Case Notes

Fraudulent Inducement

A tenant who allegedly lied about his retirement in order to be let out of his lease and to induce his landlord to forgo extra payments he was entitled to under the law was unsuccessful in having the suit against him dismissed. 1046 Madison Avenue Associates v. Bern, 2017 N.Y. Misc. LEXIS 228 (Sup. Ct., N.Y. Cty. 1/20/17).

Defendant Fima Bern entered into a lease with the plaintiff landlord on March 11, 2012. The lease, to run through May 31, 2019, was for a basement space in a building on New York City's Madison Avenue in which the defendant would operate a shoe repair business. In November 2015, Bern and his son asked plaintiff's representative, Steven Leader, if Bern could terminate his lease early, because of Bern's advanced age and failing health. Bern told Leader that he had already found a subtenant, Lukure Inc., to take over the remainder of his lease term. He also informed Leader that Lukure had agreed to pay Bern $90,000 over and above the rent payments it would make to the landlord, as “key money.”

When Leader informed Bern that New York law (Article 67(H)) gave the landlord the right to receive that $90,000 as “consideration received by Tenant from any subtenant in excess of the rent and additional rent.” Bern asked Leader if the landlord would forgo accepting the key money, simply as a good deed — to help Bern because he was old and retiring from business. The landlord agreed to do this on the condition that Bern inform it in writing that he was retiring. Bern did so by a letter dated Dec. 16, 2015, witnessed by Leader.

However, in May 2016, the landlord discovered that Bern was working as an owner or employee of a business called Phil's Shoe Repair, which was run by Bern's son. The landlord brought suit for fraudulent inducement.

To prove a claim for fraudulent inducement in New York, a plaintiff must allege that there was a false representation, made for the purpose of inducing another to act on it, and that the party to whom the representation was made justifiably relied on it and was damaged. In denying Bern's motion to dismiss, Judge Carol Robinson Edmead found that the landlord had sufficiently alleged facts to state a cause of action against Bern: “[F]irst, [Bern] made a false representation, in that Fima [Bern] stated that he was not in good health and planned to retire from the business, both of which were untrue … . Second, Plaintiff alleges that [Bern's] misrepresentation was made for the purpose of inducing Plaintiff to enter into the Termination Agreement. Third, Plaintiff allegedly reasonably relied on [Bern's] representation that he was retiring from the business when it agreed to enter into the Termination Agreement. Finally, Plaintiff was damaged as a result of [Bern's] misrepresentation … .”

Counterfeit Goods

A Georgia jury has found for a high-end consumer goods brand trademark holder and against a commercial landlord that turned a blind eye to its tenant's sale of counterfeit knock-offs in the rented premises. Luxottica Group v. Airport Mini Mall, 2017 U.S. Dist. LEXIS 35018 (N.D. GA, 2/28/17).

The verdict rests on a rarely invoked 1992 federal court decision — Mini Maid Services v. Maid Brigade Systems — that found a landlord who was not the owner of a property on which a flea market was being operated was nevertheless guilty of contributory trademark liability when a tenant sold counterfeit goods there.

Similar to the Mini Maid case, in Luxottica, a flea market operated by Airport Mini Mall was raided in 2014, and about 20 vendors were arrested for selling counterfeit goods. Their goods were confiscated. Despite this, and despite receiving letters from three brand manufacturers informing it that specific mall tenants were breaking the law, the mall operator renewed these vendors' leases in January 2015, and they continued to sell counterfeit goods. The trademark owners sued, alleging that even if the landlord was not directly complicit in the tenants' actions, it turned a blind eye when they sold goods that would have been worth hundreds of dollars, if genuine, for $10 or $15. A jury found the flea market's landlord contributorily liable for the tenants' trademark infringement and imposed $100,000 fines for each of 19 counts of infringement, bringing the landlord's total fine to nearly $2 million.

Fraudulent Inducement

A tenant who allegedly lied about his retirement in order to be let out of his lease and to induce his landlord to forgo extra payments he was entitled to under the law was unsuccessful in having the suit against him dismissed. 1046 Madison Avenue Associates v. Bern, 2017 N.Y. Misc. LEXIS 228 (Sup. Ct., N.Y. Cty. 1/20/17).

Defendant Fima Bern entered into a lease with the plaintiff landlord on March 11, 2012. The lease, to run through May 31, 2019, was for a basement space in a building on New York City's Madison Avenue in which the defendant would operate a shoe repair business. In November 2015, Bern and his son asked plaintiff's representative, Steven Leader, if Bern could terminate his lease early, because of Bern's advanced age and failing health. Bern told Leader that he had already found a subtenant, Lukure Inc., to take over the remainder of his lease term. He also informed Leader that Lukure had agreed to pay Bern $90,000 over and above the rent payments it would make to the landlord, as “key money.”

When Leader informed Bern that New York law (Article 67(H)) gave the landlord the right to receive that $90,000 as “consideration received by Tenant from any subtenant in excess of the rent and additional rent.” Bern asked Leader if the landlord would forgo accepting the key money, simply as a good deed — to help Bern because he was old and retiring from business. The landlord agreed to do this on the condition that Bern inform it in writing that he was retiring. Bern did so by a letter dated Dec. 16, 2015, witnessed by Leader.

However, in May 2016, the landlord discovered that Bern was working as an owner or employee of a business called Phil's Shoe Repair, which was run by Bern's son. The landlord brought suit for fraudulent inducement.

To prove a claim for fraudulent inducement in New York, a plaintiff must allege that there was a false representation, made for the purpose of inducing another to act on it, and that the party to whom the representation was made justifiably relied on it and was damaged. In denying Bern's motion to dismiss, Judge Carol Robinson Edmead found that the landlord had sufficiently alleged facts to state a cause of action against Bern: “[F]irst, [Bern] made a false representation, in that Fima [Bern] stated that he was not in good health and planned to retire from the business, both of which were untrue … . Second, Plaintiff alleges that [Bern's] misrepresentation was made for the purpose of inducing Plaintiff to enter into the Termination Agreement. Third, Plaintiff allegedly reasonably relied on [Bern's] representation that he was retiring from the business when it agreed to enter into the Termination Agreement. Finally, Plaintiff was damaged as a result of [Bern's] misrepresentation … .”

Counterfeit Goods

A Georgia jury has found for a high-end consumer goods brand trademark holder and against a commercial landlord that turned a blind eye to its tenant's sale of counterfeit knock-offs in the rented premises. Luxottica Group v. Airport Mini Mall, 2017 U.S. Dist. LEXIS 35018 (N.D. GA, 2/28/17).

The verdict rests on a rarely invoked 1992 federal court decision — Mini Maid Services v. Maid Brigade Systems — that found a landlord who was not the owner of a property on which a flea market was being operated was nevertheless guilty of contributory trademark liability when a tenant sold counterfeit goods there.

Similar to the Mini Maid case, in Luxottica, a flea market operated by Airport Mini Mall was raided in 2014, and about 20 vendors were arrested for selling counterfeit goods. Their goods were confiscated. Despite this, and despite receiving letters from three brand manufacturers informing it that specific mall tenants were breaking the law, the mall operator renewed these vendors' leases in January 2015, and they continued to sell counterfeit goods. The trademark owners sued, alleging that even if the landlord was not directly complicit in the tenants' actions, it turned a blind eye when they sold goods that would have been worth hundreds of dollars, if genuine, for $10 or $15. A jury found the flea market's landlord contributorily liable for the tenants' trademark infringement and imposed $100,000 fines for each of 19 counts of infringement, bringing the landlord's total fine to nearly $2 million.