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Sleeping with the Enemy: Why That Won't Help If You're Suing the Board

Frank Lovece in Legal/Financial on August 15, 2014

The Carlyle, 35 E. 76th Street, Upper East Side

The Carlyle
The Carlyle
Aug. 15, 2014

Murray Schwartz, a former president and CEO of Merv Griffin Enterprises, has a co-op apartment at The Carlyle, the famed hotel at 35 East 76th Street in Manhattan — or, technically, he has one of the 51 residences owned by the Hotel Carlyle Owners Corporation, which makes use of the same staff of 400 that cares for the building's 187 hotel rooms. Presiding over all this — including twice-daily housekeeping service and 600-count Yves Delorme bed-sheets — is Alexandra E. Tscherne, the Hotel's Director of Residences.

Schwartz was away, possibly at one of his other residences in California and Amagansett, N.Y., on or about July 19, 2011, when water entered his apartment, causing major damage to the ceilings, walls, wall coverings and floors, creating mold and requiring the removal of asbestos. Tscherne notified Schwartz of a "small water leak" from the apartment above his that cause a "small stain at the corner of [the] ceiling."

That "small leak" led Tscherne to have Schwartz's apartment's wallpaper and carpet removed, the latter being sent to an antique rug specialist for cleaning and storage. On August 3, the Hotel retained 711 NY Painting and Decorating Company Inc. to repair the leak and to estimate the cost to replace and install the damaged wall coverings. Over a week later, Tscherne conceded that within the past two days, wallpaper in the living room had begun to show signs of damage "here and there" and that the ceiling and walls and would take another maybe two more weeks to dry.

So How Do You Define "Small"?

This seemed a lot of

destruction from

a 'small leak.'

Since this seemed a lot of destruction from a "small leak," Schwartz had a friend inspect the apartment on Aug. 12. The friend found plaster ankle deep on the floor, furniture removed, wet drapery and furniture thrown on the bed, and the balcony door off its frame. Schwartz notified his insurer, Chubb, of the incident, and told Tscherne to stop all work on the apartment. Chubb had All Pro Cleaning and Restoration Services take over. Restoration work was still ongoing in October of the following year.

Schwartz alleged that the defendants engaged in a cover-up of the extent of the damage and destroyed his personal property in the apartment, and filed a lawsuit against the co-op alleging, among other things, breach of contract, breach of fiduciary duty and trespass.

The co-op contended it was not in breach, but attempted to do everything required under the Proprietary Lease and meet its contractual obligations, and was only prevented by Schwartz from completing them. The co-op also said it Schwartz couldn't show damages since he had has been fully compensated for all losses by his insurance company, and the co-op additionally had abated Schwartz's maintenance through April 2012.

Judge Ellen M. Coin of New York County Supreme Court dismissed Schwartz's breach-of-contract claim for these and other reasons. She did, however, agree that Schwartz had  raised issues of fact as to whether the Hotel's alleged wrongful acts had deprived him of the use and enjoyment of his apartment, and that the allegations of trespass could indeed go to trial.

Romancing the Staff

And now we come to the possibly unique part: Schwartz saying that Tscherne, the Hotel's Director of Residences, owed him a fiduciary duty since they had "a long time close personal relationship" that included her staying with him at his beach house in the Hamptons for a week at a time, four to five times per summer over a five-year period; visiting him in California,; and because, as the court put it, "they had a sexual relationship."

Perhaps Schwartz, being a guy, thought highly of his, um, relationshiping. However, said the court, quoting a precedent, "A fiduciary relationship ... exists only when a person reposes a high level of confidence and reliance in another, who thereby exercises control and dominance over him [or her]." Schwartz failed to show Tscherne was in control of him or that she was dominant over him. "Indeed," wrote Judge Coin, "his deposition testimony suggests the opposite: that it was he who was the party in control, allowing her, for example, to go to his beach house only in his presence or with his permission."

As well, she wrote, the hallmark of a fiduciary relationship is "undivided and undiluted loyalty," and that at all times Schwartz knew Tscherne was employed by the Hotel. "As a sophisticated businessman," Coin noted, "Schwartz had to know that however close their personal friendship had grown, Tscherne's duty of loyalty was to the Hotel as her employer."

The judge's decision, on Aug. 7, dismissed some of Schwartz's claims, while saying others could go to trial. And Schwartz himself has raised the bar for the kinds of claims that savvy — and amused —co-op boards might well come to expect.


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