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ATTORNEYS FOR APPELLANT Charles R. Vaughan Linda H. Havel Lafayette, Indiana

ATTORNEYS FOR APPELLEE Stephen R. Pennell William P. Kealey Lafayette, Indiana

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In the

Indiana Supreme Court
_________________________________ No. 79S05-0506-CV-289 TIPPECANOE ASSOCIATES II, LLC, Appellant (Defendant below), v. KIMCO LAFAYETTE 671, INC., Appellee (Plaintiff below). _________________________________ Appeal from the Tippecanoe Superior Court, No. 79D02-0112-CP-249 The Honorable Thomas H. Busch, Judge _________________________________ On Petition To Transfer from the Indiana Court of Appeals, No. 79A05-0302-CV-85 _________________________________ June 23, 2005 Boehm, Justice. We hold that a covenant given by a shopping center to a tenant prohibiting the center from leasing to competitors of the tenant is generally enforceable. However, once the tenant or its successor voluntarily relinquishes the original use of the site, the anticompetitive covenant is severed from the occupancy and no longer enforceable to give the tenant or an assignee the right to restrict competition for a location outside the center.

Facts & Procedural History In 1973, SES Development Company leased one of the stores in its Sagamore shopping center to Kroger Company for an initial term of twenty years, with four options to renew the lease, each for a term of five years. 1 The lease contained a restrictive covenant preventing SES from leasing space in the shopping center to another grocery store. Kroger operated a supermarket at the leased premises until 1982. In 1983, Kroger closed all three of its Tippecanoe County stores and assigned their leases to Pay Less Super Markets, Inc., which at the time operated two other grocery stores within two miles of the Sagamore Center. 2 After the assignment, Pay Less opened stores in two of the former Kroger sites, but Pay Less cheerfully concedes that it never intended to operate a grocery store in the Sagamore Center and acquired the Sagamore lease for the purpose of excluding competitors of its nearby stores. In 1984, Pay Less subleased its Sagamore space to H.H. Gregg, an appliance dealer, who remains in that location today. 3 The defendant, Tippecanoe Associates II, LLC, is a limited liability company owned by the family controlling Pay Less and the current holder of the Sagamore leasehold interest Pay Less acquired from Kroger. Tippecanoe acquired the lease in a series of maneuvers and seeks to enforce this thirtyyear-old covenant against the current owner of the center, Kimko Lafayette 671, Inc., 4 even though there has been no grocery store in the center since 1982. In 2000, another large tenant, Target, left Sagamore Center, leaving nearly one-half of the center's space unoccupied. Kimco contends that the only prospective tenant to fill the void caused by Target's departure is Schuncks, a Missouri-based operator of grocery stores. Kimco filed a complaint asking the trial court to declare the restrictive covenant unenforceable. After a hearing the trial court granted Kimco's request, reasoning that "the use of the property and the surrounding area have changed so radically . . . that the original purpose of the covenant can no longer be achieved."

In 1974, the lease was amended by a lease modification agreement to provide that the initial lease began on June 1, 1974 and ended on May 31, 1994. 2 The record is not clear as to how many other grocery stores, if any, Pay Less operated in the county. 3 If H.H. Gregg chooses to exercise its options, it has the right to continue to occupy the former Kroger space at Sagamore Center until the expiration of the lease on June 1, 2014. 4 In 1997, Kimko Lafayette 671, Inc., purchased the center from SES, subject to the Pay Less lease and the H.H. Gregg sublease.

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The Court of Appeals reversed, concluding that Tippecanoe's lease of the space to an appliance store and the empty space resulting from the Target move are not sufficient changes in the covenant to support invalidating the restrictive covenant. Tippecanoe Assoc. II, LLC v. Kimco Lafayette 671, Inc., 811 N.E.2d 438, 448-49 (Ind. Ct. App. 2004). The result is that Tippecanoe, which operates grocery stores within a few miles of the center, is allowed to enforce a restrictive covenant that neither benefits the shopping center nor Tippecanoe's interest in the shopping center (its sublease to H.H. Gregg). We now grant transfer. Restrictive Covenants in Shopping Centers Indiana law permits restrictive covenants but finds them disfavored and justified only to the extent they are unambiguous and enforcement is not adverse to public policy. One Dupont Ctr., LLC v. Dupont Auburn, LLC, 819 N.E.2d 507, 516 (Ind. Ct. App. 2004). Doubts should be resolved in favor of the free use of property and against restrictions. Id. However, courts have been quite willing to enforce restrictive covenants written in shopping center lease contracts even though they prevent competition within the center. See, e.g., Almacs, Inc. v. Drogin, 771 F. Supp. 506, 513 (D. R.I. 1991); Whitinsville Plaza, Inc. v. Kotseas, 390 N.E.2d 243, 252-53 (Mass. 1979); Kingpin, Inc. v. Hillcrest Dev., 126 N.W.2d 435, 439 (Minn. 1964); Keith Hardware v. White, 956 S.W.2d 500, 501 (Tenn. Ct. App. 1997) ("[R]ather than restricting competition, such covenants serve to facilitate trade and induce tenants to rent in a particular shopping center. . . . It is reasonable for the plaintiff to want to avoid competition within this center."); 49 Am.Jur.2d Landlord and Tenant

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Indiana Law