Background and Project Structure
The 613 Baltic Street development in Park Slope, Brooklyn was a joint venture between Michael Stern’s JDS Development Group and partners initially including Tona Construction & Management and later Largo Investments. The project consists of an 11-story, 43-unit condominium building . The ownership and development structure was complex, involving multiple JDS-related entities and outside investors:
• Joint Venture Formation (2013–2015): In December 2013, Baltic Fourth LLC (an entity affiliated with Tona Construction’s principal, Domenick Tonacchio) and JDS Fourth Avenue LLC (Stern’s affiliate) formed Fourth Avenue JV LLC to acquire and develop the Baltic Street property . Fourth Avenue JV LLC (through a property owner subsidiary) held title to the assemblage of six lots at Baltic Street and Fourth Avenue acquired in 2014 for about $6.8 million . An Amended and Restated JV Agreement was executed in April 2014 by Tonacchio and Stern on behalf of their companies to govern the development . Under this JV, Baltic Fourth LLC and JDS Fourth Avenue LLC each held 50% of the project company .
• Developer and Contractor Roles: JDS controlled the development and construction through affiliated entities. JDS Fourth Avenue Developer LLC served as the project’s developer, and JDS Construction Group LLC was the general contractor . A Construction Management Agreement was signed in April 2016 between the property owner and JDS Construction Group, which later became a point of contention . Notably, Tona Construction (through Tonacchio) expected to act as construction manager under the JV agreement, but Stern instead installed JDS’s own construction arm.
• Largo’s Investment (2015): In need of additional capital, Stern brought in Largo 613 Baltic Street Partners LLC (an affiliate of Largo Investments, led by principals Nissim Ben-Nun and Nicholas Werner) as an investor. Pursuant to an October 26, 2015 Amended LLC Agreement, Largo contributed equity in exchange for a 49% membership stake in JDS Fourth Avenue LLC, while JDS (through JDS Fourth Avenue JV II LLC as managing member) retained 51% . JDS Fourth Avenue LLC thus became jointly owned by JDS (51%) and Largo (49%), and remained the JDS-side partner in the overarching Fourth Avenue JV. The LLC agreement granted Largo limited rights (primarily to share in profits) and prohibited any transfer of membership interests without consent .
Summary of Key Entities:
• Michael Stern – CEO of JDS Development, the mastermind behind the project; personally involved in JV agreements and project decisions. Stern is personally named as a defendant in partner disputes and is alleged to have engaged in fraud and misconduct (detailed below).
• JDS Fourth Avenue LLC – The JDS-controlled project entity (51% JDS, 49% Largo) that partnered with Baltic Fourth LLC in the development joint venture . It is the entity through which JDS held its interest in 613 Baltic.
• JDS Fourth Avenue JV II LLC – A wholly-owned JDS affiliate and the managing member of JDS Fourth Avenue LLC (i.e. Stern’s vehicle controlling the 51% stake) . Plaintiff in JDS’s affirmative litigation against Largo.
• Baltic Fourth LLC – The entity controlled by Tona’s principal (Tonacchio) that originally held a 50% stake in the JV. Plaintiff in the 2018 lawsuit against Stern/JDS, alleging it was wronged in the venture.
• Tona Construction & Management, LLC – Staten Island-based construction firm owned by Tonacchio. Tona was ostensibly Stern’s early JV partner, slated to be construction manager, before being sidelined. Tona (through Baltic Fourth) claims an ongoing right to profits and roles in the project, and it sued Stern and JDS for breaching those rights.
• Largo 613 Baltic Street Partners LLC – Largo’s investment entity holding 49% of JDS Fourth Avenue LLC. Plaintiff in a 2020 lawsuit (derivative and direct) against Stern and JDS entities for misconduct in managing the project.
• JDS Fourth Avenue Developer LLC – Stern’s development entity for 613 Baltic, also a plaintiff (with JDS Fourth Ave JV II) in claims against Largo related to an alleged loan.
• JDS Construction Group LLC – JDS’s in-house construction firm that built the project. central to allegations that Stern improperly replaced Tona and overcharged the project. JDS Construction was a plaintiff in JDS’s suit (claiming a subcontractor’s breach) and a defendant in Largo’s derivative claims.
• Fourth Avenue JV LLC / Fourth Avenue Property Owner LLC – Joint venture and property-holding entities in the deal (nominal defendants in Largo’s derivative action). These entities are at the center of the fiduciary duty claims but are not themselves accused of wrongdoing.
• Maxx LLC – A window and door subcontractor hired by JDS Construction. JDS sued Maxx for breach of contract in the course of the disputes . (This is a side litigation; Maxx’s performance issues were entangled in JDS’s case against Largo but are not central to the partner disputes.)
Below is a detailed timeline and analysis of the litigation involving these parties, followed by focused discussion of Michael Stern’s personal liability, the legal strategies employed, and the current status and risks.
Litigation Timeline and Key Disputes
1. Tona Construction (Baltic Fourth LLC) vs. JDS Development/Michael Stern (2018)
Initiation of the Lawsuit: In October 2018, Tona Construction & Management (through Baltic Fourth LLC) filed suit in New York Supreme Court (Manhattan) against Michael Stern and JDS-affiliated entities . This came after the completion of land acquisition and midway through construction, once it became evident that Tona was being excluded from the project’s management and financial upside. Tona’s president, Domenick Tonacchio, alleged Stern had ignored their partnership agreement for the 43-unit condo development at 613 Baltic and was diverting the project’s value for JDS’s own benefit .
Allegations: The complaint (which included 14 causes of action) painted a picture of breach of contract and fiduciary duty by Stern and his companies, as well as fraudulent misconduct. Key allegations from Tona/Baltic Fourth include:
• Cutting Out the Agreed Partner: Stern allegedly reneged on the agreement to appoint Tona as construction manager, and instead installed JDS Construction Group to run the build . By doing so, Stern purportedly violated the JV agreement which had contemplated Tona’s role, and denied Tona the expected management fees or profit share from construction.
• Withholding Information: Stern and JDS are accused of hiding the project’s finances from Tona. Despite being 50% partner in the JV, Baltic/Tona was allegedly kept “in the dark” – not receiving budgets, updates, or access to books, in breach of contractual and fiduciary duties . Judge Ostrager later summarized that Stern’s entities “withheld access to books and records” and made major decisions without notice to the plaintiffs .
• Self-Dealing and Inflated Costs: Instead of hiring Tona at a market rate, Stern hired JDS’s own construction arm at inflated rates, a move the complaint says was designed to “line his own pockets” . Tona claims this caused the project’s budget to balloon dramatically under Stern’s watch – construction costs allegedly grew to $31.5 million (from an earlier estimate of $22.4 million), and soft costs to $6.5 million (from about $923,000) . The allegation is that Stern, through JDS, intentionally overcharged the venture via an affiliated contractor, thereby siphoning funds that should have translated into profit. In Tona’s words, Stern was “using his control over all aspects of the joint venture and the project to benefit himself personally and his affiliated businesses” .
• Diversion of Funds and Forgery: Perhaps the most explosive claim is that Stern engaged in actual fraud and forgery. According to the complaint, Stern raised additional financing for the project without Baltic’s knowledge and forged Tonacchio’s signature on construction loan documents to “trick the lenders” into believing the joint venture’s principals were aligned . By allegedly forging the signature of Baltic Fourth’s principal, Stern was able to draw loan proceeds, which he then distributed out to JDS’s affiliates as “distributions” instead of using them for the project . This scheme effectively depleted funds and left Tona’s side with no returns. The complaint also accuses Stern of submitting project cost requisitions for personal expenses, suggesting he billed the development for unrelated or personal expenditures . These actions form the basis of Tona’s fraud claims (counts for fraudulent misrepresentation) and breach of fiduciary duty claims, for which Tona seeks to hold Stern personally liable beyond the corporate entities.
• Failure to Provide Agreed Benefits: Tona claims it was entitled to certain payments that were never realized. For example, Tona was promised a $14 million disbursement in the partnership agreement, which Stern “unfairly” prevented it from collecting . Additionally, Stern allegedly failed to demonstrate that he himself contributed a promised $5 million in capital to the project (implying Stern may have not invested the agreed amount, or did so via circular transactions) . These allegations support breach of contract and covenant claims, as Stern’s side did not fulfill its funding obligations while also blocking Tona’s financial rights.
Tona’s lawsuit sought at least $65.8 million in damages , reflecting the lost profits and benefits Tona expected, as well as potential punitive damages given the fraud allegations. In public statements, Stern “called the allegations… ‘baseless’”and vowed to “vigorously defend” and counter-sue Tonacchio if necessary . (Stern’s threat to “pursue our own claims against Tonacchio” suggests JDS likely filed counterclaims in the litigation, though details of any counterclaims have not been widely reported.)
Procedural Status: The Tona/Baltic Fourth action survived early motions to dismiss, including attempts to remove Michael Stern as a defendant. In October 2019, Justice Andrea Masley (sitting in the Commercial Division) denied the defendants’ motion to dismiss the claims against Stern personally. Even after reargument, the court held Stern in the case in his individual capacity . The court found that the pleadings adequately alleged an “alter ego” basis to pierce the corporate veil – i.e., that Stern dominated the relevant entities and abused the corporate form to perpetrate a wrong . The complaint described Stern as the sole decision-maker behind JDS Fourth Avenue LLC and JDS Construction, with those entities having no independent will (e.g. JDS Fourth Avenue LLC had no bank account of its own – Stern ran its finances through JDS Construction) . Moreover, the alleged wrongdoing – misuse of funds, secret loans, forgery, and denial of partner rights – was sufficient at the pleading stage to potentially warrant veil-piercing if proven . Separately, the court found that Stern could be directly liable for his own torts, such as fraud and breach of fiduciary duty, irrespective of the corporate shield . Thus, multiple causes of action (for breach of fiduciary duty and fraud) are proceeding against Stern personally for “his own alleged actions,” including the loan-document forgery and misrepresentation of expenses .
By mid-2020, discovery in the Tona case was underway – and contentious. In July 2020, Justice Barry Ostrager (who began overseeing the case, likely after consolidation with Largo’s related case, as discussed below) admonished JDS fordiscovery misconduct. He ordered JDS to provide a detailed “narrative form” accounting of the flow of funds in and out of its bank accounts, noting that the company had “stubbornly refused to comply” with its discovery obligations . This suggests the court’s growing concern that Stern’s side was obfuscating financial records, consistent with Tona’s claims of withheld information. Indeed, by 2022, Justice Ostrager openly stated on the record that Michael Stern had committed forgery (referring to the loan document incident) – a remarkable judicial finding even though final liability had not yet been adjudicated . (Stern’s team sought Ostrager’s recusal for perceived bias after that comment, but the request was denied on appeal, as discussed later .)
As of now, the Tona litigation remains pending (its trajectory was interrupted by a 2021 bankruptcy filing, discussed below). Tona’s claims for breach of contract, breach of fiduciary duty, and fraud are active and headed toward trial, with Stern facing personal liability if Tona prevails. No final judgment has been reached yet, and Tona’s damage demand of ~$65 million stands as a major financial exposure for JDS and Stern . The case’s progress has, however, provided significant evidence on the record supporting Tona’s allegations (e.g. the email and bank records demonstrating the covert $925,119 transfer discussed later).
2. JDS Development vs. Largo 613 Baltic Street Partners (May 2020 “Preemptive” Suits)
In the spring of 2020, tensions between JDS and Largo (its 49% equity partner) reached a breaking point. Anticipating legal action by Largo, Michael Stern “raced to the courthouse” first . In May 2020, JDS-controlled entities filed two lawsuits against Largo and its principals, in what appears to be a strategic move to seize the offensive:
• JDS Fourth Ave. JV II LLC v. Largo 613 Baltic Street Partners LLC (613 Baltic Project dispute): On May 26, 2020, JDS Fourth Avenue JV II (the JDS managing member entity) along with JDS Fourth Avenue Developer LLC and JDS Construction Group LLC filed a complaint in New York Supreme Court against Largo 613 Baltic Street Partners LLC (and also naming Maxx LLC, the subcontractor, as a co-defendant) . In this action, JDS essentially accused Largo of breaching the investment agreement in the 613 Baltic project. Specifically, JDS alleged that Largo attempted to transfer its 49% interest in JDS Fourth Avenue LLC to an outside party without consent, in violation of the LLC Agreement’s no-transfer clause . JDS sought a declaratory judgment voiding Largo’s purported transfer, and claimed this breach excused JDS from further obligations to Largo . Additionally, JDS’s Developer entity brought claims that Largo had failed to repay a $925,119 “loan” that JDS had advanced to Largo during the project, framing this as breach of an oral contract (or promissory estoppel/unjust enrichment, in the alternative) . JDS also included a contract claim against Maxx LLC for allegedly defective work on windows , arguably to attribute some construction problems to others.
• JDS v. Largo (The Fitzroy project dispute): The very same day in May 2020, JDS (through another entity) filed a separate lawsuit against Largo’s principals, Nicholas Werner and Nissim Ben-Nun, concerning a different joint project at 514 West 24th Street in Manhattan (known as The Fitzroy) . In that complaint, JDS alleged Werner and Ben-Nun misrepresented their development experience when partnering on the Fitzroy deal, and that a Largo-affiliated entity mismanaged that project causing delays and cost overruns . JDS and Largo were indeed partners on the Fitzroy (purchased together in 2014) , so this suit appeared aimed at putting pressure on Largo’s leadership personally, perhaps to gain leverage across their disputes. While not directly about 613 Baltic, it shows the breadth of the falling-out: JDS dredged up issues in another venture to put Largo on the defensive.
Largo characterized these May 2020 suits as a blatant attempt by Stern to “deflect attention” and forum-shop once he learned Largo was preparing its own lawsuit . In other words, Stern sought to cast Largo as the breaching party first (accusing Largo of fraud and contract breaches at Baltic Street causing over $11 million in harm ) in order to muddy the waters and possibly choose a preferred forum or judge.
Procedural Outcome: The JDS v. Largo (613 Baltic) case initially survived a motion to dismiss in part. In July 2021, the court (Justice Borrok) dismissed some of JDS’s claims (notably the breach of LLC Agreement claim regarding the ownership transfer, for lack of any provable damages, and the fraud claim as duplicative of contract) . However, the court allowed JDS to replead the purported Largo loan issue as a contract claim, and that cause of action (breach of oral loan agreement for $925k) persisted into discovery . By late 2023, however, this JDS-initiated case effectively collapsed. Justice Borrok granted summary judgment in Largo’s favor, dismissing JDS’s claims entirely . The evidence showed that the $925,119 payment in question was not a loan at all, but a return of equity to Largo – contradicting JDS’s assertions. The court cited clear documentary proof: a May 2018 email from Stern to Largo’s Ben-Nun explicitly referring to the $925,119.39 transfer as a “distribution of returned equity,” with an attached wire confirmation labeling the transaction “FOURTH AVE LLC EQUITY DISTR” . This contemporaneous record “conclusively” proved the payment was not a repayable loan but rather Largo’s own money being returned . Having thus shown that Largo owed nothing back, and that JDS suffered no damages from the attempted interest transfer, the court dismissed all of JDS’s claims . Furthermore, under the JV Agreement’s prevailing party clause, the court held that Largo is entitled to recover its legal fees from JDS . (JDS even had to litigate the extent of fee-shifting, particularly whether the subcontractor Maxx could piggyback on Largo’s fee award – the court ultimately adjusted the ruling to limit fee recovery to Largo only, since Maxx was not party to the JV Agreement .)
In short, Stern’s preemptive strike backfired: the JDS v. Largo suit has been defeated on the merits. JDS not only failed to establish Largo’s breach, but now potentially owes Largo significant attorneys’ fees. This outcome validates Largo’s position that the alleged “loan” was a fiction and undermines any narrative that Largo was the wrongdoing party in the 613 Baltic deal. JDS has the option to appeal the summary judgment decision (Dec. 14, 2023), but as of this writing no reversal has occurred and the findings stand .
The separate Fitzroy-related lawsuit by JDS against Werner/Ben-Nun is beyond the scope of 613 Baltic, but media reports suggest it was filed and perhaps still pending or in settlement discussions. The concurrent timing and public nature of that suit indicate it was part of Stern’s broader litigation strategy against Largo (discussed further below).
3. Largo 613 Baltic Street Partners LLC vs. Michael Stern, et al. (July 2020)
Having been cut out of the development’s profits (from Largo’s perspective) and seeing Stern’s aggressive moves, Largo filed its own lawsuit on July 8, 2020, in New York Supreme Court, against Michael Stern and a host of JDS entities. This Largo-led action is essentially the flip side of the coin to Tona’s – it is a minority investor accusing the controlling partner (Stern/JDS) of malfeasance in the same 613 Baltic Street project. Crucially, Largo’s suit is styled as both a direct and a derivative action: Largo sues on its own behalf and on behalf of JDS Fourth Avenue LLC (the project company) to recover losses caused by the alleged misconduct . The defendants include Michael Stern personally, JDS Fourth Avenue JV II LLC, JDS Fourth Avenue Developer LLC, JDS Construction Group, and likely other Stern-controlled entities, with the joint venture company named as a nominal defendant .
Allegations: Largo’s complaint mirrors many of Tona’s accusations, asserting that Stern grossly breached the JV Agreement and his fiduciary duties by enriching himself at Largo’s expense. Key points from Largo’s suit (as reported and as seen in court documents) include:
• Inflating Construction Costs (“Cost Overruns”): Largo alleges Stern “inflated the cost” of the project by using JDS’s captive construction firm and charging excessive expenses . According to Largo, the 613 Baltic development should have yielded substantial profits, but Stern’s conduct “purloined Largo’s share of the profits” and simultaneously “bilked and artificially depleted Largo’s initial capital investments” . In effect, Stern is accused of turning what should have been a profitable venture for Largo into one where Largo’s $ investment was squandered through padded project bills (with the surplus flowing to JDS or Stern). Largo’s filing vividly claims Stern diverted project proceeds to fund his “lavish lifestyle,” rather than returning value to investors .
• Self-Dealing and Breach of Fiduciary Duty: Stern’s unilateral decision to have his affiliate (JDS Construction) act as general contractor – without Largo’s consent and at above-market rates – is a central breach alleged. The JV Agreement required certain “major decisions” or related-party transactions to have Largo’s approval, and Largo says Stern ignored these safeguards. By causing the project owner to enter an affiliate transaction with JDS Construction without Largo’s consent, Stern breached his fiduciary duty of loyalty . Also, Largo asserts Stern failed to make required capital calls or distributions per the agreed waterfall, again to freeze Largo out .
• Misappropriation of Funds: Echoing Tona’s claims, Largo accuses Stern of taking out loans against the project and then draining those loan funds as improper “distributions” to JDS . Essentially, Stern treated the construction loan draws as his own piggy bank, leaving the project (and thus Largo) undercapitalized. Largo even cites the same incident of forgery – Stern’s faked signature of Tonacchio (Tona’s principal) – as part of a scheme that not only harmed Tona but also exposed Largo to legal claims from Tona’s lawsuit . (Largo’s point here is that Stern’s wrongdoing toward Tona could boomerang on the JV or Largo. Indeed, Largo as a 49% stakeholder in JDS Fourth Avenue LLC could indirectly suffer if the JV has liability to Tona, or if Stern’s actions forced the JV into insolvency.)
• Diversion for Personal Benefit: Largo’s complaint underscores that Stern treated project funds as personal, citing instances of personal expenses being billed to the development . The phrase “lavish lifestyle” suggests Largo may detail specific non-business expenditures or excessive overhead that Stern ran through project accounts. All of this, if proven, would be clear self-dealing and waste, supporting claims for breach of fiduciary duty and possibly fraud.
• Damages Sought: Largo’s suit demands nearly $40 million in relief . This likely represents the profit Largo expected (on a projected condo sellout of ~$90.9M ) plus the return of its $ investment had the project been properly managed. There may also be claims for punitive damages or disgorgement of any ill-gotten gains taken by Stern.
Procedural Status: The Largo v. Stern case quickly became high-stakes and hard-fought. Because it overlaps with the Tona matter (same project and overlapping misconduct), both cases ended up before Justice Ostrager in the Commercial Division for coordinated handling. Several notable procedural developments have occurred:
• Attachment/Bond Order: Largo sought provisional remedies, worried that Stern might hide assets or further frustrate any judgment. In early 2022, Largo moved for an attachment (to freeze Stern’s assets up to the amount at issue). Judge Ostrager, in a March 16, 2022 order, found that a statutory attachment was not technically warranted under CPLR 6201, but nevertheless exercised the court’s inherent authority to require defendants to post a $1 million bond . The court imposed this bond “for all the circumstances prevailing for the conduct of the case” – essentially as security due to defendants’ litigation behavior. The Appellate Division later noted this bond was to secure potential attorneys’ fees and to deter further litigation misconduct by Stern, especially in light of what the court deemed an “improper bankruptcy filing” by Stern’s side . (See below for the bankruptcy details.)
• Findings of Forgery and Misconduct: In a May 17, 2022 order (denying defendants more time to post the bond), Justice Ostrager made an explicit finding that “Michael Stern had committed forgery” in connection with the project . This statement, referencing the alleged forged signature on loan documents, signaled the judge’s view that the evidence of Stern’s wrongdoing was compelling. Ostrager also refused to recuse himself despite Stern’s argument that this comment showed bias; the Appellate Division unanimously affirmed that refusal in November 2022, holding that the judge was within his discretion and had properly managed the case . The appellate decision affirmed both the $1 million bond and the denial of recusal , signaling judicial intolerance for Stern’s tactics.
• Current Posture: The Largo v. Stern case has not yet reached final judgment. Discovery presumably progressed (with the forensic accounting by Largo’s expert, Kenneth Yormark, mentioned in filings ), and the case may be headed to trial unless settled. Notably, Largo’s claims likely survived summary judgment, as the focus of late 2023 motions was on JDS’s claims (which were dismissed) rather than Largo’s. In fact, evidence unearthed (like the Stern emails about “returned equity” ) arguably bolsters Largo’s case that Stern was manipulating funds. Additionally, the JV Agreement’s indemnification clause gives Largo a contractual path to recover losses directly from Stern. Section 7.9 of the JDS Fourth Avenue LLC agreement provides that in event of fraud, willful misconduct, or breach by JDS or its affiliates, the company and Largo and their affiliates are indemnified by JDS – and “by execution of this Agreement, the JDS Principal [Stern] guarantees the indemnification” . Thus, if Largo proves Stern engaged in any fraud or breach causing loss, Stern is personally on the hook via a personal guaranty in the contract . This is separate from veil-piercing – it is a direct contractual liability for Stern. Largo will undoubtedly invoke this clause, meaning Stern faces personal exposure for damages even without a court having to pierce the LLC veil.
As of early 2025, the Largo action remains active, with Stern and JDS facing potentially tens of millions in damages and restitution if Largo prevails. There is also the possibility of settlement discussions, given that the parallel JDS v. Largo case ended in Largo’s favor, which might encourage Stern to negotiate. However, any settlement would likely need to address Tona’s claims as well, since Largo and Tona together represent all non-Stern stakeholders in the project and both accuse Stern of similar wrongdoing.
4. Bankruptcy Filing by JDS Fourth Avenue LLC (2021) and Its Impact
Amid these legal battles, Michael Stern deployed a significant legal tactic: bankruptcy protection. On June 1, 2021, JDS Fourth Avenue LLC – the entity owning 51% of the Baltic Street project – filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court (District of Delaware) . This filing occurred just as the condo project was completed and unit sales were beginning, and while the state court litigations (Tona’s 2018 case and Largo’s 2020 case) were heating up.
Stern’s company sought bankruptcy “amidst [the] serious legal battle” over 613 Baltic . The timing strongly suggests the Chapter 11 was a litigation strategy aimed at halting or restructuring the partner disputes:
• Automatic Stay: By putting the project entity into bankruptcy, Stern effectively invoked the automatic stay to pause ongoing litigation against that entity. Indeed, the Tona Construction lawsuit, which had been proceeding in NY Supreme Court, was removed to the bankruptcy court for resolution as a claim in the Chapter 11 case . In the bankruptcy schedules, Tona’s claim (for $65.8M in damages) was listed as a disputed unsecured claim (amount “unknown”) . This stayed the state court process and pulled Tona into the bankruptcy forum where Stern’s team might have more leverage or at least delay the proceedings.
• Creditor Environment: JDS Fourth Avenue LLC’s bankruptcy filings indicated that aside from partner disputes, the company had relatively few creditors – notable among them were FTI Consulting (owed ~$178,922) and the law firm Kasowitz Benson Torres (owed ~$309,292) . The latter is interesting, as Kasowitz had been counsel for JDS in the state court case until Justice Borrok disqualified the firm due to a conflict of interest (Kasowitz had previously represented the JV entity itself) . In any event, the major “creditors” driving the Chapter 11 were clearly Largo and Tona, who collectively asserted tens of millions in claims for Stern’s misconduct.
• Bad-Faith Filing Allegations: Largo, not being a named debtor, moved aggressively to challenge the bankruptcy. In June 2021, Largo 613 Baltic Partners moved to dismiss the Chapter 11 case, likely arguing it was filed in bad faith to dodge the state court litigation . There are indications the bankruptcy court agreed. New York courts later noted that Stern’s side engaged in an “improper bankruptcy filing… to thwart pending legal claims” by Largo . Judge Ostrager in the state case even factored in the attorneys’ fees Largo spent addressing the bankruptcy when he imposed the $1M bond . It appears the Chapter 11 case was indeed dismissed (or otherwise resolved not in Stern’s favor). While the exact date is not cited here, a reference in court documents to “dismissing [the] Stern-filed bankruptcy of [the] developer entity to thwart pending legal claims” confirms the bankruptcy gambit did not ultimately succeed .
• Effect on Litigation: The bankruptcy likely caused a significant delay in the resolution of Tona’s claims, and possibly complicated Largo’s derivative claims. For a time, the Tona lawsuit was effectively stayed, pending either dismissal of the Chapter 11 or resolution of Tona’s claim through the bankruptcy process. Since the bankruptcy was dismissed as improper, the Tona and Largo suits would have resumed in state court by late 2021 or 2022. However, during the bankruptcy’s pendency, Stern gained breathing room and possibly hoped to force a global settlement under court supervision. If unit sales occurred during that period, the proceeds might have been used to pay off secured construction lenders, with any remaining cash subject to disputed allocation between JDS and its partners. It’s noteworthy that the project was completed and selling units by 2021 , meaning the asset had value (projected sellout nearly $91M ). Stern’s bankruptcy filing can be seen as an attempt to maintain control of that value and prevent Largo/Tona from seizing or freezing it in state court.
In summary, the Chapter 11 filing was part of Stern’s legal strategy to manage the fallout: it temporarily corralled the litigation into bankruptcy court, recharacterizing Largo and Tona as mere creditors. However, this strategy was viewed as abusive by his adversaries (and by the courts). The bankruptcy was short-lived; once dismissed, the disputes snapped back to New York courts, with Stern’s credibility arguably further damaged by the finding that the petition was filed in bad faith . Going forward, Stern’s use of bankruptcy or other entities to shield assets will be scrutinized closely by the courts.
Michael Stern’s Personal Involvement and Potential Liability
One of the most striking aspects of these disputes is the extent to which Michael Stern, individually, has been targeted and potentially exposed to personal liability. In U.S. corporate law, especially real estate, it is uncommon but not unheard of for a developer to be held personally accountable for a project’s debts or misconduct. Here, Stern’s adversaries have explicitly sought to “pierce the corporate veil” and hold him personally liable, and the courts (thus far) have refused to let Stern off the hook at the pre-trial stage.
Personal Role and Misconduct: The factual allegations make clear that Stern was not a passive owner but the central actor in all decision-making:
• Stern personally negotiated and signed the JV agreements (both with Tona/Baltic and with Largo) . He is identified as the “JDS Principal” in those contracts, often with specific obligations. For instance, Stern personally guaranteed certain obligations in the Largo JV LLC Agreement, including indemnification for any fraud or willful breach by his side .
• The day-to-day control he exerted is evidenced by claims (not disputed by Stern) that he alone controlled the bank accounts and finances for the project . Baltic Fourth’s complaint states Stern’s entity had no bank account of its own – Stern commingled or routed all funds through JDS Construction’s accounts under his personal oversight . This unusual setup is a red flag for veil-piercing, showing a lack of separation between Stern and the corporate entities.
• Many of the alleged wrongful acts were undertaken by Stern personally (or at his direct instruction). For example, if indeed a signature was forged on loan documents, it was allegedly Stern who forged Tonacchio’s name . If distributions were diverted, emails from Stern show him orchestrating those transfers (e.g. Stern’s May 2018 email calling the $925k a “distribution” came from his account) . If false expenses were submitted, Stern would likely have had to approve or sign off on them. In short, the misconduct is not attributed to rogue employees or accidents – it is attributed squarely to Stern’s personal decisions.
Given the above, both Tona and Largo sued Stern individually, not just his companies. Their legal theories for personal liability include:
• Breach of Fiduciary Duty by a Managing Member: Under New York law, the managing member of an LLC (or a controlling partner in a joint venture) owes fiduciary duties to minority members. Stern, as the controlling person behind the managing member entities (JDS Fourth Avenue JV II LLC and JDS Developer, etc.), is accused of breaching fiduciary duties of loyalty and care. Normally, fiduciary claims lie against the entity or in derivative form, but plaintiffs argue Stern so dominated and abused the entities that he should be personally accountable for fiduciary breaches(especially since he personally benefited). The court allowed the breach of fiduciary duty claim against Stern individually (Count 8 in Tona’s case) to proceed because it alleges Stern’s own actions (usurping control, self-dealing) apart from the entities .
• Fraud and Misrepresentation: Fraud claims can always be brought against the individual who committed the fraud, even if they were acting for a company. Here, Stern is alleged to have personally made fraudulent misrepresentations and omissions – for instance, providing falsified documents to the lender, lying to Largo about project costs, and concealing material information from Tona. The court noted that Counts 9 and 14 against Stern allege he “entered transactions without [the partner’s] knowledge or permission, and misstated expenses to his personal benefit,”which are classic fraud allegations . Because a corporate officer is not shielded from liability for his own torts, Stern can be held liable if these fraud claims are proven. The litigation so far suggests the evidence of fraud (forgery, false statements) is substantial – e.g., Justice Ostrager’s statement that Stern committed forgery implies the evidence of the faked signature was essentially incontrovertible .
• Alter Ego / Veil Piercing: For the contract-based claims (breach of the JV agreements, etc.), plaintiffs seek to pierce the veil of the LLCs to reach Stern. To do so under New York law, they must show (1) Stern’s complete domination of the entities, and (2) use of that domination to commit a fraud or wrong causing injury . As discussed, the first prong – domination – is well supported by allegations and evidence (Stern is sole owner of the JDS entities, the only individual in charge, and the entities had no independent existence apart from him) . The second prong – fraud or wrong – is met by the litany of contractual breaches and bad acts designed to enrich Stern at plaintiffs’ expense . For example, Stern “abused the corporate form to avoid corporate obligations and to harm Plaintiffs,” by failing to make agreed capital contributions, hiding finances, and diverting JV loans as distributions to himself . In sum, the plaintiffs allege Stern treated the JV as his alter ego, using it when convenient and overriding it when inconvenient, perpetrating an injustice on his partners. The court found these allegations sufficient to proceed, meaning Stern remains a defendant for those claims as well . It is rare for a court to explicitly allow veil-piercing claims to go forward at the pleading stage – here it did, indicating the fact pattern is egregious if proven true.
• Contractual Guaranty: As noted, in the Largo action there is a direct contractual path to Stern. Section 7.9 of the JDS Fourth Avenue LLC agreement not only obligates JDS to indemnify Largo for any losses from JDS’s fraud or willful breach, but Stern personally guaranteed those indemnification obligations . This is highly significant: even absent veil piercing, if Largo shows JDS (or its affiliates) engaged in fraud or willful misconduct, Stern’s guaranty makes him personally liable to make Largo whole. Such personal guaranties are common for developers to give investors to assure them against bad acts. Here it could bite Stern – for instance, if the court finds that JDS Construction overbilling was willful misconduct that caused Largo $X in loss, Stern would be contractually bound to pay that $X to Largo. This guaranty essentially circumvents many defenses Stern might have raised about not being a signatory to certain contracts; Stern signed the LLC Agreement in his capacity as “JDS Principal” guarantor, so Largo can enforce that against him .
Exposure and Current Status: As of now, Michael Stern is actively a defendant in both the Tona and Largo lawsuits, facing personal exposure. Neither case has reached final judgment, so Stern has not been found liable yet. However, interim decisions have not been in his favor:
• He failed to get himself dismissed out of either suit (courts implicitly or explicitly ruled that the complaints validly stated claims against him) .
• The evidence unveiled (forged documents, emails about fund flows, etc.) has publicly cast Stern in a very poor light, to the point a judge felt comfortable stating he committed wrongdoing in an official order .
• Stern’s attempt to shield himself via bankruptcy was called “improper” by the courts , and his attempts to avoid discovery were curtailed by court order .
If the cases go to trial, Stern could be found liable for breach of fiduciary duty (which can carry prejudgment interest and possibly punitive damages if malice is shown), and fraud (which can also lead to punitive damages and is not dischargeable in bankruptcy, incidentally). The damages could be substantial: Tona wants ~$65 million ; Largo asks ~$40 million . Even if those figures are optimistic, a judgment in the tens of millions is conceivable.
Moreover, punitive damages could be argued given the allegations of intentional fraud and egregious conduct (forgery is a form of criminal act). While New York courts are cautious with punitive awards in contract settings, a fraud finding here might open that door. Punitive damages, if awarded, are often tied to a multiple of compensatory damages and meant to punish wrongdoing – which for a high-flying developer like Stern could be significant and would certainly amplify the personal financial hit.
Personal Liability Realities: Should Stern be found liable, collection and enforcement become relevant. Stern is a prominent developer (behind projects like Manhattan’s 111 West 57th Street and others), so presumably he has substantial personal assets. However, his assets may be tied up in LLCs and real estate investments. Plaintiffs would likely seek to enforce judgments against any reachable assets, possibly garnishing development fees or proceeds from other deals. Because Stern was found to dominate his companies, a court might also issue broad restraining notices to prevent asset transfers. In extreme cases, if a judgment is large and Stern does not pay, plaintiffs could pursue involuntary bankruptcy against him or other collection tactics.
Also, aside from civil liability, Stern faces reputational and career risks (discussed more below). The findings of dishonesty and fraud in court records could impair his ability to do business (e.g., lenders and partners may be wary of working with someone found liable for fraud). There’s even a remote risk of referral for criminal investigation – forgery and submitting false loan documents can be crimes (bank fraud, etc.). While there’s no indication thus far of a criminal case, the public record of a judge stating Stern forged documents is extraordinary. If a regulator or prosecutor took interest (perhaps if a bank involved in the loan complained), Stern could face more than just civil consequences. At the very least, a civil judgment for fraud would cement a public narrative of Stern as an unscrupulous actor.
In conclusion, Michael Stern’s personal involvement in the 613 Baltic project has opened him up to veil-piercing and direct liability. The cases are ongoing, but the court’s refusal to let Stern off the hook and the evidence of intentional misconduct suggest a significant risk that Stern will be held personally liable for damages if a settlement is not reached. His personal liability is not hypothetical – it is actively being adjudicated, with a personal guaranty and fraud claims as the vehicles to judgment.
Legal Strategies Employed by Stern and JDS
Facing multiple lawsuits and millions at stake, Michael Stern and JDS Development have employed aggressive legal strategies to manage or escape liability. Some of these tactics are routine in contentious business litigation, while others are more extraordinary. Below is an analysis of the key strategies:
1. Preemptive Litigation & Forum Selection: As noted, Stern’s team filed suits in May 2020 against Largo before Largo could sue, a classic “race to the courthouse.” By doing so, JDS chose New York County (Manhattan) as the forum and, arguably, aimed to cast itself as plaintiff (which can be psychologically advantageous). Stern’s claims of fraud against Largo in that filing can be seen as an attempt to turn the tables and possibly negotiate from a position of mutual assured destruction (each side accusing the other). Furthermore, by including the separate West 24th Street (Fitzroy) dispute in litigation, Stern signaled a willingness to expand the fight beyond 613 Baltic, increasing pressure on Largo’s principals. This strategy had mixed success: it did force Largo to defend on multiple fronts, but ultimately JDS’s claims were weak (the “loan” claim failed, etc.) and were dismissed . In essence, Stern opened a second front that he could not sustain on the merits.
2. Bankruptcy as Shield and Delay: The Chapter 11 filing by JDS Fourth Avenue LLC in 2021 was a strategic move to invoke federal bankruptcy protections. This tactic provided an automatic stay of the state proceedings, buying time and potentially a more favorable forum to deal with partner claims. In bankruptcy, Stern might have hoped to cram down a settlement or at least remove the decision from the hands of the New York state judge who had grown skeptical of him. However, the bankruptcy was perceived as a bad-faith filing (since the company was essentially a two-member JV solvent except for the disputed partner claims) and was dismissed . The negative fallout was that Stern had to pay Largo’s legal fees for fighting the bankruptcy, via the bond order . Using bankruptcy purely to avoid a partnership dispute is frowned upon by courts, and here it backfired. Nonetheless, for a period in 2021, the bankruptcy did stall the litigation and might have given Stern leverage to negotiate under the threat of protracted Chapter 11 proceedings. It appears no reorganization plan was ever confirmed, so ultimately this strategy resulted mainly in delay and increased litigation costs for all sides.
3. Discovery Tactics and Obstruction: The record suggests Stern’s side was slow or reluctant in producing financial documentation (likely because the documents would support the plaintiffs’ case of fund diversion). Justice Ostrager’s criticism that JDS “stubbornly refused to comply” with discovery indicates a strategy of obfuscation or delay in discovery. Stern’s team might have hoped to leverage the opacity of the project’s finances – if Tona and Largo couldn’t get the bank statements or general ledger, they might not prove the money trail. This strategy was countered by court orders compelling disclosures (e.g., the narrative accounting ordered by the judge ). Non-compliance led to the threat of sanctions (implied by the bond requirement). Thus, while a common tactic in hard-fought cases, here discovery stonewalling only served to irritate the court and bolster plaintiffs’ claims that Stern had something to hide.
4. Counsel and Recusal Maneuvers: Stern engaged prominent law firms (Kasowitz Benson for a time, and later Katsky Korins for appeal, etc.). One tactic was trying to disqualify opposing counsel or judges when advantageous. We see that Kasowitz Benson was disqualified from representing JDS due to a conflict – that wasn’t Stern’s tactic but rather Largo’s success (removing Kasowitz likely disrupted JDS’s litigation strategy in mid-stream) . Conversely, Stern’s side attempted to recuse Justice Ostrager, arguing he showed bias by calling out Stern’s forgery . This gambit failed; the appellate court found no abuse in Ostrager staying on . The attempt shows Stern’s team was sensitive to the judge’s negative view and sought a fresh start with a new judge – a telling sign that they felt the current judge might rule against them. Failing to get recusal means Stern must continue under a very skeptical judge. In general, trying to remove a judge for bias is a high-risk strategy; it can antagonize the judge if it fails. Here it did not succeed and likely signaled to the court that Stern was feeling cornered.
5. Public Denial and Reputation Management: Although not purely a legal tactic, Stern’s response to the press and the framing of the narrative is part of his strategy. He issued statements calling Tona’s suit “meritless” and “baseless,” insisting JDS fulfilled all obligations . He also indicated disappointment in Tonacchio’s “actions” and intention to counter-sue . These public relations efforts aim to discourage other partners from suing and to reassure lenders or investors that the disputes are nuisance suits. However, as more details (like forgery allegations) emerged in court, Stern largely declined comment (as seen when he “declined to comment” on the bankruptcy filing story ). Thus, initially Stern tried strong denial and countersuit threats to dissuade litigation, but eventually had to adopt a lower profile publicly, focusing on the courtroom.
6. Use of Multiple Corporate Entities: Structurally, Stern operated through a web of LLCs (as is standard in real estate) – JDS Fourth Avenue LLC, JDS Fourth Avenue JV II LLC, JDS Developer, JDS Construction, etc. One strategic reason is to compartmentalize liabilities and make it harder for a plaintiff to pin blame on the ultimate beneficial owner. Stern no doubt planned to argue that any claims by Tona or Largo lay only against the entities (which have limited assets), not against him personally. This strategy is essentially the corporate shield. However, as detailed, plaintiffs have been effective in bypassing this shield by alleging alter ego liability and pointing to Stern’s personal guaranty . The multiplicity of JDS entities also allowed Stern to shuffle funds internally (e.g., capital calls met via JDS Construction funds, distributions paid to JDS Construction, etc. ). This may have been a strategy to confuse the financial trail or to claim that certain payments were legitimate transactions between entities. Ultimately, forensic analysis and discovery have largely unraveled these maneuvers (e.g., showing the $925k going from the property entity to Largo and simultaneously being booked as distribution) . In sum, while the complex entity structure might ordinarily protect a developer, Stern’s use of that structure in bad faith became evidence of wrongdoing rather than a successful shield.
7. Litigating on Multiple Fronts (Counterclaims and Third-Party Blame): Stern’s strategy included pointing fingers at others for any problems in the project. Bringing Maxx LLC (the window subcontractor) into the JDS v. Largo lawsuit is one example – JDS alleged Maxx’s breaches caused project delays or costs . This could serve to argue that cost overruns were due to subcontractor issues, not intentional inflation. Another example is blaming Largo for issues (in the Fitzroy suit, claiming Largo mismanaged another project ) to paint a picture that Largo was not an innocent investor but a problematic partner. So, Stern’s legal team tried to build an alternate causation narrative: if money was lost or project was delayed, it was because of market forces or others’ faults (subcontractor default, partner mismanagement elsewhere), not Stern’s misconduct. Thus far, this strategy hasn’t gained much traction – the core claims against Stern overshadow these side issues, and the dismissal of JDS’s claims implies the court wasn’t persuaded that Largo or others were at fault for the Baltic project’s financial mess.
8. Settlement Efforts: While not documented in public sources, it is typical in such disputes for there to be behind-the-scenes settlement talks. Stern’s aggressive litigation stance suggests he did not make an early acceptable offer to Tona or Largo. However, the Chapter 11 process may have involved some negotiations (in bankruptcy, mediation is common). If Stern attempted to cram down a plan, he might have offered Largo or Tona some payout. The fact that no settlement has been announced and litigation continues implies that any such offers were insufficient from the plaintiffs’ viewpoint. Stern might be holding out for a trial hoping to minimize damages or banking on appeals.
In summary, Stern and JDS’s legal strategy has been multifaceted: fight every claim, deny wrongdoing, shift blame, create counter-litigation, and use procedural tools (like bankruptcy) to delay or control the forum. Some of these tactics (like the bankruptcy and recusal attempt) have been deemed improper or meritless by the courts , which harms Stern’s position by portraying him as litigating in bad faith. Other tactics, like hiding the money trail, ultimately failed once discovery was compelled, and in fact gave plaintiffs more ammunition (since courts do not appreciate evasive discovery).
At this juncture, Stern’s strategy appears to be damage control – trying to limit financial fallout now that outright dismissal of claims is off the table. His remaining moves could include seeking a global settlement (perhaps giving Largo and Tona a payout from condo sales to drop claims), or, if no deal, continuing to litigate through trial and then appeal any adverse verdict, to postpone any reckoning. The risk with prolonging the fight is the accumulation of attorneys’ fees (on both sides) and interest on any eventual judgment, as well as continuing public scrutiny.
Involved Entities and Their Positions
This section summarizes all key entities involved in the litigation, including their roles in the project and their stances in the legal disputes:
• Michael Stern (Individual) – Founder of JDS Development Group and the principal behind all JDS-related entities in this project. Role: Managing member of the developer and majority JV partner; personally guaranteed aspects of the JV agreement . Legal position: Defendant in Tona’s and Largo’s lawsuits (alleged wrongdoer: breach of duty, fraud, alter ego). Stern denies all allegations of misconduct and portrays himself/JDS as having fulfilled all obligations . He has not been personally sued outside these partner disputes, but his actions are at the core of all claims.
• JDS Fourth Avenue LLC – The project holding company (Delaware LLC) that partnered with Baltic Fourth LLC to own the property . Initially wholly controlled by Stern, later 51% Stern-controlled (JDS Fourth Ave JV II) and 49% Largo . Role: Title-holding JV entity for 613 Baltic; it would receive project income and distribute profits per the waterfall. Legal position: Nominal defendant in Largo’s derivative suit (Largo sues on its behalf, claiming it was harmed by Stern’s breaches) . Also, the debtor that filed Chapter 11 in 2021 . JDS Fourth Avenue LLC itself is not accusing anyone; rather, it is the vehicle through which JDS and Largo assert rights (JDS used it to file claims in 2020, which were dismissed; Largo used it derivatively to sue Stern). In bankruptcy, this entity listed creditors (including Tona) but the case was dismissed as a bad-faith filing .
• JDS Fourth Avenue JV II LLC – Stern’s managing member entity for JDS Fourth Avenue LLC (and by extension the whole JV). Role: Owned 100% by Stern/JDS, it held the controlling interest in the project and was responsible for management decisions . Legal position: Plaintiff in the JDS v. Largo lawsuit (asserting breach of the LLC Agreement by Largo) , which has been dismissed on summary judgment . Also a defendant in Largo’s suit (as one of the JDS affiliates that allegedly breached duties). Essentially, JDS Fourth Avenue JV II is the contractual party that Stern used to interface with Largo; Largo claims JV II (under Stern’s control) breached the JV Agreement and duties, and JV II in turn had accused Largo of improper transfer (unsuccessfully). After the dismissal of JDS’s claims, JV II’s active role is mainly as a defendant in Largo’s case.
• JDS Fourth Avenue Developer LLC – The developer entity for the project, tasked with overseeing development tasks. Role: Entered agreements on behalf of the JV to manage the project (probably the entity through which development fees flowed). Legal position: Plaintiff alongside JV II in the 2020 suit against Largo (specifically bringing the fraudulent inducement claim and later the breach of oral loan claim for $925k) . Those claims were dismissed, as evidence showed the $925k was not a loan . In Largo’s derivative suit, JDS Developer is a defendant accused of participating in Stern’s wrongful acts (for instance, making the alleged improper loan/distribution and failing to act in Largo’s interest). JDS Developer’s position aligns with Stern – denying wrongdoing and arguing any payments to Largo were proper distributions (a stance vindicated in the narrow sense that it was a distribution, but that still raises questions about overall handling of funds).
• JDS Construction Group LLC – The construction management/general contractor entity owned by Stern/JDS. Role: Hired in 2016 to build the project, replacing Tona’s expected role . Responsible for construction execution (hiring subcontractors like Maxx, etc.). Legal position: Both a plaintiff and a defendant in various capacities. It was a plaintiff in JDS’s suit against Maxx LLC, claiming breach of the window installation subcontract . It was also named as a plaintiff in the initial JDS v. Largo suit (likely to argue Largo interfered with or caused issues affecting the construction contract) – but no substantial claims from JDS Construction survived. Conversely, JDS Construction is a defendant in Largo’s suit, essentially accused of being the instrumentality through which Stern overcharged the project (Largo claims JDS Construction was unjustly enriched and engaged in self-dealing). Largo and Tona both highlight that JDS Construction was controlled by Stern and used to siphon money . JDS Construction’s defense is that it did the work and any payments to it were legitimate project costs (Stern claims using his own crew was within his rights, and any cost increases were due to normal overruns or others’ faults). However, if the court finds those costs were inflated beyond reasonable amounts, JDS Construction could be liable to disgorge payments. Internally, JDS Construction likely has little independent say; its position is dictated by Stern’s legal strategy.
• Baltic Fourth LLC – Tonacchio’s investment entity that held 50% of the JV initially. Role: Co-owner of Fourth Avenue JV LLC (the property JV) and the intended recipient of profit distributions and management roles per the JV agreement . Provided the land (or rights to acquire) and was to contribute to development in kind or via expertise (Tona as builder). Legal position: Plaintiff (with Tona Construction) in the 2018 lawsuit against Stern, JDS Fourth Avenue LLC, JDS Construction, etc. It alleges breach of the JV Agreement and Construction Management Agreement, and tort claims as discussed. Baltic Fourth’s stance is that it was oppressed and defrauded by Stern. Notably, Baltic Fourth/Tona’s position is somewhat aligned with Largo’s in that both are victims of Stern’s scheme. However, Baltic’s claims are separate – it’s suing for its own damages (the loss of $14M distribution, lost profits, etc.) . Largo has cited Baltic’s lawsuit as a reason it too was harmed (exposed to that claim) , but Baltic Fourth LLC is not a party to Largo’s lawsuit (their actions are not formally consolidated, as Largo’s “etc.” plaintiffs likely refer to derivative capacity, not to Baltic). Baltic Fourth’s current position is simply pursuing its case in state court or bankruptcy court (wherever venue ends up) to get compensated for Stern’s breaches.
• Tona Construction & Management, LLC – The operating company of Tonacchio, which would have executed the construction had Stern not intervened. Role: Although the JV agreements were in Baltic Fourth LLC’s name, Tona Construction was effectively the partner expected to perform construction. Tonacchio, as principal of both Baltic Fourth and Tona Construction, is the real party in interest. Legal position: Tona Construction, LLC itself is likely a named plaintiff or at least referenced in the 2018 lawsuit (some causes of action may be in its name, especially if it had a separate agreement with JDS). The Real Deal article says “Tona… filed a lawsuit” , implying Tona Construction (the company) and perhaps Tonacchio personally were plaintiffs alongside Baltic Fourth LLC. The complaint accuses Stern of reneging on the agreement to hire Tona as construction manager . Tona’s position: Stern breached a joint venture/partnership deal and owes damages for profits Tona would have earned and for harm to Tona’s business (since Tona had geared up for this project and was frozen out). Tona also maintains Stern committed fraud (forgery) that is independently wrong. Essentially, Tona/Baltic’s stance is that Stern must pay what Tona was promised (the $14M payout, etc.) and additional damages for the deceit . Tona remains an unsecured creditor in the now-dismissed bankruptcy (where its claim was listed as “unknown” in amount) , and now continues litigation in state court.
• Largo 613 Baltic Street Partners LLC – Largo’s investment vehicle for 613 Baltic. Role: Minority equity investor (49%) in JDS Fourth Avenue LLC as of 2015, contributing capital under the LLC Agreement . Expected to receive profit distributions if the project succeeded, but had limited control rights. Legal position: Plaintiff (derivatively and directly) in the 2020 lawsuit against Stern, JDS entities, etc., claiming Stern’s breaches deprived it of ~$40M . Largo’s position is that it fulfilled its financial commitments but Stern’s misconduct drained the project of returns and violated contractual and fiduciary duties owed to Largo. Largo seeks damages, removal of Stern’s influence, and other relief to recover its lost investment and profits. Largo also took action in bankruptcy court by moving to dismiss the Chapter 11 (as a party in interest, being an equity holder and a litigant) – successfully, as the case was dismissed . In defense to JDS’s earlier claims, Largo asserted it did not breach anything – the purported transfer of interest that JDS complained of was inconsequential and caused no harm (the court agreed on lack of damages) , and the $925k was not a loan to be repaid . Having won dismissal of JDS’s case, Largo is now focused on prosecuting its own claims. Its principals (Werner and Ben-Nun) presumably support the litigation and also defend themselves in the separate Fitzroy suit. Largo’s broader position is that JDS has a pattern of mismanagement (listing multiple JDS projects on their website as ones they were involved in, implying they have insight into Stern’s operations) . Largo likely coordinates with Tona to some extent (sharing information, aligning strategies against Stern), though they are separate parties with distinct claims.
• Maxx LLC – Subcontractor hired for windows/doors. Role: Entered a $1.375M subcontract with JDS Construction in 2016 to supply/install windows, with a one-year warranty, etc. . Allegedly did not perform adequately (perhaps causing leaks or delays). Legal position: Defendant in JDS’s 2020 suit (JDS Construction sued Maxx for breach of contract for failure to perform) . Maxx is not directly involved in the partner disputes, but JDS included them presumably to recoup any costs for fixing Maxx’s work or to show that if the project cost more, it was due to Maxx’s breach. Maxx’s defense would be to contest the breach or the damages. This claim against Maxx seems to have been overshadowed; nothing in sources suggests its resolution. It may still be pending or was settled/minor. Importantly, Maxx was not a party to Largo’s or Tona’s claims. However, in the post-summary judgment phase, an issue arose whether Maxx could get attorneys’ fees under the JV Agreement as a “prevailing party” – the court said no, since Maxx is not signatory to that agreement . That implies Maxx prevailed (i.e., JDS’s claim against Maxx likely failed or was dropped). If JDS’s entire case was dismissed for no damages, the breach against Maxx may have been mooted as well. Thus, Maxx’s position now is likely that it’s out of the case with no liability, or at most a peripheral issue.
• Other Entities: There may be other JDS affiliates (for example, “Fourth Avenue Property Owner LLC” which held the deed) , but these entities didn’t have independent positions; they are nominal actors. Also, Ornstein/Tonacchio personally: Domenick Tonacchio is the human behind Baltic Fourth and Tona; while he’s not sued personally, his actions are relevant (e.g., any consent he gave or refused could be an issue). Likewise, Werner and Ben-Nun personally got pulled into the Fitzroy case but not the Baltic case (other than being mentioned as Largo’s agents). The litigation is fundamentally between Stern (and his entities) and the two partner companies (Largo and Baltic/Tona) he allegedly harmed.
In summary, the involved entities break into two camps: Stern and his JDS entities vs. the partner entities (Tona/Baltic and Largo). Stern’s side claims it did the work and delivered a completed building (which is true – the condo was built and units sold), and that partners are only complaining due to financial sour grapes or unrelated issues. The partners’ side claims the project would have been profitable if not for Stern’s misconduct, and that Stern must compensate them for their lost stake.
The relationships among these parties have completely deteriorated: what began as partnerships forged in 2013–2015 have become adversarial by 2018–2020. By 2025, no partnership remains – only litigation. It is worth noting that while Largo and Tona never formalized an alliance, their interests align in wanting an accounting from Stern. If Stern were to propose a settlement, it might have to involve both Largo and Tona together, because any resolution that pays one but not the other could be problematic (for instance, if Stern tried to pay Largo and argue that extinguishes derivative claims that also benefited Baltic – but Baltic would object). So, practically, the cluster of entities will likely find resolution, if at all, through a global settlement or through a coordinated resolution (perhaps selling remaining condo units and splitting the proceeds under court supervision).
Current Status of Litigation and Future Risks
As of this writing (March 2025), the 613 Baltic Street saga is ongoing, with significant developments in the past two years and looming risks ahead for JDS and Michael Stern:
Status of Proceedings:
• JDS vs. Largo (Plaintiff-side claims) – Resolved (Dismissed). JDS’s affirmative lawsuit against Largo has been fully dismissed on summary judgment . The December 2023 decision ended JDS’s hopes of recovering the $925k “loan” or any damages from Largo, confirming that Largo did not cause JDS harm . JDS was essentially the losing party and, absent an appeal, must abide by that outcome. A potential follow-up is the enforcement of the attorneys’ fees award for Largounder the contract’s prevailing party clause. Justice Borrok’s reargument decision in May 2024 refined that Largo can recover its fees (but Maxx cannot) . Thus, JDS may soon be ordered to pay a substantial sum to Largo’s lawyers. This adds to the financial strain on JDS and increases the pressure to resolve the remaining litigation.
• Tona/Baltic Fourth vs. JDS/Stern (2018 case) – Pending (Likely in Discovery/Pre-Trial). After being stayed by the 2021 bankruptcy, this case appears back on track in NY Supreme Court. It survived motions to dismiss, meaning all major claims (breach of contract, breach of fiduciary duty, fraud) are intact . Given the complexity, extensive discovery and depositions have likely been conducted or are nearing completion. The case could be moving toward summary judgment or trial. Considering the weight of evidence (e.g., the forgery admission), summary judgment could potentially be entered in favor of Baltic/Tona on liability (especially on something like the forgery count, if undisputed). However, damages (the exact value of lost profit, etc.) usually require a trial. Risk: The exposure here for Stern/JDS is up to $65.8 million plus interest, and possibly punitive damages if fraud is proven to a clear and convincing standard. There is also a risk of equitable remedies – for example, Tona could seek a constructive trust over proceeds of condo sales or an accounting. The fact the project is completed and sold means a sum of money exists (or has flowed to JDS) that could be targeted for disgorgement. If Stern has distributed those proceeds out of reach, he risks further court sanctions. Currently, because JDS Fourth Avenue LLC (the JV) was the owner/seller of units, any net proceeds might technically belong to it – and by extension to Largo and JDS as members. But Stern controlling it might have already pulled money into JDS accounts. The court could order damages or an accounting such that Stern must pay Tona its share as if the JV had been run properly. Also, note that Tonacchio’s personal history (he had prior financial troubles and a bankruptcy ) might be brought up by Stern to undercut Tona’s credibility, but it likely has limited relevance to Stern’s contractual obligations.
• Largo vs. Stern/JDS (2020 derivative case) – Pending (Pre-Trial). Largo’s case likewise remains active. With JDS’s claims out of the way, the focus will be on Largo’s claims of breach of contract (of the LLC Agreement), breach of fiduciary duty, and fraud. Largo will use much of the same evidence as Tona. One difference: Largo’s damages (nearly $40M) might be easier to quantify because it’s essentially the return Largo would have gotten had the project been delivered on budget. Largo invested a certain amount (perhaps in the range of a few million) and expected a certain profit share; Stern’s actions allegedly turned a profitable project into a break-even or loss for Largo. Now that we know Stern even refunded $925k equity to Largo as “returned equity” (meaning the project probably didn’t need that capital or it was overfunded), Largo might argue that money should have been profit, not just returned capital. Risk: Stern faces not only monetary damages here but also potential equitable relief: Largo could ask the court to, for instance, remove JDS/Fourth Avenue JV II as managing member, or appoint a receiver over the JV to wind it up properly. However, since the condos are sold, the main relief is monetary (plus interest and fees). Interest in New York for contract or fraud damages is 9% per annum from the date of injury – considering some damages accrued years ago, this could add a significant amount if judgment is entered. Largo also might push for punitive damages, arguing Stern’s conduct was part of a larger pattern (pointing to Tona’s experience and maybe other JDS projects) and was morally reprehensible. Courts in a commercial case might not give punitive damages unless public harm or a high level of malice is shown, but forging documents could meet that bar. If punitive damages are awarded, they could easily double or triple the compensatory damages, given Stern’s wealth (punitive awards are partly calibrated to deter the wrongdoer in the context of their financial stature).
• Appeals: Stern/JDS have shown willingness to appeal interlocutory orders (they appealed the bond/recusal orders to the First Department in 2022 ). If final judgments come down against them, appeals to the Appellate Division (and possibly Court of Appeals) are certain. That could drag the case well into 2026 or beyond before final resolution, unless settled. On appeal, Stern might argue legal issues such as: the enforceability of the personal guaranty for indemnification, whether certain damages were speculative, or whether the evidence sufficed to prove fraud. However, appellate courts give deference to trial courts on fact-finding, and here a lot of damning evidence is documentary (hard to dispute). One particular legal aspect to watch is veil piercing: if the trial court does pierce the veil and hold Stern personally liable on contract claims, Stern will almost surely appeal that, as NY appellate courts set a high bar for veil piercing. The appellate court could uphold liability via the guaranty or direct tort, but might not need to formally affirm a veil-piercing theory if other bases suffice.
• Settlement Outlook: The protracted fight has been costly for all. There is a possibility of settlement before trial. Any settlement would likely involve Stern (or JDS’s insurers, if any) paying a sum to Largo and Tona to drop the suits and release claims. The difficulty is the number of parties: Stern would want a global peace (covering both Largo and Tona). Getting both to agree might require a large payment. For instance, hypothetically, Stern might offer to pay, say, $30 million that Largo and Tona could split (with Tona perhaps getting a bit more because their claim is larger). Whether they’d accept is another matter – both have signaled they feel wronged to the tune of far more, and both have invested heavily in litigation already. Another factor: insurance – if JDS had any kind of errors & omissions or management liability insurance, it might cover some claims (though fraud is usually excluded). It’s possible there’s no insurance for this scenario, meaning any payout is directly from Stern or JDS assets.
Future Risks for JDS Development and Stern:
• Financial Damages and Enforcement: The most immediate risk is a monetary judgment in favor of Largo or Tona (or both). A combined adverse judgment could exceed $100 million (before interest or punitive enhancements). Even for a successful developer, this is a serious amount. If Stern/JDS cannot pay voluntarily, plaintiffs will pursue enforcement. They could lien other properties owned by JDS, garnish accounts, or even force asset sales. Since JDS is a development company with many ongoing projects, a big judgment could strain its cash flow or require liquidation of assets. It might also trigger defaults under loans or partnership agreements in other deals if there are cross-default clauses (some JV or loan agreements treat a major lawsuit judgment against a sponsor as an event of default or cause for removal).
• Bankruptcy and Asset Restructuring: If the judgments are huge, Stern might consider personal bankruptcy or restructuring. However, debts from fraud are non-dischargeable in bankruptcy (11 U.S.C. §523(a)(2) for individuals – though Stern hasn’t personally filed, and for entities, a Chapter 11 can restructure but here the fraud claimants would be large stakeholders anyway). Stern could try another Chapter 11, perhaps for the property entity (if refiled) or other holding companies, but given the prior “bad faith” dismissal, the court would be even more critical. Alternatively, Stern might have to sell equity in other prized projects (like 9 DeKalb or others) to raise funds for a settlement.
• Reputational Damage: The allegations and court findings have already been reported in the real estate press. The Real Deal and others have covered Stern’s legal troubles . A final ruling that Stern committed fraud or must pay tens of millions will undoubtedly be news fodder. This could affect future business:
• Investor confidence: Institutional investors or partners may shy away from working with JDS if they believe Stern plays fast and loose with agreements. Largo was itself an investment firm – their public fight with Stern might serve as a warning to others.
• Lender relationships: Construction lenders and banks pay attention to developers’ track records. If a court finds Stern diverted loan proceeds (even if the lender wasn’t harmed ultimately), that’s a red flag. It could lead to tougher loan terms or refusal to finance Stern’s deals. Already, Stern had a high-profile loan issue on another project (111 West 57th had a lender foreclosure action a couple years back), and combined with this, it paints a picture of risk.
• Public image: Stern has been considered an industry innovator and high-flying developer. These lawsuits cast him more as a litigious figure with questionable ethics. This can have trickle-down effects: city agencies might be more careful, counterparties might insist on oversight provisions in contracts, etc.
• Operational and Management Changes: If Stern is found to have breached fiduciary duties, one remedy could be his removal as manager of the JV or even removal of JDS’s control in future partnerships. While specific to 613 Baltic, it’s possible Largo or Tona could seek a form of injunctive relief prohibiting Stern from managing assets of the JV or requiring a third-party monitor to oversee any remaining matters (like final sales or distributions). Though the project is mostly wound up, any unsold units or escrowed funds could be put under court control.
• Criminal/Enforcement Risk: As mentioned, while primarily a civil matter, the stark allegation of forging a signature on loan documents could attract attention. If the construction lender on 613 Baltic (if a bank or finance company) were to suffer a loss or file a complaint, Stern could face an investigation for mortgage or bank fraud. The current information doesn’t indicate any such action, and the lender likely got repaid since the project completed and sold condos. Thus, they may have no interest in pursuing it. But the court’s finding of forgery is effectively a judicial declaration of a crime (forgery is a felony). Typically, judges don’t refer cases to prosecutors, but the publicity could draw curiosity. Stern should be cautious; perjury or false statements during depositions could also expose him if he denies the forgery against clear evidence. The safest course for him would be to settle and seal as much as possible before any more damaging findings are made on the record.
• Future Projects and Veil Piercing Precedent: If Stern were to start a new project under a new LLC, normally his liability would not carry over. But if a court in this case explicitly pierces the veil and finds Stern liable for corporate debts, plaintiffs in other cases might be emboldened to sue him personally. It sets a precedent or at least a roadmap for litigants to argue Stern’s companies are mere shells. This is a more long-term risk: it could increase litigation against JDS in general, or make it harder for Stern to use the legal shield of LLCs when people can point to this case and say “Judge X found he dominates his entities to commit wrongdoing.”
• Enforcement of Judgments Internationally: If Stern has assets offshore or outside NY, plaintiffs might chase them. This is only relevant if Stern resists payment. New York judgments can be domesticated in other states or even other countries relatively easily given modern enforcement treaties. Stern might try to protect assets via trusts or transfers, but doing so now, with litigation pending, could be seen as fraudulent conveyance. In fact, Ostrager’s requirement of a bond and mention of “integrity of the proceedings” hints the court was already wary of any attempt by Stern to make himself judgment-proof.
In conclusion, JDS Development Group and Michael Stern face significant legal and financial jeopardy from the 613 Baltic Street disputes. The litigation has progressed to a point where Stern’s defensive strategies are largely exhausted or have failed (aside from contesting the cases at trial). The likely outcomes are either a settlement with a hefty payout or judgments that will be expensive and damaging to Stern’s reputation. Stern’s personal liability is a real possibility, not just a theoretical one, given the evidence on record.
For JDS as a company, these disputes are a cautionary tale: the enforcement of partner rights and duties in real estate joint ventures has teeth, and sharp business practices can lead to protracted litigation that endangers the entire project’s profitability. If Stern and JDS do not manage to quell these disputes, the future legal risks include not only the current claims but also difficulty in conducting business without higher scrutiny or costly assurances to partners that history won’t repeat.
Sources:
• Real Deal – Contractor hits JDS with suit over JV dispute at Brooklyn condo project (2018) .
• Real Deal – JDS accused of inflating costs at Park Slope condo project (2020) .
• Real Deal – Michael Stern-owned condo project files for Chapter 11 bankruptcy (2021) .
• Baltic Fourth LLC v. Stern, No. 651250/2018 (N.Y. Sup. Ct. Oct. 2019) (Masley, J.) (reargument decision) .
• JDS Fourth Avenue JV II LLC v. Largo 613 Baltic St. Partners LLC, No. 651948/2020 (N.Y. Sup. Ct. Apr. 26, 2022) (Borrok, J.) (decision on motion to dismiss) .
• JDS Fourth Avenue JV II LLC v. Largo 613 Baltic St. Partners LLC, No. 651948/2020 (N.Y. Sup. Ct. Dec. 14, 2023) (Borrok, J.) (summary judgment decision) .
• Largo 613 Baltic St. Partners LLC v. Stern, 210 A.D.3d 430 (1st Dep’t 2022) (decision affirming bond and denial of recusal) .
• Real Deal – JDS has built a first class project… We intend to vigorously defend (Stern’s quote) .
• Court Order – Ostrager, J., July 2020 (discovery order compelling narrative of fund flows) .
• JV Agreement Excerpt – Section 7.9(b) indemnity and guaranty .
Links:
- https://caselaw.findlaw.com/court/ny-supreme-court-appellate-division/1973654.html
- https://casetext.com/case/jds-fourth-ave-jv-ii-v-largo-613-baltic-st-partners-llc
- https://law.justia.com/cases/new-york/other-courts/2024/2024-ny-slip-op-31653-u.html
- https://www.schlamstone.com/blogs/commercial/2024-01-12-payment-to-defendant-conclusively-not-a-loan-when-documentary-evidence-showed-that-it-was-instead-returned-equity