In 1926, Pio Bozzi and John Ganzi, friends from Parma, Italy, who had immigrated to New York, opened the original Palm Restaurant.
The Palm, as it became known, grew in stature through the years to become an iconic steakhouse on Manhattan’s Second Avenue that was run successfully as a two-family business. Eventually, it also expanded into nearly 25 Palm-branded restaurants found across the U.S. and overseas that between 2006 and 2017 grossed $1.5 billion.
But in 2012, the Palm’s prized intellectual property—its trademarks, service marks and design elements, including its robust menu and caricature-filled walls—became the fighting ground for a legal dispute inside the long-connected families. Now, a state Supreme Court bench trial decision examining breaches of fiduciary duty has awarded more than $120 million to two Palm-related companies and a significant share of that award will go to two Ganzi family cousins and plaintiffs—Gary Ganzi and Claire Breen, both the grandchildren of John Ganzi. The large judgment has also worsened already-fractured family relationships.
The opinion, issued recently by Manhattan-based Commercial Division Justice Andrea Masley, also hinged itself on the accepted industry method for calculating an expanding restaurant’s intellectual property licensing fees. And according to the attorneys for Gary Ganzi and Breen, who have lawyered a fierce—and, in some ways, sad—family-splitting dispute, the decision may represent the first time a U.S. court has endorsed the preferred and accepted way for licensing valuable intellectual property, at least in the restaurant arena: the percentage-of-sales method.
In 29 pages, Masley threw overboard arguments made by defendants Walter Ganzi Jr. and Bruce Bozzi Sr., who are the grandsons of John Ganzi and Pio Bozzi and the 80-percent majority owners of a company that holds the rights to the Palm Restaurant’s intellectual property. Walter Ganzi is also a cousin of Gary Ganzi and Breen.
Masley wrote in part, for instance, that the fact that the holding company, called Just One More Restaurant Corp., or JOMR, “is a closely-held corporation which began as an informal family affair does not excuse defendants from complying with their fiduciary obligations to JOMR and fellow shareholders,” meaning duties to Gary Ganzi and Breen, the company’s minority 20-percent shareholders.
In another salvo, Masley wrote that Walter Ganzi’s and Bruce Bozzi’s decades-long use of a $6,000 flat-rate annual licensing fee for the Palm’s intellectual property—the fee used whenever an expansion-location was embarked upon—deprived the company and its minority shareholders “of fair market value for the valuable Palm IP, [and] is a textbook example of fiduciary misconduct.”
“All expert testimony established that the per-restaurant, annual flat-rate fee is not fair or reasonable,” Masley also said. Moreover, “by all accounts, similar licensing fees in the restaurant industry are calculated as a percentage of sales,” she wrote, noting that “even defendant’s expert … testified that comparable rates for similar restaurants are calculated as a percentage of gross sales.”
Walter Ganzi and Bruce Bozzi, now both in their 70s, and their company JOMR disagree with Masley’s ruling and will appeal, according to their counsel.
“The company is profoundly disappointed in the court’s decision and intends to appeal,” Ian Shapiro, a Cooley partner in Manhattan representing the defendants, told the Law Journal.
The long-in-the-making dispute centered on Gary Ganzi, Breen and JOMR’s loss of tens of millions of dollars in licensing fees allegedly owed to JOMR based on the Palm’s IP being invaluable in allowing Walter and Bruce to open and reap profits from dozens of Palm-branded restaurants.
Referred to by Masley as the “New Palms,” the first one opened in 1972 in Washington, D.C., where it remains a staple of the town’s social power scene, and eventually a worldwide “empire of Palm-branded business” took hold.
To create and operate the New Palms, Walter Ganzi and Bruce Bozzi used separate, wholly owned companies, for which they would license from JOMR, at a flat-rate annual fee of $6,000, the rights to use the Palm’s IP, including name, logo, decor, menu, methods of food preparation and more, according to the court.
As the majority shareholders of JOMR and stakeholders in the wholly owned companies, Walter Ganzi and Bruce Bozzi “execut[ed] self-dealing” and “undervalued license agreements,” Masley wrote, and it went on for decades. In the view Ganzi and Bozzi’s counsel, though, it was the great length of time that the $6,000 fees were used that helped establish their defenses—including statute of limitations, laches, and plaintiff acquiescence, implied ratification and equitable estoppel.
Gary Ganzi and Breen, though, contended that they only learned about the $6,000 flat-rate agreements in 2010, after they inherited shares in JOMR and Just One More Holding Corp., a company that owns the rights to the Manhattan land where the original restaurant operated.
Gary Ganzi, a Boston-area patent attorney, alleged that he first noticed the fees in 2010 in the estate tax returns of a deceased parent, said his and Breen’s attorney, Fred Newman, one of two co-lead trial counsel for them.
Almost immediately, Gary Ganzi went to cousin Walter Ganzi and asked, “What’s going on?” Newman said in a phone interview. But he was quickly stonewalled, and “Wally” allegedly threatened to sue Gary Ganzi or take other action against him, Newman said.
In turn Gary Ganzi brought an action in state Surrogate’s Court to try to learn more about the $6,000 licensing fees.
A strong family bond between cousins was soon fractured, and in 2012, Gary Ganzi and Breen filed a lawsuit—pleaded individually and derivatively on behalf of JOMR and another land-owning holding company—that lodged causes of action including breach of fiduciary duty and diversion of corporate opportunity, Newman said. No money amount was named, but Ganzi and Breen sought licensing monies dating back to 2006 from some 54 different agreements.
A nearly two-week trial unfolded in November 2017, with post-trial briefs form each side being submitted by January 2018. Ten months later, Masley issued her Nov. 13 decision, finding for the plaintiff-cousins over the defendants on each count at issue—several derivative breach-of-fiduciary-duty counts and one derivative diversion-of-corporate-opportunity count.
Masley flatly turned away arguments by Walter Ganzi and Bruce Bozzi that they’d created the New Palms’ value, after working in the original restaurant in the 1960s and then originating the idea for, and executing, the great multi-restaurant expansion.
“The court rejects Wally’s self-serving testimony, unsupported by any credible evidence, that defendants created the Palm IP,” Masley wrote. “The credible evidence establishes that the Palm IP was the key to the success of the defendants’ business ventures.”
She also tossed back Walter Ganzi’s and Bruce Bozzi’s contention that beginning in the 1970s, at least one relative in Gary Ganzi and Breen’s inheritance line—their father, Charlie Ganzi—knew about the $6,000 flat-rate licensing fee.
While Charlie Ganzi was a CPA in a two-person accounting firm that was preparing JOMR’s financial statements and tax returns, “the detailed time sheets demonstrate that his [firm partner Ralph] Thompson provided the actual services to JOMR,” the judge said.
Masley further took the majority shareholder defendants to task for long avoiding crucial corporate meetings that they’d been aware needed to happen.
“The evidence establishes that, before this action was filed, JOMR’s last board and shareholder meeting occurred in 1976, and there is no evidence that any corporate meeting, properly noticed or not, occurred ever since,” she wrote.
“Purported family discussions at a kitchen table in the 1970s do not constitute properly-noticed corporate meetings,” she added in a decision footnote.
Shapiro, the Cooley partner representing Walter and Bruce, declined to comment in an interview about his clients’ possible appellate arguments. Still, his legal team’s major defense issues were made clear in court filings, such as their post-trial memo and post-trial reply brief.
They have argued, for instance, that the six-year state statute of limitations for the alleged conduct should have run out in the 1970s—and not dated back to 2006, as Gary Ganzi and Claire Breen and their lawyers have argued.
Any original harm that occurred from the $6,000 IP fees took place decades ago, the defense has argued. Moreover, they’ve said that the re-documenting of certain licensing agreements in the last decade or so was immaterial because no new torts occurred when re-documenting happened.
Broadly, they’ve also argued that for some 40 years the minority JOMR shareholders understood that Walter Ganzi and Bruce Bozzi were opening restaurants and using the Palm IP for their benefit, and, therefore, the shareholders acquiesced to and ratified the flat-rate fees.
Moreover, the defendants—who contend that at least Charlie Ganzi knew of the flat IP fees—further have said that the minority shareholders did not need to know about the license agreements to consent to the essence of the relationships at issue—namely, that Walter Ganzi’s and Bruce Bozzi’s wholly owned companies were benefiting from the Palm’s IP.
Notable also is that Masley’s ruling was on derivative claims, and therefore the total award of some $120 million would technically go back to the two nominal defendant companies, JOMR and JOMH, although it appears there must be some type of a payout to Gary Ganzi and Breen.
Newman, the co-lead trial counsel for Ganzi and Breen and a founding partner of Hoguet Newman Regal & Kenney, said that he believes Masley got her decision right, and that a wrong has been corrected. He also repeatedly credited the lawyering done by his co-lead counsel at trial, Joshua Rievman, a partner at Cohen Tauber Spievack & Wagner.
“[Walter and Bruce] were on both sides of the transaction,” Newman said. “They did need an agreement for the $6,000 fees from the minority shareholders because they were fiduciaries for them.”
“You cannot be on both sides of transaction. There are ways you can be, but it was not fair and reasonable here,” he added.
Then he looked back on the long, hard-fought litigation and the resolution imposed by Masley, and said that it meant his clients “were vindicated.”
“For them it was an eight-year insult that they tried to resolve in a family way, but couldn’t,” Newman, age 73, said, noting that the award was the largest IP verdict he had won in 48 years as a lawyer.
Growing a bit quieter, he also said that “the sad aftermath is that the cousins were very, very close to each other before, and now they’re not. At least my clients regret that.”