When It Comes To Tenant Exclusives, Forget What You Think You Know

Print
Print Friendly, PDF & Email

Ruminations has always had an interest in understanding the “why” of things. That includes understanding why we do certain things certain ways and especially how we can get led astray. We double down when it comes to the subject of exclusive uses. That’s why a July 5, 2018 decision out of the Superior Court of Rhode Island caught our interest. The original lawsuit was filed in 2005 and the dispute, one that started no later than in 2000, had already made two trips to the Rhode Island Supreme Court. Here’s the opening line from the 2018 decision, one that will probably intrigue readers: “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 [subject shopping center].” As long as we are quoting the Court, we’ll let you know that it characterized the case before it (for over 15 years) as a “saga.” Similarly, today’s posting will be a “saga,” and will conclude next week when we’ll reveal our pithy “take-aways.”

Today, along the way, we’ll learn something about what kinds of rice there are. We’ll also earn something, though not definitively, as to what constitutes “Oriental cuisine.” And, but for a handful of readers at most, we’ll also learn the meaning of the word: “organoleptically.”

Some readers may have already guessed that there is a long story behind the litigation. They would be correct. We’ll retell it, but, in doing so, we’ll take some artistic liberties.

In 1995, four years before a shopping center even opened, an “experienced” operator of Chinese restaurants signed a lease to be in that center’s food court. His “experience” operating in a food court was not a good one. At another mall where he operated two separate Chinese restaurants, he went out of business when a competing food counter opened selling many of the same menu items his restaurants were selling. For readers who ask, “Didn’t he have an exclusive use right,” the answer is: “Yes, he did.” His exclusive promised that his restaurants would be the only Chinese restaurants at that mall. The competing restaurant, as the Court put it, was owned by “people of Chinese descent” and was marketed as a Cajun restaurant. However, it was determined, pragmatically or by a court, that a “Cajun restaurant” was not a “Chinese” restaurant regardless of what it actually sold.

So, an early lesson today is that just saying that a restaurant must be a “Chinese” restaurant or that the tenant will be the only “Chinese” restaurant at a property might not work very well at all. Conversely, merely requiring a tenant to operate a “Cajun” restaurant might get you a “Chinese” restaurant or who knows what. “One man’s trash is another man’s treasure.” Yes, we know what Gertrude Stein wrote (as explained on Wikipedia): “A rose is a rose is a rose” which means “things are what they are,” and is a restatement of the law of identity, “A is A.” But, it’s not true. A Cajun restaurant may not be a Cajun restaurant. We’ll see this again later.

The Chinese restaurant in the new mall opened in 2000. The same owner, under pressure from the landlord, signed another lease for a second Chinese restaurant in 2000. That’s how the same owner came to operate two Chinses restaurants at the same, very large, mall.

In 1999, before the first Chinese restaurant opened its doors, a Japanese restaurant signed a lease to operate at the mall. In 2005, an Indian restaurant signed a lease to operate in the food court.

By Halloween of 2014, all of the restaurants had closed (but the court battle continued).

To avoid a repetition of the “unfortunate” situation the owner of the Chinese restaurants had previously experienced, in the lease for the first Chinses restaurant at the mall, he negotiated for “the exclusive right … to serve a number of menu items, including ‘[w]hite rice— boiled or steamed’ served either ‘alone or in combination with any other foods.’” Interestingly, and consistent with an economic concept expressed in the past by Ruminations, the owner paid a premium rent for this particular exclusive use right. In fact, he testified that he had agreed to pay double or triple the market rent in order to get this particular use right. The landlord acknowledged that a premium rent was being paid specifically for the exclusive use right, though it testified about a lower premium.

[This is a good time to pick up another of the Court’s interesting characterizations. Here it is:

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.

We think that’s “neat.”]

In the lease for the owners’ second, later Chinese restaurant, he bargained for an exclusive use provision almost identical to that in the lease for the first one. It included the same list of prohibited menu items as in the earlier lease but had a slightly broader formulation for describing the “protected” rice dishes. It barred: “rice – boiled or steamed,” not just “white” rice. Importantly, it also included a prohibition at the mall barring other restaurants serving:

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.

Before the first of the owner’s two Chinese restaurants opened (and presumably before the mall opened), a “Japanese” restaurant signed a lease. As would be expected, it was given the right, to serve “Japanese” food, and was restricted to serving “Japanese” food. Conscious of the exclusive use right it had granted to the earlier lease-signing Chinese restaurant, the landlord included the following in the lease for the Japanese restaurant:

* * *, 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.

Exhibit I was nearly identical to the list of foods that the Chinese restaurant had contracted for the exclusive rights to sell. Interestingly, but of little consequence to the dispute, the Japanese opened for business before the first Chinese restaurant opened.

In 2005, after the second Chinese restaurant’s lease was executed, an “Indian” restaurant signed a lease to operate within the food court. As expected, its lease called for it to serve “Indian” food.  Again conscious of the exclusive use rights given to the two Chinese restaurants (still operating at the mall), the landlord included the following provision in the Indian restaurant’s lease:

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.

Exhibit I contained a list of food items that the Indian restaurant could not offer for sale, including “rice — boiled or steamed.”

The Indian restaurant’s lease also included this “custom-crafted” provision, obviously insisted-upon by the tenant:

[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.

That’s the set-up. Two “Chinese” restaurant leases gave those restaurants the exclusive right to sell some forms of rice. The later Chinese restaurant had the exclusive right to serve “Oriental style foods.” There was a Japanese restaurant whose lease had a provision intended to bar it from violating the first Chinese restaurant’s exclusive use rights. There was an Indian restaurant whose lease had a provision intended to protect the exclusive use rights given to the two existing Chinese restaurants. That lease expressly said that the Indian restaurant could sell “basmati” rice.

We’ll leave out the history of letters back and forth between the Chinese restaurants and the landlord, those letters complaining about the violation of the restaurants’ exclusive use rights.

As readers have probably figured out, the dispute centered over “rice” and “Oriental style foods.” As to what constitutes rice, in particular, “white rice,” the court relied on earlier testimony (taken at one of the earlier trials) from an expert in food analysis. The expert “testified that he organoleptically evaluated the foods at issue, in this case, using his senses, namely, by examining the foods’ color, odor, flavor and texture.” (The American Heritage Dictionary of the English Language [4th ed. 2000] defines “organoleptic” as “[r]elating to perception by a sensory organ” or “[i]nvolving the use of sense organs.”) According to him, there are only two forms of rice, brown and white. Here is the expert’s explanation:

The distinction between brown and white rice has more to do with the milling process than with color. When rice is harvested, the paddy rice is either parboiled or allowed to dry. The husks are then removed, resulting in brown rice. It may also be further milled to remove the bran and germ, leaving only the endosperms, which is known as white rice.

The expert examined the rice he purchased at the Japanese restaurant, examined it organoleptically and under magnification, and found that “[i]t was categorically white rice, it had no bran.”

He also purchased rice at the Indian restaurant, organoleptically tested it, and examined it under magnification. His testimony was that the “Saffron Rice” was simply “white rice that had been colored.” Importantly for the general principle behind today’s blog posting:

[T]he expert 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.” He 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. … [D]espite the presence of yellow coloring, the rice he purchased from [the Indian restaurant] tasted like white rice. …  Also, [he] testified that the rice he ordered from the [Indian restaurant] 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 [and he noted] that the rice he purchased from [the Indian restaurant] was “bland” and that he tasted no particular seasoning or saffron.

Before the Indian restaurant opened for business, the owner of the Chinese restaurants wrote to the owner of the Indian restaurant to tell the Indian restaurant’s owner about his Chinese restaurants’ “exclusive rights to serve rice and certain other Chinese cuisine type dishes.” He followed up with a letter to the landlord. The attorney for the Indian restaurant replied: “[The Indian restaurant] … serves basmati saffron rice, not white rice, and that [the Indian restaurant] was permitted to serve basmati saffron rice by the landlord.” The landlord’s attorney responded that the Indian restaurant’s operation was not in violation of the terms of the Chinese restaurant’s lease and the exclusive use right was not intended to apply to an Indian restaurant.

Here’s how the Court responded to the landlord’s position:

[The landlord’s] argument that [the Chinese restaurant’s] exclusive was not intended to apply to the operation of an Indian food restaurant is of no moment. The language employed by the parties to a contract is the best expression of their contractual intent, and when that language is “clear and unambiguous, words contained therein will be given their usual and ordinary meaning and the parties will be bound by such meaning.” … Whether a contract’s terms are ambiguous is a question of law. … A contract may be deemed ambiguous only if “it is reasonably and clearly susceptible of more than one interpretation.” … The [Rhode Island] Supreme Court has consistently held that “[i]n situations in which the language of a contractual agreement is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids.” Unambiguous contract language, therefore, renders the parties’ intent irrelevant.

So, the Court did:

not reach the question of the parties’ intent because the exclusive in the [Chinese restaurants’] Lease was clear and unambiguous. There exist[ed] no ambiguity in the term “[w]hite rice—boiled or steamed.” … Simply put, the term “white rice” is not susceptible to more than one interpretation, and therefore, the intent of [landlord] and [the first Chinese restaurant] is wholly irrelevant. Accordingly, the parties are bound by the ordinary meaning of that language. While the trial justice in [the earliest trial in this saga] based his ruling on a finding of intent, the Supreme Court admonished him for it, stating “[h]ere, the trial justice considered evidence adduced at trial in determining the issue of intent without first making the requisite finding of ambiguity.” … Specifically, the Supreme Court opined that “[t]he trial justice began his analysis by observing that ‘while, indeed, the language of the documents is crucial in many ways, what is just as important is the intent of the parties.’” … The Supreme Court found that this was “a clear misstatement of the applicable law.” … Accordingly, the original trial justice should not have considered the intent of the parties, and this Court also declines to consider the intent of the parties.

Readers, we apologize but think you will thank us. At about 2,350 words, we are now beyond even what Ruminations feels is the lengthiest a single blog posting should be. So, we are ending on a cliffhanger. Does it matter whether you and I or more importantly, members of the eating public, think saffron rice or basmati rice is not rice? Is Indian food – “Oriental food”? And more. Tune in next week.

 

Print

Leave a Reply