Forty Exchange Co. v. Cohen

• Citation: 125 Misc.2d 475,479 N.Y.S.2d 628
• Parties: The FORTY EXCHANGE COMPANY, Plaintiff, v. Sherman COHEN, Edward B. Cohen and Mortimer H. Cohen, Individually and d/b/a Three Park Avenue Company, Defendants.
• Decision Date: 18 July 1984
• Court: New York City Court

Page 628

479 N.Y.S.2d 628

125 Misc.2d 475

The FORTY EXCHANGE COMPANY, Plaintiff, v. Sherman COHEN, Edward B. Cohen and Mortimer H. Cohen,

Individually and d/b/a Three Park Avenue Company,

Defendants.

Civil Court of The City of New York,

New York County, Trial Term

Part 21.

July 18, 1984.

Wohl Loewe Stettner & Fabricant, New York City (Leonard Holland, and David L. Deitz, New York City, of counsel), for plaintiff.

Schwartz, Klink & Schreiber, P.C., New York City (Allen G. Schwartz, Charles J. Moxley, Jr., Michael Burros, New York City, of counsel), for defendants.

DAVID B. SAXE, Judge.

A. Introduction

I have been invited by the plaintiff to journey to, and even beyond, the present boundaries of New York tort law. ¹ For the reasons set out in this decision, I cannot accept that invitation.

B. The Facts

The essential facts are as follows: The plaintiff, The Forty Exchange Company, a partnership, ("40 Exchange") was the owner of the land and building known as 40 Exchange Place in the Wall Street section of the Borough of Manhattan in New York City. In January of 1970, 40 Exchange, and a law firm, Mendes & Mount, entered into a lease for office space under which Mendes & Mount leased part of the 4th floor and the entire 8th, 9th and 10th floors of 40 Exchange Place. The lease ran for a term of nine years and nine months through April 30, 1980.

During the middle of the lease term, Mendes & Mount began to seek new quarters in midtown Manhattan. At that time (1976), 40 Exchange Place was a 78-year old building, of awkward shape and in poor condition.

In the latter part of 1976, Mendes & Mount, through its broker, Helmsley-Spear, learned of available office space in a building under construction at 3 Park Avenue, near 34th Street, in Manhattan. A lease between Mendes & Mount, as tenants, and Three Park Avenue Company ("3 Park"), as landlord, was negotiated and executed in January of 1977, along with a Take-Over Agreement.

Under the Take-Over Agreement, 3 Park assumed, subject to specified conditions, Mendes & Mount's rent obligation for the balance of the lease, which was approximately 31 months, at 40 Exchange Place.

On September 30, 1977, Mendes & Mount vacated its space at 40 Exchange Place and moved into 3 Park Avenue. The 3 Park Avenue space offered substantial advantages to Mendes & Mount over the 40 Exchange Place space; it was roomier, in better condition, had more daylight filtering through and contained more storage area than the space at 40 Exchange Place.

In October 1977, following the receipt of the first rent statement after its relocation to 3 Park Avenue, Mendes & Mount transmitted the rent bill to 3 Park. Mr. Sherman Cohen, a principal of 3 Park, testified that since the rent invoice combined the base rent and the additional rent and because certain user charges were improperly included, he determined that it would be appropriate not to pay the bill. Specifically, after consultation with his counsel, Mr. Cohen and 3 Park came to the following conclusions:

(1) that the user charges, particularly for electricity and labor, were legally objectionable, since the space was vacant and the expenses were not being incurred and Mendes & Mount had instructed the plaintiff (40 Exchange) to turn off the electricity;

(2) that the rent bill was rendered as one combined bill and under the lease there was no requirement that the base rent be paid while the additional rent was being disputed; and therefore, on the basis of the improper user charges, 3 Park was justified in disputing the entire rent bill; and

(3) that, as a matter of law, it was appropriate for defendant 3 Park to take the position that the plaintiff's failure and refusal to mitigate damages was a defense to the rent claims. Mr. Cohen's counsel advised him that there was an emerging trend in the law to the effect that commercial leases as well as residential leases should be treated not as a conveyance of property, as was the case under the old common law rule, but as contracts subject to the well established doctrine which states that a party is required to mitigate damages. The plaintiff then commenced a series of actions against Mendes & Mount for the rent.

On its first claim for base rent, the plaintiff was granted summary judgment against Mendes & Mount. With respect to its claim for electrical charges and other escalations, the plaintiff was granted summary judgment as to liability and at an assessment hearing plaintiff was awarded a judgment in the sum of $438,360.70. In March, 1982, after defendants exhausted all appellate remedies, the judgment was collected in the amount of $529,207.40, inclusive of $90,846.70 as interest.

The first base rent action was decided by Justice Stecher on May 23, 1978. He said that Mendes & Mount was induced by the Three Park Avenue Company to breach the defendants' lease and to move into 3 Park Avenue; that Mendes & Mount's indemnitor, Three Park Avenue Company, requested the Court to deny judgment on the theory that a lease is a contract which must be judged by the standards of any contract including the obligation to mitigate damages, but that the lease here expressly provided that the landlord shall have no such obligation.

His decision was affirmed without opinion by the Appellate Division, First Department which denied leave to appeal to the Court of Appeals on March 27, 1979. On June 5, 1979, the Court of Appeals denied leave to appeal from Justice Stecher's order. More base rent actions were commenced; the next group (embracing unpaid rents for the period from January 1, 1978 to January 31, 1979) was consolidated for disposition before Justice Riccobono, whose order granting summary judgment was issued on July 18, 1979. He held that since the facts were identical with those in prior actions involving prior periods (although the amounts were different), the defendants were collaterally estopped from relitigating the issues by Justice Stecher's decision of May 23, 1978, which had been affirmed by the Appellate Division. The next base rent actions (embracing unpaid rents for the period from February 1, 1979 to April 30, 1979) came before Justice Okin, whose order granting plaintiff summary judgment as to base rent was dated December 31, 1979. Justice Okin also based his order on the reasoning set forth in Justice Stecher's decision as well as on Justice Riccobono's similar action predicated on the principle of collateral estoppel. It is to be noted that all the rents withheld in these actions were due prior to the Court of Appeals decision on June 5, 1979.

Notices of Appeal were filed with respect to the orders of Justices Riccobono and Okin (Oct. 5, 1979 and May 15, 1980, respectively) as well as bonds. The plaintiff moved to dismiss both appeals (April 3, 1981 and August 24, 1981, respectively) and the Appellate Division did so unconditionally (May 7, 1981 and Sept. 7, 1981, respectively). No further appeals were taken.

The final group of base rent actions brought by the plaintiff were consolidated before Justice Leonforte whose order granting plaintiff summary judgment was issued on May 5, 1982. Finding no new issues raised in the action before him and noting that the parties and facts therein (except for the amount of money damages claimed) were identical to those in the motions previously presented to Justices Riccobono and Okin, he also held that the defendant was collaterally estopped from relitigating the same issues.

The appeal from the judgment issued by Justice Leonforte was dismissed conditionally. The defendants met the condition and the Appellate Division unanimously affirmed without opinion.

All judgments obtained by the plaintiff--$1,388,763.25--have been paid. 3 Park paid $53,344.50 directly and Mendes & Mount paid the remaining portion, $1,335,418.75, and then deducted the same from its rent to 3 Park (May 12, 1983, Dever, Tr. 37), so that 3 Park has paid the entire amount. The only remaining area of dispute between the plaintiff and Mendes & Mount relates to the claimed escalation for the last year of the lease. After the trial was completed, the Court was advised that this claim was settled for $400,000 on February 10, 1984.

Although 40 Exchange has been paid the full amount of the base rent due under its lease with Mendes & Mount plus interest and has been awarded attorneys' fees in connection with the various actions, it commenced a separate tort action against 3 Park seeking compensatory damages of $10,000,000 and punitive damages, among other things.

C. The Theories Of This Lawsuit

The first contention, advanced in this lawsuit is that the defendants induced a breach of contract between the plaintiff, 40 Exchange and its tenant, Mendes & Mount. Specifically, the claims of 40 Exchange relate to the activities of 3 Park:

(a) in participating in negotiations with Mendes & Mount and their brokers in connection with the proposed relocation of that firm to 3 Park Avenue;

(b) in entering into a lease with Mendes & Mount for space at 3 Park Avenue with knowledge that Mendes & Mount had an existing lease with the plaintiff at 40 Exchange Place;

(c) in entering into a Take-Over Agreement with Mendes & Mount with regard to its lease at 40 Exchange Place; and

(d) in failing to pay base rent pursuant to the Take-Over Agreement after summary judgment on that issue had been determined and entered, and the taking of repetitive spurious appeals from those determinations.

For its part, 3 Park contends that neither 3 Park nor any defendant induced Mendes & Mount to relocate: that Mendes & Mount made its own independent decision and causes its real estate brokers to negotiate with 3 Park's brokers for acceptable terms for space at 3 Park Avenue. Additionally, 3 Park contends that the Take-Over Agreement proposed by Mendes & Mount and its brokers to 3 Park was a normal and customary element of relocation to new premises. Finally, 3 Park argues that there were sound legal...