Hell hath no fury like a real estate broker scorned, especially when it involves a multi-million dollar deal, the client refuses to pay the commission and the FBI makes an appearance at the closing.
The heart of this tale centers on a very special apartment: a pre-war Park Avenue co-op, with all the accoutrements the address implies.
The posh pad at 635 Park Avenue boasts some twelve spacious rooms, including a formal dining room and library. The owners of the apartment socialized with intellectuals and power brokers, including some who were also on the owner’s payroll, boards or committees. The guest list was filled with heavyweights like Henry Kissinger, Iraq war champion Richard Perle and Marie-Josée Kravis, the economist and president of the Museum of Modern Art who is also the wife of business mogul Henry Kravis.
The apartment in question belonged to Lord Conrad Black, the 63-year-old ex-publishing magnate whose fall from power has been chronicled in newspaper headlines since he resigned from his company, Hollinger International, in 2003, after an internal investigation revealed that he and other executives were bilking the company for millions.
The silver-haired ex-Canadian—he renounced his citizenship to acquire the title of Lord Black of Crossharbour—once owned hundreds of newspapers around the world, including the Daily Telegraph, the Chicago Sun-Times, the Jerusalem Post and 400 newspapers in North America. (Hollinger, where Black was once chairman and CEO, is now called the Sun-Times Media Group.)
A committee at Hollinger that probed the case found that Black and others had conspired to steal $400 million from the company, and the company sued them for $1.25 billion in damages. Hollinger’s suit was followed by a criminal case and, in 2007, Black was convicted in federal court for mail fraud and obstruction of justice. Black has maintained his innocence and is appealing, but he was fined $125,000 and sentenced to 78 months in federal prison.
As Black gets ready to report to prison next month (a judge late last month denied his request to remain free on bond pending his appeal), The Real Deal examines one of the most overlooked aspects of his federal trial: the controversy surrounding his full-floor Park Avenue apartment. The swanky home, which is now at the center of a separate legal dispute between Black and Sotheby’s International Realty, was invoked as an example of how Black allegedly pulled a fast one on his company.
Real estate war
While Black was not found guilty of any fraud related to the Park Avenue apartment in his federal trial, the legal brouhaha that Black and Sotheby’s are now entangled in over the apartment provides a rarely opened window into the workings of New York’s high-end real estate market. The case, in which Sotheby’s is claiming that it was stiffed out of $557,000 in commission after selling the Park Avenue apartment for Black, has all the makings of a big-screen thriller, including FBI involvement. And, it looks like it may go to trial.
Here’s the history:
Hollinger International bought the apartment for the Blacks in 1994 for a cool $3 million. At the same time, the Blacks bought themselves a small ground-floor apartment in the same building for $499,000.
Six years later, in 2000, the Blacks purchased the large apartment from Hollinger for $2.1 million in cash and the ownership rights to the smaller apartment, which had appreciated to about $850,000.
Black claimed he poured $2 million of his own money into renovations, which included a custom-made steel door between the dining room and pantry to keep out kitchen noise, and Plaster of Paris plates of U.S. presidents on the dining room wall, according to Vanity Fair. (Black, through his personal assistant, referred all questions to his lawyer, Marc Powers, for comment.)
But, according to some, the Blacks’ apparently discounted purchase of the apartment from Hollinger didn’t even come close to the market value of the apartment, which was estimated to be $8.5 million by then.
“It’s so far beyond where the market level is that it wouldn’t matter if it was renovated or unrenovated,” Jonathan Miller, the executive vice president and director of research at Radar Logic, said at the federal trial in Chicago. “A $3 million price point isn’t realistic.”
While Black did not get busted in the federal trial for paying a submarket rate for the apartment, in 2005, he decided to sell the Park Avenue co-op and found himself embroiled in another real estate mess.
He listed the apartment with Patricia Patterson, whom he had known for years, at Sotheby’s. She apparently discounted the sales commission to 5.5 percent.
Another Sotheby’s broker, Serena Boardman, was representing the buyers—developer Martin Berman and his wife, Phyllis.
Sotheby’s dual representation—which Black claimed he did not know about—is also a key part of the lawsuit involving the ex-press baron and the brokerage firm. Sotheby’s is suing Black for the commission it says it is owed for the sale of the apartment, which went for $10.5 million.
How the sale went down
Things got messy when Black’s high-profile problems with Hollinger apparently made the buyer, developer Martin Berman, nervous.
The Bermans, who reported $4 million a year in salary and a net worth of $60 million, according to the Globe and Mail, were approved by the building’s co-op board.
But Berman was having a tough time securing title insurance, which raised red flags about Black, according to court documents.
“I became aware that Lord Black might be in some trouble because he was very, very anxious to close on the apartment,” Black’s broker, Patterson, said in a deposition filed in New York. “I thought that was strange; it was quite easy and very usual to get title insurance. So, I started thinking maybe something was wrong.”
Creating even more tension was a dispute between the Blacks and the Bermans that began when Barbara Amiel, Black’s wife, allegedly cleared everything out of
the apartment—including five chandeliers and some sconces that were supposed to be left behind.
“There were things that disappeared that weren’t supposed to be taken,” Patterson said, according to the deposition, which was recounted in press reports. “I called Lord Black. I did not, frankly, want to speak to her [Lady Black]. She is the one who took them out.”
In an unusual move, Patterson commiserated with the Bermans’ broker and her Sotheby’s colleague, Boardman. And the conversation seemed to go beyond the chandeliers.
In court, Patterson testified that Black yelled at her in several phone messages, and Boardman said Patterson had her listen to the angry, hot-headed voicemail messages.
“Conrad Black had left her some messages that were, you know, yelling and screaming about the fact that these people were trying to back out on the sale,” Boardman stated in the court filings. Nonetheless, the deal was set to close.
But the Bermans, through their lawyers, allegedly decided to contact the prosecutors and the FBI because they were afraid about the possibility that the apartment could be seized after they purchased it. Sotheby’s has flatly denied participating in these conversations or even knowing about them. However, in court documents, Black alleged that Sotheby’s had to have known that the FBI received a tip about the sale of the apartment, enabling the feds to show up at the closing with a warrant of seizure.
FBI swoops in
Black’s lawyer testified that everyone fled the closing, leaving her alone, and that immediately after they were gone, the FBI stepped in and seized an $8.9 million check as part of the allegations of fraud perpetrated by Black against Hollinger. The feds also seized $1.05 million from the down payment that Black’s lawyers were holding in an escrow account. The government later deducted the $8.9
million from the $21 million bail Black needed to post in connection with his criminal case. Black’s Palm Beach estate guaranteed the rest.
Sotheby’s, through a spokesperson, declined to comment on the matter when contacted by The Real Deal because the case is ongoing.
Black’s lawyer at Sullivan & Cromwell had issued Sotheby’s a check for $557,000, the 5.5 percent commission, but his legal team stopped payment on it after the FBI stepped in.
That’s what led Sotheby’s to sue Black for breach of contract.
But the mogul fought back against both Sotheby’s and the government.
In October 2005, one of Black’s lawyers—Greg Craig of Williams & Connolly, which has also represented Bill Clinton, former U.N. Secretary General Kofi Annan and Elian Gonzalez, the 6-year-old Cuban refugee—filed a suit protesting the FBI’s interrupting the closing on the apartment sale.
Black’s New York lawyer, Powers, a partner in the New York office of Baker Hostetler, said Berman wanted to call the FBI to ensure that he wouldn’t have any problems if he went through with
the purchase. Powers said Sotheby’s was in the wrong for allegedly going along with Berman.
Another source agreed. “Conrad Black alleges that [Sotheby’s] may have known that [the FBI] would seize the proceeds, and that they had a duty to tell Lord Black about that,” a source involved with the case said. “Sotheby’s was Lord Black’s broker. They had an obligation to act in his interests, and they breached their duty by not telling him. They deny that they knew, but the evidence suggests otherwise.”
According to press reports, the government told the Bermans they would not seize the apartment if the Bermans bought it. So the Bermans did just that. And the FBI showed up when the deal closed.
Black vs. Sotheby’s
Black seems to be having more luck, at least preliminarily, against Sotheby’s in the commission dispute then he did against Hollinger or the federal government. In December, in Manhattan federal court, Judge Gerald Lynch ruled that the case could proceed.
While Sotheby’s is arguing that it did not get its due commission, Black has charged that Sotheby’s at least knew about the FBI’s plans to bust the closing on his New York apartment and thus failed in its fiduciary obligation to act in its client’s best interests and warn him about the FBI’s intentions.
He is also arguing that Sotheby’s did not disclose it was representing both seller and buyer and that he couldn’t pay the commission because the proceeds from the sale
were seized.
So far, Lynch has refused Sotheby’s request to throw out Black’s claims and questioned Sotheby’s role in the case, saying its actions deserve to be aired at trial.
The judge’s explanation seems to favor Black. The judge noted that New York state law says that real
estate agents must fully disclose conflicting relationships and obtain approval from both sides if they represent the buyer and seller.
While Sotheby’s argued that it disclosed its dual representation to Black’s lawyers in a document, the judge said that it is not sufficient to make that disclosure in “the fine print of a document.”
“Although Sotheby’s feebly suggests that Black implicitly consented to the dual agency because he ‘never objected’ to it,” Judge Lynch wrote, a jury “could reasonably conclude that Black’s silence resulted from his ignorance” of Sotheby’s dual role rather than “his consent to such an arrangement.”
Edward Greenspan, who attended Toronto’s prestigious Osgoode Hall law school with Black in 1968 and is also part of his legal team, said of the brokerage firm: “Their conduct was wrong, and that’s what we intend to prove.
“We know very little other than what their case and our defense says. It will all come out in trial, as it’s a fairly transparent story,” said Greenspan, who is based in Toronto. “Sotheby’s acted for the purchaser and the seller, and the FBI knew when the closing meeting was and showed up. Why Sotheby’s would get involved when they have a fiduciary obligation to us is the question. They [the FBI] knew the check was going to be there, the payment to Conrad Black, and they took it once the deal was closed and the purchaser had become the owner … all through the auspices of Sotheby’s.”
And so the case of the Park Avenue apartment continues. However, no date has been set yet for a trial, and Black is off to jail.
Timeline
1994: Hollinger International purchases a $3 million apartment at 635 Park Avenue for Black.
2000: Black pays Hollinger $2.1 million cash and gives the company another unit in the building, valued at $850,000, in exchange for the company apartment.
2001: Black gives up his Canadian citizenship to become a British peer, Baron Black of Crossharbour.
November 2003: Black resigns from position as chief executive officer of Hollinger under internal pressure from the company.
January 2004: Black resigns from position as chairman of the Hollinger board of directors.
November 2004: SEC files civil fraud lawsuits against Black and other Hollinger executives.
April 2005: Black lists 635 Park Avenue unit with Sotheby’s International Realty.
June 2005: Black agrees to sell Park Avenue apartment to Martin Berman for $10.5 million. FBI seizes the payment immediately after the closing.
November 2005: U.S. Attorney Patrick Fitzgerald brings 11 criminal fraud charges against Black and three other former Hollinger executives. Black is indicted.
March 2006: Sotheby’s sues Black over an unpaid $557,000 commission for the sale to Berman.
July 2007: Black is convicted in U.S. federal court for mail fraud and obstruction of justice.
December 2007: Black is sentenced to 78 months in U.S. federal prison and fined $125,000. The following week, U.S. District Court Judge Gerard Lynch rules the Sotheby’s case can proceed.
March 2008: Black must report to a Florida prison.
Source: News reports, court documents
and interviews