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Cumberland Farms, Inc v. Lexico Enterprises

February 16, 2012

CUMBERLAND FARMS, INC.,
PLAINTIFF,
v.
LEXICO ENTERPRISES, INC., AND FRANK KESHTGAR
DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

This case arises out of a business dispute between the Plaintiff Cumberland Farms, Inc. ("Cumberland") and the Defendant Lexico Enterprises, Inc. ("Lexico"). In two previous actions in federal district court, Lexico asserted several claims against Cumberland arising out of a franchise agreement. All of those claims by Lexico were ultimately lost. Cumberland has now brought a separate action to recover reimbursement of attorney's fees and costs that it incurred in the previous actions and has moved for summary judgment.

I. BACKGROUND

Except where noted, the following facts are undisputed.

The Plaintiff Cumberland and the Defendant Lexico were parties to a franchise relationship, in which Cumberland leased to Lexico an Exxon-branded gas station and convenience store located at 2030 Sunrise Highway, Merrick, New York 11566 (the "Merrick Exxon Station"). The parties entered into a relevant lease agreement (the "Lease"), effective August 1, 2006 through July 31, 2009. In addition, Lexico also contracted to purchase from Cumberland all of the supplies necessary to operate the station (the "Supply Agreement"), also effective August 1, 2006 through July 31, 2009.

Both the Lease and the Supply Agreement contained assignability clauses. The agreements provided that if Lexico wished to assign its rights under the franchise agreements, it needed to obtain Cumberland's approval. In addition, paragraph 19 of the Lease provided that Lexico "shall reimburse [Cumberland] for all reasonable costs (including all attorneys' fees) that [Cumberland] incurs in enforcing its rights and remedies under this Lease." (Pl. Ex. 1.) Although Lexico and Cumberland do not deny that this provision was contained in the Lease, they do dispute its meaning.

On April 26, 2006, the Defendant Frank Keshtgar, a principal of Lexico, issued to Cumberland a "Continuing Guaranty" (the "Guaranty"), in which Keshtgar "unconditionally guarantee[d] to [Cumberland] the full payment and performance when due of all Indebtedness", which is further defined in paragraph 1 to mean "all debts and other obligations of [Lexico] to [Cumberland] of any kind." (Pl. Ex. 3.) In addition, as Guarantor, Keshtgar agreed "to pay expenses, including attorney's fees, reasonably incurred by [Cumberland] in efforts to collect or enforce any Indebtedness or this Guaranty." (Id. at ¶ 6.) Once again, although Lexico and Cumberland do not deny that this provision was contained in the Guaranty, they do dispute its meaning.

On March 4, 2008, Lexico contracted to sell its leasehold on the Merrick Exxon Station and its rights under the Supply Agreement to a third-party, WorldCo Petroleum NY Corp. ("WorldCo"). However, as stated above, to consummate this transaction, both the Lease and the Supply Agreement required Cumberland to consent to the transfer. The contracts further provided that this consent was not to be unreasonably withheld.

To assess whether to approve the transfer of the contract rights from Lexico to WorldCo, Cumberland allegedly met with a representative of WorldCo on April 22, 2008. Lexico asserted that, on that date, Cumberland provisionally withheld its consent to transfer the contract rights, because it found WorldCo's representative had insufficient training to successfully operate the business. Lexico claimed that Cumberland then reversed its decision two days later, and notified Lexico on April 24, 2008 of its intent to approve the transfer to WorldCo. However, on April 25, 2008, WorldCo withdrew its purchase offer, allegedly based on its April 22, 2008 meeting with Cumberland.

On June 3, 2008, Lexico filed a lawsuit against Cumberland in the United States District Court for the Eastern District of New York, asserting claims for breach of contract and tortious interference with contract, under Docket No. 08-cv-2221 (the "First Action").

On April 22, 2009, Lexico terminated the Lease and the Supply Agreement pursuant to their terms. A week later on April 29, 2009, Lexico then filed a second lawsuit against Cumberland, which was before this Court under Docket No. 09-cv-0712 (the "Second Action"). Lexico alleged identical facts to those asserted in the First Action, except that it also alleged that it operated the Merrick Exxon Station without profit from April 22, 2008 to April 22, 2009. In addition, Lexico asserted the same causes of action as in the First Action, except that it demanded a lesser amount in damages. Lexico explained that the damages claim in the Second Action did not account for the direct value of the lost sale to WorldCo, but rather reflected other financial losses sustained after Cumberland refused to consent to the sale to WorldCo until the franchise relationship between the parties was mutually terminated.

On February 27, 2010, this Court dismissed the Second Action because the causes of action asserted by Lexico were identical to those asserted in the First Action and thus were duplicative. The case was closed on March 1, 2010.

On July 26, 2010, a jury trial was commenced in the First Action. The court determined at the conclusion of the trial that Lexico had not met its burden of proof with respect to tortious interference with the contract and dismissed the claim. The first count for wrongful withholding of consent was sent to the jury for deliberation, and the jury returned a unanimous verdict in Cumberland's favor - namely, finding that it did not unreasonably withhold consent pursuant to the Lease and Supply Agreements.

On October 12, 2010, Cumberland filed the present action to recover attorneys' fees, costs of suit, and other expenses it incurred to enforce its rights under the franchise agreements - essentially defending the two previous lawsuits brought by Lexico - in the total approximate amount of $344,163.29 (the "Indebtedness"). Cumberland presently asserts two causes of action. First, it alleges liability under the Lease agreement against Lexico, because Lexico has failed to pay any portion of the Indebtedness that Cumberland incurred to enforce its rights under the Lease, specifically "its right to withhold consent to a proposed sale and assignment to a third party when such withholding of consent is reasonable." (Compl. at ¶ 27.) Second, Cumberland alleges liability under the Guaranty against Keshtgar, because in the Guaranty, Kestgar unconditionally guaranteed to be held liable for all unpaid indebtedness of Lexico. (Compl. at ¶ 32.)

II. DISCUSSION

A.Legal Standard for Summary Judgment "Summary judgment is warranted when, after construing the evidence in the light most favorable to the non-moving party and drawing all reasonable inferences in its favor, there is no genuine issue as to any material fact." Guest v. Hansen, 603 F.3d 15, 20 (2d Cir. 2010) (citing Fed. R. Civ. P. 56(c)). The burden of showing that no genuine factual issue exists rests on the moving party. See Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994).

"Interpretation of the terms of a legally binding agreement, such as a contract, are questions of law and therefore appropriate for summary judgment." Interactive Motorsports and Entm't Corp. v. Dolphin Direct Equity Partners, LP, and Race Car Simulation Corp., 419 Fed. App'x 60, 61 (2d Cir. 2011). Summary judgment is appropriate if the terms of the contract are unambiguous. See Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008) ("a motion for summary judgment may be granted in a contract dispute only when the contractual language on which the moving party's case rests is found to be wholly unambiguous and to convey a definite meaning"). Unless the movant can demonstrate that the contractual language is not "susceptible of at least two fairly reasonable meanings" summary judgment will not be granted. See Schering Corp. v. Home Ins. Co., 712 F.2d 4, 9 (2d Cir. 1983). However, summary judgment is appropriate where the language of the contract is clear on its face, even though one party proffers a different interpretation of the contract language. See Harris Trust & Savings Bank v. John Hancock Mut. Life Ins. Co., 970 F.2d 1138, 1147--48 (2d Cir. 1992), cert. denied, 507 U.S. 986, 113 S. Ct. 1585, 123 L. Ed. 2d 151 (1993).

"To the extent the moving party's case hinges on ambiguous contract language, summary judgment may be granted only if the ambiguities may be resolved through extrinsic evidence that is itself capable of only one interpretation, or where there is no extrinsic evidence that would support a ...


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