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We Are Not Amused
by Ron Davis

The owners of a Georgia shopping center must pay a tenant nearly $800,000 for violating an agreement that has raised larger questions about free enterprise.

The shopping center, located in suburban Atlanta, had leased space to the tenant to operate an "amusement center." And the agreement at issue is a restrictive covenant aimed at preventing other businesses of that type from operating at the center.

The tenant – Chicagoland Vending, Inc. – felt the agreement was needed to operate its business successfully. That business consisted of some 60 amusement games, and during the first three years at the center, Chicagoland Vending did in fact operate profitably.

Then, however, the shopping center owner leased space to a tenant who offered amusement games identical and similar to those of Chicagoland Vending. And after its competitor opened for business, Chicagoland Vending’s sales and profits immediately plunged. Eventually, losses forced the company to vacate the premises.

Chicagoland Vending consequently sued the shopping center owners for violating the restrictive covenant of the lease. In response, the shopping center owners pointed out that the restrictive covenant was too broad and prevented their leasing to such businesses as movie theaters, bowling alleys, and billiards rooms – all of which are "amusement centers." Therefore they concluded, the covenant "unreasonably restricts competition." As such, they added, it’s unenforceable under Georgia law.

A Georgia jury decided, however, that the shopping center owners violated the terms of Chicagoland Vending lease by allowing a competitor to operate a business at the center. The shopping center owners appealed.

A Georgia appellate court, in a four-three decision, upheld the jury verdict, explaining, "The terms of the covenant and the evidence presented by the parties to explain any lease ambiguity provided evidence supporting the jury verdict in favor of Chicagoland Vending – a verdict consistent with the conclusion that the covenant was a valid, reasonable restriction on competition and the shopping center owners violated it by leasing to a competitor of Chicagoland Vending." (Parkside Center v. Chicagoland Vending, 552 S.E.2d 557 [Ga.App.2001])

Decision: August 2001
Published: April 2002



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