State of New York
Supreme Court : County of Monroe

Plaintiff,

- against -

Chili Plaza Associates and T.F. Brown's,
Inc.

Defendants.

_______________________________

Andrew V. Siracuse, J.

Plaintiff Emerald Enterprises operates the Ugly Mug, a bar/restaurant in a plaza owned by defendants Chili Plaza Associates. Emerald seeks a preliminary injunction preventing Chili Plaza from leasing space to defendants T.F. Brown's, Inc., which intends to operate a restaurant with bar in the same plaza; Emerald contends that the proposed lease will violate a restrictive covenant in its own lease with Chili Plaza. The defendants both oppose the motion for a preliminary injunction and cross-move for summary judgment.

Both parties agree that the dispositive issue here is the language of the lease's restrictive covenant. That covenant prohibits leases to "a tavern, saloon or bar"; it continues, "provided, however, that this restriction has no application whatsoever" to restaurants "conducting a bar *** as an incident to its restaurant food service business".

Beyond that agreement there is much in dispute. Plaintiffs formerly referred to T.F. Brown's as a "sports bar". They no longer do so, but maintain instead that Brown's operates a stand-alone bar as a separate profit center and thus falls within the lease exclusion. Plaintiffs also argue that the lease provision must be construed strictly against the drafter, the plaza, and that the language regarding restaurants with incidental bar service is an exception to a general prohibition of bar service in general. Plaintiffs offer affidavits regarding the 1991 negotiations over this clause.

Defendants, for their part, argue that parol evidence is unnecessary and improper where the lease is clear. They have presented menus and affidavits to show that what they are planning is a family-oriented business with a subsidiary bar, its alcohol sales clearly incidental to the much larger food service business. Defendants refer the court to cases holding that restrictive covenants are to be construed against the party seeking enforcement, not against the drafter.

After considering the submissions by both parties and the arguments made at Special Term, the Court concludes that the lease covenant does not apply to the business contemplated by T.F. Brown's. The equitable relief sought by the plaintiff requires a showing of a likelihood of success on the merits, inadequacy of a remedy at law, and irreparable harm. The plaintiff has not met this burden, most notably on the first branch of the test.

The proposed restaurant is to be the the second in a planned chain; a T.F. Brown's is currently in operation in Batavia, New York. The Chili restaurant would occupy an oblong space laid out with a children's play area in the front, a large dining area behind it to the right, a game room with video arcade games and other entertainment on the left, and a separate bar area behind the game room. The kitchen is to occupy the rear portion of the premises, directly behind the dining room, with a small private dining/party room at the rear behind the bar.

Menus from the Batavia T.F. Browns were supplied with the papers, and clearly show that the restaurant portion of the business is a substantial one and has a fairly strong family emphasis. (There is a separate children's menu.) At the same time, the bar is definitely intended as a separate profit center and Brown's owners seek to build bar traffic by providing numerous TV monitors for sports broadcasts. Brown's expects that this trade will be more significant after 8:00 p.m. At oral argument, however, Brown's attorney stated that food service will continue whenever the bar is open; thus, at no time will the restaurant operate exclusively as a bar.

The Planning Board of the Town of Chili conducted a public hearing on the proposed restaurant, and the minutes of that hearing were also furnished to the court. While a number of Chili residents objected to T.F. Brown's as a "sports bar", the basis for their characterization was not clear. The only witness at the hearing who visited the Batavia location stated that during his visit, which began at 7:45 p.m., the bar patrons were substantially outnumbered by dining room customers.

The court concludes that the plaintiff has not shown T.F. Brown's to be anything other than what it claims to be: a restaurant with a subsidiary bar business. The discussion cannot end there, however. The plaintiff has argued that the lease prohibits such restaurant bars; under this interpretation, only "service bars" intended solely to provide drinks for dining room customers are permitted, with no separate tables or bar area.

The Court is therefore called upon to construe the restrictive covenant in Emerald's lease. Although Emerald cites the general rule that contracts are to be construed against the drafter, defendants are absolutely correct that restrictive covenants in leases are instead construed against the party seeking their enforcement (see, 74 NY Jur 2d ß 89 and cases therein). In a case involving an easement, the Court of Appeals stated, "the policy of the law is to favor the free and unobstructed use of realty (Premium Point Park Assn. v. Polar Bar, 306 NY 507) and *** covenants restricting the use of property will be strictly construed against those seeking to enforce them (Buffalo Academy of Sacred Heart v. Boehm Bros., 267 NY 242, ). The burden of proof is on the party endeavoring to enforce a restrictive covenant and must be met by more than a doubtful right (Single v. Whitmore, 307 NY 575). Only where it has been established by clear and convincing proof will our court impose such a restriction" (Huggins v Castle Estates, 36 NY2d 425, 430) .

The same high standard of proof is required in applications for preliminary injunction; as the Second Department recently noted,

In order to obtain a preliminary injunction, the plaintiff must show by clear and convincing evidence that it is likely to succeed on the merits of the action, that it will suffer irreparable injury absent the injunction, and that the balance of the equities is in its favor (see, Aetna Ins. Co. v. Capasso, 75 NY2d 860; Grant Co. v. Srogi, 52 NY2d 496, 517). We conclude that the court erred in granting injunctive relief because the plaintiff failed to establish a likelihood of success on the merits. The restrictive covenant in the plaintiff's lease, by its express terms, did not apply to tenants, such as HIP, that were already tenants in the shopping center when the plaintiff began its tenancy (Key Drug Co., Inc. v. Luna Park Realty Associates, 634 NYS2d 502).

Thus, plaintiff has a very high burden to meet to show that the proposed T.F. Brown's falls within the exclusion.

The covenant in question provides a curious problem in interpretation. Had the clause merely prohibited competing bars, saloons and taverns, the Court would have little hesitation in finding for the defendants. The ordinary meaning of these terms is clear, especially when all three are taken together; and no matter how prominent the subsidiary bar business, T.F. Brown's is not a bar, tavern or saloon.

The plaintiff contends, however, that the covenant prohibits restaurants with stand-alone bars as well as businesses whose primary trade is the sale of alcoholic beverages. It argues from the unexceptionable proposition that all terms in a contract are to be given full weight. Since the exclusion clause permits restaurants with incidental bars, it maintains, the intention of the parties must be to forbid some restaurants (ones with stand-alone bars) and permit others. Otherwise the careful distinction drawn regarding bar service incidental to food service business would be surplusage; the clause might just as well permit all restaurants and have done with it.

The Court does not find this argument persuasive. Whatever the interpretation of the restaurant language in the lease, it was not intended to extend the restrictions set out at the outset of the covenant; it begins with the words "provided, however", and can only reasonably be interpreted as a clarification of the limits set out in the first place. It effectively reiterates the understanding that a bar contained within a restaurant falls outside the exclusion, though a bar disguised as a restaurant will not. The clause cannot be interpreted so as to forbid leasing to a business which is not a tavern, bar, or saloon.

The exclusionary language of the covenant is clear; to the extent that the structure of the covenant may be ambiguous, resort must be had not to parol evidence but to the rule of law requiring that the least restrictive interpretation be adopted (Hunt's Point Restaurant v Oval Foods, 153 Misc 451, 454). It is that rule that controls the Court's decision.

The cases cited by the plaintiff do not compel a different result. In Snyder v Greenblatt (28 Misc 2d 403) the lease permitted some overlap of merchandise between the two businesses, and the court was called upon to determine if the extent of the trade done by one business was great enough to exceed the permitted amount. Such a ruling has no bearing where, as here, the question is the type of business being carried on. Inc. Vil. of Babylon v Anthony's Water Cafe (137 AD2d 792) is even less germane, because there the defendants were patently in violation of their lease by operating a discotheque, regardless of the title they gave their operation.

Since the restrictive covenant does not bar T.F. Brown's business, the cross-motion for summary judgment is granted and the complaint dismissed. The TRO is vacated. Defendants' counsel may prepare an order. One bill of costs is payable to defendants.

Andrew V. Siracuse, J.S.C.

Important note: