GNGATL assumed the obligation under the Turnkey Options. Id. at 9.
It is stretching beyond reason to believe that the phrase "other obligations" refers to anything other than the standard duties of any franchisor as described in the basic franchise or license agreement. There is not one word in the CHO/GNGATL agreement alluding to the "Turnkey Option." GNGATL pointedly notes that "it would have made no sense for Atlantic to pay $ 350,000 for contracts and to still have to acquire land and construct centers at its own cost." Id. at P 8. It defies common sense to believe that RSQ would have assumed such a responsibility without any description of the number of franchises which had this option, the physical status of each franchise and numerous other related financial questions.
Similarly, the June 16, 1989, letter only states that GNGATL would be responsible to provide franchisees with the "services and materials" as stated in the license agreements and that royalty and advertising fees were now to be paid to GNGATL. GNGATL Exh. 14. This letter makes no reference to the Turnkey Options or construction of a lube center by GNGATL.
But, even assuming that somehow the phrase "other obligations" could be viewed as ambiguous, the surrounding facts and circumstances establish unequivocally that GNGATL did not assume any obligations under the Turnkey Options. GNGATL submitted an affidavit from Mr. Robert M. Goolrick, Vice President of GNGATL who negotiated the sale between GNGINT and GNGATL. Def's. Mem. Supp. at Exh. 20. In his affidavit, Goolrick states that GNGATL was told that the contracts it had purchased were all in "standard form" like the ones signed by RSQ with GNG, which did not contain a Turnkey Option. Goolrick Aff. at P 4. Goolrick also states that GNGATL had no knowledge of any Turnkey Option until this suit was filed. Id. at P 4. Because of "tensions" between Reid and GNG, GNGATL was given little opportunity to review the "actual" franchise contracts that GNGATL purchased, but in any case, none of the agreements that were reviewed contained a Turnkey Option. Id. at P 5.
Plaintiffs' response to GNGATL's assertion that they only intended to assume standard form license agreements and Goolrick's account of what occurred is that it is "entirely unconvincing." Pl's. Mem. Opp'n at 9. To the contrary, it is hard to give plaintiffs' position any weight given the fact that discovery has already been completed, and plaintiffs have yet to offer one shred of either direct or circumstantial evidence which would justify a court or jury disbelieving Goolrick's account of what occurred. The undisputed facts that a Turnkey Option was not contained in any of RSQ's license agreements with GNG, that RSQ had constructed at least seven Grease 'N Go centers from its own funds and that RSQ never sought to avail itself of the Turnkey Building Lease Program constitutes compelling circumstantial evidence supporting Goolrick's account that GNGATL had no knowledge of any Turnkey Option. But, even if one were to ignore Goolrick's account, plaintiffs have pointed to no specific fact which would indicate that there is a genuine issue for trial. A conclusory attack on Goolrick's credibility is insufficient to defeat a motion for summary judgment on an issue as to which plaintiffs bear the burden of proof.
As a matter of law, the contract imposes no liability on GNGATL in connection with the Turnkey Options. The agreement between GNGATL and CHO executed on June 15, 1989, provides that GNGATL will "not assume, and shall not be responsible for any claim of default or breach by Licensor of the License Agreements occurring prior to the date hereof... ." Def's. Mem. Supp. at Exh. 12. The language of the agreement is clear and unambiguous, and is only susceptible to one reasonable interpretation, i.e., that GNGATL did not assume responsibility for prior defaults under the Turnkey Options.
A party may properly seek summary judgment on breach of contract claims when the language of the contract is unambiguous. 35B C.J.S. Federal Civil Procedure § 1166 (1960). In a contract dispute a motion for summary judgment may be granted only where the agreement's language is unambiguous and conveys a definite meaning. Sayers v. Rochester Telephone Corp., 7 F.3d 1091, 1094 (2d Cir. 1993); Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992); Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985). When the language of the contract is clear, summary judgment is appropriate, and the fact that one party may have a different interpretation of the language does not make it any less plain. Harris Trust and Savings Co. v. John Hancock Mutual Life Ins. Co., 970 F.2d 1138, 1147 (2d Cir. 1992); Investors Ins. Co. v. Dorinco Reins. Co., 917 F.2d 100, 104 (2d Cir. 1990). The proper interpretation of a contract is a question of law for the court. Harris Trust, supra, 970 F.2d at 1148; Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989). Contract language is ambiguous only if it is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Sayers, supra, 7 F.3d at 1095 (citing Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir. 1987)). There is no ambiguity in a contract when the language has a "definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion." Sayers, supra, 7 F.3d at 1095 (citing Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 355, 385 N.E.2d 1280, 1282, 413 N.Y.S.2d 352, 355 (1978)). Accord Seiden, supra, 959 F.2d at 428; Metropolitan Life Ins. Co. v. RJR Nabisco, 906 F.2d 884, 889 (2d Cir. 1990).
In an affidavit submitted by Richard Appio, Vice President of ADM, Appio stated that he had repeated contact with Denise Dewey, Director of Franchise Operations, for GNG. Appio Aff. at P 6. Appio stated that "during these calls we discussed the performance, or lack of performance by Grease 'N Go. These calls continued through October of 1988, when we began seeking the return of our franchise fee." Id. at P 6. This statement constitutes strong evidence that ADM was claiming a breach of its agreement as early as October 1988, well before GNGATL entered into its agreement with CHO. Thus, at the time when GNGATL acquired the license agreements the obligation to perform the Turnkey Options had already been breached. In the case of plaintiffs K&L, they were asked by defendants' interrogatory #2 to identify any acts taken to recover any monies paid for the K&L license agreement, plaintiffs replied that they "could not recall what acts were taken to recover monies paid other than commencement of this action." Pl's. Exh. B. The clear implication was that a breach had already occurred.
Although the Turnkey Options attached to plaintiffs' license agreements do not specify a date by which plaintiffs had to exercise their options, K&L entered into its alleged turnkey agreement with GNG on December 1, 1987; Doyle entered into its agreement with GNG on January 11, 1988 and ADM entered into its agreement with GNG on January 29, 1988, GNGATL, on the other hand, entered into its agreement with CHO on June 15, 1989, approximately one and one-half years after the plaintiffs' agreements were entered into with GNG. If plaintiffs did not exercise their Turnkey Options during this eighteen month period, -- a highly unlikely eventuality -- then their claim is barred as untimely since no demand was ever made. As is more likely the case, during this period plaintiffs sought unsuccessfully to have GNG either fulfill their commitment or return their money, then the breach predated GNGATL's agreement with CHO and under the explicit language of the agreement, GNGATL is not responsible for the past breaches.
B. Plaintiffs' Claim that their License Agreements with GNG Violated the New York State General Business Law
Plaintiffs' fourth cause of action alleges that they are entitled to damages and rescission because their respective license agreements with GNG violated New York State law. Plaintiffs argue that GNG was not in compliance with New York General Business Law § 683 and § 687 and are entitled to rescission and damages under § 691. Pl's. Mem. Opp'n at 12. Plaintiffs have submitted two letters from the State of New York Department of Law as evidence that GNG had not complied with certain franchise registration requirements when their respective agreements were entered into. Id. at Exh. F.
GNGATL's summary judgment motion on this cause of action should be granted because plaintiffs have failed to allege a genuine issue of material fact to be tried. Under § 691 (1) civil remedies are only available against a "person who offers or sells a franchise in violation" of § 683, § 684 or § 687. Under § 691 (3) civil remedies are only available against a person who "directly or indirectly controls a person liable under this article...." In the present matter, GNG, not GNGATL, sold the franchises. Moreover, GNGATL could not have controlled GNG when plaintiffs bought their franchises, because GNGATL was not even existence at the that time. Thus, GNGATL cannot be held liable under § 691. Moreover, it is clear from the language of the GNGATL and CHO agreement executed on June 15, 1989, that GNGATL did not assume liability for any claims of rescission or damages as a result of the execution or procurement of the license agreements issued by GNG. Accordingly, GNGATL's motion for summary judgment on plaintiffs' fourth cause of action is granted.
C. Plaintiffs' Fraudulent Conveyance Claims
In their fifth through seventh causes of action plaintiffs allege that they were harmed by a series of fraudulent conveyances between or among GNG, GNGINT, and GNGATL. To say that the pleading is confusing is an understatement. It is not altogether clear whether the complaint is alleging a cause of action for fraud or a violation of New York State Debtor and Creditor Law ("DCL"), but a close reading makes it appear that -- whatever their legal theory is -- all three causes of action against defendant GNGATL rest on two propositions:
First, GNGATL was a party to or had knowledge of a scheme to divest GNG of its assets; the negotiations and conveyances between GNGINT and GNGATL were part of this scheme; and GNGATL acted with the intent to "hinder, delay or defraud either present or future creditors" of GNG and GNGINT, including the plaintiffs. Compl. P 46. Alternatively, even if GNGATL was not a party to the scheme, GNGATL had actual or constructive notice of it.
Second, the transaction between GNGINT and GNGATL was made for less than fair consideration.
Discovery has been completed, and it is clear that plaintiffs have presented insufficient evidence to create a trial issue for either proposition. In addition, the plaintiffs lack standing to bring these claims and their claims are barred as a matter of law.
Turning first to plaintiffs' claim that GNGATL was either a party to a scheme to defraud GNG's creditors by stripping it of its assets or had actual or constructive notice that these transactions were fraudulent, GNGATL asserts convincingly that neither it, Reid nor Goolrick had any interest in CHO (later GNGINT). Plaintiffs have offered no evidence to contradict this lack of commonality of ownership.
Nevertheless, plaintiffs attempt to create an issue of fact by asserting that Reid's statements that the GNGINT/GNGATL transaction was conducted at arms length and that he had no knowledge of GNG'S business dealings between February 1988 and June 1989 are contradicted by "statements" contained in his affidavit. Pl's. Mem. Opp'n at 20. Plaintiffs point to statements in Reid's affidavit in which Reid admits that he was provided with the minutes of the February 1988 directors' meeting, participated in an August 1988 meeting with a GNG officer, knew GNG assets were being sold and was sent a copy of the GNG/CHO (GNGINT) agreement. Id. at 20. However, Reid's affidavit states that he was notified of the proposed, but ultimately unsuccessful, sale of GNG to ASI in early 1988, and this occurred only because, as a stockholder, he was curious why GNG increased its shares of outstanding stock. As a result of his inquiry, he was provided with the minutes from a February 1988 directors' meeting and participated in an August 1988 meeting, again only because GNG requested that he sell his shares of stock. Reid Aff. at PP 12-15. Plaintiffs have submitted no evidence that Reid's statements are in any way inaccurate.
Plaintiffs also rely on an October 1, 1987, letter from Reid to GNG's franchisees announcing that he had been appointed to GNG's board of directors, that the Wallace Group, a company owned by Reid, had purchased a 10% interest in GNG, that Wallace Securities Corporation would underwrite GNG and finance several of its projects, and that Goolrick had been appointed a Director of GNG. Pl's. Mem. Opp'n at 18. At an examination before trial, Reid stated that none of the things stated in the October 1, 1987, letter were ever done because GNG's officers were "less that truthful" to him. Id. at Exh. I, p. 13-14. Again, plaintiffs have submitted no evidence to contradict this assertion and, in particular, to show that Reid ever attended a GNG directors' meeting. Plaintiffs' only response is to assert that the franchisees were never notified of the failure of these agreements to be executed. Presumably, from this thin reed, a jury could infer that GNGATL was a party to GNG's fraud. Id. at 19.
Plaintiffs next assert that Reid was aware of GNG'S financial distress, that GNG could not meet its financial obligations and the details of the conveyance to CHO. Id. at 20. To support the claim that Reid knew that GNG was in "financial distress," plaintiffs point to the fact that in October 1987, he loaned them money to meet payroll expenses. But it is hard to believe that Reid would have loaned GNG money if he thought it was on the verge of bankruptcy. Also, plaintiffs claim that at an examination before trial, Reid stated that at some point he was aware that GNG was bankrupt or going into bankruptcy and trying to "sell off" the company. Id. at 19. However, his affidavit is not clear at what point in time he obtained this knowledge, see id. at Exh. I, p. 20, and the point was not pursued.
At this point plaintiffs' conjectures, while appropriate at the beginning of this lawsuit, are insufficient to withstand a motion for summary judgment after discovery has concluded and on an issue on which plaintiffs bear the burden of proof. Plaintiffs have failed to offer any substantial evidence that GNGATL or anyone associated with it had actual knowledge of GNG's machinations, let alone that the GNGINT/GNGATL transaction was part of a scheme to strip GNG of its assets or its creditors. Moreover, when fair consideration has been paid, constructive knowledge alone is not sufficient for a fraud claim or any claim under New York's Debtor and Creditor Law and, even if it were, plaintiffs have not shown that GNGATL should have been aware of GNG's desperate financial condition. Plaintiffs have failed to raise a triable issue that GNGATL participated or had knowledge of GNG's fraudulent scheme.
Plaintiffs' second claim is that the transactions between GNGINT and GNGATL were made for less than fair consideration and presumably violated DCL §§ 273 and 274. In support of this claim, plaintiffs argue that despite the fact that GNGATL was unable to determine the precise number of franchise rights that were transferred to it, taking its "shortest list" which it could verify -- 113 -- the consideration for these franchises should have been approximately $ 2.825 million - far less than the consideration paid by GNGATL to GNGINT. Id. at 16. Here, too, plaintiffs' evidence is insufficient to create a material issue of fact that GNGATL did not give fair consideration.
New York State DCL § 272 defines fair consideration as given for property, or an obligation:
a. When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or
b. When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained
In the transaction in question, GNGATL paid GNGINT $ 350,000, gave it 5,000 shares of GNG stock and released the remaining balance of the GNG note that was owed to Reid in return for the franchise rights in the eastern United States. Under the plain language of § 272, plaintiffs have submitted no evidence that GNGATL did not give fair consideration for these franchise rights. The burden of proving both insolvency of GNG and the lack of fair consideration is upon the party challenging the conveyance, and the determination of insolvency or what constitutes fair consideration is generally one of fact to be determined under the circumstances of the particular case. American Investment Bank, N.A. v. Marine Midland Bank, N.A., 191 A.D.2d 690, 691, 595 N.Y.S.2d 537, 538 (2d Dep't 1993).
On the issue of no fair consideration, plaintiffs' yardstick for measuring what would be fair consideration is completely inappropriate because the initial franchise fee of $ 25,000 was paid to GNG from the franchisees, all GNGATL purchased was the right to royalty fees.
There is no claim that GNGATL received any of the $ 25,000 franchise fee monies. Thus, plaintiffs would apply a completely unrealistic standard to determine what should constitute fair consideration in the GNGATL/GNGINT transaction. There is also no showing that the future franchise fees were worth more than GNGATL paid. Moreover, in light of the fact that GNGATL paid $ 350,000, gave up 5,000 of GNG stock and discharged the balance of the notes that GNG still owed to it, it appears that GNGATL at best made a bad investment and at worst was a victim of a fraudulent scheme, as were the plaintiffs.
Plaintiffs also allege that GNGATL entered into the transaction with GNGINT with bad faith and had notice that the transaction would leave GNGINT insolvent. When a transferee has given equivalent value in exchange for the debtors property the statutory requirement of good faith is satisfied if the transferee acted without either actual or constructive knowledge of any fraudulent scheme. HBE Leasing Corp. v. Frank, 48 F.3d 623, 636 (2d Cir. 1995). As noted earlier, plaintiffs submit no credible evidence to refute GNGATL'S claim that it did not know any members of GNGINT prior to the sale or that it had knowledge, constructive or actual, that this transaction would render GNGINT insolvent. Plaintiffs only submit evidence that GNGATL had some involvement with members of GNG, but offer no evidence that GNGATL had any knowledge of GNGINT's financial situation. If anything, the $ 350,000 and 5,000 shares of GNG stock that GNGINT received left them in a better position to satisfy their debts. At most, Reid knew that GNG was having financial difficulties, but this is not evidence that GNGATL knew GNGINT was insolvent or that its transaction with GNGINT had rendered it insolvent. Indeed, GNGINT's bankruptcy petition was filed several years after the transaction.
Plaintiffs' evidence is insufficient to create a material issue of fact that GNGATL did not give fair consideration.
Nevertheless, assuming that all of the plaintiffs' contentions raise factual issues for a jury, plaintiffs' claims are still barred as they have no standing to bring these claims as a matter of law. GNG and GNGINT are in bankruptcy. If there is any merit to any of plaintiffs' fraudulent conveyance claims against GNGATL, the claims belong to the trustees of these two bankrupt corporations unless plaintiffs have been properly authorized by the bankruptcy court to bring these claims. See In re Chemical Separations Corp., 32 Bankr. 816, 819 (Bankr. E.D. Tenn. 1983); Matter of Joyanna Holitogs, Inc., 21 Bankr. 323, 325 (Bankr. S.D.N.Y. 1982); Liberal Market, Inc. v. Malone & Hyde, Inc., 14 Bankr. 685, 689-90 (Bankr. S.D. Ohio 1981); In re Monsour Medical Center, 5 Bankr. 715, 717 (Bankr. W.D. Penn. 1980). Plaintiffs have made no such allegation or offered any proof to that effect. Moreover, under New York law, to recover under the DCL and attack a transaction as being fraudulent, plaintiffs must first establish that they occupy the status of creditor. 30 N.Y. Jur. 2d Creditor's Rights and Remedies § 338 (1983). Plaintiffs have put forth no evidence to establish that they are entitled, by assignment or any other document, to bring this action and obtain preference over any other creditor of GNG or GNGINT.
Accordingly, defendant GNGATL's motion for summary judgment on the fifth through seventh causes of action is granted as well.
For the reasons set forth above, Grease 'N Go Atlantic, Inc.'s motion for summary judgment is granted on all claims. Inasmuch as defendants Grease 'N Go, Inc. and Grease 'N Go International, Inc., a/k/a Channel One, Inc., have filed for bankruptcy, and the individual defendants have either filed for bankruptcy, have never been served and/or are not locatable, it is hereby
ORDERED that, pursuant to Rule 54(b) of the Fed. R. Civ. P., there is no just reason for delay, and the Clerk is directed to enter judgment in favor of Grease 'N Go Atlantic, Inc., against all plaintiffs; and it is further
ORDERED that the action is administratively closed pending the disposition of the aforementioned bankruptcy petitions.
Dated: Brooklyn, New York
October 12, 1995
David G. Trager
United States District Judge