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NY courts begin Rocco DiSpirito's 'The Restaurant' ownership hearings


By Wade Paulsen, 07/27/2004 

Reality TV's nastiest legal battle -- the ownership fight between chef Rocco DiSpirito (owner of Spirit Media) and "money man" Jeffrey Chodorow (owner of China Grill Management) over the ownership of Rocco's on 22nd Street, the restaurant featured on NBC's The Restaurant -- moved on to its next round on Monday, as a court hearing began in Manhattan.

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According to the Associated Press, the hearing, before New York state hearing officer Ira Gammerman, is on China Grill's motion for a permanent injunction barring Rocco from Rocco's on 22nd Street. However, since a partner generally has the right to manage assets owned by his partnership, the injuction probably cannot be granted if Spirit Media is actually half-owner of the partnership that controls the restaurant, as Rocco claims and Chodorow denies.

Normally, the status of the partners would be spelled out in a partnership agreement -- but, due to the time constraints caused by the filming of the first season of The Restaurant, Spirit Media and China Grill (that is, Rocco and Chodorow) never signed one. This ensuing litigation, featured in the second season of the show, is proof that "the formalities" actually serve a purpose.

In the hearing, Chodorow denied under oath that he had ever agreed that Spirit Media would have a 50% ownership interest in the group that owned Rocco's on 22nd Street -- even though legal documents filed by the group, including its liquor license application, list Rocco as the beneficial owner of a 50% interest. Of course, testifying under oath may not be sufficient to produce truthful answers from Chodorow, who previously was convicted of a felony and spent four months in prison for lying in documents required by the U.S. government that were sworn under oath.

If the court chooses to believe the contemporaneous documents over Chodorow's claims, China Grill's lawyer -- well-known NYC creditors' lawyer Lawrence Kaiser -- had another argument ready for the court, according to the AP. In Kaiser's formulation, even if Spirit Media is a 50% owner, its ownership interest is worthless because the restaurant hasn't made enough money to pay back its investors (China Grill), as the parties agreed to do with the first dollars that the restaurant earned. We hope that the Manhattan court understands that the economic "waterfall" of distributions does not -- and cannot -- change the fundamental control rights that go along with partnership status, making this argument completely misleading.

Of course, some partnership deals do contain "default" provisions specifying that, if sufficient payments under the waterfalls cannot be made by the partnership within a certain time, the control rights may be usurped by the capital partners. However, we find it very difficult to believe that such a term would be agreed to by the partners in the absence of a written agreement, as is the case here.

We also note that, according to Rocco's lawyer, Rocco's on 22nd Street earned a "substantial profit" for two of the last three months before Chodorow moved to ban Rocco from the premises, including over $100,000 in May alone. (However, much of that may be due to the airing of the TV show's second season on NBC.) Although Kaiser claimed that the company would sell the restaurant if it could, we doubt that the location would end up being owned by any entity other than one controlled, directly or indirectly, by Chodorow, considering that Chodorow has allegedly already hired a permanent replacement for Rocco.

Even if Rocco wins the case and is held to be the 50% owner of Rocco's on 22nd Street, the battle for control of the restaurant is not over. Since partners to a partnership generally have the right to an appraisal and a dissolution, China Grill and Chodorow could request that the partnership be liquidated.

However, in that case, a court-appointed receiver would take over the location, and Chodorow would either have to (1) pay Rocco the fair market value of his interest, (2) be bought out for the fair market value of China Grill's interest or (3) have the whole place put up for an arm's-length sale. We think Chodorow's importing of guest chefs to Rocco's on 22nd Street is not the action of someone who wants to sell or be bought out.

We look forward for the continuation of the hearing this week.

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