Herman Miller, Inc. v. Thom Rock Realty Co.

Thom Rock Realty Co. (Thom) (defendant) developed a commercial furniture showroom in New York and invited Herman Miller, Inc. (HM) (plaintiff), a leading furniture company, to end its lease on Madison Avenue and move into Thom’s showroom space. HM agreed and signed a 10-year lease that contained a covenant that the landlord would maintain the property as a showroom. The lease also restricted HM’s use of the property to selling and displaying furniture, prohibited HM from changing the appearance of its leased space to anything other than a showroom, and required HM’s showroom to be open during all business times so that furniture customers could shop through each of the tenants’ showrooms at the same time. Unlike other tenants’ leases in the building, HM’s lease did not contain an escape clause to allow HM to terminate the lease if Thom leased its spaces to nonfurniture tenants. When the economy and furniture demand declined, Thom leased its spaces to tenants not in the furniture industry to keep up with its loan payments. HM sued Thom to terminate the lease and recover damages. The United States District Court for the Southern District of New York held that the lease contained a covenant restricting Thom to lease to only furniture showrooms. However, the district court attributed most of HM’s decline in the value of its leased space to factors other than Thom’s breach of the covenant. To calculate this decline, the district court used HM’s value as office space rather than as showroom space. The district court therefore did not allow HM to terminate the lease and merely reduced HM’s remaining lease term by nine months. Both parties appealed.