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CARTE BLANCHE PTE. v. DINERS CLUB INTL.

September 4, 1992

CARTE BLANCHE (SINGAPORE) PTE., LTD., Plaintiff, against DINERS CLUB INTERNATIONAL, INC. a/k/a CITICORP/DINERS CLUB, INC., a/k/a THE DINERS CLUB, INC., and CARTE BLANCHE INTERNATIONAL, LTD., Defendants.


The opinion of the court was delivered by: WHITMAN KNAPP

OPINION AND ORDER

 WHITMAN KNAPP, Senior District Judge

 By this complaint, plaintiff seeks to compel defendant Diners Club International, Inc. ("Diners"), the corporate parent of defendant Carte Blanche International, Ltd. ("CBI"), to satisfy a judgement which it obtained against CBI in 1991. By Opinion and Order dated March 5, 1991 Judge Leisure decided the parties cross-motions for summary judgment and narrowed the issues for trial. Judge Leisure then referred this action to us, and during the period November 12th through the 18th, we presided over a 4 day bench trial. At the close of those proceedings we suggested that the parties submit post-trial memoranda. Having reviewed such memoranda, we now, pursuant to Fed. R. Civ. P. 52, set forth our findings of fact and conclusions of law. We find that plaintiff has not met its burden of proof, and judgment for defendant must be entered accordingly.

 BACKGROUND

 We first set forth a brief recitation of the facts necessary to understand the nature of the instant dispute. We then outline the questions Judge Leisure determined must be decided by the trier of fact, and finally we review the evidence presented at trial that we find to be dispositive of these questions.

 From its inception in 1972, CBI was a wholly owned subsidiary of an entity known as Carte Blanche Corporation ("Carte Blanche"), which in turn was a wholly owned subsidiary of Citicorp. In June 1981 Citicorp acquired defendant Diners, and approximately one year later Carte Blanche was merged into Diners. It is undisputed that, as corporate successor, Diners assumed Carte Blanche's obligations.

 At all relevant times, Carte Blanche was engaged in the business of issuing credit cards in the United States and was the owner of the registered trademark "Carte Blanche". Its subsidiary CBI acted as the international franchisor for Carte Blanche credit cards, granting foreign franchisees the right to issue such cards in certain territories outside the United States, and administering their use of such right. During the period 1972 through 1980 CBI awarded approximately seven international franchises, one of which to plaintiff, a Singapore corporation. The Franchise Agreement executed by CBI and plaintiff provided that plaintiff would become a franchisee of CBI to market and service Carte Blanche credit cards in Malaysia, Singapore and Brunei. This Agreement was executed on August 11, 1980, and by its terms was retroactive to March 1, 1980.

 At the time CBI executed that Franchise Agreement, it had approximately ten employees and maintained its offices and financial records separate from those of its parent, Carte Blanche. CBI's income was derived from the one-time franchise fees which it received when it signed up a new franchise and subsequent royalties received from its franchisees. It also received financing in the form of inter-company loans from Carte Blanche, and the maximum amount outstanding on such loans, as reflected on its December 31, 1981 balance sheet, was at least $ 7,623,118.

 During the summer of 1980 one Pei Chia was appointed President of Carte Blanche (Tr. 491). In reviewing its financial condition, Chia determined that it was poor and directed that all new spending, including investment in CBI, be put on hold pending further review (Tr. 493, 494-5, 540). In August Chia conveyed this information to Marcel Diraison, the Chief Executive Officer of CBI. In response, Diraison informed Chia that the agreement with plaintiff was "a done deal" (Tr. 536).

 In December Chia concluded that the only financially sound solution to the problems confronting Carte Blanche was to wind down its business, and conveyed this information to Citibank (Tr. 506). Citibank concurred in this assessment and directed Chia to commence a wind down of all businesses connected to Carte Blanche credit cards, which included CBI.

 In June of 1981, approximately six months after this mandate to wind-down the Carte Blanche business was issued, one Seymour Flug, who was then the Chairman of a subsidiary of Diners, was appointed Chairman and subsequently President of CBI *fn1" (Tr. 121). Under the direction of Flug, during the next few months CBI negotiated termination agreements with all of its franchisees, except plaintiff. In September 1981 Flug met with plaintiff's representatives, its president Tan Kim Wah and one Teik Kim Lau, and offered them a termination agreement, the terms of which would provide that CBI would reimburse plaintiff its $ 100,000 franchise fee, its past losses, and its anticipated wind down expenses, in exchange for the termination of the Franchise Agreement. Plaintiff initially accepted this proposal add the total figure agreed upon was $ 625,000. However, the next day, when the parties met to execute the agreement, plaintiff informed Flug that it would like to include in the written contract a provision that in the event Carte Blanche determined to use the Carte Blanche trademark in international territories in the future, plaintiff would be given a right of first refusal with respect to the right to use the mark (Tr. 184). Flug rejected this demand, and plaintiff then refused to accept the termination agreement.

 Shortly after the above-described meeting, plaintiff wrote a letter to John W. Heilshorn, the Executive Vice-President of Citibank, concerning its meeting with Flug. In this letter, plaintiff stated that it understood that "Carte Blanche has no definite plans in their world operation in the near future and wishes to terminate all international Franchises", but that plaintiff "prefers to live and die with Carte Blanche". This letter was referred by Citibank to Flug. Flug testified that he perceived this letter as an attempt to do an "end run" around him, and he responded to it by advising plaintiff to reconsider accepting the recision agreement which had been proposed before plaintiff suggested the right of first refusal. Plaintiff declined so to do. In November 1981 plaintiff and CBI did mutually agree, however, to modify the Franchise Agreement to reflect the fact that in light of the decision to wind-down the Carte Blanche business worldwide, plaintiff was now offering its customers an essentially local card. *fn2"

 CBI continued to wind down its operations, and by 1984 its only remaining business was to service plaintiff's franchise. By then, CBI's assets had diminished to zero, it had no offices of its own, it did not keep separate financial records, and its only remaining employee was Flug, who, as previously noted, was also an officer of another subdivision of the parent company, which was now Diners. *fn3" Flug testified that the services that were being delivered to plaintiff during this period consisted primarily of the clerical task of occasionally supplying it with plastic credit cards and forms. To keep down expenses these tasks were performed by two Diners personnel (Tr. 303, 309, 332).

 In December 1984 a finance company known as MBf acquired a 50% interest in plaintiff and took control of its business. When CBI learned of this acquisition, Flug informed plaintiff that he believed this transfer of ownership, without CBI's consent, violated certain provisions of the Franchise Agreement and he placed plaintiff under formal notice of default. Thereafter Flug met with counsel for plaintiff to inquire whether or not MBf had been informed of CBI's wind down status. At this meeting very little substantive information was exchanged and Flug requested that a meeting with plaintiff's principals be arranged, which meeting was ultimately scheduled for April 15.

 Three events had occurred prior to the April 15 meeting. First, on or about March 1 the Franchise Agreement between plaintiff and CBI had been renewed. Second, on March 12 plaintiff notified CBI that it would like to be assigned 14-digit account numbers for its cards, a service which would permit plaintiff to gain access to a CAT system or computer authorization terminal which would speed up credit authorization for its cardmembers. Upon receipt of this request, Flug directed the personnel handling services to plaintiff to put on hold this, and any other "new" request. *fn4" Third, on or about April 10, plaintiff forwarded to CBI a book, which plaintiff characterized as an "Agenda", listing numerous additional operational demands and complaints which it would like to discuss at the April 15 meeting. This book included such requests as worldwide advertising for plaintiff's card and international warning bulletins concerning lost or stolen cards, as well as other services which had been made available to the remaining Carte Blanche cardholders in the United States in the period after the 1982 merger of Carte Blanche and Diners.

 On April 15, Flug met with plaintiff's principals, who now consisted of Dato Loy, the Chief Executive Officer of MBf, and Khoo Soo Peng, plaintiff's chief general manager who was also an MBf employee. Neither Tan Kim Wah nor Teik Kim Lau, the persons Flug had previously dealt with as plaintiff's representatives, attended. At the meeting Flug took the position that CBI was not willing to discuss plaintiff's operational requests until the issue concerning the propriety of the transfer of plaintiff's shares to MBf was cleared up. The meeting terminated abruptly without any matters of substance being discussed.

 Thereafter both parties filed demands for arbitration. As previously stated, defendant claimed that the acquisition of plaintiff by MBf constituted a breach of the Franchise Agreement, and plaintiff countered that CBI had breached the agreement by reducing essential services. On October 5, 1985 the matter was admitted to arbitration, and by Interim Award dated February 18, 1987, the arbitrators found for plaintiff on both claims. More particularly, the arbitrators concluded that CBI had breached the Franchise Agreement on April 15, 1985 and ordered it to pay plaintiff $ 8,993,638.20, plus interest, in damages. This award was confirmed, except for the rate of interest on post-judgment amounts due, by order of this Court dated April 8, 1988. See Carte Blanche (Singapore) PTE, Ltd. v. Carte Blanche Int'l, Ltd. (S.D.N.Y. 1988 (PKL)) 683 F.Supp. 945, aff'd, (2d Cir. 1989) 888 F.2d 260.

 On April 19, 1988, plaintiff commenced this action. As previously stated, on March 5, 1991 Judge Leisure issued his opinion granting in part and denying in part the parties' cross-motions for summary judgment. See Carte Blanche (Singapore) PTE., Ltd., v. Diner's ...


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