| Blinds to Go (U.S.), Inc. v Times Plaza Dev., L.P. |
| 2011 NY Slip Op 07390 [88 AD3d 838] |
| October 18, 2011 |
| Appellate Division, Second Department |
| Blinds to Go (U.S.), Inc., Respondent, v Times PlazaDevelopment, L.P., Appellant. |
—[*1] Westerman Ball Ederer Miller & Sharfstein, LLP, Mineola, N.Y. (Richard Gabriele ofcounsel), for respondent.
In an action to recover damages for breach of a lease, the defendant appeals from a judgmentof the Supreme Court, Kings County (F. Rivera, J.), dated October 7, 2010, which, upon a juryverdict, is in favor of the plaintiff and against it in the principal sum of $4,172,734.35.
Ordered that the judgment is reversed, on the facts and in the exercise of discretion, withcosts, and a new trial is granted on the issue of damages only. The findings of fact on the issue ofliability are affirmed.
On February 21, 2001, the plaintiff tenant (hereinafter the tenant) and the defendant landlord(hereinafter the landlord) entered into a lease of certain premises in Brooklyn for a period of 10years, renewable for two additional five-year periods, for the purpose of operating a retail storeselling custom-made window blinds. The lease contained a provision that if the tenant closed itsbusiness on the property for a period of three months or more, the landlord could elect to"recapture" the premises and rent it to another entity.
By September 2003 the tenant had not opened for business or commenced construction toopen for business. By letter dated September 25, 2003, the landlord elected to terminate the leasepursuant to the "recapture" provision. The tenant commenced the instant action challenging thelandlord's termination of the lease. By order dated April 2, 2004, the Supreme Court granted thelandlord's motion pursuant to CPLR 3211 to dismiss the complaint. The tenant surrendered thekeys and possession of the premises to the landlord. By decision and order dated June 20, 2005,this Court reversed the order dated April 2, 2004, on the ground that, since the tenant nevercommenced any business operations at the premises, the recapture provision was inapplicable (see Blinds To Go, Inc. v Times Plaza Dev.,L.P., 19 AD3d 524 [2005]).
In September 2010 the case proceeded to trial before a jury on the issues of whether thelandlord breached the lease and, if so, whether the tenant sustained damages as a result of thebreach. The jury found that the landlord breached the lease and that the tenant sustained damagesin the principal sums of $16,666.66 for the loss of its security deposit, $16,666.66 for loss of rentand taxes paid for one month, $13,395.03 for the loss of fees, costs, and expenses paid inconnection with preparing the store to open, and $3,751,006 for lost profits. In addition, theSupreme Court [*2]awarded the tenant $375,000 in legal feesupon a stipulation between the parties that if the verdict were sustained on appeal, $375,000 wasa reasonable amount of legal fees pursuant to a provision of the lease which provided that theprevailing party was entitled to legal fees reasonably incurred.
On appeal, the landlord does not challenge the jury's finding that it breached the lease.Although there is no evidence of an actual eviction of the tenant from the premises, the tenantmay be entitled to damages resulting from a constructive eviction, which occurs when a tenantrelinquishes possession as a result of the landlord's breach of the lease, depriving the tenant ofthe beneficial use and enjoyment of the premises (see Barash v Pennsylvania Term. RealEstate Corp., 26 NY2d 77, 83 [1970]; P.W.B. Enters. v Moklam Enters., 243 AD2d350 [1997]).
The landlord contends that the jury verdict on the issue of damages for lost profits is notsupported by legally sufficient evidence. The landlord's contention, however, is unpreserved forappellate review, since it did not raise the issue of damages for lost profits when it moved forjudgment as a matter of law at the close of the tenant's case (see Olchovy v L.M.V.Leasing, 182 AD2d 745, 746 [1992]). Nevertheless, the weight of the evidence presented attrial on the issue of damages for lost profits does not support the jury verdict (see Lolik v BigV Supermarkets, 86 NY2d 744, 746 [1995]; Nicastro v Park, 113 AD2d 129,132-133 [1985]). Lost profits may be recoverable for breach of a contract if it is demonstratedwith certainty that such damages have been caused by the breach, and the alleged loss is capableof proof with reasonable certainty. There also must be a showing that the particular damageswere fairly within the contemplation of the parties to the contract at the time the contract wasmade (see Kenford Co. v County of Erie, 67 NY2d 257, 260 [1986]). In the case of a"new business," there generally "does not exist a reasonable basis of experience upon which toestimate lost profits with the requisite degree of reasonable certainty" (id. at 261).However, there is no per se rule barring new enterprises from recovering lost profits, so long aslost profits may be established with reasonable certainty (see Cifone v City ofPoughkeepsie, 234 AD2d 331 [1996]; see also Staten Is. N.Y. CVS, Inc. v Gordon Retail Dev., LLC, 57 AD3d760 [2008]).
The tenant notes that its business, which sells custom-made window blinds directly to theretail customer, was part of a chain. It contends that the performance of four of its stores in theNew York metropolitan area provides a basis for comparison (see Wolf St. Supermarkets vMcPartland, 108 AD2d 25, 33 [1985]). However, although the tenant was not a start-upcompany (see Awards.com v Kinko's,Inc., 42 AD3d 178 [2007], affd 14 NY3d 791 [2010]), it acknowledged that,when it leased the subject premises, "the Brooklyn market was the market we weren't in at thetime." Further, the tenant's expert testified that the store proposed for the subject premises wouldbe "an urban store, not a suburban store," and the only comparable store he examined whichcould be considered an urban store was the Rego Park store in Queens. The expert acknowledgedthat there was no parking in front of the proposed store in Brooklyn, and claimed the absence ofparking "[m]ight not adversely impact it because," based upon his conversations with the tenant'smanagement, his understanding was that "different standards" were applied to urban stores thansuburban stores.
The other purportedly comparable stores which the tenant's expert used to estimate lostprofits were suburban stores in Yonkers, Carle Place, and Paramus. When examiningdemographics, the tenant's expert noted, the median income per household of the areas of thesestores varied greatly, with $71,000 annual income per household in the area of Carle Place, and$40,000 per household in Brooklyn and Queens, which actually broke down to annual householdincome of $41,000 per year in Queens, and $38,000 per year in Brooklyn. He acknowledged thatParamus and Yonkers were "kind of skewing it a bit," because the average income in those areastended to be much higher.
The expert offered no evidence on the profits of other stores in Brooklyn that sold windowblinds, or evidence of profits in the industry in general. The expert concentrated solely on storesowned by this particular tenant, and acknowledged that he used the stores which the tenant toldhim were comparable. Thus, the expert did not use independent judgment in reaching hisconclusions (id. at 185). In light of the tenant's admission that it leased the subjectpremises to break into a new market, and its own expert's testimony demonstrating thedifferences between the subject premises and the allegedly comparable stores, the evidence onlost profits was so lacking that the [*3]verdict could not havebeen reached on any fair interpretation of the evidence (see Miranco Contr., Inc. v Perel, 57 AD3d 956, 957 [2008]).Consequently, the landlord is entitled to a new trial on the issue of damages for lost profits.
Further, there must be a new trial on the remaining damages because of the impropercross-examination of the landlord's witness, Bruce Orlofsky. On cross examination, Orlofsky wasshown a copy of exhibit D, a map annexed to the lease, which had writing at the top indicating a"no build area." The lease contained a provision prohibiting building in the "no build area,"which the lease indicated was designated on exhibit D in yellow. Exhibit D, however, did notcontain any yellow markings, as only a black and white copy was entered into evidence. Counselfor the landlord objected to this line of questioning, noting that there was no yellow on exhibit D.His objection was overruled. The tenant's attorney sought to elicit testimony that the "no buildarea" was over a vacant portion of the property, but Orlofsky indicated that the "no build area"referred to the sidewalk in front of the leasehold and not the vacant portion. Orlofsky indicatedon cross-examination, after the lease was terminated, the landlord sold the vacant portion of theproperty to a developer in exchange for $6.5 million dollars, along with one of the condominiumsdeveloped on the site. In summation, the tenant's attorney argued that this was the "real reason"the landlord terminated the lease.
The trial court erred in allowing the tenant's attorney to pursue this line of questioning. Anoriginal copy of exhibit D showing the yellow markings was never entered into evidence. Thecopy of exhibit D that was entered into evidence was in black and white and did not contain anyyellow markings. Thus, the tenant's questioning of Orlofsky invited the jury to speculate as to thearea that was, in fact, highlighted in yellow (see Wilson v Bodian, 130 AD2d 221,232-233 [1987]). This error was further exacerbated by counsel's summation, as there was noevidence to support his argument that the landlord was prohibited from building on the vacantportion of the property and that this was the reason the landlord terminated the lease (seePiervinanzi v Textile Motor Express, 198 AD2d 183 [1993]). These errors had the effect ofattributing an improper motive to the landlord for terminating the lease and, thus, prejudiced thelandlord. Accordingly, a new trial is warranted.
Since the landlord acknowledges that it breached the lease, the new trial should be limited tothe issue of damages, if any, resulting from the breach.
The parties' remaining contentions either are without merit or need not be addressed in lightof our determination. Mastro, J.P., Chambers, Austin and Cohen, JJ., concur.