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A Manhattan judge has sanctioned real estate developer Sheldon Solow and his law firm for filing an “implausible, if not absurd” $115 million suit alleging the previous leasehold owners of a Madison Avenue office tower conspired to keep the ground rent artificially high. Supreme Court Justice Marcy Friedman dismissed all of Solow’s claims and said his lawyer, Marc S. Dreier of the Dreier law firm, “could not reasonably have believed that these causes of action could be supported by a reasonable argument for an extension of existing law.” “In view of the egregious frivolousness of the complaint,” the judge said she would impose the maximum allowable sanctions of $10,000 each to Solow and Dreier in TAG 380 v. Ronson, 101396/04. Friedman also awarded the four defendants attorney fees and other expenses incurred in defending the suit. Solow, whose TAG 380 group bought control of the leasehold at 380 Madison Avenue in 2001, claimed he was the victim of a scheme by the previous leasehold owners to maintain artificially high rent for the 25-floor property. According to the suit, the scheme began in 1989 when leasehold owner Madison Avenue Partners, a group controlled by British developer Howard Ronson, signed a lease “so exorbitantly high and excessive that no reasonable lessee would have entered into it.” The 25-year lease provided for ground rent, paid to the property’s fee owner by the leasehold owner, to increase from $11 million per year to $22 million per year over the life of the lease. Solow claimed Ronson profited from a mortgage secured by the leasehold from which he was able to divert $50 million for his personal benefit. According to the plaintiff, the next leaseholders, British tycoons Frederick and David Barclay, who acquired the leasehold in a 1991 bankruptcy sale, received kickbacks from Ronson to let him continue to control the property and maintain the exorbitant rent. The next leasehold owner, Allen Silverman, from whom Solow purchased his interest, also allegedly participated in the scheme, as did ComMET 380, Inc., which acquired the fee ownership of the building in 1997 on behalf of the RREEF Corp. and the New York State Common Retirement Fund. Solow claimed he was deceived in his purchase by the four defendants, who concealed from him the artificial inflation of the leasehold terms. He also said they had conspired to have the Barclay brothers not exercise and therefore nullify an option in the lease to purchase the fee interest. He sought declaratory judgment that he was entitled to exercise such an option. But Friedman wrote that “none of these alleged events, even if true, could possibly constitute a fraud or unjust enrichment at TAG’s expense.” BUYER’S RESPONSIBILITY She noted that all of the events cited by the plaintiff occurred in the decade before Solow purchased the leasehold. More importantly, she said, he bought that interest “in an arms length transaction with full knowledge of the rent that TAG would be obligated to pay under the lease and the fact that the option had expired.” She said Solow had been fully informed of the “essential terms” of his transaction and she rejected his argument that the defendants had a duty to disclose the history of the leasehold to him. She said such information was “immaterial” because Solow had accepted the rental terms offered him in an arms length transaction. “As a sophisticated real estate developer, Solow had the means available through the exercise of ordinary diligence, and the obligation, to determine whether the ground rent for this leasehold that had no option to purchase was within the range of prevailing rates for comparable commercial properties,” Friedman wrote. In awarding sanctions, the judge said the suit was “completely without merit.” She added that its claims for fraud and unjust enrichment were “not only premised on an implausible, if not absurd, factual scenario, but also lack any legal basis whatsoever.” Dreier did not return a call for comment on the matter. Jerome Katz of Chadbourne & Parke, the lawyer for the Barclays, said he expected the sanctions, including attorney’s fees, to exceed $1 million because of the number of defendants and law firms involved. “This decision is a powerful statement that the courts of New York will not tolerate frivolous litigation, no matter how rich and powerful the plaintiff may be,” said Katz. Ronson was represented by Robert Fink of DLA Piper Rudnick Gray Cary. Silverman was represented by Yale Glazer of Lazare Potter Giacovas & Kranjac. ComMet 380 was represented by Bruce Paulsen of Seward & Kissel.

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