Saint Anthony-Minneapolis, Inc. v. Red Owl Stores, Inc.

• Decision Date: 15 September 1970
• Docket Number: No. 4-69 Civ. 124.,4-69 Civ. 124.
• Citation: 316 F. Supp. 1045
• Parties: SAINT ANTHONY-MINNEAPOLIS, INC., a Florida corporation, Plaintiff, v. RED OWL STORES, INC., a Delaware corporation, Defendant.
• Court: U.S. District Court — District of Minnesota

316 F. Supp. 1045

SAINT ANTHONY-MINNEAPOLIS, INC., a Florida corporation, Plaintiff, v. RED OWL STORES, INC., a Delaware corporation, Defendant.

No. 4-69 Civ. 124.

United States District Court, D. Minnesota, Fourth Division.

September 15, 1970.

Dorsey, Marquart, Windhorst, West & Halladay, by John D. Levine, Minneapolis, Minn., for plaintiff.

Cant, Haverstock, Gray, Plant & Mooty, by Edward J. Callahan, Jr. and Charles Dayton, Minneapolis, Minn., for defendant.

NEVILLE, District Judge.

Before the court is a controversy stemming from a restrictive covenant in a shopping center lease agreement. The first issue for determination is whether the federal court's jurisdiction obtains over a case where a covenant in a lease to a food super market prohibiting the lessor shopping center developer and owner from leasing or selling space to another food super market within the shopping center or on any other property within 2,500 feet of the demised premises owned and controlled by lessor is valid in the face of federal and state antitrust laws after the food market for whose benefit the covenant was created has sublet to a general retail store and removed itself from the premises to an area under different ownership immediately adjacent to the shopping center.

In 1949, defendant Red Owl Stores, Inc. (Red Owl) entered into a lease agreement with plaintiff's predecessor in interest covering certain premises in Minnesota in St. Anthony Shopping Center for the express purpose of establishing and operating a retail food market. The above summarized exclusive covenant was inserted in its lease. Red Owl originally reciprocally agreed in another covenant that should it move from the premises it would sublet only to another food super market.

At the time the lease was signed the shopping center had not yet been built, and was expected to be and was in fact financed by funds borrowed by the lessor on the security of a number of long term leases including that executed by Red Owl. The termination date provided in the lease ultimately became December 11, 1970 subject to an additional five year renewal option. Red Owl continued to occupy the premises only until early 1958. Meantime it entered into an option agreement to purchase and subsequently bought land on which its present store is located from a landowner unrelated to the present plaintiff or its predecessor. The site is immediately adjacent to the land owned by the plaintiff on which the shopping center is situate and is within 2,500 feet of the original Red Owl premises.

On June 12, 1957 the 1949 lease was modified by mutual agreement and the provision which required Red Owl to sublet only to a food market was altered to allow a sublease to a retail business of any nature to which the lessor would agree and which would not violate provisions in other leases. Red Owl thereupon sublet its former premises to a general retail store but continued as a party, in the nature of a surety, on the 1949 lease until the end of the original term in 1970. On January 2, 1963, the St. Anthony Shopping Center was sold to the present plaintiff, which claims to have suffered substantial damages due to its inability to lease or sell certain proximate premises to a food super market as a result of the continuing restrictions in the lease covering the original Red Owl premises.

On March 23, 1967 in consideration of the payment of $2,500 by plaintiff, Red Owl agreed to terminate its 1949 lease effective August 15, 1967 and the former Red Owl premises were leased to a bank, its present occupant. State court litigation ensued wherein Red Owl alleged fraud on plaintiff's part in inducing the termination agreement. From an ultimate judgment in favor of plaintiff and against Red Owl that case now is on appeal to the Minnesota Supreme Court.

The present action was filed April 16, 1969 alleging that the 1949 restrictive covenant is illegal under Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1), the Constitution of the State of Minnesota Article 4, Section 35, Minnesota Statutes 325.81 and 325.83, and other laws of the State of Minnesota. It is urged that once Red Owl removed itself from the original premises, the restrictive covenant became "naked" and that an implied condition of the covenant on which its validity and enforceability depends is that Red Owl should continue to operate a retail food market on the leased premises. Stated another way, the restriction is said to be valid and legal only so long as the person in whose favor it ran, i. e., Red Owl, was operating on premises owned or controlled by plaintiff the kind and type of enterprise or business which is restricted by the covenant.

Plaintiff seeks a judgment finding that the acts of the defendant have violated the above mentioned laws, a declaration that the exclusive covenant has been invalid and unenforceable since June 4, 1958 when Red Owl vacated the premises, an injunction against the defendant's further violation of the aforementioned laws, and treble damages in the amount of $315,000. Defendant has duly answered the complaint.

Both sides now have moved for summary judgment. Defendant requests a complete summary judgment whereas plaintiff requests a summary judgment only on the issue of liability. In addition defendant has moved to dismiss on the grounds that the court does not have subject matter jurisdiction, that the statute of limitations has run, that there is no diversity of citizenship and pendent jurisdiction to enforce the State laws should not be exercised and that in any event no cause of action exists under Minnesota law. Defendant further has moved to amend its answer in two respects.

Initially the court must determine whether plaintiff has established jurisdiction under the federal antitrust statutes — Section 1 of the Sherman Act and Sections 4 and 16 of the Clayton Act (15 U.S.C. §§ 15 and 26).

Section 1 of the Sherman Act, 15 U.S. C. § 1, provides in part:

"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal * * *." Emphasis added

To be an offense under the federal laws, it must be shown that the alleged unlawful practice restrains trade in interstate commerce. It is not enough that the party or parties be engaged to some extent in interstate commerce, but the alleged illegal practice must in some way affect or restrain it.

"* * * The test of jurisdiction is not that the acts complained of affect a business engaged in interstate commerce, but that the conduct complained of affects the interstate commerce of such business." Page v. Work, 290 F.2d 323 at 330 (9th Cir. 1961).

A restraint in intrastate commerce of course falls within the prohibitions of the act if the threat to interstate commerce is sufficiently substantial. Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 68 S.Ct. 996, 92 L.Ed. 1328 (1948). If the court is to invoke jurisdiction, the restraint complained of either must occur in the flow of interstate commerce or, if local, it must have a substantial effect on interstate commerce.

In the instant case the restriction prohibits the super market activity in a small defined area in or near (if owned or controlled by plaintiff) St. Anthony Shopping Center, i. e., within a 2,500 foot radius. The restrictive covenant itself clearly is not in interstate commerce, nor is the business of the plaintiff, owning and operating real estate in that same defined area, in interstate commerce. Essentially all the retail sales of the defendant Red Owl are local and intrastate transactions. It is alleged and undoubtedly true that Red Owl purchases the products it re-sells and that 80% to 90% of these goods, said to be an annual volume of $1,800,000, have some connection with interstate commerce. It cannot be claimed that Red Owl is in any way "restrained" by the exclusive covenant. Rather it is benefitted. It would seem that the restraint on interstate commerce, if any, would be on the purchasers of merchandise by a phantom or prospective retail super market, which might occupy premises within the 2,500 foot radius. The court...