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HERTZOG, CALAMARI & GLEASON v. PRUDENTIAL INS. CO.

July 12, 1996

HERTZOG, CALAMARI & GLEASON, Plaintiff, against THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant.


The opinion of the court was delivered by: HAIGHT

 HAIGHT, Senior District Judge :

 This diversity action arises out of a dispute as to the proper interpretation of a real estate lease between plaintiff law firm, Hertzog, Calamari & Gleason ("HC&G" or "the firm") and defendant Prudential Insurance Company ("Prudential"), the owner and landlord of the property.

 HC&G rents space at an office building owned by Prudential and located at 100 Park Avenue, New York City. HC&G's complaint alleges two causes of action. The first is for declaratory relief: specifically, a judicial declaration that, on the proper construction of the lease as modified, the firm is entitled to cancel the lease -- that is to say, walk away from it -- at any time it chooses, subject only to the payment of a lump sum also set forth in the lease as modified.

 HC&G's second cause of action claims damages allegedly arising out of an opportunity the firm lost to rent less expensive space, as the result of Prudential's refusal to accept HC&G's interpretation of the 100 Park Avenue lease.

 In a Memorandum Opinion and Order dated March 21, 1996, familiarity with which is presumed, the Court granted in part and denied in part HC&G's motion for summary judgment on its claim for declaratory relief. The case was set down for bench trial on the meaning of the cancellation provisions of the modified lease (first cause of action), and the firm's entitlement to damages if it prevailed on that question of interpretation (second cause of action). Trial was held on May 6, 7, 8 and 13, 1996. Counsel made oral summations. The Court incorporates by reference the factual narration contained in the March 21, 1996 Opinion. That Opinion, together with what follows, constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P.

 I

 On May 16, 1989, HC&G and Prudential entered into a lease whereby HC&G rented space at 100 Park Avenue for 10 years commencing on September 1, 1989. The lease consisted of a three-page printed form and a 19-page typed rider with exhibits. PX 1.

 Under the lease as executed on May 16, 1989, only Prudential as landlord had the right to cancel or terminate the lease. It could do so under specified circumstances which it is not presently necessary for me to recount. Typed P 55 of the rider contained provisions for the liability of the individual HC&G partners which I quoted at page 2 of the May 21, 1996 Opinion ("slip op.").

 By the spring of 1990, HC&G was experiencing economic and professional concerns. Several partners had withdrawn from the firm. Others were indicating that they might do so. The remaining partners were worried about their individual obligations under the lease. HC&G decided to approach Prudential with a view towards obtaining a modification of the lease which might allay the concerns of partners staying on with the firm.

 To that end, an HC&G partner named Robert J. Rosen wrote a letter dated May 2, 1990 to Donald Feiner at Cushman and Wakefield, Prudential's agent. Rosen was HC&G's real estate law specialist. He was destined to leave the firm shortly thereafter. But in his letter of May 2, 1990 to Feiner, Rosen undertook to explain the firm's present circumstances. Rosen wrote to Feiner as follows:

 
Our firm is in the process of undergoing a number of changes, including, but not limited to, a down sizing of our partnership. When the Lease was originally executed, we had a total of 13 partners. Pursuant to Paragraph 55 of the Lease, the maximum personal liability of each of such partners was approximately $ 77,000.
 
With the proposed reduction in the number of partners in the firm, each of the remaining partners may have a substantially increased personal liability with regard to the obligations of the firm under the Lease. While such remaining partners want to continue the operation of Hertzog, Calamari & Gleason and remain in our existing space, they are not willing to do so if their individual liability under the Lease will increase.
 
We are therefore writing you to request that Prudential consider a modification of the Lease which would provide that the maximum personal liability of any partner in Hertzog, Calamari & Gleason would not exceed either the lesser of $ 77,000 or the individual partner's per capita share of $ 1,000,000. We also want you to consider terminating the Lease with regard to the 22nd Floor.

 Feiner passed Rosen's letter, without further comment, on to Steve Vittorio, a Prudential employee who managed the affairs of 100 Park Avenue. PX 3.

 Conversations between HC&G partners and Prudential representatives did not lead to an immediate agreement. Rosen and Peter E. Calamari, a HC&G name partner, sent a letter to Vittorio dated July 31, 1990, PX 4, which purported to set forth an agreement which the firm believed it had achieved with Prudential. The substantive part of that letter reads:

 
1. Section 55 Liability. The liability of Partnership Tenant shall be reduced by $ 100,000 for each of the first five consecutive Lease Years of the Lease such that the aggregate partnership liability shall be $ 500,000 at the end of the fifth Lease Year under said Lease. By way of example, the partnership liability at the end of the second Lease Year shall be $ 800,000. For the purposes hereof, the term "Lease Year" shall mean a fiscal year commencing on September 1 and ending on August 31, with the first such Lease Year commencing on September 1, 1989.

 The letter contained a signature line by which Prudential would indicate its agreement. But it does not appear that Prudential ever did so.

 Rosen having left HC&G, the lease modification negotiations became the responsibility of William Simon, another HC&G partner. Simon had a number of telephone conversations with Vittorio. The fact that conversations occurred is not disputed; their content is.

 HC&G submitted as PX 5 a "Memorandum For Files" dictated by Simon and dated September 5, 1990. That memorandum refers to two telephone conversations that he had with Vittorio on August 29, 1990. The memorandum recites that Simon called Vittorio to ask him if there was any difficulty regarding the proposed lease modification set forth in the letter from ...


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