Can A Bag Of Dog Food Be A Pet? Can A Bar Of Soap Be A Grocery? Another Unnecessary Fight Over Exclusive Use Rights

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Many readers may remember reading one or even many articles or possibly attending programs growing out of a 2013 United States District Court ruling in a law suit by Winn-Dixie Stores against three “dollar store” chains. Some may even have read that lower court’s decision. Basically, that case explored a number of aspects of a dispute about a supermarket’s exclusive use rights. Ruminations never did a blog posting based on that decision. There were two main reasons. First, we were late to the game; many other got there first. Next, the discussion space got so full, there wasn’t much elbow room for us.

Well, things have changed. The United States Court of Appeals “spoke” on March 5, 2014. You can see the 72 page decision by clicking HERE. We’re not so sure this appellate court got it “right,” though it may have had little choice. Read on.

Today, we’ll review the substance of the exclusive use dispute, and we’ll do a reprise of a frequent Ruminations refrain – say what you mean, and mean what you say.

Before we lose everyone, here’s what interested us in the case: (1) what are “groceries”; and (2) how do you measure “sales area.”

For those who have never heard of the Winn-Dixie v. various “dollar stores” case, here is a very short summary. A 500 location supermarket chain sued three different dollar store chains, alleging that a total of 136 of those stores were operating in violation of the exclusive use rights granted to a supermarket in its lease for matching locations. The list was winnowed to 97 allegedly violating stores. The substantive dispute concerned two provisions in the supermarket’s lease. They read as follows:

Landlord further covenants and agrees not to permit or suffer any property located within the shopping center to be used for or occupied by any business dealing in or which shall keep in stock or sell for off- premises consumption any staple or fancy groceries, meats, fish, vegetables, fruits, bakery goods, dairy products or frozen foods without written permission of the Tenant.

And,

[E]xcept the sale of such items is not to exceed the lesser of 500 square feet of sales area or 10% of the square foot area of any storeroom within the shopping center, as [an] incidental only to the conduct of another business . . . shall not be deemed a violation hereof.

[There were some jurisdiction (state) by jurisdiction differences as the general enforceability of exclusive use rights, but discussing those issues would dilute today’s efforts, confuse all but the real law “buff’s,” and would give readers a false impression that they know the ins and outs of pretty technical legal issues. So, we’ll pass on all of that.]

The fight was about what constituted “staple or fancy groceries,” in particular whether “groceries” embodied non-food items as well as food items. The lower court found “groceries” to be an ambiguous term and, following the law’s “rules of construction” (look HERE and HERE), it held the word meant only food items. In the abstract, Ruminations can’t call that restrictive understanding, “crazy.” In fact, despite the appellate court’s reversal, we think the lower court was right. Our gut tells us that a lot of people walking the street would agree. Our same gut tells us that the same walkers would readily say that a “grocery store” sells groceries (food items) as well as non-food items. There’s nothing incongruent about that. Here, the supermarket’s lease didn’t bar grocery stores; it barred stores that sold groceries. For those who think we’re being too cute by half, try this out for size. No one would argue that the term “pet” includes a bag of dog food, but all would accept that a “pet store” would sell dog food. Hold that thought for a while.

Before we slice and dice any groceries, it’s time to give a little context as to how courts view grants to a tenant of exclusive use rights, a form of “restrictive covenant.” “Such covenants are strictly construed in favor of free and unrestricted use of real property.” That doesn’t mean that ambiguously written restrictive covenants are given no vitality. In the end, a court is supposed to take into account the purpose of the covenant and to give life to common meanings when possible. So, was the term “grocery” ambiguous in the context of the leases and the properties where each supermarket was located?

The supermarket offered a number of arguments in support of its contention that groceries included non-food items. It claimed the historical evolution of a supermarket included food and non-food items. Even the predecessor to supermarkets, general stores, sold both. An industry reporting service uses “Grocery-Non Food” as a category that includes cleaning products, household supplies, and paper products. Even though Ruminations sees some of these arguments as more fitting for a grocery store than for groceries, the appellate court made no such distinction.

The dollar stores offered what the appellate court characterized as a “reasonable food-only interpretation.” The stores said, “just look at the entire list within the supermarket’s lease: ‘any staple or fancy groceries, meats, fish, vegetables, fruits, bakery goods, dairy products or frozen foods.’” Why do we think that to be a “good” argument? That’s because of the doctrine of nocitur a sociis, “a word is known by the company it keeps.’” Basically, if all of the listed items, other than the word in question (groceries), are food items, then groceries must be food items.

Both the lower court and the appellate court accepted each interpretation as plausible, making ambiguous the meaning of the word “groceries” as used in the supermarket’s lease.

But, federal courts are bound to apply the substantive law of the state whose law applies to the “problem,” in this case, Florida. [The basic rule is that federal courts, resolving matters where there is no substantive federal law, apply a state’s law to the substance of a dispute, and apply federal law to procedural matters.] Here, a substantially similar lease clause had been before a Florida court ten years earlier. In fact, the case involved the same supermarket, though not the same dollar stores. There, the lower court thought “groceries” meant food items only, but was overruled on appeal when a Florida appellate court said that it also included non-food items. We aren’t going to explain why the federal District Court, in 2012, though required to apply Florida law, didn’t use the same substantive definition as was the “law” in Florida. Suffice it to say at this stage in our story, both a Florida lower court and a federal lower court thought “groceries” meant food items only. Also, keep in mind, there are fewer than 3,000 U.S. District Court judges in the United States out of population of 315,000,000. That makes federal District Court judges a pretty select group. They may be wrong from time to time, but they aren’t dumb or stupid.

In the earlier case, the Florida appellate court sought to discern the ordinary meaning of the word, “groceries.” So, it applied a common, though often result-oriented, principle: “[i]n the absence of a contractual definition, we must presume that [a] word was intended to be used in its plain and ordinary way as can be ascertained by reference to a dictionary.” We say, result-oriented, because the definitions used by that court were based on the definition of a “grocer,” and we think that’s pretty much the same as a “grocery store.”

So, because a pretty well-accepted dictionary, in 1934, defined a grocer to be “a dealer in tea, sugar, coffee, fruits, and various other commodities, chiefly food stuffs,” and another widely used one said that “groceries are sold by a grocer,” and a “grocer” trades in [listed] food items and “articles of domestic consumption,” the Florida appellate court ruled that “groceries” included non-food products. And, because that was a precedential ruling by a Florida court, the United States Court of Appeals, in this 2014 ruling felt obliged to abide by it.

Now, “groceries” might very well include “non-food” products, but we don’t think that’s a forgone conclusion, certainly not by working backwards from the definition of a “grocer,” a term we think more related to a “grocery store” than to “groceries.” [Think, “pets,” “pet shop owners,” and “pet shops.”]

Why else do we think the Florida appellate court had a result in mind before it ruled? That’s because we think it selectively chose the definitions it was hoping for. It could have chosen these found by Ruminations in other dictionaries: (a) “Groceries are foods you buy at a grocer’s or at a supermarket” (Collins, dictionaries since 1819; also, Cambridge University Press); or (b) “Groceries are foods you buy at a grocer’s or at a supermarket such as flour, sugar, and tinned foods” (Reverso); or (c) “t]he definition of a grocery is a store where food is bought, or the items for sale there” (Your Dictionary); or (d) “groceries : food sold by a grocer : food bought at a store” (Merriam-Webster). We could go on.

So, even if a court feels compelled to turn to a “dictionary” to resolve an ambiguity about a word’s meaning (and that makes sense), what should the court do when its dictionary research confirms that the word is, plainly speaking, ambiguous?

Let’s bottom-line this. Supermarkets (today’s grocery stores) sell everything. Is it legitimate for a court, ostensibly bound by the principle of strictly construing restrictive covenants (e.g., exclusive use rights) in favor of free and unrestricted use of real property, to bar neighboring stores from selling anything a grocery might or does sell? We think not.

Do we blame the United States Court of Appeals for following the Florida appellate court? No, not if the federal court believed the state court’s ruling to be the actual law in Florida. But, following a state’s law, something we endorse, reveals another anomaly of the (perfectly appropriate) limitation on the federal court’s ability to make its own “substantive” law. Here, some of the locations in question were outside of Florida. As to those non-Florida locations, the federal appellate court thus needed to send the suit back to the lower court because Florida law would not be dispositive for stores in Georgia or Tennessee or Louisiana.

Why is that an anomaly? That’s because if those other states define “groceries” to mean only food items, the very same words in the supermarket’s leases would have a different meaning and effect depending on where the store was located. That couldn’t have been anyone’s intent.

Also, the entire rational applicable to as many as 136 stores wound up hinging on the outcome of a lawsuit defended by one particular dollar store, not a very big one, and not one of the large chains in this case. Who knows how important the issue was to that store or what the store’s legal budget might have been? In the case before it against three large dollar store chains, the way that plays out is that, unless the federal court found a way to distinguish its set of facts from those in the 2002 Florida case, the outcome of the supermarket’s suit depended on the quality of the defense raised by the “little” store in 2002. How many landlords or landlord representative ever paid attention to a “little” 2002 case? One can argue that this is a good reason to use only local legal counsel. Our guess, based on quite a bit of experience, is that few Florida attorneys would have known about, or looked for, the 2002 supermarket-dollar store case.

OK, we just remembered that way near the top of today’s blog posting, we invoked the frequent Ruminations refrain – say what you mean, and mean what you say. Here’s why.

Why didn’t the landlords for these shopping centers raise the issue at the outset – yes, insist that the word groceries be defined? Certainly, they weren’t willing to exclude the sale by others of anything a supermarket sells. We’re pretty sure they really thought that, just like “meats, fish, vegetables, fruits, bakery goods, dairy products or frozen foods,” groceries were foods. Still, they should have insisted that the exclusive be applicable to foods in the nature of groceries, meats, fish, vegetables, fruits, bakery goods, dairy products or frozen foods. Yes, if that’s what you meant, that’s what you should have said.

And, if you represent a dollar store in a lease negotiation, shouldn’t the question have arisen when you asked for and looked at all of the exclusive use rights at the property?

There are a lot of excuses or explanations available, including: “We’ve got a 100 stores at the same property as this supermarket, with the same provision in each of the supermarket leases, and they’ve never said: ‘Boo.’”

Wouldn’t it have been a lot simpler and cheaper to “say what you mean”? As of now, injunctions against selling the non-food items bar a lot of the affected dollar stores (the ones that were sued) from selling what that had already been selling. What a price to pay for not paying attention to a simple word: groceries.

If we didn’t need to say something about “sales area,” we’d probably rant about the word “storeroom” (see the lease’s text above) or Ruminate about what a “department store,” let alone a “discount department” store, might be in the mind of a dictionary-reading judge. More ironically, we could explore what it means to be a “dollar store” if you don’t get a definition with the term. But, in Paul Harvey tradition, we want to tell you the rest of the story, albeit briefly.

In this Winn-Dixie case, the lower court judge, in keeping with the policy of limiting restrictive covenants, ruled that 500 square feet of sales area was to be measured with reference to the actual shelf space occupied by the “forbidden” items. The United States Court of Appeals, again following the 2002 Florida state court opinion, reversed that United States District Court ruling and included adjacent aisle space as well. We’re not sure how it would have anyone do such calculations if only one of four vertical shelves on a gondola contained a “forbidden” item. Would it have included only 1/4 of 1/2 of the aisle width adjacent to the gondola? It really doesn’t matter because it would have been a lot clearer (and cheaper) had the lease said what it meant, and then the parties could have meant what the lease said. For a little more about “sales area” and “shelf area,” you might want to click HERE.

Lastly, as we’ve reported, this court decision is 72 pages long. Real “law” buffs are commended to print out a copy (find the link for it way, way above). The Court of Appeals has done a magnificent job in covering a whole bunch of really neat, and often confusing, issues concerning exclusive use rights and their enforceability, and you’ll learn a lot about some puzzling, arcane issues.

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Comments

  1. floridalegal says:

    The existence of Winn Dixie v. 99 Cent Store was well known to landlords and to real estate managers at the dollar stores. The legal department at one of the larger dollar store chains not named in the cause of action knew the ramifications and did not test the limits. In no way was this ruling a surprise to the named defendants.

  2. Great discussion, Ira. Thank you.

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