PNY Realty Corp. v. Chong Leung Restaurant

• Decision Date: 18 June 1982
• Citation: 457 N.Y.S.2d 358,116 Misc.2d 1035
• Parties: PNY REALTY CORP., Petitioner-Landlord, v. CHONG LEUNG RESTAURANT, Respondent-Tenant.
• Court: New York City Court

Page 358

457 N.Y.S.2d 358

116 Misc.2d 1035

PNY REALTY CORP., Petitioner-Landlord, v. CHONG LEUNG RESTAURANT, Respondent-Tenant.

Civil Court of the City of New York,

Bronx County, Housing Part 17.

June 18, 1982.

Arthur Siegel, New York City, for petitioner-landlord.

Bernard Hanft, New York City, for respondent-tenant.

ALAN J. SAKS, Judge.

This is a non-payment summary proceeding. It was last on the calendar for trial on April 22, 1982. There is no dispute that tenant has not paid the agreed rent since September 1981. The rent is $450 per month. Including June, arrears are now for nine months (4,050). The only controversy is as to the tenant's counterclaim for breach by the landlord of a covenant in the lease of the premises, a Chinese restaurant, to the effect that the landlord shall not permit a competing business in another part of the same building. When this case last appeared on the trial calendar (April 22, 1982), settlement discussions not involving me as the Court were conducted. It was then reported to me by counsel for both sides as follows:

The competing business is essentially a retail fish store. The tenant herein has no objection to that business as such. What it objects to is that the fish store, Marty's Sea Food, also has a take-out counter for sales of: fish sandwiches, fish and chips baskets and orders of chips only. (Soda pop is also sold on a take out basis, but tenant has withdrawn its objection thereto.) The Court was shown the tenant restaurant's menu and photographs of the price list posted at the take-out counter of the fish store. A comparison of the two reveals that: there is no culinary similarity between the types of fast food orders sold at the take-out counter and the Chinese dishes sold at the restaurant; a meal at the restaurant that would be sufficient to satisfy the normal hunger of someone seeking a full meal would cost far more than the type of take-out repast offered at the fish store. The restaurant is of the sit-down type, with a relatively lavishly designed menu and prices to match, far above those at the take-out counter.

Nonetheless there was no serious dispute that the sales of take-out orders were at least technically violative of the non-competing clause in the tenant's lease. (The competing tenant is not a party and, in any event, this Court lacks injunctive power.) The only issue as to which the parties were in dispute was the admissibility of evidence as to proof of the tenant's damages, if it be assumed hypothetically that the non-competing clause has been breached. Tenant's counsel took the position that its damages could be predicated upon producing evidence as to the gross sales of the competing food items at the take-out counter and that, having established such gross amount, the Court could draw the inference that every dollar spent on those items represented a loss of sales at the tenant restaurant. (Presumably, although this was not made clear, the tenant would then proceed to prove what its net profit would have been on said gross sales, had they been made at the restaurant and not at the fish store take-out counter. However, this was not made explicit and if the tenant suggests that it can prove damages by gross sales alone, whether by increase thereof at the fish store or decrease at its restaurant, it is clearly in error.) The tenant's intended method of proving gross sales of the controversial items at the fish store is to extrapolate from the latter's sales taxes, since the only items sold there that are subject to sales tax are the cooked, take-out ones.

In lieu of beginning a trial on April 22 last, the parties stipulated to have me make a pre-trial evidentiary ruling as to whether tenant could base its proof of damages on the receipts of the competing business, which is apparently not that of the landlord in any way.

It was further stipulated that the petition would be deemed amended to include a demand for rent as it continues to fall due and that the Court shall set a new date for trial after it rules on the submitted issue.

Discussion

This is not a case in which the initial lessor signed a non-competing covenant and then turned around and rented to a competing business. Both the present landlord and the present tenant are successors to those who entered into the covenant, which was created in a lease entered into in 1972 between Anne Klein, landlord, and Margara Restaurant Corp., tenant. That lease was for 15 years. The present tenant was assigned tenant's rights and assumed tenant's duties thereunder on February 27, 1981, from an intermediate tenant, Crown Restaurant, Inc. When the present landlord acquired the building in question is not shown precisely, but it appears to have been sometime between the February 27, 1981 assignment to the tenant-respondent and October 1981, the first month for which rent is sought in the present eviction proceeding. The tenant claims that the illegal sales at the fish store began in June 1981.

Tenant's assertion, that it can prove its damages under the covenant by inference based on the sales at the take-out counter, raises a novel issue. In no case known to this Court has it been so held. The only reported case in which the issue was even raised in the context of a landlord permitting competition by a co-tenant was Friedman v. Celfan Bldg. Corp., 13 Misc.2d 192, 176 N.Y.S.2d 723 (Sup.Ct. Kings Co. 1958.) There, the tenant sued the landlord to enjoin it to cause the competitor to discontinue the prohibited sales, or, alternatively, to recover as damages the profits made by the competitor on such sales. During the litigation, the landlord demanded a bill of particulars that included, inter alia, the amounts of allegedly prohibited sales (of soda pop) by the competitor. When the tenant failed to comply, the defendant landlord moved to preclude. The Court excused the tenant's failure to answer this demand on the basis that he lacked knowledge sufficient to so answer. However, this decision can not be read as an authoritative determination as to the admissibility at trial of evidence of the amount of competing sales. Indeed, it states explicitly, 13 Misc.2d at 195, 176 N.Y.S.2d 723:

Whether the plaintiff can on the trial successfully show that the profits realized from the sale of bottled soda in the competing grocery store constituted a direct loss of profits to the plaintiff's business will be a matter for the determination of the trial court.

Also inapposite, but for different reasons, is the sole case cited by the tenant herein, Y.J.D. Restaurant Supply Co. Inc. v. Dib, 98 Misc.2d 462, 413 N.Y.S.2d 835 (Sup.N.Y. Grossman, J. 1979). That was not a landlord-tenant case at all. Rather, it was a suit in equity, the primary relief sought having been a permanent injunction. The defendant had sold his original business to plaintiff and had given a three-year covenant not to compete within a five-block radius. In total bad faith defendant proceeded to open within the prohibited time and area an apparently directly competing business, which cost him $214,500 to open and operate and which he subsequently sold for $250,000, thus realizing a $35,500 profit on the sale. Although plaintiff was unable to prove his own loss of profits, the Court allowed him to recapture the said $35,500. The theory of that award was that since the defendant had sold his good will to plaintiff, by breaching the covenant he was in effect selling his good will twice, once to plaintiff and once to the purchaser of the competing business. Moreover, since the competing business could continue to operate and deprive plaintiff of profit (Apparently, the purchaser thereof was found not to be bound by the covenant.) The court in effect substituted the plaintiff for the defendant as the person entitled to the profit on the sale of the good will that plaintiff owned, because he had previously purchased it from defendant.

The instant case presents far different legal and factual context. While the Landlord-Tenant Part may be guided by equitable considerations, it is a part of a Civil Court that does not have general jurisdiction in equity. That general jurisdiction resides solely in the Supreme Court and enables the latter to devise a remedy for almost every cognizable legal wrong. Factually, the instant case is different from Y.J.D. Restaurant for a multitude of reasons, including: the absence of wilful misconduct, the dissimilarity in prices, the dissimilarity in cuisine, the different modes of eating (one being of the quick, "one-armed" type either on the street or at home, and the other being generally of the type where one sits down for a considerable time...