Troubled Atlantic Yards project hit with new lawsuit

NEW YORK (Reuters) - The multibillion dollar Atlantic Yards project, which aims to construct a new basketball arena in downtown Brooklyn, was hit with another lawsuit on Monday in the latest attempt by grass-roots groups to block the controversial development.

The suit, brought by consumer advocacy group Develop Don't Destroy Brooklyn and 20 community groups from the borough, alleges that the state agency that is cofinancing the development has acted illegally.

It's the fourth lawsuit to be brought against the agency and the two other main parties involved in the project, developer Forest City Ratner and the New York public transit authority.

The Empire State Development Corp is to provide $700 million in tax-free debt financing for the project as long as construction work starts before year end. Alongside the arena, a new home for the New Jersey NBA team, the Nets, the plan includes office buildings and 5,000 apartments.

The ESDC, developer Bruce Ratner and the Metropolitan Transportation Authority have spent six years pursuing the project which has been dogged by legal disputes, financing problems and vocal opposition from community groups and landowners.

The latest suit argues that the ESDC has illegally abandoned the statutorily mandated purpose of the project -- the removal of blight from the area.

That's after the terms of the deal were revised in June to offer sweeter terms to Ratner. Ratner had agreed in 2005 to buy the 22-acre rail yard for $100 million in cash at the time of closing. But the cash-hungry MTA is allowing him to pay just $20 million on closing and the remaining $80 million over 22 year. That will ensure the blight conditions will not be alleviated until well after 2030, the suit said.

"ESDC willfully stuck its head in the sand regarding the new Ratner deal with the MTA," lead attorney Jeffrey Baker said in a statement. "That new deal guarantees that the project, contrary to the legal requirement to remove alleged 'blight,' will exacerbate the 'blight' and make it permanent."

The agency has further breached the original project terms with a recent agreement that the affordable housing component in the project be contingent on public subsidies. The original agreement did not contain that provision, the suit claims.

It further charges the ESDC with acting illegally by failing to conduct a fresh appraisal of the site after making significant changes to the plans, a move they say is required under state law.

Other suits have focused more on the use of eminent domain to seize land for the site and the low price paid to the MTA for the rail yard.

Eminent domain is the power of a government to appropriate privately owned land for a public purpose after paying compensation. In the past, it has been used to clear land for roads, utilities, hospitals or to replace slum property.

New York's top court began hearing oral arguments in one of the lawsuits last week and is expected to issue a ruling by mid- to late-December.

Ratner last month sold 80 percent of the Nets to Russia's richest man, Mikhail Prokhorov, in a more than $200 million deal that includes a partnership for the development of the site.

The suit is Develop Don't Destroy Brooklyn et al. versus Empire State Development Corp et al. at the State of New York Supreme Court.

(Reporting by Ciara Linnane; Editing by Kenneth Barry)