81 Franklin Co. v. Ginaccini

• Decision Date: 29 October 1990
• Citation: 149 Misc.2d 124,563 N.Y.S.2d 977
• Parties: 81 FRANKLIN CO., a Partnership, Plaintiff, v. Gino GINACCINI, Individually and d/b/a Pietrasanta Fine Arts, Defendant.
• Court: New York City Court

Page 977

563 N.Y.S.2d 977

149 Misc.2d 124

81 FRANKLIN CO., a Partnership, Plaintiff, v. Gino GINACCINI, Individually and d/b/a Pietrasanta Fine Arts, Defendant.

Civil Court of the City of New York,

New York County.

Oct. 29, 1990.

Finkelstein, Borah, Schwartz, Altschuler & Goldstein, P.C. by Melissa G. Ephron, New York City, for plaintiff.

Mantell & Haskel by Michael A. Haskel, New York City, for defendants.

LOUISE GRUNER GANS, Judge:

In November 1983, plaintiff landlord and defendant tenant executed a five-year commercial lease for the entire second floor of the building located at 81 Franklin Street for use as an "art gallery with work area for sculpturing and for making molds in preparation for casting sculpture works." Paragraph 26 of the lease provides in pertinent part that jury trial is waived "in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease."

In March, 1987, plaintiff commenced a non-payment summary proceeding against defendant. In response to plaintiff's amended petition, defendant interposed an answer that included a counterclaim for $200,000 in damages for "lost revenue" based on breach of the lease. In July, 1987, the counterclaim was severed with the proviso that it could be placed on the general Civil Court calendar.

The non-payment proceeding was tried before the Honorable Marshall Berger, who, in a decision entered December 15, 1987, awarded plaintiff possession of the premises and a money judgment but with a rent abatement based on partial eviction. The trial court's decision was subsequently affirmed by both the Appellate Term, First Department and Appellate Division, First Department. The Appellate Division expressly held that the "award ... does not prejudice the tenant's right to pursue the claim for loss of profits which was severed prior to trial." 81 Franklin Co. v. Ginaccini, 160 A.D.2d 558, 559, 554 N.Y.S.2d 207, 208.

In May 1990, defendant served a notice of trial including a jury demand for the cause of action involving the former counterclaim for breach of the lease. Plaintiff now moves to strike the jury demand, based on the jury waiver provision in paragraph 26 of the lease. Defendant contends that the jury waiver is inapplicable under section 259-c of the Real Property Law, because loss of revenue as a result of damage to business is a claim for "property damage." Section 259-c provides that the parties to a lease cannot waive the right to a jury trial "in any action for personal injury or property damage."

Two issues are presented in this motion. First, whether an action for breach of contract in which plaintiff seeks to recover lost profits for injury to its business is an action for damage to property. Second, whether an action for property damages that is grounded in contract, rather than tort, falls within the proscriptions of section 259-c of the Real Property Law.

While the phrase "personal injury" is defined in General Construction Law Section 37-a, and the phrase "property damage" is not, section 38 does define the word "property." Under this definition "property" means "personal property" and "real property," which are defined in sections 39 and 40, respectively. It is clear, that here we are not dealing with real property. Section 39 broadly defines personal property to encompass everything except real property that is capable of being owned or transferred. In the Matter of Bronson, 150 N.Y. 1, 15, 44 N.E. 707 (1896) (Vann, J. dissenting); Hannibal General Contractors, Inc. v. St. Matthew & St. Timothy's Housing Corp., 83 Misc.2d 53, 54, 371 N.Y.S.2d 535 (Sup.Ct., N.Y.Co.1975), aff'd, 55 A.D.2d 583, 390 N.Y.S.2d 588 (1st Dep't 1976).

In assessing whether something is personal property under section 39, courts have looked to whether the item in question is owned, has great value to its owner and may be transferred. Platt v. Jones, 96 N.Y. 24, 29 (1884). Based on these factors, the Court finds that the defendant business constitutes personal property because it is owned, is of great value to its owner, and may be bought, sold or otherwise transferred. Moreover, it is well established that when the interruption or destruction of a business is the proximate consequence of defendant's wrongful act, plaintiff can recover resulting lost profits as a measure of injury to the personal property which plaintiff's business represents. Snow v. Pulitzer, 142 N.Y. 263, 270-71, 36 N.E. 1059 (1894); Bates v. Holbrook, 89 A.D. 548, 558, 85 N.Y.S. 673 (1st Dep't 1904); Veverka v. Spinella, 60 Misc.2d 529, 531, 303 N.Y.S.2d 305 (Sup.Ct., Greene Co.1969); Loesberg v. Fraad, 119 Misc. 447, 450-51, 197 N.Y.S. 229 (Mun.Ct., Manhattan 1922); 36 N.Y.Jur.2d, Damages, section 115. Accordingly, the Court concludes that defendant's claim for lost profits is a claim for damage to business, and as such is a claim for damage to property.

The remaining question is whether Real Property Law section 259-c invalidates the jury waiver provision of the lease with respect to this claim for property damage as based on breach of the lease. In construing the scope of section 259-c on this issue, the First and Second Departments have taken opposite positions.

The Appellate Division Second Department has repeatedly held that section 259-c applies only to damage claims based on tortious conduct. As interpreted by the Second Department, section 259-c is inapplicable to actions to recover damages arising out of the contractual provisions of a lease because the terms personal injury and property damage "traditionally refer to 'tort actions arising out of a liability imposed by law for negligence, or even a willful tort, but not out of a contract.' " J.I.H.L. Assoc. v. Frank, 107 A.D.2d 662 663, 484 N.Y.S.2d 29 (2d Dep't 1985), quoting, Lindenwood Realty Co. v. Feldman, 72 Misc.2d 68, 69, 338 N.Y.S.2d 243 (App.Term 2d Dep't 1971) (Gulotta, J., dissenting), rev'd on dissent at App. Term, 40 A.D.2d 855, 338 N.Y.S.2d 245 (2d Dep't 1972); accord Bohack Corp. v. Lyric Lighting, Ltd., N.Y.L.J. April 24, 1978, p. 13, col. 4 (App. Term, 2d & 11th Jud.Dists.); Emmons Ave. Owners Inc. v. Abbamonte, N.Y.L.J., March 20, 1978, p. 14, col. 6 (Civ.Ct., Kings Co.); Birchwood Assoc. v. Steigauf, 75 Misc.2d 728, 729, 348 N.Y.S.2d 900 (Dist.Ct., Suffolk Co. 1973). While recognizing that section 259-c has no legislative history, the Second Department has relied on the definition of personal injury in section 37-a of the General Construction Law and has reasoned that even though property damage is not defined there, in the Insurance Law the terms are "similarly defined" and "linked together" for the purpose of liability. Lindenwood Realty Co. v. Feldman, supra 72 Misc.2d at 69-70, 338 N.Y.S.2d 243. Finding that section 259-c is a "companion section" to General Obligations Law section 5-321, which invalidates a lease provision exempting a landlord from liability for "damages for injuries to person or property caused by or resulting from the [landlord's] negligence," the Second Department has concluded that "the purpose of section 259-c is to make the jury waiver found in the greater majority of leases ineffective in such an action." Id. at 70, 338 N.Y.S.2d 243.

By contrast, the Appellate Term, First Department, has applied section 259-c to all claims for property damage, without regard to whether the claim sounds in tort or contract. Swinger Realty Corp. v. A.Z. Kizner Imports, Inc., 70 Misc.2d 742, 743, 335 N.Y.S.2d 108 (App.Term, 1st Dep't 1972). In Swinger, the landlord sued for damage to the premises caused by tenant's installation of a security gate without the landlord's consent. Relying on the principle that the right to a jury trial is fundamental in American jurisprudence, the majority held that "[p]rovisions of law protective of that right may not be delimited by construction." Id. at 743, 335 N.Y.S.2d 108. In concurrence, Judge Lupiano agreed with the Second Department's view of the purposes of section 259-c, but, based upon the literal language of the statute and deference to legislative prerogative, felt constrained to concur. Id. at 743-44, 335 N.Y.S.2d 108.

In Fransac Corp. v. Avnet, 49 A.D.2d 523, 370 N.Y.S.2d 927 (1st Dep't 1975), a majority of the Appellate Division, First Department declined to reach the jury waiver issue and the "impact of Lindenwood." In a separate concurrence, Justice Capozzoli stated that if the jury waiver issue were properly before him, he would follow the view adopted by the Second Department in Lindenwood. Id. at 524, 370 N.Y.S.2d 927. Justice Lupiano dissented and strongly reaffirmed in greater detail the position he expressed in the Swinger concurrence, that a literal interpretation of section 259-c must be controlling and would entitle defendant to a jury trial on its property damage claim. Id. at 524-28, 370 N.Y.S.2d 927.

The only other decision in the First Department to take a position on this issue is Seventy-Second Street Properties, Inc. v. Halleran, N.Y.L.J., September 24, 1976, p. 6, col. 1 (Civ.Ct., N.Y.Co.). There, in considering the applicability of the jury waiver provision of the landlord's claim for property damage, Judge Shea, while acknowledging the Second Department precedent, held that she was required to follow the Appellate Term, First Department's construction of the statute and concluded that the First Department rule was consistent with recognized principles of judicial construction, as well as "our traditional solicitude for the right to jury trial." Id. at 6, col. 2.

Under the doctrine of stare decisis, this Court is bound by the Judicial construction of a statute rendered by the court to which an appeal from this Court lies, which is the Appellate Term First Department. McKinney's Con.Laws of N.Y., Book 1, Statutes, section 72; 1 Carmody-Wait 2d, New York...