Red White, the owner of the only family farm in the Hamptons on the ocean, is now 89 years old. His four children are now in their 50s and 60s. And Red hopes, still hopes, to hand down the farm to them when he passes from the scene, just as his father handed the farm to him and his father did before going back to Ebenezer White in 1695.
Why he still hopes to do this, rather than just do this, is largely because of the rising burden of real estate taxes that need to be paid on farmland that now can be sold for over a $1 million an acre, and because of the inheritance taxes that are in place. Unlike in earlier generations of the local farming families, accomplishing this is a dodgy dance. But there are tools to make it happen. Farmland can have taxes reduced if the development rights are sold. Farmhouses can be gotten through an inheritance situation if they are put in some sort of trust. Another tool involves selling a small part of a farm to a developer. With that essentially staggering sum of money in hand (from the farmer’s perspective), the taxes can be paid and the inheritance gone straight through. [expand]
Unfortunately, back in the mid-90s, Red White, who was then about 75, chose a rich Texas oil man to negotiate with in this regard. And he did so without the help of a lawyer. The oil man, Anthony Petrello, was introduced to White by a friend and, it is certainly possible to say, presented himself initially as a friend to Red White. He would help White save the farm, and at the same time provide himself and his wife and family a summer home on two acres on the ocean with a nine-acre residential development in the back. The money offered—and this was a parcel at the very corner of this 57-acre farm—was a fair sum at the time, a bit over $2 million. And it would have been a win-win for both of them.
It’s a long story about what happened after these two shook hands in 1995 on the porch of one of the little cottages. But the bottom line is that because Petrello had a lawyer and White had no lawyer—he’s a Scotsman who believes a man’s word is his bond—the whole thing devolved into a bitter legal struggle that lasted until 2010 over who said what, who signed what and what what was signed meant. At one point, in 2000, the Whites refused to show up at a closing. It had been agreed that the closing would not take place until Petrello got his subdivision permits though. And who knew prices would rise so? And who knew the Town would make such a delay? Now the Whites wanted to renegotiate.
In 2010, an incredible 15 years and much bitterness later, the legal war ended. Petrello got the 9.56 acres for the $2.1 million he originally agreed to pay, which in today’s market is about one tenth of its current value.
What is happening now is, in my opinion, what appears to be nothing less than an almost irrational attempt by Petrello to use the courts to punish Red White and his family. He is suing the Whites for the rest of their farm. And he is doing so because of a clause he has found in the old 1995 agreement.
It will do no good for Petrello to do this financially, other than that if he succeeds he will own a few White family farmhouses, on a few acres and collect farming rents. The fact is, nearly all the vacant 57 acres of farmland has had its development rights sold off to the town. The land will be farmed forever and ever. But, apparently, if Petrello gets his way, not by the Whites.
A nine-page article about all this appears in this month’s issue of Vanity Fair and I urge you to read it if you want to know the whole story about how these two sides fought back and forth with one another about what was handshake and what was written.
Petrello’s new lawsuit highlights this now- important clause in the 1995 agreement. At the time, Petrello was viewed by White as a pal. And the feeling seems to have been mutual. And so, when the issue came up about how the rest of the 57-acre farm might be saved from developers if things took a wrong turn, Petrello volunteered to, if that happened, as a friend, step in and buy the remaining acreage by matching any bid by anybody else. It would be he who would “save” it.
The wording Petrello has found says Petrello has the “right of first refusal” for any other offer made to the Whites. Of course, the Whites never did sell any more of the family farm. Or did they?
Last year, prior to this new lawsuit, Petrello and friends did a little digging. Turns out that during these past 16 years, White HAS made a sale for various parts of the farm. Why hadn’t White told Petrello about this?
There was no subterfuge. The Whites were making internal sales amongst themselves. The sales involved the making of trusts, which lawyers told them, would by legal means soften the blow of estate taxes and ease the passing of the farm from father to son when the time came.
It is those new trusts, or the sale to them, that, according to Petrello, triggers his “right of first refusal.” And he is sounding the alarm. If a judge rules in his favor, all the sales to all these trusts will be undone and then redone at the same ridiculously low prices—as is normal in this sort of thing—but with Petrello the buyer, not the children and grandchildren.
Petrello is also suing, now that the earlier legal fight is over, for all his costs relating to that fight and to what he spent in anticipation of winning that fight which in the end he did. Specifically, he wants the money that he paid for trees brought to the property, for architectural fees, for plans made for a 16,000- square foot mansion he intended to build which now has to be re-designed because the land has, in this interim, been declared a flood zone, for legal work for the lawsuit and for the development that needed to get town approval, and even for monies paid to the Whites for the little cottages that the Whites, while still owning, rented out to others during these 16 years. All together, he is suing for more than $4 million in expenses, plus, of course, the farm.
In the Vanity Fair article, the author of it, Michael Shnayerson, took the trouble to fly down to Texas to visit the Petrellos in Houston. The Petrellos showed him around the gracious 18,000 square foot mansion they had bought in the well-to-do suburb of Shadyside near that city where they live. Also, while he was there, Shnayerson visited with the man who had renovated the old mansion for Petrello, a fellow named Chandler Robinson.
Robinson had built homes for Michael Dell and for George H. W. Bush in that community. He was, and still is, very well thought of as a builder.
But Robinson, according to Vanity Fair, did not have very nice things to say about Anthony Petrello. The house got built and it took years. But toward the end, when it was nearly completed and Robinson asked for a $350,000 payment, Petrello not only refused to pay him, but sued him for not getting the building done on time. A clause in the original contract said that the renovation had to be completed by a certain time. That had not happened. Now there were the penalties. The amounts not being paid, including what Petrello now called a “retainage,” totaled $600,000.
It wasn’t until five years after Petrello had purchased the old house in 1996 that the matter got settled privately.
“If there is a modern-day Satan, it’s Tony,” Robinson told Shnayerson. “If you’re around him you see it; he’s mean, he’s self-centered, he’s very aggressive… On top of everything, he wants to hurt you. He really wants to hurt you. It isn’t just business with Tony, it’s personal.”
The reporter was so struck by this statement, that he felt, in fairness, he should ask for a response to this claim from Petrello’s lawyer. The lawyer produced a document, signed by Robinson, made at the time of the conclusion of the legal actions between Robinson and Petrello. Written in a lawyerly way, it reads “our review has shown that the Petrellos are indeed honorable people who abide by their commitments.”
The dispute may have lasted five years with Robinson in Houston. But this was just a moment compared to the 16 years it took to resolve the dispute between Petrello and the Whites—except that now it has flared up again with the lawsuit by Petrello after discovering the clause “right of first refusal.”
At this point, the Whites have few cards to play other than to defend against this lawsuit and hope for the best.
But there are cards to play by the Village of Sagaponack, which now has jurisdiction over the land where all this is taking place and which now is about to make a judgment about what Petrello can or cannot build on the land he now owns, for which the development rights have not been bought.
Unlike in the private sector, there are no contracts with municipalities. Though a municipality must abide by their laws, there is leeway in how they interpret these laws. Also, there is no fine print that says they have to make a decision within any precise period of time on any application.
The leaders of the Village of Sagaponack are reputable people either from old farm families or from wealthy New York families who now have homes in that community and treasure the traditions of this ancient place. These people are not unaware of this situation.
I truly hope Tony Petrello removes the chokehold he is now trying to get a judge to allow him to put on Red White, his children and his grandchild. Withdraw the lawsuit. Bury the hatchet. From his perspective, it’s nickels and dimes.
Get on with it. [/expand]