may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
STATE OF MINNESOTA
IN COURT OF APPEALS
Charles H. Lemon, et al.,
John Gressman, et al.,
Filed July 6, 1999
Affirmed in part and reversed in part
St. Louis County District Court
A. Blake MacDonald, MacDonald & Downs, 200 Alworth Building, 306 West Superior Street, Duluth, MN 55802 (for appellants)
Greg A. King, Johnson, Killen, Thibodeau & Seiler, P.A., 811 Norwest Center, 230 West Superior Street, Duluth, MN 55802 (for respondents)
Considered and decided by Short, Presiding Judge, Peterson, Judge, and Shumaker, Judge.
In this appeal from a judgment, John and Pamela Gressman argue that the district court erred when it found that they breached a covenant not to compete. They also argue that the court erred when it reformed the covenant to prohibit them from owning a competing business. We affirm the court's conclusion that the Gressmans breached the agreement but reverse the court's decision to reform the agreement by prohibiting ownership of a competing business.
It is agreed that John Gressman and Pamela Gressman shall not compete with Buyer by operating a restaurant or bar within one (1) mile of the Casa de Roma for a period of ten (10) years.
The sale price was $442,500, with the noncompete agreement valued at $7,500.
When Lemon learned that the Gressmans planned to purchase the House of Donuts, which was located next door to their former restaurant, he moved for a temporary injunction to prevent them from purchasing it. The court denied the motion based on insufficient facts, but it cautioned the Gressmans that they could be exposing themselves to liability under the agreement if they operated a restaurant. The Gressmans nonetheless purchased the House of Donuts and began operating it.
After a trial, the court found that the Gressmans violated the noncompete agreement to the extent that the House of Donuts made available and sold to its customers sandwiches, tacos, and their customary accompaniments. The court enjoined the Gressmans from
participating as an owner or operator in any food service business purveying prepared food items such as those set forth [in the House of Donuts' menu of sandwiches, tacos, etc.] for a period of five years * * * . Such prohibition shall apply to any and all similar activities by [appellants] within a one-mile radius of the current location of that business sold by them to [respondents] and formerly known as the Casa de Roma.
The noncompete agreement prohibits the Gressmans from "operating a restaurant or bar." Whether a contract is ambiguous is a question of law subject to de novo review. ICC Leasing Corp. v. Midwestern Mach. Co., 257 N.W.2d 551, 554 (Minn. 1977).
A contract provision is ambiguous if considering only its language "it is reasonably susceptible of more than one meaning." Id. The court will consider the parties' application of the language in dispute and the dictionary definition. See Snyder's Drug Stores, Inc. v. Sheehy Properties, Inc., 266 N.W.2d 882, 885 (Minn. 1978) (holding that where noncompete clause prohibited same "type" of restaurant in shopping center, word "type" was ambiguous). The parties vigorously dispute the significance of the differences and similarities between the two establishments, and the dictionary definition does not resolve the conflict. See The American Heritage Dictionary 1538 (3d ed. 1992) (defining restaurant as a "place where meals are served to the public"). Thus, the district court properly determined "restaurant" was ambiguous and considered extrinsic evidence to decide its meaning.
When construing an ambiguous contract, the court must give effect to the intent of the parties. Ecolab, Inc. v. Gartland, 537 N.W.2d 291, 295 (Minn. App. 1995). An ambiguous contract is construed against the party who drafted it absent a clear showing that it should be interpreted to the contrary. Naftalin v. John Wood Co., 263 Minn. 135, 142-43, 116 N.W.2d 91, 97 (1962). In this case, the Gressmans' agent drafted the purchase agreement and noncompete addendum, and the parties had no direct contact or discussion of the terms. Consequently, the contract was to be interpreted against the Gressmans' interest unless they clearly showed that it should be interpreted to the contrary.
While the court did not find that the House of Donuts was a "restaurant," it extensively discussed the parties' intent and the nature of the businesses to determine whether a breach occurred. What is important is whether the Gressmans' sale of prepared foods constituted a breach of the noncompete agreement. The court found that contrary to the Gressmans' argument, the fact that the House of Donuts is licensed as a bakery does not determine the issue. See Hildebrand v. Stonecrest Corp., 344 P.2d 378, 385 (Cal. App. 1959) (rejecting applicability of statute providing drugs and medicines may be sold by vendors generally, including grocery store, to action raising issue of whether grocery store's sale of drugs and medicine violated lease provisions). The record showed, and the district court found, that despite the differences between the two establishments, the House of Donuts sold prepared food items similar to items sold at Lemon's restaurant. The Gressmans did not clearly show that the phrase "bar or restaurant" used in the noncompete clause should be interpreted to only prohibit them from operating a bar and restaurant business.
The Gressmans also argue that ninety percent of their business arises from the sale of baked goods and beverages. But this argument ignores the fact that prepared foods are sold in direct competition with their former restaurant, located next door. The noncompete clause did not limit the competition to a certain proportion of sales of the competing products. Cf. MBD Enter., Inc. v. American Nat'l Bank, 655 N.E.2d 1061, 1062-63 (Ill. App. 1995) (holding that where shopping center agreed not to lease to another company whose "principal business" was the sale of yogurt or ice cream, no breach where shopping center leased to business in which such sales were 15% of total business).
The district court reformed the contract to prevent the Gressmans from owning a competing business. Reformation requires clear and convincing evidence that the written agreement did not reflect the real agreement due to mutual mistake or unilateral mistake accompanied by fraud or inequities. See Otto v. Weber, 379 N.W.2d 692, 695 (Minn. App. 1986) (holding reformation not warranted where district court effectively reformed noncompete sales agreement to bind defendant personally, although noncompete agreement deliberately and specifically applied only to corporation).
The plain language of the agreement refers only to operating a restaurant or bar. Because there was not clear and convincing evidence that the noncompete clause also applied to owning a restaurant, the district court was not warranted in adding the term "ownership."
Affirmed in part and reversed in part.