(Un)Civil War at Seward Park

No good deed goes unpunished. Or so the saying goes.

And nowhere could that be better seen than at Seward Park, a sprawling 1,728-unit development on the Lower East Side of Manhattan, where a co-op board’s good intentions exploded into a nasty civil war filled with acrimony, finger-pointing, and lawsuits. Neighbor was pitted against neighbor in a story about how, in the words of Seward Park board treasurer Darcey Gerstein, “a ripple became a tsunami.”

The first ripple came on December 8, 2015, when the board reported to shareholders that it had hired a consultant to explore the feasibility of expanding all parking options throughout the co-op. The announcement was greeted with a shrug.

On January 28, 2016, shareholders received a note informing them that the board had voted unanimously to convert the co-op’s 388-space parking garage and deck into a valet operation, effective March 1. The below-market-value prices for parking would not be affected, and the valet system would create 40 percent more parking spaces, reducing the waiting time for a coveted parking spot – which is more than 30 years for those who sign up today. To top it off, according to the board, valet parking would also generate annual revenues of at least $200,000.

Considering the financial windfall valet parking would bring, the length of the waiting list, and the fact that only about one-fourth of shareholders currently have parking spaces, you’d think the announcement would have been cheered by the majority and met with some grumbling by the privileged minority who already had parking spots. And that would have been the end of the story.

Instead, the board’s announcement ignited a full-blown civil war. A vocal group of shareholders claimed that the board had spent months working out a deal without soliciting any shareholder input. These dissidents noted that the board had hired the consultant nine months before the first announcement on December 8, 2015.

Gerstein, the board treasurer, explains that the board withheld “announcements or even allusions” to the impending change in order to prevent the spread of rumors and misinformation. She cites a history of “continual ugly propagandizing in an otherwise harmonious and near-utopian cooperative,” as well as past episodes of corruption and mismanagement, which, she says, have left a bitter after-taste even though they’ve been rectified since Charles H. Greenthal & Co. took over management duties in 2008.
A History of Dispute

Built in the late 1950s as a union-sponsored, limited-equity Mitchell-Lama co-op, Seward Park is no stranger to disputes. A majority of its shareholders voted to go to market-rate apartment sales in 2000 – a break from its leftist past that triggered heated debate within the co-op. More recently, in 2011, a malfunctioning voting machine caused an uproar after the co-op’s annual election, according to the New York Times. And in 2012, an online petition circulated within the co-op opposing the leasing of two commercial spaces to the 7-Eleven and Dunkin’ Donuts chains. Seward Park shareholders were divided “in typical fashion,” according to The Lo-Down, a web news page, which closely followed the controversy.

As a result of this checkered history, Gerstein says, the Seward Park board is between “a rock-and-a-hard-place in terms of disseminating information during the exploratory or research phase of a co-op project. That level of trust is lacking.” Arthur Weinstein, the general counsel for the building for a decade, agrees, noting that most major projects in Seward Park have vocal opponents and proponents among shareholders, and this often leads to acrimonious battles.
A Full-Blown Civil War

The ripple of protest became a wave as the opposition called meetings, circulated petitions, and collected signatures, arguing that the shift to valet parking was an opaque, high-handed decision. The opposition’s research led to a discovery: the Certificate of Occupancy was not changed to allow for the 40 percent increase in cars, or for the addition of hourly, daily, and weekly parking for non-co-op residents. A C of O is required for every commercial or residential area, stating the space’s legal use and occupancy. If that use changes, the property owner needs to get an amended C of O.

In a formal letter, the opposition asked the board to refrain from signing “any contracts related to the garage for at least 90 days since there were now legal reasons to reverse the board’s decision.”

As the storm clouds threatened, the board responded. On February 10, shareholders received a six-page notification from the board, emphasizing how valet parking would improve everybody’s parking experience. On February 22 , the board went further, issuing its first-ever State of the Co-op Memorandum, citing its fiduciary duty to keep maintenance low in the face of sharp rises in real estate taxes and other costs. The memo stated that the co-op’s annual operating budget was $25 million but its income was just $20 million. “To avoid the 35.44 percent maintenance increase that would be required to overcome such a deficit,” the board wrote, “we resolved to find new ways to generate revenue.” While real estate taxes have risen by 125 percent in the past six years (from $5.2 million to $11.7 million), maintenance has risen by just 14 percent as of 2015.

Despite these explanations, the wave of protest now became a tsunami. The board called a shareholder meeting for February 24, and the turnout was nearly unprecedented. Hundreds of shareholders, many of them visibly angry, packed a community room at the nearby Manny Cantor Center. “The change to valet parking will not go into effect on March 1,” board president David Pass announced, adding that “the lawyers and consultants are still negotiating the lease contract with Icon [the valet parking operator]. This will take a long time, maybe even several more months.”

During a question-and-answer session, several shareholders asked about the validity of the Certificate of Occupancy for the parking area. Without going into specifics, one of the board’s attorneys, Peter Axelrod, a partner in the firm Axelrod, Fingerhut & Dennis, said: “Nothing illegal is happening or will happen.”

Shareholders were promised that every eventuality would be negotiated and included in the lease agreement. After the meeting, many shareholders seemed mollified. Some doubters even came around to applauding the board’s decision.

A Non-Issue Becomes an Issue

Seven days later – not the “several more months” announced by Pass – the board passed a motion to sign a 10-year contract with Icon Parking Systems. The vote was 6-to-5 – a major change from the unanimity of the January vote.

Harold Aranoff, one of the board members who changed his vote from “yes” to “no,” wrote an open letter to the board: “I feel I made a bad mistake when I voted for valet parking. I thought it would bring in $1.2 million. But it is only an increase of $400,000. That’s not ‘peanuts,’ but the flip tax on two or three apartments would do the same, without causing the chaos and acrimony, almost a ‘civil war’ that will pollute shareholders’ relations for years to come. We [the board] made an error by not discussing this parking change with the shareholders at an informational meeting. We voted in a vacuum, then announced our decision.”

Mendy Erez, another board member who changed his vote, has lived in Seward Park for 38 years and has spent 12 years on the board. Erez favors valet parking, but claims that at the March 2 meeting he saw the contract with Icon five minutes before he was supposed to vote on it. “I didn’t even have the time to look it over,” he says. The next day, March 3, shareholders were informed that the board had signed the 10-year contract with Icon. A day later, valet parking went into effect.

“There was no reason for this haste,” Erez says. “I asked to postpone it for 90 days until everything is worked out. We went about this in the wrong way. We should have informed people earlier about the change instead of hitting them over the head. It would have made things easier.”

On March 9, Seward Park shareholders filed a complaint about the C of O with the community board, which then passed it on to the Department of Buildings (DOB). “It’s being treated the same as any other complaint,” says Susan Stetzer, district manager of Community Board 3. “We’re waiting to see what DOB does.”
Smoking Gun or Red Herring?

Is the challenge to the C of O a valid legal point or a gratuitous roadblock? At Seward Park, as usual, the answer depends on whom you ask. The protesting shareholders seem to think they have uncovered a red-hot smoking gun. “We’re going to try to get an injunction to stop the board,” says attorney Ezra Glaser, a partner in the firm of Conde & Glaser, who was hired by some of the dissidents. “It’s [based on] the C of O, the bylaws, and the multiple-dwelling law. Essentially, I think shareholders deserved more notice, and the board exceeded their authority.”

Weinstein, the board’s attorney, says the lack of a current C of O should not delay the signing of a contract. “Those C of Os get modified and amended often,” he says. “So, why delay a profitable deal for something which can be readily corrected?”

Board treasurer Gerstein adds that the city is usually grateful when additional parking spaces are created – especially on the car-choked Lower East Side – and would have gladly overlooked the issue of the C of O. “It could have been a non-issue,” she says, “but they [the opposition] made it an issue.”

It’s an issue that’s costing the co-op money, both in lost parking revenue and added legal fees. “The income to the co-op is commensurate with the number of monthly [shareholder] parkers, so clearly we’re not where we wanted to be in that regard,” says Gerstein. “There is also a threshold we expected to reach by a certain point that would put us at the maximum income bracket. We will reach that threshold later than planned, and as such may or may not achieve the amount we budgeted for this year. We had to engage not only our attorneys, but eventually also attorneys who specialize in land use. Lawyers equal money.”
A Backlash Builds

A new petition began circulating in Seward Park in support of valet parking, and more than 500 shareholders have signed it. Some contend that the opposition’s repeated calls for transparency reveal a fundamental misunderstanding of how a co-op board functions. “Transparency is the buzzword in all co-ops,” says board attorney Axelrod, who lives in a co-op. “People don’t seem to understand that co-ops are a representative democracy, not a participatory democracy. Every decision by a board does not require a plebiscite.”

Lisa Smith, a partner in the law firm Smith, Gambrell & Russell, represents approximately 75 buildings in New York and is familiar with the kind of controversy now dividing Seward Park. She believes such disputes tend to be about appearances as much as substance.

“The change to valet parking inconveniences a few and benefits all,” Smith says. “The board has the authority to do this and the duty to do what’s best for the majority of shareholders. Even so, the board should have done better PR work, and this is really what it is – PR. People have to feel they’re included in the decision-making. Before you implement a major change, you have to explain in great detail what is going to happen. Some people will still be angry, but at least the relationship between the board and the shareholders will be better.”

Gerstein doubts that better public relations would have changed anything. “I think in this case there was no avoiding controversy,” she says. “But this got a little extreme. I didn’t anticipate people acting against their own financial interests – and in the public eye.”

As for the suggestion that the board should have kept shareholders better informed, she adds: “We held a shareholder meeting [on February 24]. We wanted it to be informational rather than a chance to solicit opinions. There’s a history of things leaking out of the board room. If we’d let that happen, we would have lost this opportunity to do something good for the entire co-op.”