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Davidson Brothers, Inc. v. D. Katz & Sons, Inc. | 643 A.2d 642 (1994)

In the nineteen eighties, supermarkets were abandoning inner cities in droves, confronted with high insurance rates, employment difficulties, and low profits. The loss of these stores created a cascade of social and health problems in urban areas. Davidson Brothers versus D. Katz and Sons involves a city that attempted to fill the hole left by a neighborhood supermarket and ran headlong into a restrictive covenant.

Davidson Brothers had operated a grocery store on George Street in downtown New Brunswick since the fifties. Local residents were into the habit of walking there to do their shopping.

In nineteen seventy-nine, Davidson sold the George Street property to D. Katz and Sons, a rug merchant. The deed to Katz contained a covenant that the property wouldn’t be used as a grocery store for the next forty years. This was to protect Davidson’s new grocery store, located two miles away.

The downtown residents, many of whom didn’t own cars, no longer had a convenient place to buy groceries. In an effort to create a replacement, the New Brunswick Housing Authority bought the George Street property from Katz. It leased it to C-Town for one dollar a year on the condition that C-Town operate a grocery store on the location.

Davidson sued Katz, the city, C-Town, and the New Brunswick Housing Authority to enforce the covenant. The trial court dismissed the case, and the appellate division affirmed. The New Jersey Supreme Court reversed and sent the case back for trial to determine whether the covenant was reasonable, based on an eight-factor test that included such considerations as duration, restraint on trade, changed circumstances, or interference with the public interest.

At trial, Davidson argued that it had lost sales and profits at the Elizabeth Street store due to competition with C-Town. Applying the supreme court’s tests of reasonableness, the trial court found that the forty-year term of the restrictive covenant was unreasonably long, that it imposed an unreasonable restraint of trade, and that the covenant was contrary to the public interest because there was a substantial need for a supermarket in the George Street location. It found for Katz. Davidson appealed to the Appellate Division.

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