542 B.R. 321
S.D.N.Y.2015Background
- Skyline operated a helicopter-simulator attraction in the Empire State Building and leased space under a lease amended in May 2005 containing (1) an Electricity Provision (Article 42) governing how an Electrical Rent Inclusion Factor (ERIF) is calculated and adjusted, and (2) a Protocol Provision forbidding commission-based pay for employees/representatives working "in the NYSR Premises or in any area of or near the Building."
- Skyline sued ESB claiming ESB overcharged for electricity (Twelfth Claim); ESB counterclaimed that Skyline violated the Protocol Provision by paying commissions to street sellers.
- Bankruptcy Court issued three decisions: (i) Electricity Decision — dismissed Skyline’s electricity claim (ESB’s survey and "connected load" methodology valid); (ii) Protocol Decision — found breach by Skyline’s independent contractors within an "ESB Zone" and granted injunctive relief; (iii) Stay Decision — denied stay of that injunction.
- On appeal the District Court vacated the Bankruptcy Court’s final judgment for lack of authority to enter final orders on non-core matters, remanded for proposed findings; Bankruptcy Court issued proposed findings on remand; District Court reviewed de novo.
- The District Court accepted the Bankruptcy Court’s findings on the Electricity Provision (ERIF measured by connected load/demand; Skyline failed to follow lease dispute procedures) and rejected the Bankruptcy Court’s expansive reading of "of or near the Building," limiting the geographic scope to the building footprint/adjacent sidewalks rather than the broader "ESB Zone."
Issues
| Issue | Skyline's Argument | ESB's Argument | Held |
|---|---|---|---|
| Proper measure under Article 42 (Electricity Provision): whether ERIF must be based on actual consumption vs. connected load (demand) | ERIF should be based on estimated actual usage/consumption measured by survey, not on maximum connected capacity | ERIF is based on "connected electrical load" (demand) and hours of use; surveys assess connected load per lease | Held for ESB: Article 42 unambiguous; ERIF measured by connected load (demand × hours); Bankruptcy Court’s methodology upheld; Skyline also failed to use lease dispute procedure |
| Compliance with contractual dispute resolution for electricity charge challenge | Skyline did not waive right; merits should be considered | ESB argued Skyline failed to follow mandatory lease dispute procedures | Held for ESB: Skyline failed to comply with contractual dispute procedure — independent ground to dismiss |
| Scope and meaning of "of or near the Building" in Protocol Provision | "Near" means close to the building but should be limited to the building footprint/adjacent sidewalks where salaried "blue jacket" employees worked; post-2005 conduct shows parties tolerated commission sellers outside footprint | ESB: term covers a broader ESB Zone (multiple blocks) as evidenced by prior independent-contractor agreements and some Skyline practices; broader zone needed to prevent aggressive sales tactics | Held for Skyline (limit on ESB): Court rejected Bankruptcy Court’s broad ESB Zone; "near the Building" does not extend beyond sidewalks adjacent to the Building footprint for purposes of enjoining commission pay |
| Appropriate burden/standard in construing Protocol Provision (restrictive covenant argument) | The Protocol Provision is a restrictive covenant; must be strictly construed and ESB must prove by clear and convincing evidence; any ambiguity resolved least restrictively | ESB treated provision as contract term enforceable by normal burden of proof | Held for Skyline: Court found clear-and-convincing standard inapplicable; but ESB still failed to meet its burden to show the broader geographic restriction intended in 2005 |
Key Cases Cited
- Greenfield v. Philles Records, 98 N.Y.2d 562 (N.Y. 2002) (controls contract interpretation: enforce clear, complete, unambiguous writings according to plain meaning)
- Revson v. Cinque & Cinque, 221 F.3d 59 (2d Cir. 2000) (principles on ambiguity and interpretation of contracts)
- Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d 458 (2d Cir. 2010) (expert testimony and specialized contractual terms considered in contract interpretation)
- Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343 (U.S. 1988) (factors for federal courts to weigh in deciding whether to retain jurisdiction over pendent state-law claims)