FILED: NEW YORK COUNTY CLERK 11/23/2011 INDEX NO /2011 NYSCEF DOC. NO. 9-1 RECEIVED NYSCEF: 11/23/2011 EXHIBIT A

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1 FILED: NEW YORK COUNTY CLERK 11/23/2011 INDEX NO /2011 NYSCEF DOC. NO. 9-1 RECEIVED NYSCEF: 11/23/2011 EXHIBIT A

2 iiled: NEW YORK COUNTY CLERK 04/25/2011] INDEX NO /2011 NYSCEF DOC. NO, 1 RECEIVED NYSCEF: 04/25/2011 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ARBOR REALTY FUNDiNG, LLC HERRICK, FE1NSTEN LLP, Plaintiff, : Index No. Date Purchased: - against - Defendant X SUMMONS TO TIlE ABOVE-NAMED DEFENDAINT: YOU ARE HEREBY SUMMONED and required to serve upon plaintiff's attorney, at the address stated below, a written answer to the attached complaint. If this summons is served upon you within the State of New York by personal service, you must respond within twenty (20) days after service, exclusive of the date of service. If this summons is not personally served upon you within the State of New York, you must respond within thirty (30) days after service is completed as provided by law. If you do not respondto theattached complaint withintheapplicnb1e time limitations atated above, a judgment will be entered against you, by default, for the relief demanded in the complaint, without further notice to you. Plaintiff designates New York County as the place of trial. Venue is based on the residence of Defendant, which is 2 Park Avenue, New York, New York Dated: New York, New York April 25, 2011 Yours, etc., TO: Herrick, Feinstein LLP 2 Park Avenue New York, New York TANNENBAUM ITELPERN SYRACUSE & HIRSCHTRITI' LLP By: \'~A ~ " Vincent J. Syracuse, Esq. David A. Pellegrino, Esq. George F. du Pont, Esq. Attorneys for Arbor Realty Funding, LLC 900 Third Avenue New York, New York 10022

3 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK x ARBOR REALTY FUNDING, LLC Plainrff, Index No. - against - : Date Purchased: HERRICK, FEINSTE1N LLP : COMPLAINT Defendant x Arbor Realty Funding, LLC ("Arbor" or "Plaintiff'), by its attorneys, Tannenbaum Helpern Syracuse & Hirschtritt LLP, and as for its Complaint against Herriek, Feinstein LLP "Defendant" or "Herrick"), allege as follows: TIIEPARi.IES 1. Arbor is a Delaware Limited Liability Company with a principal place of business at 333 Earle Ovington Boulevard, Uniondale, New York Arbor is in the business of providing real estate secured loans, primarily short-term loans for large-scale real estate development projects. Arbor's business model depends on its borrowers' ability to quickly and readily obtain substitute construction or other "take-out" financing for the next stage of a development project, so that Arbor's loans can be timely repaid. 3. Herrick is a limited liability partnership that is actively engaged in the practice of law in the State of New York and other jurisdictions, with a principal place of business at 2 Park Avenue, New York, New York

4 NATURE OF THE CASE 4. This is an action to recover damages incurred as a result of professional malpractice. 5. In 2007, Arbor hired Herrick as its legal representative in connection with the closing of a series of short-term bridge loans in excess of $70,000,000 in the aggregate (the "Loans") to East 51St Street Development Company LLC (the "Borrower"). The Loans were used by the Borrower to refinance existing debt used to acquire the property and for early phase development of a new 42-story residential condominium building of 187,295 square feet to be constructed at 303 East 51St Street in New York, New York (the "Project"). 6. The Borrower described the proposed Project as a "tower" building pursuant to Section (the "Tower Regulations") of the Zoning Resolution of the City of New York, as amended, (the "Zoning Resolution"), on a series ofadjaccnt tax lots within tax -block 1344 owned - by Borrower that would constitute a zoning lot under the Zoning Resolution. As described in greater detail herein, once Arbor closed on the Loans, the Borrower's ability to construct the Project as a "tower" on the zoning lot applicable to the Project was crucial to Borrower's ability to timely repay the Loans made by Arbor. 7. As part of its engagement of Herrick, Arbor asked Herrick to analyze the Project and confirm that pursuant to the Zoning Resolution it could be constructed lawfully as proposed. 8. Instead of providing Arbor with sound, reliable and correct legal advice on this critical question, Herrick failed to conduct sufficient independent due diligence and, as a result, gave Arbor erroneous advice with respect to whether the Project could be constructed lawfully pursuant to the Zoning Resolution. 9. Herrick, through its actions and omissions committed professional malpractice

5 when it failed to advise Arbor (i) that the Borrower could not build the Project as a "tower" "asof-right" but had to build it as a "tower-on-base," and (ii) that Borrower could not build the Project on Borrower's proposed zoning lot because of an underlying "split lot" condition to be discussed herein. 10. Herrick's professional malpractice and failure to fulfill its duty of care denied Arbor the opportunity to make an informed business decision on the Borrower's ability to obtain the construction fmancing that would have assured that the Loans would be timely repaid: Herrick' s incorrect analysis of the applicable zoning regulations and its failure to conduct sufficient and adequate independent due diligence caused Arbor to overestimate the value or potential value of the collateral, and Arbor made irreversible decisions with respect to the Loans - it closed the Loans with the Borrower while relying on Herrick's erroneous advice. After Arbor madetheioans, Borrower was unableithtainccostruction financhig because of zoning issues that precluded construction of the Project and, thereafter, Borrower defaulted under the Loans. These issues were first made known to Arbor by the proposed take-out lenders and their legal representatives. Arbor eventually sold the Loans at a substantial loss that exceeded $32,000,000. Arbor incurred additional related damages for protective advances and lost unpaid charges due under the Loans, totaling approximately $37,000, Additionally, Herrick acted in error and committed professional malpractice with respect to the collateralization of a security interest in certain 421-a tax abatement certificates which resulted in litigation as well as impairment and devaluation of Arbor's collateral. 13. Arbor has been injured by Herrick's negligence and failure to exercise the reasonable degree of care, skill, diligence and knowledge, and proximately has suffered substantial damages in an amount to be proved at trial, but believed to be at least $69,000,000. 3

6 BACKGROUND FACTS I. ZONING Arbor's Business 14. Arbor is wholly owned and controlled by Arbor Realty Trust, Inc. (hereinafter "ART"). ART is a real estate investment trust that is publicly traded on the New York Stock Exchange under the symbol "ABR." 15. ART provides financing for a variety of commercial real estate ventures, including but not limited to, large-scale real estate development projects. A majority of the loans provided by ART are often short term and depend on the ability of the borrowers to obtain substitute financing for the next stage of a development project, or take-out financing. As a subsidiary of ART, Arbor issued many of these loans. 16. Arbor'shridge loans are most often sirnctued as -short-term loans, a,d as such, Arbor's analysis of the value of the collateral for such loans is, in large part, based upon the inherent worth of the anticipated development. Therefore, the ability of a borrower to obtain additional financing to satisfy its obligations to Arbor in a timely fashion is paramount. In summary, if the borrower(s) cannot finance the next phase of development, Arbor would be deprived of its exit strategy with respect to its loans. The Project 17. In April 2007, Arbor was introduced to an opportunity to provide fmancing for the Project. James Kennelly, the principal of the Borrower and the sole individual guarantor of the Project, sought financing in the form of a short-term bridge loan which would enable Borrower to acquire additional land for the Project, refinance some existing obligations, and fmance certain early development costs. 4

7 18. In April 2007, Arbor began to process and underwrite the Loans; collecting the necessary due diligence on the Project in order to close on the Loans. To that end, it retained Herrick as its legal representative. 19. The Project contemplated building a "tower" that was to be constructed at 303 East 51st Street in Manhattan on a footprint that included tax lots 103, 104 and 105 in tax block Pursuant to the Zoning Resolutions, this footprint, together with several additional lots, constituted the Borrower's zoning lot. That the Project could be constructed as a "tower" on a zoning lot, as proposed by Borrower, was an essential element Borrower's loan proposal and confirmation of these facts was critical to Arbor's decision to close the Loans to the Borrower. Herrick endorsed the premise that applicable zoning regulations permitted the Project to be constructed as a "tower" on the Borrower's zoning lot. To its detriment, Arbor relied on Herrick's conclusionsin making the Loans. 20. Arbor structured the Loans to be re-paid approximately one year after closing, and financed the Loans accordingly. Herrick understood that Arbor's participation in the Project was based on the assumption that replacement or "take-out" fmancing would be obtained by May 7, 2008, or earlier, to repay the Loans and finance complete construction of the Project. 21. Arbor would not have made the Loans if it had known that the applicable zoning regulations did not permit the construction of the Project as contemplated, or had it known or been advised that Herrick's advice was "aggressive," questionable or incorrect. Arbor Hired Herrick to Provide Legal Advice 22. Herrick represented itself to Arbor as having a prominent, sophisticated legal practice inclusive of a specialization and expertise in New York City land use and zoning matters. 23. Herrick's firm website, corn, as well as Herrick's "Land Use and

8 Environmental Blog," www. herrickzone. com, reads as follows: "How you manage your project's land use and zoning issues can make or break the project or at least have a significant effect on its profitability. You can take our sophisticated land use, zoning and environmental advice to the bank. Herrick has one of the most prominent and sophisticated zoning and land use practices in the New York metropolitan area, and we have a solid reputation for handling high-profile, complicated zoning cases, and obtaining the critical approvals from public bodies and agencies". (Emphasis supplied.) 24. Herrick's "Land Use and Environmental Blog" further reads: "You can count on our dynamic group of attorneys for all of your real estate needs, from development, zoning and construction to financing and acquisition." 25. Arbor relied on attorneys in Herrick's Land Use and Zoning practice group to analyze and advise on the Project and the closing of the Loans. Arbor had frequent communication with a number of Herrick's attorneys including Mitchell Korbey ("Korbey") in Herrick's Land Use and Zoning practice group. 26. Herrick represented to Arbor that Korbey was an extremely accomplished and experienced attorney who specialized in zoning law. Herrick's website even boasts that: "?kfitch is an accomplished urban planner and land use attorney with more than 20 years of experience in land use, zoning, environmental and governmental affairs, Mitch resolves zoning conflicts and analyzes complex regulations affecting properties throughout New York City.... Mitch is a former Commissioner of the New York City Board of Standards and Appeals, having been appointed to a six year term in February 1998 by then-mayor Rudolph Giuliani.... Mitch is an Adjunct Professor in Hunter College Graduate School's Urban Affairs and Planning Department where he teaches Land Use Law and offers a seminar entitled "Lawyers and Planners in the Development Process." 27. Unbeknownst to Arbor, Korbey had been admitted to the practice of law in the State of New York in Therefore, Korbey had been practicing law for less than three and a half years at the time he provided legal advice and counsel on land use and zoning matters to Arbor in connection with the Loans. Nevertheless, Herrick represented Korbey to be an experienced legal professional with significant legal zoning expertise.

9 Ilerrick Was Negligent 28. Instead of providing Arbor with accurate and reliable advice consistent with the reasonable degree of care, skill, diligence and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope, Herrick negligently gave Arbor misinformation and incorrect advice on critical zoning issues. 29. Herrick never informed Arbor that the Project could not be built "as-of-right" as a "tower," that under the applicable zoning regulations the Project had to be developed as a "toweron-base," or that the Project could not be built as presented because of a "split lot" condition inherent in Borrower's zoning lot. 30. Prior to the closing of the Loans, Herrick had an obligation to inform Arbor that the applicable zoning regulations precluded what the Borrower had proposed to build, or alternatively, that its legal advice was "aggressive," that that the applicable zoningregulations were unclear and difficult to interpret, and that it had not conducted sufficient independent due diligence with respect to analysis of these issues. Herrick did none of the foregoing and their advice was determined to be wrong. Herrick Failed To Warn Arbor of Material Issues 31. Herrick accepted Arbor's engagement and, therefore, was responsible to analyze legal issues relevant to the Project and to alert Arbor of any material problems or questionable courses of action that would affect Arbor's decision on whether to close the Loans. 32. As part of its due diligence process, Arbor advised Herrick that they were to be well versed in any and all zoning issues that were material to Arbor's decision to close the Loans. 33. Herrick was negligent in advising Arbor of all zoning issues that were material to Arbor's decision to close on the Loans prior to the closing on the Loans. 7

10 34. By dated May 2, 2007, Korbey instructed the Borrower's counsel, Marvin Mitzner, to obtain a "zoning certification letter" from the Borrower's architectural firm, and specifically indicated, inter alia, that "the letter should explain that the building planned for construction is as-of-right..." and that "[t]he architect should address the letter to Arbor Realty Funding LLC (no commas)." 35. On or about May 4, 2007, Herrick received the completed opinion letter from the Borrower's architectural firm, Garrett Gourlay PLLC ("Gourlay"), entitled "303 East 51st Street - Zoning Opinion" (the "Gourlay Opinion"). 36. The Gourlay Opinion identified two distinct zoning lots relating to the Project; one zoning lot consisting of tax lots 103, 104, 105, 2, 49, 50, and 51, and a second zoning lot consisting of tax lots 103, 104, 105,2, 49, 50, 51, 3, 4, and Prior to the closing, on the Loans, Arbor was aware that Herrick read and critically reviewed the Gourlay Opinion which stated: "[The Project] is being developed on an as-of-right basis as a tower (without any height limit) set back from 51st Street 15 feet (as required on a narrow street - 60' wide) and with the existing buildings fronting Second Avenue the building is not required to be developed under [New York City's] tower-on-base regulations..." Gourlay Opinion at 1-2. (Emphasis added.) 38. As counsel to Arbor, prior to the closing on the Loans, Herrick had an obligation to conduct an independent analysis of the pertinent sections of the Zoning Resolution that governed whether the Project could be built as a "tower" "as-of-right," and whether Builder's zoning lot was viable for the Project, and to advise Arbor accordingly. Herrick either failed to do so or misunderstood the Zoning Resolution. 39. Upon information and belief, prior to the closing on the Loans, Herrick failed to conduct sufficient independent due diligence to determine whether pursuant to the Zoning 8

11 Resolution the Project could be built as a "tower" or whether the Project could be built on the Borrower's zoning lot. 40. Specifically, Herrick failed to infonn Arbor that the Gourlay Opinion and Herrick's own legal advice, including Herrick's legal advice concerning the accuracy of the Gourlay Opinion, was wrong, "aggressive," or that the applicable zoning regulations were unclear and difficult to interpret. In fact, Herrick's advice was wrong. 41. Because Herrick did not inform Arbor that there were legal issues associated with the construction of the Project as a "tower," or that the Project could not be built on the Borrower's zoning lot, Arbor was not aware that there existed critically important issues with respect to the zoning regulations that would govern development of the Project and adversely impact on the Project's eligibility for construction or other take-out financing. Arbor Relied on Herrick's Advice When It Closed the Loans 42. Prior to the closing of the Loans Herrick assured Arbor that its advice and the Qourlay Opinion could be relied upon, particularly their conclusion that the Project complied with the applicable zoning requirements. 43. At the time Herrick issued its advice, Herrick knew that Arbor was closing on the Loans in reliance on Herrick's advice. 44. Prior to the closing on the Loans, Arbor was unaware that Herrick's advice was erroneous. Tower on Base Regulations Under the Zoning Resolution 45. On information and belief, the Zoning Resolution limits the height of a building using several criteria, including height and setback regulations. Buildings constructed as towers generally fall into one of two categories: a "tower," or a "tower-on-a-base" (also known as "tower-

12 on-base"). The difference between "tower" and "tower-on-base" configurations is extremely significant to the construction of any high rise building and the fact that the Borrower continued to develop the Project as a "tower" had a direct impact on the Project and the value of Arbor's collateral for the Loans. Description of a "Tower" Configuration 46. The Zoning Resolution permits buildings in identified high density districts to be built using a "tower" configuration. In such a configuration, a building constructed on less than 40% of the zoning lot can rise virtually without height limitation, providing highly desirable views from the upper units. Such a tower may be occupied by residential, commercial or community facility uses. A tower is generally setback at least ten (10) feet from a wide street and at least fifteen (15) feet from a narrow street. Description ol- a- "Tower-on-Base" Configuration 47. In 1994, the City amended the Zoning Resolution to modify and limit the tower regulations and create more restrictive "tower-on-base" regulations. 48. A "tower-on-base" configuration consists of a tower built on top of a low, wide building "base". On information and belief, a building "base" generally is between sixty (60) and eighty-five (85) feet high, and extends continuously along a street line (as opposed to being set back from a street line as is the case with a "tower" building). The Project Was Subject to the Criteria for Tower-on-Base Configuration 49. Section of the Zoning Resolution explicitly states the regulations governing instances in which "towers" may be constructed. Sub-Section , however, then illustrates those instances in which a "tower-on-a-base" must be constructed. If a proposed new building does not meet the criteria for a "tower" set forth in Section 23-65, it must be built pursuant to the 10

13 more restrictive "tower-on-a-base" regulations set forth in Section On information and belief; the Project was subject to the more rigorous "tower-onbase" regulations. The Role of a Zoning Lot under the Zoning Resolution 51. Since its adoption in 1961, Section the Zoning Resolution (Definitions) has included the concept of a zoning lot. Under the Zoning Resolution a zoning lot is the basic unit for zoning regulation. Before any permit for the construction of a building pursuant to the Zoning Resolution can be issued, a complete metes and bounds description of the zoning lot must be filed with the County Clerk. On information and belief, any submission made to the Department of Buildings for a new building permit by an architect or other qualified professional must include zoning calculations that demonstrate how the zoning lot complies with the applicable zoning regulations. 52. The district boundaries drawn on the zoning map which is part of the Zoning Resolution do not necessarily conform with existing tax lot boundaries. Consequently, zoning district boundaries can bifurcate a tax lot creating a "split lot" condition in which different zoning regulations apply to different portions of a tax lot. Article VII, Chapter 7 Section 7 of the Zoning Resolution (Special Provisions for Zoning Lots Divided by District Boundaries) sets forth the regulations governing this situation. In brief, this Chapter differentiates between those zoning lots not in existence prior to the effective date or amendment of the Zoning Resolution (see, Section 77-02) and those zoning lots existing prior to effective date or amendment of the Zoning Resolution (see, Section 77-03). Zoning lots in existence prior to the effective date or amendment may enjoy limited relief from the strictures of a split lot condition. Zoning lots not in existence prior to the effective date or amendment, however, do not qualify for such limited relief and each 11

14 portion of the zoning lot will be regulated by all the provisions applicable to the district in which such portion of the zoning lot is located. This is referred to as a "split lot" condition (see, Section 77-11). 53. The Borrower proposed to construct the Project on a zoning lot that included, at a minimum, tax lots 103, 104 and 105. Therefore, it was incumbent upon Herrick, consistent with its due diligence and duty of care on behalf of Arbor, to examine the proposed zoning lot to determine if it raised any issues that would preclude the construction of the Project as proposed by Borrower. 54. On information and belief, the City last amended the district boundary that divides tax lot 104, thus amending the Zoning Resolution, in Consequently, the inclusion of tax lot 104 as part of any zoning lot created after 1988 would be regulated by Section which mandates that the respective portions of such zoning lot be governed by the provisions of the Zoning Resolution applicable to the district in which such portion of the zoning lot is located. 55. An examination of the zoning lot on which the Project was to be constructed, coupled with a careful reading of the Zoning Resolution, would have revealed that the Project could not have been constructed as the Borrower had proposed. The Project Could Not be Built on The Borrower's Zoning Lot Because of a "Split Lot" Condition 56. At a minimum, the Borrower's zoning lot consisted of tax lots 103, 104 and 105 in tax block On information and belief, Borrowefs zoning lot was not in existence prior to 1988, the year of the most recent applicable amendment to the Zoning Resolution. 57. Therefore, a "split lot" condition existed at the Project in accordance with Section of the Zoning Resolution. As a result, each portion of the zoning lot was regulated by the 12

15 provisions of the Zoning Resolution applicable to the zoning district in which that portion of the zoning lot was located. Specifically, tax lot 104 was split by a zoning boundary line, such that one portion of tax lot 104 was regulated by the provisions of the Zoning Resolution applicable to an R8B zoning district, and the other portion of tax lot 104 was regulated by the provisions of the Zoning Resolution applicable to a C1-9 zoning district. 58. Because the zoning lot proposed by the Borrower involved a "split lot" condition, the Project could not be built as planned and would have required significant alteration from the proposed development pian in order to be constructed as permitted by the Zoning Resolution. Potential Lenders Refused to Finance the Construction of the Project 59. In early 2008, pursuant to a search to secure construction and mezzanine financing for the next phase of development, the Borrower began negotiating with two specific lenders interested in providing financing for the Project. That financing would have provided the fw,ds to repay Arbor's loan in full in accordance with its terms. 60. After providing preliminary commitments to provide funding that would repay the Loans and provide the capital to complete construction, both lenders began due diligence in connection with the Project, including a review of the application of the Zoning Resolution to the Project. Herrick advised Arbor for several weeks during the process, and consistently stated during that time period that the Borrower's interpretation of the Zoning Resolution was accurate. 61. At about the same time, upon information and belief, the New York City Department of Buildings (the "DOB") began to re-examine whether the Project was subject to "tower" or "tower-on-base" zoning regulations. 62. After conducting the standard diligence relative to the 'Project, and coincident with the timing of the DOE's re-examination of the zoning regulations applicable to the Project, one 13

16 lender declined in February 2008 to close on the mezzanine loan for which it had issued a commitment and the other lender on March 5, 2008, after issuing a contingent commitment letter, indicated that it was not comfortable with Borrower's interpretation of the Zoning Resolution, even stating in correspondence that "working out zoning is the largest" issue which remained to be resolved in making its construction loan. 63. By this time, working with the zoning lot it had declared, the Borrower had completed the foundation for a "tower" and had commenced preliminary construction on the body of that tower. 64. With this work underway, conversion of the Project to a permitted "tower-onbase," configuration that could be built consistent with the "split lot" regulations, would have required a complete demolition of the partially constructed tower as well as the foundation, or, in thealtemative,wouldhaverequiredmajoraltera&.ns.ofthe partially conatructed tower. Ineither case, such work would have been at extraordinary cost. 65. Although the Loans matured on May 7, 2008, the Borrower was, pursuant to a commitment letter from a construction lender, expected to obtain construction financing before March 31, It did not, and on or about May 1, 2008, Arbor and the Borrower entered into a forbearance agreement which had the effect of extending the maturity of the Loans from May 7, 2008 to July 1, Given Borrower's apparent inability to secure construction financing, Arbor elected to accede to Borrower's request to extend the maturity of the loan in an effort to protect its investment. 66. The Borrower was not able to obtain construction financing and defaulted on the Loans when they became due on July 1,

17 Crane Collapse and Revocation of Building Permits 67. On March 15, 2008, several weeks after the first construction lender had elected not to close on the construction financing, and just days after the second lender indicated it had concerns with respect to Borrower's interpretation of the applicable zoning regulations, a crane operating at the Project collapsed, killing seven people. 68. After the crane collapse, the "tower on base" and "split lot" issues became part of DOB ' s decision on June 13, 2008 to revoke the Borrower's building permits. In the objections attached to its revocation, DOB enumerated numerous zoning regulations governing the "tower" versus "tower-on-base" configuration and other zoning regulations with which the Project did not comply. These decisions and actions by DOB confirmed that the Project, as planned, could not have been built pursuant to the "tower" regulations, all to Arbor's detriment. Flerrick, had it exercised due diligence appropriate for a project of this type, should have known of the conclusions ultimately reached by DOB and so advised Arbor prior to the closing of the Loans. Herrick's failure to do so constitute professional malpractice. Arbor. Executives Meet with Ilerrick Zoning Team 69. On or about March 24, 2008, senior executives at Arbor met with Herrick attorneys including Mark Levine, chairman of the firm's land use practice, and Korbey, at 1-lerrick's New York office to discuss the zoning problems with the Project. 70. During the meeting, Korbey stated to Arbor that Herrick's advice concerning the feasibility of building a "tower" (as opposed to a "tower-on-base") on the zoning lot applicable to the Project was aggressive but not wrong. 71. This meeting, months after the closing of the Loans, was the first time Herrick told Arbor that Herrick's legal advice concerning the zoning issues that governed the viability of the 15

18 Project and the Loans was "aggressive" - in specific, that Herrick's advice was not based on a careful and considered analysis of the Zoning Resolution and applicable precedents. 72. If Fierrick had qualified its advice in this manner prior to the closing on the Loans, it would have put Arbor on notice and Arbor would have been alerted to the need to more carefully consider and evaluate the significant land use issues raised by the Project. 73. If Herrick had so warned Arbor, Arbor would not have proceeded with the closing on the Loans, because Arbor would have realized that any take-out lender would consider Herrick's "aggressive," and in fact, incorrect, zoning-related legal advice to be an impediment to purchasing the Loans. Arbor Sold the Loans At A Substantial Loss 74. As a direct result of Herrick's negligence and erroneous advice, Arbor was.deprivednfthecollateral value anticipatedbytheproj.ect,the ability to be repaid bythe Borrower in accordance with the terms of the Loans, and the ability to realize the true value of the Loans, 75. In order to mitigate its losses, Arbor sold the defaulted Loans on or about April 15, 2010 at a substantial loss. II. 421-A TAX ABATEMENT CERTIFICATES 76. Herrick, through its actions and inaction committed professional malpractice with respect to the collateralization of a security interest in certain 421-a tax abatement certificates. As a result, Arbor's collateral was impaired and devalued, and Arbor was compelled to undertake litigation. 77. The City's 421-a tax-abatement program provides, inter alia, an incentive to developers of market rate housing in certain locations to finance low-income housing. The program offers a partial tax exemption for market-rate housing constructed south of 96th Street 16

19 and north of 14th Street in Manhattan (hereinafter the "Exclusionary Zone") in exchange for the construction or contribution to the financing of low-income housing that meets certain requirements (e.g., the apartments must be free of mortgage debt) elsewhere in the City. To memorialize this exchange, the City will issue up to five 421-a tax-abatement certificates for each qualifying affordable apartment constructed. These 421-a certificates are transferrable, meaning they can be sold on the open market. Developers working in the Exclusionary Zone typically purchase 421-a certificates and apply them to their applications for tax abatements for market-rate housing for projects in the Exclusionary Zone. 78. In connection with the closing on the Loans, Herrick drafted a general assignment of contract rights (the "Assignment") between Arbor and Borrower, which expressly assigned to Arbor all of Borrower's rights in all present and future contracts and agreements, including -agreements for the sale of goods or-other property, executed by Borrower in connection wit.h..ihe.. Project. Herrick, however, failed to specifically enumerate in the Assignment Arbor's rights concerning 421-a certificates purchased by Borrower, or otherwise specifically insure (through, for example, amendments to the Assignment, or through drafting a separate assignment of rights) that 421-a certificates purchased by Borrower would be assigned to Arbor or become collateral for the Loans. 79. The Assignment was executed by Arbor and Borrower on or about May 8, On July 24, 2007, with Herrick's knowledge, Arbor funded $4,000,000 towards Borrower's purchase of 421-a certificates (hereinafter the "421-a Certificates") from Intervale Gardens LLC ("Intervale"). Because the 421-a Certificates were not to be immediately transferred from Intervale to the Borrower, Borrower transferred the $4,000,000 funds to Seiden & Schien, P.C. ("Seiden"), counsel for Intervale, to be held in escrow. 17

20 80. In September and October 2008, Arbor sent letters to Intervale and Seiden, demanding that Arbor's collateral interest in the 421-a Certificates be recognized, and that Arbor be permitted to close on the sale of the 421-a Certificates. Seiden refused, stating that Borrower had, unbeknownst to Arbor, assigned the contract concerning the 421-a Certificates to others. Thereafter, in January, 2009, Arbor commenced costly litigation against several parties including Borrower, Intervale, and Seiden (the "421-a Litigation") and in November 2009 was eventually granted summary judgment. The 421-a Litigation is now on appeal. 81. If Herrick had properly drafted the Assignment to expressly enumerate Arbor's rights concerning the 421-a certificates, or had amended the Assignment on July 24, 2007 when funds were provided by Arbor towards the purchase of the 421-a Certificates, Arbor would have been recognized as a party with an interest in the 421-a Certificates when Arbor first demanded to beso recognized, in September Further, had itaposition been recognized, Arbor could have sold its rights to the 421-a Certificates in September 2008 for a significantly higher price than it could otherwise have done after September AS AND FOR A FIRST CAUSE OF ACTION PROFESSIONAL MALPRACTICE 82. Plaintiff repeats and realleges paragraphs 1 through 81 hereof with the same force and effect as if fully set forth at length herein. 83. Herrick issued its advice with the knowledge that Arbor would make the Loans to the Borrower in reliance upon Herrick's advice and the assurance therein that the Project could be built pursuant to the tower regulations set forth in the Zoning Resolution. 84. Herrick's advice was specifically issued and directed to Arbor with the awareness and understanding that Arbor was relying on such advice in maldng the Loans. 18

21 85. Arbor relied on Herrick's advice to determine the applicability of certain zoning regulations in connection with closing of the Loans relating to construction at the Project. 86. Herrick was negligent because it failed to exercise the reasonable care, skill, diligence and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope. 87. In violation of Herrick's duty to properly, diligently and competently issue correct advice, Herrick negligently issued erroneous advice to Arbor with respect to the zoning regulations applicable to the Project. 88. Herrick knew or should have known that the Project could not have been built pursuant to the "tower" regulations of the Zoning Resolution, or at least should have informed Arbor that its advice was "aggressive." 89. But for Herrick's negligent advice, Arbor would not have closed on the Loans Herrick's conduct in connection with its legal advice constituted professional malpractice. 91. As a direct, foreseeable and proximate result of Herrick's negligence, carelessness, unskillfulness and lack of diligence, Arbor has been injured and suffered substantial damages and continues to suffer damages in an amount to be proved at trial, but not less than $69,000,000. AS AND FOR A SECOND CAUSE OF ACTION PROFESSIONAL MALPRACTICE 92. Plaintiff repeats and realleges paragraphs I through 91 hereof with the same force and effect as if fully set forth at length herein. 93. Herrick issued its advice with the knowledge that Arbor would make the Loans to the Borrower in reliance upon Herrick's advice and the assurance therein that the Project could be built on the Borrower's zoning lot appropriately conforming to the applicable zoning regulations. 19

22 94. Herrick's advice was specifically issued and directed to Arbor with the awareness and understanding that Arbor was relying on such advice in making the Loans. 95. Arbor relied on Flerrick' s advice to determine the applicability of certain zoning regulations in connection with closing of the Loans relating to construction at the Project. 96, Flerrick was negligent because it failed to exercise the reasonable care, skill, diligence and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope. 97. In violation of Herrick's duty to properly, diligently and competently issue correct advice, Herrick negligently issued erroneous advice to Arbor with respect to the zoning regulations applicable to the Project. 98. Herrick knew or should have known that the Project could not be built as proposed on the Borrower's zoning lot in conformance with the appropriate zoning regulations, due to the existence ofa "split lot" condition. malpractice. 99. But for Herrick's negligent advice, Arbor would not have closed on the Loans Herrick's conduct in connection with its legal advice constituted professional 101. As a direct, foreseeable and proximate result of Flerrick's negligence, carelessness, unskillfulness and lack of diligence, Arbor has been injured and suffered substantial damages and continues to suffer damages in an amount to be proved at trial, but not less than $69,000,000. AS AND FOR A THIRD CAUSE OF ACTION PROFESSIONAL MALPRACTICE 102. Plaintiff repeats and realleges paragraphs I through 101 hereof with the same force and effect as if fully set forth at length herein Herrick was negligent because it failed to exercise the reasonable care, skill, diligence 20

23 and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope In violation of Herrick's duty to properly, diligently and competently issue correct advice, Herrick negligently issued erroneous advice to Arbor with respect to the collateralization of a security interest in certain 421-a tax abatement certificates, which resulted in litigation and impairment and devaluation of Arbor's collateral But for Herrick' s negligence, Arbor would have sold its rights concerning the 421- a Certificates for a significantly higher purchase price Herrick's conduct in connection with its legal advice constituted professional malpractice As a direct, foreseeable and proximate result of Herrick's negligence, carelessness, unskillfulness and lack of diligence, Arbor has been injured and suffered substantial damages and continues to suffer damages in an amount to he proved at trial, but not less than $4,000, AS AND FOR A FOURTH CAUSE OF ACTION NEGLIGENT MISREPRESENTATION 108. Plaintiff repeats and realleges paragraphs I Through 107 hereof with the same force and effect as if fully set forth at length herein Henick issued its advice with the knowledge that Arbor would make the Loans to the Borrower in reliance upon Herrick's advice and the assurance therein that the Project could be built pursuant to the tower regulations set forth in the Zoning Resolution Herrick's advice was specifically issued and directed to Arbor with the awareness and understanding that Arbor was relying on such advice in making the Loans Arbor relied on Herrick's advice and professional judgment to determine the applicability of certain zoning regulations in connection with the closing of the Loans relating to 21

24 construction at the Project Herrick was negligent because it failed to exercise the reasonable care, skill, diligence and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope In violation of Herrick's duty to properly, diligently and competently issue correct advice, Herrick negligently issued erroneous advice to Arbor with respect to the zoning regulations applicable to the Project Herrick knew or should have known that the Project could not have been built - pursuant to the "tower" regulations of the Zoning Resolution, or at least should have informed Arbor that its advice was "aggressive." 115. Herrick's conduct in connection with its legal aforementioned advice constituted negligent misrepresentation As a direct, foreseeahiand pxmac result of Heck's negligence, carelessness, unskillfulness and lack of diligence, Arbor has been injured and suffered substantial damages and continues to suffer damages in an amount to be proved at trial, but not less than $69,000,000. AS AND FOR A FIFTH CAUSE OF ACTION NEGLIGENT MISREPRESENTATION 117. Plaintiff repeats and realleges paragraphs 1 through 116 hereof with the same force and effect as if fully set forth at length herein Herrick issued its advice with the knowledge that Arbor would make the Loans to the Borrower in reliance upon Herrick's advice and the assurance therein that the Project could be built on the Borrower's zoning lot in conformance with the appropriate zoning regulations Herrick's advice was specifically issued and directed to Arbor with the awareness and understanding that Arbor was relying on such advice in making the Loans. 22

25 120. Arbor relied on Herrick's advice and professional judgment to determine the applicability of certain zoning regulations in connection with the closing of the Loans relating to construction at the Project Herrick was negligent because it failed to exercise the reasonable care, skill, diligence and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope In violation of Herrick's duty to properly, diligently and competently issue correct advice, Herrick negligently issued erroneous advice to Arbor with respect to the zoning regulations applicable to the Project Herrick knew or should have known that the Project could not be built as proposed on the Borrower's zoning lot in conformance with the appropriate regulations, due to the existence of a "split lot" condition Herrick's conduct in connection with its legal aforementioned advice constituted negligent misrepresentation As a direct, foreseeable and proximate result of Herrick's negligence, carelessness, unskillfulness and lack of diligence, Arbor has been injured and suffered substantial damages and continues to suffer damages in an amount to be proved at trial, but not less than $69,000,000. AS AND FOR A SIXTH CAUSE OF ACTION NEGLIGENT MISREPRESENTATION 126. Plaintiff repeats and realleges paragraphs 1 through 125 hereof with the same force and effect as if fully set forth at length herein Arbor relied on Herrick's advice and professional judgment in connection with the collateralization of a security interest in certain 421-a tax abatement certificates Herrick was negligent because it failed to exercise the reasonable care, skill, diligence 23

26 and knowledge commoy possessed and applied by auomeys in projects of silar scale and scope In violation of Herrick's duty to properly, diligently and competently issue correct advice, Herrick negligently issued erroneous advice to Arbor with respect to the collateralization of a security interest in certain 421-a tax abatement certificates which resulted in litigation and impairment and devaluation of Arbor's collateral Herrick's advice was specifically issued and directed to Arbor with the awareness and understanding that Arbor was relying on such advice in transferring the $4,000,000 in funds to Seiden, to be held in escrow until such time as Borrower could close on the 421-a Certificates Arbor relied on Herrick's advice in transferring the $4,000,000 in funds to Seiden Herrick's conduct in connection with its legal aforementioned advice constituted negligent misrepresentation As a direct, foreseeable and proximate result of ilenick's negligence, carelessness, unskillfulness and lack of diligence, Arbor has been injured and suffered substantial damages and continues to suffer damages in an amount to be proved at trial, but not less than $4,000, RELIEF REQUESTED WHEREFORE, based on the foregoing, Plaintiffs pray for relief as follows: (a) On its First Cause of Action against Herrick, judgment in favor of Plaintiff for its damages against Herrick, in an amount to be determined at trial, but not less than $69,000,000.00, plus punitive damages in an amount to be determined at trial; (b) On its Second Cause of Action against Flerrick, judgment in favor of Plaintiff for its damages against Herrick, in an amount to be determined at 24

27 trial, but not less than $69,000,000.00, plus punitive damages in an amount to be determined at trial; (c) On its Third Cause of Action against Henick, judgment in favor of Plaintiff for its damages against Herrick, in an amount to be determined at trial, but not less than $4,000,000.00, plus punitive damages in an amount to be determined at trial; (d) On its Fourth Cause of Action against Herriek, judgment in favor of Plaintiff for its damages against Herrick, in an amount to be determined at trial, but not less than $69,000,000, plus punitive damages in an amount to be determined at trial; (e) On its Fifth Cause of Action against Herrick, judgment in favor of Plaintiff for its damages against Herrick, in an amount to be determined at trial, but not less than $69,000,000, plus punitive damages in an amount to be determined at trial; (f) On its Sixth Cause of Action against Herrick, judgment in favor of Plaintiff for its damages against Herrick, in an amount to be determined at trial, but not less than $4,000,000.00, plus punitive damages in an amount to be determined at trial; and (g) On all Causes of Action, judgment against ITerrick in favor of Plaintiff for such other and further relief as this Court may deem just and proper. AM

28 Dated: New York, New York April 25, 2011 TANNENBAUM HELPERN SYRACUSE & FITRSCHTRITT LLP By: _ ~DAVU Vincent J. Syracuse, Esq. David A. Pellegrino, Esq. George F. du Pont, Esq. Attorneys for Arbor Realty Funding, LLC 900 Third Avenue New York, New York (212)