FRANCHISE AND HOSPITALITY

Atlantic City covets Caesar's new $145m pier complex ATLANTIC CITY, N.J. - Developers of Atlantic City's The Pier at Caesars have high hopes for the $145 million complex and hope it will infuse new life into the gambling and resort city just as a similar complex did in Las Vegas. The Pier at Caesars, which is scheduled to open on the Atlantic City  Boardwalk next year, is a luxury retail, dining and entertainment complex that will feature a world-class roster of elite retailers, including first-in-the-region appearances by Gucci, Hugo Boss, Louis Vuitton, Armani A/X, Bebe and Burberry.Located at the center of Atlantic City's historic Boardwalk, The Pier will transform the location into one of the most recognizable international shopping and entertainment landmarks in America, according to Pier Developers Inc., an affiliate of The Gordon Group Holdings LLC. "Just as The Forum Shops was a catalyst for the explosion of Las Vegas, The Pier at Caesars is an overture for Atlantic City's future," said Sheldon M. Gordon, chairman of The Gordon Group. The Greenwich, Conn.-based Gordon Group co-developed of the Forum Shops at Caesars in Las Vegas. The Pier's four floors will have nine restaurants, including Philadelphia restaurateur Stephen Starr's Buddakan and El Vez, as well as Phillips Seafood of Baltimore. The Pier will be connected to Caesars Atlantic City by a sky bridge. Once completed, the Pier will significantly expand Caesars' resort complex, uniting four casinos, three hotels, and a retail, dining, and entertainment center under one roof. "This project represents a major turning point, not only for Caesars Entertainment, but for the entire Atlantic City market," said Caesars Entertainment president and chief executive officer Wallace R. Barr. "If we are going to continue to attract new visitors and encourage our old friends to come back, we must significantly expand the dining, retail and entertainment attractions that we offer our guests. That's what this project is all about." According to Gordon, the 575,000-square-foot property will feature dramatic exterior and interior designs created by architects Elkus Manfredi of Boston and the Rockwell Group of New York. Construction management is the responsibility of Boston's Perini Building Co. The project will also feature a three-level, glass-enclosed multimedia presentation of water, fire, light and sound. The Pier at Caesars is scheduled to open in the summer of 2005. Caesars Entertainment, which owns the pier, will lease the space to Pier Developers Inc. for a period of 75 years. Caesars Entertainment Inc. is one of the world's leading gaming companies with $4.5 billion in annual net revenue, 29 properties on four continents, 29,000 hotel rooms, 2 million square feet of casino space and 55,000 employees. Caesars casino resorts operate under the Caesars, Bally's, Flamingo, Grand Casinos, Hilton and Paris brand names. The company has its corporate headquarters in Las Vegas. The Gordon Group will fund development of the new destination attraction at an estimated cost of $145 million. The project comes as a result of Casino Reinvestment Development Authority legislation sponsored by New Jersey State Senator William Gormley (R-Atlantic County) to create and partially finance urban entertainment retail districts. The Gordon Group has worked on a number of other properties including retail and restaurant leasing and development representation at Mohegan Sun Casino, Bridgemarket in New York City, San Francisco Center and The Beverly Center in Los Angeles. Atlantic City welcomes 38 million visitors annually, making it the number-one tourist attraction on the East Coast. Shankar rails against KFC, Indian chicken suppliers LOUISVILLE, Ky. - Grammy Award nominated musician Anoushka Shankar, daughter of legendary sitar maestro Ravi Shankar, has stepped into the ring against KFC and its chicken-raising practices, specifically in India. Shankar wrote a letter to executives at KFC's parent company Yum! Brands Inc. asking them to "please make some basic improvements in the lives of the hundreds of millions of chickens killed each year for KFC." Writing on behalf of People for the Ethical Treatment of Animals, Shankar pointed to a recent PETA investigation into one of KFC's main suppliers of chickens, the India-based Venky's. This investigation, she wrote, "discovered horrific cruelty to chickens that would shock the conscience of any kind person." "As you know, PETA is campaigning against KFC because your company has refused to eliminate the worst abuses of chickens raised and killed for its restaurants - chicks beaks are seared off with a hot blade without painkillers, chickens spend their entire lives crippled from leg deformities caused by rapid growth and live birds are scalded in tanks of hot water in KFC suppliers' abattoirs, to name a few examples," she added. Shankar's letter continues to say, "Although all chickens raised for food are abused, PETA is targeting KFC because KFC kills more chickens - more than 750 million - than any other chain. As the world's leading killer of chickens, KFC has the responsibility to take the lead in eliminating at least the very worst abuses, but to date, KFC has done nothing to address them." Shankar urges KFC to adopt PETA's proposals for improving the lives and deaths of KFC's chickens. She also said she will specifically be passing on the message to fans to avoid KFC in India. Shankar, like her father, plays the sitar and has begun touring on her own in the last several years building up a fan base. She also plays the piano. She made her performing debut at age 13 and has performed with her father at London's Barbican Theatre and Royal Opera House, France's Evian Festival and during a special performance with the London Symphony Orchestra. She has also performed at recording artist Peter Gabriel's WOMAD Festival in Seattle and in a special concert at New York's Town Hall. In 1998, the British Parliament presented her with a House of Commons Shield in recognition for her artistry and musicianship-at 17, she was the youngest person to receive this award. She was also the only female to have been so honored. Shankar said she began playing the sitar when she was about nine years old. She is the only sitarist in the world who has been completely trained by her father. Shankar is also the half-sister of Grammy Award winning and chart-topping artist Norah Jones. According to PETA, Shankar is one of many celebrities that have become involved in the group's "Kentucky Fried Cruelty" campaign. Others include "Seinfeld" star and ex-KFC pitchman Jason Alexander, hip-hop mogul Russell Simmons, actor Pamela Anderson, comedian Richard Pryor, musicians Paul McCartney and Chrissie Hynde and civil-rights leader Dick Gregory. The Louisville-based KFC Corp. is the world's largest chicken restaurant chain serving nearly 8 million customers every day. KFC has more than 11,000 restaurants in more than 80 countries and territories around the world. KFC is part of Yum! Brands Inc., which is the world's largest restaurant system with over 32,500 KFC, A&W All-American Food, Taco Bell, Long John Silver's and Pizza Hut restaurants in more than 100 countries and territories Recent court cases suggest it might not all just be material Over the past two decades, franchise license agreements have become more and more onerous for franchisees. These contracts, which are traditionally created by the franchisor and offered to the franchisee on a "take it or leave it" basis, always heavily favor the franchisor. In some instances, franchisors have used these one-sided contracts to threaten their franchisees with termination for even the slightest of alleged infractions. Indeed, some franchisees who have been threatened by their franchisors with termination of their franchise contracts for incidental violations have voluntarily forfeited their businesses, believing that their franchisors' case for termination was unassailable. In such cases, a little-used, basic principle of contract law may offer franchisees some protection. Under the principle of "material breach," a party, like a franchisee, that violates a contract can sometimes still hold the other, non-breaching party, responsible for performing the contract. In essence, under the concept of "material breach," a party is not permitted to treat every contract violation by the breaching party as cause for terminating the contract. Under traditional common law principles, only breaches that are "material," or those that go to the heart of the contract, are deemed serious enough to warrant termination or cancellation of the agreement. For other, non-material breaches, the aggrieved party is free to seek damages for the other party's violation, but will itself be held in breach if it tries to terminate the contract. Surprisingly, the concept of material breach has rarely been used by franchisees as a defense to termination in lawsuits between franchisors and franchisees effectively. Under a traditional analysis, the issue of whether an alleged breach is material must be determined by a finder of fact, which can either be a court and a jury. In making its decision, the fact-finder will generally consider a number of different factors. Usually, the fact-finder will first consider the extent to which the injured party will be deprived of the benefit that he reasonably expected to receive under the contract. If the injured party can easily be compensated by money damages, or if that party cannot show that it has been damaged, the fact-finder is less likely to find the breach to be material. Next, the fact-finder will take into account the harm that will be caused to the breaching party, should the contract be treated as terminated. A breach that occurs late in the term of the contract - for example, during year nine of a ten year contract - will usually not be material, whereas a violation occurring early on may be. Courts addressing the materiality issue will also consider whether the party in violation has cured or is likely to cure the breach; in such circumstances, the breach will probably not be found to be material. Last, the fact-finder will review the extent to which each party's behavior comports with standards of good faith and fair dealing, which can weigh in favor of or against either party. Two different courts have recently addressed the issue of material breach in franchise license agreements. The first, Brenco Enterprises vs. Takeout Taxi Franchising Systems, involved a franchise for restaurant food delivery in which the franchisees sued the franchisor. In this case, the franchisees claimed that the franchisor had failed to provide them with post-opening training and other support, and that these failures were material breaches of the franchise agreements and entitled the franchisees to terminate. The court viewed a material breach as a failure by a party to do something that is so fundamental to the contract that the central purpose of the contract is defeated. Applying that principle to the facts of the case, the court found that the essential purpose of the license agreement was to allow individual franchisees to open and operate businesses under the Takeout Taxi franchise system, and that the evidence did not support finding a material breach. The franchisees were able to operate their businesses even without the benefit of the promised training and support from the franchisor and some were even able to turn a profit. Another recent case, H&R Block vs. Miller, is particularly interesting, because, although it does not actually assess and apply these factors, it does recognize that the issue of materiality is one for the fact finder or jury. In this case, H&R Block, the franchisor, alleged that Miller, its franchisee, breached her franchise agreement by allegedly erecting signs that did not comply with H&R Block's standards. H&R Block used Miller's alleged signage violation to terminate the franchise contract, under which Miller had operated her business for twenty-five years. Miller opposed the termination of her agreement by arguing that, even assuming her use of allegedly non-conforming signs was a breach under the franchise contract, such a breach was not a material one that justified terminating her franchise agreement. In refusing H&R Block's application for summary judgment, the United States District Court for the District of Arizona rejected the company's argument that the franchise agreement itself could define what would constitute a material breach. The court instead ruled that, should H&R Block prove that Miller's use of the allegedly non-conforming sign was a breach, a jury would have to decide for itself whether that breach was material. This case is scheduled for trial over the next several months. Historically, franchisors have successfully side-stepped the inherent protection afforded to franchisees under the traditional rules on materiality by "defining" in franchise agreements a "material breach" to include even "de minimis" breaches by their franchisees. Recent cases, however, like the H&R Block decision, show that some courts may now be willing to take a second look at the legality and propriety of forcing franchisees to wholly forfeit their entire businesses as a result of small, incidental infractions of their franchise agreements. Unfortunately, however, many courts will still robotically enforce the language in most franchise agreements, permitting the franchisor to terminate the franchisee for minor, insignificant mistakes. This is why it is so important for franchisees to have their agreements reviewed by an experienced franchise litigator before signing them. Jeffrey M. Goldstein is with The Goldstein Law Group PC, which has offices in Washington, D.C. and New Jersey. He can be reached at 202-293-3947 or jgoldstein@goldlawgroup.com.