Diamondback Funding, LLC v. Chili's of Wisconsin, Inc.

• Decision Date: 27 July 2004
• Docket Number: No. 03-2376.,03-2376.
• Citation: 2004 WI App 161,276 Wis.2d 81,687 N.W.2d 89
• Parties: DIAMONDBACK FUNDING, LLC, Plaintiff-Appellant, v. CHILI'S OF WISCONSIN, INC., Defendant-Respondent.
• Court: Wisconsin Court of Appeals

276 Wis.2d 81

2004 WI App 161

687 N.W.2d 89

DIAMONDBACK FUNDING, LLC, Plaintiff-Appellant, v. CHILI'S OF WISCONSIN, INC., Defendant-Respondent.

No. 03-2376.

Court of Appeals of Wisconsin.

Oral argument July 7, 2004.

Decided July 27, 2004.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of John A. Busch of Michael Best & Friedrich LLP, of Milwaukee. There was oral argument by John A. Busch.

On behalf of the defendant-respondent, the cause was submitted on the brief of Paul D. Bauer of Quarles & Brady, of Milwaukee. There was oral argument by Paul D. Bauer.

Before Wedemeyer, P.J., Fine and Curley, JJ.

¶ 1. FINE, J.

Diamondback Funding, LLC, appeals from a summary judgment dismissing its verified complaint against Chili's of Wisconsin, Inc. Diamondback sought, in addition to "[o]ther relief," to enjoin Chili's from building and operating a Chili's Grill and Bar on a lot next to a lot owned by Diamondback on which Diamondback's corporate affiliate operates a Tumbleweed Southwest Mesquite Grill and Bar. We reverse.

I.

¶ 2. The Diamondback lot is in Franklin, Wisconsin. Diamondback bought the lot from Home Depot USA, Inc., in July of 1999. As part of the sale, Home Depot agreed, as material to this appeal, "to deed restrict the adjoining outlot (the `Outlot') to prohibit the operation of any casualty [sic—should be "casual"], theme-type restaurants specializing in Mexican food." (Parenthetical in original.)

¶ 3. In April of 2000, Home Depot sold to Rose Properties, LLC, the outlot referred to in the July 1999 agreement with Diamondback. Home Depot and Rose agreed in a contemporaneous "Restrictive Covenants Agreement," dated April 5, 2000, that, as material here: "No portion of the [outlot] may be leased, used or occupied as or for a ... Mexican restaurant ... or any other restaurant (except for ... (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food)." The agreement specifically recited that all the restrictive covenants "shall run with the land and be binding upon Rose and each of Rose's tenants, subtenants and other occupants, and its and their respective successors and assigns."

¶ 4. In May of 2002, Home Depot and Rose purported to modify the April 2000 restrictive covenant to, among other things:

• "clarify that the establishment and operation of a Chili's Grill & Bar is a permitted use of the" outlot; and

• delete the "Mexican restaurant ... or any other restaurant (except for ... (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food)" language from the April 5, 2000, Restrictive Covenants Agreement, and, in its place, substitute: "or any casual theme-type restaurant specializing in Mexican food."

Diamondback was not a party to the purported modifications. Rose sold the lot to Chili's in July of 2002.

¶ 5. As noted, the trial court granted summary judgment to Chili's and dismissed Diamondback's complaint seeking to enjoin Chili's from running its restaurant on the lot. It ruled that the "specializing in Mexican food" language was "ambiguous on its face" and, therefore, was not enforceable. The trial court explained in its oral decision:

I don't know what that term means. I wouldn't know how to begin to instruct a jury on it. And it seems to me we would be left with one, or the fact finder, one fact-finder saying, well, specializing means it's got to be 95 percent or a hundred percent or 75 percent or 51 percent and, or do they look at it from the standpoint of profits.

The trial court did not address whether the restrictive covenant in the Chili's/Rose April 2000 contract ("Mexican restaurant ... or any other restaurant (except for ... (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food)") was also, in its view, "ambiguous."

II.

[1-5]

¶ 6. Summary judgment is used to determine whether there are any disputed facts that require a trial, and, if not, whether a party is entitled to judgment as a matter of law. WIS. STAT. RULE 802.08(2); U.S. Oil Co. v. Midwest Auto Care Servs., Inc., 150 Wis. 2d 80, 86, 440 N.W.2d 825, 827 (Ct. App. 1989). Our review of a trial court's grant of summary judgment is de novo. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315-317, 401 N.W.2d 816, 820-821 (1987)

. Additionally, interpretation of a restrictive covenant and, as a corollary, whether the covenant is too ambiguous to be enforced are also legal issues that are subject to our de novo review. Zinda v. Krause, 191 Wis. 2d 154, 165, 528 N.W.2d 55, 59 (Ct. App. 1995). Whether to grant or deny an injunction is vested in the trial court's reasoned discretion. Bubolz v. Dane County, 159 Wis. 2d 284, 296, 464 N.W.2d 67, 72 (Ct. App. 1990). "A discretionary determination will be sustained where it is demonstrably made and based upon the facts appearing in the record and in reliance on the appropriate and applicable law." State v. Seigel, 163 Wis. 2d 871, 889, 472 N.W.2d 584, 592 (Ct. App. 1991).

¶ 7. As noted, the trial court granted summary judgment to Chili's dismissing Diamondback's verified complaint because it viewed the "specializing in Mexican food" language to be "ambiguous on its face" and, therefore, an unenforceable restriction. But that ruling frames only part of the issue presented for our review.

¶ 8. Chili's does not dispute that the April 2000 restrictive covenant prohibiting on the lot conveyed to Rose "a ... Mexican restaurant ... or any other restaurant (except for ... (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food)" was drafted and inserted to comply with Home Depot's obligation to Diamondback "to prohibit the operation of any casual[] theme-type restaurants specializing in Mexican food" on that lot. Chili's also does not dispute that, accordingly, Diamondback was a third-party beneficiary of the Home Depot/Rose restrictive covenant, which was binding on Chili's because it ran with the land. See Boyden v. Roberts, 131 Wis. 659, 666-669, 111 N.W. 701, 703-704 (1907) (real property is burdened with restriction that runs with the land).

[6, 7]

¶ 9. It is black-letter law that a contract provision designed to benefit a third party may not either be rescinded or modified without consent of that third party. Seher v. Kurz, 13 Wis. 2d 398, 402, 108 N.W.2d 529, 532 (1961). Diamondback did not consent to the purported May 2002 modification. Accordingly, the May 2002 modification could not and did not dilute Diamondback's rights in the restrictive covenant in the April 2000 Chili's/Rose contract. Thus, the May 2002 modification, which purported to "clarify that the establishment and operation of a Chili's Grill & Bar is a permitted use of the" lot sold by Home Depot to Rose was a nullity. And the purported modification in the restrictive-covenant language from "[n]o portion of the [outlot] may be leased, used or occupied as or for a ... Mexican restaurant ... or any other restaurant (except for ... (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food)" to "or any casual theme-type restaurant specializing in Mexican food" is also a nullity to the extent that it might permit a restaurant barred by the April 2000 restrictive covenant, an issue that we do not decide.¹

¶ 10. As Diamondback asserts, the restrictive-covenant language requires a two-step analysis. First, is the language itself ambiguous? Second, if it is not, does it apply to the Chili's restaurant? We address these matters in turn.

A. Alleged ambiguity of the restrictive covenant.

[8, 9]

¶ 11. First, the parties agree that Chili's is a "casual theme-type restaurant." Second, we discern no substantive difference between a restrictive covenant prohibiting a restaurant serving "primarily Mexican food" and one prohibiting a restaurant "specializing in Mexican food," although arguably both seem to cast a wider net than one prohibiting a "Mexican restaurant."

[10-12]

¶ 12 Zinda states the rule in Wisconsin as to whether a restrictive covenant is too vague to be enforced:

The language in a restrictive covenant is ambiguous if it is susceptible to more than one reasonable interpretation. However, if the intent of a restrictive covenant can be clearly ascertained from the covenant itself, the restrictions will be enforced. By intent we do not mean the subjective intent of the drafter, but the scope and purpose of the covenant as manifest by the language used.

Id.,191 Wis. 2d at 165-166,528 N.W.2d at 59 (citations omitted). The restrictive covenant in Zinda prohibited property owners from doing "anything or permit[ing] anything to be done to the common area which would adversely affect the vegetation and natural beauty of the common area." Id.,191 Wis. 2d at 162,528 N.W.2d at 57. Those whose activities were allegedly proscribed complained that the phrase "natural beauty" was too vague to be enforced because it implicated subjective assessments that would, per force, vary from one person to another. Id.,191 Wis. 2d at 166,528 N.W.2d at 59. Zinda disagreed, noting that the "natural beauty" language only kicked in when it was harmed by something that "adversely affect[ed]" the vegetation. Ibid. Zinda explained:

[A]lthough we agree that beauty may be a subjective impression that varies from person to person, when read in context it is clear that the purpose of the covenant is to restrict those activities that threaten the common area's natural condition. Therefore, because the purpose of the covenant may be clearly ascertained, the trial court properly determined that the covenant was valid and enforceable.

Id., 191 Wis. 2d at 167, 528 N.W.2d at 59.

[13]

¶ 13. Chili's contends, however, that under Crowley v. Knapp, 94 Wis. 2d 421, 288 N.W.2d 815 (1980), a restrictive covenant may not be enforced unless it is "expressed in clear, unambiguous, and peremptory terms."...