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J.C. PENNY CORPORATION, INC. v. CAROUSEL CENTER COMPANY

February 18, 2004.

J.C. PENNY CORPORATION, INC., Plaintiff,
v.
CAROUSEL CENTER COMPANY, E.P., Defendant



The opinion of the court was delivered by: HOWARD MUNSON, Senior District Judge

BACKGROUND

Carousel is a limited partnership, its limited partner is Pyramid Company of Onondaga ("Pyramid"), which owns 98% of Carousel. Carousel's general partner is Carousel General Company, L.L.C., which owns 2% of Carousel. The center of this lawsuit is the Carousel Mall Page 2 ("the Mall"), which is operated by Carousel under a 1995 assignment from Pyramid, the Mall's builder. Pyramid, either directly or through affiliates, owns or controls Carousel Center Company, L.P.

  On January 10, 1990, plaintiff entered into a lease agreement with Pyramid. This agreement went through amendments and/or supplements evolved into a Second Amended Lease dated August 30, 1995. Subsequently, Carousel became the successor-in-interest to the rights and obligations of Pyramid under the lease. This lease contained Consent Provisions whereby the Mall was not to be changed or altered without plaintiffs consent.

  In May 2000, Pyramid requested the Syracuse Industrial Development Agency's ("SIDA") assistance in constructing the Destiny USA project ("Destiny USA" or "the Project"). On April 30, 2002, SIDA adopted its Resolution pursuant to the § 204 of the New York State Eminent Domain Procedure Law ("EDPL"), making the determinations and findings required to authorize the acquisition of certain interests in the Mall for the construction of the Project, including any provision of a tenant's lease which might restrict or impede the development of the Project. The provision states that "the Company [Pyramid] has requested that the Agency [SIDA] acquire certain real property interests in or effecting Existing Center Land within the existing Carousel Center to the extent necessary or appropriate to construct the proposed modifications to Carousel Center necessary or appropriate to transform it into the Destiny USA Project (`Carousel Center Interests'). Exhibit 1 of the Resolution defines "Carousel Center Interests" to include, "among others, interests of some or all of the tenants in varying degrees created by leases or agreements that may establish restrictions on: the use of the lands surrounding the mall building; the use of space within the mall building that are Page 3 inconsistent with Destiny USA Project designs; the use of common interior areas within the mall building; visibility and/or signage; the name of the project; and any other applicable interests that may exist."

  The Resolution further provides that "the Company [Pyramid] agrees to indemnify, defend and hold harmless . . . the Agency [SIDA]. . . from any Claims (as defined in the Agency Agreement) imposed . . . or incurred . . . or asserted . . . by reason of or arising from the institution, prosecution or abandonment of any eminent domain proceedings . . . with respect to any of the Land or the Public Improvement Land (including the Existing Center Land) . . ."

  In May 2002, plaintiff instituted an original proceeding in the Appellate Division (4th Dept.) under EDPL § 207, that SIDA's Resolution and Determinations and Findings be rejected. This type of action is a limited special proceeding that can only be brought originally in the Appellate Division. It is not brought as a plenary action in a court of general jurisdiction.

  At the hearing before the Appellate Division, Carousel maintained that unless and until the Consent Provisions were condemned by the SIDA, plaintiff could effectively stop Destiny USA by virtue thereof, and that the Consent Provisions were "real property" interests subject to commendation. Plaintiff contended that the Consent Provisions of the Lease were not "real property" within the meaning of the EDPL. On November 15, 2002, the Appellate Division confirmed SIDA's Resolution and Determination and Findings holding that the Consent Provisions were interests in real property subject to condemnation by the SIDA, and dismissed plaintiffs petition. Plaintiff appealed this decision to the New York Court of Appeals where it dismissed it sua sponte upon its finding that no substantial constitutional question was directly involved. Page 4

  SIDA will not obtain any real property, including the Consent Provisions in plaintiffs lease, until under EDPL § 402: (1) it has filed an acquisition map; (2) it has served and filed a notice of petition and petition to confirm such a map; (3) a hearing has been held on such petition; and (4) an order is issued granting the petition by the Supreme Court, Onondaga County.

  EDPL § 402(B)(5) states that "[u]pon the filing of the order and acquisition map, the acquisition of the property, the acquisition of the property in such map shall be complete and title to such property shall then be vested in the condemnor." Since neither of these statutory steps have yet to be undertaken by SIDA, it has not acquired any of the Consent Provisions of the lease and they remain in force.

  If the EDPL § 402 proceeding is initiated and completed, EDPL § 501 through § 514 sets forth the procedures used to determine the compensation to be paid for the taking.

  Between October 2002 and December 2002, defendant's workmen drove steel piling into a portion of the Mall's parking lot near plaintiffs location in that structure. On or about October 15, 2002, Carousel announced that it was going to hold a groundbreaking ceremony for Destiny USA on October 24, 2002. On or about October 24, 2002, Carousel announced that "once the groundbreaking ceremony" took place, construction was to be started on a proposed 1300 room hotel and parking deck. Before making these announcements, Carousel had said it was conducting only "test pilings" and that it had not actually commenced construction. However, the renewed activity on the sites could have been associated with the start of a construction project.

  On November 8, 2002, plaintiff voluntarily agreed upon measures to complete the piling Page 5 work under certain conditions. The Amended Complaint alleges that "Carousel continued with construction activities at the Mall site until early December 2002, at which time it stopped all activity. Plaintiff does not allege that any construction activities have occurred since December 2002. All pilings were driven below grade, paved over, and all construction equipment was removed from the site.

  Based on this series of incidents, plaintiff commenced this law suit on October 24, 2002. The parties then entered into negotiations to discuss an interim stipulation to deal with the then current situation, alleviate impacts on plaintiffs store, and avoid a motion for a preliminary injunction. On November 14, 2002, the parties agreed to a Stipulation and Order that directed the parties to hold settlement discussions, limit the Mall area in which Carousel could conduct construction activities, and provided a mechanism for enforcement. The document further provided that it shall not be deemed consent by plaintiff to any construction activity or the expansion of the Mall. By its terms, the Stipulation and Order expired on January 10, 2003.

  When settlement discussions proved unfruitful, plaintiff served Carousel with an Amended Complaint in April 2002. Jurisdiction is founded on diversity and the amended complaint set forth two causes of action sounding in breach of contract. The first seeks specific performance and injunctive relief, requesting that Carousel be compelled to honor its contractual obligations and prohibited it from engaging in any further violation of it expressed and implied obligations under the lease. It also seeks to enjoin Carousel from continuing to breach its implied covenant of good faith and fair dealing. The second cause of action seeks monetary damages for injuries which have already been incurred due to Carousel's breach of its expressed and implied obligations under the lease, and from Carousel's construction activities; injunctions Page 6 enjoining Carousel from proceeding with the proposed ...


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