CHARLES S. MILLER, Jr., Magistrate Judge.
Before the court is Gaffaney's of Williston, Inc., Paul Weyrauch, and Gaffaney's Properties, LLP's motion for summary judgment. (Docket No. 40). Unless otherwise indicated, the following facts are undisputed, have not been sufficiently controverted, or are construed most favorably for defendant Faison Office Products, Inc.
In 2012, Faison Office Products, Inc. ("Faison") agreed to buy various business assets from Gaffaney's of Williston, Inc. ("GW"). The current motion focuses upon four documents executed to effectuate this transfer: (1) the Asset Purchase Agreement between Faison and GW ("Purchase Agreement"); (2) the Promissory Note given by Faison to GW; (3) the Lease between Faison and Gaffaney's Properties, LLP ("GP"); and (4) the Employment Agreement between Faison and Paul Weyrauch ("Weyrauch").
Under the Purchase Agreement dated December 31, 2012, Faison, among other assets, purchased the right to use the "Gaffaney's of Williston" business name and a Radio Shack franchise. Prior to closing the Purchase Agreement, Weyrauch, who served as CEO of GW, reached out to corporate Radio Shack indicating GW's desire to transfer the franchise. On or about December 11, 2012, Radio Shack emailed GW a transfer package that it required be completed prior to transferring the franchise. After closing the Purchase Agreement, GW forwarded this package to Faison on February 25, 2013. According to Faison, the package included numerous requirements that it deemed objectionable, including a requirement that the principals of Faison execute personal guaranties. Faison did not complete the package and, in December 2013, Radio Shack terminated the franchise.
In conjunction with the Purchase Agreement, Faison executed a Promissory Note in the amount of $950,000. Under the note, Faison's failure to pay the amount periodically due entitled GW to accelerate payment, with the outstanding balance becoming immediately payable.
Faison also executed a lease between itself and GP, under which Faison leased the building GW previously occupied in Williston. GP is a corporate entity distinct from GW, but, according to Faison, GW and GP have a largely common set of ownership and management. The Lease required Faison to pay the utilities used by Faison, including trash and garbage collection, during the course of Faison's occupation of the leased building.
Additionally, Weyrauch agreed to join Faison as Manager of Service and Maintenance. An Employment Agreement established the parameters of Weyrauch's employment. As is pertinent in the motion before the court, the Employment Agreement restricted the types of agreements into which Weyrauch could enter on Faison's behalf, providing "[Weyrauch] shall not financially bind [Faison] in any respect, without prior written approval of the Chief Executive Officer of [Faison]."
On July 7, 2013, a catastrophic fire destroyed the Williston building Faison leased from GP. By mutual agreement, Faison and GP terminated the Lease on July 8, 2013. The City of Williston removed debris created by the fire, depositing the debris in the city landfill. The City assessed disposal charges of $19,180.40. According to Faison, Weyrauch informed various city officials Faison was responsible for the charges. In September 2015, the City began threatening litigation against Faison in order to collect the disposal charges. According to Faison, it felt compelled to pay the disposal costs so as to preserve its goodwill with the City because the City was an important client, which it did in the amount of $20,602.03.
On December 2, 2015, GW initiated this action against Faison for breach of contract under the Promissory Note, unjust enrichment, and promissory estoppel. (Docket No. 1). As of the time of filing, $335,578.21 remained outstanding under the Promissory Note. After commencement of this suit, Faison paid the amount accelerated under the Promissory Note, leaving $20,602.03, the amount of the disposal charges, left unpaid under the Promissory Note In its amended answer, Faison alleged it had a right to offset the $20,602.03 from the amount due under the Promissory Note. (Docket No. 24). Faison also filed counterclaims against GW, alleging equitable indemnity and unjust enrichment relating to Faison's payment of the disposal charges and breach of contract under the Purchase Agreement for GW's alleged failure to facilitate the Radio Shack franchise transfer. Faison also included a different breach of contract claim under the Purchase Agreement for GW allegedly accepting payments from Faison's customers after execution of the Purchase Agreement. In addition to these counterclaims against GW, Faison included Weyrauch and GP as third-party defendants, claiming equitable indemnity against GP regarding the disposal charges and breach of contract against Weyrauch for allegedly violating the Employment Agreement.
GW, Weyrauch, and GP argue they are entitled to summary judgment as to each of their respective claims against Faison and are entitled to the same as to most of Faison's claims and counterclaims. GW does not argue it is entitled to summary judgment on Faison's breach of contract counterclaim for GW's alleged receipt of payments from Faison's customers after execution of the Purchase Agreement.
GW argues it is entitled to summary judgment on its breach of contract claim because Faison did not pay the full amount due under the Promissory Note. Faison argues it did not breach the Promissory Note because it had the right to offset the debris disposal charges from the amount owed under the Promissory Note.
"A setoff or offset `allows parties that owe mutual debts to each other to assert amounts owed, subtract one from the other, and pay only the balance.'"
GW argues that Faison had no right of offset because it did not owe Faison anything for Faison having paid the debris disposal charge to the City. According to GW, if Faison was not responsible for the disposal charge under the Lease, the only other entity that could be responsible was GP, which GW contends is a separate entity.
While it is questionable whether any liability of GW to Faison with respect to the disposal charges could be a legal basis for refusing to pay on the promissory note,
Given the failure of Faison to establish any basis for GW's liability to it with respect to the debris disposal charges, there was no mutuality of debt between the parties that provided a basis for the claimed setoff. Consequently, GW is entitled to summary judgment with respect to Faison's liability on the Promissory Note, but what remains to be calculated when it comes time to enter final judgment is the final amount owed after adding accrued interest.
GW also argues it is entitled to summary judgment as to Faison's equitable indemnity and unjust enrichment counterclaims because those claims are again directed at the wrong party. Equitable indemnity "is a remedy which permits a party to recover reimbursement from another for the discharge of a liability that, as between the two parties, should have been discharged by the other."
As already noted, Faison has failed to come forward with any submissible evidence that GW was ever responsible for the debris disposal charges. Absent that, there is no basis for a claim that Faison discharged a liability that should have been paid by GW or that GW suffered any enrichment by Faison's payment of the disposal charges. Hence, GW is entitled to a summary judgment of dismissal of Faison's claims of equitable indemnity and unjust enrichment.
GW argues it is entitled to summary judgment as to Faison's breach of contract counterclaim regarding the Radio Shack franchise.
In assessing whether Faison has a possible claim for breach of the Purchase Agreement for failing to have effectuated a transfer of the Radio Shake franchise, the court starts, as it must, with the Agreement itself. Unfortunately, neither party has submitted to the court a complete copy. Missing are the schedules and other exhibits that may relevant for reasons that will be addressed in a moment.
Working only from the portion of the Agreement that has been submitted by GW, one plausible reading (although, perhaps, not the only one) is that it contemplated that the Radio Shack franchise was a readily transferable asset that did not require Faison, or its principals, to incur liabilities, except, perhaps, what might be in any existing franchise agreement between GW and Radio Shack.
GW also argues that Faison's breach of contract counterclaim must fail because it has not proffered evidence of actual damage. In support, GW cites
While GW's motion for summary judgment of dismissal of Faison's claim for breach of the Purchase Agreement as it relates to the Radio Shack franchise will be denied, the court remains skeptical of the claim as well as Faison's ability to prove the damages it is claiming.
GP argues it is entitled to summary judgment as to Faison's equitable indemnity claim because the Lease between GP and Faison required Faison to pay the disposal costs. Faison disagrees contending, among other things, that the Lease did not require it to pay the disposal costs. The Lease provision in question reads, in relevant part, as follows:
Under North Dakota law:
Faison argues the Lease obligated it to pay utilities of the same kind and character as those listed in the utilities clause, which are typical of those used by commercial tenants, and not, in this instance, the extraordinary cost of removing debris resulting from the destruction of the leased premises. The court agrees. Trash, garbage, and recyclable collection under plain and reasonable meanings are not synonymous with building debris resulting from the destruction of the leased premises. Further, with GP being obligated under the Lease to make available the leased premises, it would be unreasonable to conclude that Faison used the City's debris removal within the meaning of the utilities clause.
Because the Lease did not obligate Faison to pay the disposal costs, it does not provide GP with a defense to Faison's equitable indemnity claim. Consequently, the court will deny GP's request for dismissal of that claim.
Weyrauch argues he is entitled to summary judgment regarding Faison's breach of contract claim under the Employment Agreement. The Employment Agreement provides Weyrauch "shall not financially bind [Faison] in any respect, without the prior written approval" of Faison's CEO.
Weyrauch argues any communication he may have had with the City of Williston did not bind Faison to pay the disposal charges, meaning he did not violate the Employment Agreement. In North Dakota, contractual obligations may arise explicitly or implicitly. N.D.C.C. § 9-06-01 (stating a "contract is either express or implied."). Without an explicit contract with the City obligating Faison to pay the disposal fees, any contract binding Faison must have arisen through implication. Under North Dakota law, "implied contracts are based on the surrounding facts and circumstances to determine whether or not the parties actually intended to enter into a contract but failed to articulate their promises."
Here, there is some evidence that Weyrauch advised the City that Faison would be responsible for the debris removal costs. At this point, the court is not prepared to conclude that Faison has no claim against Weyrauch. Consequently, the court will deny Weyrauch's request for dismissal of Faison's breach of the Employment Agreement claim.
In its brief in support of its motion for summary judgment, GW argues it is entitled to attorney's fees in enforcing the terms of the Promissory Note. The Promissory Note provides: "In the event that [GW] or any subsequent holder utilizes the services of an attorney to collect any past due amounts under this Note, [Faison] agrees to pay the reasonable fees and expenses actually incurred by [GW] or such subsequent holder in connection with such efforts." The note also provides, however, that it "shall be governed by and construed in accordance with the laws of the State of North Dakota."
Under North Dakota law, most attorney's fees provisions in debt instruments are void. Specifically:
After Faison pointed out the invalidity of the attorney's fee provision in the Promissory Note, GW made no effort to argue the Promissory Note did not in this instance qualify as one of the debt instruments referenced in N.D.C.C. § 28-26-04, probably because there is no argument to be made.
The problem for this argument is twofold. First, GW's motion for summary judgment clearly only sought recovery for the unpaid amounts based on a breach of the Promissory Note. Second, and more fundamentally, this appears to be because GW never pled in its complaint a claim for breach of the Purchase Agreement as it relates to the failure of Faison to pay all amounts due under the Promissory Note.
GW's request for attorney's fees in connection with it claim for breach of the Promissory Note is
Based on the forgoing, the
Another provision of the Purchase Agreement that may be relevant is paragraph 3(h). In that paragraph, GW (1) represented that the only consents and approvals required for its performance of the Agreement were those spelled out in Schedule 3(h), and (2) agreed that it would secure the listed approvals and consents "by Closing unless otherwise waived by Buyer." Schedule 3(h) has also not be provided to the court. If the Radio Shack franchise was not listed in Schedule 3(h), that may tend to support Faison's claim for breach of contract. But, even if it was listed, there remains the question of what "consent" was contemplated. That is, whether it was consent to an assignment or transfer of any then existing franchise agreement between GW and Radio Shack with no materially new obligations and GW taking the risk that Radio Shack might not agree or whether it was simply consent to a transfer by Radio Shack of the franchise subject to any terms and conditions that might impose with Faison taking the risk of any new terms or conditions it might find objectionable. Schedule 3(h) might shed some light on that question.
Further, there may be a good reason why GW never pled a breach of the Purchase Agreement. While the court need not make any final decision now, the operative language in that portion of the Purchase Agreement that GW has provided arguably required only that Faison pay the purchase price for the acquired assets at the time of closing, which it did in part by paying cash and in part by executing several promissory notes. Noticeably absent is any language stating that the obligation to pay the purchase price under the Purchase Agreement extended beyond the date of closing or that a breach of the promissory notes would constitute a breach of Purchase Agreement. In addition, what also may be telling is GW's failure in its reply brief to point to any particular provision of the Purchase Agreement that it claims was breached along with an explanation for why that created an obligation to pay the purchase price that continued after the closing date.
