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LLC v. Hq8-10410-10450 Melody Lane, LLC

United States District Court, D. Colorado

April 12, 2018

NORTHGLENN GUNTHER TOODY'S, LLC, a Colorado limited liability company, Plaintiff,
HQ8-10410-10450 MELODY LANE, LLC, a Delaware limited liability company, Defendant.


          William J. Martinez, United States District Judge

         In this action, Plaintiff Northglenn Gunther Toody's, LLC (“Gunther Toody's”), sues Defendant HQ8-10410-10450 Melody Lane, LLC (“Melody Lane”) for, among other things, breach of a restrictive covenant in a shopping center lease. (See ECF No. 8.) Currently before the Court are four motions: (1) Melody Lane's Motion for Summary Judgment (ECF No. 78); (2) Melody Lane's Motion to Exclude the Opinions of Proposed Expert Witnesses Stephen E. Poludniak, Timothy Belinski and Steve Mize (“Melody Lane's Rule 702 Motion”) (ECF No. 79); (3) Gunther Toody's Motion to Exclude Defendant's Expert Richard F. Weil (“Gunther Toody's Rule 702 Motion”) (ECF No. 80); and (4) Gunther Toody's Motion for Leave to File Supplemental Response to Defendant's Motion for Summary Judgment (“Motion to Supplement”) (ECF No. 104).

         For the reasons explained in detail below, the Court finds that Gunther Toody's has failed to offer a construction of the restrictive covenant that does not render most of its language superfluous. Melody Lane's summary judgment motion is therefore well- taken and will be granted as to all causes of action. The Court finds that this result would be the same even taking into account the proffered opinions of Gunther Toody's experts, so Melody Lane's Rule 702 Motion will be denied as moot. Conversely, the Court has ignored the proffered opinion of Melody Lane's expert, and so Gunther Toody's Rule 702 Motion will also be denied as moot. Finally, the Court finds that the information Gunther Toody's seeks to add through its Motion to Supplement was substantially in the record already and does not change the Court's analysis. Thus, the Motion to Supplement will be denied as moot. All pretrial and trial proceedings will be vacated and final judgment will enter in favor of Melody Lane.


         Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A fact is “material” if, under the relevant substantive law, it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). An issue is “genuine” if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

         In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).


         The following facts are undisputed unless attributed to one party or another, or otherwise noted.

         A. The Gunther Toody's Restaurant at Northglenn Marketplace

         Melody Lane claims that it owns a shopping center on 104th Avenue in Northglenn, Colorado, known as the “Northglenn Marketplace.” (ECF No. 78 at 3, ¶ 1.) Gunther Toody's disputes this, asserting that Northglenn Marketplace “is under contract and/or has been sold to another entity.” (ECF No. 83 at 3, ¶ 1.)[1] In any event, it appears undisputed that, at all times relevant to the events giving rise to this lawsuit, Melody Lane owned Northglenn Marketplace.

         In August 1998, Gunther Toody's predecessor-in-interest and Melody Lane's predecessor-in-interest executed the “Ground Lease, ” permitting the lessee to open and operate in Northglenn Marketplace “a diner-style, full-service restaurant with a liquor license[, ] and no other purposes shall be permitted except as may be approved in writing by Landlord, which approval shall not be unreasonably withheld. Tenant may not sell popcorn from the Premises.” (“Permitted Use Clause, ” ECF No. 8-1 at 17 (art. X, ¶ B).) The Ground Lease further contains a restrictive covenant that prohibits the landlord from leasing or selling any other portion of Northglenn Marketplace “for usage as a diner similar in concept to the operation conducted from the Leased Premises by Tenant.” (“Restrictive Covenant, ” ECF No. 8-1 at 32 (art. XXV, ¶ J).)

         The restaurant opened by Gunther Toody's predecessor-in-interest was a Gunther Toody's restaurant. Such restaurants are intentionally designed to evoke a 1950s-style diner with features such as vehicles from that era on display, employee uniforms that resemble restaurant uniforms of the 1950s, employees adopting fictitious names associated with the 1950s, a jukebox with 1950s music, checkered flooring, counter seating, and menu items incorporating references to 1950s American culture (e.g., the “Howdy Doody BBQ Burger”). (ECF No. 78 at 13-14.)[2] Not surprisingly, the restaurant serves dishes generally regarded as American cuisine or “comfort food, ” including American-style breakfast (pancakes, eggs, hash browns, etc.) from 6:00 a.m. to 11:00 a.m. daily. (See ECF No. 2-7; ECF No 78 at 12.)

         Plaintiff (the entity referred to in this Order as “Gunther Toody's”) became owner and operator of the Gunther Toody's restaurant in Northglenn Marketplace sometime in early to mid-2016. (ECF No. 8 ¶ 9.)

         B. The New IHOP

         On June 16, 2016, Melody Lane executed a lease agreement with non-party Tayseer Zuiater, a franchisee of the International House of Pancakes (“IHOP”) system. (ECF No. 78 at 4, ¶ 6.) That lease permits Zuiater to operate at Northglenn Marketplace “a full-service sit-down restaurant serving breakfast food and related beverages as the primary menu item, which is identified as selling 40% or greater of gross sales towards breakfast food and related beverages.” (ECF No. 26-2 § 1.17.)

         The specific premises leased to Zuiater were previously leased to a different restaurant. (ECF No. 8 ¶ 15.) This building is very close to Gunther Toody's-directly across one of Northglenn Marketplace's internal streets. (See ECF No. 73-2 at 6 (satellite photo).) Upon execution of his lease, Zuiater took immediate possession of the premises and began remodeling the building to be an IHOP. (ECF No. 78 at 5, ¶ 9.)

         C. The Estoppel Certificate

         Around the same time that Melody Lane and Zuiater were finalizing the IHOP lease, Gunther Toody's was negotiating a new loan. (See ECF No. 84-1 at 115.) Eleven days after Melody Lane executed the Zuiater lease (June 27, 2016), Melody Lane executed, at Gunther Toody's request, an Estoppel Certificate and Agreement (“Estoppel Certificate”) between Melody Lane, Gunther Toody's, and Gunther Toody's lender. (Id.) Through the Estoppel Certificate, Melody Lane represented, among other things, that it was unaware of any Ground Lease defaults, or of “any event or circumstance which, with notice or the passage of time, or both, would constitute a default under the [Ground] Lease.” (Id. at 116, ¶ 1(c).)

         D. Commencement of this Lawsuit & Preliminary Injunction Proceedings

         Gunther Toody's became aware of the coming IHOP by July 20, 2016, at the latest, when it sent a letter to Melody Lane claiming that Melody Lane had violated the Restrictive Covenant by leasing to Zuiater knowing that he planned to operate in IHOP. (ECF No. 78 at 6, ¶ 14.)

         Gunther Toody's filed this lawsuit against Melody Lane on September 27, 2016. (ECF No. 1.) On September 30, Gunther Toody's filed an amended complaint, which remains the operative complaint to this day. (ECF No. 8.) In the amended complaint, Gunther Toody's asserts six causes of action, or remedies framed as causes of action: (1) breach of contract, referring to the Restrictive Covenant and the Estoppel Certificate; (2) breach of the covenant of good faith and fair dealing; (3) specific performance of the Restrictive Covenant; (4) breach of warranty, referring to the representations made in the Estoppel Certificate; (5) declaratory judgment; and (6) injunctive relief.

         Along with the complaint, Gunther Toody's filed a Motion for Temporary Restraining Order and Preliminary Injunction (“TRO/PI Motion”). (ECF No. 2.) The Court denied the TRO portion of that motion because, among other reasons, “the new restaurant is not operating or even close to operating, ” so Gunther Toody's had failed to “establish a harm so immediate and irreparable that the status quo must be preserved pending a preliminary injunction hearing.” (ECF No. 12 at 2.)

         As for the preliminary injunction portion of that motion, the Court eventually denied it as well. See Northglenn Gunther Toody's, LLC v. HQ8-10410-10450 Melody Lane, LLC, 2016 WL 6569099 (D. Colo. Nov. 4, 2016) (ECF No. 35) (“Gunther Toody's I”). In particular, the Court found that Gunther Toody's had failed to show a likelihood of success on the merits because it interpreted the Restrictive Covenant to prohibit Melody Lane from leasing to any other diner, rendering superfluous the language from the Restrictive Covenant about a “diner similar in concept” to Gunther Toody's. Id. at *3-4.

         Gunther Toody's appealed this denial of its requested preliminary injunction to the Tenth Circuit on December 2, 2016. (ECF No. 41.)

         E. The Two Restaurants in Operation

         The IHOP began operating sometime in the first quarter of 2017. (ECF No. 78 at 5, ¶ 9.) The following list compares and contrasts the Gunther Toody's and IHOP restaurants in operation:[3]

Atmosphere & Decor. The Gunther Toody's restaurant pervasively attempts to evoke 1950s American culture with its interior and exterior design, wait staff uniforms, wait staff fictitious names, menu item names, and so forth. The IHOP has more generic, contemporary decor and does not attempt to evoke any particular time in history.
Cleanliness. Both restaurants are clean.
Food Preparation. Both restaurants prepare most of their food on a flat top grill.
Franchise Awareness. The Gunther Toody's restaurant is part of a 5-restaurant franchise located only in Colorado. The IHOP is part of a 1, 600-restaurant franchise located throughout the United States and internationally.
Hours of Operation. The Gunther Toody's restaurant is open from 6:00 a.m. to either 9:00 or 10:00 p.m., and closes on major holidays. The IHOP restaurant is open 24 hours a day, every day of the year.
Location. Both restaurants are very close to each other in the same shopping center.
Menu. Both restaurants build their offerings from the same basic components (e.g., for breakfast fare, both restaurants work from pancakes, eggs, hash browns, etc.; for lunch and dinner fare, both restaurants offer hamburgers and French fries). The IHOP offers ten pancake items, as compared to Gunther Toody's two. The IHOP serves breakfast at all times of the day and night, whereas the Gunther Toody's serves breakfast from 6:00 a.m. to 11:00 a.m. The Gunther Toody's restaurant sells alcohol, while the IHOP does not.
Prices. The two restaurants charge similar prices for similar items.
Sales of Breakfast Items. The Gunther Toody's restaurant derives about 30% of its revenue from breakfast items. The IHOP restaurant “derives over 2/3 of its business from breakfast menu items.” (ECF No. 78 at 13.)
Type of Service. Both restaurants offer casual table service with made-to-order meals.

         F. The Tenth Circuit's Disposition of the ...

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