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Dangerous Waters

You’re sitting on the board. You have to meet with a proposed sublessee of one of the apartments in your building. He arrives and you think he’s a bit arrogant. He also doesn’t show up with his wife, who plans to live there with him. You have your doubts about him because he seems overly aggressive, and you ultimately turn him down.

Oh yes, and he just happens to be black.

Guess what? You may have problems. Big time. In fact, you may face a discrimination lawsuit like the one that hit Manhattan’s Beekman Hill House cooperative. In that 1997 case, a federal jury found that the board had illegally discriminated against an interracial couple who were awarded $640,000 in damages, $410,000 of which was paid by the individual board members themselves.

Most everyone in the cooperative housing world has heard of the “Biondi case,” so named for Nick Biondi, the board president at the Beekman Hill House at the time of the suit. What most know about the story is that someone named Biondi was a board member who turned down an African-American who wanted to live in his building. That, after the rejection, the African-American sued for discrimination, and that Biondi – or someone in the interview process – had written “black man” on a piece of paper. That Biondi and his fellow board members subsequently lost the case and had to pay damages out of their own pockets. Many who heard the story think of it in – if you’ll pardon the expression – black-and-white terms: Biondi was a racist who got what he deserved.

The story is more complex than that, however, and boards need to learn a different lesson from the story: a tale of bad advice, of clashing egos, and of a lawsuit which never should have happened.

TAKE-CHARGE GUY
The saga begins with the Beekman Hill House, a 66-unit cooperative at 425 East 51st Street. Built in 1929, the property is a ten-story, red-brick building which went co-op in 1986. A driving force in the conversion was Nick Biondi, who had been a renter since 1981. An aggressive, take-charge individual, Biondi fought with the sponsor, Lawrence Wiener, to get the best deal for those tenants who bought. After the conversion, Biondi served in various
positions on the board before being elected president in 1990.

By all accounts, Biondi was the man who ran the place and got things done. “He was an excellent board president,” recalls Simone Demou, a former renter who bought her apartment and had worked closely with Biondi during the conversion. “He dealt with the sponsor, the manager, and the super constantly.” Adds another former owner and board member: “Nick had a lot of say. He was pretty strong. He has a bulldog tendency about things.”

Biondi himself admits he did the job because few others wanted it. Of the five active board members (an additional two were sponsor seats), only Biondi and Michael Silverman actually lived in the building. “People were apathetic,” he says. “You know how it is: I did the work because I had to. No one else wanted the job.”

In many ways, Biondi was a typical president: assertive, knowledgeable, and self-sufficient, who got things done because no one else cared as much. “I was the one,” he says. “I did all the work. I was no more hands-on than anyone else [in my position]. It was because of the peculiarities of our building. We had five board members, one was an absentee-sponsor, [Katherine] Cundey – you never knew where she was; [Richard] Appleby didn’t live in the building. Who’s left? The super, me, and Silverman… There were no [other] directors around.”

THE WRONG AD
The problems for Biondi and Beekman Hill House began in June 1995, and everyone agrees that it all started with a misunderstanding. Wiener, the sponsor, was still renting a number of apartments that he owned. He took out an advertisement pushing his units, promising applicants, “No board approval needed.” The ad caught the attention of Gregory and Shannon Broome, a young interracial couple – he is black, she is white – who had recently moved from Maryland and were looking for a place near Gregory Broome’s office. He worked a few blocks away as an associate at Skadden, Arps, Meagher & Flom (she drove to work at General Electric in Fairfield, Conn.). They came to the building and looked over Wiener’s apartments; when they didn’t like those, the super also showed them a unit owned by Simone Demou. It needed board approval, although the super didn’t tell them that.

The Broomes were eager to move in and immediately met Demou. The parties quickly agreed on a two-year sublet, beginning with a rent of $2,400 a month. It was then that Demou told them that board approval would be necessary. Gregory Broome, feeling a bit sandbagged, was slightly annoyed and said so. “We didn’t realize until some point later on that there had actually been two ads in the paper,” he explains. “We thought Demou had placed an ad saying, ‘No board approval.’ We didn’t see the other ad. Not being from New York, I did not know that sponsor apartments often don’t require board approval.”

Demou, however, told them that approval for sublets was perfunctory and that the couple should have no problem. She told Broome to call Nick Biondi to set up a meeting.

In many buildings, such interviews are generally arranged by the managing agent and usually take some time, often as long as 30 days. But at Beekman Hill House, Biondi handled such matters. According to Demou, the president had frequently approved her past sublessees – she had had four or more already – after a single interview in which he alone vetted the prospective renter. Biondi, however, says that he always had a second board member at the interviews.

Broome called Biondi to introduce himself – accounts differ as to when, but it was either on Friday morning or Friday evening – and Biondi says he tried to be as accommodating as possible. Broome told Biondi that he needed to move in on the coming Wednesday; could they meet before then? Biondi told him that he and Michael Silverman, another board member, could meet the Broomes on Monday evening. Broome says he told Biondi that his wife might have trouble making that date.

“I talked to Biondi, and he said that he normally gets one board member, usually Silverman, to interview people who wanted to sublet, and that I should walk over after work, and we scheduled a meeting for a Monday,” says Broome. “...He knew that we had signed a lease, which would have commenced in early June, and I forget the date on which the lease was effective, but it was some time in the early part of June. Based on that call [to Biondi]…we had arranged for movers. I was convinced that the board approval was not a big deal.”

THE FIRST MEETING
On Monday, Broome met Biondi and Silverman. “We met at 6:30. I quickly looked through the [application] package,” recalls Biondi. “It was a little light, there was a couple of things missing, nothing of any import… [We told him]
we had to meet the wife.”

According to Broome, however, the two board members were not very communicative or inquisitive. “They asked what I did at [Skadden, Arps, Meagher & Flom], whether we had any pets; perfunctory questions. Nothing that sticks. It was a short meeting, less than a half-hour,” remembers Broome. “Biondi wasn’t as nice as he was on the phone. Over the phone he said, ‘I know Skadden, and I know the firm you worked at before’…. He was pretty chatty on the phone, and it gave me the impression that I would say, ‘Hi,’ and that would be it. When I got there, it wasn’t like that. I didn’t think a whole lot of it at the time.”

Biondi says he was concerned because Broome had not come with his wife. They told the applicant they would have to meet Mrs. Broome on Tuesday before they could give an okay for a Wednesday move-in. Silverman recalls that after this first meeting, Biondi told his fellow director, “We may have trouble with this guy.” Silverman said, “If this is because he’s black, don’t go there. We could get sued.” Biondi said it wasn’t about that; it was about Broome’s personality, that he found him overly aggressive. Biondi denies saying this. He admits that he did warn Silverman of problems with Broome, saying it was the absence of the wife and that he got a “strange feeling” from Broome.

Demou says she was surprised that the board had requested another interview since, in her experience, past sublet applications had been approved after one meeting. (Biondi, however, says he viewed the second meeting simply as an extension of the initial interview.) Concerned, she made calls to other board members and even visited the subleasing agent at American Landmark Management, Maria Capraro.

The board, the superintendent, and the agent, in later court testimony, claimed that Demou made heated charges of racism against Biondi and the board and was threatening to sue for discrimination if the board didn’t approve the sublease. “I felt angry when she threatened me personally with getting my vote,” board member Richard Appleby recalled in trial testimony. Demou says she simply spoke of the virtues of the Broomes and made no threats, implied or otherwise. “I didn’t threaten the co-op,” she says. “Why would I? I’m an owner.”

THE FULL BOARD MEETS
The Tuesday meeting was canceled. Biondi says it was because he couldn’t find a second board member to come to the interview; he also recalls that another director, Katherine Cundey, wanted to meet the Broomes but was unavailable on Tuesday. Biondi also notes that everyone on the board was becoming angry at the calls being placed by Demou, feeling that she was trying to unduly influence them, and that many members were requesting a full meeting both with the Broomes and Demou.

The Broomes, who had impeccable financial and personal credentials, were surprised by the brouhaha, and only now began thinking that discrimination might be involved. “I thought it was strange,” says Broome. “I started to think that there might be something going on when I called Mr. Biondi to find out what was going on and he said they needed a full board meeting. It didn’t seem entirely consistent with what what Ms. Demou had told me.” He adds: “I had not faced any sort of discrimination before. I mean, I’ve had empty cabs pass me by, but [there had never been] discrimination when someone had information about me; never in an employment case.”

If it was racism, however, this board does seem an odd candidate for the charge: Silverman, who had lived in South Africa and had known Nelson Mandela in the 1960s, notes that he left that country many years ago because of its apartheid policies. Biondi says that he rented one of the two apartments he owned in Beekman Hill House to a black woman, while Lawrence Wiener, the sponsor and the board member who actually wrote “black man” on a note pad at the second interview with the Broomes, has a stepbrother and stepsister who are black.

Nonetheless, the steps the board had taken so far were dangerous not because the board members were racist but because it could give the appearance of racism to anyone who was paying attention. In this case, the board had seemed to stray from its own procedures: a single interview and then approval. And in discrimination cases, where appearance and reality can become indistinguishable, that meant the board was stepping onto thin ice.
In fact, what is remarkable is not that the board began getting angry at Demou’s actions, but that its professionals seemed to be AWOL or unaware of the dangerous waters that the Beekman Hill House was entering. Biondi had the presence of mind to call the corporation counsel, Herbert L. Cohen, of Manhattan-based Stiefel & Cohen, to get his advice on how the board should proceed. Cohen said he thought he should attend the upcoming board meeting. (Cohen, who is currently being sued by Biondi, refused to comment on the facts of this case.)

On June 13, the full board met, first with Demou and then with the Broomes (Cohen was only present at the talk with Demou). The directors angrily charged the Broomes with stirring up a legal hornet’s nest by saying they would sue if rejected. Gregory Broome says that was the first time he had even heard of the threatened discrimination suit. “That [meeting] was tense,” he recalls. “The first thing they asked was if we had threatened to sue, accusing them of discrimination. We had not made any threats to sue; absolutely not.” The meeting became one of charges and counter-charges, and then the Broomes and Demou left.

REJECTION
After the meeting, the board discussed the issues with its attorney, Cohen. According to Biondi – and confirmed by the minutes penned by Cohen himself – Cohen said, “They’re obviously litigious. If Broome were white and was making these threats, would you approve them?” The directors said no. “Well,” Cohen said, “then you must turn him down.” In Cohen’s view, the board could not give in to blackmail, that accepting a subtenant after the owner had threatened the co-op with litigation, would be setting a dangerous precedent. Board members present recall that he also argued that the Broomes were potentially litigious and could start lawsuits even if they were approved. Based on this advice, the board voted unanimously to reject.

That Cohen would give such advice is amazing, considering the fact that the Broomes were both lawyers and that Gregory Broome was a member of a legally protected class who would have strong grounds to sue if rejected. But the board members had no way of knowing that: they trusted their lawyer, did not think they were racists, and were buoyed by the feeling that they were in the right. Rather than try to get them to avoid trouble, however, Cohen was steering the directors right into it.

Another remarkable fact is that the managing agent was nowhere to be seen. The manager was the one who, supposedly, could bring to bear his wealth of experience, counter-balancing the attorney with street-smart common sense and advising the directors on how to avoid more trouble. But, Biondi says, “We never heard from him once during the whole thing. He just took a powder.” (American Landmark no longer exists; Maria Capraro, the leasing agent for the building who now works for Brown Harris Stevens, says she has no comment on any aspect of this case.)

The Broomes were stunned when they heard the news of their rejection. Gregory Broome says he had now come to believe that racism was involved and the two decided to sue as a matter of principle. “Part of our disappointment was that you felt you got hosed. That could be the only explanation. We couldn’t think of any other reason that we would be turned down for a two-year rental. It seemed odd. You want to believe that racism was not the reason. But it became harder to dismiss that possibility.”

When the Broomes sued, Biondi says that Cohen and the insurance company’s lawyers, Epstein Becker & Green, argued that the board needed to go to trial. (Through spokesmen, Chubb Insurance, the firm that handled Beekman Hill House’s insurance and defense, declined to comment on the case, as did Epstein Becker & Green, which is being sued by Biondi.) Biondi admits to feeling helpless, that the board thought of settling before trial but was dissuaded by its professionals. “The attorney would say… ‘These people [the board] did nothing wrong, and we’re going to fight it to the end.’ [After that,] you have no say. You’re the board member. It’s out of your hands. You’re gone. It’s in the hands of the lawyers.”

The federal trial, in May 1997, took about one week. Demou testified that Biondi had made racist remarks in the past and denied threatening to bring a discrimination lawsuit; Biondi, the other board members, Capraro (through a deposition), and the superintendent all testified that Demou had threatened them with a discrimination suit if things didn’t go her way. In the end, the jury found for the Broomes, awarding them $640,000 in damages, including $410,000 in punitive damages against the Beekman Hill House and its board members. Of that, Biondi was personally liable for $125,000. The jury also awarded Demou $107,000 in compensatory damages and $57,000 in punitive damages.

The corporation’s Directors & Officers’ liability insurance paid $230,000 in compensatory damages against the corporation and its directors but did not cover the punitive damages. Since, in New York, it is illegal to insure for punitive damages, the court of appeals ultimately rejected Biondi’s insistence that the co-op pay the judgment. Biondi argued that he was acting on behalf of the building; but the co-op and its carrier refused to pay. He sued and lost.

IT CAN’T HAPPEN HERE
So what went wrong? Legally, say attorneys who were not involved in the saga, the directors made almost every mistake they could. “It sounds like it was a series of bad mistakes from day one,” observes James Samson, a partner in Manhattan’s Bangser Klein Rocca & Blum. “If the defense was ‘My personality and his personality didn’t mesh,’ that’s a tough defense in a civil rights case.”

More to the point, however, the directors made mistakes that were based on advice given to them by their attorney, a trusted professional who was supposed to keep them out of trouble. Unpardonably, too, the managing agent – who presumably was more knowledgeable than the volunteer board members – was nowhere to be seen during the whole affair.

“It’s only reasonable for the board to take their professional’s advice,” notes Arthur Davis, a management consultant based in Manhattan. “These are volunteers who are not trained in running a corporation. This case is an indication of an inherent problem. If the board members have a legitimate attorney steeped in real estate who gives them advice on some matter, then they’ve done all they can. How can these people second-guess their professional? There is no way to know if he is giving good advice or bad advice. If you have an engineer who tells you your facade is fine and then it falls down, you sue the engineer. But, before the fact, you don’t say, ‘I’ll get another engineer’s opinion.’ You have to trust them. You don’t have the experience to do otherwise.”

Cohen and the manager should have both warned the board not only of the bad precedents that existed in turning down the Broomes, but also of the difficulty in fighting a discrimination suit. “The general consensus is that it should have been settled,” observes Stuart Saft, a partner in Wolf Haldenstein Adler Freeman & Herz. “It should definitely not have gone to trial. The fact pattern as such was problematical. In discrimination suits, you have to prove the negative – that you did not discriminate – which is next to impossible.” And, he adds, there was evidence against the board: “Writing [‘black man’] on a piece of paper demonstrates that they were paying attention to [race],” says Saft. “They saved [the paper], too, and that became evidence that race was a factor.”

The attorney notes that a professional should have told the directors that the intensity of their emotions was disproportionate to the situation: the Broomes were not attempting to buy the unit – when greater financial scrutiny is required – but merely rent it. Demou was still the owner and still financially responsible for the apartment’s maintenance. “You know, this was just a sublease,” says Saft. “It should not have been a big deal. Someone should have guessed that, based on their finances and that they are professionals and lawyers, that this would escalate if the board took the wrong steps. It had trouble written all over it.”

A professional advisor should have cooled down the hot rhetoric, not stoked it with calls of doing what was right. “[You have to] step back,” Samson advises. “This is a touchy judgment call. Was it simply a case of two aggressive guys going at it? There could have been resentment by the applicant about going through the [interview] process. Going before the board is a demeaning process no matter what you do and no matter who you are.”

Better advice would have been to try and avoid a lawsuit and, then, if it came to a suit, try and settle before going to court. “In most situations like this, a lawyer should be helping the board find how to get to ‘yes’ rather than ‘no,’” observes Steve Wagner, a partner at Wagner Davis. “Don’t try to figure out how to say ‘no,’ try to figure out how to say, ‘yes.’ When boards want to sue or fight a suit in situations like this, I take an active role in convincing them it’s not a good idea.”

Indeed, Wagner, Samson, and Saft all agree that the board was poorly served in the advice it got, since the case had all the earmarks of a disaster waiting to happen. In discrimination cases, plaintiffs look for deviations from the normal procedures that might indicate illegal biases. Although the board members felt they had good reasons for what they did – the second interview was scheduled to meet Mrs. Broome, the full board meeting was set up to deal, primarily, with Demou’s phone calls – to an outside observer looking for discrimination, Beekman Hill House was varying its normal interview process after having met once with an African-American applicant.

“Co-ops should run themselves in a business-like fashion,” explains Wagner. “There should be procedures. They apparently varied from their own procedures here. Had there been standards, or policies, or written house rules, they might have pointed to that. You want to eliminate the possibility of someone saying, ‘Why do you do it for them and not do it anywhere else?’ If you make up procedures on an ad hoc basis, you’re making a terrible mistake.”

Cohen, or the absent managing agent, should have pointed out that rejecting an applicant – who was a member of a legally protected class – for anything but a solid (i.e., financial) reason was extremely dangerous. Says Saft: “You have to have an objective standard [concerning how you] made the decision. If it’s finances, you have to see financial statements.”

In that regard, Beekman Hill House was on the shakiest of grounds since Skadden Arps is one of the city’s top law firms, offering handsome salaries to its employees. “Skadden Arps attorneys are very – you could say grossly – overcompensated,” observes Samson. “So if you’re going to reject, that’s not a good reason in this case. A rejection can’t be because of personalities; it should be because of what you saw on the [financial] papers. To say someone is ‘being aggressive’ is so subjective.”

The other main argument – that the Broomes were potentially litigious – was also weak. “The board or the attorney should have looked at whether the applicants had been litigious in the past,” Saft argues. “Just because they’re lawyers and litigate for a living doesn’t mean they are personally litigious. So that wasn’t a good reason to turn them down.”

Finally, the attorney should have warned the board about the nuances involved, about how boards are perceived by the general public (i.e., the jury): as arrogant, domineering, and capricious. “There is this perception of boards of co-ops and condos as somehow being arbitrary and mean-spirited,” notes Wagner. “People see boards – sometimes rightly, sometimes wrongly – as fruitful fields for small-minded people with Napoleonic complexes. In certain respects, that perception is a result of cases like Biondi in which boards continue to act, apparently, without regard to their constituents.” Such views could weigh heavily against the directors at trial, as most attorneys would know.

AFTERMATH
In 2001, Biondi, Broome, and Demou all seem like sensible, reasonable people. Although Biondi says he has tried to move on with his life, he sounds bitter, feeling he was wrongly convicted of racism. Broome, soft-spoken and currently living in San Francisco, admits that the board may not have been or seen itself as racist but nonetheless acted in a discriminatory way. “I’m absolutely convinced my race had something to do with it. Maybe [Biondi] thought I should have been more deferential to him... Maybe he convinced himself [that race had nothing to do with it]. But it was partly because I am black.” Demou, who still owns a unit in the building, insists that Biondi got what he deserved.

But did he? No one can judge the complete truth of any situation; however, it is safe to say that Nick Biondi is a forceful individual who took charge of matters when others wouldn’t and that he was used to having things his own way. Perhaps Gregory Broome, who admits he was peeved by what he saw as a demeaning process, came across to Biondi as unnecessarily aggressive in wanting to move in so quickly.

Whatever the reason, the issue became personal when it should have stayed professional. Demou’s calls – whatever she said – put everyone involved on edge, and rather than cool off, the board got more heated. In his court testimony, Biondi claimed that charges of racism “devastated” him. “This was, in my view, so unfair. Here, ten years on the board, impartial, reasonable, always did the right thing, and here, some shareholder wants to rent her apartment and would turn on me with these lies, it was just – I was completely disgusted with the whole thing.” And by their actions – the lawyer offering incomplete advice and the manager offering nothing – the professionals let the board walk right into a roaring fire.

Biondi, an ex-boxer, saw a fight and, egged on by the lawyers, he and his fellow board members took on the battle with all the determination of a Rocky Balboa. But that fighting spirit was wrongly placed, as a good professional should have noted. “When two people get into a fender-bender type fight, the two start screaming at each other and it becomes traumatic,” observes Samson. “The rejection of a subtenant is a traumatic experience. You have to be sure racial [issues] don’t come into play when both sides are under stress.”

In the end, boards involved in such situations should search for ways out of trouble, not ways to win an expensive lawsuit. The Beekman Hill House case was extraordinary not because the board made every wrong step it possibly could, but because the professionals let them.

“You have a mixed racial couple, with excellent finances, who are members of a prestigious firm, one of whom is a member of a protected class,” Saft says. “The board turns them down. How is it not discriminatory? It’s unfortunate for Mr. Biondi, but the way the board made its decision gave every impression that it was racially motivated. And in cases like this, perception is just as bad as reality.”

The Beekman Hill House story is, in fact, the scariest of scenarios – the board as the Titanic, with the professionals as the captains of the ship, guiding them directly into a legal iceberg.

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