Exclusive Uses: Clean Up, Aisle 2018

April 2018

Exclusive uses are carefully negotiated provisions where every word is extremely important.  These provisions can often be interpreted very differently by landlords and tenants and are hotbeds for litigation.  In Winn Dixie v. Big Lots Stores, Inc., et al., the definitions of the words “groceries” and “sales area” have sparked several years of litigation, including a rare second appellate decision in 2018 after the 11th Circuit Court of Appeals remanded the case back to the United States District Court for the Southern District of Florida.

In 2011, Winn-Dixie sued Big Lots and other joined parties for violating Winn-Dixie’s exclusive use, which restricted grocery sales by other tenants. The 2011 district court narrowly defined “groceries” and “sales area” and found for Big Lots.  Pursuant to Florida law, the district court utilized a two-step process in order to interpret the definitions of these terms: first, the court determined whether the terms were ambiguous, and second, upon such a determination, the court construed the definition against the party seeking enforcement. In applying this process, the court determined that the terms “groceries” and “sales area” were ambiguous because they could conceivably capture different categories and thus construed them narrowly, interpreting “groceries” to be limited to food items only and “sales area” to mean solely the footprint of the displays showcasing goods, rather than also including the aisles around such displays.

The federal district court chose not to follow a Florida state court’s decision in a 2002 case that interpreted an identical exclusive provision, in which Winn-Dixie was also a party. In the 2002 Florida state case of Winn-Dixie v. 99 Cent Stuff-Trial Plaza, the court stated that when a document does not define its terms, the court finds the plain and ordinary meaning of the words by simply looking to the dictionary. The court determined that the dictionary definition of “groceries” included non-food items like household supplies, as well as food. The court further determined that the dictionary definition of “sales area” could not mean a footprint of just the displays showcasing the goods, for shoppers must stand in the aisles surrounding the displays, and thus part of the aisle space must be included in the definition.

Winn-Dixie appealed the more limited federal district court decision, and in 2014, the appellate court determined that the district court erred in its interpretation of the definition of “groceries” and “sales area.”  The 2014 appellate court followed the 99 Cent state court interpretation and therefore defined “groceries” and “sales area” more broadly, pursuant to their dictionary definitions. The appellate court reversed and remanded back to the district court.

Upon remand, the district court, in considering the stores in Florida, determined that although the definitions of “groceries” and “sales area” from the 2002 99 Cent case were the correct definitions to apply, the defendants were not on notice of the new definition if their leases pre-dated the 2002 case.  Although they had notice of the existence of the exclusive, they did not have notice of the actual scope of the definitions of “groceries” and “sales area,” because the determination of the proper definitions had not been established at the time they signed their leases.  Therefore, the district court again applied their original test to the leases that were executed prior to the 2002 decision – the district court did apply the appellate court’s definition to 14 stores that had leases that were entered into after the 2002 decision. Winn-Dixie again appealed the district court’s second judgment.

The 2018 appellate court ruled that although some leases pre-dated the 2002 99 Cent decision, the concept known as the “mandate rule” applies and requires the district court to apply the definition that the appellate court instructed to all the leases.  The definitions from this 2002 case did not come out of thin air, but rather were the prevailing definitions of “groceries” and “sales area” from the dictionary, which the court found in a 1986 Webster’s Dictionary.  The 2018 appellate court went on to state that a ruling “is the controlling interpretation of…law and must be given full retroactive effect…as to all events, regardless of whether such events predate or postdate our announcement of the rule.”  The 2018 appellate court chastised the district court for being swayed on remand by the defendants’ lawyer’s arguments that such a definition should not be applied to the defendants because it violates the “fundamental notions of fairness and due process” to apply a definition that the court set forth after the leases were signed.  The 2018 appellate court, once again, remanded the case back to the district court to apply the correct definitions.

These cases are a reminder that when drafting exclusives, careful consideration must be given to avoid ambiguity.  For more information about this case and enforcing exclusives, see https://www.ravidlawgroup.com/wp-content/uploads/2016/07/LACBA_January_2013.pdf.