One Niagara partner files lawsuit and warns of foreclosure
By Mark Scheer
June 16, 2010
NIAGARA FALLS — An ongoing legal dispute between Frank Parlato Jr. and a company claiming part ownership of the One Niagara building suggests the popular downtown tourist destination may be on the brink of foreclosure.
Parlato and his attorney say they are not concerned about losing the property in a foreclosure auction because they are fully prepared to not only defend their rights under the law, but also to challenge what they believe has been a pattern of over-assessment and interference on the part of city officials.
“I have been unjustly taxed,” Parlato said. “Consequently, what I have to do is make a stand.”
Documents on file with state Supreme Court in Niagara County show Incredible Investments LTD, a group of investors tied to a management agreement at the old Occidental Chemical headquarters building, are concerned that Parlato’s failure to make good on outstanding property taxes have put the site in jeopardy of being placed on the city’s in-rem foreclosure list.
In a lawsuit filed earlier this month, Incredible Investments maintains that it is a member of One Niagara, LLC, the company that owns and operates what is now a visitor welcoming center and parking lot at 360 Rainbow Blvd. South and 363 Prospect St. The other partner in One Niagara, LLC is listed as Whitestar Development Corp., a company owned by Parlato. Both Parlato and Whitestar are named as defendants in the lawsuit.
Incredible Investments has asked the court to compel Parlato to make good on the property’s outstanding real estate taxes from 2006 and 2007, arguing that the company stands to lose out on its investment interest if the building goes through foreclosure proceedings and finds its way to the auction block. In its legal filings, the company claims that under a 2004 operating agreement Parlato serves as manager in control of “operations, finances, books and records” at One Niagara and, as such, has a “management” responsibility to ensure that all real estate, sales and income taxes are current.
It also claims the property’s real estate taxes are “seriously” in arrears, with $1.22 million owed to the city and $348,136 owed to the county for a total of $1.57 million. Incredible Investments maintains that payment of outstanding property taxes for 2006 and 2007 — an amount equal to $476,017 — is required by June 26 or the property will be subject to in-rem foreclosure proceedings by the city. If that occurs, court documents allege that the property could only be redeemed by the current owners upon payment of the entire amount of taxes owed.
“We simply want the taxes paid,” said Kevin Burke, the attorney from Jaeckle, Fleischmann & Mugel who is representing the plaintiffs in the case.
Parlato has a pending legal challenge to the property tax assessment at One Niagara and on Wednesday he said he intends to continue to vigorously pursue that challenge. At this time, he said he is not interested in paying outstanding taxes on the property that he considers unjust and unfair.
His position is based, in part, on an ongoing dispute with the city’s planning department which has been reluctant to grant him formal site plan approval for the One Niagara property. Last year, he opened a ninth-floor observation deck without having an approved certificate of occupancy for the space or an approved site plan for the entire building. He later sued the city, asking a judge to require the issuance of the necessary approvals to allow him to open the observation deck. In July, State Supreme Court Justice Richard Kloch Sr. ruled that the floor could be opened, pending submission of a new application for an amended building site plan. In recent weeks, Parlato’s representatives have been working with city officials in an effort to bring the site plan into compliance.
“I’ve got one floor that they’ve allowed me to open, but they’ve charged me for nine floors,” Parlato said.
Parlato and his attorney, Paul Grenga, also insist that they are building a strong legal case that suggests city officials under Mayor Paul Dyster’s administration have interfered in the development progress at One Niagara by denying key permits and approvals needed to open other floors in the building.
“The property’s not going to be snatched away,” Parlato said. “I want my day in court. I want a hearing. I want a fair trial.”
In their legal filings, the plaintiffs suggest Parlato’s approach is not sound and could place the property in danger of being acquired by new owners. The plaintiffs also argue that neither Parlato’s ongoing assessment challenge nor his difficulties with city officials excuse him from paying taxes owed on the building.
Grenga said his client would be willing to meet the plaintiffs half-way on the outstanding taxes issue, with Parlato putting $500,000 toward the tax bill “under protest” and with the understanding that the principals in Incredible Investments would provide $500,000 of their own.
Failing that, Grenga said Parlato has the right to defend his position as part of an in-rem proceeding and is not required to pay taxes that are in dispute in order to do so. Grenga said there would be various remedies available to Parlato during the process that would allow him to retain control of the building.
“I think the most important thing for people to know is that the building doesn’t disappear just because somebody starts an in-rem action,” Grenga said.
The plaintiffs maintain that the property generates sufficient revenue to cover all taxes, but Parlato has “chosen” not to pay them. Instead, the plaintiffs allege Parlato paid himself a “management salary” of $400,000 in 2009 plus an additional $200,000 for “unspecified reasons.” Court documents suggest the site is generating roughly $20,000 per day in revenue and that, since its acquisition by the current ownership group in 2004, One Niagara has generated at least $7 million of gross income by providing parking to tourists and subleasing space in the first and ninth floors to tourist-related ventures.
Parlato characterized the plaintiffs’ claims about his compensation as “absolutely false.” He said the payments in question were related to his position as operating agent for the property, a position that he says gives him rights to manage the property and invest in it as is necessary.
“These payments were, in part, re-payment of monies I have invested into the property,” he said.
Parlato and Grenga both said Incredible Investments LTD, counts among its partners David Ho, who along with his brother, Patrick, have attempted, unsuccessfully, on several occasions to assert legal rights to the One Niagara property. David Ho is an investor from Hong Kong who was involved in plans to build an underground aquarium on the site. In 2007, David Ho sought the court’s support in having Parlato removed as manager of the building. At that time, state Supreme Court Justice Frank Caruso ruled that Parlato had “irrevocable rights” under the operating agreement to serve as manager or appoint a designee.
Parlato and Grenga maintain that the Ho brothers previously assigned management and rent-collection rights to Whitestar and no longer have any legal standing to challenge his handling of the building’s affairs. They also characterized the new lawsuit as now the fifth attempt by the building’s previous owner to make legal claims in an effort to make financial gains off a property that was vacant under their watch and is now re-opened and drawing business.
“It’s about trying to force a new agreement with Frank through expensive and harassing litigation,” Grenga said.
A temporary restraining order requested by Incredible Investments and signed by state Supreme Court Justice Ralph Boniello III calls on Parlato, and by extension Whitestar, to appear in court June 23 to explain why the plaintiffs’ request to bar him from taking certain actions related to the property should not be granted.
Incredible Investments has asked the court to prevent Parlato from taking actions not related to direct day-to-day operations. That includes transferring the property to another owner, making any payments to himself or Whitestar or wiring out any money from bank accounts to any of the defendants. The plaintiffs have also asked the court to appoint a temporary receiver of rents and profits at One Niagara to ensure that either the real estate taxes are paid or Parlato, Whitestar or One Niagara is required to post a bond in the entire amount of unpaid taxes to protect Incredible Investment’s rights to redeem the property should it be placed on the city’s foreclosure list.
“We want Parlato to not pay himself and to pay the $1.5 million in taxes,” Burke said.
Contact Frank Parlato Jr.