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Bronx Defenders Inc., a nonprofit group established after former mayor Giuliani demanded alternatives to the Legal Aid Society, with which he was feuding, moved into the former restaurant in 2001, spending more than $1.6 million on renovations. Today the restaurant's neon signs still hang outside, while inside the former eatery has been transformed. The dining rooms have been converted into a light and airy space with brightly colored walls, glass brick, and large skylights, and open work space for its attorneys and investigators as well as the defendants and their families seeking legal assistance. The renovation, however, has also spawned a bitter battle between the legal services group and its former contractor, a builder called Ivy Walk Construction.
The feud is several notches above the usual finger-pointing and charges of shoddy work and unpaid bills between client and contractor. Contractor Eric Wright, president of Ivy Walk, has alleged misspending by the legal group and brought his charges to several city agencies, including the city's Office of Criminal Justice, which funds the organization, and the city comptroller's office, which oversees its contracts.
For their part, Bronx Defenders and its executive director, Robin Steinberg, have countered with a $22 million lawsuit against Wright, charging him with breach of contract, interference with the group's city funding, andas evidence of the harshness of the argumenteven slander. The suit, filed in October, claims that Wright brought his allegations to reporters and city officials in an effort to "pressure [Bronx Defenders] into paying [Wright] additional money."
Both sides of the dispute, however, agree on one disturbing matter that has now become the subject of a city investigation: Prior to starting the project, Wright paid $20,000 to a lawyer who was the co-founder of Bronx Defenders and who, acting as a private attorney for the group, was overseeing its move to new offices.
Wright provided two canceled checks to investigators, showing he paid the money to the firm of Hoffman & Arshackwhose principal, Daniel Arshack, founded the legal services organization along with Steinberg and served as its managing attorney until 1999 when he returned to private practice. The payments, one for $5000 and a second for $15,000, were made shortly after Wright signed a contract, drawn up by Arshack for the group, to take on the renovation, initially estimated at $1 million.
According to Wright, after he was selected for the job, he offered a commission to a former contracting colleague who had referred him to Arshack. That offer was declined, said Wright. Subsequently, at a December 2000 meeting with Arshack at an Upper West Side restaurant to discuss the project, Arshack raised the issue. "Arshack said, 'I understand you are offering a commission. I'd like to have that,' " said Wright. The builder said he was surprised at the request, but agreed to pay it. "This was the guy standing between me and my first seven-figure contract," he said.
Wright said the total amount of the commission requested by Arshack was $25,000, but that the last $5000 was never paid because of the ensuing dispute between Ivy Walk and Bronx Defenders. "Arshack started getting very aggressive about getting the last $5000," said Wright.
Asked by the Voice about the issue, Arshack initially refused to acknowledge the payments. "What is the issue in that regard?" he said several times. Told that copies of canceled checks showed the payments to his law firm, he defended the arrangement. "Of course we received it," he said. "It was paid to us under an agreement for what we did. It was a finder's fee." Pressed about why he would be entitled to a fee for having selected a contractor for his group's renovation project, Arshack said: "The contractor was inclined to pay it."
Steinberg said she didn't learn about the payments until several months later. "I was surprised when Dan told me about it," she said. "I don't have a favorable feeling about Dan taking that money." She added: "It seemed like a lot of money to get for an introduction."
Steinberg said Arshack was paid separately by Bronx Defenders for his assistance on the project, which included negotiating contracts with both Wright and the landlord. She also said Arshack had never pushed her to hire Wright's firm for the project. "If Ivy Walk paid money to someone in an effort to influence us, they will have to answer for that. Mr. Arshack never tried to influence me in regard to the contractor," she said.
Still, Steinberg acknowledged that "the appearances of it aren't great. I can see why people would raise questions about it."
That is exactly what the office of City Comptroller William Thompson did after Wright brought his story to officials there. The comptroller referred the payments to Arshack and other issues stemming from the project to the city's Department of Investigation.
In an October 2002 letter to the city's Office of the Criminal Justice Coordinator, the comptroller's office also questioned why the city, already paying $240,000 a year in rent for the space, had agreed to pay for a new roof, new exterior walls, and heating and ventilation equipment for the former restaurant, in addition to the $1 million renovation of the interior space. Those types of repairs, the comptroller wrote, "are generally the responsibility of the landlord and not the tenant."
"The allegations are under review," said Emily Gest, a spokeswoman for the investigations department, which is conducting the probe.
Under its current two-year contract with the city, Bronx Defenders receives $7.6 million to represent some 12,500 indigent defendants. Since its launch, the group has received high marks from city evaluators and legal experts. It prides itself on providing a broad array of assistance to defendants, including social service aid and civil representation.
Giuliani's call for alternative providers of legal defense came after a brief 1994 strike by attorneys at the Legal Aid Society. Giuliani threatened to fire the striking lawyers and the walkout was quickly settled. Many Legal Aid lawyers saw Giuliani's subsequent request for new legal services providers as an effort to break their union. Feelings have cooled considerably since then, but there is still much bitterness. "I look on them as runaway shops," said Michael Letwin, a former union official.
Records show that the Bronx Defenders proposal, which listed Arshack as president and managing attorney and Steinberg as vice president and executive director, was the highest ranked of several competitors. The group, which needed to be close to the courts, found its first offices on Grant Avenue near the Bronx Criminal Courthouse. In 2000, however, its building was condemned by the city for a new courthouse, and the group was forced on short notice to find new space. Arshack, who had quit the organization the prior year to return to private practice, was asked by Steinberg to help handle the search. The then vacant Alex and Henry's site was discovered, she said, not by Arshack but by a staff member who went on a lunchtime walk.
The discovery was a windfall for the owner, a real estate firm headed by Manhattan businessman Gabriel Boter, which had purchased the building just a few months earlier for $940,000 and was in search of a tenant. With Arshack handling the negotiations, the group signed a 25-year lease at $240,000 per year. The comptroller's office said that while it had found no evidence of any link between the timing of the purchase and the subsequent long-term lease, the transaction "rises to the level of requiring further scrutiny."
Arshack said he hadn't known the building or its owner before the site was located and only handled negotiations on the lease. Boter did not return calls.