Opinion
C.A. No. 18787-NC
Date Submitted: December 21, 2001
Date Decided: April 24, 2002
Robert A. Penza and Peter M. Sweeney, Esquires of GORDON FOURNARIS MAMMARELLA, P.A., Wilmington, Delaware; Attorneys for Plaintiff.
Collin J. Seitz, Jr. and Christos T. Adamopoulos, Esquires of CONNOLLY BOVE LODGE HUTZ LLP, Wilmington, Delaware; Attorneys for Defendants.
MEMORANDUM OPINION
The plaintiff in this proceeding, Dorothy King, is the owner of DK Day Spa ("Spa"), which is located in the Lantana Square Shopping Center in Hockessin, Delaware ("Lantana Square"). Ms. King seeks a declaratory judgment and an injunction preventing the defendant, Salon by Dominic, Inc. ("Salon"), from offering certain day spa services within Lantana Square. The landlord, Limestone Valley Enterprises, L.L.C. (the "landlord"), is also joined as a defendant in this lawsuit.
This is the Opinion of the Court, after trial, on the merits of the plaintiff's claims. For the reasons next set forth, the Court concludes that injunctive relief will be granted preventing Salon from offering, within Lantana Square, services that are in direct competition with the day spa services being offered by Spa. Given the nature of the claim on which the plaintiff has prevailed, no relief against the landlord will be granted.
I. FACTS
Ms. King owns and operates DK Day Spa, which is a "day spa" located in Lantana Square. Salon by Dominic, Inc., which is owned by Mr. Dominic Rappucci, is a beauty salon located in the same shopping center. Since the time that Salon first became a Lantana Square tenant in 1992, it has offered hair cutting, hair styling and nail services. The landlord, which owns Lantana Square, has entered into leases with both tenants.
There is a dispute as to whether Salon's lease permitted it to offer day spa services. That question does not need to be resolved, however. See Part III (A) infra (holding that the plain language of the exclusive rights provision of Ms. King's Lantana Square lease would permit Salon to provide day spa services if the landlord so permitted).
A. Ms. King Investigates Opening A Day Spa In Lantana Square
During late 1996 and early 1997, Ms. King considered opening a day spa business in Lantana Square. Before making any decision, Ms. King first met with Mr. Rappucci on several occasions to discuss the merits of Lantana Square as a business site. Ms. King and Mr. Rappucci knew each other from their employment at another hairdressing establishment, Michael Christopher's Salon.
During her meetings with Mr. Rappucci, Ms. King told him that she was considering staffing a business that would provide day spa services, but also that she did not want to start a business in Lantana Square if she would have to compete with an already existing tenant. In particular, Ms. King wanted assurance that her day spa service would not conflict with Salon's operations, since Salon was the only existing Lantana Square tenant that operated a related business that could potentially compete directly with Spa. Mr. Rappucci assured Ms. King that he had no intention of ever providing the kind of day spa services that Spa intended to offer.
The landlord also showed sensitivity to potential conflicts between Salon and Spa. The landlord's ordinary business practice was to investigate all other tenant leases to ensure that no direct business conflicts would arise between prospective and existing tenants. Aware that Salon might potentially offer services that could conflict with Ms. King's future business operations, the landlord required Ms. King to resolve any potential conflicts that she and Mr. Rappucci might have before she could enter into a Lantana Square lease. After concluding their discussions, Ms. King and Mr. Rappucci each separately told the landlord that any differences and potential conflicts between them had been resolved.
Rappucci Testimony, Trial Tr. at 98.
B. Ms. King's Lease Negotiations And The Spa Addendum
While she was negotiating her lease with the landlord, Ms. King became concerned about the possibility that one or more future Lantana Square tenants might offer competing day spa services. Accordingly, Ms. King supplied Sean McCue, the landlord's real estate agent, with a list of the services she wanted the exclusive right to provide within Lantana Square. Mr. McCue gave Ms. King's list to Carla Ellison, the landlord's leasing representative, who drafted a document (the "Spa Addendum"), which incorporated plaintiff's list of exclusive rights but also added certain conditions. Ms. Ellison testified that when she drafted the Spa Addendum, she intended to carve out all earlier tenancies (including Salon) so as to exclude those tenancies from the exclusive rights in the Spa Addendum. In other words, any preexisting tenant was to be exempted from the coverage of Ms. King's exclusive rights. Working from the draft that Ms. Ellision composed, Mr. McCue then finalized the Spa Addendum, which now states:
Ellison Testimony, Trial Tr. at 130-31.
Exclusive Right. Tenant has the exclusive right to the following: Tanning, facials, Spa Massage and Body Treatments, Waxing, Electrolysis, Make-up artistry, Make-up facial products. Landlord will not permit any other Tenant to offer these services as a primary use. Leases executed prior to the date of this Lease are excluded.
JX A-5 (Spa Addendum).
Ms. King executed that Addendum in 1997.
For the first three years after Spa first opened, its relations with Salon were harmonious. Indeed, each business referred clients to the other when the opportunity arose. By late 2000, however, the relationship had begun to deteriorate.
C. Salon Offers Day Spa Services
The problem began in the fall of 2000, after Salon's adjacent tenant vacated its Lantana Square leasehold, and Salon decided to expand its facilities by taking over the adjacent space. On October 31, 2000, Salon executed an amendment to its lease, which increased its leased space and adjusted its rent while retaining all the other terms of its current lease. Currently, Salon is remodeling its new space, which it intends to use to add additional hair cutting and styling salons, and manicure and pedicure stations. of importance here is that some of those intended services will conflict with Ms. King's exclusive-use rights described in the Spa Addendum, because Salon intends to use a portion of its new facilities as a day spa.
Ms. King did not learn that Salon was offering day spa services until she happened to read an advertisement in the yellow pages of the telephone directory. She then contacted the landlord to protest that development. In response, the landlord sent two letters, dated February 20 and March 2, 2001, respectively, informing Salon that the landlord did not consent to Salon's proposed use of the premises for a day spa. Thereafter, Ms. King filed this action for a declaratory judgment and a permanent injunction that would prevent Salon and the landlord from violating the exclusive rights provision of the Spa Addendum.
In April 2001, after this lawsuit was filed, Salon and the landlord entered into a "joint defense agreement," which provided that "[b]oth [the landlord] and [Salon] believe that, under the existing lease agreements between [the landlord] and [Ms. King and Salon], [Salon] has the right to perform any beauty service, including those services performed by hair and beauty salons, day spas and licensed Cosmetologists." In this manner, the landlord effectively changed its legal position and sided with Salon.
JX A-9 (Joint-Defense Agreement).
II. THE ISSUES AND CONTENTIONS
The core issue is whether Salon is legally entitled to expand its existing hair styling facilities to provide day spa services. Ms. King claims that Salon is not entitled to offer those services, on two separate grounds.
First, Ms. King claims that the exclusive rights provision of the Spa Addendum (the "exclusive rights provision") gives her the exclusive entitlement to offer day spa services within Lantana Square. That contract provision; Ms. King argues, clearly precludes Salon from offering day spa services. Salon responds that the exclusive rights provision contains a carve-out provision (the "carve-out provision") that specifically permits tenants whose Lantana Square leases preexisted the execution of Ms. King's lease, to offer the services described in the exclusive rights provision. The Court agrees that Salon's interpretation of the Spa Addendum, including the exclusive rights provision, is correct and defeats Ms. King's first claim.
Second, Ms. King claims that even if Salon is not prohibited from offering day spa services as a matter of contract, it is nonetheless barred from offering competing day spa services in Lantana Square by the doctrine of promissory estoppel. Specifically, Ms. King argues that before she opened her day spa in Lantana Square, she had been assured by Mr. Rappucci that he would not open a competing day spa, and that in reliance on that assurance, Ms. King opened DK Day Spa in Lantana Square. I find that Ms. King has established the elements of promissory estoppel, for which reason Salon will be equitably barred from offering day spa services in Lantana Square.
III. ANALYSIS
A. Whether The Landlord And Salon Have Violated Spa's Exclusive Rights Provision
Ms. King first claims, purely as matter of contract, that the exclusive rights provision prevents the landlord from permitting Salon and Mr. Rappucci to offer services that would conflict with her exclusive right to operate a day spa. To reiterate, that provision states:
Exclusive Right. Tenant has the exclusive right to the following: Tanning, facials, Spa Massage and Body Treatments, Waxing, Electrolysis, Make-up artistry, Make-up facial products. Landlord will not permit any other Tenant to offer these services as a primary use. Leases executed prior to the date of this Lease are excluded.
JX A-5 (Spa Addendum).
To succeed on her contract claim, Ms. King must prevail on three separate questions of contract interpretation. First, she must show that Salon does not fall within the carve-out provision that excludes tenants having "[l]eases executed prior to the date" of Ms. King's lease from the operation of the exclusive rights provision. If Salon is such a pre-existing tenant, then it may lawfully offer services that would otherwise be proscribed by the exclusive rights provision. Second, even if Salon does not fall within the carve-out provision, Ms. King must nonetheless show that Salon's proposed day spa services constitute a "primary use" within the meaning of the Spa Addendum. Third, Ms. King must establish that Salon's original lease did not permit it to offer competing services. Because I find that Salon falls within the "carve-out" exception to the exclusive rights provision of Ms. King's lease, it is legally permitted to offer the services that would otherwise be forbidden by that provision. Accordingly, the Court does not reach the other two remaining questions that are integral to this first claim.
The reason is that Ms. King argues that the "carve-out" provision only applies to those current tenants that are permitted to offer day spa services by the terms of their lease. Therefore, even if the Court were to adopt Spa's reading of that provision, Spa would still need to show that Salon's lease did not permit a day spa.
* * *
The proper construction of a contract is ordinarily a question of law. If the contract terms are unambiguous, "extrinsic evidence may not be used to interpret the intent of the parties, to vary the terms of the contract or to create ambiguity." "[I]f a writing is plain or clear on its face, there is no room for interpretation, construction, or a search for the intent of the parties." The "plain meaning" of a contract is its "generally prevailing meaning."
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1995).
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
Star Celluar Tel. Co. v. Baton Rouge CGSA, Inc., 1993 WL 294847, at *4 (Del.Ch. 1993), aff'd, 647 A.2d 382 (Del. 1994) (quotations and citations omitted).
Id. (quotations and citations omitted).
There is no dispute that Salon's lease had been "executed prior to the date" of Ms. King's lease. That alone would exclude Salon from the exclusive rights provision of the Spa Addendum. Ms. King argues, however, that such a "plain meaning" construction of the Spa Addendum would produce an "illogical result," for which reason this Court must attribute to the exclusive rights provision a different meaning. More specifically, Ms. King argues that the disputed language, if read literally, would not afford her any protection from an existing tenant — such as Salon — that might decide to offer day spa services in direct competition with Spa. Therefore, Ms. King argues, the carve-out provision must be read to mean that only if a pre-existing tenant's lease already permitted day spa services, would that lease be excluded from the reach of the exclusive rights provision. That is, if the Landlord has already permitted a tenant to provide day spa services in a prior lease, "the Landlord would not be in breach of its express covenant to Spa that it would not permit any other tenant to offer the day spa services listed in the Spa Addendum." All other "prior leases" would be bound by the exclusive rights provision. Unfortunately, that reading cannot be squared with the clear, unambiguous language of the Spa Addendum.
This Court has ruled that Salon's amendment to its lease represents a continuation of the original lease. July 9, 2001 Ruling.
Spa Op. Br. at 9.
Id.
Id.
The first two sentences of that Addendum provide that the landlord will not allow other Lantana Square tenants to offer the services listed in the exclusive rights provision. The last sentence carves out an exception to that protection: "Leases executed prior to the date of [the Spa lease] are excluded." Because Salon's lease was undisputedly executed prior to the date of the Spa lease, the Salon lease is excluded from the noncompete restriction of the Spa Addendum. Contrary to Ms. King's assertions, there is nothing "illogical" about that construction of the Addendum. This construction prevents two tenant categories from competing with Spa: (i) current tenants that enter into new leases with the landlord that supersede their old leases, and (ii) new "first-time" tenants that move into Lantana Square. Neither category would be free to compete with Spa by offering the services described in the Spa Addendum. What Ms. King's lease does not protect against is competition from tenants having leases that were executed before Spa entered into its lease with the landlord. Salon's interpretation of the Addendum is supported by all the trial testimony on the issue, including that of Ms. King. For those reasons, Ms. King's first (contract) claim fails.
Carla Ellison, the landlord's leasing representative, who drafted the language containing the prior-lease exclusion, testified that the carve-out provision was meant to exclude all tenants operating under a prior lease from the prohibitions of the Spa Addendum. Ellison Testimony, Trial Tr. at 130-31. She also testified that Salon was excluded from the Spa Addendum, and the landlord was free to permit Salon to offer day spa services. Id. at 131-32.
At trial and in her deposition, Ms. King testified that she understood that existing tenants were not subject to the exclusive rights provision:
Q: Now, is it your understanding, and you may remember we took your deposition a little while ago, that tenants who were in the center who had leases with the landlord prior to your lease are excluded from your exclusive rights?
A: Technically speaking, yes.
King Testimony, Trial Tr. at 30.
At other times, however, Ms. King appears to have been confused about the scope of the protection afforded to her by the exclusive rights provision, and relied on her counsel to negotiate the lease provisions. Id. at 39-42.
B. Ms. King's Promissory Estoppel Claim
The record does not show whether Ms. King understood the precise import of the exclusive rights provision at the time the Spa lease was signed. What the record clearly does show, and what the Court finds, is that Ms. King believed that Salon would hot offer competing day spa services in Lantana Square. Her belief was not grounded on the exclusive rights language of the Spa Addendum. Rather, it was based on the representations by Salon's owner, Mr. Rappucci, whom Ms. King trusted and from whom she sought advice regarding opening a day spa in Lantana Square. Ms. King testified that she opened that day spa business specifically in reliance on Mr. Rappucci's promise that he had no intention of ever competing with her by providing day spa services at Salon. As a result, Ms. King claims, Mr. Rappucci is equitably barred from offering day spa services by reason of the doctrine of promissory estoppel. I accept Ms. King's testimony.
To establish a claim for promissory estoppel, a plaintiff must show by clear and convincing evidence that: "(i) a promise was made; (ii) it was the reasonable expectation of the promisor to induce action or forbearance on the part of the promissee; (iii) the promisee reasonably relied on the promise and took action to his detriment; and (iv) such promise is binding because injustice can be avoided only by enforcement of that promise." The trial evidence and testimony show that Ms. King has made that showing by clear and convincing evidence.
Lord v. Souder, 748 A.2d 393, 399 (Del. 2000). The parties disagree over the test for promissory estoppel. Salon claims that the "`promisee must prove that the promisor made a promise with the intent to induce action or forbearance.'" Salon Ans. Br. at 8-9 (quoting Cont'l Ins. Co. v. Rutledge Co., Inc. 750 A.2d 1219, 1233 (Del.Ch. 2000) (emphasis added by Salon)). There does appear to be some confusion in the case law as to whether the promisor must actually intend to induce action or forbearance, or whether it is sufficient that the promisor have merely a reasonable expectation to induce forbearance. See, e.g., VonFeldt v. Stifel Fin. Corp., 714 A.2d 79, 87 (Del. 1998) (following intent to induce action or forbearance standard); Cont'l Ins. Co., 750 A.2d at 1233 (same); Lord, 748 A.2d 393 at 399 (following reasonable expectation standard). Because I find that Mr. Rappucci's promise satisfies both standards, the difference between an "intent to induce" and a "reasonable expectation to induce" is not an issue this Court need address.
From the time that Salon first became a tenant in 1992, it offered only "hair cutting, styling, coloring, perming" and other hair and make-up related services. Thus, when Ms. King was considering whether or not to lease space in Lantana Square, a day spa was not among the services Salon was providing to its customers.
Rappucci Testimony, Trial Tr. at 92.
Based on the testimony adduced at trial, I am satisfied that Mr. Rappucci made a definite promise to Ms. King that Salon would not be providing day spa services in competition with Spa. When considering whether or not to open up a day spa in Lantana Square, Ms. King testified that she consulted with Mr. Rappucci, her former colleague and the owner of Salon, about whether Lantana would be a suitable location to open a boutique that would provide day spa services. Ms. King was apprehensive about opening a day spa. in Lantana Square if she might have a potential direct competitor — Salon — in the same shopping center. Mr. Rappucci assured Ms. King that her day spa business would not conflict with Salon's existing or future business. The reason was that he had no intention of ever entering into the day spa business because it would be "too much of a headache." Ms. King testified, and I find, that she would never have entered into the Lantana Square lease without Mr. Rappucci's assurances that he never intended to expand his salon into a day spa. Mr. Rappucci denies that those conversations ever took place.
King Testimony, Trial Tr. at 10.
I find Ms. King's testimony credible, and Mr. Rappucci's trial testimony at times not credible, as he sometimes evaded questions and contradicted testimony that he had given at his deposition. But there is, in addition, objective evidence that supports Ms. King's testimony, and renders Mr. Rappucci's testimony implausible. When a potential tenant inquired about leasing space in Lantana Square, the landlord's custom and practice was to review the existing tenants' leases for potential permitted-use conflicts. Consistent with that practice, when Ms. King approached the landlord about leasing space in Lantana Square for a day spa, the landlord researched the tenant leases and noticed a potential conflict between Salon and Spa. As a result, the landlord required Ms. King to meet with Mr. Rappucci to discuss and resolve any potential conflicts between the two businesses. The landlord also verified directly that Mr. Rappucci was aware of Ms. King's potential day spa business and that he had no conflict with Ms. King conducting her day spa business in Lantana. Given (i) Ms. King's insistence on the exclusive rights provision, (ii) the fact that she voiced to Mr. Rappucci her concerns about potential competition in Lantana Square, and (iii) the fact that she explicitly told the landlord that the respective businesses of Spa and Salon would not conflict, it is simply implausible (as Mr. Rappucci asks the Court to find) that Mr. Rappucci never discussed with Ms. King the question of whether he would open a day spa in the future.
Simeone Testimony, Trial Tr. at 72; McCue Testimony, Trial Tr. at 52-53.
The landlord provided Salon with the written opportunity to exercise its contractual right of first refusal.
From the foregoing, I conclude that Ms. King has established her promissory estoppel claim. First, as previously discussed, Ms. King sought and received assurances from Mr. Rappucci that he would not open up a day spa facility in Lantana Square that would compete with Spa. Second, Mr. Rappucci must have intended — and at the very least, reasonably expected — that his assurances would cause or induce Ms. King to locate her business in Lantana Square. Indeed, the landlord would not permit Spa to become a Lantana Square tenant without such assurances and without Mr. Rappucci and Ms. King having first resolved their competitive differences. Third, Ms. King relied on Mr. Rappucci's assurances and she would never have opened her day spa business in Lantana without them. Finally, I conclude that an injustice can be avoided only by enforcing Mr. Rappucci's assurances to Ms. King.
In arriving at this conclusion, I have also considered the conduct of the landlord, which is troubling. The landlord intended for Ms. King and Mr. Rappucci to reach an understanding about any potential conflicts between their two businesses. It is indisputable that the landlord initially believed that Salon's lease did not permit it to operate a day spa in Lantana Square without the landlord's permission, and that the landlord initially opposed Salon's use of its leased premises as a day spa. Only after Salon agreed to pay for the landlord's litigation expenses did the landlord change its position regarding Salon's permitted uses. That change of position, in these circumstances, is entitled to no credibility or weight.
JX A-7, A-8 (letters, dated February 20, 2001 and March 2, 2001, respectively, from landlord to Salon).
As a final point, this Court is mindful of the fact that Ms. King's lease contract, on its face, did not prohibit Salon from providing day spa services. Given that fact, the question is whether it was reasonable for Ms. King to rely on Mr. Rappucci's assurances that Salon would not open a competing day spa. I conclude that her reliance was reasonable, notwithstanding the lease language, because Ms. King's trial testimony makes it apparent that she was confused about the scope of the exclusive rights provision and the protection it would afford her against Salon. Ms. King relied on her counsel to negotiate and draft the exclusive rights agreement, and she believed that her counsel would protect her interests. But most important, Ms. King did not rely on the language of the exclusive rights provision when deciding to open her business in Lantana Square. Rather, she relied on the assurances of a trusted former-colleague and potential competitor, Mr. Rappucci, that if she opened her business in Lantana Square, he would not provide competing day spa services. What resulted was a separate agreement between Ms. King and Mr. Rappucci, independent of the Lantana Square lease, that is enforceable through the doctrine of promissory estoppel. That agreement, however, is enforceable only against Mr. Rappucci, and not the landlord.
Supra note 17.
IV. CONCLUSION
For the reasons set forth above, judgment will be entered in favor of the plaintiff in accordance with this Opinion. Counsel shall confer and submit an appropriate form of implementing order.