Parkside Center v. Chicagoland Vending

• Decision Date: 16 July 2001
• Docket Number: No. A01A0461, No. A01A0757.
• Citation: 552 S.E.2d 557,250 Ga. App. 607
• Parties: PARKSIDE CENTER, LTD. et al. v. CHICAGOLAND VENDING, INC. Chicagoland Vending, Inc. v. Parkside Center, Ltd. et al.
• Court: Georgia Court of Appeals

552 S.E.2d 557

250 Ga. App. 607

PARKSIDE CENTER, LTD. et al. v. CHICAGOLAND VENDING, INC.

Chicagoland Vending, Inc. v. Parkside Center, Ltd. et al.

Nos. A01A0461, A01A0757.

Court of Appeals of Georgia.

July 16, 2001.

Browning & Tanksley, Thomas J. Browning, Marietta, for appellant.

Wimberly & Lawson, Paul Oliver, Rhonda L. Klein, Atlanta, for appellee. ANDREWS, Presiding Judge.

Parkside Center, Ltd. leased space in its shopping center to Chicagoland Vending, Inc. under a lease which contained a covenant restricting Parkside from leasing other space in the shopping center to businesses competitive with Chicagoland's business. Chicagoland sued Parkside and its general partner, D. Kimbrough King, claiming the value of its leasehold was destroyed when Parkside breached the covenant by leasing space in the shopping center to a competitive business. A jury awarded Chicagoland $787,400 for damages to its leasehold plus attorney fees.

The central issue on appeal is whether the covenant was enforceable as a reasonable restriction on competition. In Parkside's appeal in Case No. A01A0461, we find that the covenant was correctly construed as a valid, reasonable restriction on competition, and that there was evidence to support the jury's verdict that Parkland breached the covenant and caused $787,400 in damages to Chicagoland's leasehold. In Chicagoland's cross-appeal in Case No. A01A0757, we conclude that the trial court properly reduced the attorney fees awarded to Chicagoland under OCGA § 13-6-11 to $74,000 and correctly directed a verdict against Chicagoland's additional claim that Parkside and King tortiously interfered with its lease rights.

Construed in favor of the verdict, evidence showed that in December 1989, Parkside, through its general partner, King, leased space in a shopping center to Chicagoland for the purpose of operating a game room containing coin-operated video and redemption¹ amusement games. The five-year lease agreement (with two five-year renewal options) contained a covenant restricting competition which provided that:

Exclusive. [Parkside] agrees that it shall not install or operate amusement devices similar to those [which] are operated by [Chicagoland], in the Common Areas of the Shopping Center or other areas within the Shopping Center nor shall [Parkside] enter into a lease with a person or other entity other than [Chicagoland] for space within the Shopping Center which shall be utilized as an amusement center or other usage substantially similar to [Chicagoland's] use hereunder, except with the prior written approval of [Chicagoland]. This provision is in effect only so long as [Chicagoland] is not in default and is doing business from the Premises.

Chicagoland set up fifty-five to sixty amusement games and operated profitably for the next three years without competition from similar businesses in the shopping center. In September 1993, without notice to Chicagoland, Parkside (through King) leased space in the shopping center to Q-Lanta for the purpose of operating about 25 coin-operated amusement games identical or similar to the games at Chicagoland, along with an amusement game known as laser tag. After Q-Lanta opened its business in November 1993, Chicagoland sales and profits immediately began dropping.

On November 12, 1993, Chicagoland sued to enjoin Parkside, King and Q-Lanta from leasing the space in violation of the covenant restricting competition, but injunctive relief was ultimately denied because Q-Lanta had no knowledge of the covenant when it signed its lease with Parkside. Chicagoland Vending v. Parkside Center, 265 Ga. 318, 454 S.E.2d 456 (1995). In the face of competition from Q-Lanta, Chicagoland's business continued to lose money until the losses finally forced it to close in February 1997. In the meantime, Chicagoland dismissed Q-Lanta from its suit and amended the action to seek damages against Parkside and King for violation of the covenant and the destruction of the value of its leasehold, and for tortious interference with its lease and attorney fees under OCGA § 13-6-11.

During a jury trial in 1999, the trial court entered a directed verdict against Chicagoland on the tortious interference claim. The jury awarded Chicagoland $787,400 for damages to its leasehold caused by violation of the covenant and $140,000 in attorney fees, which included fees paid by Chicagoland in its unsuccessful attempt to get injunctive relief. In entering judgment on the verdict, the trial court reduced the attorney fee award to $74,000 to eliminate fees paid for the attempt to get an injunction.

Case No. A01A0461

1. Parkside and King contend the trial court erred by instructing the jury to construe the covenant restricting competition and in failing to declare the covenant unreasonable and invalid as a matter of law.

Although we agree the trial court had a duty to construe the covenant, its failure to do so in this case was harmless error because the jury verdict was consistent with a proper application of the rules of contract construction to the covenant. Contract construction follows a three-step procedure. "The trial court must first decide whether the contract language is ambiguous; if it is ambiguous, the trial court must then apply the applicable rules of construction; if after doing so the trial court determines that an ambiguity still remains, the jury must then resolve the ambiguity." (Footnote omitted.) Garrett v. Women's Health Care &c., 243 Ga.App. 53, 56-57(3), 532 S.E.2d 164 (2000). Thus, the jury does not become involved in the process, even if the contract is difficult to construe, until there appears an ambiguity in the contract which cannot be resolved by the trial court's application of the rules of construction set forth in part in OCGA § 13-2-2. Kusuma v. Metametrix, 191 Ga.App. 255, 256, 381 S.E.2d 322 (1989). The construction issue presented was whether the covenant restricted competition in a manner reasonably necessary to protect Chicagoland's business, or whether it was so broad that it unreasonably restricted competition and amounted to an illegal restraint of trade.

[A]n agreement by a lessor ancillary to a leasing of a part of his property, designed to prevent the use of the remainder of his property in a manner competitive with the operation of the lessee's business, is a valid and reasonable restraint of trade ... subject to the overriding requirements that, as to territoriality and/or duration, [such agreements] be reasonably necessary to protect the interests of the covenantee, that they not impose greater restrictions upon the covenantor than are necessary for the covenantee's protection, and that they not unduly prejudice the interests of the public.

Webster v. Star Distrib. Co., 241 Ga. 270, 272, 244 S.E.2d 826 (1978).

Parkside contends the trial court should have concluded that the covenant was unambiguous and imposed unreasonable restrictions by attempting to broadly restrict competition from all "amusement centers," which could include movie theaters, bowling alleys, billiards rooms, or other forms of amusement substantially different from Chicagoland's business. Accordingly, Parkside argues that the trial court should have narrowly focused on the clause in the covenant containing the term "amusement center" and used a technical grammatical construction to find that nothing modified this term to limit its restrictive effect. Taking a broader view we conclude that, considering the entire restrictive covenant in the context of the lease agreement, one could easily conclude that the intent was to restrict competition only from "amusement centers" with "usage substantially similar to [Chicagoland's] use." Accordingly, applying the principles set forth in Webster along with the applicable rules of contract construction would have led to two possible conclusions in the trial court.

The first is that, construing the lease and the covenant as a whole (OCGA § 13-2-2(4)), and disregarding the technical grammatical construction urged by Parkside (OCGA § 13-2-2(6)), the clear and unambiguous intention of the covenant was to restrict competition from "amusement centers" only to the extent they operated amusement devices substantially similar to those operated by Chicagoland. Under this construction, the covenant would clearly be a valid restraint of trade under Webster, and it would have been the duty of the trial court to declare the covenant valid as a matter of law. OCGA § 13-2-1; Copy Systems of Savannah v. Page, 197 Ga.App. 435, 436, 398 S.E.2d 784 (1990).

The second possibility is that, even after applying the rules of contract construction, an ambiguity remained as to whether the covenant unreasonably restricted competition or was a valid restraint of trade. Under this construction, it would have been the duty of the trial judge to submit the ambiguity to the jury for resolution. Id. at 436, 398 S.E.2d 784.

We need not decide which of these two options would have been the correct course. The jury verdict validating the covenant was consistent with the first option, so any error in the trial court's failure to construe the covenant and declare it valid was harmless. As to the second option, even if the trial court erroneously submitted the covenant to the jury without first construing it and determining there was an ambiguity, no harmful error is shown if the jury's construction is supported by the evidence. Time Warner Entertainment v. Six Flags Over Ga., 245 Ga.App. 334, 344, 537 S.E.2d 397 (2000). In this case, the terms of the covenant and the evidence presented by the parties to explain any ambiguity provided evidence supporting the jury verdict in favor of Chicagoland—a verdict consistent with the conclusion that the covenant was a valid, reasonable restriction on competition, and that Parkside violated it by leasing to Q-Lanta.

2. King claims the trial court erred by refusing to dismiss him...