We were planning a family Thanksgiving turkey-centric dinner and ice cream as a dessert came to mind. Now, in our world, turkey and real ice cream don’t play together well, so the gears cranked on. What was the appeal of ice cream? Well, to figure that out, we flew to 30,000 feet for an overview. At that altitude, you can’t tell ice cream from any other frozen dessert. And, when we in the “doing leases” business think of frozen desserts, we think of a 1988 court decision. [Well, not really, but a good story is always a good way to start a Ruminations blog posting.] The case we thought about is: Draper and Kramer, Inc. v. Baskin Robbins, Inc. out of the U.S. District Court for the Northern District of Illinois. The decision can be seen by clicking HERE.
Who doesn’t know Baskin-Robbins and its “31 flavors”? In this lease, it could use the leased space:
“for the purpose of use as a store for the sale, at retail, of ice cream, ice milk, sherbet, soda fountain items, foods, soft drinks, candy, confectionary products and similar or related goods for consumption on and off the premises.”
Now, the usual approach landlords use to craft an exclusive use right for tenants who have successfully negotiated one is to look at the tenant’s permitted uses and “give ‘em” less than that. Tenants would like the exclusive use clause to be as broad as possible, at least as to the core items sold at the location. Here, the parties agreed on this text appearing in the lease:
Lessor hereby agrees and covenants that no other premises of the building, or group of the buildings, owned or controlled by Lessor, of which the leased premises are a part, shall be leased or used for the business of selling “hand packed ice cream,” ice cream cones, or soda fountain items. It is the specific understanding of the parties hereto that Lessee shall have the exclusive right to sell “hand-packed ice cream,”“ ice cream cones, or soda fountain items in the building, or group of adjoining buildings, owned or otherwise controlled by Lessor … .”
There was a pre-existing soft-serve ice cream store at the shopping center, but there was no need to analyze a possible exclusive use violation because that store was “grandfathered” under the Baskin-Robbins lease.
Twenty years into the Baskin-Robbins lease along came a frozen yogurt store and this raised the dander of Baskin-Robbins. Letters flew back and forth between attorneys for the landlord and attorneys for Baskin-Robbins. Though the frozen yogurt store would offer soda fountain items, the landlord insisted that, in the context of the Baskin-Robbins exclusive use provision, “protection was limited to those [soda fountain items] made with ice cream.” Baskin-Robbins thought otherwise and wouldn’t even change its mind when the frozen yogurt store agreed to an amendment of its own lease to say it could “not sell soda fountain items or carbonated beverages made with ice cream.”
Thus, the court was faced with the question: “What are soda fountain items?” Baskin-Robbins said: “Sodas, sundaes, and cones.” The landlord countered, “Ice cream sodas, ice cream sundaes, and ice cream cones.” That allowed the court to retell a part of one of our favorite contract interpretation cases, the one that resolved a particular dispute over whether a chicken could be a broiler. The important concept coming out of that case was that “it depended.” And, on what did it depend? Answer: “on the intention of the contracting parties.” We’re going to reproduce the quoted text because we like it and we admire Justice Holmes, a wise jurist whose words are quoted by Judge Henry Friendly [No, not the one from Friendly’s, the ice cream chain] in this 1960 opinion:
The issue is, what is a chicken? Plaintiff says “chicken” means a young chicken, suitable for baking and frying. Defendant says “chicken” means any bird of that genus that meets certain specifications on weight and quality, including what it calls stewing chicken and plaintiff pejoratively calls “fowl.” Dictionaries give both meanings, as well as some others not relevant here. To support its position, plaintiff sends a number of volleys over the net; defendant essays to return them and adds a few serves of its own. Assuming that both parties were acting in good faith, the case nicely illustrates Holmes’ remark that “the making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs — not on the parties having meant the same thing, but on their having said the same thing.” The Path of the Law, in Collected Legal Papers, p. 178. I have concluded that plaintiff has not sustained its burden of persuasion that the contract used “chicken” in the narrower sense.
Baskin-Robbins did not sell frozen yogurt. It sold ice cream. Two of the three items in the exclusive use clause began with “ice cream” and the landlord argued that those were the intended ingredients for any restricted “soda fountain items.” The landlord also tried to equate “hand-packed” ice cream with “hard” ice cream, but the court didn’t bite.
The landlord tried some other approaches. It foolishly argued that the reason the Baskin-Robbins lease said “ice cream” was because the existing Dairy Queen was selling a soft-serve frozen dessert. To that, the court said something like: “So, why did you bother to ‘grandfather’ the pre-existing stores when you wrote the Baskin-Robbins lease?” [In all fairness to the landlord making these arguments, it was a mortgagee who had taken over the property. What would it have known about “original intent”?] The landlord tried another approach, one that losing parties have lost within any number of contexts. There were four other stores at the shopping center selling some form of ice cream and Baskin-Robbins had never complained. As the court saw it, however, Baskin-Robbins’ generosity in not objecting to those users could not be held against it when it came to this particular frozen yogurt competitor.
Now, in Illinois, as elsewhere, restrictive covenant are to be strictly construed. Yes, the lease could have prohibited only ice cream stores, but that’s not how it was written. These are the words used by the court in resolving the dispute:
The lease says “‘hand-packed ice cream,’ ice cream cones, or soda fountain items.” Like the contract in Judge Friendly’s case, it does not limit the meaning of the operative term, and this court finds nothing in the parties’ agreement which requires such limitation. A soda fountain is a soda fountain. It makes ice cream, banana splits, yogurt banana splits, ice cream soda, yogurt sodas, cherry cokes, vanilla cokes, chocolate cokes, and all the varieties of carbonated drinks which are essentially found in soda fountains. Soda fountain items are soda fountain items, not soda fountain items made with ice cream. [The landlord’s] efforts to prove otherwise are not in good taste.
So, the landlord lost. We hope it didn’t have a melt-down.
We’re quite happy the lease didn’t protect Baskin-Robbins against competitors selling “frozen desserts,” mentioning only “ice cream,” because, if it did, we would have had to write on some other topic today.
Yes, there is a point, one that we’ve made over and over. If you are going to negotiate agreements, such as leases, you really need to know what you are doing. It can’t merely be following a formula, in this case, “look at the permitted uses, and parrot some of the words.” You need to put on your virtual reality goggles and walk through the property, walk through the tenant’s business, and understand the industries involved. Ice cream stores want to be the exclusive purveyors of frozen desserts even if, at the time the discussion comes up, they only sell ice cream. A quick service restaurant might be focused on chicken or hot dogs or hamburgers or tacos, but they should want to be the only quick service restaurant at the property. Whether they are ultimately successful in getting such exclusive use protection depends on the property and a matter of relative bargaining powers, but you don’t get there if you don’t ask.
Had this lease said “frozen desserts” (and excluded pre-packaged ones), the landlord would have lost before it started and some lawyer’s kids would have gone to public, not private, universities. Had the lease referred to soda fountain items made with ice cream, the tenant would have lost before it started and some lawyer’s kids would have gone to public, not private, universities.