1034-00003 · Ridgeway, Tanaka & Schiff LLP · Settlement/Mediation

settlement-analysis-memo.docx DOCUMENT Litigation

12 / 12 ← ✕

Contract analysis Extract to table

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 34th Floor New York, NY 10022

MEMORANDUM

TO: Jonathan R. Caldwell 440 East 72nd Street, Apt. 18D New York, NY 10021

FROM: Douglas Carmichael, Partner Patrick Gallagher, Senior Associate

CC: Francesca Morano, Partner Simone Laroche, Associate

DATE: December 20, 2023

RE: Settlement Analysis and Recommendation — Caldwell v. Whitfield et al., Index No. 519847/2023, Supreme Court of the State of New York, Kings County

MATTER NO.: 1034-00003

I. Purpose and Executive Summary

The purpose of this memorandum is to provide you with a comprehensive analysis of settlement prospects in Caldwell v. Whitfield et al., Index No. 519847/2023, and to recommend a negotiating strategy for post-mediation discussions following the December 14, 2023 mediation session conducted before Jerome Aschkenazy, Esq. of Meridian Dispute Resolution Services LLC. This memorandum reflects the analysis of the undersigned attorneys and incorporates information gathered through the litigation to date, the mediation process, and our independent assessment of the strengths and risks of each cause of action asserted in the Complaint.

Current Posture of the Litigation. The Complaint in this matter was filed on September 18, 2023, asserting six causes of action against Marcus D. Whitfield and Pinnacle Greystone Capital LLC: (1) common-law fraud; (2) fraudulent inducement; (3) constructive fraud; (4) breach of fiduciary duty; (5) unjust enrichment; and (6) aiding and abetting fraud (against Pinnacle Greystone Capital LLC). Defendants filed their Answer on October 23, 2023, through their counsel at Ridgeway, Tanaka & Schiff LLP, with Helen K. Tanaka serving as lead partner and Robert Feinberg as the associate handling day-to-day matters. On November 8, 2023, the Honorable Patricia Velez, J.S.C., denied our motion for a preliminary injunction seeking to restrain Whitfield and Pinnacle Greystone Capital LLC from further encumbering, transferring, or dissipating the subject property at 540-548 Atlantic Avenue, Brooklyn, New York. The mediation was conducted on December 14, 2023.

Current Gap Between the Parties. At the conclusion of the mediation session, a substantial gap remains between the parties. Your initial demand was $4,750,000, and Whitfield's initial offer was $1,200,000 — representing a spread of $3,550,000. By the close of the session, Whitfield had moved modestly to approximately $1,500,000, while you signaled a willingness to move further given adequate counteroffers. The mediator, Mr. Aschkenazy, expressed his view that a resolution in the range of $2,500,000 to $3,500,000 was achievable with continued negotiation and recommended that the parties pursue post-mediation discussions through counsel.

Bottom-Line Recommendation. Based on our risk-adjusted analysis of the claims, the likely damages recoverable at trial, the costs and risks of continued litigation, and the structural components of a potential settlement, we recommend that you authorize us to negotiate a settlement within a range of $3,200,000 to $3,800,000, with a target of $3,500,000 and a walk-away floor of $3,000,000. This settlement amount would be inclusive of the transfer of your 40% membership interest in Atlantic Yards Development Partners LLC (held through Caldwell Urban Ventures LLC) to Pinnacle Greystone Capital LLC or its designee. We believe this range represents the best risk-adjusted outcome when compared to the uncertainties, costs, and timeline of continued litigation through trial, and it delivers value comparable to or better than the probability-weighted expected recovery at trial, net of additional legal fees and expenses.

The analysis supporting this recommendation is set forth in detail below.

II. Summary of the Mediation

A. Mediation Format and Participants

The mediation was conducted on December 14, 2023, at the offices of Meridian Dispute Resolution Services LLC, located at 100 Park Avenue, Suite 1650, New York, New York 10017. The session was mediated by Jerome Aschkenazy, Esq., a former justice of the New York Supreme Court, Commercial Division, who has extensive experience mediating complex commercial disputes, including real estate investment and partnership disputes of the type at issue in this case.

The following individuals participated in the mediation on behalf of the plaintiff:

• Jonathan R. Caldwell (plaintiff)

• Douglas Carmichael, Partner, Calderwood & Harkness LLP

• Patrick Gallagher, Senior Associate, Calderwood & Harkness LLP

The following individuals participated on behalf of the defendants:

• Marcus D. Whitfield (defendant, individually and as sole member/manager of Pinnacle Greystone Capital LLC)

• Helen K. Tanaka, Partner, Ridgeway, Tanaka & Schiff LLP

• Robert Feinberg, Associate, Ridgeway, Tanaka & Schiff LLP

The mediation began at approximately 9:30 a.m. with an opening joint session in which each side presented a summary of its position. This was followed by a series of caucus sessions throughout the day, during which the mediator shuttled between the parties, conveying offers and counteroffers and engaging in reality-testing with each side separately. The session concluded at approximately 5:45 p.m. without an agreement.

B. Opening Positions

Caldwell's Opening Demand: $4,750,000. Your opening demand was structured as a complete buyout of your 40% membership interest in Atlantic Yards Development Partners LLC, plus compensatory damages reflecting out-of-pocket losses, carrying costs, professional fees, and your allocable share of the diverted Glenmore Realty Advisors Inc. consulting fee. The demand was supported by a written mediation statement that detailed the factual basis for each claim, the documentary evidence of concealment and misrepresentation, the Glenmore self-dealing arrangement, and the damages calculation summarized in Section V of this memorandum. The demand was presented as a comprehensive resolution that would sever the co-investment relationship in its entirety and provide full compensation for the harm suffered.

Whitfield's Opening Offer: $1,200,000. Whitfield's opening offer of $1,200,000 was framed by defense counsel as a "nuisance-value" or "business-resolution" payment intended to resolve the litigation without any acknowledgment of liability. Tanaka characterized the offer as a reflection of litigation risk, not the merits, and emphasized that Whitfield believed the claims were without merit and that the investment's underperformance was attributable to market conditions rather than any wrongful conduct. The offer was presented as contingent on a full release and transfer of your membership interest.

C. Movement During Mediation

Over the course of the day, you reduced your demand modestly during the mediation session, signaling a willingness to engage in meaningful negotiation and to move further toward a middle ground if Whitfield demonstrated a corresponding willingness to increase his offer substantially. However, Whitfield's movement was minimal. By the close of the session, Whitfield had increased his offer to approximately $1,500,000 — a modest increase of only $300,000 from his opening position. The disparity between the parties' movements was itself notable and suggested that either Whitfield was not yet prepared to negotiate in earnest or that his counsel had advised him to hold firm in the early stages to test your resolve.

Mediator Aschkenazy, who met privately with each side on multiple occasions throughout the day, indicated in caucus that it was his view that a resolution in the range of $2,500,000 to $3,500,000 was possible with further negotiation. He observed that both sides had legitimate arguments and legitimate risks, and he encouraged the parties to continue discussions through counsel in the days and weeks following the mediation. Both sides agreed to do so. The mediation concluded without an agreement, but with the understanding that post-mediation discussions would follow.

D. Observations on Defendants' Posture

Based on our observations during the mediation — including the arguments advanced by defense counsel in the joint session, the positions conveyed through the mediator during caucus, and Whitfield's personal demeanor during the proceedings — we offer the following assessment of the defendants' posture:

The "Sophisticated Investor" Defense. Defense counsel's primary theme was the "sophisticated investor" defense. Tanaka argued extensively that you are a highly experienced real estate investor with decades of experience in New York metropolitan-area real estate transactions, that you had independent access to the due diligence materials and could have ordered your own title search and environmental assessment, and that any failure discover the tax liens and environmental contamination was attributable to your own decision not to conduct independent verification rather than to any concealment by Whitfield. This defense will be a central issue at trial and, as discussed in Section III below, presents a genuine risk to the justifiable reliance element of the fraud claims.

Characterization of Rent Roll Projections. Whitfield took the position, conveyed through counsel, that the pro forma rent roll projections circulated in March 2021 were forward-looking estimates based on reasonable market assumptions at the time they were prepared, not guarantees of specific financial outcomes. Defense counsel argued that any overstatement relative to actual market rents was within a reasonable range of market uncertainty and did not constitute actionable misrepresentation. This argument has some force but is undermined by the magnitude of the overstatement (approximately 26.9% above independently assessed market rents, as detailed below).

The Glenmore Realty Advisors Inc. Issue. Perhaps the most notable observation from the mediation was the defendants' apparent discomfort with the Glenmore Realty Advisors Inc. consulting agreement. Tanaka did not contest the existence of the $370,000 payment to Glenmore but characterized it as a customary acquisition advisory fee that fell within the managing member's authority under the operating agreement of Atlantic Yards Development Partners LLC. Notably, Tanaka did not directly address or deny the relationship between Neil Osterberg (Glenmore's principal) and Whitfield (Osterberg is Whitfield's brother-in-law), nor did she offer any documentary evidence that the fee was disclosed to you or approved by Caldwell Urban Ventures LLC as a co-member. The defense's relatively muted response on this issue suggests an awareness that the Glenmore self-dealing arrangement represents significant exposure, particularly on the breach of fiduciary duty and punitive damages theories.

Overall Impression. It is our overall impression that the defendants recognize they have meaningful exposure on at least some of the claims — particularly the concealment of the tax liens and the Phase II environmental report, and the Glenmore self-dealing arrangement — but are banking on the sophisticated investor defense and the costs and delays of protracted litigation to pressure a lower resolution. We believe that the defendants' settlement posture will become more realistic as the case progresses into discovery and the documentary evidence becomes more fully developed. However, we also believe that a well-structured post-mediation negotiation, supported by the analysis in this memorandum, has a meaningful probability of reaching a reasonable resolution within the range we recommend.

III. Evaluation of Claims — Strengths and Risks

In this section, we evaluate each of the six causes of action asserted in the Complaint, identifying the principal strengths and risks associated with each claim and providing our assessment of the likelihood of success at trial. These assessments are based on our experience with similar cases, the evidence currently available, and our evaluation of the likely arguments at trial.

A. Common-Law Fraud (First Cause of Action)

Strengths. The common-law fraud claim is anchored in strong documentary evidence of material misrepresentations and omissions by Whitfield in connection with the co-investment.

First, and most significantly, there is clear documentary evidence that $1,340,000 in New York City real property tax liens existed against the subject property at the time of the investment, and that Whitfield affirmatively represented to you that all prior tax obligations had been resolved. The tax lien records are a matter of public record with the New York City Department of Finance, and we have obtained certified copies establishing both the existence and the amounts of the liens. Whitfield's representation that the tax issues had been "fully resolved" is memorialized in an email from Whitfield to you dated February 22, 2021, which we have produced in connection with the litigation.

Second, a Phase II environmental site assessment was conducted by Ridgepoint Environmental Consultants LLC in February 2021, prior to your investment decision. That assessment documented petroleum contamination at the property requiring an estimated $620,000 in remediation costs. Despite the existence of this report, Whitfield represented to you that the Phase I environmental site assessment was "clean" and made no mention of the Phase II assessment or its findings. The failure to disclose the Phase II report — which was in Whitfield's possession and control — constitutes a material omission of fact that goes directly to the value and risk profile of the investment.

Third, Whitfield, as the managing co-investor and the sole member and manager of Pinnacle Greystone Capital LLC, had exclusive control of the due diligence process and all deal documentation related to the acquisition. The co-investment was structured such that Pinnacle Greystone Capital LLC was responsible for sourcing the opportunity, conducting all due diligence, managing the acquisition process, and overseeing the development of the property. You relied on Whitfield's representations in making your investment decision, and that reliance was consistent with the agreed-upon division of responsibilities between the co-investors.

Risks. Notwithstanding the strengths outlined above, the common-law fraud claim carries meaningful risks that must be factored into any settlement analysis.

Most critically, New York common-law fraud requires proof of each element — including a material misrepresentation of fact, scienter, justifiable reliance, and damages — by clear and convincing evidence, not merely by a preponderance of the evidence. This heightened burden of proof is a significant hurdle and introduces additional uncertainty at trial. See Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996).

The defendants will press the "sophisticated investor" defense vigorously. You are a former Managing Director at Hargrove Meridian Partners LLC, hold a Bachelor of Science degree from the Wharton School of the University of Pennsylvania and a Master of Business Administration from Columbia Business School, and have an extensive track record in New York metropolitan-area real estate investing, with approximately $19 million in current real estate holdings. The defendants will argue that, given your experience and sophistication, you had the means and opportunity to conduct your own independent due diligence — including ordering your own title search through a title company and commissioning your own environmental review — and that your failure to do so undermines the justifiable reliance element of the fraud claim. New York courts have held that sophisticated investors who fail to avail themselves of the means discover the truth cannot claim justifiable reliance on the representations of others. See UST Private Equity Investors Fund, Inc. v. Salomon Smith Barney, 288 A.D.2d 87 (1st Dep't 2001); Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (1959).

There is a genuine risk that a court or jury may find that the justifiable reliance element is weakened by your sophistication and experience, notwithstanding the fact that the co-investment structure placed the due diligence responsibilities squarely on Whitfield and Pinnacle Greystone Capital LLC. We note, however, that the sophistication defense is not absolute, and New York courts have recognized that even sophisticated parties may justifiably rely on affirmative misrepresentations made by a co-investor in a position of control. See DDJ Mgmt., LLC v. Rhone Grp. LLC, 15 N.Y.3d 147, 155 (2010).

Assessment: We consider the common-law fraud claim to be moderately strong, with an estimated 60-65% likelihood of prevailing at trial. The documentary evidence of concealment and misrepresentation is compelling, but the heightened burden of proof and the sophistication defense introduce real uncertainty.

B. Fraudulent Inducement (Second Cause of Action)

Strengths. The fraudulent inducement claim focuses on the inflated pro forma rent roll projections that Whitfield circulated in March 2021 as part of the materials used to induce your investment. Whitfield's pro forma projected $2,160,000 in annual gross rental income at stabilization. An independent analysis conducted by Ellerby & Associates CPAs LLP, under the direction of Grace Ellerby, CPA, managing partner, determined that market rents for the subject property supported approximately $1,580,000 in annual gross rental income — an overstatement of $580,000 per year, or approximately 26.9%.

The inflated projections were a material inducement to your decision to commit $5,920,000 in equity to the investment (representing your 40% share of the $14,800,000 total equity capitalization). The projected equity multiple of 2.13x — derived from a stabilized property value of $31,200,000 divided by the $14,800,000 total equity — was predicated on the inflated rent assumptions and would have been materially lower had accurate market rents been used. The overstatement was not a minor discrepancy; a 26.9% inflation of rental income is substantial and goes directly to the economic viability and attractiveness of the investment.

Risks. The defense will argue that pro forma projections are inherently forward-looking, subject to assumptions about future market conditions, and should not be treated as representations of existing fact. There is some legal support for this position. New York courts have held that statements of future expectation or prediction, standing alone, are not actionable as fraud. See Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495 (1st Dep't 2006). The defense will characterize the rent projections as aggressive but reasonable estimates that reflected optimistic market assumptions rather than a deliberate intent to deceive.

Additionally, the operating agreement of Atlantic Yards Development Partners LLC likely contains standard disclaimers regarding forward-looking projections, risk factors, and the speculative nature of real estate investment returns. If such disclaimers are present and sufficiently specific, they could further undermine the inducement claim.

There is a risk that the overstatement, while significant in magnitude, may be characterized by a finder of fact as aggressive underwriting rather than fraudulent misrepresentation, particularly in the context of a commercial real estate investment where parties are expected to exercise independent judgment regarding market projections. No written guarantee of specific returns was provided.

Assessment: We consider the fraudulent inducement claim to be moderate in strength, with an estimated 50-55% likelihood of prevailing as an independent, standalone claim. However, the claim is substantially stronger when considered in combination with the concealment claims (common-law fraud and constructive fraud), as the pattern of inflated projections, concealed encumbrances, concealed environmental conditions, and self-dealing collectively paint a picture of systematic fraud that is more compelling than any single claim standing alone.

C. Constructive Fraud (Third Cause of Action)

Strengths. The constructive fraud claim is grounded in the fiduciary or quasi-fiduciary relationship that existed between you and Whitfield as co-investors in Atlantic Yards Development Partners LLC. Whitfield, through Pinnacle Greystone Capital LLC, controlled the special purpose vehicle, managed all aspects of the investment, and exercised exclusive authority over the due diligence process, deal documentation, and development activities. In this context, Whitfield owed you a duty of full disclosure and fair dealing.

A critical advantage of the constructive fraud claim is that it requires proof only by a preponderance of the evidence, a lower standard than the clear and convincing evidence standard applicable to common-law fraud. This lower burden of proof provides an important alternative path to recovery in the event that the finder of fact is not persuaded by the fraud claims under the heightened standard. The multiple categories of concealment and misrepresentation documented in this case — the tax liens, the Phase II environmental report, the inflated rent projections, and the Glenmore self-dealing — collectively support the claim.

Risks. The defense will dispute the existence of a fiduciary duty, arguing that the relationship between the co-investors was arm's-length and governed entirely by the terms of the LLC operating agreement. Under New York law, the existence and scope of fiduciary duties in the LLC context are determined by the operating agreement, and the parties are permitted to modify fiduciary obligations by contract. See NY LLC Law § 417. If the operating agreement contains provisions limiting or modifying fiduciary duties, the defense may argue that the constructive fraud claim fails as a matter of law.

Assessment: We consider the constructive fraud claim to be moderate to moderately strong, with an estimated 55-60% likelihood of prevailing. The claim provides a valuable alternative theory at a lower burden of proof but is subject to the defense's arguments regarding the contractual limitation of fiduciary duties.

D. Breach of Fiduciary Duty (Fourth Cause of Action)

Strengths. The breach of fiduciary duty claim is perhaps the most straightforward of the claims asserted. Pinnacle Greystone Capital LLC, as managing member of Atlantic Yards Development Partners LLC, owed fiduciary duties to Caldwell Urban Ventures LLC as a co-member. These duties include the duty of loyalty, the duty of care, and the duty of candor.

The undisclosed $370,000 payment to Glenmore Realty Advisors Inc. is strong evidence of self-dealing and breach of the duty of loyalty. Glenmore is controlled by Neil Osterberg, who is Whitfield's brother-in-law. The payment was made from project funds — funds to which you contributed 40% — without disclosure to you or approval by Caldwell Urban Ventures LLC. The failure to disclose a material related-party transaction of this nature is a textbook breach of the duty of loyalty. See Pokoik v. Pokoik, 115 A.D.3d 428 (1st Dep't 2014).

In addition, the concealment of the tax liens and the Phase II environmental report constitutes a breach of the duty of candor owed by a managing member to a non-managing co-member. Whitfield had an affirmative obligation to disclose material facts relating to the investment, and his failure to do so — particularly when he affirmatively misrepresented that the tax issues had been resolved and that the Phase I assessment was "clean" — is actionable as a breach of fiduciary duty independent of the fraud claims.

Risks. The primary risk to the breach of fiduciary duty claim is the potential that the operating agreement of Atlantic Yards Development Partners LLC contains limitations on fiduciary duties or exculpation provisions that may shield Whitfield from liability. New York Limited Liability Company Law permits operating agreements to modify fiduciary duties, though it does not permit their complete elimination, particularly with respect to the duty of loyalty and bad faith conduct. See NY LLC Law § 417; Tzolis v. Wolff, 10 N.Y.3d 100 (2008). The scope of any such limitations will need to be evaluated carefully during discovery, as the operating agreement has not yet been produced in full.

Assessment: We consider the breach of fiduciary duty claim to be moderately strong, with an estimated 60-65% likelihood of prevailing. The Glenmore self-dealing arrangement is powerful evidence, and the concealment of material facts further supports the claim. The principal risk is the potential existence of contractual limitations on fiduciary duties.

E. Unjust Enrichment (Fifth Cause of Action)

Strengths. The unjust enrichment claim is premised on the theory that Whitfield was enriched by your capital contributions, which were obtained through misrepresentation and concealment, and that it would be inequitable for him to retain the benefit of those contributions. In addition, the $370,000 Glenmore advisory fee was paid from project funds, enriching Whitfield's brother-in-law at your expense. Your 40% allocable share of the Glenmore fee is $148,000, representing a direct and quantifiable enrichment at your expense.

Risks. The principal risk to the unjust enrichment claim is the well-established rule in New York that unjust enrichment is not available where an express contract governs the parties' relationship. See Clark-Fitzpatrick, Inc. v. Severin Industries, 70 N.Y.2d 382, 388 (1987). The operating agreement of Atlantic Yards Development Partners LLC is an express contract that governs the co-investment relationship, and the defense will argue that the unjust enrichment claim is precluded by the existence of that agreement.

Assessment: We consider the unjust enrichment claim to be weak to moderate, with an estimated 40-45% likelihood of prevailing. The claim primarily serves as an alternative theory of recovery in the event that the operating agreement is found not to govern the specific conduct at issue (e.g., the undisclosed Glenmore payment). It is unlikely to serve as the primary vehicle for recovery.

F. Aiding and Abetting Fraud (Sixth Cause of Action — Against Pinnacle Greystone Capital LLC)

Strengths. The aiding and abetting fraud claim is asserted against Pinnacle Greystone Capital LLC as the entity through which Whitfield carried out the alleged fraud. Pinnacle Greystone was the managing member of the SPV, the entity that controlled the due diligence process, and the instrumentality through which Whitfield executed the investment transaction. Entity-level liability supports a broader recovery base and ensures that any judgment can be enforced against Pinnacle Greystone's assets, including its 60% membership interest in Atlantic Yards Development Partners LLC.

Risks. Because Whitfield is the sole member and manager of Pinnacle Greystone Capital LLC, this claim is to some extent duplicative of the claims asserted against Whitfield individually. To establish aiding and abetting fraud, we must prove the existence of an underlying fraud, that Pinnacle Greystone had actual knowledge of the fraud, and that it provided substantial assistance. See Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir. 2006) (applying New York law). Given the identity of interests between Whitfield and Pinnacle Greystone, the knowledge and substantial assistance elements should be readily established, but the claim ultimately rises and falls with the underlying fraud claims.

Assessment: We consider the aiding and abetting fraud claim to be moderate, with an estimated 55-60% likelihood of prevailing. Its success is contingent on the success of the underlying fraud claims against Whitfield individually.

IV. Impact of the Denial of the Preliminary Injunction

On November 8, 2023, the Honorable Patricia Velez, J.S.C., denied your motion for a preliminary injunction seeking to restrain Whitfield and Pinnacle Greystone Capital LLC from further encumbering, transferring, or dissipating the subject property at 540-548 Atlantic Avenue, Brooklyn, New York. The Court's decision merits discussion in the context of both the merits and the settlement posture.

The Court found that you had not demonstrated irreparable harm sufficient to warrant the extraordinary remedy of preliminary injunctive relief, noting that your claims were primarily for money damages, which are compensable at law, and that you had not shown that a money judgment would be inadequate to redress the alleged injury. The Court did not reach the merits of the underlying fraud claims in any substantive way, and the decision should not be interpreted as an adverse ruling on the strength of those claims. The standard for a preliminary injunction — which requires a showing of (1) likelihood of success on the merits, (2) irreparable harm absent injunctive relief, and (3) a balance of equities in the movant's favor — is distinct from the standard applicable at trial, and the denial of preliminary relief has no preclusive effect on the merits.

Impact on Settlement Posture

The denial of the preliminary injunction has several implications for the settlement negotiation:

Emboldened Defense. As a practical matter, the denial may embolden the defendants' negotiating position. Defense counsel may view the ruling as a signal — whether correct or not — that the Court is skeptical of your claims or that your position is weaker than asserted. This may partially explain the defendants' relatively modest movement during the mediation and their insistence on characterizing their offer as a nuisance-value payment.

Distinct Legal Standard. We note, however, that the legal standard for a preliminary injunction is substantially different from the trial standard, and we should be prepared to rebut any inference the defendants may draw from the ruling. The denial was based on the absence of irreparable harm — a procedural requirement specific to injunctive relief — and not on any assessment of the merits of the fraud or breach of fiduciary duty claims.

Risk of Asset Dissipation. More significantly from a practical standpoint, Whitfield now has the ability to further encumber, transfer, or otherwise dissipate the property at 540-548 Atlantic Avenue without court restraint. This creates a genuine risk that the assets securing any eventual judgment could be diminished or eliminated during the pendency of the litigation. If Whitfield were to refinance the property, take on additional mortgage debt, or transfer his interest to a third party, the equity available to satisfy a judgment could be materially reduced.

Weight in Favor of Settlement. This risk factor weighs in favor of pursuing a negotiated resolution rather than protracted litigation. A settlement with a defined payment date and a lump-sum cash payment provides certainty of recovery that a trial judgment may not, particularly if Whitfield leverages the property in ways that reduce available recovery during the twelve to eighteen months it would take to reach trial. This consideration is discussed further in Section X.A (Collectibility) below.

V. Damages Analysis

A. Compensatory Damages — $6,200,000 Claim

The Complaint seeks compensatory damages in the aggregate amount of $6,200,000, composed of the following elements:

Out-of-Pocket Equity Investment

Your total equity commitment to Atlantic Yards Development Partners LLC was $5,920,000, representing your 40% share of the $14,800,000 total equity capitalization. Of this amount, $2,072,000 was funded at closing, with the balance funded through subsequent capital calls over the ensuing months. This figure represents your direct financial exposure in the investment and constitutes the largest single component of the damages claim.

Caldwell's Share of the Diverted Glenmore Fee

The $370,000 advisory fee paid to Glenmore Realty Advisors Inc. from project funds represents a diversion of project capital for the benefit of Whitfield's brother-in-law, Neil Osterberg. Your 40% allocable share of this fee is $148,000. This amount was paid without your knowledge or approval and constitutes a direct financial harm resulting from Whitfield's breach of fiduciary duty.

Carrying Costs, Professional Fees, and Lost Opportunity Costs

In addition to the foregoing, you have incurred approximately $132,000 in additional carrying costs, professional fees, and lost opportunity costs attributable to the investment. This figure includes: (i) your allocable share of excess interest costs attributable to the undisclosed tax encumbrances, which increased the cost of servicing the mortgage debt; (ii) accounting fees paid to Ellerby & Associates CPAs LLP for the independent analysis of the rent roll projections and the Glenmore fee; and (iii) the lost return on the capital that was deployed into this investment and could otherwise have been invested in alternative opportunities generating a market rate of return.

Total Compensatory Damages

The total compensatory damages claimed are calculated as follows:

B. Punitive Damages

The Complaint seeks punitive damages in an amount to be determined at trial. Under New York law, punitive damages are available in fraud cases where the defendant's conduct is sufficiently egregious to demonstrate a high degree of moral turpitude or wanton dishonesty that constitutes conduct directed at the public generally. See Walker v. Sheldon, 10 N.Y.2d 401, 405 (1961); Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 489 (2007).

The concealment of the Glenmore self-dealing arrangement — a related-party payment to Whitfield's brother-in-law, made from project funds without disclosure to or approval by the co-investor — is the type of conduct that New York courts have found to support an award of punitive damages. The deliberate concealment of the Phase II environmental report and the affirmative misrepresentation regarding the tax liens further support the case for punitive damages, as they suggest a pattern of intentional concealment rather than an isolated omission.

We acknowledge, however, that punitive damages are inherently uncertain and highly discretionary. They are awarded by the finder of fact and are not subject to precise quantification or prediction. For purposes of this analysis, we do not assign a specific probability-weighted value to the punitive damages claim but note that the threat of punitive damages provides meaningful negotiating leverage in settlement discussions. The prospect of a punitive damages award at trial introduces a risk of uncapped liability that sophisticated defendants — and their insurers, if applicable — take seriously.

C. Risk-Adjusted Litigation Valuation

Methodology. To evaluate the settlement range, we have performed a probability-weighted expected value analysis of the claims, accounting for the likelihood of success on each claim, the potential damages recoverable, and the litigation risks identified in Section III above. Because the claims share a substantially overlapping damages base — recovery on multiple claims does not multiply the $6,200,000 in compensatory damages, as the damages theories are alternative paths to the same recovery — the analysis accounts for this overlap.

Calculation. The risk-adjusted valuation is computed as follows:

Because the claims are largely overlapping and alternative in nature — success on any one of the fraud-based claims would support recovery of the full $6,200,000, while success on multiple claims does not increase the recovery beyond that amount — the net risk-adjusted recovery, accounting for claim overlap, is estimated at approximately $3,500,000 to $4,000,000.

Applying an additional discount of 10-15% for overall litigation risk — including the sophistication defense, the inherent unpredictability of trial outcomes, and the possibility that a jury may reduce the damages award — the risk-adjusted recovery range is further reduced to approximately $3,000,000 to $3,600,000.

Punitive damages upside is not included in this base calculation but provides potential for additional recovery estimated at $500,000 to $1,500,000 if the case proceeds to trial and the finder of fact determines that Whitfield's conduct warrants punitive damages.

VI. Litigation Cost Analysis

A. Costs Incurred to Date

As of the current billing period, Calderwood & Harkness LLP has billed the following fees and expenses in connection with this matter:

These costs reflect all work performed from the initial engagement through the December 14, 2023 mediation, including the preparation and filing of the Complaint, the preliminary injunction motion practice, the mediation preparation and session, and all related research, correspondence, and client communications.

B. Estimated Remaining Costs Through Trial

If the case does not settle and proceeds through discovery and trial, we estimate the following additional costs:

These estimates assume a trial date approximately twelve to eighteen months from now and a discovery period of approximately six to nine months. Actual costs could vary depending on the complexity of the discovery process, the number and duration of depositions, the need for expert testimony, and whether either party files dispositive motions.

C. Total Litigation Investment If Case Goes to Trial

Combining the costs already incurred with the estimated future costs, the total litigation investment through trial is as follows:

D. Net Recovery Analysis

The following comparison illustrates the relative value of settlement versus trial on a risk-adjusted basis:

Scenario 1: Case Goes to Trial and Plaintiff Prevails. Risk-adjusted recovery of $3,000,000 to $4,000,000, minus total litigation costs of $680,770 to $845,770, yields an estimated net recovery of approximately $2,155,000 to $3,319,000. This range does not include any punitive damages recovery, which could increase the net figure, but also does not account for the risk of an adverse outcome at trial (in which case the net recovery would be negative by the amount of the litigation costs).

Scenario 2: Case Settles at $3,500,000. Net recovery after costs already incurred ($305,770) = $3,194,230. No additional litigation costs would be incurred.

Comparison. A settlement in the range of $3,200,000 to $3,800,000 delivers value that is comparable to or better than the expected trial outcome on a risk-adjusted basis, while eliminating the additional $375,000 to $540,000 in future litigation expense and the inherent uncertainty of trial. The settlement scenario also provides a prompt and certain recovery — the cash is received within 30 days of execution of the settlement agreement — whereas a trial recovery is subject to post-trial motions, potential appeal, and enforcement proceedings that could delay collection for years.

VII. Structural Terms of Any Settlement

In addition to the cash settlement amount, any resolution should incorporate the following structural terms:

A. Cash Payment

The settlement should require a lump-sum cash payment to you within 30 days of execution of the settlement agreement. The payment should be made by certified or cashier's check or by wire transfer of immediately available funds to an account designated by you. No installment payment structure should be accepted, as the risk of non-payment over time is unacceptable given the concerns regarding Whitfield's liquidity discussed in Section X.A below. The amount of the cash payment is to be negotiated per the recommended range set forth in Section IX.

B. Transfer of Membership Interest

As part of any settlement, Caldwell Urban Ventures LLC would transfer its 40% membership interest in Atlantic Yards Development Partners LLC to Pinnacle Greystone Capital LLC (or its designee). The transfer would be effectuated by an assignment of membership interest and a corresponding amendment to the operating agreement of the SPV, executed by all parties.

This component is important to Whitfield, as it gives him sole control and ownership of the development project going forward without the complications of an adversarial co-investor relationship. The transfer provides meaningful negotiating leverage for you, as the membership interest retains some residual value — even in light of the project's difficulties — and Whitfield has a clear interest in acquiring it. The value of the membership interest effectively subsidizes the cash settlement amount, as Whitfield receives an asset of value in exchange for the payment.

C. Mutual General Releases

The settlement should include broad mutual general releases covering all claims, causes of action, suits, debts, damages, judgments, and demands of every kind and nature, whether known or unknown, accrued or unaccrued, suspected or unsuspected, arising out of or relating to the co-investment, the SPV, the property at 540-548 Atlantic Avenue, and the relationships between the parties and their respective entities. The releases would run between Jonathan R. Caldwell and Caldwell Urban Ventures LLC, on the one hand, and Marcus D. Whitfield and Pinnacle Greystone Capital LLC, on the other hand.

Standard carve-outs should be included for claims arising from a breach of the settlement agreement itself, ensuring that the agreement remains enforceable in the event of non-performance by either party.

D. Confidentiality Provisions

The settlement agreement should include mutual non-disclosure provisions prohibiting either party from disclosing the terms or existence of the settlement to third parties, except as may be necessary for legal, tax, and accounting advisors, or as required by law, regulation, or legal process. This provision protects both parties' interests in maintaining confidentiality and is consistent with your interest in protecting your reputation in the New York real estate investment community, as discussed in Section X.C below.

E. No Admission of Liability

The settlement agreement should contain a standard provision stating that the settlement does not constitute an admission of wrongdoing, liability, or fault by any party. This is a customary provision in settlement agreements of this type and should not be a point of contention in negotiations.

F. Dismissal of Action

Upon execution of the settlement agreement and receipt of the cash settlement payment, the parties would file a stipulation of discontinuance with prejudice in Caldwell v. Whitfield et al., Index No. 519847/2023. A dismissal with prejudice permanently extinguishes the claims asserted in the Complaint and precludes refiling. This is distinguished from a voluntary discontinuance without prejudice, which would preserve the right to refile within the applicable statute of limitations. The dismissal with prejudice is appropriate once a satisfactory settlement is reached, as it provides finality for both parties.

VIII. Evaluation of Whitfield's Opening Offer ($1,200,000)

Whitfield's opening offer of $1,200,000 — and his revised position of approximately $1,500,000 at the close of the mediation session — is substantially below any reasonable risk-adjusted valuation of the claims and should be rejected in its current form. Our analysis of the inadequacy of the offer is as follows:

The $1,200,000 offer represents only approximately 19.4% of the $6,200,000 in compensatory damages sought in the Complaint. Even measured against the more conservative metric of your total out-of-pocket equity investment of $5,920,000, the offer represents only approximately 20.3% of that amount. By any measure, the offer fails to reflect the magnitude of the losses sustained.

The offer does not adequately account for the strength of the documentary evidence of concealment — including the certified tax lien records, the Phase II environmental report, and the February 22, 2021 email in which Whitfield affirmatively misrepresented the status of the tax obligations. Nor does it account for the Glenmore self-dealing arrangement, which represents strong evidence of breach of fiduciary duty and supports the case for punitive damages. The offer also wholly ignores the defendants' punitive damages exposure, which introduces a risk of uncapped liability at trial.

While the $1,200,000 offer should be rejected as it stands, it should be viewed as a starting point for further negotiation rather than a reflection of the defendants' final position. Whitfield's willingness to participate in mediation, to engage in substantive discussions throughout the day, and his movement from $1,200,000 to approximately $1,500,000 by the end of the session — while modest — suggest that there is flexibility in the defense position and that further movement is possible with continued negotiation. The mediator's assessment that a resolution in the $2,500,000 to $3,500,000 range is achievable reinforces this view.

IX. Recommended Settlement Strategy

A. Recommended Range

Based on the foregoing analysis of the claims, damages, litigation costs, and settlement dynamics, we recommend the following settlement parameters:

• Target settlement amount: $3,500,000

• Acceptable settlement range: $3,200,000 to $3,800,000

• Walk-away floor: $3,000,000

Rationale. This range approximates the risk-adjusted litigation value of the claims (approximately $3,000,000 to $3,600,000 on our base analysis, with potential upside from punitive damages) while avoiding $375,000 to $540,000 in additional litigation costs that would be incurred through trial. It eliminates the uncertainty of trial and the risk of an adverse outcome, provides a prompt and certain recovery within 30 days of agreement, and addresses the asset dissipation risk created by the denial of the preliminary injunction. A settlement at $3,500,000 would yield a net recovery of approximately $3,194,230 after costs already incurred — a figure that compares favorably to the mid-range of the expected net recovery at trial ($2,155,000 to $3,319,000), without the additional investment of time, expense, and risk that trial would require.

B. Negotiation Tactics

We recommend the following approach to the post-mediation negotiation:

Revised Demand. We recommend responding to Whitfield's post-mediation communications with a revised demand of $4,250,000 — a reduction of $500,000 from the $4,750,000 opening demand. This signals a meaningful willingness to engage in negotiation while preserving substantial room to negotiate downward toward the target range. The revised demand should be accompanied by a letter to Ridgeway, Tanaka & Schiff LLP that reiterates the factual and legal basis for the claims, with particular emphasis on the documentary evidence.

Emphasis on Documentary Strength. The revised demand and any subsequent negotiations should emphasize the documentary strength of the concealment claims — including the certified tax lien records, the Phase II environmental report from Ridgepoint Environmental Consultants LLC, and the February 22, 2021 Whitfield email — as well as the Glenmore self-dealing arrangement. These are the areas where the defendants are most vulnerable and where the mediator indicated the defense appeared least comfortable.

Punitive Damages Exposure. We should highlight the punitive damages exposure as a significant risk factor for Whitfield. The Glenmore self-dealing, in particular, provides strong support for a punitive damages claim, and the threat of an uncapped punitive damages award at trial provides a powerful incentive for Whitfield to resolve the matter now at a reasonable figure.

Readiness for Trial. We should convey clearly that you remain prepared to proceed through discovery and trial if a reasonable resolution cannot be reached. This is not merely a negotiating posture; it reflects the reality that the claims have substantial merit and that the litigation path remains a viable alternative to an inadequate settlement.

Membership Interest as Bargaining Chip. The transfer of the 40% membership interest in Atlantic Yards Development Partners LLC should be used as a bargaining chip. Whitfield wants sole control of the project, and the transfer has affirmative value to him. By structuring the deal as a package — cash payment plus membership interest transfer — the settlement can be framed as a mutually beneficial transaction rather than a zero-sum payment, which may facilitate agreement.

C. Deadline and Contingency

We recommend proposing a 30-day window for reaching agreement — through approximately January 20, 2024 — during which the parties would engage in focused post-mediation negotiations through counsel. Setting a defined timeline creates urgency and prevents the negotiation from drifting indefinitely.

If no agreement is reached within that window, we recommend the following contingency approach:

• Proceed with discovery. We would proceed with propounding discovery demands, including document requests, interrogatories, and deposition notices for Whitfield, Neil Osterberg (Glenmore principal), Dimitri Poulos (believed to be involved in the property management), and other relevant witnesses.

• Evaluate further motions. Depending on the results of discovery, we would evaluate the viability of renewed motions, including a potential motion for partial summary judgment on the breach of fiduciary duty claim.

• Reassess settlement posture. As discovery develops and the documentary record becomes more complete, the defendants' settlement posture may become more realistic, and we would reassess the settlement strategy accordingly.

If Whitfield's best offer remains below the $3,000,000 walk-away floor, we advise you to weigh the costs and benefits of continued litigation versus a voluntary discontinuance without prejudice, which would preserve the right to refile within the applicable statute of limitations. Under New York CPLR § 213(8), the six-year statute of limitations for fraud runs from the date of discovery (or the date when, with reasonable diligence, the fraud could have been discovered). Based on our analysis, the relevant discovery date is approximately August 2023, providing substantial runway for a potential refiling through approximately August 2029. A voluntary discontinuance without prejudice may be a strategic option if, after full evaluation, the economics of continued litigation do not justify the investment — but this option should be treated as a last resort.

X. Additional Considerations

A. Collectibility

Any settlement or judgment must be evaluated in light of the defendants' ability to pay. While Marcus D. Whitfield has an extensive track record in New York real estate development, with an estimated $200 million in aggregate real estate transaction history, his personal net worth and current liquidity are not fully known. Whitfield's personal financial disclosure has not yet been obtained through discovery, and our assessment of his ability to satisfy a judgment or settlement payment is therefore based on publicly available information and reasonable inferences.

Pinnacle Greystone Capital LLC's primary asset is its 60% membership interest in Atlantic Yards Development Partners LLC, which is the entity that holds the subject property at 540-548 Atlantic Avenue. The property itself is encumbered by Broadmark Commercial Lending Corp.'s $9,620,000 first-priority mortgage, the $1,340,000 in New York City real property tax liens, and the environmental remediation obligation estimated at $620,000 by Ridgepoint Environmental Consultants LLC. The aggregate encumbrances on the property substantially limit the equity available for judgment satisfaction. If the property's current fair market value is at or below the level of its encumbrances, there may be little or no equity available to satisfy a money judgment.

This consideration strongly favors settlement. A settlement with a defined payment date and a lump-sum cash payment provides certainty of collection that a judgment may not, particularly in light of the encumbrances on the property and the uncertainty regarding Whitfield's personal liquidity. The 30-day payment deadline recommended in Section VII.A above is designed to ensure prompt collection and to minimize the risk that intervening events could impair the defendants' ability to pay.

B. Relationship Preservation

You have expressed some interest in preserving a path toward a negotiated exit from the co-investment, even apart from the litigation. An amicable settlement may better serve this interest than protracted litigation, which is likely to further damage the already strained relationship between the co-investors and make any future interaction or cooperation more difficult.

We note, however, that the preservation of the business relationship should not come at the expense of adequate compensation for the losses you have sustained. The settlement parameters recommended in this memorandum are designed to achieve fair compensation while facilitating a clean break from the co-investment relationship.

C. Reputational Considerations

The Complaint and responsive pleadings are already a matter of public record, having been filed with the Kings County Clerk's Office. Continued litigation — including discovery proceedings, depositions, motion practice, and trial — will further increase the public profile of the dispute. The allegations of fraud and self-dealing, while asserted against Whitfield, inevitably draw attention to the investment and your involvement in it.

A confidential settlement would contain the public exposure associated with the dispute and prevent further disclosure of the details of the co-investment, the financial terms, and the specific allegations. This may be preferable from a reputational standpoint for both parties. Your standing in the New York real estate investment community is an important consideration, and a confidential resolution would preserve your professional reputation and avoid the potential reputational effects of protracted public litigation.

D. Tax Implications

The settlement proceeds will have tax implications that should be reviewed with Ellerby & Associates CPAs LLP under the direction of Grace Ellerby, CPA, managing partner. The characterization of the settlement payments will determine their tax treatment:

• Return of capital. To the extent the settlement payment is characterized as a return of your capital investment, it may be treated as a non-taxable recovery up to the amount of your tax basis in the investment, with any excess treated as capital gain.

• Compensatory damages. To the extent the settlement payment is characterized as compensatory damages for fraud or breach of fiduciary duty, the tax treatment will depend on the nature of the underlying loss (i.e., whether the damages are treated as a recovery of capital, lost profits, or otherwise).

• Punitive damages equivalent. If any portion of the settlement is attributable to claims that would give rise to punitive damages, that portion would be taxable as ordinary income.

The structuring of the settlement agreement — including the allocation of the payment among different claims and the characterization of the payment in the agreement itself — can materially affect the tax consequences. We strongly recommend consulting with Ms. Ellerby before finalizing any settlement structure to ensure that the tax implications are fully understood and that the settlement is structured in the most tax-efficient manner possible.

XI. Conclusion and Next Steps

Based on the comprehensive analysis set forth in this memorandum — including our evaluation of the strengths and risks of each cause of action, the risk-adjusted damages analysis, the litigation cost projections, and the structural and practical considerations discussed above — we make the following recommendations:

1. Settlement Range. We recommend that you authorize us to negotiate a settlement within the range of $3,200,000 to $3,800,000, targeting $3,500,000, with a walk-away floor of $3,000,000. This range is inclusive of the transfer of your 40% membership interest in Atlantic Yards Development Partners LLC to Pinnacle Greystone Capital LLC or its designee.

2. Revised Demand. We recommend communicating a revised demand of $4,250,000 to Ridgeway, Tanaka & Schiff LLP as the next step in the post-mediation negotiation, accompanied by a letter reiterating the strength of the documentary evidence and the defendants' exposure.

3. Client Conference. We request a call with you at your earliest convenience to discuss this analysis in full, answer any questions you may have, obtain your instructions regarding the recommended settlement range and negotiation strategy, and proceed accordingly.

We remain confident in the strength of your claims and are prepared to proceed through discovery and trial if a reasonable settlement cannot be achieved. At the same time, for the reasons set forth in this memorandum, we believe that a well-negotiated settlement within the recommended range offers the best risk-adjusted outcome and serves your interests more effectively than protracted litigation.

Please do not hesitate to contact us to arrange a call at your convenience.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Douglas Carmichael Partner Direct: (212) 540-8100

Email: dcarmichael@calderwoodharkness.com

By: ________

Patrick Gallagher Senior Associate Direct: (212) 540-8247

Email: pgallagher@calderwoodharkness.com

599 Lexington Avenue, 34th Floor New York, NY 10022

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. If you have received this memorandum in error, please notify the sender immediately and destroy all copies.

Component	Amount
Out-of-pocket equity investment	$5,920,000
Caldwell's 40% share of Glenmore fee	$148,000
Carrying costs, professional fees, and lost opportunity costs	$132,000
Total compensatory damages	$6,200,000
Claim	Probability of Success	Potential Recovery	Probability-Weighted Value
Common-law fraud	62.5%	$6,200,000	$3,875,000
Fraudulent inducement	52.5%	(Overlapping recovery)	Captured in fraud probability
Constructive fraud	57.5%	$6,200,000	$3,565,000
Breach of fiduciary duty	62.5%	$6,200,000	$3,875,000
Unjust enrichment	42.5%	$6,200,000	$2,635,000
Aiding and abetting fraud	57.5%	(Entity-level claim; same recovery)	Follows underlying fraud
Category	Amount
Professional fees (attorneys' fees)	$287,450
Disbursements (filing fees, process service, mediation fees to Meridian Dispute Resolution Services LLC, appraisal costs to Tidewater Appraisal Group LLC)	$18,320
Total invoiced to date	$305,770
Phase	Estimated Cost Range
Discovery (document production, depositions of Whitfield, Osterberg, Poulos, and others, interrogatories, third-party subpoenas)	$150,000 – $200,000
Expert retention and reports (damages expert, possibly environmental expert)	$50,000 – $75,000
Summary judgment practice (motion for summary judgment or opposition to defendants' motion)	$75,000 – $100,000
Trial preparation and trial (including witness preparation, exhibit preparation, opening and closing statements, examination of witnesses)	$75,000 – $125,000
Total estimated remaining professional fees	$350,000 – $500,000
Total estimated additional disbursements through trial (expert fees, deposition transcripts, demonstrative exhibits, court reporter fees, subpoena costs)	$25,000 – $40,000
Component	Amount
Costs already incurred	$305,770

Estimated additional fees

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue, 34th Floor New York, NY 10022
MEMORANDUM
TO: Jonathan R. Caldwell 440 East 72nd Street, Apt. 18D New York, NY 10021
FROM: Douglas Carmichael, Partner Patrick Gallagher, Senior Associate
CC: Francesca Morano, Partner Simone Laroche, Associate
DATE: December 20, 2023
RE: Settlement Analysis and Recommendation — Caldwell v. Whitfield et al., Index No. 519847/2023, Supreme Court of the State of New York, Kings County
MATTER NO.: 1034-00003
I. Purpose and Executive Summary
The purpose of this memorandum is to provide you with a comprehensive analysis of settlement prospects in Caldwell v. Whitfield et al., Index No. 519847/2023, and to recommend a negotiating strategy for post-mediation discussions following the December 14, 2023 mediation session conducted before Jerome Aschkenazy, Esq. of Meridian Dispute Resolution Services LLC. This memorandum reflects the analysis of the undersigned attorneys and incorporates information gathered through the litigation to date, the mediation process, and our independent assessment of the strengths and risks of each cause of action asserted in the Complaint.
Current Posture of the Litigation. The Complaint in this matter was filed on September 18, 2023, asserting six causes of action against Marcus D. Whitfield and Pinnacle Greystone Capital LLC: (1) common-law fraud; (2) fraudulent inducement; (3) constructive fraud; (4) breach of fiduciary duty; (5) unjust enrichment; and (6) aiding and abetting fraud (against Pinnacle Greystone Capital LLC). Defendants filed their Answer on October 23, 2023, through their counsel at Ridgeway, Tanaka & Schiff LLP, with Helen K. Tanaka serving as lead partner and Robert Feinberg as the associate handling day-to-day matters. On November 8, 2023, the Honorable Patricia Velez, J.S.C., denied our motion for a preliminary injunction seeking to restrain Whitfield and Pinnacle Greystone Capital LLC from further encumbering, transferring, or dissipating the subject property at 540-548 Atlantic Avenue, Brooklyn, New York. The mediation was conducted on December 14, 2023.
Current Gap Between the Parties. At the conclusion of the mediation session, a substantial gap remains between the parties. Your initial demand was $4,750,000, and Whitfield's initial offer was $1,200,000 — representing a spread of $3,550,000. By the close of the session, Whitfield had moved modestly to approximately $1,500,000, while you signaled a willingness to move further given adequate counteroffers. The mediator, Mr. Aschkenazy, expressed his view that a resolution in the range of $2,500,000 to $3,500,000 was achievable with continued negotiation and recommended that the parties pursue post-mediation discussions through counsel.
Bottom-Line Recommendation. Based on our risk-adjusted analysis of the claims, the likely damages recoverable at trial, the costs and risks of continued litigation, and the structural components of a potential settlement, we recommend that you authorize us to negotiate a settlement within a range of $3,200,000 to $3,800,000, with a target of $3,500,000 and a walk-away floor of $3,000,000. This settlement amount would be inclusive of the transfer of your 40% membership interest in Atlantic Yards Development Partners LLC (held through Caldwell Urban Ventures LLC) to Pinnacle Greystone Capital LLC or its designee. We believe this range represents the best risk-adjusted outcome when compared to the uncertainties, costs, and timeline of continued litigation through trial, and it delivers value comparable to or better than the probability-weighted expected recovery at trial, net of additional legal fees and expenses.
The analysis supporting this recommendation is set forth in detail below.
II. Summary of the Mediation
A. Mediation Format and Participants
The mediation was conducted on December 14, 2023, at the offices of Meridian Dispute Resolution Services LLC, located at 100 Park Avenue, Suite 1650, New York, New York 10017. The session was mediated by Jerome Aschkenazy, Esq., a former justice of the New York Supreme Court, Commercial Division, who has extensive experience mediating complex commercial disputes, including real estate investment and partnership disputes of the type at issue in this case.
The following individuals participated in the mediation on behalf of the plaintiff:
• Jonathan R. Caldwell (plaintiff)
• Douglas Carmichael, Partner, Calderwood & Harkness LLP
• Patrick Gallagher, Senior Associate, Calderwood & Harkness LLP
The following individuals participated on behalf of the defendants:
• Marcus D. Whitfield (defendant, individually and as sole member/manager of Pinnacle Greystone Capital LLC)
• Helen K. Tanaka, Partner, Ridgeway, Tanaka & Schiff LLP
• Robert Feinberg, Associate, Ridgeway, Tanaka & Schiff LLP
The mediation began at approximately 9:30 a.m. with an opening joint session in which each side presented a summary of its position. This was followed by a series of caucus sessions throughout the day, during which the mediator shuttled between the parties, conveying offers and counteroffers and engaging in reality-testing with each side separately. The session concluded at approximately 5:45 p.m. without an agreement.
B. Opening Positions
Caldwell's Opening Demand: $4,750,000. Your opening demand was structured as a complete buyout of your 40% membership interest in Atlantic Yards Development Partners LLC, plus compensatory damages reflecting out-of-pocket losses, carrying costs, professional fees, and your allocable share of the diverted Glenmore Realty Advisors Inc. consulting fee. The demand was supported by a written mediation statement that detailed the factual basis for each claim, the documentary evidence of concealment and misrepresentation, the Glenmore self-dealing arrangement, and the damages calculation summarized in Section V of this memorandum. The demand was presented as a comprehensive resolution that would sever the co-investment relationship in its entirety and provide full compensation for the harm suffered.
Whitfield's Opening Offer: $1,200,000. Whitfield's opening offer of $1,200,000 was framed by defense counsel as a "nuisance-value" or "business-resolution" payment intended to resolve the litigation without any acknowledgment of liability. Tanaka characterized the offer as a reflection of litigation risk, not the merits, and emphasized that Whitfield believed the claims were without merit and that the investment's underperformance was attributable to market conditions rather than any wrongful conduct. The offer was presented as contingent on a full release and transfer of your membership interest.
C. Movement During Mediation
Over the course of the day, you reduced your demand modestly during the mediation session, signaling a willingness to engage in meaningful negotiation and to move further toward a middle ground if Whitfield demonstrated a corresponding willingness to increase his offer substantially. However, Whitfield's movement was minimal. By the close of the session, Whitfield had increased his offer to approximately $1,500,000 — a modest increase of only $300,000 from his opening position. The disparity between the parties' movements was itself notable and suggested that either Whitfield was not yet prepared to negotiate in earnest or that his counsel had advised him to hold firm in the early stages to test your resolve.
Mediator Aschkenazy, who met privately with each side on multiple occasions throughout the day, indicated in caucus that it was his view that a resolution in the range of $2,500,000 to $3,500,000 was possible with further negotiation. He observed that both sides had legitimate arguments and legitimate risks, and he encouraged the parties to continue discussions through counsel in the days and weeks following the mediation. Both sides agreed to do so. The mediation concluded without an agreement, but with the understanding that post-mediation discussions would follow.
D. Observations on Defendants' Posture
Based on our observations during the mediation — including the arguments advanced by defense counsel in the joint session, the positions conveyed through the mediator during caucus, and Whitfield's personal demeanor during the proceedings — we offer the following assessment of the defendants' posture:
The "Sophisticated Investor" Defense. Defense counsel's primary theme was the "sophisticated investor" defense. Tanaka argued extensively that you are a highly experienced real estate investor with decades of experience in New York metropolitan-area real estate transactions, that you had independent access to the due diligence materials and could have ordered your own title search and environmental assessment, and that any failure discover the tax liens and environmental contamination was attributable to your own decision not to conduct independent verification rather than to any concealment by Whitfield. This defense will be a central issue at trial and, as discussed in Section III below, presents a genuine risk to the justifiable reliance element of the fraud claims.
Characterization of Rent Roll Projections. Whitfield took the position, conveyed through counsel, that the pro forma rent roll projections circulated in March 2021 were forward-looking estimates based on reasonable market assumptions at the time they were prepared, not guarantees of specific financial outcomes. Defense counsel argued that any overstatement relative to actual market rents was within a reasonable range of market uncertainty and did not constitute actionable misrepresentation. This argument has some force but is undermined by the magnitude of the overstatement (approximately 26.9% above independently assessed market rents, as detailed below).
The Glenmore Realty Advisors Inc. Issue. Perhaps the most notable observation from the mediation was the defendants' apparent discomfort with the Glenmore Realty Advisors Inc. consulting agreement. Tanaka did not contest the existence of the $370,000 payment to Glenmore but characterized it as a customary acquisition advisory fee that fell within the managing member's authority under the operating agreement of Atlantic Yards Development Partners LLC. Notably, Tanaka did not directly address or deny the relationship between Neil Osterberg (Glenmore's principal) and Whitfield (Osterberg is Whitfield's brother-in-law), nor did she offer any documentary evidence that the fee was disclosed to you or approved by Caldwell Urban Ventures LLC as a co-member. The defense's relatively muted response on this issue suggests an awareness that the Glenmore self-dealing arrangement represents significant exposure, particularly on the breach of fiduciary duty and punitive damages theories.
Overall Impression. It is our overall impression that the defendants recognize they have meaningful exposure on at least some of the claims — particularly the concealment of the tax liens and the Phase II environmental report, and the Glenmore self-dealing arrangement — but are banking on the sophisticated investor defense and the costs and delays of protracted litigation to pressure a lower resolution. We believe that the defendants' settlement posture will become more realistic as the case progresses into discovery and the documentary evidence becomes more fully developed. However, we also believe that a well-structured post-mediation negotiation, supported by the analysis in this memorandum, has a meaningful probability of reaching a reasonable resolution within the range we recommend.
III. Evaluation of Claims — Strengths and Risks
In this section, we evaluate each of the six causes of action asserted in the Complaint, identifying the principal strengths and risks associated with each claim and providing our assessment of the likelihood of success at trial. These assessments are based on our experience with similar cases, the evidence currently available, and our evaluation of the likely arguments at trial.
A. Common-Law Fraud (First Cause of Action)
Strengths. The common-law fraud claim is anchored in strong documentary evidence of material misrepresentations and omissions by Whitfield in connection with the co-investment.
First, and most significantly, there is clear documentary evidence that $1,340,000 in New York City real property tax liens existed against the subject property at the time of the investment, and that Whitfield affirmatively represented to you that all prior tax obligations had been resolved. The tax lien records are a matter of public record with the New York City Department of Finance, and we have obtained certified copies establishing both the existence and the amounts of the liens. Whitfield's representation that the tax issues had been "fully resolved" is memorialized in an email from Whitfield to you dated February 22, 2021, which we have produced in connection with the litigation.
Second, a Phase II environmental site assessment was conducted by Ridgepoint Environmental Consultants LLC in February 2021, prior to your investment decision. That assessment documented petroleum contamination at the property requiring an estimated $620,000 in remediation costs. Despite the existence of this report, Whitfield represented to you that the Phase I environmental site assessment was "clean" and made no mention of the Phase II assessment or its findings. The failure to disclose the Phase II report — which was in Whitfield's possession and control — constitutes a material omission of fact that goes directly to the value and risk profile of the investment.
Third, Whitfield, as the managing co-investor and the sole member and manager of Pinnacle Greystone Capital LLC, had exclusive control of the due diligence process and all deal documentation related to the acquisition. The co-investment was structured such that Pinnacle Greystone Capital LLC was responsible for sourcing the opportunity, conducting all due diligence, managing the acquisition process, and overseeing the development of the property. You relied on Whitfield's representations in making your investment decision, and that reliance was consistent with the agreed-upon division of responsibilities between the co-investors.
Risks. Notwithstanding the strengths outlined above, the common-law fraud claim carries meaningful risks that must be factored into any settlement analysis.
Most critically, New York common-law fraud requires proof of each element — including a material misrepresentation of fact, scienter, justifiable reliance, and damages — by clear and convincing evidence, not merely by a preponderance of the evidence. This heightened burden of proof is a significant hurdle and introduces additional uncertainty at trial. See Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996).
The defendants will press the "sophisticated investor" defense vigorously. You are a former Managing Director at Hargrove Meridian Partners LLC, hold a Bachelor of Science degree from the Wharton School of the University of Pennsylvania and a Master of Business Administration from Columbia Business School, and have an extensive track record in New York metropolitan-area real estate investing, with approximately $19 million in current real estate holdings. The defendants will argue that, given your experience and sophistication, you had the means and opportunity to conduct your own independent due diligence — including ordering your own title search through a title company and commissioning your own environmental review — and that your failure to do so undermines the justifiable reliance element of the fraud claim. New York courts have held that sophisticated investors who fail to avail themselves of the means discover the truth cannot claim justifiable reliance on the representations of others. See UST Private Equity Investors Fund, Inc. v. Salomon Smith Barney, 288 A.D.2d 87 (1st Dep't 2001); Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (1959).
There is a genuine risk that a court or jury may find that the justifiable reliance element is weakened by your sophistication and experience, notwithstanding the fact that the co-investment structure placed the due diligence responsibilities squarely on Whitfield and Pinnacle Greystone Capital LLC. We note, however, that the sophistication defense is not absolute, and New York courts have recognized that even sophisticated parties may justifiably rely on affirmative misrepresentations made by a co-investor in a position of control. See DDJ Mgmt., LLC v. Rhone Grp. LLC, 15 N.Y.3d 147, 155 (2010).
Assessment: We consider the common-law fraud claim to be moderately strong, with an estimated 60-65% likelihood of prevailing at trial. The documentary evidence of concealment and misrepresentation is compelling, but the heightened burden of proof and the sophistication defense introduce real uncertainty.
B. Fraudulent Inducement (Second Cause of Action)
Strengths. The fraudulent inducement claim focuses on the inflated pro forma rent roll projections that Whitfield circulated in March 2021 as part of the materials used to induce your investment. Whitfield's pro forma projected $2,160,000 in annual gross rental income at stabilization. An independent analysis conducted by Ellerby & Associates CPAs LLP, under the direction of Grace Ellerby, CPA, managing partner, determined that market rents for the subject property supported approximately $1,580,000 in annual gross rental income — an overstatement of $580,000 per year, or approximately 26.9%.
The inflated projections were a material inducement to your decision to commit $5,920,000 in equity to the investment (representing your 40% share of the $14,800,000 total equity capitalization). The projected equity multiple of 2.13x — derived from a stabilized property value of $31,200,000 divided by the $14,800,000 total equity — was predicated on the inflated rent assumptions and would have been materially lower had accurate market rents been used. The overstatement was not a minor discrepancy; a 26.9% inflation of rental income is substantial and goes directly to the economic viability and attractiveness of the investment.
Risks. The defense will argue that pro forma projections are inherently forward-looking, subject to assumptions about future market conditions, and should not be treated as representations of existing fact. There is some legal support for this position. New York courts have held that statements of future expectation or prediction, standing alone, are not actionable as fraud. See Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495 (1st Dep't 2006). The defense will characterize the rent projections as aggressive but reasonable estimates that reflected optimistic market assumptions rather than a deliberate intent to deceive.
Additionally, the operating agreement of Atlantic Yards Development Partners LLC likely contains standard disclaimers regarding forward-looking projections, risk factors, and the speculative nature of real estate investment returns. If such disclaimers are present and sufficiently specific, they could further undermine the inducement claim.
There is a risk that the overstatement, while significant in magnitude, may be characterized by a finder of fact as aggressive underwriting rather than fraudulent misrepresentation, particularly in the context of a commercial real estate investment where parties are expected to exercise independent judgment regarding market projections. No written guarantee of specific returns was provided.
Assessment: We consider the fraudulent inducement claim to be moderate in strength, with an estimated 50-55% likelihood of prevailing as an independent, standalone claim. However, the claim is substantially stronger when considered in combination with the concealment claims (common-law fraud and constructive fraud), as the pattern of inflated projections, concealed encumbrances, concealed environmental conditions, and self-dealing collectively paint a picture of systematic fraud that is more compelling than any single claim standing alone.
C. Constructive Fraud (Third Cause of Action)
Strengths. The constructive fraud claim is grounded in the fiduciary or quasi-fiduciary relationship that existed between you and Whitfield as co-investors in Atlantic Yards Development Partners LLC. Whitfield, through Pinnacle Greystone Capital LLC, controlled the special purpose vehicle, managed all aspects of the investment, and exercised exclusive authority over the due diligence process, deal documentation, and development activities. In this context, Whitfield owed you a duty of full disclosure and fair dealing.
A critical advantage of the constructive fraud claim is that it requires proof only by a preponderance of the evidence, a lower standard than the clear and convincing evidence standard applicable to common-law fraud. This lower burden of proof provides an important alternative path to recovery in the event that the finder of fact is not persuaded by the fraud claims under the heightened standard. The multiple categories of concealment and misrepresentation documented in this case — the tax liens, the Phase II environmental report, the inflated rent projections, and the Glenmore self-dealing — collectively support the claim.
Risks. The defense will dispute the existence of a fiduciary duty, arguing that the relationship between the co-investors was arm's-length and governed entirely by the terms of the LLC operating agreement. Under New York law, the existence and scope of fiduciary duties in the LLC context are determined by the operating agreement, and the parties are permitted to modify fiduciary obligations by contract. See NY LLC Law § 417. If the operating agreement contains provisions limiting or modifying fiduciary duties, the defense may argue that the constructive fraud claim fails as a matter of law.
Assessment: We consider the constructive fraud claim to be moderate to moderately strong, with an estimated 55-60% likelihood of prevailing. The claim provides a valuable alternative theory at a lower burden of proof but is subject to the defense's arguments regarding the contractual limitation of fiduciary duties.
D. Breach of Fiduciary Duty (Fourth Cause of Action)
Strengths. The breach of fiduciary duty claim is perhaps the most straightforward of the claims asserted. Pinnacle Greystone Capital LLC, as managing member of Atlantic Yards Development Partners LLC, owed fiduciary duties to Caldwell Urban Ventures LLC as a co-member. These duties include the duty of loyalty, the duty of care, and the duty of candor.
The undisclosed $370,000 payment to Glenmore Realty Advisors Inc. is strong evidence of self-dealing and breach of the duty of loyalty. Glenmore is controlled by Neil Osterberg, who is Whitfield's brother-in-law. The payment was made from project funds — funds to which you contributed 40% — without disclosure to you or approval by Caldwell Urban Ventures LLC. The failure to disclose a material related-party transaction of this nature is a textbook breach of the duty of loyalty. See Pokoik v. Pokoik, 115 A.D.3d 428 (1st Dep't 2014).
In addition, the concealment of the tax liens and the Phase II environmental report constitutes a breach of the duty of candor owed by a managing member to a non-managing co-member. Whitfield had an affirmative obligation to disclose material facts relating to the investment, and his failure to do so — particularly when he affirmatively misrepresented that the tax issues had been resolved and that the Phase I assessment was "clean" — is actionable as a breach of fiduciary duty independent of the fraud claims.
Risks. The primary risk to the breach of fiduciary duty claim is the potential that the operating agreement of Atlantic Yards Development Partners LLC contains limitations on fiduciary duties or exculpation provisions that may shield Whitfield from liability. New York Limited Liability Company Law permits operating agreements to modify fiduciary duties, though it does not permit their complete elimination, particularly with respect to the duty of loyalty and bad faith conduct. See NY LLC Law § 417; Tzolis v. Wolff, 10 N.Y.3d 100 (2008). The scope of any such limitations will need to be evaluated carefully during discovery, as the operating agreement has not yet been produced in full.
Assessment: We consider the breach of fiduciary duty claim to be moderately strong, with an estimated 60-65% likelihood of prevailing. The Glenmore self-dealing arrangement is powerful evidence, and the concealment of material facts further supports the claim. The principal risk is the potential existence of contractual limitations on fiduciary duties.
E. Unjust Enrichment (Fifth Cause of Action)
Strengths. The unjust enrichment claim is premised on the theory that Whitfield was enriched by your capital contributions, which were obtained through misrepresentation and concealment, and that it would be inequitable for him to retain the benefit of those contributions. In addition, the $370,000 Glenmore advisory fee was paid from project funds, enriching Whitfield's brother-in-law at your expense. Your 40% allocable share of the Glenmore fee is $148,000, representing a direct and quantifiable enrichment at your expense.
Risks. The principal risk to the unjust enrichment claim is the well-established rule in New York that unjust enrichment is not available where an express contract governs the parties' relationship. See Clark-Fitzpatrick, Inc. v. Severin Industries, 70 N.Y.2d 382, 388 (1987). The operating agreement of Atlantic Yards Development Partners LLC is an express contract that governs the co-investment relationship, and the defense will argue that the unjust enrichment claim is precluded by the existence of that agreement.
Assessment: We consider the unjust enrichment claim to be weak to moderate, with an estimated 40-45% likelihood of prevailing. The claim primarily serves as an alternative theory of recovery in the event that the operating agreement is found not to govern the specific conduct at issue (e.g., the undisclosed Glenmore payment). It is unlikely to serve as the primary vehicle for recovery.
F. Aiding and Abetting Fraud (Sixth Cause of Action — Against Pinnacle Greystone Capital LLC)
Strengths. The aiding and abetting fraud claim is asserted against Pinnacle Greystone Capital LLC as the entity through which Whitfield carried out the alleged fraud. Pinnacle Greystone was the managing member of the SPV, the entity that controlled the due diligence process, and the instrumentality through which Whitfield executed the investment transaction. Entity-level liability supports a broader recovery base and ensures that any judgment can be enforced against Pinnacle Greystone's assets, including its 60% membership interest in Atlantic Yards Development Partners LLC.
Risks. Because Whitfield is the sole member and manager of Pinnacle Greystone Capital LLC, this claim is to some extent duplicative of the claims asserted against Whitfield individually. To establish aiding and abetting fraud, we must prove the existence of an underlying fraud, that Pinnacle Greystone had actual knowledge of the fraud, and that it provided substantial assistance. See Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir. 2006) (applying New York law). Given the identity of interests between Whitfield and Pinnacle Greystone, the knowledge and substantial assistance elements should be readily established, but the claim ultimately rises and falls with the underlying fraud claims.
Assessment: We consider the aiding and abetting fraud claim to be moderate, with an estimated 55-60% likelihood of prevailing. Its success is contingent on the success of the underlying fraud claims against Whitfield individually.
IV. Impact of the Denial of the Preliminary Injunction
On November 8, 2023, the Honorable Patricia Velez, J.S.C., denied your motion for a preliminary injunction seeking to restrain Whitfield and Pinnacle Greystone Capital LLC from further encumbering, transferring, or dissipating the subject property at 540-548 Atlantic Avenue, Brooklyn, New York. The Court's decision merits discussion in the context of both the merits and the settlement posture.
The Court found that you had not demonstrated irreparable harm sufficient to warrant the extraordinary remedy of preliminary injunctive relief, noting that your claims were primarily for money damages, which are compensable at law, and that you had not shown that a money judgment would be inadequate to redress the alleged injury. The Court did not reach the merits of the underlying fraud claims in any substantive way, and the decision should not be interpreted as an adverse ruling on the strength of those claims. The standard for a preliminary injunction — which requires a showing of (1) likelihood of success on the merits, (2) irreparable harm absent injunctive relief, and (3) a balance of equities in the movant's favor — is distinct from the standard applicable at trial, and the denial of preliminary relief has no preclusive effect on the merits.
Impact on Settlement Posture
The denial of the preliminary injunction has several implications for the settlement negotiation:
Emboldened Defense. As a practical matter, the denial may embolden the defendants' negotiating position. Defense counsel may view the ruling as a signal — whether correct or not — that the Court is skeptical of your claims or that your position is weaker than asserted. This may partially explain the defendants' relatively modest movement during the mediation and their insistence on characterizing their offer as a nuisance-value payment.
Distinct Legal Standard. We note, however, that the legal standard for a preliminary injunction is substantially different from the trial standard, and we should be prepared to rebut any inference the defendants may draw from the ruling. The denial was based on the absence of irreparable harm — a procedural requirement specific to injunctive relief — and not on any assessment of the merits of the fraud or breach of fiduciary duty claims.
Risk of Asset Dissipation. More significantly from a practical standpoint, Whitfield now has the ability to further encumber, transfer, or otherwise dissipate the property at 540-548 Atlantic Avenue without court restraint. This creates a genuine risk that the assets securing any eventual judgment could be diminished or eliminated during the pendency of the litigation. If Whitfield were to refinance the property, take on additional mortgage debt, or transfer his interest to a third party, the equity available to satisfy a judgment could be materially reduced.
Weight in Favor of Settlement. This risk factor weighs in favor of pursuing a negotiated resolution rather than protracted litigation. A settlement with a defined payment date and a lump-sum cash payment provides certainty of recovery that a trial judgment may not, particularly if Whitfield leverages the property in ways that reduce available recovery during the twelve to eighteen months it would take to reach trial. This consideration is discussed further in Section X.A (Collectibility) below.
V. Damages Analysis
A. Compensatory Damages — $6,200,000 Claim
The Complaint seeks compensatory damages in the aggregate amount of $6,200,000, composed of the following elements:
Out-of-Pocket Equity Investment
Your total equity commitment to Atlantic Yards Development Partners LLC was $5,920,000, representing your 40% share of the $14,800,000 total equity capitalization. Of this amount, $2,072,000 was funded at closing, with the balance funded through subsequent capital calls over the ensuing months. This figure represents your direct financial exposure in the investment and constitutes the largest single component of the damages claim.
Caldwell's Share of the Diverted Glenmore Fee
The $370,000 advisory fee paid to Glenmore Realty Advisors Inc. from project funds represents a diversion of project capital for the benefit of Whitfield's brother-in-law, Neil Osterberg. Your 40% allocable share of this fee is $148,000. This amount was paid without your knowledge or approval and constitutes a direct financial harm resulting from Whitfield's breach of fiduciary duty.
Carrying Costs, Professional Fees, and Lost Opportunity Costs
In addition to the foregoing, you have incurred approximately $132,000 in additional carrying costs, professional fees, and lost opportunity costs attributable to the investment. This figure includes: (i) your allocable share of excess interest costs attributable to the undisclosed tax encumbrances, which increased the cost of servicing the mortgage debt; (ii) accounting fees paid to Ellerby & Associates CPAs LLP for the independent analysis of the rent roll projections and the Glenmore fee; and (iii) the lost return on the capital that was deployed into this investment and could otherwise have been invested in alternative opportunities generating a market rate of return.
Total Compensatory Damages
The total compensatory damages claimed are calculated as follows:
B. Punitive Damages
The Complaint seeks punitive damages in an amount to be determined at trial. Under New York law, punitive damages are available in fraud cases where the defendant's conduct is sufficiently egregious to demonstrate a high degree of moral turpitude or wanton dishonesty that constitutes conduct directed at the public generally. See Walker v. Sheldon, 10 N.Y.2d 401, 405 (1961); Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 489 (2007).
The concealment of the Glenmore self-dealing arrangement — a related-party payment to Whitfield's brother-in-law, made from project funds without disclosure to or approval by the co-investor — is the type of conduct that New York courts have found to support an award of punitive damages. The deliberate concealment of the Phase II environmental report and the affirmative misrepresentation regarding the tax liens further support the case for punitive damages, as they suggest a pattern of intentional concealment rather than an isolated omission.
We acknowledge, however, that punitive damages are inherently uncertain and highly discretionary. They are awarded by the finder of fact and are not subject to precise quantification or prediction. For purposes of this analysis, we do not assign a specific probability-weighted value to the punitive damages claim but note that the threat of punitive damages provides meaningful negotiating leverage in settlement discussions. The prospect of a punitive damages award at trial introduces a risk of uncapped liability that sophisticated defendants — and their insurers, if applicable — take seriously.
C. Risk-Adjusted Litigation Valuation
Methodology. To evaluate the settlement range, we have performed a probability-weighted expected value analysis of the claims, accounting for the likelihood of success on each claim, the potential damages recoverable, and the litigation risks identified in Section III above. Because the claims share a substantially overlapping damages base — recovery on multiple claims does not multiply the $6,200,000 in compensatory damages, as the damages theories are alternative paths to the same recovery — the analysis accounts for this overlap.
Calculation. The risk-adjusted valuation is computed as follows:
Because the claims are largely overlapping and alternative in nature — success on any one of the fraud-based claims would support recovery of the full $6,200,000, while success on multiple claims does not increase the recovery beyond that amount — the net risk-adjusted recovery, accounting for claim overlap, is estimated at approximately $3,500,000 to $4,000,000.
Applying an additional discount of 10-15% for overall litigation risk — including the sophistication defense, the inherent unpredictability of trial outcomes, and the possibility that a jury may reduce the damages award — the risk-adjusted recovery range is further reduced to approximately $3,000,000 to $3,600,000.
Punitive damages upside is not included in this base calculation but provides potential for additional recovery estimated at $500,000 to $1,500,000 if the case proceeds to trial and the finder of fact determines that Whitfield's conduct warrants punitive damages.
VI. Litigation Cost Analysis
A. Costs Incurred to Date
As of the current billing period, Calderwood & Harkness LLP has billed the following fees and expenses in connection with this matter:
These costs reflect all work performed from the initial engagement through the December 14, 2023 mediation, including the preparation and filing of the Complaint, the preliminary injunction motion practice, the mediation preparation and session, and all related research, correspondence, and client communications.
B. Estimated Remaining Costs Through Trial
If the case does not settle and proceeds through discovery and trial, we estimate the following additional costs:
These estimates assume a trial date approximately twelve to eighteen months from now and a discovery period of approximately six to nine months. Actual costs could vary depending on the complexity of the discovery process, the number and duration of depositions, the need for expert testimony, and whether either party files dispositive motions.
C. Total Litigation Investment If Case Goes to Trial
Combining the costs already incurred with the estimated future costs, the total litigation investment through trial is as follows:
D. Net Recovery Analysis
The following comparison illustrates the relative value of settlement versus trial on a risk-adjusted basis:
Scenario 1: Case Goes to Trial and Plaintiff Prevails. Risk-adjusted recovery of $3,000,000 to $4,000,000, minus total litigation costs of $680,770 to $845,770, yields an estimated net recovery of approximately $2,155,000 to $3,319,000. This range does not include any punitive damages recovery, which could increase the net figure, but also does not account for the risk of an adverse outcome at trial (in which case the net recovery would be negative by the amount of the litigation costs).
Scenario 2: Case Settles at $3,500,000. Net recovery after costs already incurred ($305,770) = $3,194,230. No additional litigation costs would be incurred.
Comparison. A settlement in the range of $3,200,000 to $3,800,000 delivers value that is comparable to or better than the expected trial outcome on a risk-adjusted basis, while eliminating the additional $375,000 to $540,000 in future litigation expense and the inherent uncertainty of trial. The settlement scenario also provides a prompt and certain recovery — the cash is received within 30 days of execution of the settlement agreement — whereas a trial recovery is subject to post-trial motions, potential appeal, and enforcement proceedings that could delay collection for years.
VII. Structural Terms of Any Settlement
In addition to the cash settlement amount, any resolution should incorporate the following structural terms:
A. Cash Payment
The settlement should require a lump-sum cash payment to you within 30 days of execution of the settlement agreement. The payment should be made by certified or cashier's check or by wire transfer of immediately available funds to an account designated by you. No installment payment structure should be accepted, as the risk of non-payment over time is unacceptable given the concerns regarding Whitfield's liquidity discussed in Section X.A below. The amount of the cash payment is to be negotiated per the recommended range set forth in Section IX.
B. Transfer of Membership Interest
As part of any settlement, Caldwell Urban Ventures LLC would transfer its 40% membership interest in Atlantic Yards Development Partners LLC to Pinnacle Greystone Capital LLC (or its designee). The transfer would be effectuated by an assignment of membership interest and a corresponding amendment to the operating agreement of the SPV, executed by all parties.
This component is important to Whitfield, as it gives him sole control and ownership of the development project going forward without the complications of an adversarial co-investor relationship. The transfer provides meaningful negotiating leverage for you, as the membership interest retains some residual value — even in light of the project's difficulties — and Whitfield has a clear interest in acquiring it. The value of the membership interest effectively subsidizes the cash settlement amount, as Whitfield receives an asset of value in exchange for the payment.
C. Mutual General Releases
The settlement should include broad mutual general releases covering all claims, causes of action, suits, debts, damages, judgments, and demands of every kind and nature, whether known or unknown, accrued or unaccrued, suspected or unsuspected, arising out of or relating to the co-investment, the SPV, the property at 540-548 Atlantic Avenue, and the relationships between the parties and their respective entities. The releases would run between Jonathan R. Caldwell and Caldwell Urban Ventures LLC, on the one hand, and Marcus D. Whitfield and Pinnacle Greystone Capital LLC, on the other hand.
Standard carve-outs should be included for claims arising from a breach of the settlement agreement itself, ensuring that the agreement remains enforceable in the event of non-performance by either party.
D. Confidentiality Provisions
The settlement agreement should include mutual non-disclosure provisions prohibiting either party from disclosing the terms or existence of the settlement to third parties, except as may be necessary for legal, tax, and accounting advisors, or as required by law, regulation, or legal process. This provision protects both parties' interests in maintaining confidentiality and is consistent with your interest in protecting your reputation in the New York real estate investment community, as discussed in Section X.C below.
E. No Admission of Liability
The settlement agreement should contain a standard provision stating that the settlement does not constitute an admission of wrongdoing, liability, or fault by any party. This is a customary provision in settlement agreements of this type and should not be a point of contention in negotiations.
F. Dismissal of Action
Upon execution of the settlement agreement and receipt of the cash settlement payment, the parties would file a stipulation of discontinuance with prejudice in Caldwell v. Whitfield et al., Index No. 519847/2023. A dismissal with prejudice permanently extinguishes the claims asserted in the Complaint and precludes refiling. This is distinguished from a voluntary discontinuance without prejudice, which would preserve the right to refile within the applicable statute of limitations. The dismissal with prejudice is appropriate once a satisfactory settlement is reached, as it provides finality for both parties.
VIII. Evaluation of Whitfield's Opening Offer ($1,200,000)
Whitfield's opening offer of $1,200,000 — and his revised position of approximately $1,500,000 at the close of the mediation session — is substantially below any reasonable risk-adjusted valuation of the claims and should be rejected in its current form. Our analysis of the inadequacy of the offer is as follows:
The $1,200,000 offer represents only approximately 19.4% of the $6,200,000 in compensatory damages sought in the Complaint. Even measured against the more conservative metric of your total out-of-pocket equity investment of $5,920,000, the offer represents only approximately 20.3% of that amount. By any measure, the offer fails to reflect the magnitude of the losses sustained.
The offer does not adequately account for the strength of the documentary evidence of concealment — including the certified tax lien records, the Phase II environmental report, and the February 22, 2021 email in which Whitfield affirmatively misrepresented the status of the tax obligations. Nor does it account for the Glenmore self-dealing arrangement, which represents strong evidence of breach of fiduciary duty and supports the case for punitive damages. The offer also wholly ignores the defendants' punitive damages exposure, which introduces a risk of uncapped liability at trial.
While the $1,200,000 offer should be rejected as it stands, it should be viewed as a starting point for further negotiation rather than a reflection of the defendants' final position. Whitfield's willingness to participate in mediation, to engage in substantive discussions throughout the day, and his movement from $1,200,000 to approximately $1,500,000 by the end of the session — while modest — suggest that there is flexibility in the defense position and that further movement is possible with continued negotiation. The mediator's assessment that a resolution in the $2,500,000 to $3,500,000 range is achievable reinforces this view.
IX. Recommended Settlement Strategy
A. Recommended Range
Based on the foregoing analysis of the claims, damages, litigation costs, and settlement dynamics, we recommend the following settlement parameters:
• Target settlement amount: $3,500,000
• Acceptable settlement range: $3,200,000 to $3,800,000
• Walk-away floor: $3,000,000
Rationale. This range approximates the risk-adjusted litigation value of the claims (approximately $3,000,000 to $3,600,000 on our base analysis, with potential upside from punitive damages) while avoiding $375,000 to $540,000 in additional litigation costs that would be incurred through trial. It eliminates the uncertainty of trial and the risk of an adverse outcome, provides a prompt and certain recovery within 30 days of agreement, and addresses the asset dissipation risk created by the denial of the preliminary injunction. A settlement at $3,500,000 would yield a net recovery of approximately $3,194,230 after costs already incurred — a figure that compares favorably to the mid-range of the expected net recovery at trial ($2,155,000 to $3,319,000), without the additional investment of time, expense, and risk that trial would require.
B. Negotiation Tactics
We recommend the following approach to the post-mediation negotiation:
Revised Demand. We recommend responding to Whitfield's post-mediation communications with a revised demand of $4,250,000 — a reduction of $500,000 from the $4,750,000 opening demand. This signals a meaningful willingness to engage in negotiation while preserving substantial room to negotiate downward toward the target range. The revised demand should be accompanied by a letter to Ridgeway, Tanaka & Schiff LLP that reiterates the factual and legal basis for the claims, with particular emphasis on the documentary evidence.
Emphasis on Documentary Strength. The revised demand and any subsequent negotiations should emphasize the documentary strength of the concealment claims — including the certified tax lien records, the Phase II environmental report from Ridgepoint Environmental Consultants LLC, and the February 22, 2021 Whitfield email — as well as the Glenmore self-dealing arrangement. These are the areas where the defendants are most vulnerable and where the mediator indicated the defense appeared least comfortable.
Punitive Damages Exposure. We should highlight the punitive damages exposure as a significant risk factor for Whitfield. The Glenmore self-dealing, in particular, provides strong support for a punitive damages claim, and the threat of an uncapped punitive damages award at trial provides a powerful incentive for Whitfield to resolve the matter now at a reasonable figure.
Readiness for Trial. We should convey clearly that you remain prepared to proceed through discovery and trial if a reasonable resolution cannot be reached. This is not merely a negotiating posture; it reflects the reality that the claims have substantial merit and that the litigation path remains a viable alternative to an inadequate settlement.
Membership Interest as Bargaining Chip. The transfer of the 40% membership interest in Atlantic Yards Development Partners LLC should be used as a bargaining chip. Whitfield wants sole control of the project, and the transfer has affirmative value to him. By structuring the deal as a package — cash payment plus membership interest transfer — the settlement can be framed as a mutually beneficial transaction rather than a zero-sum payment, which may facilitate agreement.
C. Deadline and Contingency
We recommend proposing a 30-day window for reaching agreement — through approximately January 20, 2024 — during which the parties would engage in focused post-mediation negotiations through counsel. Setting a defined timeline creates urgency and prevents the negotiation from drifting indefinitely.
If no agreement is reached within that window, we recommend the following contingency approach:
• Proceed with discovery. We would proceed with propounding discovery demands, including document requests, interrogatories, and deposition notices for Whitfield, Neil Osterberg (Glenmore principal), Dimitri Poulos (believed to be involved in the property management), and other relevant witnesses.
• Evaluate further motions. Depending on the results of discovery, we would evaluate the viability of renewed motions, including a potential motion for partial summary judgment on the breach of fiduciary duty claim.
• Reassess settlement posture. As discovery develops and the documentary record becomes more complete, the defendants' settlement posture may become more realistic, and we would reassess the settlement strategy accordingly.
If Whitfield's best offer remains below the $3,000,000 walk-away floor, we advise you to weigh the costs and benefits of continued litigation versus a voluntary discontinuance without prejudice, which would preserve the right to refile within the applicable statute of limitations. Under New York CPLR § 213(8), the six-year statute of limitations for fraud runs from the date of discovery (or the date when, with reasonable diligence, the fraud could have been discovered). Based on our analysis, the relevant discovery date is approximately August 2023, providing substantial runway for a potential refiling through approximately August 2029. A voluntary discontinuance without prejudice may be a strategic option if, after full evaluation, the economics of continued litigation do not justify the investment — but this option should be treated as a last resort.
X. Additional Considerations
A. Collectibility
Any settlement or judgment must be evaluated in light of the defendants' ability to pay. While Marcus D. Whitfield has an extensive track record in New York real estate development, with an estimated $200 million in aggregate real estate transaction history, his personal net worth and current liquidity are not fully known. Whitfield's personal financial disclosure has not yet been obtained through discovery, and our assessment of his ability to satisfy a judgment or settlement payment is therefore based on publicly available information and reasonable inferences.
Pinnacle Greystone Capital LLC's primary asset is its 60% membership interest in Atlantic Yards Development Partners LLC, which is the entity that holds the subject property at 540-548 Atlantic Avenue. The property itself is encumbered by Broadmark Commercial Lending Corp.'s $9,620,000 first-priority mortgage, the $1,340,000 in New York City real property tax liens, and the environmental remediation obligation estimated at $620,000 by Ridgepoint Environmental Consultants LLC. The aggregate encumbrances on the property substantially limit the equity available for judgment satisfaction. If the property's current fair market value is at or below the level of its encumbrances, there may be little or no equity available to satisfy a money judgment.
This consideration strongly favors settlement. A settlement with a defined payment date and a lump-sum cash payment provides certainty of collection that a judgment may not, particularly in light of the encumbrances on the property and the uncertainty regarding Whitfield's personal liquidity. The 30-day payment deadline recommended in Section VII.A above is designed to ensure prompt collection and to minimize the risk that intervening events could impair the defendants' ability to pay.
B. Relationship Preservation
You have expressed some interest in preserving a path toward a negotiated exit from the co-investment, even apart from the litigation. An amicable settlement may better serve this interest than protracted litigation, which is likely to further damage the already strained relationship between the co-investors and make any future interaction or cooperation more difficult.
We note, however, that the preservation of the business relationship should not come at the expense of adequate compensation for the losses you have sustained. The settlement parameters recommended in this memorandum are designed to achieve fair compensation while facilitating a clean break from the co-investment relationship.
C. Reputational Considerations
The Complaint and responsive pleadings are already a matter of public record, having been filed with the Kings County Clerk's Office. Continued litigation — including discovery proceedings, depositions, motion practice, and trial — will further increase the public profile of the dispute. The allegations of fraud and self-dealing, while asserted against Whitfield, inevitably draw attention to the investment and your involvement in it.
A confidential settlement would contain the public exposure associated with the dispute and prevent further disclosure of the details of the co-investment, the financial terms, and the specific allegations. This may be preferable from a reputational standpoint for both parties. Your standing in the New York real estate investment community is an important consideration, and a confidential resolution would preserve your professional reputation and avoid the potential reputational effects of protracted public litigation.
D. Tax Implications
The settlement proceeds will have tax implications that should be reviewed with Ellerby & Associates CPAs LLP under the direction of Grace Ellerby, CPA, managing partner. The characterization of the settlement payments will determine their tax treatment:
• Return of capital. To the extent the settlement payment is characterized as a return of your capital investment, it may be treated as a non-taxable recovery up to the amount of your tax basis in the investment, with any excess treated as capital gain.
• Compensatory damages. To the extent the settlement payment is characterized as compensatory damages for fraud or breach of fiduciary duty, the tax treatment will depend on the nature of the underlying loss (i.e., whether the damages are treated as a recovery of capital, lost profits, or otherwise).
• Punitive damages equivalent. If any portion of the settlement is attributable to claims that would give rise to punitive damages, that portion would be taxable as ordinary income.
The structuring of the settlement agreement — including the allocation of the payment among different claims and the characterization of the payment in the agreement itself — can materially affect the tax consequences. We strongly recommend consulting with Ms. Ellerby before finalizing any settlement structure to ensure that the tax implications are fully understood and that the settlement is structured in the most tax-efficient manner possible.
XI. Conclusion and Next Steps
Based on the comprehensive analysis set forth in this memorandum — including our evaluation of the strengths and risks of each cause of action, the risk-adjusted damages analysis, the litigation cost projections, and the structural and practical considerations discussed above — we make the following recommendations:
1. Settlement Range. We recommend that you authorize us to negotiate a settlement within the range of $3,200,000 to $3,800,000, targeting $3,500,000, with a walk-away floor of $3,000,000. This range is inclusive of the transfer of your 40% membership interest in Atlantic Yards Development Partners LLC to Pinnacle Greystone Capital LLC or its designee.
2. Revised Demand. We recommend communicating a revised demand of $4,250,000 to Ridgeway, Tanaka & Schiff LLP as the next step in the post-mediation negotiation, accompanied by a letter reiterating the strength of the documentary evidence and the defendants' exposure.
3. Client Conference. We request a call with you at your earliest convenience to discuss this analysis in full, answer any questions you may have, obtain your instructions regarding the recommended settlement range and negotiation strategy, and proceed accordingly.
We remain confident in the strength of your claims and are prepared to proceed through discovery and trial if a reasonable settlement cannot be achieved. At the same time, for the reasons set forth in this memorandum, we believe that a well-negotiated settlement within the recommended range offers the best risk-adjusted outcome and serves your interests more effectively than protracted litigation.
Please do not hesitate to contact us to arrange a call at your convenience.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Carmichael Partner Direct: (212) 540-8100
Email: dcarmichael@calderwoodharkness.com
By: ________
Patrick Gallagher Senior Associate Direct: (212) 540-8247
Email: pgallagher@calderwoodharkness.com
599 Lexington Avenue, 34th Floor New York, NY 10022
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. If you have received this memorandum in error, please notify the sender immediately and destroy all copies.
Component | Amount
Out-of-pocket equity investment | $5,920,000
Caldwell's 40% share of Glenmore fee | $148,000
Carrying costs, professional fees, and lost opportunity costs | $132,000
Total compensatory damages | $6,200,000
Claim | Probability of Success | Potential Recovery | Probability-Weighted Value
Common-law fraud | 62.5% | $6,200,000 | $3,875,000
Fraudulent inducement | 52.5% | (Overlapping recovery) | Captured in fraud probability
Constructive fraud | 57.5% | $6,200,000 | $3,565,000
Breach of fiduciary duty | 62.5% | $6,200,000 | $3,875,000
Unjust enrichment | 42.5% | $6,200,000 | $2,635,000
Aiding and abetting fraud | 57.5% | (Entity-level claim; same recovery) | Follows underlying fraud
Category | Amount
Professional fees (attorneys' fees) | $287,450
Disbursements (filing fees, process service, mediation fees to Meridian Dispute Resolution Services LLC, appraisal costs to Tidewater Appraisal Group LLC) | $18,320
Total invoiced to date | $305,770
Phase | Estimated Cost Range
Discovery (document production, depositions of Whitfield, Osterberg, Poulos, and others, interrogatories, third-party subpoenas) | $150,000 – $200,000
Expert retention and reports (damages expert, possibly environmental expert) | $50,000 – $75,000
Summary judgment practice (motion for summary judgment or opposition to defendants' motion) | $75,000 – $100,000
Trial preparation and trial (including witness preparation, exhibit preparation, opening and closing statements, examination of witnesses) | $75,000 – $125,000
Total estimated remaining professional fees | $350,000 – $500,000
Total estimated additional disbursements through trial (expert fees, deposition transcripts, demonstrative exhibits, court reporter fees, subpoena costs) | $25,000 – $40,000
Component | Amount
Costs already incurred | $305,770
Estimated additional fees | $350,000 – $500,000
Estimated

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1034-00003

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts