Tamarack Village Shopping Center, A Limited Partnership, Respondent, vs. Galyan's Trading Company, Inc., Appellant.

Tamarack Village Shopping Center, A Limited Partnership, Respondent, vs. Galyan's Trading Company, Inc., Appellant. A05-449, Court of Appeals Unpublished, January 31, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-449

 

Tamarack Village Shopping Center,

A Limited Partnership,

Respondent,

 

vs.

 

Galyan's Trading Company, Inc.,

Appellant.

 

Filed January 31, 2006

Affirmed in part, reversed in part, and remanded

Halbrooks, Judge

 

 

Washington County District Court

File No. C9-04-4489

 

 

Steven K. Champlin, Perry M. Wilson, III, I. Jenny Winkler, Dorsey & Whitney LLP, 50 South 6th Street, Suite 1500, Minneapolis, MN 55402 (for respondent)

 

Jonathan D. Jay, Terrance C. Newby, Nicholas S. Kuhlmann, Leffert Jay & Polglaze, P.A., 150 South 5th Street, Suite 1900, Minneapolis, MN 55402 (for appellant)

 

            Considered and decided by Halbrooks, Presiding Judge; Klaphake, Judge; and Wright, Judge.

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

            Appellant challenges the district court's grant of declaratory judgment, arguing that the district court erred in determining that (1) an exclusivity clause should be strictly construed as a restraint on trade, (2) the concept of control in the lease's definition of "Related Corporation" means only actual legal control, and (3) respondent and Oakdale Partners are not related corporations under the terms of appellant's lease.  While we affirm the district court's identification of the strict-construction standard applicable to the lease's exclusivity clause, we reverse the district court's interpretation because the court's interpretation of "Related Corporation" fails to give meaning to the language contained in the first sentence of that term's definition.  Because we conclude that the definition of "Related Corporation" is ambiguous, we remand for further proceedings consistent with this opinion.

FACTS

            In March 1996, appellant Galyan's Trading Company, Inc. (Galyan's) entered into a lease with respondent Tamarack Village Shopping Center Limited Partnership (Tamarack) for retail-store space in Woodbury.  The lease contains an "Exclusive" provision that forbids Tamarack or a "Related Corporation" from leasing space to a competing sporting-goods retailer within three miles of the Galyan's store.  That provision reads:

                        14.04.  Exclusive. (a) Landlord shall prohibit and prevent the sale, offering for sale, and/or display of . . . any sporting goods or sporting equipment . . . from or within . . . any shopping center or other commercial development now or hereafter owned by Landlord or any Related Corporation of Landlord within three miles of the Premises.

 

"Related Corporation" is defined in Article I of the lease as

            a corporation or other business entity, which, directly or indirectly, controls, is controlled by, or is under common control with, another corporation or other business entity.  If more than 20 percent of the voting stock of a corporation or other business entity is owned by another corporation or other business entity, the corporation or business entity whose stock is so owned shall be deemed controlled by the corporation or business entity owning such stock.

 

            Oakdale Partners, LLC (Oakdale Partners) is developing a shopping center known as Oakdale Village less than three miles from the Tamarack Village Shopping Center.  This dispute arose because Oakdale Partners has solicited and negotiated a lease agreement for that development from sporting-good retailer Sportmart. 

            Tamarack is a limited partnership.  Tamarack Village Shopping Center Corporation (Tamarack Corporation) is the general partner and is owned by Robert Muir; Tamarack Corporation has control of and management authority over the shopping center.  Kelly Doran is assistant vice-president of Tamarack Corporation; he has "limited authority to enter into leases or other documents on behalf of the limited partnership if [Robert Muir] approves them previously."  The Robert Muir Trust (Muir is the trustee) owns 74 percent of the limited-partnership interest, while Doran owns seven percent.  The limited partners have no authority to act on behalf of the partnership. 

            Tamarack Corporation has a management contract for the shopping center with the Robert Muir Company, which does business as RCM Minnesota.  Doran is the president of RCM Minnesota.  RCM Minnesota handles all of the day-to-day services for Tamarack, including "maintenance issues, repair issues, tenant relations, accounting, preparation of whatever documents would need to be signed by the owner for tax purposes," construction management, and leasing.  But Muir makes all of the major decisions, including those that "affect the physical layout or the economic interest of the shopping center." 

            When Oakdale Partners and Sportmart began negotiations for a lease in Oakdale Village, Doran and the Robert Muir Trust each owned 50% of Oakdale Partners, and both had voting rights.  Because Muir had voting rights, Doran was concerned that the lease with Sportmart "could be construed to be a violation of the Galyan's lease."  In spring 2004, Doran contacted Galyan's officer and legal counsel, David Zoba, and informed him that Oakdale Village wanted to lease space to Sportmart and that such a lease might conflict with the "Exclusive" provision in Galyan's lease because of Muir's controlling ownership interests in both Tamarack and Oakdale Village.  Doran offered Galyan's $100,000 for a waiver of the "Exclusive" provision, but Galyan's rejected the offer, refused to waive its exclusivity rights, and threatened to file suit if Sportmart opened in Oakdale Village.  Subsequently, Oakdale Partners reorganized, divesting Muir of voting rights.  Tamarack admits that the Oakdale Partners' ownership structure was altered to circumvent the exclusivity provision in the Galyan's lease.

            Oakdale Partners currently has two classes of stock, a Class-A voting unit and a Class-B non-voting unit.  Doran owns all of the Class-A voting stock.  As the entity's chief manager and president, he exercises all of the entity's governance rights and has "complete responsibility and control of all the decisions of the entity."  Doran has a 48.75% total ownership interest in the company, 38.75% of which is in Class-B non-voting stock.  Muir gave up his former voting rights and his 50% interest in Oakdale Partners for a 48.75% Class-B non-voting interest transferred to the newly formed Oakdale Center, LLC (Oakdale Center).  The remaining minority Class-B interest is owned by employees of the Robert Muir Company. 

            Oakdale Center is apparently a Muir family entity; the record does not indicate who owns or controls Oakdale Center, other than Muir's testimony that he transferred his former 50% interest to his wife, children, grandchildren, and some other individuals, and that his trust owns a 13% interest in Oakdale Village.  Oakdale Center does not have any governance rights as to Oakdale Partners, nor does it have control or management authority over Oakdale Village. 

            In July 2004, Tamarack brought an action for declaratory judgment against Galyan's, asking the court to construe the "Exclusive" clause in the parties' lease agreement.  The relevant facts are undisputed, and the parties agree that determination of the case hinges upon the construction of the concept of control in the lease's definition of "Related Corporation." 

            Holding that the exclusivity clause's radius restriction is a restrictive covenant warranting strict construction, the court concluded that "control" means "actual legal control" and, therefore, that the phrase "controls, is controlled by, or is under common control with" means "ownership and exercise of voting control."  Accordingly, the district court ruled in favor of Tamarack, holding that (1) Oakdale Partners is not a related corporation as defined in the Galyan's lease, (2) an Oakdale Partners-Sportmart lease does not violate the exclusivity provision of the Galyan's lease, and (3) Galyan's is not entitled to invoke any remedies or relief as a result of an Oakdale Partners-Sportmart lease.  This appeal follows. 

D E C I S I O N

            "On appeal from a declaratory judgment, we apply a clearly erroneous standard to the factual findings, but review the [district] court's determination of questions of law de novo."  Rice Lake Contracting Corp. v. Rust Env't & Infrastructure, Inc., 549 N.W.2d 96, 98-99 (Minn. App. 1996), review denied (Minn. Aug. 20, 1996).  Whether a contract is ambiguous (reasonably susceptible of more than one construction) is a question of law, on which the reviewing court owes no deference to the district court's determination.  Blackburn, Nickels & Smith, Inc. v. Erickson, 366 N.W.2d 640, 643-44 (Minn. App. 1985), review denied (Minn. June 24, 1985).  

            Appellant argues that the district court erred in holding that the radius restriction should be strictly construed as a restraint on trade, that the concept of control in the lease's definition of "Related Corporation" means only actual legal control, and that Tamarack and Oakdale Partners are not "Related Corporations" under the terms of the Galyan's lease. 

            First, the district court properly held that the lease's radius restriction should be strictly construed as a restraint on trade.  In Snyder's Drug Stores, Inc. v. Sheehy Properties, Inc., the supreme court held that interpretation of restrictive covenants must be guided by several principles, including the tenets that a lease "should be construed so as to give effect to the intention of the parties" and that "public policy dictates that restrictive covenants, being restraints of trade, be strictly construed."  266 N.W.2d 882, 884-85 (Minn. 1978) (explaining "[i]n sum, while covenants against competition should be strictly construed so as to give effect to the intention of the parties, such covenants should not be extended beyond their true intent."). 

            And as the district court properly noted, determination of this case hinges upon construction of the Galyan's lease provision defining "Related Corporation."  In construing a contract, "a court must give the contract language its plain and ordinary meaning," interpreting it "in a way that gives all of its provisions meaning."  Current Tech. Concepts, Inc. v. Irie Enters., Inc.,530 N.W.2d 539, 543 (Minn. 1995).  "A contract is ambiguous if its language is reasonably susceptible to more than one interpretation."  Id. 

            We conclude that the district court's determination that control means "actual legal control" in terms of "ownership and exercise of voting control" is clearly erroneous because it fails to give meaning to the provision that states that a related corporation is "a corporation or other business entity, which, directly or indirectly, controls, is controlled by, or is under common control with, another corporation or other business entity."  Interpreting control to mean only "actual legal control" renders the phrase "directly or indirectly" meaningless.  Because courts must construe contracts so that all contract provisions have meaning, the district court's construction here is reversible error.  See id.

            Finally, we conclude that the district court erred by finding the contract language to be unambiguous because the lease's definition of "Related Corporation" is clearly susceptible to multiple interpretations.  Of course, "[t]he primary goal of contract interpretation is to determine and enforce the intent of the parties."  Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267, 271 (Minn. 2004).  And when a contract is ambiguous, courts may properly consider extrinsic evidence in determining intent.  Empire State Bank v. Devereaux, 402 N.W.2d 584, 587 (Minn. App. 1987).  Because the language here is ambiguous, we remand to the district court for further proceedings that will allow the parties to present extrinsic evidence on the intended meaning of "Related Corporation," thereby enabling the district court to construe the lease in a manner that gives meaning to the entire "Related Corporation" provision.

The district court erred by concluding that the terms of the lease are unambiguous and interpreting the contract's definition of "Related Corporation" by ruling that the concept of control in the lease means only actual voting control and not other direct or indirect forms of control.  But the district court properly held that the radius restriction should be strictly construed as a restraint on trade. 

            Affirmed in part, reversed in part, and remanded.