‘Specializing in‘ not an ambiguous term

Listen to this article

“The concepts of ‘primarily’ and ‘specializing in’ are clear. Additionally, that various fact-finders may apply those concepts differently in apparently similar cases does make the concepts themselves ambiguous or vague. The restrictive covenants are valid.” Hon. Ralph Adam Fine, Wisconsin Court of Appeals

A deed restriction prohibiting operation of a “casual, theme-type restaurant specializing in Mexican food” is not vague, and can be enforced, the Wisconsin Court of Appeals held on July 27.

Diamondback Funding, LLC, bought a lot in Franklin from Home Depot USA, Inc., in July 1999, for the purpose of building and operating a Tumbleweeds restaurant.

As part of the sale, Home Depot agreed, “to deed restrict the adjoining outlot to prohibit the operation of any casualty [sic — should be “casual”], theme-type restaurants specializing in Mexican food.”

In April 2000, Home Depot sold the outlot referred to in the agreement to Rose Properties, LLC. A contemporaneous Restrictive Covenant Agreement provided, “No portion of the [outlot] may be leased, used or occupied as or for a … Mexican restaurant … or any other restaurant (except for … (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food).”

The agreement recited that all the restrictive covenants “shall run with the land and be binding upon Rose and each of Rose’s tenants, subtenants and other occupants, and its and their respective successors and assigns”

In May 2002, Home Depot and Rose purported to modify the April 2000 restrictive covenant to provide that operation of a Chili’s Grill & Bar is a permitted use; and delete the “Mexican restaurant … or any other restaurant (except for … (ii) a fast food restaurant, provided such fast food restaurant does not serve primarily Mexican food)” language from the Restrictive Covenants Agreement, and, in its place, substitute: “or any casual theme-type restaurant specializing in Mexican food.”

Diamondback was not a party to the purported modifications. Rose sold the lot to Chili’s in July 2002.

Diamondback brought suit to enforce the restrictive covenant. Milwaukee County Circuit Court Judge Jeffrey A. Kremers granted summary judgment to Chili’s and dismissed Diamondback’s complaint, holding that the “specializing in Mexican food” language was “ambiguous on its face” and, therefore, was not enforceable.

The court explained, “I don’t know what that term means. I wouldn’t know how to begin to instruct a jury on it. And it seems to me we would be left with one, or the fact finder, one fact-finder saying, well, specializing means it’s got to be 95 percent or a hundred percent or 75 percent or 51 percent and, or do they look at it from the standpoint of profits.”

Diamondback appealed, and the court of appeals reversed in a decision by Judge Ralph Adam Fine.

Third Party Beneficiary

The court first held that Diamondback was a third-party beneficiary of the contract between Home Depot and Rose.

The parties did not contest that the purpose of the April 2000 restrictive covenant was to comply with Home Depot’s obligation to Diamondback “to prohibit the operation of any casual[] theme-type restaurants specializing in Mexican food” on that lot. Thus, Diamondback was a third-party beneficiary of the covenant, and the covenant was binding on Chili’s because it ran with the land.

Because a contract provision designed to benefit a third party may not be rescinded or modified without consent of that third party, and Diamondback did not consent to the May 2002 modification, the court held that the modification was a nullity.

Thus, the two issues the court faced were: was the restrictive covenant language ambiguous?; and if not, does it apply to the Chili’s restaurant?

Ambiguity

Turning to the issue of ambiguity, the court first noted that there was no dispute that Chili’s is a “casual theme-type restaurant.” The court also stated that it found no substantive difference between a restrictive covenant prohibiting a restaurant serving “primarily Mexican food” and one prohibiting a restaurant “specializing in Mexican food,” although the court found both are broader than a covenant prohibiting a “Mexican restaurant.”

The standard for determining the ambiguity of a restrictive covenant is set forth in Zi
nda v. Krause, 191 Wis.2d 154, 165-166, 528 N.W.2d 55, 59 (Ct.App.1995), as follows: “The language in a restrictive covenant is ambiguous if it is susceptible to more than one reasonable interpretation. However, if the intent of a restrictive covenant can be clearly ascertained from the covenant itself, the restrictions will be enforced. By intent we do not mean the subjective intent of the drafter, but the scope and purpose of the covenant as manifest by the language used.”

The restrictive covenant in Zinda prohibited property owners from doing “anything or permit[ing] anything to be done to the common area which would adversely affect the vegetation and natural beauty of the common area.”

Rejecting the argument that “natural beauty” is too vague to be enforced, the court held the covenant enforceable, reasoning, “although we agree that beauty may be a subjective impression that varies from person to person, when read in context it is clear that the purpose of the covenant is to restrict those activities that threaten the common area’s natural condition. Therefore, because the purpose of the covenant may be clearly ascertained, the trial court properly determined that the covenant was valid and enforceable.” Id. 191 Wis.2d at 167.

Turning to the case at bar, the court found that neither the term, “specializing in” nor “primarily” is ambiguous.

The court noted a lay dictionary defining “specializing” as “To concentrate on a particular activity or product: The shop specializes in mountain-climbing gear.” Another defines “specialize” as “to concentrate one’s efforts: develop or pursue a specialty: <[specialize] in copyright law>; <their restaurants [specialize] in Swedish cuisine>.”

The court found that “primarily” is similarly defined: “Chiefly; mainly: a scholastic program primarily for seniors; a primarily middle-class neighborhood”; and “Fundamentally: <has now become primarily a residential town.>”

Discussing the definitions, the court concluded, “This is all just common sense and reflects the common use of our language that, as applied here, really needs no formal, cited, ‘definition.’”

The court acknowledged that the terms “specializing in” and “primarily” will require a fact-finder to discern what activities meet the standards. However, the court noted that juries are routinely required to apply more arcane terms, such as “ordinary care” and “substantial factor” in negligence cases, and “beyond reasonable doubt” in criminal ones.

Even more arcane are the terms juries must apply in First Amendment cases: “prurient interest in sex”; “patently offensive”; and “literary, artistic, political or scientific value.”

	Related Links Wisconsin Court System Related Article Case Analysis

The court concluded, “That the standard may be difficult to apply in a particular case does not alter the verity that the concepts of ‘primarily’ and ‘specializing in’ are clear. Additionally, that various fact-finders may apply those concepts differently in apparently similar cases does make the concepts themselves ambiguous or vague.

The restrictive covenants are valid (cite omitted).”

The court determined that summary judgment is inappropriate for either party, however, as the parties disputed whether Chili’s is, in fact, a “Mexican restaurant,” a restaurant that serves “primarily Mexican food,” or is a restaurant “specializing in Mexican food,” and the parties submitted contradictory evidence on these issues.

The court found, “The plethora of conflicting material they have each submitted on the subject leaves us no doubt but that whether Chili’s falls within any of the restrictive-covenant proscriptions must … be decided by a fact-finder. In order to get an injunction, Diamondback must show that Chili’s will injuriously violate Diamondback’s rights by maintaining a restaurant on the lot that either serves ‘primarily Mexican food,’ or is a restaurant ‘specializing in Mexican food,’ or is a ‘Mexican restaurant,’ and, also, that its ‘injury is irreparable, i.e., not adequately compensable in damages.’

Accordingly, the court reversed.

Click here for Case Analysis.

David Ziemer can be reached by email.