Gersten Savage, once a 20-attorney litigation and transactional firm, presented an "aura of success" with its display of contemporary art adorning the walls of its Midtown offices; pricey Knoll and Bertoia chairs and personalized Gersten Savage cups and napkins; and its hiring of office managers and on-site IT staff, said lawyers who sublet space from the firm.
But only four months after settling in at 600 Lexington Ave., sublessee Grant + Appelbaum, a four-attorney matrimonial firm, was told by 35-year-old Gersten Savage that it was defaulting on its lease, its partners were departing and the subtenants would have to leave or be evicted, according to a lawsuit against Gersten Savage.
"It is difficult to convey to the Court my astonishment at these declarations. Not only was I being told that our firm would be forced to relocate a scant four months after we had moved in, with all the attendant disruption and expense, but none of this was set forth with any sense of apology or contrition," Patricia Grant says in the suit.
"It was presented as a ‘too bad —this is what is going to happen to all of you’ approach," Grant, a past president of the New York Women’s Bar Association, says in court papers.
The Grant firm and solo practitioner Virginia LoPreto, another subtenant on the building’s ninth floor, are suing Gersten Savage and two of its former partners, Jay Kaplowitz and Arthur Marcus, claiming the Gersten firm induced them to rent space without disclosing that it was behind on its rent and considering a dissolution.
The suit seeks $200,000, plus interest, punitive damages and attorney fees, and it requests defendants to perform the conditions in the sublet agreements.
Kaplowitz and Marcus respond that they never engaged in any fraudulent conduct toward the Grant lawyers and LoPreto.
Their attorney, solo practitioner Jan Gellis, who also represents Gersten Savage, says in court papers that the firm is functionally insolvent, rendering it unable to perform its obligations under the agreements. He also said Gersten Savage is unable to pay the more than $500,000 in unpaid rent.
Meanwhile, a former partner of Gersten Savage has blasted the firm’s management in an affidavit attached to the plaintiffs’ court papers, writing that Gersten Savage was "governed by anything but consensus and very little transparency."
Both the Grant firm and LoPreto had agreements with Gersten Savage to use the office space for three years with a two-year renewal option.
Unbeknownst to the tenants, the suit says, Kaplowitz, a Gersten Savage founder, wasn’t authorized by the firm to offer any lease term not cancellable on 60 days notice.
The complaint says Kaplowitz never disclosed that Gersten Savage partners had discussed a dissolution and owed money on its lease.
The subtenants learned soon after moving in that most of the artwork was owned by another building occupant, the suit says, while Gersten Savage partners, associates and staff were leaving in "an exodus."
Grant alleges Kaplowitz in early September announced her firm would have to move out, that Gersten Savage would no longer pay for services and that Grant lawyers would be without a receptionist, phone, Internet access, electricity and other services if they stayed.
Kaplowitz and Marcus are now partners at Sichenzia Ross Friedman Ference. No lawyers remain at Gersten Savage, Gellis said.
Grant alleges that Gersten Savage has about $1.2 million in receivables, which are likely being diverted to Sichenzia Ross.
The Grant firm and LoPreto claim Gersten Savage’s failure to disclose relevant information was meant to deceive and defraud them by inducing them to sign the sublet agreements and pay rent to Gersten Savage, "which Gersten Savage then failed to pay to the landlord."
"If we are required to move less than six months after announcing with pride our relocation to beautiful space, and explaining and training our clients to come to a new location, we will be perceived as slipshod in managing our own affairs, thereby throwing into serious doubt our professional ability to manage and advise the legal affairs of others," Grant says in court papers.
At a preliminary injunction hearing last week, LoPreto said she couldn’t scan documents or receive faxes and had Internet connection problems. She said several other attorneys are also subletting on Gersten Savage’s ninth and tenth floors, although not on a long-term basis.
The parties agreed at the hearing that Gersten Savage would not cancel copier, phone and Internet services and Gersten Savage would forward service bills to LoPreto and the Grant firm.
The suit is before Manhattan Supreme Court Justice Jeffrey Oing (See Profile) , who warned the plaintiffs that the landlord, SL Green Realty Corp., could still say "get out" any time.
Several representatives of SL Green did not return calls seeking comment.
According to court papers, the office agreements between Gersten Savage and the Grant firm and LoPreto are not subleases, but "simply a contractual arrangement binding onto the parties."
Former Gersten Savage partner David Danovitch says in an affidavit attached to the plaintiffs’ court papers that Gersten Savage’s financial health had been "tenuous" for at least 12 months before the arrangement with the Grant firm. The plaintiffs included his comments in an attempt to prove Kaplowitz was considering whether the firm should close before the Grant lawyers moved in.
"Several key lawyers who were responsible for much of the Firm’s revenue, including myself, had repeatedly informed Mr. Kaplowitz that the Firm’s partners, all of whom had been paid very little in 2012 and had given up significant pay in 2011, could not continue to remain at the Firm if conditions did not improve. Thus the future of the firm was certainly in doubt," Danovitch says.
In June 2011, the firm’s core litigation group, which covered a significant portion of rent, departed, and the firm lost two key partners later that year, he says. Several times, Kaplowitz asked various partners whether they should close the firm, he adds.
He says Gersten Savage partners had agreed on the firm’s ability to have renters depart on 60 days notice.
"While Mr. Kaplowitz preached that the Firm was governed by consensus—thus obviating the need for a written partnership agreement—in fact, in my experience, the Firm was governed by anything but consensus and very little transparency," Danovitch says. "Financial results, compensation, favoritism toward certain associates were, during my tenure at the Firm, hallmarks of the way Mr. Kaplowitz manages the Firm."
Danovitch alleges that he and other partners have learned that Gersten Savage paid charges on Kaplowitz’s credit card and "the back office staff" would hide information on compensation of some individuals and which partners were producing revenue according to their expectation.
Gersten Savage Response
Kaplowitz says in court documents that Danovitch’s decision last month to leave Gersten Savage led to the "inescapable conclusion" the firm would be unable to continue operating. Before he left, the firm made progress in overcoming economic difficulties by subleasing unused office space, he said.
Kaplowitz says Gersten Savage gave substantially all of the rents paid by the Grant firm and LoPreto to the landlord, which applied the money to past-due amounts. He added that Gersten Savage’s rent difficulties have been "exacerbated by almost all subtenants, including plaintiffs, refusing to pay current rents from September 2012, and some as early as August 2012."
Signature Bank has a security interest in Gersten Savage’s accounts receivables and other assets, and none of Gersten Savage’s accounts receivables were transferred to the Sichenzia firm, he says.
Gellis says in court documents that the firm’s subletting agreements provided for use of office space, reception service and a phone cost, but not other services.
Kaplowitz and Gellis have declined to comment.
@| Christine Simmons can be contacted at email@example.com.