An update on the cantilever court case.
July 31, 2015





Dear League Member,

ASL Unite is writing to let you know what is happening with the notice of appeal which was filed in August 2014. We'd also like to hear from you if you have any questions on the case.




A well-regarded law firm has heard about the case and agreed to assist with the appeal on a pro bono basis. They've contacted Mr. Mortner, our trial attorney, and are working with him.

A BRIEF RECAP.
Last July, after considering the severe defects in the cantilever vote process, the trial court's decision endorsed the end result.

We believe this legal decision is flawed because it approves the board's actions in manipulating the cantilever vote. The decision could be used as a future legal precedent to justify misleading, incomplete and false information to improperly alter voting outcomes.

It could also be read to suggest that the board is the ultimate interpreter of the By-Laws.

If left standing, such a precedent is likely to embolden the board to manipulate future member votes on anything that they may wish to propose.

WHY THE APPEAL MATTERS.
The Constitution and By-Laws define the League's mission and all aspects of its governance. The board recently announced that they will propose major changes to the Constitution and By-Laws in the Fall of 2015.

The board has signaled that they will also be proposing a major construction expenditure. Budgeted at over $32 million, the project will be the most costly in League history.

In light of the board's proposed activities, the appeal has taken on new importance.

Our members must have true, accurate, clear and complete information, especially when evaluating major proposals from the board. This is especially true when, as in the case of these upcoming proposals, our decisions will set the League's course for many, many years to come.

We believe a successful appeal would undo a precedent in which a non-profit board is permitted to improperly manipulate and skew the approval process.

It's also important to correct any impression that a League By-Law can mean whatever the board says it means.

A successful appeal will stand as a crucial reminder to current and future boards to be responsive and true to the League's membership, our Constitution and the law.

ABOUT THE LEGAL TEAM.
A team of extremely capable attorneys has agreed to assist with the appeal. They believe the case is meritorious, well worth pursuing and that we have good and just arguments.

Judge Robert S. Smith and Katherine L. Pringle of the firm of Friedman Kaplan Seiler & Adelman LLP will present the appeal. Judge Smith served on the Court of Appeals, New York's highest court, for more than a decade. During this time, he wrote scores of opinions and became well known for his judicial scholarship, insight and intellectual rigor. He is a fully-active litigation partner at Friedman Kaplan, handling trials and appeals.

Please see the "Key Points and Timeline" below for details and let us know if you don't agree that we should move forward with the appeal.

Sincerely,
ASL Unite
(800) 837-1227
E-mail





The Cantilever Court Case:
Key Points and Timeline.
The goal of presenting a case to the appellate court is to determine if the trial or lower court correctly applied the law. The following is a summary of the main issues to be presented:
  1. The trial court erred by holding that the Cantilever Transaction was approved by the League membership, since approval was not given under the plain language of the ASL bylaws.

    1. The plain language of League By-law 31 says that the Cantilever Transaction had to be approved by a majority of members "entitled to vote". (Below, Fig 25 )

    2. By-law 30 says that both Active and Inactive members were entitled to vote at the February 12 members' meeting. (Fig 26)

  2. The trial court erred by holding that the ASL Board's misstatements and omissions did not invalidate the members' vote on the Cantilever Transaction as a matter of law.

    1. The central message of board's cantilever information campaign was false: "If you don't vote it counts as a 'NO' vote!" The certified vote results submitted as evidence showed that no abstaining member of any class, "Inactive" or "Active", was counted as a "No" vote. (Fig 31)

    2. The trial court erred in applying the business judgment rule to protect the board's decision to include materially misleading statements and omissions in information it distributed to League members about the Cantilever Transaction. (Fig 21)

    3. The business judgment rule is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.

  3. The trial court erred in prematurely dismissing the case.

    1. At a minimum, Plaintiffs demonstrated genuine issues of material fact. A genuine issue of material fact is a dispute over a material fact upon which the outcome of a legal case may rely, and which therefore must be decided by a judge or jury and is precluded from summary judgment.

    2. Among the genuine issues of material fact were (i) whether the Board's misleading statements materially impacted the outcome of League members' vote on the Cantilever Transaction (Fig 33) and (ii) whether the statement that the Cantilever Transaction was "all or nothing" was a material misstatement.
For reference, a timeline highlighting key dates is provided below.
May 2013
Extell president Gary Barnett contacts the League about purchasing 6,000 -- one third -- of the League's remaining 18,200 square feet of development rights.




June 3, 2013
Appraiser Jerome Haims Realty ("Haims") delivers an appraisal of $480. per square foot for the development rights. Haims' letter does not show how he arrived at that price. At Haims' price, the total value of 6,000 square feet of development rights is $2,880,000.




Seven months later, an appraisal from Appraisers and Planners, Inc.("A&P") partially reveals Haims' method. According to A&P, Haims first appraised the League's 57th Street "underlying land value" at $800 per square foot and after reviewing unspecified "market data" sets the value at $480 per square foot. (Also see Fig. 15).




August 2013
To improve the floor plans for Nordstrom's planned department store and enlarge the floors above in the residential high-rise tower, Extell's architects conceive a cantilever design for the new building.




September 15, 2013
The ASL Board votes to sell the following to Extell's Broadway Trio affiliate for $25 million: (a) the recently-requested rights to cantilever over the League and (b) the "air rights" that Haims had appraised 3 months earlier at $2,880,000.




September 24, 2013
The board first reveals to League members "an opportunity" that will "extend a section of [Extell's] new building 30 feet over the League edifice."




September 26, 2013
The board first reveals to League members their plan to amend League By-law 31. The vote on Amendment 31 is scheduled 15 days later, on October 9, in violation of By-law 29 ("no matter may be put to a vote of the members at any meeting unless such matter has been submitted to the Board and has been posted on the bulletin not less than four weeks prior to the date of such meeting").




October 1, 2013
The ASL board holds the first of several townhall meetings to introduce ASL members to the cantilever "opportunity", telling members that $25 million is "the best price available".




The board tells any (all) members that they're permitted to vote by mail-in ballot.



October 8, 2013
In response to vigorous objections from many League members, the board abandons its plan to amend the by-laws to more quickly "solidify an agreement with Extell" at $25 million.



October 24, 2013
The board executes the cantilever conveyance contract at $25.8 million.




The 6,000 square feet of "air rights" is sold for about 1/2 of it's appraised value. (See Fig 2)




November 1, 2013
The board begins an E-mail, telemarketing, mail and in-school poster blitz emphasizing in its headline what will become the campaign's central, recurring message: "If you don't vote, it counts as a 'NO' vote!"




November 11, 2013
Jerome Haims Realty provides a second appraisal. This one sets the price for the cantilever at $28,408,800. Haims then reduces that amount by $408,800 by "rounding" down to $28 million. (See the last two lines of Fig 15 below.) Combined with the first set of development rights that Haims appraised six months earlier on June 3rd at $2,880,000, the total appraised value of the League assets to be sold is now $30,880,000.




The November 11 Haims appraisal's goal is defined as "finding the value" directly associated with (a) allowing Nordstrom to "have a larger and more valuable commercial floor area" and (b) allowing the tower's top 70 floors have more floor space on each floor ("larger floorplates").




Haims' November 11 appraisal also projects that Extell will reap profits of $4,800 to $5,000 for each $480 square foot of "air rights" sold two weeks earlier. That adds up to an Extell profit of no less than $28,800,000 for just the 6,000 square feet. (See Fig 3)




November 27, 2013
The board president tells members that "the value of the cantilever transaction was appraised at $28 million", almost $3 million less than Haims' actual valuation (See Fig 13) of the "cantilever transaction" and $5 million less than the "cantilever transaction" sale price of the October 24 contract. (See Fig 20)




December 2, 2013
The board president denies that a perpetual view easement was given at no cost to Extell in the 2005 sale of 88% of the League's air rights and that the proposed cantilevered tower will be the tallest building in New York. (See Fig 35)




December 13, 2013
The board sends direct mail to all members reminding them that they may vote by mail or by attending the vote meeting.




Early December 2013
The board begins December 2013 concerned that "members would simply not approve a transaction if the prices was less than the amount of the appraisals". Before the membership votes, the board will "have to disclose everything". Six weeks earlier, the board signed a contract with Extell with a "sale price that was $5 million below the appraised value".







November 1, 2013 to February 12, 2014
In the months leading up to the February 12 vote, the board continues inundating the membership with E-mail, telemarketing, mail and in-school posters highlighting their central campaign message: "If you don't vote, it counts as a 'NO' vote!"





(a)Web site Info Sheet Headline, November 1, 2013, (b) Info Sheet Headline, November 21, 2013, (c) Direct Mail Headline to All Members, December 13, 2013, (d) E-mail, Paragraph 3, January 8, 2014, (e) E-mail Headline, January 13, 2014, (f)E-mail, Paragraph 2, January 17, 2014, (g) E-mail, Paragraph 2, January 22, 2014 (h) 46-Page "Extell" brochure: Overview Headline, Page 9, (i) 46-Page "Extell" brochure: Official voting instructions, (j) Poster in the Art Students League's main elevator, January 2014 (k) Voicemail telemarketing message, January 2014
January 24, 2014
The League reminds the entire membership about "the All-Members Vote on the Extell Transaction" on February 12, 2014.




February 11, 2014
A special members meeting is held to vote whether to delay the February 12 cantilever vote for 8 more weeks of due diligence that would include completing independant safety, legal, financial and structural studies. As required by League By-law 26, 116 proxies from League members had been submitted to the League at least seven days prior to the meeting for validation by those who'd requested the February 11 vote. The League sent no notice disputing any member signature or proxy that they had received.




Instead, on the floor of the February 11 members' meeting, an individual who refuses to identify himself, blocks Richard Caraballo when Caraballo moves to vote the proxies on behalf of the 116 members and confiscates them. The individual will later appear in court as one of the four Venable attorneys paid to represent the board. The attorney's actions reduce the number of votes counted in favor of the 8 weeks of due diligence from 175 to 59. The votes counted in favor of voting without the 8 weeks of due diligence is 209.



Feb 12, 2014
To deliver the cantilever for Extell, League By-Law 31 requires a majority of members "entitled to vote" to approve it.




By-Law 30(3) specifies that all inactive members are entitled to vote at "any meeting of members" and "thereupon become and be an active member".




The purpose League By-Law 31 was approved by members was to "make it very difficult to sell the League" real estate.




On the day of the vote, 3945 League members were entitled to vote at the League.




The membership responds to the board's promotional campaign.















But the official vote result demonstrates the central ad message of the board's 4-month campaign is actually false: Not a single abstaining voter is counted as a "No" vote. (Also see Fig 34)










March 12, 2014
Mr. Barbieri now says that "members who did not vote should be counted in opposition is wrong."*



* Compare this statement to his June 27 sworn affidavit (Fig 34). He also misquotes the campaign message, as shown above.


April, 2014
A poll offers clues as to why so many League members did not vote: 50% of poll responders indicate that they hadn't voted because of the board's central campaign message.

"I did not vote for the Extell transaction because my understanding was that not voting is equal to a 'NO' vote."


June 27, 2014
Both the board president and the executive director file affidavits that appear to conflict with official vote results (Fig 31).




May 29, 2015
The New York Times reports that the cantilever "building is projected to generate some 4.4 billion in total sales proceeds," according to Extell's investor filings on the Tel Aviv Stock Exchange. (See Fig 17)