Elida, Inc. v. Harmor Realty Corp.

Decision Date03 April 1979
CourtConnecticut Supreme Court
Parties, 1979-1 Trade Cases P 62,545 ELIDA, INC. v. HARMOR REALTY CORPORATION et al.

Robert S. Reger, New Haven, for appellant (plaintiff).

Stephen B. Alderman, West Haven, with whom were Raymond Parlato, and, on the brief, Robert A. Ginsburg, and Dana Eric Friedman, West Haven, for appellees (defendants The Gourmet Shoppe, Inc., et al.).

John R. Lacey, Asst. Atty. Gen., with whom, on the brief, were Carl R. Ajello, Atty. Gen., and Gerald J. Dowling and Larry H. Evans, Asst. Attys. Gen., for appellee (defendant state of Connecticut).

Before COTTER, C. J., and LOISELLE, BOGDANSKI, LONGO and PETERS, JJ.

COTTER, Chief Justice.

In this appeal by the plaintiff, we are required to determine the applicability of the Connecticut Anti-Trust Act 1 to a restrictive covenant contained in a commercial lease between the plaintiff and the named defendant.

The defendant Harmor Realty Corporation is the owner, landlord and lessor of premises in the Amity Shopping Center, a shopping complex located in New Haven and comprised of approximately twenty-five tenants. The plaintiff, a family-owned corporation doing business as Westville Home Bakery, entered into an agreement on October 28, 1970, with the defendant Harmor Realty Corporation wherein the plaintiff leased 2000 square feet of space located in the shopping center for the purpose of engaging in the production and retail sale of freshly baked goods. The lease continued from October 15, 1970, until November 14, 1976; and a contemporaneously-executed addendum to the lease gave the plaintiff the option to extend the term of the lease for an additional four-year period to November 14, 1980, which the plaintiff duly exercised. The lease addendum further provided that the plaintiff would have, subject to certain exceptions, "the exclusive right to sell products normally sold by a bakery shop," and that the defendant lessor would not "rent any other space in the shopping center for the purpose of baking on the premises." 2

On or about December 28, 1976, the Harmor Realty Corporation leased other space in its shopping complex to the defendant The Gourmet Shoppe, Inc., a business engaged in the sale of products normally sold by a bakery shop. Although Harmor Realty Corporation knew, or should have known, that The Gourmet Shoppe, Inc., would engage in the sale of bakery products, 3 it failed to take any action to prohibit the sale of such products despite the plaintiff's repeated demands. Both defendant corporations and their respective presidents, had actual and constructive notice of the restrictive covenant contained in the plaintiff's lease.

The plaintiff brought the present action in the Superior Court seeking (1) a temporary and permanent injunction enjoining the defendant The Gourmet Shoppe, Inc., from engaging in the retail sale of bakery products for off-premises consumption; (2) a temporary and permanent injunction enjoining the defendant Harmor Realty Corporation from failing to perform its contractual obligations to the plaintiff "and/or from failing to otherwise act so as to cause the defendant The Gourmet Shoppe, Inc. . . . to cease and desist from the retail sale, for off-premises consumption," of bakery products; and (3) money damages and attorney's fees and costs. Following the entry of the trial court's order granting the temporary injunctions requested by the plaintiff pending a final hearing, the defendants filed special defenses alleging that the lease provision upon which the plaintiff based its claim for relief constituted an unlawful restraint of trade in violation of the state anti-trust act and was therefore, unenforceable. Pursuant to General Statutes § 35-32(b), the state of Connecticut was permitted to intervene as a party to this action with the status of defendant-intervenor. In a bifurcated trial for the purpose of which the defendants admitted the essential allegations of the first count of the plaintiff's amended complaint alleging irreparable injury as a result of a breach of the restrictive covenant in its lease, it was agreed that the sole issue to be decided by the court was whether the state antitrust act should be construed so as to prohibit the enforcement of the restrictive covenant and thus prohibit the issuance of the permanent injunctions sought by the plaintiff.

The trial court concluded that the restrictive covenant sought to be enforced by the plaintiff was intended to prevent competition with the plaintiff and will have that effect if enforced; and that the covenant in question was "per se" unreasonable and contrary to the express language of General Statutes § 35-28(d). Judgment was rendered in favor of all defendants on the first count of the plaintiff's amended complaint and the requests for permanent injunctions were denied. 4 The plaintiff appealed to this court from the judgment rendered.

I

At the outset, we consider the threshold question raised by the plaintiff whether the state antitrust act should be construed so as to apply to a claimed vested right it has in a restrictive covenant in a contract originally entered into prior to the effective date of the act. The plaintiff claims that such an interpretation would be contrary to well-settled principles regarding the retrospective application of statutes; violative of the plaintiff's right of redress for injuries guaranteed by article first, § 10 of the state constitution; in conflict with the contract clause of the federal constitution; and would amount to a denial of due process. In view of the accepted interpretation of the applicability of such legislation, we are not persuaded by the plaintiff's arguments in this regard.

General Statutes § 35-26 provides that any contract in restraint of trade or commerce is unlawful. The fact that a contract may have been executed before the statute took effect is immaterial if it is in existence thereafter. The prohibition is not directed at the formation and existence of the contract prior to the effective date of the act, but in the persistence of the parties in it after it has become unlawful. "The statute prohibits the continuing or entering into such an agreement for the future, and if the agreement be continued it then becomes a violation of the act. There is nothing of an ex post facto character about the act." United States v. Trans-Missouri Freight Assn., 166 U.S. 290, 342, 17 S.Ct. 540, 41 L.Ed. 1007; see State v. Missouri, Kansas & Texas Ry. Co. of Texas, 99 Tex. 516, 527, 91 S.W. 214; 54 Am.Jur.2d, Monopolies, § 454.

"It is settled that neither the 'contract' clause nor the 'due process' clause has the effect of overriding the power of the state to establish all regulations that are reasonably necessary to secure the health, safety, good order, comfort, or general welfare of the community . . . and that all contract and property rights are held subject to its fair exercise." Atlantic Coast Line R. Co. v. Goldsboro, 232 U.S. 548, 553, 34 S.Ct. 364, 368, 5 L.Ed. 721; Ansonia v. Ansonia Water Co., 101 Conn. 151, 157, 125 A. 474. " '(C) ontracts must be understood as made in reference to the possible exercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of legitimate government authority.' (Knox v. Lee, 79 U.S. (12 Wall.) 457, 551, 20 L.Ed. 287)." Louisville & Nashville R. Co. v. Mottley, 219 U.S. 467, 482, 31 S.Ct. 265, 270, 55 L.Ed. 297. Consequently, the state, pursuant to its lawful exercise of the police power, may rightfully prohibit the continuance in the future of those things already in existence which are deemed injurious to the rights and interests of its citizens so as to justify such an exercise of the power whether the continuance of the things is provided for by contract or not. See Ansonia v. Ansonia Water Co., supra, 101 Conn. 156-58, 125 A. 474. The right of private contract, therefore, "must yield to the exigencies of the public welfare when determined in an appropriate manner by the authority of the State." Union Dry Goods Co. v. Georgia Public Service Corporation, 248 U.S. 372, 377, 39 S.Ct. 117, 119, 63 L.Ed. 309.

Our conclusion that the legislation in question may constitutionally apply to the contract entered into prior to the act's passage, which included the option to extend for an additional term, is in accord with the decisions of the United States Supreme Court regarding the applicability of federal anti-trust provisions. See United States v. Southern Pacific Co., 259 U.S. 214, 234-35, 42 S.Ct. 496, 66 L.Ed. 907; Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 234, 20 S.Ct. 96, 44 L.Ed. 136; United States v. Trans-Missouri Freight Assn., supra. In view of the position we take on this issue, we need not consider whether the renewal of the plaintiff's lease for an additional four-year term after the Connecticut Anti-Trust Act was enacted might be considered the creation of a new lease as of the date of the renewal.

II

The plaintiff's principal claim of error in this appeal is directed at the trial court's determination that the restrictive covenant contained in the plaintiff's lease was "per se" unreasonable and contrary to the express language of § 35-28(d) of the General Statutes. 5 The plaintiff argues that the so-called "Rule of Reason" which is utilized, in certain cases, by federal courts construing the Sherman Antitrust Act (26 Stat. 209, as amended, 15 U.S.C. §§ 1-7) was the appropriate standard for the trial court to apply in the present case. See, generally, Bork, "The Rule of Reason and the Per Se Concept," part 1, 74 Yale L.J. 775 (1965); Bork, "The Rule of Reason and the Per Se Concept," part 2, 75 Yale L.J. 373 (1966).

Under the common law, the well-settled rule is that an anticompetititve covenant ancillary to a lawful contract is enforceable if the restraint upon trade is reasonable....

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