Davidson Brothers, Inc. v. D. Katz & Sons, Inc.
643 A.2d 642 (1994)
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Rule of Law:
A restrictive covenant in a deed is unenforceable if it is found to be unreasonable, particularly when it is contrary to the public interest by impairing access to an essential service for a disadvantaged community.
Facts:
- In 1952, Davidson Bros., Inc. (Davidson) opened a supermarket on George Street in downtown New Brunswick.
- In 1978, Davidson acquired a second supermarket on Elizabeth Street, approximately two miles from the George Street location.
- In 1979, Davidson closed its George Street store due to decreased sales volume after acquiring the Elizabeth Street location.
- The closure of the George Street store created a significant hardship for the area's residents, many of whom were low-income, elderly, and lacked access to vehicles.
- In 1980, Davidson sold the George Street property to D. Katz & Sons, Inc. (Katz), a rug merchant.
- The deed for the sale to Katz contained a restrictive covenant providing that the property could not be used as a supermarket for 40 years.
- To address the community's hardship, the City of New Brunswick arranged for the New Brunswick Housing Authority to acquire the George Street property from Katz.
- The Housing Authority then leased the property to C-Town for $1 per year, on the condition that it be operated as a supermarket.
Procedural Posture:
- Davidson Bros., Inc. sued D. Katz & Sons, Inc., the City of New Brunswick, C-Town, and the New Brunswick Housing Authority in a New Jersey trial court to enforce the restrictive covenant.
- The trial court granted summary judgment for the defendants, finding the covenant unenforceable.
- Davidson, as appellant, appealed to the Superior Court of New Jersey, Appellate Division, which affirmed the trial court's decision.
- The Supreme Court of New Jersey granted Davidson's petition for certification, reversed the lower courts, and remanded the case to the trial court for a full trial, instructing it to apply a new eight-factor 'reasonableness' test.
- Following a bench trial on remand, the trial court again found the covenant unenforceable under the new reasonableness test.
- Davidson, as appellant, appealed that decision to the Superior Court of New Jersey, Appellate Division.
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Issue:
Is a non-competition covenant in a deed, which prohibits the use of a property as a supermarket for 40 years, enforceable when it harms the public interest by depriving a low-income urban community of its only walkable grocery store?
Opinions:
Majority - D'Annunzio, J.A.D.
No, the covenant is not enforceable because it is unreasonable and contrary to the public interest. The court applied the eight-factor reasonableness test established by the New Jersey Supreme Court in the prior appeal of this case. The court focused heavily on the seventh factor: interference with the public interest. The evidence overwhelmingly demonstrated that the downtown New Brunswick area had a high concentration of disadvantaged residents—low-income, elderly, and without vehicles—who were severely burdened by the lack of a local supermarket. The covenant created a 'food desert,' leading to higher food costs, poorer nutrition, and contributing to urban decay. The court found that Davidson's 'scorched earth policy' was so contrary to the strong and legislatively expressed public policy of urban rehabilitation that the covenant was unreasonable and unenforceable.
Analysis:
This decision solidifies the application of the New Jersey Supreme Court's reasonableness test for restrictive covenants, replacing the rigid, traditional 'touch and concern' doctrine. It establishes that public interest can be a decisive factor in invalidating a private land use restriction, especially when the restriction negatively impacts a vulnerable population. The ruling signals that courts will scrutinize non-competition covenants that create significant negative public externalities, such as limiting access to essential services in urban areas targeted for revitalization. This precedent empowers municipalities and courts to prioritize community welfare over purely private economic interests embodied in restrictive covenants.
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