Court Opinion

ID: 185471
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:32:29+00
Date Added: 2024-06-11T15:28:28.923457
License: Public Domain

254 F.3d 1120 (D.C. Cir. 2001)
Red Sage Limited Partnership, Appellantv.DESPA Deutsche Sparkassen Immobilien-Anlage-Gasellschaft mbH, a/k/a DespaEuropa, Appellee
No. 00-7129
United States Court of Appeals  FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 5, 2001Decided July 13, 2001

[Copyrighted Material Omitted]
Appeal from the United States District Court  for the District of Columbia (No. 98cv02533)
Andrew J. Kline argued the cause for appellant.  With him  on the briefs was Jeffrey L. Berger.
J. Jonathan Schraub argued the cause for appellee.  With  him on the brief was Paige A. Levy.
Before:  Edwards, Chief Judge, Ginsburg and Tatel,  Circuit Judges.
Opinion for the Court filed by Circuit Judge Tatel.
Tatel, Circuit Judge:

1
A Washington, D.C. restaurant  sought a declaration that its landlord breached an exclusive  use covenant by renting space in the same building to a  specialty cake shop.  The restaurant claimed that under its  lease, the breach entitled it to a 50 percent rent abatement. The district court granted summary judgment for the landlord, finding that under the circumstances of this case, a 50  percent rent abatement would constitute an unenforceable  penalty.  Because we conclude that the rent abatement,  negotiated by sophisticated parties, was not an unreasonable  estimate of the damages likely to result from a breach of the  exclusive covenant, and because the landlord's additional arguments for summary judgment fail, we reverse and remand  for further proceedings.

2
* Red Sage Limited Partnership operates an "internationally  known ... fine dining" restaurant in the Westory building, a  Washington D.C. office building.  Appellant's Opening Br. at  5.  In the same building, Red Sage operates several private  dining rooms used for catering and special events, a casual  Tex-Mex restaurant, and the Red Sage Market, a take-out  facility that sells sandwiches, salads, snacks, cold drinks, tea,  coffee, and desserts, including a variety of whole cakes available by special order.

3
Red Sage first leased space in the Westory building in  September of 1990.  At that time, the building was owned by  607 14th Street Associates Limited Partnership.  Insofar as  the original landlord, through his wife, had an ownership  interest in Red Sage, the original lease was not negotiated at  arm's length.  The lease provided that "[t]enant shall use and  occupy the Leased Premises solely as a bar and/or a restaurant."  The lease also included the following exclusive covenant and penalty clause:

34. Exclusive Covenant

4
(a) To the extent permitted by law, Landlord covenants that during the Term it shall not permit any other tenant within the Building to operate a bar, restaurant or food service establishment of any kind (a "Competing Use"). The provisions of this Section 34 shall be enforceable only so long as Tenant is operating a bar and/or a restaurant in the Leased Premises.

5
...

6
(e) In the event that a Competing Use is operated in the Building at any time during the Term and Landlord has violated its covenants under this Section 34, then (i) one half (1/2) of the Base Rent payable hereunder shall be abated during the period that the Competing Use is operated in the Building, and (ii) Tenant may terminate this Lease if the operation of the Competing Use continues for a period of six (6) months after written notice thereof by Tenant to Landlord....  The provisions of this subsection (e) shall not limit ... any other remedies which Tenant may have against Landlord for violating its obligations under this Section.

7
Six years later, in 1996, 14th Street Associates and Red  Sage executed an Amended and Restated Lease.  The  amended lease contained the same exclusive covenant and  penalty clause as the original lease, but included a revised  tenant use provision:

8
Tenant use and occupancy of the Leased Premises shall consist of owning and operating a restaurant and bar and carrying on any and all activities incidental or related thereto, including, but not limited to, operating a retail general store primarily selling t-shirts, sweatshirts, souvenirs, spices, baked goods, foods and other items related to Tenant's bar and restaurant.

9
The new lease also set base rent at "six and one-half percent  ... of [Red Sage's] Gross Revenues, but in no event less than  Four Hundred Thousand Dollars."  The parties do not dispute that this lease was executed at arm's length.

10
In 1997, in preparation for the sale of the Westory Building  to DespaEuropa--Red Sage's current landlord and appellee  in this case--14th Street Associates and Red Sage again  amended the lease.  This amendment left intact the tenant  use, base rent, exclusive covenant, and penalty clause provisions in the amended lease, stating that "[a]ll terms and  provisions of the Lease which are not amended hereby are  hereby ratified and confirmed in all respects."  Red Sage  asserts that Despa was "actively involved" in negotiating the  1997 amendment, since "reformulation of the Red Sage Lease  was a precondition to the purchase of the Westory Building  by Despa."  Appellant's Opening Br. at 6.  For its part,  Despa asserts that it "was not involved in any way in the  negotiations for or the drafting of the Red Sage Lease, but  rather inherited it as a second or third generation owner of  the building."  Appellee's Br. at 5.  It is undisputed, however,  that a Despa representative signed the 1997 amendment,  endorsing it "Accepted and Agreed."

11
Later that year, Despa purchased the Westory building  from 14th Street Associates and, the following year, leased  space in the building to a specialty store known as Cakes &  Company, triggering the dispute leading to this litigation. Cakes' original lease permitted it to operate a "bakery/cafe"  selling "specialty cakes, baked goods, coffee, non-alcoholic  beverages and associated paper goods," but as Red Sage  concedes, Despa later amended the lease, deleting the reference to operating a "cafe" and permitting Cakes to sell food  items only for consumption off the premises.  The parties  agree that Cakes primarily sold whole cakes--prepared elsewhere and decorated on-site--for weddings and special occasions.  It also sold tea, coffee, single slices of cake, and some  of the same prepackaged drinks sold by Red Sage Market. Cakes had no menu, wait staff, or customer tables or chairs. In Cakes' first four months of operation, its gross sales were  almost $95,000, its gross profits around $50,000, and its net  income about $11,000.

12
Learning of the lease to Cakes, Red Sage wrote to Despa,  asserting that the landlord was violating the exclusive covenant in Red Sage's lease and requesting a 50 percent rent abatement.  Despa replied:  "The exclusive right you currently enjoy in your lease ... pertains to a competing 'food  service operation.'  Cakes & Company could not infringe  upon the highly stylized and critically acclaimed Red Sage." Letter from Laurie McMahon, Director of Downtown Property Management, Cassidy & Pinkard Property Services  L.L.C., to Bo Nilsson, Managing Partner, Red Sage, Inc.  (May 26, 1998). Red Sage then sued Despa in the Superior Court for the  District of Columbia, seeking a declaration that Despa "has  breached and continues to breach section 34 of the Lease,  [and] that as a result of this breach Red Sage is entitled to an  abatement of one-half of the Base rent...."  Compl. for  Declaratory Relief, Red Sage Ltd. P'ship v. DESPA mbH,  No. 98ca007066, at 6 (D.C. Super. Ct. Sept. 16, 1998).  Despa  removed the case to federal court, and both parties moved for  summary judgment, contending that there were no disputed  issues of material fact.  The district court denied the motions,  stating that "the contractual term 'food service establishment'  is not susceptible to definitive construction as a matter of law  under either the ... Lease or the Municipal Regulations of  the District of Columbia," and that there were "material  questions of fact concerning:  1) the parties' intentions as to  the scope and coverage of the restrictive covenant ... and 2)  the exact nature of the 'services' provided by Cakes."  Order  Den. Cross-mot. for Summary J., Red Sage Ltd. P'ship v.  DESPA mbH, No. 98-2533 (D.D.C. Sept. 8, 1999).

13
At a subsequent status conference, Despa renewed its  motion for summary judgment on the alternative ground that  the rent abatement provision in Red Sage's lease constituted  an unenforceable penalty.  Following supplemental briefing  on the issue, the district court granted Despa's motion for  summary judgment, finding that since "a rent abatement of  $200,000 ... would indeed impose an improper penalty,"  Despa was entitled to judgment as a matter of law.  Red  Sage Ltd. P'ship v. DESPA mbH, No. 98-2533, Mem. Op. at  1-2 (D.D.C. Feb. 15, 2000), recon. denied, Red Sage Ltd.  P'ship v. DESPA mbH, No. 98-2533 (Apr. 11, 2000).  At  some point following the grant of summary judgment, Cakes closed its shop in the Westory building and terminated its  lease with Despa.  The dispute in this case thus concerns the  value of the abatement for the period during which Cakes  operated.  "We review a grant of summary judgment de  novo, applying the same standard as the district court.  Summary judgment is appropriate when there is no genuine issue  as to any material fact and the moving party is entitled to  judgment as a matter of law."  D.C. Hosp. Ass'n v. Dist. of  Columbia, 224 F.3d 776, 779 (D.C. Cir. 2000) (internal citations omitted).

II

14
We begin with a threshold issue:  Red Sage urges us to  treat the rent abatement provision not as a liquidated damages clause, but rather as a contractual provision adjusting  rent in response to changed conditions.  Noting that parties  to a lease sometimes agree in advance that rent will change  upon the occurrence of future conditions, see, e.g., Collins v.  Sears Roebuck & Co., 321 A.2d 444, 449 (Conn. 1973), Red  Sage argues that the rent abatement provision here reflects  the parties' understanding that "the premises leased by Red  Sage" would be "less valuable to Red Sage if there exist[another] bar, restaurant, or food service establishment in the  [b]uilding."  Appellant's Opening Br. at 15.  Acting on this  understanding, the parties "provided for a partial abatement  of base rent in the event a Competing Use is operated in the  building."  Id. at 14.  "[N]ot knowing the precise nature of  the ... food service establishment which might some day be  located in the Building," they "predetermined" that a competing use would diminish the "value of Red Sage's premises" by  "one half of the Base Rent."  Id. at 15.  The abatement  provision, Red Sage argues, is "no different than provisions in  leases for increased rental in the event of a holdover tenancy,  which are routinely enforced even if the increased rental is  three, four or even five times the normal rental rate."  Id. at  14.

15
This argument requires little discussion.  Under D.C. law,  "the written language of a contract governs the parties' rights unless it is not susceptible of clear meaning."  Adler v.  Abramson, 728 A.2d 86, 88 (D.C. 1999).  Here, we think it  clear from the language of the contract that the rent abatement provision was a liquidated damages clause, not a rent  adjustment.  To begin with, the clause states both that  "[r]ent ... shall be abated" if the landlord "violate[s]" the  exclusive covenant and that the rent abatement "shall not  limit ... any other remedies which Tenant may have against  Landlord for violating its obligations under this Section"  (emphasis added).  This language strongly suggests that the  rent abatement is a "remed[y]" for a "viola[tion]" of the lease,  rather than a mere adjustment for changed circumstances. Reinforcing this conclusion, the provision allows Red Sage not  only to abate its rent if the exclusive lease covenant is  violated, but also to "terminate [its] lease if the operation of  the Competing Use continues for a period of six ... months  after written notice thereof by Tenant to Landlord."  The  possibility of termination is in some tension with the notion of  a rent adjustment, since it contemplates not an ongoing  landlord-tenant relationship under different terms, but an end  to the relationship altogether.  Finally, Red Sage's analogy to  tenant holdover cases actually undermines its argument: while Red Sage does cite one case from another jurisdiction  treating a double rent provision for holdover tenants as a  simple rent adjustment, First Capital Institutional Real Estate, Ltd. v. Pennington, 368 S.E. 2d 165 (Ga. App. 1988), the  District of Columbia case it cites treats a similar provision as  a liquidated damages clause.  Sanchez v. Eleven Fourteen,  Inc., 623 A.2d 1179 (D.C. 1993);  see also Horn & Hardart Co.  v. Nat'l R.R. Passenger Corp., 659 F. Supp. 1258, 1266-68  (D.D.C. 1987) (analyzing triple rent holdover provision as  liquidated damages clause).

16
We thus turn to Red Sage's main argument:  that, assuming the rent abatement provision is a liquidated damages  clause, it is valid and enforceable.  In reaching a contrary  conclusion, the district court invoked the principle that "[i]f  there is doubt as to whether the parties intended to provide  for legitimate liquidated damages, courts routinely construe  liquidated damages provisions as penalties" and thus decline to enforce them "to prevent forfeitures."  Red Sage, No.  98-2533, at 4 (D.D.C. Feb. 15, 2000) (citing Goldman v. Conn.  Gen. Life Ins. Co., 248 A.2d 154, 158 (Md. 1968)).  In applying  this principle, the court neither developed an evidentiary  record of nor relied on extrinsic evidence regarding the  parties' intent.  Cf. Farmland Indus., Inc. v. Grain Bd. of  Iraq, 904 F.2d 732, 736 (D.C. Cir. 1990) ("When the meaning  of a contract provision is facially uncertain, a court may  resort to an examination of extrinsic evidence, such as statements, course of conduct, and contemporaneous correspondence, aimed at discerning the intent of the parties.").  Instead, the court found "considerable doubt" about the parties'  intentions regarding the rent abatement clause for two other  reasons.  Red Sage, No. 98-2533, at 4 (D.D.C. Feb. 15, 2000). First, "[t]he absence of arms length negotiation undercuts the  ordinary presumption that the language on which the contracting parties have agreed accurately reflects their intent." Id.  Second, since "Red Sage Market ... did not exist when  the lease was written," even if the rent abatement clause  represented a "reasonable effort" by the parties to estimate  damages from breach of the exclusive covenant, that estimate  "obviously related to ... competition from a substantial 'food  service establishment,' and not from a small operation that  would not compete with Red Sage's principal business of  operating a restaurant."  Id. at 4-5.  Thus finding that the  parties had not clearly intended to provide for liquidated  damages in a case like this, the court construed the rent  abatement as a penalty and refused to enforce it.

17
Challenging this analysis, and noting that summary judgment is inappropriate "if extrinsic evidence supports more  than one reasonable interpretation of [a] contract," Farmland  Indus., 904 F.2d at 736, Red Sage points out that it submitted  an affidavit from the drafter of the original lease stating that  the rent abatement provision was intended to estimate damages from breach of the exclusive covenant.  It also points  out that the same affidavit, while acknowledging that Red  Sage Market did not exist at the time of the lease drafting,  made clear that none of Red Sage's businesses was operating  at that time, and that all aspects of its operation, including the Market, were contemplated by the parties.  Appellant's  Opening Br. at 19-22.

18
We need not resolve this aspect of Red Sage's challenge to  the district court's decision, however, because both the district court's reasoning and Red Sage's responses concern the  original 1990 lease negotiated between 14th Street Associates  and Red Sage, and as we read the record, Red Sage's dispute  with Despa concerns the 1997 amended lease.  Unlike the  1990 lease, the later lease was negotiated at arms length, and  Red Sage Market was operating in 1997.  We therefore  consider for the first time whether the rent abatement provision in the 1997 amended lease was a penalty clause, focusing  in the first instance on its plain language.  See Adler, 728  A.2d at 88.

19
In Davy v. Crawford, 147 F.2d 574 (D.C. Cir. 1945), this  court set out standards for deciding whether a liquidated  damages provision is an unenforceable penalty under District  of Columbia law.  Because of its importance to this case, we  quote the relevant passage in full:

20
[T]he parties to a contract may agree in advance to a sum certain which shall be forfeited as liquidated damages for breach of the contract without reference to the actual damages found at the time of the breach.  But if such an agreement is for a penalty it is void.  In order to determine whether or not the provision should be construed as a penalty the contract must be construed as a whole as of the date of its execution.  If under the circumstances and expectations of the parties existing at the time of execution it appears that the provision is a reasonable protection against uncertain future litigation the provision will be enforced even though no actual damages were proved as of the date of the breach.  If, on the other hand, it appears that the stipulation is designed to make the default of the party against whom it runs more profitable to the other party than performance would be, it will be void as a penalty.  Thus, damages stipulated in advance should not be more than those which at the time of the execution of the contract can be  reasonably expected from its future breach, and agreements to pay fixed sums plainly without reasonable relation to any probable damage which may follow a breach will not be enforced.

21
Davy, 147 F.2d at 575 (citations omitted).  The D.C. Code  governing leases, enacted many years after Davy, sets forth  essentially the same standard:  "Damages payable by either  party for default ... may be liquidated in the lease agreement, but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the  default ...."  D.C. Code Ann. § 28:2A-504(a).

22
Applying these standards, we think the rent abatement  provision in the 1997 amended lease is valid as a matter of  law.  To begin with, as Red Sage claims, at the time the lease  was signed, the parties could reasonably have believed the  damages resulting from a breach of the exclusive covenant  would be difficult to ascertain, rendering future litigation  "uncertain."  Davy, 147 F.2d at 575;  see also Barnette v.  Sayers, 289 F. 567, 570 (D.C. Cir. 1923) ("Uncertainty in  amount and difficulty of ascertainment of damages are regarded as supporting the view that a contract provides for  liquidated damages rather than a penalty....").  Disagreeing  with this conclusion, Despa suggests that damages to Red  Sage's restaurant business from a competing food service  establishment would have been easy to calculate by analyzing  overhead and table turnover to derive the value of lost sales. As Red Sage points out, however, even if it could demonstrate  a decline in sales, "isolat[ing] the new competitor as the sole  reason for the decline" would be "almost impossible," making  damages difficult to prove.  Appellant's Reply Br. at 2. Moreover, "[l]ost sales do not represent the only damages  potentially arising from competition.... [D]amages may take  the form of lost opportunities whereby the new competitor,  instead of having an impact on existing sales, affects the  restaurant's ability to increase sales."  Id. at 2-3.  Damages  might also include a variety of intangible losses such as lost  goodwill, which would likewise be difficult to calculate and  prove.

23
We also cannot say that the abatement is "plainly without  reasonable relation to any probable damage which may follow  a breach."  Davy, 147 F.2d at 575.  Despa disagrees, arguing  that it would have been unreasonable to think the damages  resulting from Cakes' competition with Red Sage Market-which the lease describes as an "incidental use" and which  produces only a small portion of Red Sage's total income-would amount to 50 percent of its rent for all its operations,  especially in view of the fact that the same measure of  damages would apply to competition from a large-scale operation such as another bar and restaurant.  The question before  us, however, is not whether a 50 percent rent abatement  would have been a reasonable estimate of anticipated damages from a competitor on the scale of Cakes.  We read the  exclusive covenant as intending to ensure that Red Sage will  be the only "bar, restaurant[,] or food service establishment  of any kind" in the Westory building:  as Red Sage put it in  its motion for summary judgment, the purpose of the covenant was to "prevent[ ] another destination restaurant from  opening in the Westory Building" and "to prevent[ ] the  location of another food service business in the Westory  Building to service the office tenants."  Plaintiff's Motion for  Summary Judgment, Red Sage Ltd. P'ship v. Despa mbH,  No. 98-2533 at 14 (D.D.C. June 15, 1999).  The rent abatement provision sets damages for a breach of this covenant,  and such a breach could involve a wide variety of competing  uses giving rise to a wide range of possible damages.  The  question we must ask is thus whether a 50 percent reduction  in base rent was reasonable as a single formula intended to  estimate damages from a wide variety of possible competing  uses.

24
Although it is true, as Red Sage itself acknowledges, that  the parties might well have anticipated that damages from a  competitor like Cakes would probably be less than 50 percent  of base rent ($200,000 in this case), the parties might also  have anticipated that damages from a competing restaurant  would be considerably greater than this amount.  (Though its  net income was not especially high, Red Sage's annual gross  income in a recent year was around $6.5 million.)  Accordingly, as a single formula designed to capture the expected value  of damages from breach of the exclusive covenant, we cannot  say that half of base rent was unreasonable as a matter of  law.

25
Nor do we think the rent abatement provision "appears ...  designed to make the default of the party against whom it  runs more profitable to the other party than performance  would be."  Davy, 147 F.2d 575.  Although in this case the  rent abatement clause might well result in Red Sage receiving more than it actually lost as a result of Cakes' competition, the clause might significantly underestimate Red Sage's  damages in other circumstances, such as if the landlord were  to rent space to another upscale, full-service restaurant.  In  other words, the provision does not guarantee Red Sage a  certain windfall in case of a breach.  Cf. Raffel v. Medallion  Kitchens of Minn., Inc., 139 F.3d 1142, 1144-46 (7th Cir.  1998) (invalidating as a penalty a lease provision requiring  tenant to pay a "windfall" equivalent to seven months' rent if  rent was more than thirty days late).

26
Despa's strongest argument is that the very use of a single  formula to capture such a wide range of damages renders the  clause unenforceable.  Because the rent abatement provision  "applies to a variety of types of defaults, each of which could  have vastly differing degrees of damages associated with  them," Despa urges us to declare it "null and void, under the  reasoning that there could not have been a good faith attempt  to pre-estimate possible damages, since the real and obvious  possibility existed that the damages provided for would turn  out to be excessive."  Appellee's Br. at 18-19;  see generally 5  Corbin on Contracts § 1066 (1964).  In support of this claim,  Despa relies on Davy, which involved a lease for a house. Under the lease, the tenant had an option to purchase at the  end of a fixed rental period.  The lease required a "down  payment," which it described as "compensation for the option  to purchase and also liquidated damages for failure to exercise it."  Davy, 147 F.2d at 575.  But the lease also provided  that the down payment (together with any accumulated equity in the house) would be forfeited for breach of "any  covenant" in the lease, including such things as promises to pay gas, electric, and water bills on time.  The court found  that the forfeiture provision was an unenforceable penalty in  part because the damages applicable to a major breach-failure to exercise the option to purchase--would also have  applied to a "minor and insubstantial default" on the part of  the breaching party.  Davy, 147 F.2d at 575.  According to  Despa, the same is true here:  under Red Sage's interpretation of the lease, the 50 percent abatement applies whether  the "competing use" is a small-scale operation like Cakes that  competes incidentally with Red Sage, or a full-scale restaurant competing directly with Red Sage's principal businesses.

27
This case, however, differs from Davy in at least four  significant ways.  First, the provision at issue in Davy called  for forfeiture of a fixed sum regardless of the nature of the  breach.  Davy, 147 F.2d 574;  cf. Raffel, 139 F.3d at 114  (stating that liquidated damages clauses are penalties where,  among other things, "the amount of the damages is invariant  to the gravity of the breach") (emphasis added);  5 Corbin on  Contracts § 1066, at 379 (characterizing contracts that make  "one sum of money ... payable as damages for any breach  whatever" as penalty clauses) (emphasis added).  The rent  abatement provision at issue here, in contrast, does not set  damages as a single sum:  because the provision applies only  as long as a competing use is present, damages will vary with  the duration of the competing use.  Second, the provision at  issue in Davy appears to have been one-sided:  the down  payment would have been forfeited for failure to exercise the  option, or for a variety of smaller breaches, but never, it  seems to us, in a situation that would have disadvantaged the  landlord.  Cf. Raffel, 139 F.3d at 1146 (because a 10 percent  late fee fully compensated a landlord for the effect of late  rent payments, an additional fine when rent was more than  thirty days late "ensure[d] the lessor more than his actual  damages" and was therefore invalid).  Here, because the rent  abatement clause could just as easily have underas overestimated actual damages, the provision appears not to have  been intended to penalize Despa.  Third--and closely related--the court in Davy found the lease as a whole, including  both the liquidated damages provision and other parts of the contract, to have an "unconscionable and overreaching character" that heavily favored the landlord at the expense of the  tenant.  Davy, 147 F.2d at 575.  Here, neither party claims  that the lease as a whole is unconscionable and overreaching. Finally, and perhaps most important, the agreement in Davy  appears to have involved a corporate landlord and a private  individual.  See id. at 574 ("Action by Beatrice I. Crawford  and others against Myron Davy and others, trading as River  Terrace Company....").  The rent abatement provision in  Red Sage's lease, in contrast, was negotiated by sophisticated  parties, and District of Columbia courts, as well as Maryland  courts, to which District of Columbia courts often look for  guidance, see Geico v. Fetisoff, 958 F.2d 1137, 1143 (D.C. Cir.  1992), are generally reluctant to disturb terms agreed upon  by such parties.  See, e.g., District of Columbia v. C.J.  Langenfelder & Son, Inc., 558 A.2d 1155, 1163 (D.C. 1989)  (rejecting the view that the phrase "equitable adjustment" in  a contract gave the court "roving discretion to reform the  contracts of informed and sophisticated parties");  Mass  Transit Admin. v. CSX Transp., Inc., 708 A.2d 298, 309 (Md.  1998) ("A decent respect for the freedom of sophisticated  parties contractually to establish the rules governing their  business relationship compels the conclusion that the [Maryland] General Assembly intended contracting parties to be  able to determine, when they contract, whether [a statutory  provision] applies to their agreement.");  Mattvidi Assocs.  Ltd. P'ship v. NationsBank of Va., 639 A.2d 228, 239 (Md. Ct.  Spec. App. 1994) ("When two commercially sophisticated parties freely enter into an agreement containing a late charge  clause ... it seems entirely appropriate that the burden of  proof should be on the party who later claims that the clause  is invalid.").

28
All liquidated damages clauses, if implemented in situations  where damages are difficult to estimate, will generally end up  either overor under-estimating actual damages.  And while  the range of possible damages in this case is quite wide, the  parties may have had good reason for wanting a broad  exclusive use covenant:  for example, they may have wished to  ensure expansive protection for Red Sage's food service operations.  The parties may also have had good reason for  wanting a single formula for calculating damages from a  breach of the exclusive covenant:  they may have worried that  specifying different levels of damages to cover different levels  of breach could have enmeshed them in time-consuming and  expensive disagreements over which damages applied to a  particular breach.  We do not know exactly why the parties  agreed to this particular clause, nor is it our role to discern  their precise intentions.  Because the provision is neither  obviously one-sided nor obviously intended to impose a penalty that would coerce performance, because the actual estimate is not clearly unreasonable in relation to the range of  possible damages, and because both parties are sophisticated  businesses, we find that as a liquidated damages clause  covering operations of the scale of Cakes and larger, the rent  abatement provision in Red Sage's lease is enforceable as a  matter of law.  See Langenfelder, 558 A.2d at 1163;  see also  id. at 1169 (dissenting opinion) ("I agree with my colleagues  that judges have no roving commission to relieve sophisticated parties of their contractual obligations.").

III

29
In its original motion before the district court, Despa  suggested two additional bases for summary judgment:  (1) on  its face, the phrase "food service establishment" excludes  Cakes;  and (2) if the phrase covers Cakes, the exclusive  covenant is an unreasonable restraint of trade.  According to  Despa, because the actual order accompanying the district  court's summary judgment opinion did not specify the  grounds for decision, the court implicitly accepted the additional arguments in Despa's original motion, and since Red  Sage's opening appellate brief addressed only the penalty  clause issue, and not the two alternate theories, Red Sage has  conceded those arguments.

30
This argument is absurd.  Quite apart from the fact that  the district court rejected Despa's original motion for summary judgment and awarded relief only after ordering supplemental briefing on the penalty clause issue, the court's opinion makes abundantly clear that it awarded summary  judgment only because it decided the rent abatement provision was an unenforceable penalty.  The three citations Despa invokes for the proposition that courts "speak[ ] only by  [their] orders"--one of which is to a dissenting opinion,  another of which is to an unpublished decision--concern  instances where orders conflict directly with other court  documents.  See Shafer v. Children's Hosp. Soc. of L.A., 265  F.2d 107, 117 (D.C. Cir. 1959);  Flannigan v. Consol. Rail  Corp., 888 F.2d 127, 1989 WL 130634 (6th Cir. 1989);  Murdaugh Volkswagen, Inc. v. First Nat'l Bank of S.C., 741 F.2d  41, 44 (4th Cir. 1984).  Those citations thus have no bearing  on this case.  Because Despa has re-asserted its alternate  arguments for summary judgment before this court, however,  and because Red Sage has responded in its reply brief, we  consider whether these arguments provide an alternate basis  for sustaining summary judgment for Despa.  See In re  Swine Flu Immunization Prods. Liab. Litig., 880 F.2d 1439,  1444 (D.C. Cir. 1989) (stating that this court may affirm a district court's grant of summary judgment on grounds not  relied upon by that court).

31
First, Despa argues that as a matter of law, the phrase  "food service establishment of any kind" in the exclusive use  covenant does not cover Cakes.  Under District of Columbia  law, as we have already noted, "the written language of a  contract governs the parties' rights unless it is not susceptible  of clear meaning."  Adler, 728 A.2d at 88.  "In deciding  whether contract language has a clear meaning, the court  asks what a reasonable person in the position of the parties  would have thought the disputed language meant."  Id. (internal quotations omitted).  "When the meaning of a contract  provision is facially uncertain, a court may resort to an  examination of extrinsic evidence, such as statements, course  of conduct, and contemporaneous correspondence, aimed at  discerning the intent of the parties."  Farmland Industries,  904 F.2d at 736.

32
Here, the plain language of the lease--"food service establishment of any kind"--could well describe a business like  Cakes.  As Red Sage argues, the modifier "any" suggests that the parties intended the provision to be read broadly.  In  addition, the lease specifies that its terms are to be construed  according to District of Columbia law, and District regulations define the similar phrase "food service operation" to  include businesses in which "food is prepared for service and  consumption elsewhere."  D.C. Mun. Regs. tit. 23, § 2499.

33
Other features of the lease, however, indicate that the  parties may have intended the exclusive covenant to have a  narrower reach.  The covenant refers to "restaurant[s],  bar[s], or food service establishment[s] of any kind" as "competing use[s]," suggesting that the purpose of the clause was  to prevent competition with Red Sage.  This in turn suggests  that an establishment that sold food but did not compete with  Red Sage in any way--a store selling freeze-dried camping  food, for example--might not fall within the covenant's reach. In addition, the fact that the exclusive covenant applies only  so long as Red Sage operates a "bar and/or restaurant" could  mean that it excludes only food service operations that compete with Red Sage's restaurants, not those that compete  with "incidental" uses like the Red Sage Market.

34
We thus think the language of the contract is unclear. Beyond the lease itself, we have no factual record regarding  the 1997 parties' understanding of the phrase "food service  establishment of any kind."  And if in fact that understanding  has something to do with protecting Red Sage from competition, there are (as the district court found) disputed issues of  fact regarding the exact nature of Cakes' business and its  degree of competitive overlap with Red Sage market.  The  parties disagree, for example, about the degree to which  Cakes targeted its services to office workers in the Westory  building:  while Red Sage asserts that Cakes "underspecial efforts to market cake[ ] and coffee as a snack combination," Appellant's Opening Br. at 9, Despa asserts that  Cakes "did not advertise any on-premises food service or  sales."  Appellee's Br. at 8.  Summary judgment would thus  be inappropriate on the question of whether the exclusive  covenant covers Cakes.  See D.C. Hosp. Ass'n, 224 F.3d at  779.

35
Despa also argues that if Cakes is a "competing use" within  the meaning of the exclusive use covenant, that provision  amounts to an unreasonable restraint of trade.  In the District of Columbia, covenants restricting competition are valid  if ancillary to some other legitimate interest.  See Ellis v.  James V. Hurson Assocs., 565 A.2d 615, 618 (D.C. 1989). Here, the exclusive covenant is ancillary to the landlordtenant relationship between Red Sage and Despa.  Such  covenants, however, are invalid if they are "greater than is  needed to protect the promisee's legitimate interest."  Restatement (Second) of Contracts § 188(1) (1981) [hereinafter  Restatement] (quoted in Venture Holdings, Ltd. v. Carr, 673  A.2d 686, 689 n.4 (D.C. 1996)).  Here, Despa argues that the  exclusive use covenant, assuming it prohibits the lease to  Cakes, restrains more trade than is reasonable because competition from Cakes was at best incidental to Red Sage.  If  the covenant covers Cakes, Despa concludes, it amounts to a  complete prohibition on any competition whatsoever, and a  promise to "refrain altogether from competition" "implicates  the common law policy against unreasonable restraints of  trade."  Venture Holdings, 673 A.2d at 689.

36
The District of Columbia has "adopted the common law  principles regarding promises in restraint of trade[ ] as reported in the Restatement (Second) of Contracts."  Venture  Holdings, 673 A.2d at 689.  "Comment d" to the Restatement  provides that the extent of a restraint on competition may be  limited in three ways:  by geographical area, time, and type of  activity.  Restatement § 188 cmt. d.  Here, the covenant is  restricted in all three ways:  it applies only to the Westory  building;  it lasts only the length of the lease;  and rather than  preventing all retail activities, it prevents only food service  activities.  The discussion in Venture Holdings on which  Despa relies is not to the contrary:  that case concerned a far  more sweeping promise by a former employee not to "engage  in business competition" of any kind with his former employer.  See 673 A.2d at 689.  As the Restatement suggests,  "[p]ost-employment restraints are scrutinized with particular care because they are often the product of unequal bargaining  power and because the employee is likely to give scant  attention to the hardship he may later suffer through loss of  his livelihood."  Restatement § 188 cmt. g.  Not only are  similar considerations inapplicable here, but courts have previously enforced lease provisions like the one at issue in this  case.  See, e.g., Grand Union Co. v. Laurel Plaza, Inc., 256  F. Supp. 78, 81 (D. Md. 1966) (enforcing a lease provision  making a supermarket the sole retailer of food to be consumed off-premises in a shopping mall).  We thus conclude  that the exclusive covenant in Red Sage's lease is not an  unreasonable restraint of trade.

IV

37
In sum, we find that as a matter of law, the rent abatement  provision would constitute neither an unenforceable penalty  nor an unreasonable restraint of trade as applied to Cakes. Because we agree with the district court that the phrase  "food service establishment of any kind" cannot be definitively construed as a matter of law, we remand to the district  court to determine whether, in light of the contract's language, the parties' intent, and the nature of Cakes' operation,  Despa's lease to Cakes entitles Red Sage to a rent abatement.

38
So ordered.