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Genovese Drug Stores Inc. v. Connecticut Packing Co.

decided: April 6, 1984.

GENOVESE DRUG STORES, INC., PLAINTIFF-APPELLEE,
v.
CONNECTICUT PACKING COMPANY, INC., ET AL., DEFENDANTS, AND FOTOMAT CORPORATION, DEFENDANT-APPELLANT



Appeal from an order of the District Court for the District of Connecticut (T. Emmet Clarie, Judge) issuing a preliminary injunction to enforce a restrictive convenant.

Timbers, Van Graafeiland and Newman, Circuit Judges.

Author: Newman

JON O. NEWMAN, Circuit Judge:

Fotomat Corporation ("Fotomat") appeals from an order of the District Court for the District of Connecticut (T. Emmet Clarie, Judge) granting a motion by Genovese Drug Stores, Inc. ("Genovese") for a preliminary injunction barring Fotomat from operating a film processing business from a kiosk constructed in the parking lot of a shopping center in which Genovese rents space for operation of a drug store. The injunction was issued to enforce a restrictive covenant in Genovese's lease. Since the undisputed facts establish that Fotomat had neither actual nor constructive notice of the restrictive covenant at the time it leased the portion of the parking lot on which its kiosk stands, we vacate the injunction and direct that judgment enter in favor of Fotomat.

Facts

The litigation concerns a shopping center in Bloomfield, Connecticut. The property on which the shopping center is located was purchased in 1947 by defendant Connecticut Packing Company, Inc. ("Copaco"), a Connecticut corporation. One-third of the shares of Copaco are owned by Irving Bercowetz, one-third by Herman Bercowetz, and one-third by Israel and Rhoda Rosenthal. In 1970 Copaco conveyed a portion of the Bloomfield property to Bercrose Associates ("Bercrose"), a Connecticut partnership composed of Irving and Herman Bercowetz and Israel Rosenthal, three of the four owners of Copaco. In 1971 Copaco and Bercrose executed an agreement ("Joint Development Agreement") concerning the shopping center property. A "whereas" clause of the Joint Development Agreement recited that it was the parties' desire, "notwithstanding their separate ownership of . . . portions of the shopping center," to "develop, construct, operate and manage said shopping center as one, fully-integrated facility so that neither the business establishments located therein nor their customers will be affected, in any practical respect, by the separate ownership of portions thereof." An operative provision of the Joint Development Agreement provided:

Neither of the parties shall build or erect, or suffer to be built or erected, any building or structure upon any portion of the property owned by it which is . . . used or reserved as a common area for the use and benefit of the entire shopping center, including . . . areas shown as parking . . . unless the party desiring to erect such additional building(s) or structure(s) shall have first obtained the written consent of the other party.

The Joint Development Agreement was recorded on the land records of the Town of Bloomfield and listed in the grantor index under the names of both Copaco and Bercrose.

On October 16, 1971, Bercrose leased a portion of its part of the shopping center property to Genovese for the operation of a retail drug store. The Bercrose-Genovese lease contained a restrictive covenant in which Bercrose agreed that it would not demise any portion of the shopping center to any "drive-in operation whose principal business is the receipt and processing of photographic film for development, including, but not limited to, drive-ins known as 'Foto-Mat'." Concurrent with the execution of the lease, Irving Bercowetz, acting in his capacity as president of Copaco, executed a statement entitled "Consent and Agreement" ("Consent"), in which Copaco agreed to be bound by the lease terms with respect to the portions of the shopping center owned by Copaco. The Consent was appended to the Bercrose-Genovese lease. On March 10, 1972, pursuant to Conn. Gen. Stat. § 47-19 (1977) which provides for the recording of a "notice of lease" in lieu of the lease document, a Memorandum of Lease was recorded on the Bloomfield land records and indexed under the name of Bercrose as grantor and Genovese as grantee. As required by section 47-19, the Memorandum of Lease states the location where the lease is on file, in this case, the offices of Bercrose's attorneys. The Memorandum of Lease makes no mention of the restrictive covenant prohibiting drive-in photo kiosks nor of the Consent in which Copaco agreed to be bound by the terms of the Bercrose-Genovese lease.

In 1982 Fotomat negotiated with Philip Johnson, who was in charge of leasing for both Copaco and Bercrose, to lease space at the shopping center. Ultimately they agreed upon the leasing of space for a drive-in kiosk in the parking lot of the shopping center. The kiosk was initially planned to be located on the Bercrose portion of the shopping center property, but was finally decided to be placed on the portion owned by Copaco. In June of 1982, Copaco, acting by its president Irving Bercowetz, executed a lease with Fotomat for a 36-square-foot portion of parking lot owned by Copaco. At no time during the lease negotiations did Johnson, Irving Bercowetz, or anyone else inform Fotomat of the restrictive covenant in the Bercrose-Genovese lease. Fotomat did not make a title search of the land records concerning the 36-square-foot area it was leasing, relying instead on a guarantee from Copaco that there were no restrictions on Fotomat's use of the property for operation of a drive-in kiosk.

Fotomat began site preparation and, on September 16, 1982, placed on its leased space a prefabricated kiosk. Eight days later Genovese made demand upon Johnson to have the kiosk removed and on November 9, 1982, filed suit in the District Court against Copaco, Bercrose, and Fotomat. Operation of the kiosk has been prohibited since that date, initially by a temporary restraining order, which was extended by stipulation, and ultimately by the preliminary injunction challenged on this appeal.

Discussion

In issuing the preliminary injunction, 563 F. Supp. 1299, the District Court made several determinations, but in resolving this appeal, we need consider only the Court's conclusion that Fotomat had constructive notice of the restrictive covenant in the Bercrose-Genovese lease.*fn1 At oral argument the parties agreed that the correctness of this conclusion can be determined on the undisputed facts and that, if this Court ruled that the undisputed facts already established did not suffice to give Fotomat constructive notice of the restrictive covenant, Genovese's claim against Fotomat could be finally adjudicated without the need for a plenary trial.*fn2 It is undisputed that Fotomat had no actual notice of the restrictive covenant.

The District Court rested its conclusion as to constructive notice on two subsidiary determinations. First, Judge Clarie ruled that the recordation of the Memorandum of Lease in compliance with Conn. Gen. Stat. § 47-19 provided adequate notice of all the terms of the Bercrose-Genovese lease, including the restrictive covenant. Second, the District Judge ruled that under all the circumstances Fotomat had a duty to search the land records under the chains of title of both Copaco and Bercrose. In support of this second determination, Judge Clarie noted the following: The Joint Development Agreement was recorded in the chains of title of both Copaco and Bercrose and would have been discovered had Fotomat searched the chain of title of its lessor, Copaco; notice of the Joint Development Agreement would have alerted Fotomat to the requirement of consent by owners of both portions of the shopping center for any construction in the parking area; Fotomat did not obtain the written consent of both owners; the Joint Development Agreement recites that the separate ownership of portions of the shopping center by Copaco and Bercrose would ...


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