An alliance between 27-year-old rental brokerage Manhattan Apartments and upstart A.C. Lawrence has soured, leaving the two firms to duke it out in court as they battle for control of the older company.
Gerald “Jerry” Weinstein — who founded Manhattan Apartments in 1984 — has filed a lawsuit in New York State Supreme Court against A.C. Lawrence and its principals, Larry Friedman and Anthony DeGrotta, and Weinstein’s business partner, supermarket mogul Leonard Franzblau. Alleging breach of contract and fraud in the July lawsuit, Weinstein sued for roughly $10 million, plus punitive damages.
Franzblau, DeGrotta and Friedman countersued in August, alleging that Weinstein essentially hijacked the company, changing passwords so his partners could no longer access the firm’s financial accounts or email system, channeling money into new bank accounts they couldn’t access, and even barring them from entering the office. In addition, they claimed in court documents, Weinstein is in default on a $300,000 loan from Franzblau (see both court filings below).
The three asked for a temporary restraining order and a preliminary injunction that would prevent Weinstein from transferring the firm’s funds or opening new bank accounts without Franzblau’s consent, and require him to once again give Friedman and DeGrotta — who were hired by Franzblau in 2009 as consultants at Manhattan Apartments — access to the company’s systems.
“Weinstein has effectively ‘frozen out’ Franzblau and his designated agents, i.e., Friedman, DeGrotta and A.C. Lawrence,” wrote their attorney, Philip Greenberg, in court documents. “He has commandeered the company, converting and diverting funds and putting the company in jeopardy of financial ruin.”
Moreover, Greenberg said his clients view Weinstein’s lawsuit as a “pre-emptive strike,” filed because he knew they would soon sue him.
“Not only are we vigorously defending the case, but vigorously prosecuting the counter-claims,” Greenberg said. “As far as we’re concerned, the case is really about the counter-claims.”
Weinstein did not return calls for comment. His attorney, Stuart Shaw of Shaw & Binder, declined to comment on the specific details of the case, but said Weinstein, too, “is pursuing the claims in the lawsuit vigorously and intends to keep doing so.”
The origins of the imbroglio stem back several years. Over the past two decades, Weinstein had built one of the city’s largest rental firms, with 250 agents at its peak. But by 2008, many of the company’s top producers had left, and the firm was “losing as much as $1 million per year,” according to Franzblau’s affidavit in the case.
Franzblau, founder of Pioneer Supermarkets, became involved in the company — now technically called Manhattan Apartment Services — when Weinstein advertised for investors. Initially, he invested $2 million, giving him a 50 percent ownership stake, Greenberg said. But in 2009, Franzblau invested another $600,000 in the company, giving him a 70 percent ownership interest. (Weinstein claims in court papers that the 2009 agreement is invalid.)
As The Real Deal reported at the time Franzblau took the unusual step of hiring A.C. Lawrence as a consultant to organize the firm’s finances and cut costs. A.C. Lawrence founders Friedman and DeGrotta were paid some $300,000 by Manhattan Apartments for their services, according to court documents.
To help the struggling firm get back on track, Friedman and DeGrotta cut staff, reduced salaries and implemented a new accounting system, which helped the company go from “hemorrhaging money,” to “breaking even or making a small profit,” Franzblau said in his affidavit.
He continued: “Weinstein, by his own admission, was not a good businessman, and through the efforts of [DeGrotta], [Friedman], A.C. Lawrence and me, we were turning around” the company.
There was even talk of A.C. Lawrence and Manhattan Apartments merging, but that never materialized, Greenberg said.
Instead, A.C. Lawrence joined forces with Century 21 NY Metro, a competitor of Manhattan Apartments, in November 2010. When Century 21 shuttered, A.C. Lawrence moved into its office and hired many of its personnel, including the firm’s CEO, Marc Lewis, a former Manhattan Apartments employee. In his lawsuit, Weinstein claimed that “DeGrotta and Friedman induced Franzblau to invest in A.C. Lawrence’s takeover of Century 21’s business,” and that the move violated a non-compete clause in his agreement with Franzblau.
By then, the relationship between the parties appears to have become acrimonious. Weinstein claimed in his lawsuit that he thought Friedman and DeGrotta would only be working at Manhattan Apartments for six months, but they stayed on despite his objections.
Weinstein also claims that Friedman and DeGrotta’s work for Manhattan Apartments was “not performed in a workmanlike or diligent manner” and that in fact, they had conspired with Franzblau to push him out.
“A.C. Lawrence, DeGrotta and Friedman were in fact hired by Franzblau to assist Franzblau in taking full control of Manhattan Services’ resources for A.C. Lawrence’s benefit and Franzblau’s benefit,” the suit says.
For example, Weinstein claims, they failed to prepare proper tax returns, exposing Weinstein to “potential tax liabilities and penalties currently in excess of $130,000.”
Weinstein also claims that Franzblau, Friedman and DeGrotta diverted Manhattan Apartments’ funds to themselves and A.C. Lawrence, usurped Weinstein’s authority, and locked Weinstein out of records necessary to operate Manhattan Services.
On Aug. 2, Weinstein told Friedman and DeGrotta that their “services are no longer required,” and that their “relationship with Manhattan Apartment Services is terminated.”
A few days later, according to court documents, he sent an email to company employees with the subject “Yeah! We did it.” In the email, he wrote: “After too long a time, we have taken back the reign of [Manhattan Apartments]!”
At this point, Greenberg said, Franzblau is concerned about preserving his investment in Manhattan Apartments, and fears that the company will go out of business if DeGrotta and Friedman aren’t reinstated.
“The most important thing is to get back in and stop the bleeding, while the patient is still alive,” Greenberg said.
This isn’t A.C. Lawrence’s only legal battle. A.C. Lawrence recently sued Bond New York, alleging that the firm hacked into its proprietary listing system to steal valuable listings. That suit is ongoing.