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Black wins in suit against Sotheby's

Court finds firm acted improperly in N.Y. property sale

From Thursday's Globe and Mail

Conrad Black may be off to jail soon for fraud, but he has managed to score a legal victory over an old foe - Sotheby's International Realty.

Sotheby's sued Lord Black last year in New York, alleging he stiffed the company out of a $557,500 (U.S.) commission on the sale of his Park Avenue apartment.

Lord Black sold the unit in June of 2005 for $10.5-million to developer Martin Berman and his wife, Phyllis. When the deal closed in October of 2005, prosecutors in Chicago seized Lord Black's net proceeds, about $8.9-million, as part of their fraud investigation. They have hung on to the money ever since and have used it to cover part of Lord Black's bail.

Sotheby's handled the sale and claims in court filings that Lord Black still owes the commission. Lord Black has argued that he can't pay because the money has been seized.

Earlier this year, Lord Black alleged in a court filing that Sotheby's acted improperly because the firm represented both Lord Black and Mr. Berman in the transaction. Furthermore, he alleged Sotheby's and Mr. Berman worked together to tip off prosecutors about the sale, allowing them to seize the proceeds.

Sotheby's has denied the allegations and has asked a judge to throw out Lord Black's claims. But in a ruling this week, U.S. district judge Gerard Lynch sided with Lord Black and questioned Sotheby's actions.

The judge cited New York law, which says real estate agents must fully disclose any conflicting relationships in a deal and they must obtain approval from both sides if they represent the buyer and seller. Sotheby's argued it disclosed its dual representation to Lord Black's lawyers in a document. But Judge Lynch said that disclosure was not enough.

"A conscientious fiduciary does not make disclosure by incorporating information in the fine print of a document provided for some other purpose; neither a deliberate effort at a 'blow-by' nor a casual or inadvertent reference to a crucial fact constitutes a disclosure to the principal," the judge wrote.

He also noted that it was not clear Sotheby's sought Lord Black's consent to take on the dual roles. "Although Sotheby's feebly suggests that Black implicitly consented to the dual agency because he 'never objected' to it," he wrote, a jury "could reasonably conclude that Black's silence resulted from his ignorance of [Sotheby's] role as a dual agent, rather than his consent to such an arrangement."

The judge said there were enough questions about Sotheby's conduct for a trial on the issue.

The Sotheby's lawsuit has taken on new significance for Lord Black now that he has been sentenced for fraud and obstruction of justice.

In addition to a 6½-year prison term, he and three co-defendants were ordered to forfeit $6.1-million, representing the total proceeds of the crime.

Judge Amy St. Eve will rule soon on how much of that amount each defendant will have to cover and sources say Lord Black's share will likely be less than half. That means prosecutors will have to give Lord Black about $6-million that they seized from the apartment sale.

In an e-mail, Lord Black said prosecutors have freed up the apartment money, plus interest. However, it remains posted for bail while Lord Black launches an appeal of his conviction.

"We will be unravelling a number of other stories," Lord Black wrote, referring to his many legal challenges. Then he invoked American Revolutionary War hero John Paul Jones: "I have just begun to fight."

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