Taken for a Ride
When Roger Toussaint and his team of insurgents won the leadership of the giant Transport Workers Union Local 100 in 2001, they found bins of discarded records in the basement of their union headquarters. There were copies of old grievances, arbitrations, steward reports, all the usual paperwork that clutters a 36,000-member union. But part of Toussaint's campaign platform was to investigate how the huge union, which represents all of the city's bus and subway workers, had landed in such poor economic shape that its benefit funds were almost broke, and, if possible, to find ways to win back any monies owed the union.
To that end, the new leaders began poring over the old abandoned records. They also engaged outside experts, hiring Kroll Inc., the private investigative firm, to examine the union's major transactions in recent years.
Shortly after that audit began, investigators came across an eye-popping discovery that has since provided the basis for a major lawsuit filed by the union: In the mid 1980s, the union had engaged in a complicated real estate transaction in which it sold its old headquarters near Lincoln Center to a real estate developer for $13.5 million. Six weeks later, investigators reported, the developer resold the union's former property at 1980 Broadway for $29 millionmore than double the price paid to the union.
The lucky developer was Stephen Ross, one of the city's biggest real estate moguls, who is currently building the new Time Warner Center at Columbus Circle. Along with a partner who later dropped out of the deal, Ross first offered the union $13.5 million for the property in 1981. Financing problems caused repeated delays in the closing, and the deal didn't go through until February 1985, but the original price remained unchanged. After closing on the parcel with the TWU, Ross cut a deal in early May to sell the property to the media giant ABC, which has its headquarters a block away. The parcel, which once housed the old Ansonia Postal Station as well as the union's offices, eventually wound up as Lincoln Square, a luxury residential condominium and entertainment complex that dramatically reshaped the neighborhood.
The union leaders might have accepted the possibility that the former officials had simply been lousy negotiators and moved on. But further investigation uncovered what they viewed as disturbing ties between the union's own lawyers and real estate brokers at the time and the other parties involved in the transaction.
For instance, when the union obtained a copy of the contract between Ross and ABC, it was surprised to see that the brokerage firm that had represented Local 100, Sylvan Lawrence, was also listed as one of the firms handling Ross's sale to ABC, implying that it had earned a commission on both deals.
In addition, union officials learned that a few months before the sale of their property went through, the individual broker from Sylvan Lawrence who had handled their sale retained the law firm that represented Ross to incorporate a new company for himself. After forming his new company, Glen Allen Associates, broker Alan Schwartz went on to handle the union's own brokerage work for several years afterward.
Suspicions deepened even further after the union obtained records showing that its former attorney had collected a hefty cut of the brokerage commission paid by the union to Sylvan Lawrence. In a note to Sylvan Lawrence president Charles Goldenberg dated a few days after the sale, then union lawyer Richard L. O'Hara wrote that he had received $100,000 of the total $420,000 commission paid by the union. The note, which was written on O'Hara's personal stationery, rather than that of his law firm, Colleran, O'Hara & Mills, added that the union "has knowledge of and has consented to my participation in the brokerage."
Those suspicions are now part of a lawsuit in Manhattan Supreme Court, charging Ross, Sylvan Lawrence, and Schwartz with fraud and concealment in an effort to deceive the union into accepting less than the property's real value, thus cheating the union out of more than $15 million. A separate lawsuit has been filed against O'Hara, alleging that he violated his fiduciary duty to represent the union and accepted, as the union puts it, a "kickback" from the brokers.
Despite dramatic improvements in the real estate market between 1981 and 1985, the lawsuit asserts, the union's professional representatives failed to seek a higher price, even repeatedly allowing Ross to extend the date of his purchase contract. The suit asks that the union be awarded the $15.5 million it says it would have made if it had known of ABC's willingness to pay the higher figure.
"We have been given the responsibility to be entrusted with all the assets of the union, and this is part of the due diligence," said Ed Watt, the union's secretary-treasurer. "What we've found is troubling and it suggests that people weren't doing their job and let the membership down."
At the time of the sale of the old headquarters, the leader of Local 100 was John Lawe, an Irish-born bus operator who served as president from 1976 to 1984 and then headed the union's national organization until his death in 1989. Lawe's mantle was inherited by Sonny Hall, who served as vice president of the local under Lawe before becoming president and who now heads the national union. Hall is viewed by Toussaint and the insurgents elected with him as representative of the union's old guard.
Since Toussaint's election, Hall and Toussaint have been bitter opponents, with Toussaint blaming Hall for a decline in the union's economic fortunes and for having failed to fight aggressively for improved working conditions for members. In turn, Hall has accused Toussaint of misleading the membership. But in the case of the old real estate deal, Hall said the local union is correct to pursue it. He had never been told that the union's old building had been immediately flipped to ABC for a higher price, Hall said, nor about any of the other alleged conflicts of interest unearthed by Toussaint's investigators. The union, he said, is right to sue.
"I had no knowledge of that; none of that was ever told to the executive board," Hall said. "Assuming this is all accurate, that in itself needs to be investigated to see if anything improper was done."
In court papers, lawyers for the defendants asked the judge to dismiss the lawsuit, calling it a rehash of old matters being brought forth now only to embarrass the union's former leadership.
"Mr. Ross has been unfairly dragged into this because the union views him as having deep pockets," said Mark Walfish, an attorney for the developer. "All of this was disclosed to them 15 years ago."
In court filings, attorneys for Sylvan Lawrence did not acknowledge that their firm had represented Ross on his subsequent sale to ABC, and Schwartz's lawyers said the union's new claims have been "stale for a decade and a half."
In his response, O'Hara said Lawe and other leaders of the union at the time approved of his taking a cut of the brokerage commission as a means of reducing the union's legal expenses for the transaction. He added that he had no idea ABC was prepared to pay far more for the property.
In a decision issued last month, Judge Charles Ramos allowed the suit against O'Hara to go forward but has yet to rule on the other motions to dismiss.
The lawsuit comes at a time when Toussaint and Watt are being challenged for re-election by a slate headed by the union's current recording secretary, Noel Acevedo, a onetime ally who later broke with them over contract issues. Ballots for the election are being mailed to members next week and votes will be counted on December 10.
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