Almacs Inc. v. Drogin, Civ. A. No. 90-0492P.

• Decision Date: 28 June 1991
• Docket Number: Civ. A. No. 90-0492P.
• Parties: ALMACS INC., Plaintiff, v. Gerald DROGIN, in his capacity as General Partner of Wamp Associates, L.P., a Limited Partnership and F.W. Woolworth Co., d/b/a Rx Place Store, Defendants.
• Court: U.S. District Court — District of Rhode Island

771 F. Supp. 506

ALMACS INC., Plaintiff, v. Gerald DROGIN, in his capacity as General Partner of Wamp Associates, L.P., a Limited Partnership and F.W. Woolworth Co., d/b/a Rx Place Store, Defendants.

Civ. A. No. 90-0492P.

United States District Court, D. Rhode Island.

June 28, 1991.

Stephen A. Rodio, Providence, R.I., for plaintiff Almacs Inc.

Richard A. Boren, Providence, R.I., for defendant Gerald Drogin.

Joseph V. Cavanagh, Jr., Providence, R.I., for defendant F.W. Woolworth Co.

OPINION

PETTINE, Senior District Judge.

Almacs, the plaintiff in this case, is the owner and operator of a chain of supermarkets in Rhode Island and southeastern Massachusetts. It has rented space and operated a store in the Wampanoag Mall Shopping Center ("Mall") in East Providence, Rhode Island since 1967. The lease between Almacs and Wamp Associates, the current owners of the Mall, contains restrictive covenants placing limits on the businesses of other Mall tenants. Restrictive covenants such as the one in the Almacs lease are common and "their importance has perhaps been enhanced by the rise of the modern shopping center with its basic plan of a grouping of basically noncompetitive and diversified, but interrelated, businesses designed not to serve just one need but as many needs of the consumer as is feasible within the economic framework of the shopping center." 97 A.L.R.2d 4, 11 (1964). Almacs coexisted peacefully with its neighbors in the Mall until 1990, when it first learned that F.W. Woolworth Co. ("Woolworth"), under the name of Rx Place, would be opening a "deep-discount" drug store¹ in a then vacant space in the Mall.

Almacs alleges that the defendant Gerald Drogin, general partner of Wamp Associates ("Wamp"), has breached his lease with Almacs by entering into the lease with Rx Place. Almacs asks this Court to permanently enjoin Wamp from leasing the property to Rx Place and to enjoin Rx Place and Woolworth from any further interference with Almacs' contractual relations with Wamp.

After a five day trial before this Court, I conclude that Rx Place's tenancy does not violate the terms of the lease and that Almacs, therefore, is not entitled to the requested relief.

I. FACTS

On August 24, 1967, the predecessors in interest of Wamp and Almacs entered into a lease agreement ("Almacs lease") for approximately 21,209 square feet of space in the Mall. Almacs has continuously operated a supermarket at the Mall since 1967 under the terms of the Almacs lease and extensions thereof. The lease contains three provisions that are relevant to this case. All of these provisions are in Article X of the lease. Section 1 of Article X is the "permitted uses" portion of the lease; it sets out the types of items that Almacs may sell, but does not grant Almacs an exclusive right to sell those items. Sections 2 and 3 are restrictive covenants limiting the activities of other Mall tenants.

Section 2 reads:

It is expressly understood that the operator or operators of any department store or stores in the Shopping Center may display and sell such food or food products as are part of the department store's general business operations, provided, however, that the sales area devoted to the display and sale of such food and food products in any such store shall not exceed 2,500 square feet, of which not more than 1,250 square feet may be used for the display and sale of meat or frozen foods. For the purpose of this paragraph the term "department store" shall mean a store similar to stores presently operated by Warwick Shoppers World, Grant's or The Outlet Company in the southern New England area.

Section 3 reads:

No store in the Shopping Center except that of the Tenant shall ... (b) sell, as the major part of its activity, food and food products, dry groceries, fruit and vegetables, but this restriction shall not prevent: (i) the sale of food for consumption on the premises by way of a restaurant or otherwise (ii) the operation of a delicatessen and/or bakery shop (iii) the operation of a Class "A" liquor license (iv) the operation of a tavern or a bar and (v) the sale of candy, doughnuts, cookies, crackers, nuts, peanuts, chocolates, gum, ice cream and related items.

On April 16, 1990, Wamp and Rx Place entered into a lease agreement for approximately 30,000 square feet of space in the mall. The Rx lease with Wamp allows the premises to be used for the "retail sale of health and beauty aids, hair goods, candy, cosmetics, greeting cards, stationery, housewares, paper goods, gift wrap, household chemicals and prescription drugs, video sales and rentals and other related items as customarily sold in the Rx Place store in the geographical area." Moreover, the lease requires Wamp to renovate the premises prior to Rx Place's occupancy. By June of 1990, Wamp had hired a contractor and begun demolition and renovation. By the end of August Wamp had expended over $300,000 for partial renovation.

Some time in August or September of 1990, Greg Mays, the current president of Almacs telephoned Marvin Williams of Wamp to inquire whether Rx Place was coming into the Mall. When Mr. Mays received confirmation, he objected. His objection was followed a few days later by a formal letter of protest to Wamp complaining that Rx Place, in violation of the Almacs lease, would be selling as "a major part of its activity" food, food products and dry groceries and that it engaged in cart price comparisons² with Almacs. Receiving no satisfaction, two weeks later, Almacs filed this suit.

The trial before this Court began on May 2 and continued through May 8, 1991. In the afternoon of the first day of trial, the Court took a view of Rx Place stores in Warwick, Rhode Island and Swansea, Massachusetts, as well as a view of the Wampanoag Mall including the Almacs Store there and the proposed site of the Rx Place. Finally, the Court was escorted through a CVS drugstore across the street from the Mall.

Both sides presented expert testimony regarding the definitions of food, food products, and dry groceries. There was a general consensus that food and food products may be defined as any non-medicinal edible products meant to be consumed by human beings. With regard to the definition of "dry groceries," the parties agreed that the categorization found in the Supermarket Business Magazine's Consumer Expenditure Study provides the relevant information.

Plaintiff's expert, Howard S. Dubin, computed the sales percentages for categories of goods using the Consumer Expenditure Study for the Rx Place in Swansea in order to show that food, food products and dry groceries are "the major part" of Rx Place's business for the purposes of Section 3 of Article X of the lease.³ In the food and food products category, he included such items as candy and nuts that are arguably excludable under Section 3 of the Almacs lease. His final figures were as follows: food and food products — 22.29%, dry grocery/non-foods — 12.62%, health and beauty aids — 30.72%, general merchandise — 29.08% and pharmacy — 5.29%. Thus, the total for food, food products and dry grocery was 34.91%. Although Mr. Dubin, based on the summary in the Consumer Expenditure Study, separated health and beauty aids from pharmacy items, the body of the study lists prescription drugs under the health and beauty aids category. If those categories are combined, the total is 36.01%.

II. DISCUSSION

Almacs asks this Court to focus on the intent of the parties and argues for a very broad interpretation of the lease. It asks the Court to essentially disregard the express language of the lease and instead consider only that the parties intended to exclude all direct competition and, thereby, create a compatible tenant mix in the mall. This Court must, however, look to Rhode Island law for guidance as to how to interpret the restrictive covenants.

The general rule in Rhode Island governing the construction of restrictive covenants is "essentially the same as those applicable to any contract or covenant." DeWolf v. Usher Cove Corp., 721 F.Supp. 1518, 1527 (D.R.I.1989). A court, therefore, must consider the "`oft-repeated maxim that restrictive covenants are to be strictly construed in favor of the free alienability of land while still respecting the purposes for which the restriction was established. ... As in statutory construction the words in the covenant should be given their plain and ordinary meaning unless a contrary intent is discernible from the face of the instrument.'" Id. at 1527-28 (quoting Lancellotti v. Lancellotti, 481 A.2d 7, 10 (R.I.1984)). "Stated differently, where the language of a restrictive covenant is unambiguous on its face, there is no room for interpretation and the plain meaning rule applies to its construction. Where there is ambiguity, however, the intention of the parties as shown by the covenant governs, subject to the further rule that the ambiguity is to be resolved in favor of an unrestricted use." Id. at 1528.

Almacs cites to Hill v. M.S. Alper & Son, Inc., 106 R.I. 38, 256 A.2d 10 (1969), for the proposition that it is not necessary, under Rhode Island law, to find ambiguity before considering the intent of the parties. The cited language in Hill, however, undermines Almacs' contention:

In interpreting an instrument it is basic that the intention of the parties must govern if that intention can be clearly inferred from its terms and can be fairly carried out consistent with settled rules of law. In ascertaining what the intent is we must look at the instrument as a whole and not some detached portion thereof. And, although there is no ambiguity we will nonetheless consider the situation of the parties and the accompanying circumstances at the time the contract was entered into, not for the purpose of modifying or enlarging or curtailing its terms, but to aid in the interpretive process and to assist in determining its meaning. Id., 256 A.2d at 15 (emphasis added).

The import of Hi...