© 2014 The Texas Lawbook.
By Natalie Posgate
Staff Writer for The Texas Lawbook
(June 11) – It was a “Thank God it’s Friday” moment indeed last week for TGI Fridays Inc. and its lawyers.
On June 3, a Dallas jury ruled in favor of the Carrollton-based company regarding a bitter joint venture dispute that the restaurant chain was involved in with one of the three other partners at the Dallas-Fort Worth International Airport.
After a five-week trial, the state jury awarded Fridays and other joint venture partners more than $1.7 million in fees and damages incurred in their ongoing conflict with the fourth partner, CBIF Limited Partnership.
Jurors also found for Fridays’ affirmative claims for relief, allowing for dissolution of the joint venture and recovery on a declaratory judgment action. They also disagreed with CBIF’s counterclaims, clearing Fridays of all charges, which included breach of fiduciary duty, breach of contract and conspiracy.
Dallas partners Deb Coldwell of Haynes and Boone and Pete Marketos of Reese Gordon Marketos led the courtroom victory for Fridays.
Marketos said the most valuable component of the verdict was the jury approving the dissolution of the partnership so Fridays could “move forward without the partner who was holding the partnership hostage.”
The dissolution will ultimately be up to Dallas County District Judge Martin Hoffman, who has set a hearing date in August to resolve the matter with the parties. Hoffman will also determine whether to award Fridays the $2.7 million it is requesting post-trial for attorney’s fees.
“The jury is speaking about partners who only look out for themselves and are not putting the best interest of the partnership first,” Marketos said. “If you’re acting out of self interest and greed, you’re potentially risking your entire partnership in a lucrative enterprise.”
Fort Worth partners Marshall Searcy of Kelly Hart & Hallman and Mack Ed Swindle of Whitaker Chalk Swindle & Schwartz led the defense for CBIF, its general partner, Columbia Airport, LLC and its manager, Steve Flory.
“We’re, of course, disappointed in the verdict and intend to file post-trial motions to contest all of it,” Searcy said.
The Dispute
The partnership, called the “TGIF/DFW Airport Restaurant JV,” originally formed in the mid-1990s and now owns six restaurants in Terminals A, B, C, D and E of the DFW Airport. Four partners ultimately became the owners of the joint venture: CBIF, LBD Corporation (a subsidiary of Fridays), Texas Star Quality Foods, LP (TSQF) and Domain Enterprises/DFW Ltd. Partnership.
In 2009, DFW Airport announced its plans to renovate the original Terminals A, B, C and E over the next eight years as part of its $2 billion renovation project. The airport informed the TGIF JV partners that the leases for their restaurants in those terminals would be terminated, but that the JV would receive replacement space in the newly renovated terminals as long as the JV executed a new lease and joint venture agreement for each renovated terminal.
Because DFW Airport receives federal funding, the new joint venture had to be compliant with federal guidelines promulgated by the Federal Aviation Administration and the U.S. Department of Transportation or they would not be valid.
Included in those regulations is a policy by the DOT called the Airport Concession Disadvantaged Business Enterprise (ACDBE) program, which prohibits airports from excluding people from participating in any concession agreement, management contract or subcontract, purchase or lease agreement or other agreement based on their race, sex or ethnicity.
The TSQF and Domain portions of the TGIF JV contained the minority ownership interests that made the partnership ACDBE compliant.
Fridays was originally the sole manager of the restaurants in DFW, because when the TGIF JV formed in 1995, the federal regulations did not require the disadvantaged partners to play key roles in the day-to-day operations.
But that changed over the next decade. In 2005, federal regulations changed to specifically require that the socially and economically disadvantaged individuals have actual control over their business and specifically defined roles in the operations and management of the concessionaire in direct proportion of their ownership interest.
The motive of the program is to incentivize disadvantaged business entities and individuals to learn how to run a business by investing, taking risk and participating in management and operational decisions.
When airport renovations were announced, those who formed joint ventures formed before 2005 (like the TGIF JV) did not have to comply with the new regulation, Marketos said. However, as soon as airport approval was required for a new lease or to renew, modify or extend an existing lease, DFW Airport could require non-compliant joint ventures to become compliant with federal guidelines, or risk losing their space.
According to Fridays, one partner, CBIF, also had control over ACDBE-certified entity TSQF due to loan agreements and partnership documents that CBIF’s principal, Steve Flory, put into place in 1996. That control, which required CBIF’s consent in order for the disadvantaged partners to act on behalf of TSQF, rendered TSQF non-compliant to the airport in 2010.
After DFW announced its renovation plans, Fridays pushed the other JV partners to sign the new airport-approved joint venture and leasing agreements, as well as restructure TSQF so the TGIF JV met the new regulations and DFW would approve the JV for new leases. All JV partners but one agreed to sign the new agreements: CBIF.
The three partners in agreement with the new lease went forward with a joint venture in Terminal A, which was the first terminal to be renovated. When they invited CBIF to join, it “refused and demanded millions of dollars in payment to buy out its interest in the JV,” Fridays’ amended complaint says.
CBIF also attempted to interfere with DFW Airport’s willingness to allow the agreeing partners to go forward with a compliant joint venture by using “non-compete” clauses in the TGIF JV’s governing documents, according to Fridays’ pleadings. The other partners argued at trial that CBIF’s motivation was to force them to the brink of losing restaurants at DFW in order to extract compensation from them.
Fridays sued CBIF, Columbia and Flory in Dallas County in 2011, claiming they “unreasonably and consistently refused to accept the new JV agreements,” and “intentionally attempted to sabotage any chance Fridays and the other willing partners had of entering into a new lease” with the airport for Terminal A, according to the amended complaint.
CBIF countersued for approximately $24 million, claiming Fridays and the other partners “conspired to create a new joint venture… for the express purpose of taking control of a leasehold interest in Terminal A that rightfully belongs to the Joint Venture with the intent to wrongfully compete with the Joint Venture in that restaurant location,” CBIF’s amended counterclaims filing says.
The jury sided with Fridays last week in a 10-2 verdict after two full days of deliberation.
“The importance of this case is that it shows Fridays acted properly in supporting its minority partners out of the airport,” said Coldwell, who is the chair of Haynes and Boone’s franchise practice group.
Twelve witnesses testified during the month-long trial, including three experts for the recovery of attorney’s fees.
Coldwell said a key witness for Fridays case was Kathy Kotel, the restaurant chain’s general counsel and its parent company, Carlson Restaurants, Inc. Kotel is the former U.S. general counsel of McDonald’s Corporation. She joined Fridays in 2009 around the time the TGIF JV issues became critical.
Normally, attorney-client privilege makes it nearly impossible for lawyers to testify at trial, but Coldwell said Kotel’s testimony was vital for winning the case because “she was the closest to the facts and had lived through the efforts” for the partnership to move forward with its new leasing and joint venture agreements.
Today, the TGI Fridays restaurant in Terminal A – which finished renovations last year – is run significantly by the ACDBE partners and is doing “beautifully without CBIF,” Marketos said.
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