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CALDOR, INC. v. MATTEL

March 31, 1993

CALDOR, INC., a New York Corporation, Plaintiff,
v.
MATTEL, INC., a Delaware Corporation, Defendant.



The opinion of the court was delivered by: KENNETH CONBOY

 KENNETH CONBOY, DISTRICT JUDGE:

 The plaintiff Caldor, Inc. has brought this action seeking a declaratory judgment delineating the rights and obligations of the parties under a 1975 written Guarantee Agreement, in which Caldor guaranteed to the defendant, Mattel, Inc., the present and future debts of Leisure Line Toys, Inc. ("Leisure Line"), then a subsidiary of Caldor. The defendant has filed a counterclaim seeking damages of approximately $ 2.4 million from Caldor and has moved for summary judgment to enforce the Guarantee. The plaintiff has also moved for summary judgment declaring that the Guarantee is of no force or effect and that Caldor has no liability under the Guarantee to the defendant. For the reasons set forth below, the Court denies the summary judgment motions of both plaintiff Caldor and defendant Mattel.

 Background

 The Guarantee at issue in this litigation arose from the business activities of Leisure Line Toys, Inc., a wholly owned subsidiary of Caldor, formed in April 1973 to conduct a wholesale toy distribution business for Caldor and other retailers. Leisure Line, operated by a Caldor employee named George Forst, purchased toys from various toy manufacturers, including Mattel.

 In 1975, Mattel required Leisure Line to secure a guarantee of its parent, Caldor, with respect to extensions of credit by Mattel to Leisure Line. "Memorandum of Plaintiff Caldor, Inc., in Support of its Motion for Summary Judgment" ("Plaintiff's Memorandum"), May 8, 1992, at 4. The Guarantee Agreement, which was signed by the President of Caldor, states:

 
For and in consideration of the extension of credit by . . . Mattel . . . to Leisure Line . . ., a wholly owned subsidiary of the undersigned, Caldor, Inc., the undersigned hereby unconditionally guarantees the payment of any indebtedness which may at any time and from time to time be owing to Seller by Leisure Line . . . .

 Plaintiff's Notice of Motion, May 8, 1992, Exhibit A. The Guarantee further provided that it "shall continue in full force and effect until such time as Seller shall receive written notice of revocation." Id. A resolution of Caldor's board of directors was annexed to the Guarantee and affirmed the commitment of Caldor:

 
Resolved, that the Officers of this Corporation be and they are hereby authorized to execute and deliver guarantees of the obligations of its wholly owned subsidiary, Leisure Line Toys, Inc.

 Id.

 From 1975 through 1981, Leisure Line continued its operations as a wholly owned subsidiary of Caldor. In 1981, as a result of a corporate merger, Leisure Line was merged into Caldor. From 1981 through 1987, the business of Leisure Line was conducted through and by an operating division of Caldor known as the Leisure Line Division. "Brief in Support of Defendant's Motion for Summary Judgment" ("Defendant's Brief"), May 7, 1992, at 3 (paras. 9-10); Plaintiff's 3(g) Statement, at 3 (paras. 9-10).

 In 1986, Caldor was acquired by The May Department Stores Company, Inc., a public company domiciled in St. Louis, Missouri. In 1987, Caldor divested itself of certain assets not directly related to its retailing business. Among these were the assets used in the operation of the Leisure Line Division, including its contracts, trade name, goodwill, and hard assets. Plaintiff's 3(g) Statement, at 4 (para. 15).

 The acquisition of the Leisure Line Division assets was made by a New Jersey corporation called George Forst Corporation, formed and owned by the former chief executive officer of the Leisure Line Division, George Forst. Forst's employment with Caldor was terminated at that time. Plaintiff's 3(g) Statement, at 4 (para. 15). On October 27, 1987, eight days after the closing of the acquisition, the George Forst Corporation changed its name to Leisure Line Toys, Inc. *fn1" Plaintiff's 3(g) Statement, at 4 (para. 16). From October 1987 through January 1990, when it became insolvent and ceased operations, the new Leisure Line was a company separate from Caldor. Id. at 5 (para. 17); Plaintiff's Memorandum, at 6. *fn2" During this period Caldor and Leisure Line maintained an economic relationship, *fn3" but Caldor doesn't seem to have exercised any control or ownership over Leisure Line after the sale to Forst. Defendant's Brief, at 5-6 (para. 18).

 Leisure Line was not successful on its own. It fell behind in payments due Mattel, and on February 1, 1990, Mattel placed the account up for collection. Defendant's Brief, at 6 (para. 19). On April 27, 1990, Mattel made written demand upon Caldor to honor the Guarantee Agreement and attached an itemized statement showing the amount due, after credits, as $ 2,404,210.05. *fn4" Id. On May 9, 1990, ...


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