The Battle Over Fivestory

The bloom is definitely off the rose at Fivestory.

The former owners of the upscale New York City-based womenswear retailer are suing the current owner for breach of contract.

According to a lawsuit filed in New York State Supreme Court, FCM Leasing Ltd., which counts former Fivestory owner Fred Distenfeld as a principal, and Fivestory New York LLC, are suing FS NY Fashion Company LLC and Karen Murray for $500,000. The amount is what Murray still owes Distenfeld for her purchase of the business in December 2019, as well as an equal amount she personally guaranteed, FCM alleges in court papers.

According to the court papers, FS NY Fashion Company agreed to buy Fivestory’s assets and operations for $500,000. The purchase included FCM’s interest in the store’s lease, fixtures and inventory. FS NY Fashion paid $250,000 at the closing of the transfer of assets and agreed to pay the remainder in five equal installments of $50,000 each, the papers said. The payments were due on the first anniversary of the closing, which occurred on Feb. 14, 2020, and then every six months after — but the balance was never paid, FCM alleges.

The lawsuit also said that Murray “guaranteed FS NY Fashion’s payment obligations” in order to “induce” the owners to sell her the company. As a result, FCM Leasing is also seeking a judgement against Murray personally for an additional $250,000.

In response, FS NY Fashion Company and Murray said it was their intention to continue operating Fivestory at the same location, 18 East 69th Street, but shortly before the closing date, the papers said, “it became apparent that [FCM Leasing] was unable or unwilling” to assign the lease to FS NY Fashion Company and Murray as the new owner. “FSNY was then left in the precarious position of having expended significant sums on inventory, rent and payroll for staff and needed to proceed with the opening of the business. As a result, FSNY was left with no choice but to close on the purchase agreement.”

But shortly after taking possession of the space, FS NY Fashion Company was “advised by the landlord that it would not honor the assignment of the lease,” the papers said, and treated “as an unauthorized occupant,” forcing the business to relocate.

Fivestory moved to 1020 Madison Avenue at 79th Street in March of 2020. The store has subsequently relocated again to its location at 1044 Madison Avenue, where it has been operating since the fall.

In FSNY’s response to the breach-of-contract lawsuit, the new owner also alleges that Distenfeld and Fivestory’s principals had agreed to assist the buyer “in maintaining and retaining the clients and contracts” it had built up since its founding in 2012, but they “failed and refused” to do so. It also referred to “strained relationships” that the business had with vendors and suppliers before the change in ownership.

The company also disputed the fact that Murray had personally guaranteed the sale price.

As a result, FSNY asked the court to dismiss the complaint.

The judge assigned to the case, Lucy Billings, is no longer overseeing the matter and the parties are waiting for a new justice to be assigned.

Murray could not be reached and her attorney, Michael Bonneville of Kriss & Feuerstein, did not respond to an emailed request for comment. David Kupfer of Kasowitz Benson Torres, attorney for FCM Leasing, similarly did not respond to a request for comment.

Fivestory was created by Distenfeld and his daughter Claire Olshan and offered emerging apparel, accessory and jewelry lines for women. It was located in a five-level town house on the Upper East Side, hence the name.

Before buying the business, Murray had been chief executive officer of Sequential Brands Group. She had also served as coalition group president for VF Corp., and president of Liz Claiborne. Since buying Fivestory, she opened a couple of branches outside of Manhattan including Palm Beach in Florida and Southampton in New York. The Palm Beach store remains open, while the Southampton unit is currently closed.

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