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CLE-WARE RAYCO, INC. v. PERLSTEIN

March 31, 1976

CLE-WARE RAYCO, INC. and FDI, INC., Plaintiffs,
v.
BRUCE J. PERLSTEIN, Defendant



The opinion of the court was delivered by: DUFFY

KEVIN THOMAS DUFFY, D.J.

 Plaintiffs move this Court for an order adjudging defendant in contempt for violation of a preliminary injunction. Plaintiffs, Cle-Ware Rayco, Inc. and FDI, Inc., are owners of the trademark and servicemark "Rayco." Defendant, Bruce J. Perlstein, is a former franchisee of plaintiffs. This Court issued a preliminary injunction ordering Perlstein to deliver all Rayco signs, stationery, labels and the like to plaintiffs and prohibiting him from using the name Rayco. The opinion setting forth the reasons for the injunction is reported at 401 F. Supp. 1231 (S.D.N.Y. 1975).

 A hearing was held a month and a day after the filing of the injunction. It was clear from the proof presented that Perlstein had not fully complied with the injunction. Perlstein, himself, testified that he was still using the Rayco name on invoices, envelopes, and checks. A large Rayco sign and at least two indoor signs had remained on display until hours before the hearing.

 At the hearing, Perlstein indicated his willingness to comply with the injunction and testified that he is presently doing business under the name "Sparr Auto Center." His tardiness in removing the signs according to the defendant stemmed in part from discussions with representatives of the plaintiffs concerning the possibility of selling his business to an individual who would be acceptable to the plaintiffs as a franchisee. Those discussions ultimately proved fruitless.

 In any event, Perlstein's admitted display and use of the Rayco name is a clear violation of this Court's injunction. Accordingly, the defendant is adjudged in contempt and is fined $2,500 plus costs (not to include attorney's fees). At first glance this penalty may seem harsh, but it is done with a view not only to the contumacious conduct but to the manner in which it was done and the intent shown by defendant's subsequent conduct.

 Plaintiffs have moved for a preliminary injunction against the removal, destruction or sale of automobile lifts, compressors, lighting fixtures, shelving and other fixtures from the location of the former franchise. Plaintiffs are the lessees of the premises and have, in turn, subleased them to defendant in a sublease dated February 16, 1970.

 At a separate hearing, it was established that six of the seven automobile lifts which were located on the premises had been removed and are now in the possession of Ira Conklin & Sons. In the process of removal, the concrete floor in which they were embedded was severely damaged.

 Both sides candidly admit that the focal point of the controversy is the ownership of these lifts. Four of the lifts were installed prior to defendant's tenancy. The remaining three were installed by defendant.

 Defendant claims that the four original lifts are his personal property by virtue of a purchase agreement with the prior tenant, B.M.S. Trading Corp. In support of that contention he submits a Bill of Sale dated December 30, 1969. As to the three subsequently acquired lifts, there is apparently no dispute that Perlstein purchased and installed them. The lifts were financed by a loan from the Nanuet National Bank for which they served as collateral. The loans have since been paid in full.

 Plaintiffs contend that these facts are irrelevant. It is their position that the lifts, compressors, lighting fixtures, shelving and the like have become their property under the terms of the sublease. Paragraph 4(b) of the agreement provides that:

 
"Tenant, at its own expense, may, in a good workmanlike manner, make such additions or alterations to the improvements on the premises as he deems necessary in the conduct of this business, providing such changes receive the prior written approval of the Lessor. Any improvements made by the Tenant, unless otherwise agreed to in writing, shall become the property of the Lessor at the expiration of the lease term."

 Thus it must be decided whether the items in question are "improvements" within the meaning of the sublease. The issue is not novel. Mr. Justice Davies of the New York State Supreme Court was faced with a similar question in French v. City of New York, 16 N.Y. Prac.Rep. 220 (1858). Although that set of facts involved burners, benches, a glass case, lumber, and other assorted items, the controlling principles of law are the same. In French, the lease contained a provision similar to the one quoted above. Prior to the expiration of the lease the lessees sought to remove the property but were restrained by Court order. The lessees sued to recover the items retained by the lessor. The reasoning of the Court, in denying the lessor the right to recover the property, is particularly appropriate to this case.

 
"The question in this case is not what are fixtures which a tenant is at liberty to remove on the expiration of his lease? but what did the lessees covenant with the lessors they would surrender and suffer to remain on the demised premises on the termination of the lease? The covenants of the lease are, that on the last day of the term the lessees will surrender the demised premises, 'and all the improvements that may have been placed thereon by the said parties of the second part' (the lessees); 'and which improvements are to belong to the said parties of the first part' (the lessors), ' and all of which are to be surrendered up in as good state and condition as reasonable use and wear thereof will permit, damages by the elements excepted.'
 
"The terms of the lease are, therefore, very broad, and would seem to comprehend all and every erection, improvement or addition made, put or erected upon said premises during the continuance of the lease. It was manifestly in contemplation of the parties to the lease, at the time of making it, that extensive improvements, changes or alterations were to be made by the lessees to adapt the demised premises to such uses and purposes as they ...

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