Miller showroom to Stars production Services, Inc. ("Stars"). Stars is in the business of video tape duplication, video tape storage and television transmissions and thus is an office tenant and does not in any way use its space for showrooms and is not an entity in the contract furniture industry or, even more generally, in the interior design industry.
On February 1, 1990, the IDC, as agent for Thorn Rock Realty, signed a lease with the New York City School Construction Authority ("NYCSCA") for approximately 157,000 square feet of space in Center I. Herman Miller first learned of the existence of the NYCSCA lease in or about February 1990. The term of the lease is for ten years. NYCSCA occupies 157,000 square feet of space in Center I of the Center and is an office tenant and does not in any way use any of its space for showrooms.
The NYCSCA is located on the first, second and fourth floors of Center I. To accommodate NYCSCA, the IDC allowed the NYCSCA to build out its space to the edge of what was previously a balcony that provided a walkway around the north end atrium and access to this balcony area is now entirely eliminated and is contained within the walls of NYCSCA office space. In addition, the access bridge between Centers I and II on the fourth floor was eliminated. This tended to isolate each of the buildings and divide what originally was a single unified concept and center.
The IDC also made other changes to the physical appearance of Center I to accommodate the NYCSCA, designating the entrance way on Thomson Avenue as the entrance for NYCSCA only. A sign indicating this was erected over this entrance way. The stairway was reconfigured for use only by NYCSCA. The Center sought to isolate the NYCSCA by creating what it calls a "building within a building."
By 1991, the IDC had undertaken to consolidate all showroom tenants in Center II after the NYCSCA moved in and to transform Center I into office space catering to the business tenants at large in New York City, particularly to the back office function of the financial and service segments of the commercial market. The Center also sought to lease approximately 300,000 square feet to UNICEF in Center I.
In late 1991, the IDC proposed that Herman Miller move its showroom into smaller space at Center II on terms which provided that Herman Miller would extend its lease, pay its own moving costs, pay its own build-out costs, undertake not to open any other showroom in New York City, and relinquish any rights to sue the IDC.
Herman Miller's current base rent is approximately $ 26 per square foot and including operating costs is approximately $ 30 per square foot. Herman Miller expended $ 2,540,221 on permanent non-moveable improvements to the showroom facility at the Center prior to the Center's signing the lease for space in Center I with the NYCSCA and as of February 1, 1990, the value of the remaining undepreciated improvements at Herman Miller's Center showroom was $ 1,971,075. The total rent, operating expenses charged by the landlord, rent tax and operating expenses incurred by Herman Miller since January of 1990 described above is $ 3,837,645.
CONCLUSIONS OF LAW
The court has jurisdiction over the parties and the controversy under 28 U.S.C. § 1332(a).
Section 2B of the Lease is a Restrictive Covenant
New York's General Obligations Law § 5-1401 states that for contracts of a value greater than $ 250,000 and entered into after 1984, a choice of law provision in the contract which designates New York law as controlling disputes arising out of the contract must be enforced, Bank of Am. Nat. Trust & Sav. Ass'n. v. Envases Venezolanos, S.A., 740 F. Supp. 260, 265 (S.D.N.Y.), aff'd, 923 F.2d 843 (2d Cir. 1990), and as found above, Section 46D of the Lease contains such a provision.
Moreover, aside from the terms of the contract, New York's choice of law rules dictate that New York law apply here as well. As stated in Hutner v. Greene, 734 F.2d 896, 899 (2d Cir. 1984) (quoting Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 382, 300 N.Y.S.2d 817, 248 N.E.2d 576 (1969)):
New York courts apply a "paramount interest" test to choice of law issues involving contractual disputes. Under such a test, "the law of the jurisdiction having the greatest interest in the litigation will be applied and . . . the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict."
Since the Premises are located in New York, the Lease was entered into in New York and Thom Rock is a partnership with its principal place of business in New York, New York has the greatest interest in this litigation.
Ambiguity in the Herman Miller Lease can be Resolved by Extrinsic Evidence
Storwal Int'l, Inc. v. Thom Rock Realty Co., 768 F. Supp. 429 (S.D.N.Y. 1991), presented the identical issue presented here, and its decision collaterally estops Thorn Rock from asserting that the Miller lease is unambiguous here, having been the defendant in Storwal, See Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 455, 492 N.Y.S.2d 584, 482 N.E.2d 63 (1985).
Storwal International Inc. ("Storwal") is a furniture company which, like Herman Miller, leased space at the Center. Storwal also brought suit against Thom Rock for damages due to the IDC's breach of its lease when it began renting to non-contract furniture tenants. Thorn Rock moved for summary judgment on the grounds that the lease did not contain the representations alleged by the plaintiff and, furthermore, that the plaintiff was prohibited from introducing any additional evidence outside the four corners of the lease to vary or modify the lease terms. In support of its position, the defendant referred to the integration clause contained in Storwal's lease.
In Storwal it was held that Storwal's lease, which is substantially similar to the lease of Herman Miller, was ambiguous as a matter of law and lent itself to two possible interpretations. This Court went on to state that where language is ambiguous, parol evidence will be admissible not to vary the terms of the lease but, rather, to assist the Court in construing the ambiguous language. 768 F. Supp. at 431 (citing Proteus Books, Ltd. v. Terry Lane Music Co., 873 F.2d 502, 509 (2d Cir. 1989)); see also Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1320, n.2 (2d Cir. 1975); 67 Wall Street Co. v. Franklin Nat'l Bank, 37 N.Y.2d 245 248-49, 371 N.Y.S.2d 915, 333 N.E.2d 184 (1975); Mister Filters, Inc. v. Weber Envt'l Sys., 44 A.D.2d 639, 640, 353 N.Y.S.2d 835 (3d Dept. 1974). This Court also held that this rule applies even where the lease contains an integration clause. Storwal, 768 F. Supp. at 431 (citing Proteus Books at 509); see also Baldt Corp. v. Tabet Mfg. Co.., 412 F. Supp. 249, 254 (S.D.N.Y. 1974), aff'd, 517 F.2d 1395 (2d Cir. 1975); Concoff v. Occidental Life Ins. Co., 4 N.Y.2d 630, 152 N.E.2d 85, 88, 176 N.Y.S.2d 660 (N.Y. 1958).
When a contract is ambiguous, as is the case here, it must be strictly construed against the party who drafted the agreement and on whose form such agreement exists. Westchester Resco Co. v. New England Reinsurance Corp., 818 F.2d 2, 3 (2d Cir. 1987) ("Where an ambiguity exists in a standard-form contract supplied by one of the parties, the well-established contra proferentum principle requires that the ambiguity be construed against that party.") Mitsubishi Corp. v. Guinomar Conakry, 1993 U.S. Dist. LEXIS 8853, at *8 n.3 (S.D.N.Y. June 30, 1993) (collecting cases). More particularly, when a use clause contained in a lease is ambiguous, the interpretation of the clause should be construed against the party who drafted the provision. Sky Four Realty Co. v. C.F.M. Enters., Inc., 128 A.D.2d 1011, 513 N.Y.S.2d 546, 547 (3d Dept. 1987) (citing 67 Wall Street Co., 37 N.Y.2d 245, 249 (1975)).
The Storwal and Herman Miller leases are substantially similar as both are standard form leases drafted substantially by and approved by the landlord. As in the Storwal lease, the portion of the Herman Miller lease which focuses on the use of the Center is contained in Sections 2A and 2B of the Lease. Paragraphs 2B of both the Storwal and Herman Miller Lease state, "Landlord covenants that the Project shall be constructed as a first class commercial building intended to be used for showrooms and other related uses." Paragraphs 2A of both leases contain a reciprocal clause restricting the tenant's use of its premises. In Herman Miller's Lease, paragraph 2A states that, "Tenant shall use and occupy the Premises for the showroom display and sale to the trade, at wholesale only, of the following items and for no other use or purpose: contract furniture."
In Storwal, this Court held that restrictive covenants such as Sections 2A and 2B of the Lease must be interpreted in conjunction with the entire lease. Storwal, 768 F. Supp. at 432 (citing Eagle Spring Water Co. v. Webb and Knapp. Inc., 236 N.Y.S.2d 266, 280 (Sup. Ct. 1962)). The Court went on to cite several lease provisions, also present in the Herman Miller Lease, which restrict the IDC to contract furniture uses or, at the very least, render the use clause ambiguous and capable of such an interpretation.
For example, Paragraph 15 of the Rules and Regulations appended to both the Storwal and Herman Miller lease as Schedule 1 provides that:
Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's opinion, tends to impair the reputation of the Building or the Project or its desirability as a building for showrooms . . . .
Additionally, paragraph 28A of both leases provides that the landlord will undertake "a program of advertising and promotional events in order to assist and promote the business of the tenants in the project." (Emphasis added). This Court emphasized the fact that this paragraph refers to the tenant's "business" rather than "businesses". In conjunction with paragraph 28, paragraph 29, present in both leases, permits tenants in the project to establish a Tenants Advisory Committee to advise the landlord with respect to promotional events, trade shows and advertising for the industry of the tenants.
Thus, upon a review of the Lease read in its entirety, Article 2(B), in conjunction with the other Lease provisions, suggests a restrictive use clause binding on the Landlord. As this Court has stated,
Other provisions in the contract (relating to advertising and special events as well as restrictions on the tenants' use of the premises) can be read to anticipate the establishment of the Project as a center for the sale and display of office furniture and these clauses support the interpretation that Thorn Rock has a concomitant obligation to lease only to tenants in this business. Therefore, as a matter of law, the meaning of Paragraph 2(B) is at the very least ambiguous.