Southampton Town residents have filed a lawsuit to block a plan to restore the Canoe Place Inn on one side of the Shinnecock Canal and build 37 luxury town homes on the other.

Four Shinnecock Hills residents and a community group called Shinnecock Neighbors filed the suit Monday in New York State Supreme Court in Riverhead. They argue Southampton officials failed to take a close look at potential traffic, wastewater and flooding issues before approving the proposal by R Squared Development LLC on Jan. 13.

The suit names the Southampton Town Board and R Squared, the Plainview company owned by cousins Gregg and Mitchell Rechler, as defendants.

StoryTown OKs inn, luxury townhome planRedevelopment includes Canoe Place InnHearings end on Canoe Place Inn site

Supervisor Anna Throne-Holst championed the project as a compromise to save the Canoe Place Inn, a once-stately building that since 2010 has stood vacant and decaying near the edge of the canal. The Rechlers agreed to renovate and reopen the inn as a catering hall, rather than demolish it, in exchange for permission to build the town homes across the waterway.

The proposal has divided public opinion in Hampton Bays and Shinnecock Hills. Some residents said restoring the inn could jump-start tourism in Hampton Bays. Others said the town homes would spoil views of the canal and opposed the siting of a wastewater treatment system in a nearby residential neighborhood.

Southampton officials approved the project using a town law that allows developers to bypass zoning rules if a project is deemed to benefit the public -- an arrangement that has drawn sharp criticism from environmental and civic groups.

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In a news release announcing the lawsuit, Dorothy Donohue, a member of Shinnecock Neighbors, said such deals "are always good for the developers, giving density that looks more like Up-Island urbanization than the town we all call home."

Town Attorney Tiffany Scarlato said Wednesday that she could not comment on the suit because the town had not been served.

Gregg Rechler said Wednesday that his company had not been served with the lawsuit. "However, we have the highest level of confidence in the process that resulted in the unanimous vote of approval for the project by the Southampton Town Board," he said.

Rechler said his company would continue seeking county and state approvals for the development.

Opponents of the project say they believe they will prevail.

"The law is on our side," said Jennifer Juengst, the Shoreham attorney representing the neighbors. "It's designed to protect the community, and while we respect the right of an up-island developer to make a profit, it should not be at the community's expense."