Herman Miller, Inc. v. Thom Rock Realty Co., LP

• Decision Date: 09 April 1993
• Docket Number: No. 92 Civ. 2125 (RWS).,92 Civ. 2125 (RWS).
• Citation: 819 F. Supp. 307
• Parties: HERMAN MILLER, INC., Plaintiff, v. THOM ROCK REALTY COMPANY, L.P., Defendant.
• Court: U.S. District Court — Southern District of New York

819 F. Supp. 307

HERMAN MILLER, INC., Plaintiff, v. THOM ROCK REALTY COMPANY, L.P., Defendant.

No. 92 Civ. 2125 (RWS).

United States District Court, S.D. New York.

April 9, 1993.

Sedgwick, Detert, Moran & Arnold, New York City (Eric M. Kraus, of counsel), for plaintiff.

Hutton Ingram Yuzek Gainen Carroll & Bertolotti, New York City (David G. Ebert, Dean G. Yuzek, of counsel), for defendant.

OPINION

SWEET, District Judge.

Defendant Thom Rock Realty Company. L.P. ("Thom Rock"), the landlord, has moved to strike the jury demand in the complaint of plaintiff Herman Miller, Inc. ("Miller"), the tenant, based upon the jury waiver provision in the lease between the parties. The underlying action concerns a dispute over whether or not Thom Rock lived up to its representation that plaintiffs were renting in a building which would be operated solely as a showroom center for furniture manufacturers, and not leased (as it actually was) to other businesses or organizations. Miller seeks to preserve its demand by invocation of § 259-c of N.Y. Real Property Law (McKinney 1989). For the reasons set forth below, the motion is granted and the jury demand is stricken.

Prior Proceedings

Miller filed its initial complaint on March 25, 1992, and served a demand for a jury trial on Thom Rock on May 28, 1992. This motion was filed on December 17, argued on January 6, and considered fully submitted as of January 8, 1993.

The Waiver is Enforceable

Section 259-c of New York's Real Property Law provides:

Any provision in a lease, executed after the effective date of this act July 2, 1965, that a trial by jury is waived in any action, proceeding or counterclaim brought by either of the parties thereto against the other in any action for personal injury or property damage, is null and void.

Miller's first claim alleges a violation of the lease, as to which the parties concede the jury waiver applies unless New York law renders that provision void in these circumstances.

Miller's second claim is for a declaration of the rights of the parties regarding the lease which is not subject to that portion of Real Property Law ("RPL") § 259-c that provides that jury waiver provisions are not enforceable as to claims for property damage. See Damsky v. Zavatt, 289 F.2d 46 (2d Cir.1961) (If demand for jury trial includes issues as to which a party is not entitled to a jury trial, court should not strike demand but should limit it to issues on which a jury trial was properly sought), citing Federal Rule of Civil Procedure 39(a).

In support of the claim that the jury waiver in the lease is void, Miller relies upon 81 Franklin Co. v. Ginaccini, 149 Misc.2d 124, 563 N.Y.S.2d 977 (N.Y. Civ.Ct.1990), where the plaintiff sought to recover lost profits based on the landlord's alleged breach of the lease. The landlord had constructed an elevator shaft through the tenant's art gallery on Franklin Street, resulting in a minor diminution of the total rented space and considerable disruption of the tenant's business during construction. In 81 Franklin, the Court, considering whether the plaintiff's claim for money damages entitled it to avoid the waiver of a jury agreed to in the lease, stated:

The court finds that the defendant business constitutes personal property.... 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....

Therefore, based upon a strict interpretation of Real Property Law section 259-c, and the fundamental nature of the right to a jury trial citations omitted, the Court concludes that the jury waiver provision of the lease is inapplicable to defendant's claim for damage to its business based on breach of the lease, and as such, defendant is entitled to a jury trial on this claim.

81 Franklin Co., 563 N.Y.S.2d at 982; accord, Swinger Realty Corp. v. Kizner Imports, 70 Misc.2d 742, 743, 335 N.Y.S.2d 108 (App. Term, 1st Dept. 1972) (damages sustained by tenant's installation of security gate on premises without consent entitled landlord to jury trial).

However, the New York Court of Appeals has not ruled on the construction of § 259-c and the intermediate appellate courts of New York have not been uniform in their interpretation of this statute. As the decision in 81 Franklin points out, the Appellate Division, Second Department, construed § 259-c differently from the Appellate Term, First Department, holding that "damage to personal property" refers only to damage claims based on tortious conduct, not on breach of contract. In J.I.H.L. Assoc. v. Frank, 107 A.D.2d 662, 484 N.Y.S.2d 29 (2d Dep't 1984) the Second Department held that the statute applied only to actions sounding in tort:

Section 259-c invalidates such a jury waiver provision in "any action for personal injury or property damage." That provision is not applicable to an action to recover damages arising out of breach of the contractual provision of the lease because the words "personal injury or 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 contract."

Id. at 663, 484 N.Y.S.2d at 31; accord, Birchwood Associates v. Steigauf, 75 Misc.2d 728, 348 N.Y.S.2d 900 (N.Y.Dist.Ct.1973).

Under such a circumstance, a federal court is obligated to attempt to determine what construction is most likely to be adopted by the Court of Appeals under the circumstances presented here. See DeWeerth v. Baldinger, 836 F.2d 103, 108 (2d Cir.1987).

Miller's second claim alleges that "the defendant has breached the lease and, in doing so, has damaged the plaintiff. Therefore, plaintiff is entitled to damages, including the cost of leasehold improvements." (Compl. ¶ 19). Miller seeks to characterize this claim as one for injury to its business in an attempt to bring this case within the facts of 81 Franklin, in which the Court held that RPL § 295-c rendered a jury waiver clause void regarding a claim for "lost profits."

But in 81 Franklin, the Civil Court found that the claim for lost profits based on breach of a lease was a claim for damage to business, which the Court concluded was a claim for damage to property within the meaning of RPL § 259-c. Here the damages alleged as arising from the breach of contract concern not lost profits which can be traceable to specific actions taken by the landlord, but the "cost of leasehold improvements." In both Swinger and 81 Franklin, the property itself was damaged; later proceedings in the Franklin case found that installation of the elevator shaft was a partial eviction of the plaintiff by the landlord, entitling the plaintiff to an abatement of rent, 81 Franklin Co. v. Ginaccini, 160 A.D.2d 558, 554 N.Y.S.2d 207 (1st Dep't 1990).

Here, the "damage" that plaintiffs cite is a diminished number of visitors, presumably because the building is no longer perceived by buyers as significant showroom space. Merely characterizing the damage as lost profits or additional costs does not convert an action for a breach of the lease into a property damage or personal injury claim exempted from waiver by § 259-c. Miller's interpretation of 81 Franklin Co. permits the exception of § 259-c to swallow the waiver clause whole, for under its reasoning any monetary damage resulting from a breach of a lease would preclude the use of the waiver clause. It is more likely that the Court of Appeals of the State of New York will apply the narrower construction adopted by the Second Department in JIHL Associates in order to prevent such an outcome.

A narrower construction here is closer to the distinction between property damage and consequential economic loss adopted by the Court of Appeals in Schiavone Constr. Co....