Dinicu v. Groff Studios Corp.

• Decision Date: 18 May 1999
• Citation: 257 A.D.2d 218,690 N.Y.S.2d 220
• Parties: , 1999 N.Y. Slip Op. 4672 Carolina Varga DINICU, etc., Plaintiff-Appellant-Respondent, v. GROFF STUDIOS CORP., et al., Defendants-Respondents-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 220

690 N.Y.S.2d 220

257 A.D.2d 218, 1999 N.Y. Slip Op. 4672

Carolina Varga DINICU, etc., Plaintiff-Appellant-Respondent, v. GROFF STUDIOS CORP., et al., Defendants-Respondents-Appellants.

Supreme Court, Appellate Division, First Department, New York.

May 18, 1999.

Lynn Armentrout, attorney for plaintiff-appellant-respondent.

Steven E. Rosenfeld, of counsel (Law Office of Steven E. Rosenfeld, P.C., attorneys) for defendants-respondents-appellants.

ERNST H. ROSENBERGER, J.P., RICHARD W. WALLACH, ISRAEL RUBIN and DAVID B. SAXE, JJ.

WALLACH, J.

After a nonjury trial where plaintiff produced conclusive evidence--and won a finding--of a substantial breach of her proprietary lease by defendant cooperative, she has come up empty as to any monetary recovery. While not always an anomaly, we reject such a result in this case, and remand the matter for a new trial limited to assessment of the damages incurred by her.

In 1979 plaintiff took a proprietary lease on a second-floor loft in the nine-story building owned by defendant cooperative corporation ("Groff") at 151 West 28th Street, in Manhattan's Chelsea district. She had purchased this loft for combined use as a residence and dance studio under an offering plan which advised that while residential use was not permitted by the area's zoning designation (M1-6, light manufacturing), Groff would be seeking a variance to permit such use. The proprietary lease executed by the parties provided for plaintiff's occupancy in "combination residential and art related business or professional use".

Groff's application for a variance to permit combined residential and work quarters was denied by the Board of Standards and Appeals, resulting in a City injunction against further efforts at conversion for such use. In early 1981 the City Planning Commission amended the Zoning Resolution to extend into portions of the Chelsea district the authorization for conversion to joint living/working loft quarters. The Groff building remained outside the area for such "mixed" use, although the Resolution did provide for an amnesty for existing dwelling units such as plaintiff's, provided that an "alteration application to permit such use" was filed with the Department of Buildings ("DOB") by September 1, 1981. Groff's application to this effect incorrectly listed plaintiff's use as exclusively residential, even though the floor plan clearly identified the area as including space for an office and studio. Plaintiff's expert witness, an architect, testified at trial that the reason was probably to include as much of the area as possible under the residential amnesty provision, so as to avoid the fee levied on square footage being converted. The application was granted, and certain units in the building were legally authorized for conversion to residential use, while others would continue to be used for commercial and/or manufacturing purposes in accordance with the zoning of the area. None of the units, however, was designated for mixed (residential/commercial) use. In particular, the new certificate of occupancy identified plaintiff's unit as a residential apartment, without reference to the existence of the studio.

Plaintiff nonetheless continued to operate her premises as a studio devoted to Middle Eastern and North African dance until late 1983, when a couple moved into the unit just above. Objecting to the noise allegedly emanating from plaintiff's loft, they began circulating a petition to enforce the house rules against such disturbance. Plaintiff sought to satisfy the complainants by hanging heavy curtains and otherwise soundproofing her studio, all at her own expense.

The upstairs couple complained to the cooperative's board of directors that plaintiff's mixed use of her space was illegal. The board received opinions of counsel that--based upon the history of the building--plaintiff's mixed use could be ratified by amendment of the certificate of occupancy. This was, of course, not the solution the upstairs neighbors were seeking, and they pursued their complaint with the DOB, which issued a violation notice. Groff's response to this notice was to demand in writing that plaintiff cease and desist from using her premises as a dance studio.

Plaintiff conferred with Groff's architect and obtained from him an "altered building application" for presentation to the DOB, in order to amend the certificate of occupancy. However, such an application required the signature of the building owner, and rather than granting approval, Groff's board deferred the matter to the shareholders, who denied approval by a vote of 7-6. Even after counsel advised the board to be flexible in order to avoid litigation on which plaintiff appeared to have the high ground, the board invited the shareholders to repeat their vote, and the result was identical. Determined to force the issue, the upstairs tenants obtained a second violation notice from the DOB, which indicated that the only remedies would be to amend the certificate of occupancy or insist that plaintiff discontinue the illegal use forthwith.

With her primary occupation and artistic existence threatened, plaintiff had begun searching for a new building in the area, and found one that would cost about $800,000. The day after the DOB's second violation notice was issued, plaintiff closed on her new building and made plans for its renovation, at a heavy financial commitment. Meanwhile, Groff continued to pressure plaintiff for further soundproofing, and a commitment to refrain from commercial use or sublease of her unit, even as plaintiff searched for a buyer. In July 1989, Groff's managing agent paid a fine to the Environmental Control Board and promised to eliminate the dance activity in plaintiff's unit. But before such a notice could be sent, plaintiff shut down her commercial activity, and vacated the residential portion of the premises shortly thereafter.

Plaintiff was unable to sublet the unit for more than two years, and even then only for a rental that was far below her monthly maintenance costs. After sustaining such losses for several years, plaintiff was finally able to sell the unit at a price that barely covered the mortgage she had given on the premises in order to finance the renovation of her new building. In the wake of these financial losses, plaintiff brought the instant lawsuit.

The complaint alleged, insofar as the issues have been framed on this appeal, that Groff had breached the proprietary lease in failing to deliver what was promised (first cause of action), that Groff had breached the covenant of quiet enjoyment, constructively evicting plaintiff (third cause of action), and that the Groff board of directors (including individual defendants Tone, Smith and Chard) had breached their fiduciary duty (sixth cause of action). The trial court dismissed the third and sixth causes of action. In upholding the first cause of action, the court nonetheless ruled that plaintiff suffered no net damages as a result of the breach.

We agree with the trial court that the decision of the individual board members to decline the altered building application was not actionable as against them. This was arguably a proper exercise of business judgment, thus insulating them from personal liability (see, Matter of Levandusky v. One Fifth Ave. Apt. Corp., 75 N.Y.2d 530, 537-538, 554 N.Y.S.2d 807, 553 N.E.2d 1317; cf., Ludwig v. 25 Plaza Tenants Corp., 184 A.D.2d 623, 584 N.Y.S.2d 907). Corporate directors are not liable in tort for inducing...