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Cathay Cathay, Inc. v. Vindalu, LLC

Superior Court of Rhode Island

July 5, 2018

CATHAY CATHAY, INC. and SURF & TURF GRILLE, INC.
v.
VINDALU, LLC d/b/a GOURMET INDIA, and ROUSE PROVIDENCE, LLC Tenant Date of Lease Date Opened Date Vacated Exclusive Prohibition

          Superior Court Providence County

          For Plaintiff: John J. DeSimone, Esq.

          For Defendant: Rachelle R. Green, Esq.; Stacey P. Nakasian, Esq.

          DECISION

          LICHT, J.

         Before this Court is the sticky question of which competing food-court vendors had the right to sell certain oriental foods-primarily various types of rice-at the Providence Place Mall (Providence Place or the Mall). Two vendors, Cathay Cathay, Inc. (Cathay Cathay) and Surf & Turf Grille, Inc. (Surf & Turf) (collectively Plaintiffs), brought the instant action against fellow food-court competitors Vindalu, LLC d/b/a Gourmet India (Gourmet India) and Japan Café of Providence Place (Japan Café), as well as their landlord Rouse Providence, LLC (Rouse) (collectively Defendants).

         Facts and Travel [1]

         The facts of this case have already been recounted ad nauseam over the course of two prior trips to the Rhode Island Supreme Court. Accordingly, for a more complete review of the history of this prolonged dispute, this Court directs those who are new to this matter to Cathay Cathay, Inc. v. Vindalu, LLC, 962 A.2d 740 (R.I. 2009) (Cathay Cathay I) and Cathay Cathay, Inc. v. Vindalu, LLC, 136 A.3d 1113 (R.I. 2016) (Cathay Cathay II).

         A

         The Leases

         The core facts of this litigation center around four leases entered into by Providence Place Group, LP (PPG), the original owner of the Mall, or Rouse, and the vendors of four food-court restaurants. Terms of each lease relevant to this case are summarized on Exhibit 1 of this Decision.

         i

         Cathay Cathay Lease

         To begin, we must travel back in time to December 29, 1995, nearly four years before Providence Place opened its doors for business. On that date, David Chu (Mr. Chu) signed a lease agreement (Cathay Cathay Lease) with PPG. (Pls.' Ex. 1; Stipulated Fact 2.) Pursuant to Section 1.03 of the Cathay Cathay Lease, Mr. Chu agreed to operate under the trade name Cathay Cathay for the purpose of conducting business as a Chinese restaurant in the Mall. (Pls.' Ex. 1.) Among the terms of the Cathay Cathay Lease was Section 1.04(a), which provides for the exclusive right of Cathay Cathay to serve a number of menu items, including "[w]hite rice- boiled or steamed" served either "alone or in combination with any other foods." (Pls.' Ex. 1, Ex. F thereto.)[2] The Cathay Cathay Lease provided that if the Landlord violated this provision the Tenant could elect to reduce its rent by forty percent as its exclusive remedy. Id. at Section 1.04(b). Cathay Cathay began operating in January 2000. Cathay Cathay II at 1115. Cathay Cathay ceased operations and vacated the Mall when its lease expired on August 31, 2009. (Stipulated Fact 4.)

         ii

         Japan Café Lease

         In 1999, prior to Cathay Cathay beginning operations in the Mall, PPG entered into a lease with Japan Café (Japan Café Lease). Cathay Cathay II at 1115. The Japan Café Lease provided that Japan Café would sell Japanese food and contained the following language: "Notwithstanding anything contained in this Lease to the contrary * * *, in no event shall Tenant sell any of the items listed on [E]xhibit I, whether by name or the same or substantially similar in content or form and under any other name." Id. The list of foods provided in Exhibit I of the Japan Café Lease was nearly identical to the list of foods that Cathay Cathay had contracted for the exclusive rights to sell. Id. Japan Café opened for business on November 24, 1999, prior to Cathay Cathay. (Stipulated Fact 11.) Japan Café vacated its restaurant on May 29, 2007. (Stipulated Fact 12.)

         iii

         Surf & Turf Lease

         On November 10, 2000, Mr. Chu, the owner of Cathay Cathay, entered into a second lease agreement (Surf & Turf Lease) with PPG. (Pls.' Ex. 2; Stipulated Fact 5.) That lease provided for the operation of a second oriental restaurant, Surf & Turf, in the Providence Place food-court. Id. Specifically, the Surf & Turf Lease granted Surf & Turf the exclusive right to sell "oriental style foods," which were enumerated in an accompanying list, Exhibit I, which paralleled the list of foods identified in the Cathay Cathay lease. (Pls.' Ex. 2.) The sole distinction between the list in the Cathay Cathay Lease and the list in the Surf & Turf Lease is that Surf & Turf was granted the exclusive right to sell "rice-boiled or steamed," while Cathay Cathay's exclusive right was over the less restrictive "[w]hite rice-boiled or steamed." (Pls.' Exs. 1 and 2.) In addition to the items specifically enumerated within Exhibit I, Section 1.04(a) of the Surf & Turf Lease also gave Surf & Turf exclusive domain over the following:

"any other foods that are distinctively part of Oriental cuisine served in Oriental (i.e., Chinese, Japanese, Malaysian, Thai, Korean, Filipino, Vietnamese, etc.) restaurants and any foods or dishes substantially similar thereto in taste, appearance, style and/or ingredients, whether or not styled or denominated as an Oriental food dish. However, notwithstanding the foregoing, the incidental sale or use of rice as a side dish or ingredient shall not constitute a violation of Tenant's exclusive, unless it is part of a [sic] oriental style food." (Pls.' Ex. 2.)[3]

         The Surf & Turf Lease also provided that if the Landlord violated this provision, the Tenant could elect to reduce its rent by forty percent as its exclusive remedy. Id. at Section 1.04(b). Surf & Turf opened for business on October 28, 2001. (Stipulated Fact 6.) Although the Surf & Turf Lease was scheduled to expire on October 28, 2016, Surf & Turf ceased operating and vacated the Mall on January 30, 2011. (Stipulated Facts 7 and 8.)

         iv

         Gourmet India Lease

         The fourth and final lease at issue in this case was entered into between Gourmet India and Rouse on January 7, 2005 (Gourmet India Lease), allowing Gourmet India to operate an Indian food restaurant in the Mall food-court. Cathay Cathay II at 1115. Section 1.1(F.) of the Gourmet India Lease contained the following provision:

"Tenant is expressly prohibited from offering for sale at the Premises white rice or fried rice. In addition, Tenant is expressly prohibited from selling Oriental style foods, including but not limited to those items listed on Exhibit 'I' attached to this Lease and incorporated herein by reference and any other foods that are distinctly part of Oriental cuisine served in Oriental (i.e., Chinese, Japanese, Malaysian, Thai, Korean, [F]ilipino, Vietnamese, etc.) restaurants and any foods or dishes substantially similar thereto to [sic] in taste, appearance[, ] style and/or ingredients, whether or not styled or denominated as an Oriental food dish." Id. at 1115-16.

         Exhibit I of the Gourmet India Lease sets out a list of items that Gourmet India was prohibited from selling. Id. at 1116. That list closely mirrored the food items which Cathay Cathy and Surf & Turf had an exclusive right to sell. Id. However, as a caveat, the Gourmet India Lease also provided that: "[n]otwithstanding anything to the contrary contained in Exhibit 'I'[, ] Landlord warrants that Tenant's incidental sale or use of Basmati Rice as a side dish or ingredient shall not be deemed a violation of the prohibition of the sale of rice." Id. Gourmet India began operating in the Mall food-court on June 18, 2005. (Stipulated Fact 15.) Gourmet India vacated its food-court restaurant on October 31, 2014. (Stipulated Fact 16.)

         Accordingly, as of Halloween 2014, all of the vendors at issue in this case had ceased their operation in the Mall food-court.

         B

         Summary of Testimony

         While specifics will be discussed in greater detail in the analysis, an overview of the testimony presented at trial is summarized here.

         At the outset, the Court can state that the fact witnesses were all credible. This saga is over twenty years old with the most crucial time period being twelve to eighteen years ago. The Court attributes any disparity in facts among the witnesses to fading memories and not to a lack of candor or truthfulness.

         Mr. Chu testified at the hearing in this case that he has worked in the Chinese restaurant industry for over forty years. In total, Mr. Chu testified that he had owned four Chinese restaurants in mall food-courts prior to opening his two restaurants at Providence Place. Mr. Chu testified that in 1987 he negotiated leases for two restaurants in the food-court of the Kingston Mall in Massachusetts. Mr. Chu indicated that his restaurants at the Kingston Mall performed adequately at first, but eventually a Cajun restaurant, owned by people of Chinese descent, entered the Kingston Mall and began serving the same menu items as Mr. Chu's restaurants, specifically, white rice. At the time, John Charters (Mr. Charters) was the General Manager of the Kingston Mall. According to Mr. Chu's testimony, he was unable to take action against the Cajun restaurant because his lease said that he would be the only Chinese food restaurant in the food-court and Cajun food is not technically Chinese food.

         Thereafter, Mr. Chu testified that Mr. Charters approached him about entering Providence Place. Mr. Chu indicated that he saw Providence Place as a big opportunity, as the Mall was three levels, was home to a number of large stores, as well as a movie theatre, a Dave & Buster's, and was centrally located in the downtown area with easy access to Route 95. However, Mr. Chu testified that he was concerned about his experience in the Kingston Mall and therefore told PPG that he wanted a better lease, with more exclusive protections. Mr. Chu stated that he was told he had to pay a higher price for this exclusive and indicated that he was willing to do so. As a result, a list of thirteen exclusive menu items was created, and Mr. Chu testified that he then agreed to pay double or triple the rent he would have paid without the exclusives. In fact, both parties have stipulated that Cathay Cathay agreed to pay a premium in order to secure the exclusives in the Cathay Cathay Lease. (Stipulated Fact 10.)

         Additionally, Mr. Chu testified that Mr. Charters told him that the Mall was going to put another Chinese food restaurant into the food-court unless he opened a second restaurant. As such, Mr. Chu indicated that he felt he had no choice but to open Surf & Turf. Mr. Charters contradicted Mr. Chu's testimony and indicated that he never gave Mr. Chu any such ultimatum. While the memories of the credible witnesses may differ on this fact, it is of no import, as Mr. Chu ultimately entered into the second lease. Mr. Chu also testified he invested approximately $1, 400, 000 to build and develop Cathay Cathay and Surf & Turf.

         During the trial, Plaintiffs offered the prior testimony of N. Irving Lemack (Mr. Lemack), an expert in food analysis.[4] Mr. Lemack testified that he organoleptically[5] evaluated the foods at issue in this case using his senses, namely, by examining the foods' color, odor, flavor and texture. (Pls.' Ex. 64(1) at 241.) Mr. Lemack testified that there are only two forms of rice, brown and white.[6] Id. at 260. Mr. Lemack testified that he purchased rice at Japan Café, examined it organoleptically and under magnification, and found that "[i]t was categorically white rice, it had no bran." Id. at 264.

         Mr. Lemack testified that he also purchased "Saffron Rice" at Gourmet India and organoleptically tested that dish in addition to examining it under magnification. Id. at 285. According to Mr. Lemack, the "Saffron Rice" was simply a "white rice that had been colored." Id. Mr. Lemack testified that there is no such thing as yellow rice, but he had seen white rice with an artificial color called yellow rice sold at the supermarket. Id. at 269. Mr. Lemack further testified that basmati rice is an aromatic variety of rice, and that, as is true of all rice, it may be either white or brown. Id. at 287-89. Mr. Lemack also noted that Cathay Cathay does not use basmati rice in any of its menu items. (Pls.' Ex. 64(2) at 325.) Additionally, Mr. Lemack testified that despite the presence of yellow coloring, the rice he purchased from Gourmet India tasted like white rice. (Pls.' Ex. 64(1) at 290). Also, Mr. Lemack testified that the rice he ordered from Gourmet India did not stand out as basmati rice and that he took no notice of the rice's aromatic flavor because he was not evaluating it for that purpose. (Pls.' Ex. 64(2) at 299.) Mr. Lemack did note that the rice he purchased from Gourmet India was "bland" and that he tasted no particular seasoning or saffron. Id. Defendants offered no expert testimony of their own to contradict Mr. Lemack's opinions.

         Allan Feldman (Mr. Feldman), an expert economist, testified on behalf of the Plaintiffs. Mr. Feldman testified regarding the monetary damages sustained by Plaintiffs. Mr. Feldman also offered testimony regarding the set-up costs incurred by Cathay Cathay and Surf & Turf. The Court rejected Mr. Feldman's testimony on lost profits because it was purely speculative and based upon Mr. Chu's anticipated sales when he signed the leases. Mr. Feldman never tested the accuracy of those predictions, nor did he make an independent estimate of sales. Furthermore, the Court did not accept his calculations of damages from the forty percent rent reduction because he did not make appropriate calculations in accordance with the lease terms.

         Arnold Cohen (Mr. Cohen), Mr. Chu's attorney, provided testimony regarding his representation of Mr. Chu and his numerous correspondence with the Mall representatives. Those letters are discussed in greater detail below; however, Mr. Cohen testified that the Mall representatives urged Plaintiffs to continue to pay its heightened rent and not exercise the forty percent rent reduction. Mr. Cohen testified that, in return, the Mall attorney promised to join Cathay Cathay in any action taken to enjoin Japan Café from violating the exclusivity provision set out in the Cathay Cathay Lease. Mr. Cohen also testified that he was informed that if Mr. Chu elected to exercise the forty percent rent reduction he would be in default, and the Cathay Cathay Lease could be terminated.

         Mr. Charters and Mark Dunbar (Mr. Dunbar), the current General Manager of the Mall, also provided testimony on behalf of the Defendants regarding their interactions with Mr. Chu. In essence, both testified that Mr. Chu would complain to them regarding his perceived violations of his exclusivity provision, and they would then forward those concerns to the Mall's legal counsel. Mr. Charters also testified that he spoke on several occasions with Japan Café about Mr. Chu's complaints in an effort to insure that Japan Café was not violating the exclusivity provisions of Mr. Chu's leases.

         C

         Travel

         On October 14, 2005, Plaintiffs filed this action against Japan Café, Gourmet India, and Rouse. Cathay Cathay II at 1116. Plaintiffs sought injunctive relief to enjoin Japan Café and Gourmet India from selling menu items over which they claimed to have exclusive rights to sell. Id. Additionally, Plaintiffs requested that Rouse be required to enforce its leases with Plaintiffs against Japan Café and Gourmet India. Id. Plaintiffs requested a jury trial seeking compensatory damages. Id. Subsequently, Plaintiffs filed an Amended Complaint. Id. The Amended Complaint included counts for tortious interference against Japan Café and Gourmet India. Id. Additionally, Plaintiffs' Amended Complaint alleged a third-party contractual interest in the Gourmet India Lease and sought an injunction to enforce the provisions of that agreement. Id.

         i

         Cathay Cathay I

         On November 30, 2005, a hearing on the preliminary judgment was held in the Superior Court. Id. Following the first full day of testimony, the trial justice indicated that he was inclined to consolidate the hearing with the trial on the merits under Rule 65 of the Superior Court Rules of Civil Procedure.[7] Cathay Cathay I at 743. On the following day, the trial justice consolidated the matter for a trial on the merits without any objection from either party. Id. After the conclusion of Plaintiffs' presentation of evidence, Gourmet India moved for judgment on partial findings under Rule 52(c) of the Superior Court Rules of Civil Procedure (Rule 52(c)).[8] Id. at 744. Gourmet India argued that the plain language of the Gourmet India Lease explicitly permitted the sale of basmati rice and that Plaintiffs had failed to show any wrongful conduct necessary to sustain its tortious interference with contractual relations claim. Id.

         Subsequent to the conclusion of the proceeding, the trial justice granted Gourmet India's motion for judgment on partial findings in accordance with Rule 52(c) and, on January 27, 2006, entered a final judgment pursuant to Rule 54(b) of the Superior Court Rules of Civil Procedure. Id. The trial court opined that Plaintiffs real interest was to ensure that no other vendors of oriental style cuisine would enter the food-court. Id. Additionally, the trial court found that Indian cuisine could not reasonably be considered oriental style cuisine. Id. Further, the trial court concluded that the parties to the contracts between Mr. Chu and the Mall did not intend for basmati rice to be encompassed within those agreements. Id.

         Thereafter, the Plaintiffs timely appealed, setting the stage for the Supreme Court's ruling in Cathay Cathay I. Id. It is worth noting that neither Japan Café nor Rouse were parties to that appeal and that the claims against those two parties remained in the Superior Court. Cathay Cathay II, 136 A.3d at 1117. On January 9, 2009, the Supreme Court rendered its decision in Cathay Cathay I. The Supreme Court affirmed the judgment on Plaintiffs' contractual claim for injunctive relief and damages against Gourmet India, but on different grounds from those relied upon by the trial justice. Cathay Cathay I, 962 A.2d at 747-48. Specifically, the Supreme Court found that Section 1.1(F.) of the Gourmet India Lease constituted a guaranty by Rouse that Gourmet India could sell either white or brown basmati rice. Id. at 746-47. The Supreme Court noted that because Plaintiffs' rights as third-party beneficiaries were confined to enforcing the terms of the lease, it was clear that they would not be entitled to an injunction preventing Gourmet India from selling white basmati rice. Id. at 747. As such, the Supreme Court found that judgment was entered appropriately in favor of Gourmet India on Plaintiffs' third-party beneficiary claim. Id. Secondly, the Supreme Court vacated the ruling on Plaintiffs' claim of tortious interference and remanded the matter to the Superior Court to conduct a new trial on that Count. Id. at 748. In ruling on the tortious interference claim, the trial justice simply stated that "there is nothing in the contract between Gourmet India and the [M]all to suggest that they were trying ...


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