author: Chief Judge Desmond. Van Voorhis, J. (concurring).

text:
    Bernard Schlansky et al., Appellants, v. Augustus V. Riegel, Inc., Respondent, et al., Defendant. George L. George et al., Appellants, v. Augustus V. Riegel, Inc., Respondent, et al., Defendant.
    Argued March 22, 1961;
    decided April 27, 1961.

      Robert Lee Moore and Ernest G. Allen for appellants.

      1. Defendant blaster’s use of a greater quantity of explosive than necessary to properly start the rock, without obtaining the required special permission, in violation of the Town of Green-burgh’s safety ordinance establishing minimum requirements for the use of dangerous and hazardous materials, was at least sufficient evidence of negligence to make out a prima facie ease. (Martin v. Herzog, 228 N. Y. 164.) II. The Greenburgh blasting ordinance also provides that the blasting of rock contiguous to any structure shall be so conducted as not to cause damage thereto. The property of the homeowners was contiguous to the site of the blasting. Defendant’s blasting did cause damage. Therefore, the violation of this provision also constituted some evidence of negligence. III. Defendant blaster promised in writing to adequately protect adjacent property as provided by law and the contract documents. The blaster admitted that no steps were taken. Indifference to probable consequences of blasting is the highest form of negligence. IV. The homeowners made out a prima facie case of negligence and the verdict of the jury should, therefore, be reinstated. (Booth v. Rome, W. & O. T. R. R. Co., 140 N. Y. 267; Brown v. Rockefeller Center, 289 N. Y. 729.) V. The New York law with its unscientific and illogical distinction between physical trespass and vibration-concussion damage caused by blasting was evolved in the Nineteenth Century when conditions were substantially different. The rapid advance of science and the ‘ ‘ population explosion ” in urban and suburban areas since then has made it practical, as well as imperative, that the law impose the same responsibility on blasters for vibration-concussion damage as for physical trespass damage. This is the law in most jurisdictions and accords with that advocated by leading text writers as making sense. (Booth v. Rome, W. & O. T. R. R. Co., 140 N. Y. 267; Hill v. Schneider, 13 App. Div. 299; Brown v. Rockefeller Center, 289 N. Y. 729: Holland House Co. v. Baird, 169 N. Y. 136.) VI. Extreme vibration-concussion blasting should be deterred because of damage to the personalty as well as because of physical damage to real and personal property. VII. The genesis of the undesirable state of the law in this field is the untenable distinction which the New York law makes between physical trespass and vibration-concussion damage from blasting.

      James K. Page for respondent.
    I. Plaintiffs failed to prove any acts of negligence on the part of defendant and, accordingly, its motions for the dismissal of the complaint and for a directed verdict should have been granted. (Booth v. Rome, W. & O. T. R. R. Co., 140 N. Y. 267; Holland House Co. v. Baird, 169 N. Y. 136; Viele v. Mack Paving & Constr. Co., 144 App. Div. 694; Shemin v. City of New York, 6 A D 2d 668; Dixon v. New York Trap Rock Corp., 293 N. Y. 509; Nordone v. Mondo, 269 App. Div. 896; Lewis v. Dunbar & Sullivan Dredging Co., 178 Misc. 980; Brown v. Rockefeller Center, 289 N. Y. 729; Halverson v. 562 W. 149th St. Corp., 290 N. Y. 40.) II. In the event this court should find that plaintiffs proved a prima facie case, then, because of errors in the charge, the order granting a new trial should be affirmed. (Matter of Taylor, 197 App. Div. 865; Trulock v. Kings County Iron Foundry, 216 App. Div. 439; Meitzler v. Hill, 233 App. Div. 503.) III. Negligence as a prerequisite to liability should not be abandoned in favor of an extension of the law of trespass.
   Chief Judge Desmond.

Bach pair of plaintiffs owns a residence in Scarsdale, N. Y., which was damaged (without physical trespass) by vibration and concussion resulting from blasting operations carried on by defendant-respondent itiegel preparatory to construction of a building on a lot which adjoins at the rear the lots owned by plaintiffs. The distance from the blasting area to each of the houses was 40 feet or more. The jury gave the plaintiffs a verdict in each action but the trial court set each verdict aside for failure of proof and ordered a new trial in each action. The Appellate Division agreed that negligence had not been established in either case but held that this deficiency in proof required dismissal of the complaints. The Appellate Division’s reasoning is set forth in this excerpt from its opinion: ‘ ‘ Such owner is not liable for damage to his neighbors ’ structures caused by a concussion generated by the blasting, in the absence of proof of negligence in the performance of the blasting. Despite the injury to neighboring property, such blasting, without proof of negligence, is damnum absque injuria. This rule is based upon the public policy of promoting the building up of towns and cities and the improvement of property ’ (Booth v. Rome, Watertown & Ogdensburg Term. R. R. Co., 140 N. Y. 267, 281; see, also, Holland House Co. v. Baird, 169 N. Y. 136; Shemin v. City of New York, 6 A D 2d 668; Viele v. Mack Paving & Constr. Co., 144 App. Div. 694).”

Plaintiffs-appellants press for a “reexamination and reappraisal ” of the New York case law which imposes strict liability for blasting damage when there is physical trespass but insists on proof of negligence in the blasting when no flying debris is cast onto a plaintiff’s premises. Were the question properly before us we would have to decide whether the present New York rule should be modified so as to conform to the more widely (indeed almost universally) approved doctrine that a blaster is absolutely liable for any damages he causes, with or without trespass (see, for instance, Brown v. Lunder Constr. Co., 240 Wis. 122; FitzSimons & Connell Co. v. Braun & Fitts, 199 Ill. 390; Whitman Hotel Corp. v. Elliott & Watrous Eng. Co., 137 Conn. 562; Baier v. Glen Alden Coal Co., 332 Pa. 561; Exner v. Sherman Power Constr. Co., 54 F. 2d 510, 513 [2d Cir.]). But this record does not raise the question. Each of these suits was sued, tried and given by the court to the jury (without objection) on the theory that proof of negligence was necessary for recovery. Such became the law of the case (Buckin v. Long Is. R. R. Co., 286 N. Y. 146).

We hold, however, that there is prima facie proof of negligence in this record and that the dismissal of the complaints was erroneous. Directly in point is Brown v. Rockefeller Center (289 U. Y. 729) where we unanimously sustained a plaintiff’s verdict for personal injuries sustained in a building which was rocked by a nearby (100 feet away) blast. In the Brown case, as in these cases, there was produced a blasting expert who in answer to a hypothetical question and on the basis of an inspection of the site stated an opinion that more explosive powder was used than was necessary. Here, as it was in the Brown case, it is argued that the expert’s opinion was valueless since he did not know the method of blasting or the strength of the charges used or the character of the soil or rock. Such a criticism is unjustified. Here, as in Brown, the expert’s qualifications were established and he stated that from the situation which he observed and the facts contained in the hypothetical question he was able to express an opinion with reasonable certainty. That permitted the taking of his opinion and his lack of further information affected the weight but not the admissibility of his evidence.

Furtherinore, there was in addition to the testimony of Professor Boshkov other evidentiary basis on the trial for the jury’s finding of negligence. Mrs. Schlansky swore that the “ noise was deafening ”, that the blasts were numerous and that the house, which had been in good condition, shook so that cracks appeared in many parts of the structure. Mrs. George swore to positively terrifying ” blasts that caused her whole house to shudder. On one occasion (this was not disputed) a representative of defendant was present when there was a big blast followed by the opening up of a large crack in a wall. At another time parts of ceilings fell in two rooms of the Schlansky house. Large cracks appeared in various walls as blasts were heard and felt. Defendant called no witnesses at all. It is significant that one of its officers subpoenaed by plaintiffs to produce defendant’s records testified that “ There is no record of when we blasted, what days and what dynamite and materials was used. ’ ’ The testimony just above summarized was in itself some basis for the finding of negligence — that is, of the setting off of unnecessarily violent charges. Even the Booth rule, strict as it is, concedes that the omission to use less powerful blasts, if it were possible to do so, could be considered negligence (Booth v. Rome, Watertown & Ogdensburg Term. R. R. Co., 140 N. Y. 267, 270).

Defendant argues that Brown v. Rockefeller Center (289 N. Y. 729, supra) is distinguishable as a case where ‘ ‘ one tremendous blast resulted in such extensive damage that the jury could infer that the blasting must have been negligently done.” But there is nothing in the Broion case to suggest that such was the basis of the holding that negligence had been shown. It does not appear in the Brown record that there was just one tremendous blast or that really extensive property damage was caused. It would be strange if a blaster would be held liable for one excessive blast and excused from the consequences of a number of such explosions. The testimony by these homeowners described many explosions and a refusal of defendant to abate them despite protests.

Many years ago (1916) in Kaninsky v. Purcell & Gilfeather (158 N. Y. S. 165) the then Justice Lehman, later our Chief Judge, wrote this: “It is well established in this state that there is no liability for consequential injuries caused by a concussion, without proof of negligence, and the mere fact that a blasting causes injury upon adjacent premises gives rise to no presumption that the blasting was negligently performed. In all the cases cited upon the briefs, or which I can now remember, a recovery has been permitted to stand only where the plaintiff has shown the manner in which the blast was actually set off, coupled with further proof that the method used was negligent. Nevertheless it seems quite certain to me that, where the testimony of the results and surrounding circumstances of a blast is so strong that, under ordinary circumstances, such a result could not have occurred unless the blasting was negligently performed, a prima facie case of negligence is made out. Such testimony, however, must undoubtedly clearly show facts which will legitimately lead to this inference, and the rule that the injured party must affirmatively show negligence cannot be disregarded.”

In 1918 Justice Finch, later an Associate Judge of this court, in a nontrespass blasting case (Interborough R. T. Co. v. Williams, 168 N. Y. S. 688) expressed the view that without other proof of negligence a jury question was presented by a showing that the explosions were so powerful as to do great damage.

Both Chief Judge Lehman and Judge Finch took part in the decision in the Brown case (supra) in this court. We see no reason why the Brown holding should not be considered direct authority for a reversal here.

We agree with defendant that there is no sufficient proof of violation of the town’s Fire Prevention Code and that the jury’s finding of negligence could not be related to those regulations.

The judgments should be reversed and the verdicts of the jury reinstated, with costs in all courts.

Van Voorhis, J. (concurring).

Few rules of law have been more troublesome to formulate or more difficult to apply than those relating to civil liability for damages to neighboring property arising from blasting operations. The established New York doctrine is questioned in the majority opinion in favor of a “ doctrine that a blaster is absolutely liable for any damages he causes, with or without trespass ”, but since this action was tried on the theory of negligence the court does not in this case overrule the doctrine that some negligence was necessary. Although I agree that enough was shown to require this defendant to come forward with evidence showing how this blasting operation was conducted, I do not share in questioning the established rule nor in the view that evidence of serious injury to neighboring property in itself furnishes a basis for expert opinion evidence that the blasting was negligently performed. Such a holding appears to go beyond any prior authoritative decision in this State, and to open jury questions in all cases of this kind on a showing of substantial injury to nearby buildings. Heretofore the rule has been that in the absence of any factual basis for an inference that the blasts were excessive, with or without expert opinion, there is no issue to submit to a jury arising merely from damage to surrounding structures. That rule, I think, should be maintained.

The best formulation of the existing rule is in the leading case of Booth v. Rome, Watertown & Ogdensburg Term. R. R. Co. (140 N. Y. 267) in an opinion by Chief Judge Andrews speaking for the unanimous court. It was there held that in conducting blasting operations the test as to the permissible use of, or action upon, one’s own land is not whether the use causes injury to a neighbor’s property, or that the injury was the natural consequence or that the act was in the nature of a nuisance, but is whether the act or use is a reasonable exercise of the dominion which the owner, by virtue of his ownership, has over his property having regard to all the interests affected, his own and his neighbors, and also having in .view public policy. It was pointed out that the rocky surface of the upper part of Manhattan Island makes blasting necessary in excavation work, and, unless permitted, the value of lots, especially for business uses, would be seriously affected.

It was pointed out (supra, p. 278) that if blasting were to be prohibited in event that damage is done to neighboring property, the consequence would be that the man who has first built a store or warehouse or dwelling on his lot.and has blasted the rock for a basement or cellar would prevent his neighbor from doing the same thing when he comes to build on his lot adjoining. ‘ ‘ Such a rule would enable the first occupant to control the uses of the adjoining property, to the serious injury of the owner, and prevent or tend to prevent the improvement of property * * * The first occupant acquires no right to exclude an adjoining proprietor from the free use of his land, nor to use his own land to the injury of his neighbor subsequently coming there. * * * The fact of proximity imposes an obligation of care, so that one engaged in improving his own lot shall do no unnecessary damage to his neighbor’s dwelling, but it cannot, we think, exclude the former from employing the necessary and usual means to adapt his lot to any lawful use, although the means used may endanger the house of his neighbor.”

The court endeavored to avoid rendering the construction of railroads, highways or private buildings so costly as to be impracticable, while simultaneously protecting the owners of existing buildings insofar as reasonably possible. Chief Judge Andrews’ opinion assumes as a condition that the excavation could not have been done except by the use of explosives. Likewise it was noted that there are acts of various kinds which the owner of land may lawfully do, although it brings annoyance, discomfort or injury to his neighbor, which are damnum absque injuria. Instances are cited such as buildings caused to fall by lawful excavation in adjoining lots, the right of an owner to excavate minerals in a mine, although by so doing it causes the water to collect and be discharged into an adjacent mine on a lower level. Blasting is then analyzed and permitted to a degree that would not be tolerated if it were a permanent procedure, in view of the temporary nature of acts which are resorted to in the course of adapting premises to a lawful use by the construction of buildings, highways or railroads. The erection of an iron building adjacent to a dwelling is cited as something which might be prohibited as a nuisance if the same operations were conducted permanently in a factory, but is permitted on account of the temporary nature of the activity in the construction of a building which will not be a nuisance when completed.

In blasting it was held that although the plaintiff sustained a serious injury, the “ mere proof that the house was damaged by the blasting would not alone sustain the action (supra, p. 273; italics supplied). The result would be otherwise ‘ ‘ If it was practicable in a business sense for the defendant to have removed the rock without blasting, although at a somewhat increased cost ” or “ if less powerful blasts might have been used, which, if used, would not have occasioned injury, or would have lessened it ” (pp. 273-274) in which event the omission to use them might have been considered negligence. It appeared in the Booth case that the blasting was the only mode of moving the rock practically available, and that it was done with due care in consequence whereof no cause of action could be maintained.

This followed the rationale of Benner v. Atlantic Dredging Co. (134 N. Y. 156) where liability for damages was disallowed from blasting in Hell Gate. The opinion pointed out (p. 162) that the injuries to plaintiff’s house were.caused by the shaking of the earth or pulsations of the air, or both, without physical invasion of plaintiff’s premises as in Hay v. Cohoes Co. (2 N. Y. 159). This result was reached for the reason that ‘1 One cannot confine the vibration of the earth or air with inclosed limits, and hence it must follow that if in any given case they are rightfully caused, the extention to their ultimate and natural limits cannot be unlawful, and the consequential injury, if any, must be remediless.”

The Booth and Benner cases (supra) have been followed, resulting in the dismissal of blasting claims on the law in French v. Vix (143 N. Y. 90); Holland House Co. v. Baird (169 N. Y. 136); Haefelin v. McDonald (96 App. Div. 213); Shemin v. City of New York (6 A D 2d 668), and Viele v. Mack Paving & Constr. Co. (144 App. Div. 694) as well as in other cases which are cited in the opinions therein. Brown v. Rockefeller Center (affd. without opinion 289 IST. Y. 729) is no exception. The record on appeal in that case shows that there was evidence from which a jury could find a regular pattern of blasts of lesser intensity, . and that the damage was wrought by a single explosion which was of so vastly greater power as in itself to furnish a basis for an inference that the amount of explosive used was excessive. Although the quantity of the charge was not shown, the comparison between this severe explosion and the ordinary explosions adequate to the prosecution of the work was regarded as a substitute for such evidence. That furnished a factual basis for an inference of negligence and provided a foundation for the testimony of the expert witness.

In the case at bar there is no similar testimony. The evidence is that every explosion which occurred was so severe as to cause damage of the nature for which suit is brought. The opinion of the expert witness that the charge was too great lacks probative force in view of the absence of any evidence of the nature which sustained the recovery in.the Brown case (supra), or of the amount of the charge and whether the work could have been accomplished by the use of smaller charges even at somewhat increased cost. An expert witness ’ opinion is without effect if it is speculative being without foundation in facts proved in the record. (Matter of Burris v. Lewis, 2 N Y 2d 323, 327.)

The defendant in this case, however, was subpoenaed to produce records or other evidence showing what actually was done in conducting the blasting which resulted in the injury to plaintiff’s property. A responsible officer or employee of defendant was called to testify to this by plaintiff but denied that any records were kept or that anyone had knowledge upon the subject. It is clear that defendant has sought to escape liability by failing to keep any records or by concealing what actually was done in the conduct of these blasting operations. For that reason, and for that reason only, it seems to me that the defendant should be subject to the consequences if it conceals the evidence of what was done in conducting the blasting. If such evidence had been produced, it would, in my view, have superseded any presumption in plaintiff’s favor, and a question of fact would or would not have been presented depending upon what the evidence showed. In default of any revelation of the facts underlying the cause of this serious damage, I concur in the reinstatement of the judgment in plaintiff’s favor entered upon the verdict of the jury. But I would not go so far as to hold that evidence of injury alone is enough to create a question of fact, with or without expert testimony based thereon, and would vote to affirm except for the concealment by the defendant of the facts concerning the conduct of this blasting operation.

Judges Dye, Fuld, Froessel, Burke and Foster concur with Chief Judge Desmond; Judge Van Voorhis concurs in a separate opinion.

Judgments reversed, etc.


source: Caselaw Access Project

author:
Chief Judge Desmond.
      Froessel, J. (concurring). Van Voorhis, J. (dissenting).

license: Public Domain

text:
    In the Matter of the Arbitration between Dino De Laurentiis, Appellant, and Cinematografica de las Americas, S. A., et al., Respondents.
    Argued March 29, 1961;
    decided April 27, 1961.

      Mathias F. Correa, John W. Nields, Marshall H. Cox, Jr., Jacob W. Abraham and Edmund B. Hennefeld for appellant.
    I. The determination below that petitioner-appellant participated in the selection of the arbitrators and in the arbitration proceeding is erroneous. (Matter of National Cash Register Co. [Wilson], 8 N Y 2d 377; Schafran & Finkel v. Lowenstein & Sons, 280 N. Y. 164, 280 N. Y. 687; MacNamara v. Doubleday, 270 App. Div. 645; Matter of Writers Guild of America East [Prockter Prods.], 1 N Y 2d 305; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N. Y. 288.) II. The notice of intention to arbitrate fails to define and state any dispute or controversy herein and fails further to define or state issues arbitrable under the terms of the agreement. (Matter of Essenson [Upper Queens Med. Group], 307 N. Y. 68; Matter of General Elec. Co. [United Elec. Radio & Mach. Workers of America, C. I. O.], 300 N. Y. 262; Matter of Marchant v. Mead-Morrison Mfg. Co., 252 N. Y. 284; Matter of International Assn. of Machinists [Cutler-Hammer], 271 App. Div. 917, 297 N. Y. 519; Matter of Eager Constr. Corp. v. Ward Foundation Corp., 255 App. Div. 291; Matter of Sarle [Sperry Gyroscope Co.], 4 A D 2d 638, 4 N Y 2d 917; De Lillo Constr. Co. v. Lizza & Sons, 7 N Y 2d 102; Matter of Lipman [Haeuser Shellac Co.], 289 N. Y. 76; Matter of Uraga Dock Co. [Mediterranean & Oriental S. S. Corp.], 6 A D 2d 443, 6 N Y 2d 773; Matter of Transpacific Transp. Corp. [Sirena Shipping Co., S. A.], 9 A D 2d 316, 8 N Y 2d 1048; Matter of Board of Educ. [Heckler Elec. Co.], 7 N Y 2d 476.) III. The nature of the agreement herein forecloses the-existence of arbitrable issues arising under those portions of the agreement as to which neither party was bound. (Chiapparelli v. Baker, Kellogg & Co., 252 N. Y. 192; Duffield & Co. v. Ellsworth, 143 Misc. 40; North German Lloyd v. Mexican Petroleum Corp., 24 F. 2d 46; Metro-Goldwyn-Mayer D. Corp. v. Home Theatre Co., 71 F. 2d 225; Matter of Grean & Co. [Grean], 274 App. Div. 279; Alpert v. Admiration Knitwear Co., 304 N. Y. 1.)

      Murray Gartner and Richard H. Borow for respondents.
    I. The Appellate Division properly hold that appellant is bound by a valid and enforcible contract to arbitrate disputes arising thereunder. (Paige v. Faure, 229 N. Y. 114; Wood v. Duff-Gordon, 222 N. Y. 88; Matter of Grean & Co. [Grean], 274 App. Div. 279; Price v. Spielman Motor Sales Co., 261 App. Div. 626; Steinhilber v. Challenger Steel Prods. Corp., 9 A D 2d 695, 19 Misc 2d 770; De Lillo Constr. Co. v. Lizza & Sons, 7 N Y 2d 102; Pratt v. La Guardia, 182 Misc. 462, 268 App. Div. 973; Matter of Uraga Dock Co. [Mediterranean & Oriental S. S. Corp.], 6 AD 2d 443, 6 N Y 2d 773; Matter of Board of Educ. [Heckler Elec. Co.], 7 N Y 2d 476; United Wholesalers v. Armstrong Co., 251 F. 2d 860; Stevens v. Rugo & Sons, 209 F. 2d 135; Coppinger v. Republic Natural Gas Co., 171 F. 2d 4; Shepherd v. Union Cent. Life Ins. Co., 74 F. 2d 180; Chiapparelli v. Baker, Kellogg & Co., 252 N. Y. 192.) II. Special Term and the Appellate Division properly concluded that appellant’s own acts bar him from questioning the jurisdiction of the special proceeding being' administered by the American Arbitration Association. (Matter of Grand Cent. Theatre v. Moving Picture Mach. Operators Union, Local 306, 263 App. Div. 989; Matter of Writers Guild of America East [Prockter Prods.], 1 N Y 2d 305; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N. Y. 288; Braman v. Braman, 236 App. Div. 164; Zabriskie v. Second Nat. Bank, 204 App. Div. 428; Capuano v. Zolla, 10 Misc 2d 96; Leone v. City of New York, 203 Misc. 73; Matter of National Cash Register Co. [Wilson], 8 N Y 2d 377; Schafran & Finkel v. Lowenstein & Sons, 280 N. Y. 164; MacNamara v. Doubleday, 270 App. Div. 645; Matter of Strauss Stores Corp. [Local 830], 189 Misc. 428; Matter of Towns & James [Federal Labor Union], 183 Misc. 181.) III. The Appellate Division properly concluded that the matters submitted to arbitration are sufficiently defined. (Matter of Sarle [Sperry Gyroscope Co.], 4 A D 2d 638, 4 N Y 2d 917; Matter of Grayson-Robinson Stores [Iris Constr. Corp.], 8 N Y 2d 133; Matter of Staklinski [Pyramid Elec. Co.], 6 N Y 2d 159; Matter of Milton L. Ehrlich, Inc. [Unit Frame & Floor Corp.], 5 N Y 2d 275; Matter of Transpacific Transp. Corp. [Sirena Shipping Co.], 9 A D 2d 316, 8 N Y 2d 1048.)
   Chief Judge Desmond.

We granted petitioner leave to appeal so that we might consider certain problems in the law of arbitration.

In 1957 petitioner De Laurentiis, an Italian producer of motion pictures, respondent Cinematográfica, a Panamanian corporation which distributes films, and respondent Enrique Campos Menendez, an author (herein called Campos ”), made a written agreement whereby the three parties covenanted to do what was necessary for the production and distribution of a motion picture to be based on Campos’ biography of the South American patriot Bolivar. De Laurentiis, as producer, was to begin photography within 15 months from the date of the writing and was to complete production within 8 months more and was to devote to the enterprise the major part of his time and effort beginning at the date of the agreement. He was required to engage a writer or writers of the first rank to prepare a story outline, a 1 ‘ screen treatment ’ ’ and thereafter a final scenario. Campos and De Laurentiis were to consult during the preparation of the story outline and scenario. De Laurentiis was to complete a scenario in final form within three months from the date of the agreement and if Cinematográfica did not approve that script De Laurentiis was to revise it. De Laurentiis undertook to make all necessary arrangements for financing, for the hiring of actors and a director and for world distribution of the completed picture, all this to be subject to the prior approval of Cinematográfica which promised not to withhold such approval unreasonably. Cinematográfica made certain other commitments as to financing and distribution. Other provisions required De Laurentiis and Cinematográfica to share expenses up to a total of $150,000. Campos was to act as consultant and give his consent to the use of his book for a fee of $75,000. There were in the contract elaborate provisions whereby, if the final scenario should be unacceptable to De Laurentiis, Cinematográfica should have the right to take over the whole project by reimbursing De Laurentiis for his expenditures.

Paragraph 14 of the contract required that any dispute arising thereunder should be submitted to arbitration in New York City under the rules and regulations of the American Arbitration Association and the laws of New York State, and in connection thereto each of the parties designated residents of New York City to act as their respective agents for the receipt of process in the State of New York. The motion picture has never been produced and respondents charge that De Laurentiis has never engaged a writer for the scenario or performed any of his other obligations under the agreement. On June 20, 1960 New York City attorneys who had been designated as representatives of respondents sent on their behalf to American Arbitration Association a demand for arbitration of the disputes which had arisen out of the contract between their clients and De Laurentiis and sent a copy of this demand to the agent (Serpe) designated by De Laurentiis.

The letter which demanded arbitration stated that the disputes had arisen from a breach by De Laurentiis of 11 numerous provisions of the said contract of November 1, 1957, specifically paragraphs 2, 3, 4, 5, 6 and 8 and his resultant breach of other provisions of the contract dependent for their operations on performance of the obligations imposed by the specified paragraphs.” The paragraphs so specified describe all the obligations undertaken by petitioner De Laurentiis and so the demand for arbitration (read with respondents’ affidavits) charged De Laurentiis with having failed to perform any of the obligations undertaken by him. In the letter of demand, damages of Cinematográfica were claimed in a total of $1,105,000 broken down as follows: advanced to De Laurentiis, $75,000; expenditures for travel and other necessary expenses, $85,000; legal expenses, $20,000; loss of business reputation of Cinematográfica, $150,000; and loss of its profits, $600,000. Damages of respondent Campos (Menendez) were set forth as: loss of his $75,000 fee as consultant and $100,000 damage to his business and professional reputation.

De Laurentiis responded to this demand for arbitration by commencing the present proceeding for a stay. His petition says that his agreement with Cinematográfica and Campos was unenforcible because the promises therein contained were illusory. Also, says he, even assuming the agreement to be valid, the issues and the damages should be limited by the court to those arising directly out of the alleged breach of the agreement.

Special Term denied the application for a stay. The court’s opinion held that petitioner was barred from litigating the validity of the contract because, so the court found, petitioner had participated in the selection of arbitrators and in the arbitration proceeding itself. On appeal the Appellate Division, while agreeing with Special Term that the participation of De Laurentiis had debarred him from litigating any alleged invalidity of the contract, went further and examined into his other allegations: that the contract was illusory and that the demand for arbitration was not sufficiently definite. The Appellate Division ruled against him on both these issues.

The holdings below that petitioner so participated that he can no longer contest the validity of the agreement nor the arbitrability of the dispute were based on a series of letters written on behalf of petitioner to respondents’ representatives in June, July and August, 1960, after receipt by Serpe, petitioner’s designated representative, of respondents’ demand for arbitration. We do not think that the mere requests by petitioner’s agent Serpe for extensions of time were ££ participation ” in the arbitration within the meaning of subdivision 2 of section 1458 of the Civil Practice Act, construed by us in Matter of National Cash Register Co. (Wilson) (8 N Y 2d 377). Reasonably read, the various applications made by Serpe were no more than1 successive requests for time to allow petitioner to decide whether to participate in the selection of arbitrators and in the arbitration proceedings or to begin court proceedings for a stay of arbitration. At the time these letters were written neither party had done anything about selecting the arbitrators. It would be unfair to construe careless language by Serpe (whose authority was limited to receiving process) to mean that petitioner was agreeing to go forward in the arbitration.

We turn now to petitioner’s arguments for a stay. The first of his positions is that the agreement on its face is so lacking-in mutuality that it bound neither party and could not produce an arbitrable dispute. This, however, seems to be completely answered by our decision in Matter of Exercycle Corp. (Maratta) (9 N Y 2d 329). The Exercycle Corporation had argued that its contract with Maratta was illusory since the latter had not specifically agreed to work for life or any other definite period. We pointed out in the Exercycle opinion that the resolution of such a dispute depended primarily on a construction of the agreement and that, when there were permissible differences of interpretation, the issue was for the arbitrators and not for the court. The present agreement, as petitioner points out, does leave to future agreement the approval of the story outline and scenario and failure to approve might put an end to all the obligations. However, De Laurentiis and Campos expressly promised each other to consult at reasonable times and places during the preparation of the outline and of the scenario 1 £ to the end that both De Laurentiis and Campos may make every effort in good faith to cause to be created, within the period specified herein, a story outline, screen treatment and final scenario acceptable to both.” Thus, in addition to the implication of good faith read into every contract (see Wood v. Duff-Gordon, 222 N. Y. 88), we had an express promise of consultation and of good-faith effort to bring to completion a scenario of such form and quality as to be acceptable. It is for the arbitrators to decide what, under all the circumstances, these covenants contemplated and whether petitioner did all that he was thereby required to do.

As his other ground for a stay petitioner attacks the sufficiency of the demand for arbitration, arguing that the issues and damages are stated in much too general terms and that some of the round figure damage items are outside any possible scope of the arbitration clause. We are told that the claim for “ Loss business reputation ” and ‘1 Damage to personal and business reputation ” as well as the items for legal expense and travel and secretarial expenditures describe purely consequential damages not recoverable under the rule of Matter of Marchant v. Mead-Morrison Mfg. Co. (252 N. Y. 284) and De Lillo Constr. Co. v. Lizza & Sons (7 N Y 2d 102). As to the alleged failure of the demand, for arbitration to set forth with definiteness any dispute or disputes, we think the demand (plus the affidavits) is to be read as alleging that petitioner took none of the steps required of him by the agreement and did none of the things he had promised to do. As to whether damages of the kind listed are recoverable, it must be remembered that the parties agreed not only to arbitrate their differences but to do so under the rules of the American Arbitration Association, one of which rules (No. 42) says that the arbitrator in his award may grant any remedy or relief which he deems just and equitable and within the scope of the agreement of the parties ”. The arbitration agreement here called for the submission of “ Any dispute arising under this agreement ’ ’ and was not otherwise limited. When we incorporate rule 42 into that clause we have a grant of power to the arbitrators so broad that it would be inappropriate to determine in advance of an arbitration that there must be eliminated from any award any items of damage which the arbitrators might consider ‘ ‘ just and equitable ’ ’ under the facts as developed before the arbitrators (see Matter of Transpacific Transp. Corp. [Sirena Shipping Co., S. A.], 9 A D 2d 316, affd. 8 N Y 2d 1048).

The order should be affirmed, with costs.

Froessel, J. (concurring).

I concur in the result. In my opinion, the contract is not illusory, and arbitration is, therefore, the appropriate remedy. As to any consequential damages, the arbitrators are bound by our decisions in Matter of Marchant v. Mead-Morrison Mfg. Co. (252 N. Y. 284) and De Lillo Constr. Co. v. Lizza & Sons (7 N Y 2d 102).

Van Voorhis, J. (dissenting).

It is familiar law that courts will not permit arbitrators to change unambiguous contracts nor to make awards of damages which are of so speculative a nature as to be outside of the province of a court of law. There has to be an arbitrable dispute in order to permit arbitration (Matter of International Assn. of Machinists [Cutler-Hammer], 271 App. Div. 917, affd. 297 N. Y. 519; Matter of General Elec. Co. [United Elec. Radio & Mach. Workers], 300 N. Y. 262; Matter of Essenson [Upper Queens Med. Group], 307 N. Y. 68; Matter of Sarle [Sperry Gyroscope Co.], 4 A D 2d 638, affd. 4 N Y 2d 917).

The position of respondent and of the courts below is, in effect, that when parties to a contract containing an arbitration clause get into argument, if any element of the dispute is arbitrable, then the arbitrators have power without limitation by the courts to decide not only the arbitrable element of the controversy but all other matters in difference regardless of whether of themselves these would have constituted arbitrable disputes. In other words, if the contestants disagree about six items, five of which would not be arbitrable if presented alone, all may be submitted to arbitration if one dispute is of an arbitrable nature. Absent that one, nothing could be arbitrated, so the argument runs, under the cases which have been cited; but with that one present, everything else can be arbitrated which the parties choose to disagree about, beyond the control of the courts.

It was held otherwise as recently as Matter of Sarle (Sperry Gyroscope Co.) (4 A D 2d 638, affd. 4 N Y 2d 917, supra). There is no valid reason, it seems to me, on account of which what is arbitrable cannot be submitted to the arbitrators at the same time restraining them from trying or deciding other questions in conjunction therewith which, of themselves, are not subject to arbitration. Neither is there any occasion in my judgment for awaiting the confirmation of the arbitrators’ report if it appears in advance that they have no jurisdiction to try such aspects of the controversy.

This is not just a question of the arbitration of consequential damages. The improbability that parties intend to submit consequential damages to arbitration is so strong that they were held to be excluded from the submission in Matter of Marchant v. Mead-Morrison Mfg. Co. (252 N. Y. 284, 301) in an opinion by Chief Judge C'akdozo, in which he said: “We think there would be surprise and consternation in the trade if under cover of such a clause an architect or engineer could hold a contractor liable for the bankruptcy of the owner, and assess the damages accordingly. The precedents are apt that no such power is conferred (Somerset Borough v. Ott, 207 Penn. St. 539; Young v. Crescent Dev. Co., 240 N. Y. 244).” The Marchant case was followed as recently as De Lillo Constr. Co. v. Lizza & Sons (7 N Y 2d 102, 106), in which the opinion states by Judge Feoessel : ‘ ‘ The instant dispute between Lizza and De Lillo had its origin in the contract and prominently raises issues concerning the rights and obligations of the parties under the contract and in the performance thereunder. It is, therefore, arbitrable, in accordance with the fair meaning of their agreement, except, on the basis of our holding in Matter of Marchant v. Mead-Morrison Mfg. Co., with regard, to one aspect of the claim for consequential damages asserted in the fourth cause of action. As to that claim, the issue of breach of contract is within the scope of the instant submission, but the assessment of damages is not.”

Apart from the fact that an affirmance would, as it seems to me, overrule both the Marchant and De Lillo cases (supra) by injecting the question of consequential damages where neither the arbitration clause nor the rules of the American Arbitration Association contain any reference to them, this is not a case of even consequential damage. Here several items of the damages claimed, which comprise the bulk of the amount for which judgment is sought, are so attenuated that they are not even consequential. The item of $600,000 claimed for loss of profits, for example, and the $150,000 for loss of the business reputation of Cineam could not possibly have been incurred unless under the terms of the agreement the parties had made a further agreement which legally they were entirely free to accept or reject. An agreement to agree is not a binding contract (St. Regis Paper Co. v. Hubbs & Hastings Paper Co., 235 N. Y. 30). In this instance I agree that, in view of the allegation that De Laurentiis did nothing, an arbitrable question is presented concerning whether he should be compelled to return the $75,000 deposit advanced to him and the travel expense of $85,000 plus legal expense and possibly other items incurred on the faith of his taking steps to engage a writer of the first rank to prepare the story outline and to do some other things necessary to launch the project.

Upon the other hand, in view of the terms of the contract and the nature of the undertaking, it is pure speculation .to assume that even if De Laurentiis had done everything which he was required to do the venture would have been successful. The contract states that the scenario is to be based on Campos’ book, but the story outline and screen treatment are subject to the mutual agreement of Campos, Cineam and De Laurentiis. The contract expressly states that work shall not proceed on the preparation of the final scenario until such approval shall have been given. A veto is provided in case the final scenario deviates from the story outline or treatment in various respects. “ Upon the completion and mutual approval by the parties hereto of the final scenario, De Laurentiis undertakes to do all things necessary to the production of the motion picture described in Paragraph ‘ 1 ’ hereof. ’ ’

These are questions about which the parties were yet to agree relating to artistic production. Campos had an absolute veto on whether the dramatization conformed to the theme of his story. Moreover, all of the parties reserved to themselves, under the language above quoted, the right not to proceed unless, after the dramatization had been completed, it seemed to them that it was sufficiently likely to succeed to warrant the further expenditure of time and money.

In Rockcliffe Realty Corp. v. Mutual Life Ins. Co., it was said by Justice Pecora: “In 3 Williston, Contracts, Revised Ed. 1936, § 675A, p. 1947, the author suggests that in determining the construction to be given contracts containing provisions for satisfactory performance, the subject matter of the bargain should be looked into. Where the approval involves 'an affair of individual judgment ’ upon which there can be no standard of reasonableness, there must be personal satisfaction. Wynkoop Hallenbeck Crawford Co. v. Western Union Tel. Co., 268 N. Y. 108, 196 N. E. 760. The contract here falls in the category of those requiring the exercise of individual judgment.” (50 N. Y. S. 2d 851, 853.)

In the case cited it was said in the opinion for the court by Judge Loughran (268 N. Y. 108, 112-113, supra): “ We may assume with the referee that in all this there is no element of taste or fancy in a strict sense. It is here demonstrated, however, that the allocation of administrative and overhead charges ’ to one of many separate undertakings in a single business is in large degree an affair of individual judgment, — an interpretation which is not matter of general agreement in the business community. Under settled principles, therefore, the contract phrase 1 satisfactory to the Electric Company ’ is to be read, not as a stipulation for what court or jury would pronounce satisfactory to a reasonable man, but literally as meaning actually satisfactory to defendant personally. (Duplex Safety Boiler Co. v. Garden, 101 N. Y. 387, 390; Crawford v. Mail & Express Pub. Co., 163 N. Y. 404; American Law Institute, Eestatement of the Law of Contracts, § 265.) ”

The latter quotation from the WynTcoop case in the excerpt from Judge Loughran’s opinion shows that this rule requiring actual literal satisfaction, not what a court or jury would pronounce satisfactory to a reasonable man, is not confined to situations involving an element of taste or fancy. In the present appeal, however, that is definitely what the clause requiring future consent does cover. It would be difficult to find a situation where that was more literally true than in the determination of whether a scenario follows the theme of a novel in the opinion of the author.

Consequently there could be no profit and no injury to reputation of any one in case of-failure to which liability could extend, even though De Laurentiis had engaged the scenario writer of first rank and taken the other preliminary steps to set this ventare in motion. No one could know with any certainty, not even enough to spell out consequential damages, whether the scenario would have been accepted by the parties under this clause giving each of them an express veto.

To permit arbitrators to say that they would or would not have accepted and approved of a scenario that was never written is the antithesis of the rule of law. If issues which could not be adjudicated in a court of law on account of the speculative nature of the damage can be the subject of arbitration, a lawyer who understands his duty would not be likely to permit a client to sign a contract of this nature containing* an arbitration clause. The majority opinion concludes by saying* “we have a grant of power to the arbitrators so broad that it would be inappropriate to determine in advance of an arbitration that there must be eliminated from any award any items of damage which the arbitrators might consider ‘ just and equitable ’ under the facts as developed before the arbitrators (see Matter of Transpacific Transp. Corp. [Sirena Shipping Co., S. A.], 9 A D 2d 316, affd. 8 N Y 2d 1048).” (Italics supplied.)

This language contains a broad inference that whatever the arbitrators consider just and equitable by way of loss of profits, reputation or anything else about which the parties have argued, would be final and conclusive in any event. The Courts and the Bar are deeply interested, I think, in knowing whether if arbitrators go out of bounds in a matter of this kind it is premature to raise the point before the arbitration begins and too late to raise it afterwards. The questions to be submitted to the arbitrators should be limited, it seems to me, by eliminating at least the claim for $600,000 loss of profits and the damages for loss of personal and business or professional reputation by reason of the nonproduction of the scenario. Nothing can be gained by protracted litigation of those matters before the arbitrators who are incapacitated by the contract from awarding any sums to be recovered by reason thereof.

Judges Dye, Fuld, Burke and Foster concur with Chief Judge Desmond;- Judge Froessel concurs in result in a separate memorandum; Judge Van Voorhis dissents in an opinion.

Order affirmed.


author: Foster, J.

text:
    Lanvin Parfums, Inc., Appellant, v. Le Dans, Ltd., et al., Respondents, et al., Defendants.
    Argued March 21, 1961;
    decided April 27, 1961.

      Jay Leo Rothschild for appellant.
    I. Subdivision 6 of section 2354 of the Penal Law is clear and explicit. The result is that there is neither need nor justification for interpretation or construction which erases from the statute what the Legislature plainly decreed. (People v. Shapiro, 4 N Y 2d 597; Matter of Andrews, 162 N. Y. 1; People v. Krivitsky, 168 N. Y. 182; People v. Luhrs, 195 N. Y. 377; Matter of Julius Restaurant v. Lombardi, 282 N. Y. 126; Homnyack v. Prudential Ins. Co., 194 N. Y. 456; Ely v. Holton, 15 N. Y. 595; People v. Kibler, 106 N. Y. 321; Low v. Hall, 47 N. Y. 104; Mabie v. Fuller, 255 N. Y. 194; Newell v. People ex rel. Phelps, 7 N. Y. 9; Matter of Russo v. Valentine, 294 N. Y. 338; Matter of River Brand Rice Mills v. Latrobe Brewing Co., 305 N. Y. 36; Matter of De Peyster, 210 N. Y. 216.) II. The Luhrs case, decided by this court, was predicated upon subdivision 6, as written, and on that basis this court held that the statute which made it a misdemeanor, irrespective of any fraudulent intent, to sell a trade-marked product except in its original package was a valid exercise of the State’s police power to prevent fraud. (Ewen v. Thompson-Starrett Co., 208 N. Y. 245; People ex rel. American Express Nat. Bank v. Purdy, 196 N. Y. 270; Smith v. Scholtz, 68 N. Y. 41; Matter of Fanoni, 88 Misc. 442, 169 App. Div. 958, 216 N. Y. 640; Chance v. Guaranty Trust Co. of N. Y., 164 Misc. 346, 251 App. Div. 855; People v. Kibler, 106 N. Y. 321; People v. Cipperly, 37 Hun 319, 101 N. Y. 634; Pollard v. Trivia Bldg. Corp., 291 N. Y. 19; Matter of Engelsher v. Jacobs, 5 N Y 2d 370; Lawton v. Steele, 119 N. Y. 226, 152 U. S. 133; Matter of Stubbe v. Adamson, 220 N. Y. 459; People v. West, 106 N. Y. 293; People v. Beakes Dairy Co., 222 N. Y. 416; Federal Trade Comm. v. Winsted Co., 258 U. S. 483; Fisher v. Star Co., 231 N. Y. 414; People v. Leonard, 8 N Y 2d 60.) III. Should it be deemed that the Luhrs case did not decide the issue here presented, and if, therefore, the occasion for its decision be taken to limit the rationale of the decision itself, then the least that may be said is that the issue is open and must now be decided for the first time. As an original proposition, subdivision 6 is too plain to warrant interpretation or construction and is constitutionally valid. (People v. Kibler, 106 N. Y. 321; Knapp v. Fasbender, 1 N Y 2d 212; Matter of Hotel Assn. of N. 7. City v. Weaver, 3 N Y 2d 206; Headley v. City of Rochester, 272 N. Y. 197; Matter of Brous v.
      Smith, 304 N. Y. 164; Guerlain, Inc., v. Woolworth Co., 297 N. Y. 11; Adrian v. Unterman, 281 App. Div. 81, 306 N. Y. 771; Electrolux Corp. v. Val-Worth, 6 N Y 2d 556; Lincoln Bldg. Associates v. Barr, 1 N Y 2d 413.) IV. The Prestonettes case is without application. It certainly did not pass on any issue as to the constitutional validity of subdivision 6 of section 2354 of the Penal Law, nor did it limit New York’s power to enact preventative legislation to protect the public and the trade-mark owner. New York’s Penal Law provisions supplement the National trade-mark acts and New York’s trade-mark acts, as well as common-law trade-marks, by protective and preventive police power measures. (Prestonettes, Inc., v. Coty, 264 U. S. 359; Trade-Mark Cases, 100 U. S. 82; Oneida Community v. Oneida Game Trap Co., 168 App. Div. 769; Brown & Bigelow v. Remembrance Adv. Prods., 279 App. Div. 410, 304 N. Y. 909; Erie R. R. Co. v. Tompkins, 304 U. S. 64; Bourjois, Inc., v. Hermida Labs., 106 F. 2d 174; Association of Contr. Plumbers v. Contracting Plumbers Assn., 302 N. Y. 495; Matter of Julius Restaurant v. Lombardi, 282 N. Y. 126.) V. Plaintiff is entitled to an injunction to protect its good will and property rights. (Metropolitan Opera Assn. v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 279 App. Div. 632; Fisher v. Star Co., 231 N. Y. 414; People ex rel. Bennett v. Laman, 277 N. Y. 368.) VI. The complaint states a sufficient cause of action against the individual defendants. (Morgenstern v. Cohon, 2 N Y 2d 302; California Packing Corp. v. Kelly Stor. & Distr. Co., 228 N. Y. 49; Abrams v. Allen, 297 N. Y. 52; Michaels v. Lispenard Holding Corp., 11 A D 2d 12; Quaid v. Ratkowsky, 183 App. Div. 428, 224 N. Y. 624; People v. Dalsis, 5 A D 2d 28; People v. Sherman, 133 N. Y. 349; People v. Ahrend Co., 308 N. Y. 112.)

      Robert Goldstein for respondents.
    I. The decision of the Supreme Court of the United States in Prestonettes, Inc., v. Coty (264 U. S. 359) permitted rebottling and relabeling of a trade-marked article and held in reversing (285 F. 501) that such rebottling, repackaging and relabeling as done by corporate respondents was not a violation of subdivision 6 of section 2354 of the Penal Law. (People v. Luhrs, 195 N. Y. 377.) II. Subdivision 6 of section 2354 of the Penal Law does not prohibit rébotiling, and the courts cannot read into such section an intention never expressed by the Legislature. (People v. Daly, 244 N. Y. 278; People v. Goetz, 234 App. Div. 421; People v. Hoffheimer, 110 App. Div. 423; People v. Briggs, 193 N. Y. 457; People v. Harms, 308 N. Y. 35; People v. Grogan, 260 N. Y. 138; Kennahan v. City of New York, 162 App. Div. 364; Furey v. Town of Gravesend, 104 N. Y. 405; City of Rochester v. Rochester Gas & Elec. Corp., 233 N. Y. 39; People v. Dioguardi, 8 A D 2d 426; People v. Grant, 14 Misc 2d 182.) III. In the event the construction of subdivision 6 of section 2354 of the Penal Law, as urged by appellant, is adopted, then and in such event the statute must be declared unconstitutional as depriving the corporate defendants of their property without due process of law and depriving them of their right to earn a livelihood. (Nashville C. & St. L. Ry. v. Walters, 294 U. S. 405; Liggett Co. v. Baldridge, 278 U. S. 105; People v. Perretta, 253 N. Y. 305; People ex rel. Appel v. Zimmerman, 102 App. Div. 103; New State Ice Co. v. Liebmann, 285 U. S. 262; Ives v. South Buffalo Ry. Co., 201 N. Y. 271; Cowan v. City of Buffalo, 247 App. Div. 591; People ex rel. Moskowitz v. Jenkins, 202 N. Y. 53.) IV. Subdivision 6 of section 2354 of the Penal Law would be unconstitutional if, as contended by appellant, the law regulates the price that may be charged as alleged in paragraphs No. 6 and No. 7 of the complaint. (United States v. Colgate & Co., 250 U. S. 300; Federal Trade Comm. v. Beech-Nut Co., 257 U. S. 441; Dr. Miles Med. Co. v. Park & Sons Co., 220 U. S. 373.) V. No facts are. alleged in the complaint as against the individual defendants and the complaint as to them was properly dismissed. (Potter v. Minskoff, 2 A D 2d 513; Fermetal Steel Corp. v. Heckett, 6 A D 2d 781; Greenauer v. Sheridan-Brennan Realty Co., 224 App. Div. 199; Lowendahl v. Baltimore & Ohio R. R. Co., 247 App. Div. 144, 272 N. Y. 360; International Aircraft Trading Co. v. Manufacturers Trust Co., 297 N. Y. 285; Gerdes v. Reynolds, 281 N. Y. 180; Villani v. National City Bank, 143 Misc. 416.)

      B. von Maltitz, W. J. Derenberg, L. Kunin, V. T. Giordano and S. Michelman for Chanel Industries, Inc., and another, amici curice.

    I. Assuming, arguendo, that the Appellate Division was correct in its construction of subdivision 6 of section 2354, the Prestonettes case and the cases which follow it indicate clearly that the conduct complained of herein is deceptive. Hence, the complaint should be upheld against a motion to dismiss. (Prestonettes, Inc., v. Coty, 264 U. S. 359; Coty v. Blume, 24 F. 2d 924; Bourjois, Inc., v. Hermida Labs., 106 F. 2d 174.) II. The Appellate Division was incorrect when it failed to recognize that sound policy considerations require a literal reading of subdivision 6 of section 2354. (Matter of Debs, 158 U. S. 564.)
   Foster, J.

By a divided court, the complaint of the plaintiff in this action has been dismissed by the Appellate Division, First Department, on the ground that it does not state facts sufficient to constitute a cause of action. This was a reversal of the Special Term which held the complaint sufficient.

In four identical causes of action the complaint alleges that plaintiff is a Delaware corporation which imports various perfumes and perfume extracts from France, and sells the same either in original packages as imported, or as toilet water which plaintiff packages in this State under labels, marks and names placed thereon for and by plaintiff, and under brand names, including ‘ ‘ Arpege ’ ’ and ‘ ‘ My Sin ’ ’. The complaint alleges further that the corporate defendants are purchasers of plaintiff’s toilet waters, who systematically rebottle or repackage the same in containers of one dram each and sell them at prices far less than those charged by plaintiff.

On the theory that the defendants ’ alleged practice is a violation of. subdivision 6 of section 2354 of the Penal Law, plaintiff seeks an injunction and damages. This statute provides, so far as it'is material here :

‘ ‘ A person who:

* # #

“ 6. Knowingly sells, offers or exposes for sale, any goods which are represented in any manner, by word or deed, to be the manufacture, packing, bottling, boxing or product of any person, firm or corporation, other than himself, unless such goods are contained in the original package, box or bottle and under the labels, marks or names placed thereon by the manufacturer who is entitled to use such marks, names, brands or trade-marks; or,

* # #

Is guilty of a misdemeanor ”.

The containers used by the defendants bear labels which identify the contents as plaintiff’s product, and which, in addition, disclose that the contents are rebottled from the genuine

product “ wholly independent of [the plaintiff] ”. The form of the labels was stipulated into the record and reads as follows, with changes appropriate to each of the corporate defendants:

“LANVIN’S ARPEGE Eau de Lanvin REBOTTLED FROM THE GENUINE PRODUCT
By
Le Dans, Ltd.
WHOLLY INDEPENDENT Of LANVIN
New York, N. Y. 1 Dram ”

The Appellate Division has held that the statute does not prohibit a rebottler from using the trade name of the manufecturer or original bottler, if, in addition, the rebottler indicates on the label that the product has been rebottled independent of the manufacturer or original bottler.

Plaintiff argues that the statute is designed to protect both trade-mark owners and the general public from transactions fraught with the possibility of fraud and that no actual intent to deceive need be shown to constitute a violation thereof. Defendants contend that the statute was designed to prohibit actual fraud and must be read to allow their business practice involving, as it does, a full disclosure of the facts.

If the statute is construed literally, the complaint clearly alleges a violation by the defendants.

The evident purpose of the statute is such that it may and should be read and construed literally. We agree with the observation of the dissenting Justice below that there is no basic rule that a statute may not be read literally unless to do so would distort the intention of the Legislature.

In People v. Luhrs (195 N. Y. 377) the statute here involved was analyzed by this court. A bartender had refilled an empty Wilson bottle with whiskey taken from a demijohn below the bar, and had resold the whiskey to the public. We held that his conduct violated the provisions of the statute, notwithstanding that the whiskey actually might have been of the Wilson brand. We specifically said that the statute was designed to prevent adulteration and substitution of “ spurious goods ” for the original with “ no probable chance ” of discovery, and to prevent ‘ ‘ a kind of fraud that is easy to practice, difficult to detect and dangerous in result ” (supra, p. 382).

It is true that we stressed the tacit misrepresentation inherent in the situation and pointed out that the public was led to believe that the whiskey they purchased came from the original Wilson bottle. But the violation consisted of rebottling and reselling the whiskey under the Wilson brand name, irrespective of an actual fraud.

The possibility of fraud, or at least of inadvertent adulteration or dilution of the original product, is not appreciably lessened by a label on the new container acknowledging that the product has been rebottled from the original. And the rebottler nevertheless is trading upon the reputation of the owner of the trade-mark. Accordingly, no exception is made in the statute for collateral use ” of the manufacturer’s trade-mark (cf. Guerlam, Inc., v. Woolworth Co., 297 N. Y. 11, 19, cert. den. 332 U. S. 837).

In creating this statute to prohibit transactions and business practices replete with possibilities of fraud and deception and to protect the trade-mark owner, the Legislature acted well, within the scope of its police power (People v. Weller, 237 N. Y. 316, 324; People v. Beakes Dairy Co., 222 N. Y. 416, 427-428; People v. West, 106 N. Y. 293, 296). No sound reasons for departing from a literal construction of the statute have been presented.

' Defendants cite Prestonettes, Inc., v. Coty (264 U. S. 359, 368-369) in support of their position. In that case, the Supreme Court of the United States held that rebottling and reselling of perfumes by the defendant, under labels substantially similar to the labels used by defendants in the case before us, constituted no infringement of plaintiff’s federally registered trade-mark, despite the “ omnipresent possibility of fraud ” and the likelihood of spoliation. But that case was not decided under our statute, and has no bearing here.

In Champion Plug Co. v. Sanders (331 U. S. 125) the Supreme Court extended the doctrine of Prestonettes to rule out unfair competition, but again our statute was not involved.

Significantly, the doctrine of Prestonettes has been severely criticized by the writers (e.g., Handler and Pickett, “ TradeMarks and Trade Names—An Analysis and Synthesis ”, 30 Col. L. Rev. 168, 173; Derenberg, “ Sale of Reconditioned Articles as Trade Mark Infringement ”, 32 Bulletin of United States Trade Mark Assn. [N. S.], p. 15), and by the lower Federal courts (e.g., Bourjois, Inc., v. Hermida Labs., 106 F. 2d 174 [3d Cir., 1939]). Thus, in Bourjois, the United States Circuit Court of Appeals said: “In that case \Prestonettes1 Mr. Justice Holmes lent the prestige of his great name to a doctrine that does not appeal very greatly to the sense of fairness of the ordinary man ”.

Defendants next contend that plaintiff seeks an injunction to prevent the violation of a criminal statute, and that an injunction will not lie merely to prevent a crime. But the alleged criminal acts also threaten plaintiff’s property rights, trademark, and good will, and an injunction, therefore, is available (People ex rel. Bennett v. Laman, 277 N. Y. 368, 376).

Finally, there is some dispute as to whether the complaint sets forth causes of action against the individual defendants simply by alleging that they are officers, ‘ ‘ and, directly or indirectly ’ ’ are owners of the corporate stock and in control of corporate activities. We feel that such allegations are sufficient in this action.

The judgment of the Appellate Division should be reversed and the motion to dismiss the complaint should be denied, with costs.

Judges Dye, Froessel, Van Voorhts and Burke concur with Judge Foster; Chief Judge Desmond and Judge Fuld dissent and vote to affirm upon the majority opinion below.

Judgment reversed, with costs in this court and in the Appellate Division, and matter remitted to Special Term for further proceedings in accordance with the opinion herein.


author: Fuld, J.

text:
    In the Matter of Old Republic Life Insurance Company et al., Appellants, v. Julius S. Wikler, as Superintendent of Insurance of the State of New York, Respondent.
    Argued March 30, 1961;
    decided April 27, 1961.

      John P. McGrath and Alfred A. Bohlinger for appellants.
    I. The Superintendent’s attempt at industry-wide rate-making is unprecedented and in excess of his statutory powers. (Matter of National Bur. of Cas. Underwriters v. Superintendent of Ins. of State of N. Y., 6 A D 2d 73; Woollcott v. Shubert, 217 N. Y. 212; People v. Ryan, 274 N. Y. 149; Matter of Northwestern Nat. Ins. Co. v. Pink, 288 N. Y. 359; Matter of Brooklyn Hosp. v. Donlon, 309 N. Y. 520; Matter of Levine v. O’Connell, 275 App. Div. 217; Matter of Metropolitan Life Ins. Co. v. Conway, 252 N. Y. 449; Gair v. Peck, 6 N Y 2d 97; Matter of New Jersey Fid. & Plate Glass Ins. Co. v. Van Schaick, 236 App. Div. 223, 261 N. Y. 521.) II. Section 7 of the regulation is in any event illegal, arbitrary, capricious and unreasonable. III. Regulation 27A is invalid and illegal in that there is no legislative warrant for the arbitrary and capricious restrictions on coverage which it contains. IV. Regulation 27A violates section 141 of the Insurance Law and is a nullity insofar as it attempts summarily to outlaw the further use in this State of. all previously approved policies, forms and premium rates. V. Sections 154 and 204 (subd. 1, par. [c]), if construed to authorize the Superintendent to issue Regulation 27A, are unconstitutional. (Panama Refining Co. v. Ryan, 293 U. S. 388; Darweger v. Staats, 267 N. Y. 290; Matter of Federal Tel. & Radio Corp. [Corsi], 301 N. Y. 95; Packer Collegiate Inst. v. University of State of N. Y., 298 N. Y. 184; Matter of Concordia Collegiate Inst. v. Miller, 301 N. Y. 189; Matter of Fink v. Cole, 302 N. Y. 216; Matter of Levine v. O’Connell, 275 App. Div. 217; Boord v. O’Brien, 277 App. Div. 253; Matter of Barry v. O’Connell, 303 N. Y. 46.) VI. The cross motion for an order dismissing the proceeding was properly denied. (Kane v. Walsh, 295 N. Y. 198; Matter of United Med. Serv. v. Holz, 5 Misc 2d 999, 4 A D 2d 1017.)

      Louis J. Lefkowits, Attorney-General {Samuel A. Hirshowits and Paxton Blair of counsel), for respondent.
    I. The provisions in the regulation by means of which filings which comply therewith receive speedy approval and others are processed by separate consideration are in accordance with statutory mandate and the authority reposed in the Superintendent. (Matter of Personal Finance Co. v. Lyon, 203 Misc. 710; Matter of Taub v. Pirnie, 3 N Y 2d 188; Matter of Luxemberg v. Stichman, 2 A D 2d 605; Matter of Kathy Realty Corp. v. McGoldrick, 281 App. Div. 850; Matter of Tilelli v. Christenberry, 1 Misc 2d 139; Securities Comm. v. Chenery Corp., 318 U. S. 80, 332 U. S. 194; Matter of Mandel v. Board of Regents, 250 N. Y. 173; Matter of Union Ins. Agency v. Holz, 1 A D 2d 945, 1 N Y 2d 644; Gair v. Peck, 6 N Y 2d 97; Matter of Schwab v. Grant, 126 N. Y. 473; Matter of Guardian Life Ins. Co. of America v. Bohlinger, 284 App. Div. 110, 308 N. Y. 174, 308 N. Y. 810; Matter of New York Compensation Ins. Rating Bd. v. Superintendent of Ins. of State of N. Y., 8 A D 2d 455, 8 N Y 2d 803; Matter of Smith v. Wikler, 10 A D 2d 195; Matter of Humphrey v. State Ins. Fund, 298 N. Y. 327; Matter of Corcillo v. Bohlinger, 3 A D 2d 993, 3 N Y 2d 942; Matter of Marburg v. Cole, 286 N. Y. 202.) II. Old Republic was not an aggrieved party and was not entitled to maintain an article 78 proceeding. The cross motion should have been granted. (Matter of Dairymen’s League Co-op. Assn. v. Du Mond, 282 App. Div. 69; Matter of Mount Hope Development Corp. v. James, 233 App. Div. 284, 258 N. Y. 510; Lederman v. Board of Educ. of City of N. Y., 276 App. Div. 527, 301 N. Y. 476; Eccles v. Peoples Bank, 333 U. S. 426; Standard Scale Co. v. Farrell, 249 U. S. 571; Matter of

      State Ind. Comm., 224 N. Y. 13; Matter of Guardian Life Ins. Co. of America v. Graves, 268 App. Div. 809, 294 N. Y. 953; Leonard v. John Hancock Mut. Life Ins. Co., 281 App. Div. 859; Dog Owners Assn. of N. Y. State v. Hilleboe, 206 Misc. 119, 307 N. Y. 734; Berkshire Fine Spinning Assn. v. City of New York, 5 N Y 2d 347.) III. There is no procedural objection under section 141 of the Insurance Law existent or available to petitioners. (Matter of Cohen v. Splain, 291 N. Y. 558; Matter of Metropolitan Life Ins. Co. v. Conway, 252 N. Y. 449; Kocak v. Metropolitan Life Ins. Co., 237 App. Div. 780, 263 N. Y. 518; Graybar Elec. Co. v. New Amsterdam Cas. Co., 292 N. Y. 246; Matter of Blatnicky v. Ciancimino, 1 A D 2d 383, 2 N Y 2d 943; Erie County Water Auth. v. Kramer, 4 A D 2d 545.) IV. No constitutional issues are involved here. In any event, there is lacking any basis for a challenge to the amended statute. (Bull v. Stichman, 298 N. Y. 516; Matter of Bergerman v. Gerosa, 3 N Y 2d 855; Matter of Guardian Life Ins. Co. v. Chapman, 302 N. Y. 226; Matter of People [International Workers Order], 305 N. Y. 258; Matter of Union Ins. Agency v. Holz, 1 A D 2d 945, 1 N Y 2d 644, 2 N Y 2d 727, 353 U. S. 932; Matter of West v. Bohlinger, 282 App. Div. 986; Matter of Dougherty v. State Harness Racing Comm., 286 App. Div. 837, 309 N. Y. 992, 1 N Y 2d 827; Linehan v. Waterfront Comm., 116 F. Supp. 683, 347 U. S. 439, 347 U. S. 994; Matter of Bell v. Board of Regents, 295 N. Y. 101; City of Utica v. Water Pollution Control Bd., 5 N Y 2d 164; Yakus v. United States, 321 U. S. 414.)
   Fuld, J.

The petitioners, two life insurance companies, brought this article 78 proceeding to annul a regulation (No. 27A) of the Superintendent of Insurance with respect to premium rates for credit life insurance, promulgated pursuant to sections 154 and 204 of the Insurance Law. The court at Special Term granted the application and annulled the regulation. The Appellate Division unanimously reversed and dismissed the petition.

A prominent feature of modern installment buying has been the growth of credit life insurance to pay off any balance remaining on a retail installment contract upon a buyer’s death or disablement before the end of the contract term. Prior to 1958, the premium rates and policy forms for such credit life insurance were not subject to thé approval of the Superintendent of Insurance as were those for accident or health insurance pursuant to section 154, subdivision 1, of the Insurance Law. As a result, premium rates for credit life insurance-—which, under section 302, subdivision 6, of the Personal Property Law, may be charged against the buyer — were often excessive and there was a great variance in rates ‘ ‘ without apparent reason ’ ’ (Report of Joint Legislative Committee on Commerce and Economic Development, N. Y. Legis. Doc., 1958, No. 84, pp. 65-66, 75).

It was to correct these abuses in the credit life insurance field that the Legislature in 1958 enacted the amendments to sections 154 and 204 of the Insurance Law here involved. As indicated above, subdivision 1 of' section 154 had required the filing of accident "or health insurance policy forms and rates with the Superintendent and their approval by him. By the addition of subdivision 7 to that section, the same requirements were prescribed, in more forceful terms, for credit life insurance. Subdivision 7 recites that, “ Without limiting his other powers and duties under this section, the superintendent shall not approve any such forms or premium rates if such premium rates are unreasonable in relation to the benefits provided ” and authorizes the Superintendent “from time to time” to “ prescribe, in writing, official regulations ” dealing with credit insurance. Subdivision 1 (par. [c]) of section 204, which deals with group life insurance premium rates, was similarly amended and contains almost identical provisions for the Superintendent’s approval of rates and his right to make occasional official regulations. The provisions with respect to written regulations are in accord with the general powers granted the Superintendent in section 21 of the Insurance Law ‘ ‘ to prescribe, in writing, official regulations, not inconsistent with the provisions of this chapter ”, including regulations “effectuating any power, given to him” thereunder (subd. [b]).

Pursuant to these statutory amendments, and after notice and an industry-wide hearing held on August 5,1958, the Superintendent promulgated Regulation 27A. In addition to general rules for filing and approval, subdivision A of section 7 of the regulation set forth premium rates, later referred to as “ standards ” for premium rates, based on studies by the Insuranee Department, which, the section declares, “will he considered adequate and not unreasonable in relation to the benefits provided ”. It was chiefly because of these “ standards ” that the petitioners, in September, 1958, brought the present proceeding to annul the regulation, pointing out that the Superintendent had never set forth any such rates for regular life and accident or health insurance rates under subdivision 1 of section 154. They contended that the regulation thereby authorized the Superintendent to fix rates, a power never granted him under the statutes, and that the rates which he prescribed would force them to discriminate among policyholders.

In December, 1958, more than three months after the hearing and probably as a result of the petitioners’ proceeding, the Superintendent amended Regulation 27A by adding a new subdivision C to its section 7 to permit insurers to establish independently factors or conditions to justify higher rates than those suggested by the Superintendent in subdivision A of section 7. Thus, subdivision C provided in part:

“ Nothing herein, however, shall preclude an insurer from filing for the approval of the Superintendent of Insurance rates or identifiable charges which exceed the standards in A and B, above, provided such insurer shall demonstrate to the Superintendent of Insurance that the filing conforms to the standards prescribed in subsection 7 of Section 154 of the Insurance Law.”

The new subdivision C still did not satisfy the petitioners. They filed a supplemental petition to annul Regulation 27A upon the same grounds as those previously advanced.

Before treating the issues raised by the petitioners, we note the Superintendent’s argument that they are not entitled to maintain the present proceeding because, until they apply for approval of their rates, they are not aggrieved by the regulation. It is our view, however, that section 34 of the Insurance Law provides that any “ regulation ” as well as any order or decision of the Superintendent is subject to article 78 review. The statute does not require that only action taken in pursuance of a regulation may be reviewed, and we deem it clear that insurers obliged to comply with the regulation are entitled to question its validity.

Section 154 (subd. 7) and section 204 (subd. 1, par. [c]) of the Insurance Law authorize the Superintendent to disapprove premium rates which are “unreasonable in relation to the benefits provided” and direct him to prescribe regulations for determining procedures and terms applicable to credit insurance policies. Whether or not this permits him to make or fix rates, it is well within his statutory powers to suggest reasonable ones (Beg. 27A, § 7, subd. A) as a sort of guide or “bench mark ” for insurers, while affording them freedom to show that higher rates would not be unreasonable (§ 7, subd. C). Certainly, there is no difference between the direction in section 154, subdivision 7, that the Superintendent ‘ ‘ shall not approve ’ ’ rates which are unreasonable in relation to benefits and the converse provision in section 7, subdivision C, that an insurer may obtain the Superintendent’s “ approval” upon demonstrating that its suggested rates, though not adhering to the “ standards ” proposed by the Insurance Department, do “ conform to the standards prescribed ” in section 154, subdivision 7.

The statutory command contained in the amendments to sections 154 and 204 that the Superintendent ‘ ‘ shall not approve ’ ’ ‘ ‘ unreasonable ’ ’ credit insurance rates is an additional and more emphatic delegation of power than that found in section 154, subdivision 1, namely, that the Superintendent “ may disapprove ” rates filed by insurers. As Presiding Justice Bergax, writing for the Appellate Division, observed, ‘ ‘ the power to make wholly inoperative a premium rate proposed by an insurer is manifest; and while this in form may be a vetoing or negativing form of public power, it is clear that no effective or lawfully chargeable premium rate can come into existence without the affirmative act of the Superintendent.” Indeed, the opinion continued, “ Whether the Superintendent makes rates, or allows rates which he approves to come into force, seems something of an exercise in semantics.”

Instances in which this court has upheld special rules made pursuant to broad statutory powers granted administrative officials are numerous. (See, e.g., Matter of Ross v. Macduff, 309 N. Y. 56; Matter of Humphrey v. State Ins. Fund, 298 N. Y. 327, 331; Matter of Marburg v. Cole, 286 N. Y. 202; see, also, Gair v. Peck, 6 N Y 2d 97.) In the Ross case (309 N. Y. 56, supra), the court upheld and applied a “ point system ” adopted by the Bureau of Motor Vehicles to determine whether an operator was a “persistent violator” within the meaning of the statute for purposes of license suspension or revocation. In Ross the point system was, in a sense, a statement in advance by an administrative agency of standards applied by it in passing upon the statutory standard for determining a ‘1 persistent violator ’ ’. Likewise, in the present case, the Superintendent’s declaration of standards is simply a declaration in advance that certain rates are so plainly reasonable 1 £ in relation to the benefits provided” (§ 154, subd. 7) as to require no further detailed consideration by the Superintendent in the ordinary rate application.

In point of fact, a standard announced in advance is often in aid of sound administration and the fair exercise of public power. In the case before us, it will afford an insurer a shortcut method of securing approval for premium rates. . (Cf., e.g., Gair v. Peck, 6 N Y 2d 97, supra; Securities Comm. v. Chenery Corp., 318 U. S. 80, 92; 332 U. S. 194.) In the Gair case, for instance, this court upheld the rule promulgated by the Appellate Division fixing a sliding scale of attorneys’ contingent fees deemed fair and reasonable and declaring that fees in excess of the scale would constitute ££ the exaction of unreasonable and unconscionable compensation ” (6 N Y 2d, at p. 101). This did not, though, preclude the grant of larger compensation in the event of 11 extraordinary circumstances ’ ’ rendering the scale allowances inadequate.

The petitioners contend, however, that Regulation 27A, and in particular its subdivision C of section 7, shifts the burden of proof with respect to. reasonableness of rates from the Superintendent to the insurer. More specifically, they argue that, although it is up to the Superintendent, when he disapproves rates filed by the insurer, to show that they are unreasonable ££ in relation to the benefits provided ” (§ 154, subd. 7), it is incumbent upon the insurer, by reason of subdivision 0, to ‘1 demonstrate ’ ’ that rates higher than those contained in the standards specified in subdivision A ‘£ conform ’ ’ to the criterion laid down in section 154, subdivision 7. The point does not impress us. The fact is that, with or without the regulation, the insurer must establish by ordinary principles of administrative law that its filing should be approved, in other words, that such filing meets the statutory standards. Whether the Superintendent fails to ££ approve ” premium rates filed by an insurer or finds that the insurer has failed to ‘1 demonstrate ’ ’ that its proposed rates, higher than the suggested standards, are reasonable, the insurer must, in either ease, seek judicial review in order to annul the Superintendent’s determination. In either event, the insurer has the burden, under familiar rules governing-administrative review, of demonstrating that the Superintendent did not base his determination on adequate proof. (See, e.g., Matter of New York Compensation Ins. Rating Bd. v. Superintendent of Ins. of State of N. Y., 8 A D 2d 455, 459, affd. 8 N Y 2d 803; Matter of Ebenstein v. Pink, 275 N. Y. 613.)

In short, whether an insurer files its rates for approval or seeks to prove that the statutory conditions have been met, the requirement for obtaining such approval is the same. The premium rates must be not ‘ unreasonable in relation to the benefits provided”. Subdivision 0 of section 7 is only a restatement of the insurer’s statutory responsibility and does not alter its obligation.

The petitioners make a number of arguments addressed to the merits of subdivision A of section 7, contending that it is discriminatory, that it eliminates competition and that it contains arbitrary and unreasonable restrictions on coverage. Since, however, the insurer has the choice of proceeding under subdivision C, as to which none of these contentions is applicable, nothing- is to be gained by a detailed consideration of them.

Nor is there any substance to the petitioners’ further argument that section 154 (subd. 7) and section 204 (subd. 1, par. [c]), as construed by the Appellate Division, contain no standards to guide the Superintendent in promulgating Regulation 27A and, consequently, effect an unconstitutional delegation of legislative power (N. Y. Const., art. Ill, § 1). The standards laid down in these statutes, that the premium rates approved, be not “ unreasonable-in relation to the benefits provided ”, are fully as specific and clear as other statutory standards which this court has upheld. (See, e.g., Matter of Ross v. Macduff, 309 N. Y. 56, supra [“ habitual or persistent violation ” of the Vehicle and Traffic Law]; see, also, Matter of Union Ins. Agency v. Hols, 1 A D 2d 945, motion for leave to appeal den. 1 N Y 2d 644 [“ untrustworthiness ” of an insurance agent]; Matter of Bell v. Board of Regents, 295 N. Y. 101 [‘ ‘ unprofessional conduct ”].) In view of the need for practicality and flexibility in laying down standards in areas involving administrative detail and complexity (see, e.g., Matter of City of Utica v. Water Pollution Control Bd., 5 N Y 2d 164, 169), it may not "be said that the present standards are either so vague or otherwise inadequate as to amount to an unconstitutional delegation of legislative power.

The order of the Appellate Division should be affirmed, with costs.

Chief Judge Desmond and Judges Dye, Froessel, Van Voorhis, Burke and Foster concur.

Order affirmed.