Fab’rik Boutique, Inc. v. Shops Around Lenox, Inc

SECOND DIVISION
ANDREWS, P. J.,
MCFADDEN and RAY, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules/
September 8, 2014
In the Court of Appeals of Georgia
A14A0937. FAB’RIK BOUTIQUE, INC. v. SHOPS AROUND
LENOX, INC.
MCFADDEN, Judge.
Fab’rik Boutique, Inc. (“Fab’rik”) sought a declaratory judgment that a
restrictive covenant in its lease with its landlord, Shops Around Lenox, Inc.
(“Shops”), is unenforceable because it is overly broad. Both parties moved for
summary judgment, and the trial court denied Fab’rik’s motion and granted summary
judgment to Shops. We find the restrictive covenant ambiguous, but that ambiguity
can be resolved by application of the general rules of contract construction. So
construed, the restrictive covenant is not overly broad. Accordingly, we affirm.
1. Facts.
To prevail on a motion for summary judgment,
the moving party must show that there exists no genuine issue of
material fact, and that the undisputed facts, viewed in the light most
favorable to the nonmoving party, demand judgment as a matter of law.
Moreover, on appeal from the denial or grant of summary judgment the
appellate court is to conduct a de novo review of the evidence to
determine whether there exists a genuine issue of material fact, and
whether the undisputed facts, viewed in the light most favorable to the
nonmoving party, warrant judgment as a matter of law.
Atlantic Ins. Brokers v. Slade Hancock Agency, 287 Ga. App. 677 (652 SE2d 577)
(2007) (citation omitted). “[C]ontract disputes are particularly well suited for
adjudication by summary judgment because construction of contracts is ordinarily a
matter of law for the court.” Waste Mgmt. of Metro Atlanta v. Appalachian Waste
Systems, 286 Ga. App. 476 (649 SE2d 578) (2007) (citation omitted).
The relevant evidence is not in dispute. On November 10, 2009, the parties
entered into a three-year commercial lease. The lease required Fab’rik to operate the
leased premises under the trade name “Fab’rik” as a “[w]omen’s clothing and
accessories boutique similar to other Fab’rik boutiques.” The lease contained a
“radius restriction” under which Fab’rik agreed
not to open or operate another store (other than a store owned by
[Fab’rik] as of the [date of the execution of the lease]) within five miles
of the [leased p]remises without [Shops’] prior written consent which
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may be withheld by [Shops] in [Shops’] sole, absolute, and unfettered
discretion, and in the event [Fab’rik] breaches this provision, [Fab’rik]
shall be in immediate default under this [l]ease.
The lease also contained an option permitting Fab’rik to extend it for three more
years, “[p]rovided no [e]vent of [d]efault exists.”
In May 2012, Fab’rik informed Shops that it wanted to extend the lease. Shops
responded that Fab’rik had defaulted under the lease by opening two other “Fab’rik”
stores within five miles of the leased premises, and Shops declined to extend the lease
unless Fab’rik cured the default. Instead, Fab’rik filed its complaint asking the trial
court to enter a declaratory judgment that it was not in default under the lease and
consequently it was entitled to extend the lease. Fab’rik alleged, among other things,
that the radius restriction was invalid because it was overly broad.
Both parties moved for summary judgment, and the trial court granted summary
judgment to Shops. The trial court construed the radius restriction to apply to the
opening or operation of other stores selling women’s clothing and accessories under
the “Fab’rik” trade name and ruled that this restriction was reasonable.
2. Construction of the radius restriction.
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Fab’rik argues that the trial court improperly construed the radius restriction
and that, properly construed, that provision unreasonably prohibited it from opening
or operating a store of any type, not merely a women’s clothing and accessories
boutique bearing the “Fab’rik” trade name. We find no error with the trial court’s
construction of the radius restriction.
Principles of contract construction apply to restrictive covenants just as they
apply to other types of contractual provisions. See Preferred Risk Mut. Ins. Co. v.
Jones, 233 Ga. 423, 424-426 (1) (211 SE2d 720) (1975) (applying general rules of
contract construction to establish terms of contract before considering whether terms
of noncompete provision were unreasonable); Azzouz v. Prime Pediatrics, 296 Ga.
App. 602, 604-606 (1) (a) & (b) (675 SE2d 314) (2009) (same) ; Robinwood, Inc. v.
Baker, 206 Ga. App. 202, 203-205 (2) (425 SE2d 353) (1992) (same). Contract
construction
involves three steps. At least initially, construction is a matter of law for
the court. First, the trial court must decide whether the language is clear
and unambiguous. If it is, the court simply enforces the contract
according to its clear terms; the contract alone is looked to for its
meaning. Next, if the contract is ambiguous in some respect, the court
must apply the rules of contract construction to resolve the ambiguity.
Finally, if the ambiguity remains after applying the rules of construction,
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the issue of what the ambiguous language means and what the parties
intended must be resolved by a jury.
City of Baldwin v. Woodard & Curran, Inc., 293 Ga. 19, 30 (3) (743 SE2d 381)
(2013) (citation omitted); see also Azzouz, 296 Ga. App. at 604 (1) (a).
The radius restriction at issue in this appeal pertinently provides that Fab’rik
“agrees not to open or operate another store . . . within five miles of the [leased
p]remises[.]” (Emphasis supplied.) Fab’rik argues that this provision unambiguously
prohibits it from opening a store of any type, focusing on the generality of the word
“store.” But the plain language of the radius restriction does not prohibit “any store”
or “stores of any kind”; it prohibits Fab’rik from opening or operating “another
store.” (Emphasis supplied.) This language, on its face, does not unambiguously
provide for the expansive restriction asserted by Fab’rik. See Citrus Tower Blvd.
Imaging Ctr. v. David S. Owens, MD, PC, 325 Ga. App. 1, 8 (2) (752 SE2d 74)
(2013) (contract is unambiguous if, “examining the contract as a whole and affording
the words used therein their plain and ordinary meaning, the contract is capable of
only one reasonable interpretation”) (citation and punctuation omitted). Instead, the
phrase “another store” is also open to the interpretation proposed by Shops – that it
refers to another store of the specific type addressed in the lease (namely, a
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“[w]omen’s clothing and accessories boutique similar to other Fab’rik boutiques”
operating under the “Fab’rik” trade name). See id. (contract is ambiguous where “the
words used therein [are] open to various interpretations”) (citation and punctuation
omitted).
Application of the statutory rules of contract construction resolve this
ambiguity in favor of Shops. Under OCGA § 13-2-2 (2), “[w]ords generally bear their
usual and common signification[.]” And under OCGA § 13-2-2 (4), “[t]he
construction which will uphold a contract in whole and in every part is to be
preferred, and the whole contract should be looked to in arriving at the construction
of any part.” The lease as a whole addressed a specific type of store. And in another
provision, concerning rent, the lease refers to “other ‘Fab’rik’ stores” (emphasis
supplied), thereby limiting the meaning of the word “store.” Construing the term
“another store” to mean other stores of the specific type addressed in other lease
provisions is consistent with the usual and common meaning of the word “another”
and with the manner in which the concept of a “store” was treated elsewhere in the
lease. Moreover, the more expansive construction of the term urged by Fab’rik, which
Fab’rik alleges would result in the invalidation of the lease’s radius restriction, see
generally Watson v. Waffle House, 253 Ga. 671, 673 (2) (324 SE2d 175) (1985)
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(discussing overbreadth of restriction of employment in business “in any capacity”),
is not preferred under OCGA § 13-2-2 (4) because it would not uphold the lease in
whole and in every part. See Azzouz, 296 Ga. App. at 605 (1) (a) (applying this rule
of contract construction to reject argument that restrictive covenant should be
construed in a manner rendering it unenforceable).
Fab’rik argues that the trial court’s construction of the lease in this more
limited way constitutes impermissible blue-penciling. (Because the parties entered
into the lease before May 11, 2011, the 2011 act revising the law related to restrictive
covenants, with its provision on judicial modification of restrictive covenants, does
not apply here. See OCGA § 13-8-54 (b); Holton v. Physician Oncology Svcs., 292
Ga. 864, 870 (3) n. 4 (742 SE2d 702) (2013).) “[A] trial court may not under the guise
of the ‘blue pencil’ method reform a contract which is otherwise unenforceable by
reason of vagueness.” Waste Mgmt. of Atlanta, 286 Ga. App. at 481 (1) (citation and
emphasis omitted). Applying the general rules of contract construction to determine
the meaning of a restrictive covenant, however, is not the same thing as blue-
penciling. See Azzouz, 296 Ga. App. at 608 (4). The application of the rules of
contract construction, and not the “blue pencil” method, resolve any ambiguity in the
lease.
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3. Enforceability of the radius restriction.
Whether a restrictive covenant violates Georgia law
depends upon whether the covenant can be considered a “reasonable”
restraint on competition, given the circumstances of a particular case.
Specifically, the restraint imposed must be reasonably limited and it
must be reasonably necessary to protect the interest of the party in
whose favor it is imposed.
Carson v. Obor Holding Co., 318 Ga. App. 645, 648 (1) (734 SE2d 477) (2012)
(citation and punctuation omitted). The level of scrutiny with which the court applies
the test for reasonableness varies depending on the nature of the contract containing
the restrictive covenant. See generally OnBrand Media v. Codex Consulting, 301 Ga.
App. 141, 145 (2) (a) (i) (687 SE2d 168) (2009) (discussing levels of scrutiny
applicable to restrictive covenants ancillary to different types of contracts).
Although Fab’rik argues that the trial court failed to apply the proper level of
scrutiny in this case, the trial court actually pretermitted that issue, holding that the
radius restriction was reasonable “[u]nder either strict scrutiny or a more relaxed
standard[.]” Even under the strictest level of scrutiny applicable to covenants
ancillary to employment contracts, which Fab’rik argues applies to the lease, the
covenant “will be upheld if the restraint imposed is not unreasonable, is founded on
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a valuable consideration, and is reasonably necessary to protect the interest of the
party in whose favor it is imposed, and does not unduly prejudice the interests of the
public.” W. R. Grace & Co., Dearborn Div. v. Mouyal, 262 Ga. 464, 465 (1) (422
SE2d 529) (1992) (citation omitted). In analyzing a covenant, we employ a “three-
element test of duration, territorial coverage, and scope of activity[,] utilizing it, not
as an arbitrary rule but as a helpful tool in examining the reasonableness of the
particular factual setting to which it is applied.” Watson, 253 Ga. at 673 (2).
Fab’rik does not challenge the reasonableness of the restriction’s five-mile
territorial radius, and the trial court correctly found, as to duration, that the restriction
is “co-terminus with the [l]ease.” Moreover, as discussed above, the scope of the
activity prohibited by the restriction is limited to the opening or operation of the
specific type of store covered by the lease – another “Fab’rik”-branded women’s
clothing and accessories boutique. The trial court did not err in finding the radius
restriction to be reasonable in duration, territorial coverage and scope of activity and
in granting summary judgment to Shops in Fab’rik’s declaratory judgment action.
Judgment affirmed. Andrews, P. J. and McFadden, J., concur; Ray, J., concurs
in the judgment only.
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