C. K. & J. K., Inc. v. Fairview Shopping Center Corp.

• Decision Date: 23 July 1980
• Docket Number: No. 79-944,79-944
• Citation: 17 O.O.3d 124,407 N.E.2d 507,63 Ohio St.2d 201
• Parties: , 17 O.O.3d 124, 1980-2 Trade Cases P 63,509 C. K. & J. K., INC., Appellant, v. FAIRVIEW SHOPPING CENTER CORP. et al., Appellees.
• Court: Ohio Supreme Court

Page 201

63 Ohio St.2d 201

407 N.E.2d 507, 17 O.O.3d 124, 1980-2 Trade Cases P 63,509

C. K. & J. K., INC., Appellant, v. FAIRVIEW SHOPPING CENTER CORP. et al., Appellees.

No. 79-944.

Supreme Court of Ohio.

July 23, 1980.

Syllabus by the Court

1. Ordinarily, a provision in a shopping center lease granting a lessee the exclusive right to carry on a certain line of business in the shopping center does not constitute an illegal restraint of trade under R.C. Chapter 1331, as long as the scope and effect of the grant is not unreasonably broad.

2. The General Assembly did not intend to preclude private lease restrictions regarding the sale of alcohol when it enacted R.C. Chapter 4303 which regulates the sale of alcohol by requiring permits to make such sales.

The Fairview Shopping Center Corporation owns the Fairview Shopping Center in Fairview Park, Ohio. In August 1966, the corporation entered into a lease with Frank Mencin, d.b.a. Fairview Lounge, which allowed Mencin to operate a lounge in the shopping center. The lease contained a clause which provided:

"Lessor agrees not to permit the sale of liquor, alcoholic beverages, cordials, wines and beers by the glass (except bowling alley operating under a D-1 permit) by any other tenant in the shopping center, so long as it remains in its present size. In the event lessor shall increase the size of the shopping center by erecting more stores, and lessor may deem it advisable to add one more establishment for the sale of liquor, then lessee shall be given the first option to lease at the same price and terms as may be offered to others."

In 1967, the shopping center entered into a lease with C. K. & J. K., Inc., for the operation of a bowling alley in the shopping center. In order to comply with the clause in the lease with Mencin, the lease with C. K. & J. K. states:

"The lessee * * * will not permit liquor, whether spirituous, vinous or fermented to be sold either at wholesale or retail on said premises. Lessor is aware that beer is sold on premises, therefor (sic ) it is not excluded."

At the time, C. K. & J. K. held a D-1 permit for the bowling alley. Under a D-1 permit they were only allowed to sell beer (R.C. 4303.13). Beer is defined in R.C. 4301.01(B)(2) as malt beverages containing not less than .5 percent, and not more than 3.2 percent, alcohol.

This lease was for a term of five years and there were two options to renew, the first for ten years and the second for five years. C. K. & J. K. renewed the lease in 1972.

On December 28, 1972, Pat Joyce's restaurant purchased the lounge from Mencin and, as Fairview Lounge, Inc., entered into a new lease with the shopping center. The provision in Mencin's lease restricting the sale of alcoholic beverages by others was included in this lease. In addition, the lounge was given the right to expand if certain tenants vacated their stores. If such expansion occurred the lease provided that restrictions on sale of alcoholic beverages by others were to be waived for the bowling alley, subject to certain conditions, two years after the lounge would begin to pay rent for the use of the expanded premises.

The lease was to terminate on August 31, 1976, with two options to renew for five years each. No expansion of the shopping center or the lounge has occurred.

In the early 1970's, C. K. & J. K. obtained a D-5 liquor permit (which allows the on-premises sale of beer and any intoxicating liquor) and commenced operating a bar on the same street as the shopping center. However, the bar was closed by Fairview Park due to inadequate off-street parking. C. K. & J. K. transferred the D-5 permit to the bowling alley as a result.

On December 19, 1975, C. K. & J. K. filed a complaint in the Court of Common Pleas of Cuyahoga County alleging that the actions of Fairview Lounge and Fairview Shopping Center constituted an unlawful combination under state law and that the restrictions on the sale of alcoholic beverages in both leases unlawfully infringed on the exclusive jurisdiction of the Department of Liquor Control to regulate the sale of alcoholic beverages in this state. C. K. & J. K. sought both damages and an injunction as a result of these claims.

The Court of Common Pleas found for defendants. The Court of Appeals affirmed, holding that the lease restriction was reasonable and thus lawful and that it did not interfere with state liquor regulation.

The cause is not before this court upon the allowance of a motion to certify the record.

Drain & Drain and John M. Drain, Cleveland, for appellant.

Cavitch, Familo & Durkin and Thomas C. Schrader, Cleveland, for appellee Fairview Lounge, Inc.

Portner, Greenfield, Lovinger & Schwartz and Mark B. Schwartz, Cleveland, for appellee Fairview Shopping Center Corp.

CELEBREZZE, Chief Justice.

The basis of appellant's claim that the lease between the lounge and the shopping center constitutes an unfair arrangement is R.C. Chapter 1331.

R.C. 1331.01 states in relevant part:

"(B) 'Trust' is a combination of capital, skill, or acts by two or more persons for any of the following purposes:

"(1) To create or carry out restrictions in trade or commerce;

"(2) To limit or reduce the production, or increase or reduce the price of merchandise or a commodity;

"(3) To prevent competition in manufacturing, making, transportation, sale, or purchase of merchandise, produce, or a commodity;

"(4) To fix at a standard or figure, whereby its price to the public or consumer is in any manner controlled or established, an article or commodity of merchandise, produce, or commerce intended for sale, barter, use, or consumption in this state;

"(5) To make, enter into, execute, or carry out contracts, obligations, or agreements of any kind by which they bind or have bound themselves not to sell, dispose of, or transport an article or commodity, or an article of trade, use, merchandise, commerce, or consumption below a common standard figure or fixed value * * *

" * * *

"A trust as defined in division (B) of this section is unlawful and void."

R.C. 1331.06 states:

"A contract or agreement in violation of sections 1331.01 to 1331.14, inclusive, of the Revised Code, is void."

Under R.C. 1331.08, a party may bring an action for double the amount of damages sustained by him as a result of unlawful conduct under R.C. 1331.01 to 1331.14.

These statutes, known as the Valentine Act, were patterned after the Sherman Antitrust Act, and as a consequence this court has interpreted the statutory language in light of federal judicial construction of the Sherman Act most significantly, Standard Oil Co. v. United States (1911), 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619. List v. Burley Tobacco Growers' Co-op Assn. (1926), 114 Ohio St. 361, 151 N.E. 471.

In Standard Oil, the United States Supreme Court stated at page 62, 31 S.Ct. at page 516, that in construing the Sherman Act, "the criteria to be resorted to in any given case for the purpose of ascertaining whether violations * * * have been committed, is the rule of reason guided by the established law and by the plain duty to enforce the prohibitions of the act and thus the public policy which its restrictions were obviously enacted to subserve. And it is worthy of observation * * * that although the statute * * * makes it certain that its purpose was to prevent undue restraints of every kind or nature, nevertheless by the omission of any direct prohibition against monopoly in the concrete, it indicates a consciousness that the freedom of the individual right to contract, when not unduly or improperly exercised was the most efficient means for the prevention of monopoly * * *."

This court adopted this rule of reason in paragraph four of the syllabus in List, supra, which states:

"Contracts in restraint of trade are not illegal except when unreasonable in character. When such contracts are incident and ancillary to some lawful...