Judge Rules Comptroller’s 421-a Wage Lawsuit Against Developer Unconstitutional

A suit accusing investment and management firm BLDG Management of construction wage theft on a 421-a project may be off the table after a judgment by a New York Supreme Court in Albany.

Earlier this year, New York City Comptroller Brad Lander alleged that BLDG had violated the terms of the 421-a agreement by underpaying construction workers. But Lander’s office never had the right to make those allegations, Judge Daniel Lynch ruled.

Lynch’s decision is the result of a suit brought by BLDG against New York state, filed just days after Lander’s office announced that BLDG owed $40M in unpaid wages and penalties for an apartment building at 212 E. 44th St. that receives a 421-a tax abatement.

BLDG’s suit against the state argued that leaving enforcement of 421-a rules to the comptroller’s office, which relies on the Office of Administrative Trials and Hearings rather than the state’s Supreme Court system, is unconstitutional.

Under the system, the comptroller’s office and OATH get to act as judge and prosecutor, lawyers argued, because there is no avenue to appeal a ruling.

Lynch sided with BLDG in the suit, concluding in his decision that the inability to challenge a decision by OATH courts “violates the separation of powers doctrine by eliminating the Supreme Court’s general jurisdiction in law and equity.”

Lawyers for BLDG described the decision as a “monumental victory.”

“Statute was declared unconstitutional. That doesn't happen every day,” said Todd Soloway, a partner and co-chair of Pryor Cashman’s litigation group.

Soloway, along with colleagues Itai Raz and Lawrence Keating, represented BLDG in the suit. 

BLDG began construction on 212 E. 44th St. under a previous version of the 421-a abatement that didn't have a prevailing wage component.

The developer opted into the new 421-a abatement once it became available, which included its wage requirements. BLDG denies the comptroller’s claims and launched its own suit against the state to argue that the OATH proceedings couldn't move forward because there is no way to appeal them under the existing statute, lawyers said. 

The decision could have far-reaching implications, Soloway told Bisnow, as it affects any developer facing an OATH decision over matters related to 421-a enforcement.

“There are still projects under that statutory rubric,” he said. “This is a significant modification to the methods in which government can enforce the statute against developers.”

The dispute isn't over yet, as the comptroller’s office is weighing its next move.

“While we don’t comment on pending litigation, we are currently reviewing the decision with our legal team and exploring next steps,” a spokesperson for Lander told Bisnow in email. 

Soloway expressed confidence that BLDG won't be forced to cough up back pay.

“They have the right to appeal if they want to,” he said. “I think it's highly likely that the decision is going to be sustained.”