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Palm Restaurant Dispute Leads to Big Monetary Damages

November 27, 2018
Post by Kirk M. Hartung

A lawsuit filed in New York State court in 2012 on behalf of minority shareholders of the famous Palm Restaurant has a recent court decision awarding over $71 million to the plaintiffs against defendants for breach of fiduciary duty. This dispute among family members is premised upon 54 undervalued intellectual property licenses and a reasonable royalty for use of the trademarks and trade dress.

The Palm Restaurant was founded in New York City in 1921 by the grandfathers of the plaintiffs and defendants. This steakhouse was famous for its caricatures on walls, contributed by cartoonists who often exchanged their cartoons for meals. The restaurant was incorporated in 1933. The defendants became managers and majority shareholders of the restaurant corporation. A 1970 report by the corporation’s tax accountants stated that the restaurant was grossly mismanaged and was a textbook example of how not to manage a restaurant.

Beginning in 1972, the defendants licensed the Palm intellectual property, including the name, the menu design, artistic caricatures, and other elements, for $6,000 per year to new restaurants owned by the defendants. With the great success of the restaurants, the defendants were warned by their trademark attorney in 1982 that the license fee would soon be undervalued. Despite this warning, the fee never changed.

The court accepted the plaintiff’s expert damage witnesses’ conclusions of a reasonable royalty of 5% of gross sales and rejected the defendant’s damage experts’ testimony. The court concluded that the undervalued license agreements were self-dealing for the defendants, and an example of textbook fiduciary misconduct. The royalty damages were over $68 million. Additional damages for other breaches of fiduciary duty were also awarded, along with interest and attorney fees, which will increase the total judgement to over $100 million.

It is noted that one of plaintiff’s lead trial attorney, Josh Rievman, sits on the Advisory Board of LEGUS, an intellectual network of law firms, along with Kirk Hartung of MVS, who is chair of the Advisory Board.

Kirk Hartung is Chair of the Mechanical Patent Practice Group at McKee, Voorhees & Sease, PLC. For additional information please visit www.ipmvs.com or contact Kirk directly via email at kirk.hartung@ipmvs.com.


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