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January 6, 2009 2:36 PM

Gen Growth Pays for Messing with Cheesecake Factory, Quinn Emanuel

Posted by Brian Baxter

Only a day after shaking up its outside counsel roster for an expected bankruptcy filing, General Growth Properties announced a $48 million settlement in a civil suit stemming from its joint venture in a mall in Glendale, Calif.

While the suit, which was filed in 2004, predates the Chicago-based REITs onerous debt problems, the settlement will free up valuable cash that had been tied up in litigation.

And what a piece of litigation it was, involving none other than The Am Law Daily's favorite custom d├ęcor eatery, The Cheesecake Factory.

The Recorder's Kellie Schmitt has an excellent rundown on the history of the General Growth-Cheesecake Factory dispute in this January 2008 story.

Here's the quick 10-second synopsis: General Growth owns half of the Glendale Galleria mall. But when The Cheesecake Factory attempted to open a restaurant in an adjacent shopping plaza several years ago, General Growth allegedly interfered in a potential lease agreement between the Calabasas Hills, Calif.-based restaurant chain and the shopping plaza's developer, Los Angeles-based Caruso Affiliated Holdings.

General Growth turned to Gibson, Dunn & Crutcher's David Battaglia for the ensuing legal battle in state court in Los Angeles. Caruso initially turned to Irell & Manella, a firm it previously had worked with for three years. But two weeks into the trial, Caruso decided to bring in Quinn Emanuel Urquhart Oliver & Hedges's John Gordon, Kenneth Chiate, and William Price as cocounsel. (Battaglia and Gordon were unavailable for immediate comment.)

The highly unorthodox decision of switching counsel midtrial proved to be a good one for Caruso.

The trial ended in November 2007 with a jury verdict of $89.2 million in damages--$74.2 million in compensatory damages, $15 million in punitives--and a holding that General Growth acted with malice by interfering in the contract between The Cheesecake Factory and Caruso.

For its part, The Cheesecake Factory never took an active role in the litigation, although the chain's general counsel, Debby Zurzolo, did testify at trial.

Quinn Emanuel was handsomely compensated for its emergency litigation efforts--name partner William Urquhart told The Recorder last year that Caruso offered to pay the firm a "hazard pay" 25 percent premium on its normal rates, sending the billables beyond $1,000 an hour.

Gibson, Dunn was sidelined on General Growth's appeal, with the second-largest owner of shopping malls in the U.S. instead turning to Cynthia Tobisman of Los Angeles appellate boutique Greines, Martin, Stein & Richland.

But with General Growth saddled with debt obligations in excess of $20 billion, spending more money on litigation proved to be a distraction from the company's "ongoing operations and strategic evaluations." (General Growth had set aside funds equal to the $89.2 million judgment plus related expenses during its appeal; the remainder will be now be used for operating expenses.)

As part of the settlement agreement, General Growth will drop its appeal and pay the full $48 million in damages to Caruso. General Growth also agreed to pay $5.5 million to its venture partner, Homart II, in the Glendale Galleria mall.

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