Eleventh Circuit Denies Relief to Winn-Dixie’s Lost Profits From Alleged Violations of Restrictive Covenants

Winn-Dixie operates approximately 500 grocery stores on leased properties in Alabama, Florida, Georgia, Louisiana and Mississippi. Winn-Dixie’s leases at these sites include restrictive covenants that limit grocery sales by other tenants. Winn-Dixie brought a diversity action against Dollar General, Dollar Tree and Big Lots alleging $90 million in lost profits due to the defendants’ violations of these restrictive covenants. The actions were consolidated. The United States District Court for the Southern District of Florida entered judgment for Winn-Dixie, in part, and for the defendants, in part. The Eleventh Circuit affirmed, in part, reversed, in part, and remanded.

The lease covenants limited the sale of “staple or fancy groceries” to a discrete “sales area.” Applying Florida law, the district court construed the language narrowly, interpreting “groceries” to mean only food items and a “sales area” to mean only shelf space. For the stores in Florida, the Eleventh Circuit reversed and remanded based on a Florida case, Winn-Dixie Stores, Inc. v. 99 Cent Stuff-Trail Plaza, LLC, 811 So. 2d 719 (Fla. 3d DCA 2002)), that read groceries more broadly to include household items (such as soap, napkins and matches) and interpreted a sales area to include aisle space. For the Alabama and Georgia stores, the Eleventh Circuit reversed and remanded for a determination based on the applicable law of each respective state.

In Winn-Dixie Stores, Inc. v. Dolgencorp LLC, No. 12-14527; 12-14742; 12-14825 (Mar. 5, 2014), the Eleventh Circuit affirmed the district court’s denial of relief to Winn-Dixie as to the remaining stores after addressing seven distinct issues:

1.  The district court acted within its discretion when it excluded the testimony of Dr. Pacey, Winn-Dixie’s expert on damages, based on findings that the expert opinion would not assist the trier of fact and was not grounded in reliable methodology.

2.  The district court did not err in finding that the restrictive covenants were unenforceable under the laws of Louisiana and Mississippi, or in refusing to allow Winn-Dixie to enforce a covenant in a grocery store lease created after a defendant’s lease had been signed.

3.  The trial court made no error in refusing to give a preclusive effect to a Florida decision in which Winn-Dixie obtained a final judgment granting injunctive relief for a single Dollar General store.  In Florida, collateral estoppel applies only if an identical issue has been fully litigated by the same parties or their privies, and a court of competent jurisdiction has rendered a final decision.  Because this case involved different stores with different leases signed at different times from the lease litigated in the prior Florida decision, the prior decision should not be given a preclusive effect.

4.  The district court did not abuse its discretion in denying punitive damages because a legitimate dispute about the meaning of the grocery exclusives indicated that the defendants did not intentionally engage in misconduct or act in a grossly negligent manner.

5.  The cross-appeals lodged by Big Lots and Dollar Tree lacked merit. Big Lots need not have signed the restrictive covenants to be bound by them because section 542.335 of the Florida Statutes (requiring a restrictive covenant to be signed by the party against whom enforcement is sought) does not apply to covenants running with the land.

6.  The district court also properly concluded that Big Lots’s landlords were not indispensable parties, and that Winn–Dixie was not required to make a pre-suit demand for compliance upon Big Lots under Florida law.

7.  Finally, the district court did not err when it granted summary judgment against Dollar Tree’s statute of limitations affirmative defense; under Florida law, a continuing violation principle applies because the defendants’ stores engaged in ongoing grocery sales.

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