Peter D. Pritsker, Inc. v. Gateway Woodside, Inc.

• Decision Date: 10 July 2009
• Docket Number: C.A. PB 04-6831
• Parties: PETER D. PRITSKER, INC., d/b/a PROVIDENCE DIAMOND COMPANY Plaintiff v. GATEWAY WOODSIDE, INC. Defendant and Third-Party Plaintiff v. PROVIDENCE WATCH HOSPITAL, INC. Third-Party Defendant
• Court: Rhode Island Superior Court

PETER D. PRITSKER, INC., d/b/a PROVIDENCE DIAMOND COMPANY Plaintiff
v.
GATEWAY WOODSIDE, INC. Defendant and Third-Party Plaintiff
v.
PROVIDENCE WATCH HOSPITAL, INC. Third-Party Defendant

C.A. No. PB 04-6831

Superior Court of Rhode Island

July 10, 2009

DECISION

SILVERSTEIN, J.

This matter is before the Court for decision following a bench trial. The Plaintiff, Peter D. Pritsker, Inc., d/b/a Providence Diamond Company ("Diamond" or "Plaintiff"), alleges that the Defendant, Gateway Woodside, Inc. ("Gateway"), breached the exclusivity provision contained in the Standard Commercial Lease ("1997 Lease") entered into between Diamond and Gateway by leasing space within the Garden City Shopping Center ("Center") to a store, other than Diamond, whose primary purpose is the retail sale of fine jewelry.^[1] Further, Diamond claims that because Gateway failed to cure the breach within thirty days of its receipt of written notification of the violation and, to date, has failed to cure the breach, Diamond is entitled to the remedy specified in paragraph 44 of the 1997 Lease.^[2] In particular, pursuant to paragraph 44 of the 1997 Lease, Diamond seeks reimbursement for fifty percent (50%) of the Fixed Minimum Rent it paid to Gateway from December 2004^[3] through September 30, 2008—totaling $318,391.80—plus any additional overpayments that have been made since September 30, 2008 and through the date of the entry of judgment. Diamond also claims that it is entitled to a declaration that, going forward and until Gateway remedies the alleged violation, Diamond's monthly Fixed Minimum Rent payments be reduced by half. Finally, Diamond seeks an award of statutory interest on any overpayments it has made to Gateway and the costs of suit, including reasonable attorneys' fees. In response, Gateway argues that it did not violate the exclusivity provision contained in the 1997 Lease because it did not lease space in the Center to a store—specifically, PWH—whose primary purpose is the retail sale of fine jewelry.

I

Facts and Travel

This dispute revolves around the determination of whether an exclusivity provision contained in a commercial lease has been violated. Against this backdrop, the pertinent facts giving rise to the instant matter are presented herein. Diamond is a family-owned business that operates a high-end fine jewelry store in the Center. In addition to selling jewelry items such as diamonds, necklaces, bracelets, earrings, pins, broaches, etc., Diamond also is an authorized retail dealer of two brands of watches—Rolex and David Yurman. Diamond also sells a number of specialty gift items, such as Swarovski crystal, and certain accessories, such as watch winders.

Diamond occupies the premises designated as 65 Hillside Road, Cranston, Rhode Island pursuant to a document entitled "Standard Commercial Lease" dated January 16, 1997—i.e., the 1997 Lease—by and between The Flatley Company ("Flatley") and Diamond. (Trial Ex. 1.) Gateway is the current owner of the Center and is the successor in interest to Flatley with respect to the 1997 Lease. PWH^[4] also operates a store in the Center and occupies its premises pursuant to the PWH Lease.^[5] (Trial Ex. 2.)

Prior to the 1997 Lease, Diamond had been a tenant in the Center pursuant to an earlier lease. In January of 1997, Diamond agreed to terminate that lease, take over additional space in the Center, commit to a longer lease term, and pay a higher rent per square foot in consideration of exclusive rights granted in the 1997 Lease. The exclusive—which is found in paragraph 44 of the 1997 Lease—provides that Diamond shall be the only store located in the Center whose "primary purpose is the retail sale of fine jewelry." (Trial Ex. 1, ¶ 44.) The 1997 Lease provided for a term of ten years, plus one five-year extension at the tenant's option—which Diamond has since exercised.^[6] Id. ¶ 2(a).

Regarding the specific terms of the 1997 Lease, paragraph 7(a) defines the permitted use of the premises by Diamond:

For the sale and repair at retail of fine jewelry including but not limited to rings, chains, bracelets, watches necklaces, earrings, precious stones, as well as other jewelry products. TENANT [i.e., Providence Diamond] may also sell china, crystal, flatware, and other fine gift items usually found in jewelry stores, and for no other purpose Id. ¶ 7(a)

Further, paragraph 44 of the 1997 Lease provides in part, "LANDLORD covenants that following the execution of this Lease and continuing for the term of this Lease, LANDLORD will not lease space within the Center to a store whose primary purpose is the retail sale of fine jewelry." Id. ¶ 44 (emphasis added.) Paragraph 44 of the 1997 Lease also contains a "safe harbor" provision for the Landlord providing that, "The incidental sale by a future retailer of fine jewelry items shall not be deemed a violation hereof. As used herein, 'incidental sale' shall mean that fine jewelry products do not exceed twenty percent (20%) of the display area within the premises." Id. ¶ 44. The "safe harbor" provision is not a limitation on Diamond's exclusive but, rather, was intended as protection for the Landlord. In particular, the provision was presumably designed to permit the Landlord to lease space in the Center to department stores that maintain a fine jewelry counter or department without violating the exclusive. Finally, paragraph 44 of the 1997 Lease also specifies:

If at any time during the original term or the option to extend of this Lease, a future retailer does operate a fine jewelry store within the Center as determined and qualified at TENANT'S sole expense with LANDLORD'S acceptance thereof, except for the incidental sale by a future retailer of fine jewelry items or any existing tenant with the sale of fine jewelry as an existing permitted use [] within the Center, and LANDLORD does not cure said violation within thirty (30) days of LANDLORD'S receipt of TENANT'S written notification of said violation sent certified or registered mail, then, in addition to any other remedies at law or in equity to which TENANT may be entitled, the Fixed Minimum Rent shall be reduced to fifty percent (50%) of the then in effect Fixed Minimum Rent effective with the first day following the expiration of the thirty (30) day period and continuing until such time as such fine jewelry store except for the incidental sale by a future retailer of fine jewelry items or any existing tenant with the sale of fine jewelry [as] an existing permitted use within the Center continues to operate in violation or occupy a premises in the Center. Id. ¶ 44

In April of 2004, representatives of Gateway met with representatives of PWH to discuss PWH's interest in relocating its Reservoir Avenue, Cranston store to the Center. PWH's President entered into discussions with General Growth Properties, Inc., the leasing and management agent for Gateway, regarding space possibilities in the Center. Two different locations were available, but a location in the "Commons" area soon became the focus of the dialogue. Subsequently, on August 27, 2004, following months of negotiations, Gateway and PWH signed the PWH Lease, pursuant to which Gateway leased 3497 square feet of space in the Center to PWH. (Trial Ex. 2, § 2.1.)

Sections 1.1(h) and 10.1, and Exhibits B and C of the PWH Lease list certain use restrictions and exclusives that set forth the permitted use that may be made of space within its premises by PWH. To illustrate, the PWH Lease requires PWH to use its premises:

Only as a first-class, high-quality retail store principally and primarily for the retail sale of watches and related watch accessories, as well as the offering of watch repair services, provided that a minimum of sixty-five percent (65%) of the floor area of the demised premise[s] shall be devoted to retail sales. The demised premises shall be used for no other purpose or purposes. Id. § 1.1(h).

The PWH Lease also states, "It is understood, and the Tenant so agrees, that the demised premises during the term of this lease shall be used and occupied by the Tenant only for the purposes specified as the use thereof in Section 1.1(h) of this lease, and for no other purpose or purposes." Id. § 10.1. In addition, Exhibit B to the PWH Lease, entitled "Construction," provides in part:

Tenant's Work shall be performed in a first-class manner and shall be at least comparable to the quality and level of that in Tenant's downtown Providence location. Tenant's Work shall include, but not be limited to . . . (c) the placement of Tenant's typical jewelry cases for watches/accessories in the front of the demised premises with Tenant's repair service area located in the rear portion of the demised premises. Id. Ex. B, B-2.

Exhibit C to the PWH Lease, entitled "List of Existing Use Restrictions and Exclusives," states:

Tenant agrees, as set forth in Section 10.1, that none of the following enumerated items ever shall be sold or displayed in or from the demised premises (except in such limited areas and/or amounts as are set forth as being permitted): ...

PROVIDENCE DIAMOND

EXCLUSIVE

Provided TENANT is operating a Providence Diamond Company in the Center, LANDLORD covenants that following the execution date of this Lease and continuing for the term of this Lease, LANDLORD will not lease space within the Center to a store whose primary purpose is the retail sale of fine jewelry.

The incidental sale by a future retailer of fine jewelry items shall not be deemed a violation hereof. As used herein, "incidental sale" shall mean that fine jewelry products do not exceed twenty percent (20%) of the display area within the premises. Id. Ex. C, C-1, C-7.

After entering into the lease, PWH retained a design firm and contractor to construct and improve the interior of the space. The design—which was...