Catsimatidis Clocks Win in 421a Rent Overcharge Suit

Billionaire John Catsimatidis has scored a courthouse win against tenants in one of his Prospect Heights rental buildings.

A class action lawsuit that accused Catsimatidis’ Red Apple Group of illegally overcharging tenants at 670 Pacific Street was dismissed by a state Supreme Court justice this week.

The lawsuit, filed in October, was one of several cases alleging that landlords improperly recorded an inflated first rent payment at new development rental buildings that received 421a tax abatements.

The question at the heart of the cases was whether it’s legal to offer concessions on the initial rent for units in 421a buildings and not record the price the tenant actually paid when the concessions were factored in.

Landlords argued that it’s a time-old practice, while housing advocates and Newman Ferrara, the law firm representing tenants in each of the cases, contended that the practice amounts to illegally inflating rents.

In the case of 670 Pacific, Judge Debra James sided with the landlords, noting the existence of a “one-time construction concession rider” as a key factor in her decision. Crain’s first reported the decision Friday.

Catsimatidis and his lawyers are celebrating the win, and the billionaire said he intends to try to recover attorneys’ fees from the plaintiffs “with a vengeance.” He said he didn’t plan on pursuing tenants directly, but instead would seek to recover the fees from their lawyers at Newman Ferrara.

“Basically we had a bunch of ambulance-chasing lawyers chasing all the tenants,” Catsimatidis told The Real Deal. “They sent out letters to every tenant in the whole area shopping for one of them to bite and that’s what happened. The tenants were just sucked into this deal, I believe.”

Newman Ferrara’s team has already filed a notice to appeal the decision, calling Catsimatidis’s celebration premature.

“Appellate determinations are what ultimately matter,” said Lucas Ferrara, the law firm’s partner who is handling the case along with Roger Sachar. “Tell Catsimatidis, who made his fortune selling poultry, that it’s a bit premature to start counting his chickens.”

Ferrara previously represented the billionaire developer more than five years ago in a capacity unrelated to Red Apple’s residential holdings.

Sherwin Belkin, the partner at Belkin Burden Goldman, which represented Red Apple in the matter, agreed that things would be settled at the appellate level, but he called the decision a milestone.

“This is very important in that it’s the first case that addressed the merits and found for multiple reasons that the complaint was completely lacking in merit,” he said.

Ferrara called his comment “disingenuous.”

“This decision was in response to a ‘motion to dismiss,’ which means the judge erroneously thought that a cognizable cause of action wasn’t asserted, but it is not a merits-based determination. Not by any means,” Ferrara told TRD.

In mid-June, a judge granted class certification for a similar case alleging rent overcharges against Spruce Capital Partners at 1209 Dekalb Avenue.

The outcome of these cases as they work their way through the courts is being followed closely by the industry and lawmakers. In recent months, some lawmakers have pointed to similar cases as examples of why the 421a program should be abolished.