CALDERWOOD & HARKNESS LLP Attorneys at Law
599 Lexington Avenue, 34th Floor New York, New York 10022
Douglas Carmichael, Partner Telephone: (212) 405-7800 Facsimile: (212) 405-7801
Email: dcarmichael@calderwoodharkness.com
January 17, 2024
Via Email and First Class Mail
Helen K. Tanaka, Esq. Ridgeway, Tanaka & Schiff LLP 1 MetroTech Center, Suite 2200 Brooklyn, New York 11201
Re: Caldwell v. Whitfield et al., Supreme Court of the State of New York, Kings County, Index No. 519847/2023
Subject: Revised Settlement Proposal on Behalf of Jonathan R. Caldwell
Dear Ms. Tanaka:
We write on behalf of our clients, Jonathan R. Caldwell and Caldwell Urban Ventures LLC ("Caldwell" or "Mr. Caldwell"), in connection with the above-captioned action. We acknowledge receipt of your letter dated January 10, 2024, submitted on behalf of Marcus D. Whitfield and Pinnacle Greystone Capital LLC (collectively, "Whitfield" or the "Whitfield Parties"), in which you conveyed a settlement proposal offering the sum of $2,350,000 in full resolution of all claims asserted in this litigation. After careful consideration and extensive consultation with Mr. Caldwell, we write to convey Mr. Caldwell's revised and final counterproposal, as set forth in detail below.
I. Background and Procedural Posture
As you are aware, this action was commenced by the filing of a Summons and Verified Complaint on September 18, 2023, asserting causes of action for common-law fraud, fraudulent inducement, constructive fraud, breach of fiduciary duty, unjust enrichment, and aiding and abetting fraud. These claims arise from a series of material misrepresentations and the deliberate concealment of significant encumbrances in connection with a joint investment of approximately $14.8 million in a mixed-use development project located at 540–548 Atlantic Avenue, Brooklyn, New York 11217 (the "Subject Property"). The investment was structured through Atlantic Yards Development Partners LLC (the "JV Entity"), in which Mr. Caldwell, through Caldwell Urban Ventures LLC, holds a forty percent (40%) membership interest and the Whitfield Parties, through Pinnacle Greystone Capital LLC, hold the remaining sixty percent (60%) membership interest.
As you will further recall, the parties participated in a mediation session on December 14, 2023, before Jerome Aschkenazy, Esq., of Meridian Dispute Resolution Services LLC. At the mediation, Mr. Caldwell presented an opening demand of $4,750,000, reflecting the strength of the documentary record and the severity of the fraudulent conduct at issue. Mr. Whitfield presented an initial offer of $1,200,000. Despite extensive discussions facilitated by Mr. Aschkenazy, the parties were unable to reach an agreement at mediation. The parties have, however, continued post-mediation negotiations in good faith, as reflected by the exchange of revised proposals culminating in your January 10, 2024 letter and this response.
II. Summary of Mr. Caldwell's Claims and Damages Exposure
We take this opportunity to reiterate the strength and evidentiary foundation of Mr. Caldwell's claims. The documentary record — comprising executed agreements, internal correspondence, third-party reports, and financial records — supports each category of alleged fraud with specificity and detail. We summarize the principal categories of misconduct and resulting damages as follows:
First, Mr. Whitfield failed to disclose, and in fact affirmatively misrepresented the status of, outstanding New York City real property tax liens encumbering the Subject Property in the amount of $1,340,000. As documented in the pre-closing correspondence and the Whitfield Memorandum dated June 12, 2021, Mr. Whitfield represented to Mr. Caldwell that all outstanding tax arrearages had been "fully resolved" and that the Subject Property would be conveyed to the JV Entity free and clear of such liens. This representation was false. The liens remained outstanding at the time of closing and continue to encumber the Subject Property, exposing the JV Entity — and Mr. Caldwell's investment — to substantial financial jeopardy.
Second, Mr. Whitfield concealed the existence of a Phase II environmental site assessment completed in February 2021 by Ridgepoint Environmental Consultants LLC (the "Phase II ESA"), which revealed petroleum contamination at the Subject Property requiring estimated remediation costs of approximately $620,000. Rather than disclosing this material report, Mr. Whitfield represented to Mr. Caldwell that the Phase I environmental site assessment was "clean" and that no further environmental investigation was warranted. The deliberate suppression of the Phase II ESA constitutes a textbook case of fraudulent concealment and is fully documented in the file.
Third, the pro forma rent roll provided by Mr. Whitfield in connection with the investment projected annual gross rental income at stabilization of $2,160,000. An independent analysis subsequently prepared by Ellerby & Associates CPAs LLP determined that market rents at the Subject Property support only approximately $1,580,000 in annual gross rental income — an overstatement of approximately $580,000 per year, or approximately 26.9%. This material inflation of projected income was central to Mr. Caldwell's decision to invest at the equity level required and at the agreed-upon valuation, and it distorted the fundamental economics upon which Mr. Caldwell relied in entering into the transaction.
Fourth, Mr. Whitfield failed to disclose the existence of a consulting agreement dated April 30, 2021, between the JV Entity and Glenmore Realty Advisors Inc. ("Glenmore"), a firm controlled by Mr. Whitfield's brother-in-law, Neil Osterberg. Under this undisclosed agreement, $370,000 in project funds was paid to Glenmore as an "acquisition advisory fee," without Mr. Caldwell's knowledge, consent, or approval. This self-dealing transaction constitutes a clear breach of fiduciary duty and, given the concealment, supports the fraud claims as well.
In total, the Verified Complaint seeks compensatory damages of $6,200,000, comprising Mr. Caldwell's total equity investment of $5,920,000, his forty percent (40%) allocable share of the diverted Glenmore advisory fee ($148,000), and approximately $132,000 in carrying costs, professional fees, and lost opportunity costs directly attributable to the Whitfield Parties' fraudulent conduct. The Complaint also seeks an award of punitive damages on the fraud-based causes of action, which, as you know, are available under New York law where the conduct at issue involves a high degree of moral turpitude, and which are not subject to a statutory cap in this context.
These claims are well-supported by the documentary record, and they present significant and substantial litigation risk for the Whitfield Parties should this matter proceed to discovery and trial.
III. Response to the January 10, 2024 Offer
We acknowledge that Mr. Whitfield's revised offer of $2,350,000 represents meaningful movement from the $1,200,000 initial offer presented at the December 14, 2023 mediation, and we recognize the good faith reflected in that progression. However, the current offer remains substantially below the value of Mr. Caldwell's claims and does not adequately compensate him for his documented losses and the fraudulent conduct that gave rise to them.
The gap between the offer and Mr. Caldwell's damages claim is significant. The compensatory damages claim alone totals $6,200,000, and the current offer of $2,350,000 represents approximately 37.9% of that figure, without any consideration whatsoever for the Whitfield Parties' exposure to punitive damages. Under the circumstances — where the documentary evidence of fraud is compelling and the misrepresentations are demonstrable — a resolution at that level does not reflect a reasonable valuation of the claims at issue.
We are aware that your clients have pointed to the denial of Mr. Caldwell's motion for a preliminary injunction on November 8, 2023, by the Honorable Patricia Velez, J.S.C., as indicative of perceived weakness in Mr. Caldwell's position. We respectfully disagree with any such characterization. As the record reflects, Justice Velez's decision was based on the absence of irreparable harm — a threshold showing required for preliminary injunctive relief — and did not address, evaluate, or in any way diminish the merits of the underlying fraud claims. The court made no finding that would call into question the strength of Mr. Caldwell's substantive causes of action. Indeed, the court expressly stated that it was not reaching the merits of the fraud allegations. Accordingly, the preliminary injunction ruling provides no basis for discounting the value of the claims in settlement discussions.
IV. Mr. Caldwell's Revised and Final Counterproposal
After careful deliberation, Mr. Caldwell proposes a settlement payment of Three Million Six Hundred Thousand Dollars ($3,600,000) in full and final resolution of all claims asserted in this action.
This counterproposal represents a substantial reduction of $1,150,000 from Mr. Caldwell's opening demand of $4,750,000 at mediation and reflects Mr. Caldwell's genuine desire to resolve this matter short of trial and to avoid the further expenditure of time, resources, and litigation costs by all parties. The $3,600,000 figure takes into account the inherent uncertainties and risks of continued litigation, the time value of money, and the costs that both sides would incur through trial. It does so, however, while still reflecting the gravity of the fraudulent conduct alleged, the strength of the documentary evidence, and the substantial compensatory and punitive damages exposure facing the Whitfield Parties.
V. Proposed Structural Terms
Subject to the preparation and execution of definitive documentation, Mr. Caldwell proposes the following structural terms:
A. Payment. A lump sum payment of $3,600,000, payable within thirty (30) calendar days of the execution of a definitive settlement agreement by all parties. Payment shall be made by wire transfer of immediately available funds to the attorney trust account of Calderwood & Harkness LLP, with wire instructions to be provided upon acceptance of this counterproposal.
B. Transfer of Membership Interest
Contemporaneous with the receipt of the settlement payment, Caldwell Urban Ventures LLC shall transfer its forty percent (40%) membership interest in Atlantic Yards Development Partners LLC to Pinnacle Greystone Capital LLC, or to such designee as Pinnacle Greystone Capital LLC may designate in writing. The transfer shall be effectuated by the execution and delivery of an assignment of membership interest, containing customary representations and warranties of the transferor, including as to ownership, authority, and the absence of liens or encumbrances on the interest being transferred (other than those arising under the JV Entity's operating agreement). The assignment shall be in form and substance reasonably acceptable to both parties' counsel.
C. Mutual General Releases
The parties shall exchange mutual general releases covering all claims, counterclaims, cross-claims, causes of action, obligations, and liabilities of every kind and nature, whether known or unknown, suspected or unsuspected, that exist or may exist between Jonathan R. Caldwell, Caldwell Urban Ventures LLC, Marcus D. Whitfield, and Pinnacle Greystone Capital LLC, and that arise from or relate to (i) the subject investment in the Subject Property, (ii) the co-investment relationship between the parties, (iii) Atlantic Yards Development Partners LLC, and (iv) the above-captioned litigation. The releases shall be broadly drafted and shall run to the named parties and their respective affiliates, principals, officers, directors, members, managers, agents, employees, attorneys, heirs, executors, administrators, successors, and assigns.
D. Confidentiality and Non-Disparagement
The settlement agreement shall include comprehensive confidentiality provisions prohibiting the disclosure by any party of the existence and terms of the settlement, including the amount of the settlement payment, to any third party. These confidentiality obligations shall be subject to customary exceptions, including disclosures required by applicable law, regulation, or court order, and disclosures to the parties' respective legal, tax, and financial advisors on a need-to-know basis. The settlement agreement shall also include mutual non-disparagement provisions, pursuant to which each party shall agree not to make or publish any disparaging statements concerning the other party or its affiliates, principals, or representatives.
E. Stipulation of discontinuance
Upon execution of the settlement agreement and confirmation of receipt of the settlement payment in full, the parties shall promptly file a stipulation of discontinuance with prejudice with the Supreme Court of the State of New York, Kings County, in the form required by the court, discontinuing the above-captioned action with prejudice as to all parties and all claims.
F. Documentation. The definitive settlement agreement, mutual general releases, assignment of membership interest, and stipulation of discontinuance shall be prepared and negotiated in good faith by counsel for the parties within fifteen (15) business days following written acceptance of this counterproposal. We are prepared to circulate initial drafts of the definitive documentation promptly upon agreement on the principal terms set forth herein.
VI. The Gap Between the Parties and Finality of This Proposal
As matters currently stand, the gap between the parties' respective positions is $1,250,000 — the difference between Mr. Caldwell's counterproposal of $3,600,000 and the Whitfield Parties' January 10, 2024 offer of $2,350,000. Mr. Caldwell has made a significant concession of $1,150,000 from his initial demand in an effort to bridge the gap and bring this matter to a resolution. He considers this counterproposal to represent his final position and a fair reflection of the value of his claims, adjusted for the realities of litigation.
We wish to be direct and transparent regarding the path forward. If this counterproposal is not accepted, or if a meaningful counter-response is not received by January 24, 2024, Mr. Caldwell will promptly evaluate all available litigation options, including proceeding with discovery under CPLR Article 31 and preparing this matter for trial. In that regard, please note that Mr. Caldwell's outstanding discovery demands — including his First Set of Interrogatories and his First Request for Production of Documents, both served on November 20, 2023 — remain unanswered. This firm is prepared to move forward expeditiously with depositions and document production, and to seek appropriate relief from the court if necessary to compel compliance with Mr. Caldwell's discovery rights, should settlement not be achieved within the timeframe set forth above.
VII. Reservation of Rights
This letter and the counterproposal set forth herein are submitted solely for settlement purposes and are without prejudice to any and all of Mr. Caldwell's rights, claims, remedies, and defenses in the above-captioned litigation or otherwise, all of which are expressly reserved. Nothing in this letter shall be deemed to constitute a waiver of any claim, defense, legal position, or right of any kind, whether or not specifically referenced herein.
In accordance with Federal Rule of Evidence 408 and New York CPLR § 4547, this letter and the settlement discussions reflected herein constitute compromise negotiations and are inadmissible in any judicial, arbitral, or administrative proceeding for any purpose, including but not limited to proving the validity or invalidity of any claim or the amount of any damages.
We are hopeful that this counterproposal will serve as the basis for a prompt and constructive resolution of this matter, in the interest of all parties. I would welcome the opportunity to discuss this proposal and any questions you may have at your earliest convenience. Please do not hesitate to contact me directly at the number or email below.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Carmichael Partner
Direct: (212) 405-7814
Email: dcarmichael@calderwoodharkness.com
cc: Jonathan R. Caldwell (via email)
Francesca Morano, Esq., Calderwood & Harkness LLP
Patrick Gallagher, Esq., Calderwood & Harkness LLP