T Park s corporate assets for the purpose of building out O Park, which they own in its entirety, into a competing enterprise that has drained T Park s sales and drastically and 2
tortuously reduced the value of MFB s investment. As a result, MFB bring this action to hold the defendants responsible for their actions. Parties 5. Plaintiff MFB Realty LLC is a limited liability company organized and existing under the laws of the State of New York with a principal place of business located at 810 Seventh Avenue, New York, New York 10019. 6. Defendant Ian Bruce Eichner is an individual residing in the State of New York with a principal place of business located at c/o The Continuum Company LLC, 200 West 56 th Street, 30 th Floor, New York, New York 10019. 7. Defendant Leslie Eichner is an individual residing in the State of New York with a principal place of business located at c/o The Continuum Company LLC, 200 West 56 th Street, 30 th Floor, New York, New York 10019. 8. Defendant Stuart Eichner is an individual residing in the State of New York with a principal place of business located at c/o The Continuum Company LLC, 200 West 56 th Street, 30 th Floor, New York, New York 10019. 9. Defendant Scott L. Lager is an individual residing in the State of New York with a principal place of business located at The Manhattan Club, 200 West 56 th Street, New York, New York 10019. 10. Defendant T Park is a limited liability company organized and existing under the laws of the State of New York with a principal place of business located at c/o The Continuum Company LLC, 200 West 56 th Street, 30 th Floor, New York, New York 10019. 3
11. Defendant O Park is a limited liability company organized and existing under the laws of the State of New York with a principal place of business located at c/o The Manhattan Club, 200 West 56 th Street, New York, New York 10019. 12. Defendant Park Central is a limited liability company organized and existing under the laws of the State of New York with a principal place of business located at c/o The Manhattan Club, 200 West 56 th Street, New York, New York 10019. Park Central is the managing member of both T Park and O Park. 13. Defendant Urban Ownership is a limited liability company organized and existing under the laws of the State of New York with a principal place of business located at c/o The Manhattan Club, 200 West 56 th Street, New York, New York 10019. Urban Ownership is the managing member of the Manhattan Club. Background Facts 14. In or about July 1995, Jay Furman and Richard Birdoff purchased a collective ten percent (10.0%) membership interest in T Park and made initial capital contributions totaling one million dollars ($1,000,000). 15. At the time of Mr. Furman s and Mr. Birdoff s investment, defendant Ian Bruce Eichner explained that the purpose of T Park was to develop timeshare condominiums in the Park Central Hotel located at 870 Seventh Avenue, New York, New York (also known as 200 West 56th Street, New York, New York) (the Property ). 16. This residential timeshare project was to be known as the Manhattan Club. 17. At the same time, Mr. Eichner and the other defendants were also developing a commercial office space project on separate floors of the Property under a separate entity, O Park. 4
18. Moreover, Mr. Eichner and the other defendants also intended to continue operating the Park Central Hotel on a third set of floors under the entity H. Park Central LLC ( H Park ). 19. Similarly, a retail project was to be developed at the Property under the entity, R. Park Central LLC ( R Park ). 20. Thus, T Park was the Timeshare entity, O Park was the Office entity, H Park was the Hotel entity and R Park was the Retail entity. Mr. Birdoff. 21. All of the defendants specifically made these representations to Mr. Furman and 22. Indeed, the original Timeshare Offering Plan for the Manhattan Club, dated June 20, 1996 (copy annexed as Exhibit A), specifically stated this in the Nature of the Transaction section of the Introduction, referring to the office units as Tower Units : Following the recordation of the Condominium Declaration, H. Park Central LLC will become the owner of the Hotel Units, R. Park Central LLC will become the owner of the Retail Unity, O. Park Central LLC will become the owner of the Tower Units and T. Park Central LLC ( Sponsor ) will become the owner of the Timeshare Units. 23. According to O Park s 1996 Amended and Restated Operating Agreement (copy annexed as Exhibit B), its members are: Leslie Eichner (84%), Stuart Eichner (9%), Ian Bruce Eichner (5%), Alexis Promuto (1%) and Park Central (1%). 24. The initial capital contributions into O Park were minimal: Leslie Eichner ($14,250.00), Stuart Eichner ($9.00), Ian Bruce Eichner ($750.00), Alexis Promuto ($1,500.00), Park Central ($50.00). 5
25. T Park s Operating Agreement was amended in or about 1996. A copy of the Amended and Restated Operating Agreement of T Park is annexed as Exhibit C (the Operating Agreement ). 26. According to the Operating Agreement, T Park s members are: Leslie Eichner (75.19%), Stuart Eichner (8.11%), Ian Bruce Eichner (4.7%), Alexis Promuto (1%), Park Central (1%) and Jay Furman (9%) and Richard Birdoff (1%). 27. Mr. Furman and Mr. Birdoff subsequently assigned their interests to MFB Realty on or about January 1, 2006, which assignment was approved in writing by Stuart Eichner, Leslie Eichner and Ian Bruce Eichner (copy annexed as Exhibit D). 28. The initial capital investments in T Park were much more substantial than O Park: Leslie Eichner ($2,051,902.00), Stuart Eichner ($219,847.00), Ian Bruce Eichner ($863,196.00), Alexis Promuto ($124,427.00), Park Central ($24,427.00) and Jay Furman ($900,000.00) and Richard Birdoff ($100,000.00). 29. The Operating Agreement confirms that T Park s purpose is to acquire the Property pursuant to the Offering Plan and offer Timeshare Units in the Timeshare Project in accordance with the Offering Plan. See Section 3.2. 30. The Operating Agreement designates Park Central as the Managing Member of T Park. See Section 1.1. 31. Park Central, as Managing Member of T Park, has the authority to dispose of or deal the Property provided, however, that all of the foregoing shall be done in conjunction with the Company s primary purpose of offering Timeshare Units in the Timeshare Project in accordance with the Offering Plan. See Section 5.3(d). 6
32. Similarly, Park Central is authorized to borrow money for Company purposes and to pledge T Park s assets as collateral if required. See Section 5.3(e). 33. Park Central is also authorized to perform any and all acts he deems necessary or appropriate for the protection and preservation of the Company s assets. See Section 5.3(h). 34. In addition because Mr. Furman was only investing in the timeshare project, T Park, and not the office project, O Park, the hotel project, H Park or the retail project, R Park, the Operating Agreement specifically limited Park Central s ability to make certain Major Decisions without Mr. Furman s consent. See Section 5.4. 35. Specifically, Park Central is prohibited from entering into any transactions on behalf of T Park with any Affiliate of T Park or Park Central except on competitive terms. See Section 5.4(b). 36. Pursuant to the definition of Affiliates and Persons contained in Section 1.1 of the Operating Agreement, all of the defendants are Affiliates of T Park. 37. Section 5.4 also prohibits Park Central from borrowing money from a non- Institutional Lender unless the non-institutional Lender is not an Affiliate of any Member and the loan is for a fixed or variable rate without any participation in cash flow or profits. See Section 5.4 (c). 38. Section 13.2 of the Operating Agreement only requires T Park to defend and indemnify a Member in a derivative action if the Member acted in good faith and in a manner which he reasonably believed to be in the best interests of T Park. 7
The Defendants Use T Park and its Assets as the Vehicle to Build Up O Park as a Competing Enterprise 39. The timeshare project was developed in phases. In accordance with the Operating Agreement and the defendants representations to Mr. Furman and Mr. Birdoff, T Park constructed and developed Phases One, Two and Three of the timeshare project. 40. At some point thereafter, however, the defendants came to the decision that O Park s proposed office project was no longer viable. 41. As a result, the defendants decided to alter O Park s purpose into a separate timeshare project that would directly complete with T Park for timeshare sales at the Property. 42. O Park, which owned five Tower Units at the property, retained one unit and developed the other four into timeshare units as Phase Four of the Manhattan Club timeshare project. 43. Not only did the defendants have T Park develop and construct the competing timeshares for O Park, but they secured financing for this endeavor by encumbering T Park s assets. 44. Indeed, all of the obligations of O Park in connection with Phase Four of the Manhattan Club timeshare project are guaranteed by T Park. 45. Moreover, T Park routinely failed to provide MFB with any financial information. After an oral request was made, MFB was only recently provided with T Park s one-page Balance Sheets and Income Statements for the years 2011 through 2013 and a brief schedule of inter-company balances, a copy of which is annexed as Exhibit E. 46. Those documents disclosed that, despite the fact that there are numerous units available for sale, T Park s sales decreased sharply between 2011 ($17,225,345) and 2012 ($19,050,507) to 2013 ($2,158,986). 8
47. Thus, the defendants have developed, built out and sold O Park s units to the detriment of T Park. 48. Despite that, the cost of T Park s sales on a percentage basis increased from approximately 7% for 2011 ($1,062,375) and 2012 ($1,284,700) to approximately 28% for 2013 ($598,137). 49. As a result, regardless of the fact that O Park units were being sold instead of T Park units, the respective costs of those sales were not shifted to O Park, leaving T Park to pick up O Park s tab. 50. In addition, despite the sharp decrease in sales, annual general and administrative expenses for T Park remained the same at approximately $3 million from 2011 through 2013. 51. Moreover, despite the fact that the notes receivable for 2013 decreased by approximately $5 million from $33,034,555 in 2012 to $27,992,278 in 2013, T Park s interest expenses increased by almost $10,000 in the same time period from $2,036,207 in 2012 to $2,326,136 in 2013. 52. Finally, and most concerning, T Park s Balance Sheet shows an increase in institutional lending of more than $5.5 million from $28,455,886 in 2012 to $34,100,940 in 2013, and a corresponding increase in intercompany receivables of more than $6 million from $23,500,137 to $29,650,436. 53. These entries strongly suggest that T Park is incurring debt to support other related entities. Thus, the redevelopment of O Park as a residential timeshare project directly competing with T Park is being financed by institutional debt that is recorded on T Park s books and secured by T Park s assets, and interest that is paid by T Park. 9
MFB and Mr. Furman are Stonewalled in Their Attempt to Review the Books and Records of T Park 54. As a result of the numerous significant questions raised by the limited T Park financial information disclosed to MFB and Mr. Furman, MFB made a formal, written demand, pursuant to Section 14.2 of the Operating Agreement and section 1102(b) of the New York Limited Liability Company Law, dated July 11, 2014, for the books and records of T Park, a copy of which is annexed as Exhibit F. This demand detailed the need for these documents based on the significant issues raised by T Park s Balance Sheet, Income Statements and intercompany transfer schedules. 55. On or about July 29, 2014, T. Park provided a limited amount of financial information to MFB and Furman. 56. Included in this documentation was a Second Amended and Restated Loan and Security Agreement for a $33,000,000 revolving loan facility between T Park and O Park as borrower and CapitalSource Bank as Lender (the Loan Agreement, copy annexed as Exhibit G). 57. In its definition section, the Loan Agreement contains the term NYUM Note which is defined as a Promissory Note in the amount of $8,646,636.79, dated as of May 26, 2011 and payable by Urban Management to T Park. 58. Pursuant to section 2.9 of the Loan Agreement the obligations under the Loan Agreement are secured in large part by T Park s ownership interest in the Property, and the NYUM Note. 59. Also produced was an accounts receivable financing agreement between O Park and T Park and Capital Source Bank LLC. 10
60. The Loan Agreement is collateralized, in large part, by the NYUM Note and at least a $3,000,000 interest in the Property (pursuant to a Resort Mortgage, of which MFB and Mr. Furman were not provided with a copy), and all of T Park s and O Park s account receivables. 61. The financial documents produced by T Park also referred to, but did not produce a copy of a promissory note to T Park payable by Urban Management, dated October 31, 2004, in the original principal amount of $12,365,044. 62. The financial documents produced by T Park also referred to, but did not produce a copy of a Consolidated Secured Promissory Note, dated August 24, 2006, in the original principal amount of $41,000,000 payable to Textron. 63. Moreover, T Park s December 31, 2013 Unaudited Financial Statements disclosed that there was a $20,777,677 loan balance due to T Park from O Park as of that date. See id. (copy annexed as Exhibit H) at p. 10. 64. T Park failed to provide any documentation or other information that would allow MFB or Furman to understand the numerous and substantial intercompany transfers and allocations between, inter alia, T Park, O Park and Urban Management, including, but not limited to, the allocation of costs, expenses, interest, principal and collateral pledged. 65. Accordingly, MFB and Mr. Furman sent a follow-up letter, dated August 18, 2014 (copy annexed as Exhibit I), to T Park demanding that T Park produce further documentation so that MFB and Mr. Furman could fully under T Park s financial operations including the basis for the numerous and substantial intercompany transfers and allocations between O Park and T Park. 66. By letter dated September 5, 2014 (copy annexed as Exhibit J), T Park responded that it would not produce any further documentation. 11
T Park s Business and Accounts Are Frozen by the Attorney General Based on Multiple Egregious Martin Act Violations 67. On July 24, 2014, the Attorney General of the State of New York (the NYAG ) commenced an action by Order to Show Cause captioned In the matter of an Inquiry by Eric T. Schneiderman, Attorney General of the State of New York against Ian Bruce Eichner, et al., New York County Index No. 451536/2014, against T Park and all of the defendants herein alleging numerous violations of the Martin Act in connection with the sale of T Park and O Park timeshare units (copy annexed as Exhibit K). 68. These claims include: (a) deliberately withholding the offering plan from prospective purchasers; (b) making material misrepresentations as to the equity component of the timeshare units being offered for sale; (c) misrepresenting the extent to which the timeshare units were being offered for rent to the general public; (d) misrepresenting the reservation policies for the timeshare units: (e) failing to disclose its arrangement for the hypothecation or sale of notes in connection with the sale of timeshare units; and (f) the public sale and repurchase of real estate securities without being registered as a securities broker-dealer in the State of New York. 69. The NYAG obtained a temporary restraining order, pursuant to General Business Law 354, preventing T Park and the defendants from engaging in the fraudulent, deceptive and illegal acts alleged in the NYAG s petition, from selling or marketing any timeshare units, and from making any withdrawals from any of their accounts (the NYAG TRO, copy annexed as Exhibit L). 70. In addition to the obvious distressing implications that T Park and the defendants have been engaging in alleged fraudulent, deceptive and illegal acts in connection with the sale of T Park and O Park timeshare units, the injunction obtained by the NYAG brings with it the 12
very real threat of default under the existing loans used to repurpose and build out O Park, to which all of T Park s assets are pledged as collateral. 71. Subsequent to the entry of the NYAG TRO, the NYAG and counsel for the defendants entered into a series of Stipulations, entered on August 1, 2014, August 14, 2014, September 4, 2014, October 21, 2014 and October 24, 2014 allowing the defendants to make certain withdrawals from specified bank accounts for the purpose of satisfying the obligations as to employee payroll (defined as salaries and wages pursuant to the New York State Labor Law), trade payables, and immediate construction costs. 72. The specified bank accounts, other than the payroll account held by the LLC responsible for the timeshare marketing, are all held by T Park under the descriptions Commission Account, Operating Checking Account and Construction Account. 73. Thus, the defendants have in bad faith diverted the corporate assets of T Park for the benefit of O Park and to the detriment of T Park s investors. FIRST CAUSE OF ACTION (Breach of Fiduciary Duty) 74. Plaintiffs repeat and reallege the allegations of paragraphs 1 through 73 of the Verified Complaint as if fully set forth herein. 75. Park Central, as the managing member of T Park, owes a fiduciary duty to MFB who, by its predecessors-in-interest, invested $1 million in capital in T Park. 76. As discussed in detail above, Park Central has breached that fiduciary duty by using T Park and its assets to build out O Park into a competing enterprise to the detriment of T Park, thus significantly, if not completely, devaluing MFB s investment and interest in T Park. 77. As a result of that breach, MFB has been directly damaged by the conduct of Park Central in an amount to be proven at trial, but believed to be in excess of $1,000,000. 13
SECOND CAUSE OF ACTION (Reckless Disregard for Fiduciary Duty) 78. Plaintiffs repeat and reallege the allegations of paragraphs 1 through 77 of the Verified Complaint as if fully set forth herein. 79. As discussed in detail above, Park Central has demonstrated a wanton or reckless disregard for that fiduciary duty by using T Park and its assets to build out O Park into a competing enterprise to the detriment of T Park, thus significantly, if not completely, devaluing MFB s investment and interest in T Park. 80. As a result of that breach, MFB has been directly damaged by the conduct of Park Central in an amount to be proven at trial, but believed to be in excess of $1,000,000, and for punitive damages. THIRD CAUSE OF ACTION (Aiding and Abetting Breach of Fiduciary Duty) 81. Plaintiffs repeat and reallege the allegations of paragraphs 1 through 80 of the Verified Complaint as if fully set forth herein. 82. As described above, defendant Park Central breached its fiduciary duties to T Park and MFB. 83. As described above, defendants Ian Bruce Eichner, Leslie Eichner, Stuart Eichner, Scott Lager, T. Park, O. Park and Urban Ownership are not fiduciaries of MFB and, upon information and belief, knowingly induced and participated in the breaches of defendant Park Central s fiduciary duties to MFB. 84. Upon information and belief, the acts of defendants Ian Bruce Eichner, Leslie Eichner, Stuart Eichner, Scott Lager, T. Park, O. Park and Urban Ownership as described herein 14
were actuated by actual malice and accompanied by a wanton and willful disregard of persons and entities that foreseeably might be harmed by those acts. 85. In addition, each of the defendants, by virtue of, among other things, their membership interests in T Park and O Park, and their overall responsibilities in connection with the Manhattan Club, which includes timeshare units owned by T Park and O Park respectively, had knowledge of and substantially assisted in the violations and breaches listed above, including but not limited to the use of T Park and its assets as a vehicle to finance and complete the build out of O Park as a competing enterprise. 86. As a result, each of the defendants conspired with and induced Park Central to breach its fiduciary duties to MFB. 87. As a result, MFB has been directly damaged by the conduct of the defendants in an amount to be proven at trial, but believed to be in excess of $1,000,000. FOURTH CAUSE OF ACTION (Breach of Operating Agreement) 88. Plaintiffs repeat and reallege the allegations of paragraphs 1 through 87 of the Verified Complaint as if fully set forth herein. 89. As noted above, T. Park s Operating Agreement requires Park Central to only dispose of or deal the Property in conjunction with the Company s primary purpose of offering Timeshare Units in the Timeshare Project in accordance with the Offering Plan. 90. T. Park s Operating Agreement also only allows Park Central to borrow money for Company purposes and to pledge T Park s assets as collateral if required. 91. In addition, T. Park s Operating Agreement precludes Park Central from entering into any transactions on behalf of T Park with any Affiliate of T Park or Park Central except on competitive terms. 15
92. T. Park s Operating Agreement also precludes Park Central from borrowing money from a non-institutional Lender unless the non-institutional Lender is not an Affiliate of any Member and the loan is for a fixed or variable rate without any participation in cash flow or profits. See Section 5.4 (c). 93. Park Central, as managing member of T Park, which is controlled by defendants Leslie Eichner, Stuart Eichner and Ian Bruce Eichner has breached, inter alia, the foregoing contractual obligations that it owes to MFB pursuant to the Operating Agreement. 94. As a direct result of that breach, MFB s investment in T. Park has been significantly, if not completely, devalued. 95. As a result, MFB has been directly damaged by Park Central s breach in an amount to be proven at trial, but believed to be in excess of $1,000,000. WHEREFORE, the plaintiff respectfully requests that the Court enter judgment against the Defendants as follows: (1) On its First Cause of Action for breach of fiduciary duty in an amount to be proven at trial, but believed to be in excess of $1,000,000; (2) On its Second Cause of Action for reckless disregard for fiduciary duty in an amount to be proven at trial, but believed to be in excess of $1,000,000, in addition to punitive damages; (3) On its Third Cause of Action for aiding and abetting breach of fiduciary duty in an amount to be proven at trial, but believed to be in excess of $1,000,000; (4) On its Fourth Cause of Action for breach of operating agreement in an amount to be proven at trial, but believed to be in excess of $1,000,000; (5) Awarding plaintiff interest, costs and attorneys fees; and 16
Awarding plaintiff such other and further relief as the Court deems just and proper. Dated: Central Islip, New York August 31,2016 By: / ', Central Islip, New York 1 1722 (63 1) 650-1200 Attorneys for Plaintiff
VERIFICATION STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) Joseph Lipari, being duly sworn, deposes and says that: I am the Executor of the Estate of Jay Furman. a memt )er of the c :orporate plaintiff in the within action. I have read the foregoing ~krified Amended Complaint and know the contents thereof. The same is true to my own knowledge, except as to the matters therein stated to be alleged upon information and belief, and as to those matters, I believe them to be true. to before me this ay of August, 20 16 Notary Public MICHELE K GAGNON N " " ~ ~ ~ ~ W!iiinNasJlluCouW 20121 CM~IIBSWI Expira~ July 31,-