Anticompetitive covenant in shopping center lease broadly construed

Following Florida law, the Eleventh Circuit construed the terms of restrictive covenants in shopping center leases broadly. Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008 (11th Cir. 2014). The covenants were part of the leases granted to Winn-Dixie supermarkets and protected it from competition by limiting the ability of other stores to sell “staple or fancy groceries” to a discrete “sales area.” Traditionally, ambiguities in covenants were construed to limit the covenant, freeing the servient estate owner to a broader use of its property and Florida precedents have adopted that  position. Moore v. Stevens, 106 So. 901, 903 (Fla. 1925) (ambiguous “covenants are strictly construed in favor of the free and unrestricted use of real property”). However, applying a recent holding from a Florida state court, see Winn-Dixie Stores, Inc. v. 99 Cent Stuff-Trail Plaza, LLC, 811 So.2d 719 (Fla. Dist. Ct. App. 2002),  the Eleventh Circuit held that the term “groceries” applied not only to food but to other items typically carried in a supermarket such as soap, matches, and paper  napkins. It also found that “sales area” applied not only to the shelving area but the aisles as well.

The case involved leases in Alabama, Georgia, Louisiana, and Mississippi, The court applied the law of the place where the stores were located. While it applied the law of Louisiana and Mississippi to the stores located there, it remanded to enable the trial courts to determine how the law of Alabama and Georgia would interpret covenants in leases for stores located in those states.

As to the stores located in Mississippi, the court refused to find that the anticompetitive covenant would run with the land to  be binding on lessees of the servient (burdened) property. The court noted that Mississippi requires both horizontal and vertical privity for a covenant to run with the land. Hearn v. Autumn Woods Office Park Prop. Owners Ass’n, 757 So.2d 155, 158 (Miss. 1999). And despite academic criticism, the advice in the Restatement (Third) of Property (Servitudes), and some recent cases to the contrary, the court cited twentieth-century case law that required strict vertical privity for a covenant to run with the burdened land..

The court also refused to find that the covenant ran with the land under Louisiana law for stores located there because the leases did not comply with the Louisiana construction of leases as contracts rather than real obligations.