Boardakan Restaurant LLC v. Atlantic Pier Associates, LLC

33 F. Supp. 3d 543, 2014 WL 3535069, 2014 U.S. Dist. LEXIS 96991
CourtDistrict Court, E.D. Pennsylvania
DecidedJuly 17, 2014
DocketCivil Action No. 11-5676
StatusPublished

This text of 33 F. Supp. 3d 543 (Boardakan Restaurant LLC v. Atlantic Pier Associates, LLC) is published on Counsel Stack Legal Research, covering District Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Boardakan Restaurant LLC v. Atlantic Pier Associates, LLC, 33 F. Supp. 3d 543, 2014 WL 3535069, 2014 U.S. Dist. LEXIS 96991 (E.D. Pa. 2014).

Opinion

OPINION

SLOMSKY, District Judge.

I. BACKGROUND

At the heart of this case lies a dispute over a lease. Plaintiffs Boardakan Restaurant, LLC and Oceanental Restaurant, LLC (“Plaintiffs”) own two upscale restaurants at “The Pier at Ceasar’s” (“The Pier”) in Atlantic City, New Jersey. Plaintiffs lease space from Defendant Atlantic Pier Associates, LLC (“APA”), a limited liability company owned and operated by the Gordon Group Defendants1 and the Taubman Defendants.2 Plaintiffs originally entered into lease agreements (the “Lease Agreement” or “Agreement”)3 with Defendants in 2004 when The Pier was still undergoing construction with a scheduled opening date of March 2006. Under the terms of the Lease Agreement, if The Pier did not open on time, then Plaintiffs’ lease would automatically become null and void.' (Doc. No. 13 at ¶ 51.)

[545]*545In 2004, two other upscale restaurants, RumJungle and English Is Italian, also entered into lease agreements with Defendants. It soon became apparent that The Pier would open later than scheduled. Knowing they would be able to walk away from the project, Plaintiffs sent a letter to Defendants asking for further assurances. (Id. at ¶ 85.) Specifically, Plaintiffs asked if RumJungle and English Is Italian maintained binding leases with Defendants. Plaintiffs then met with Defendant Peter' Fine, who informed them that RumJungle and English Is Italian would “definitely” be opening at The Pier, when in fact they had both already terminated their leases. (Id. at ¶ 108.) Plaintiffs allege that Defendants sent emails, letters, .and press releases, all confirming the participation of RumJungle and English Is Italian. (Id. at ¶¶ 96, 99, 109.) Plaintiffs argue that Defendants conspired to keep them in the dark, knowing that they would not continue with the project without the other restaurants on board. On February 22, 2006, one month before their lease was set to expire, Plaintiffs entered into amended lease agreements with Defendants, investing substantial sums of money “to construct, improve, open and operate” their restaurants at The Pier. (Id. at ¶ 114.) Plaintiffs claim that they would not have made these investments but for Defendants’ misrepresentations. (Id. at ¶ 96)

II. RELEVANT PROCEDURAL HISTORY

This litigation has a protracted procedural history, but the pertinent facts for this Opinion are as follows:

Plaintiffs brought suit against Defendants alleging fraud, negligent misrepresentation, promissory estoppel, conspiracy, and alter ego. (Doc. No. 18.) As relief for their fraud claim, Plaintiffs seek, among other remedies, rescission of the February 22, 2006 amendments to the Lease Agreement (the “Amendment”),4 and ask that Defendants return Plaintiffs to the status quo that existed immediately before the Amendment. (Doc. No. 13 at 59.) In effect, Plaintiffs wish to void the Lease Agreement and recover the roughly ten million dollars they expended “to construct, improve, open and operate” their restaurants at The Pier. (Id. at ¶ 114.)

On May 29, 2014, Taubman Defendants filed a Motion for Determination of Measure of Damages Under the “Direct Product” Rule. (Doc. No. 125.) The “direct product” rule is a rule that can affect the measure of damages when rescission is sought as a remedy. Defendant Taubman argues that if Plaintiffs prevail on their rescission claim, then under the “direct product” rule, any monetary award Plaintiffs receive should be reduced by' any “income and profits” they obtained as a “direct product” of the Lease Agreement.5 [546]*546(Id. at 9.) More specifically, Taubman Defendants argue that if Plaintiffs’ prevail, their damages award should be reduced by any income or profits Plaintiffs received from the operation of their restaurants on the leased premises. (Id. at 9-10.)

On June 17, 2014, Plaintiffs filed a Response, arguing that' the profits and income they earned from operating the restaurants should not be' factored into a calculation of rescission damages because they are not the “direct product” of the parties’ Lease Agreement, but rather the product of Plaintiffs’ own investment and work. (Doc. No. 132 at 5.) Plaintiffs argue that a “direct product” is “defined as that which is derived from the ownership or possession of the property without the intervention of an independent transaction by the possessor and is distinguished from the profits made by the holder of the subject matter through its use.” (Id. at 3) (emphasis in original). The issue involving the interpretation of the “direct product” rule as applied to this case is now ripe for disposition.6

III. THE LEASE AGREEMENT

In order to determine what constitutes a “direct product” of a transaction, it is first necessary to understand the underlying transaction. In addition, because rescission “amounts to the unmaking of a contract, and ... is an abrogation of all rights and responsibilities of the parties towards each other from the inception of the contract,” it is necessary to understand the expectations of both parties upon entering into the Lease Agreement. Keenheel v. Com., Pennsylvania Sec. Comm’n, 134 Pa.Cmwlth. 494, 579 A.2d 1358, 1361 (1990) (citing Metropolitan Property and Liability Insurance Co. v. Pennsylvania Insurance Commissioner, 97 Pa.Cmwlth. 219, 509 A.2d 1346, 1348 (1986), aff'd, 517 Pa. 218, 535 A.2d 588 (1987)).

In order to determine the parties’ expectations, the Court turns to the language of the Lease Agreement. The parties entered into the Lease Agreement on March 12, 2004. Under the Agreement, Defendant Pier Developers, Inc. (“Pier Developers”) is listed as the landlord, while Plaintiffs Boardakan Restaurant, LLC and Oceanental Restaurant, LLC are listed as the tenants.7

[547]*547It is clear that both parties intended the leased space to be used solely for the operation of Plaintiffs’ restaurants. The Agreement states:

1.11 Permitted, Use: Subject to the provisions of Section 8.1 hereof, a Buddakan restaurant comparable to the restaurant currently operating as of the date of this Lease in Philadelphia, Pennsylvania.8
* * *
Section 8.1. Use of Premises
The Premises shall be occupied and used by Tenant solely for the Permitted Use, and Tenant shall not use or permit or suffer the use of the Premises for any other business purpose.

(Doc. No. 134-2 at 4, 8-9.)

Further, each party agreed to undertake certain construction in order to build restaurants on the property. Under Article III and Exhibit C of the Agreement, the construction work was divided into “Tenant’s Work” and “Landlord’s Work,” respectively.

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Cite This Page — Counsel Stack

Bluebook (online)
33 F. Supp. 3d 543, 2014 WL 3535069, 2014 U.S. Dist. LEXIS 96991, Counsel Stack Legal Research, https://law.counselstack.com/opinion/boardakan-restaurant-llc-v-atlantic-pier-associates-llc-paed-2014.