Opinion
111719/04.
Decided November 10, 2005.
This is an action for damages against defendants Burger King Corporation (Burger King) and Trinity Capital LLC (Trinity), based on an alleged tortious interference with contract.
In motion sequence 005 and motion sequence 006, respectively, Burger King and Trinity move, pursuant to CPLR 3212, for summary judgment, on the ground that plaintiff has not established a triable issue of fact as to all elements of its tortious interference claims.
Background
Plaintiff brings this action alleging that defendants intentionally induced three of its debtors to breach the loan agreements plaintiff entered into with them.
Plaintiff is the owner-trustee of FL Receivables Trust 2002-A (the FL Trust), which is in the business of financing the purchase and construction of franchisee owned restaurants. Burger King is a worldwide franchisor of fast-food restaurants, which, pursuant to separate franchise agreements, operates in the entire United States through different entities. Some of these entities, collectively referred to as "Beaton/Gilbertson," "Day," and "Shipp/Teater," (the Franchisees) are insolvent franchisees that are currently in bankruptcy. Trinity is a financial restructuring firm that specializes in assisting insolvent franchisees.
According to the complaint, Perry and Carol Beaton, and Todd Gilbertson, through Beaton/Gilbertson, operated Burger King franchised restaurants in Kansas and Iowa. Douglas and Sandra Day, through Day, operated Burger King franchised restaurants in Kansas. Roger Shipp and James Teater, through Shipp/Teater, operated Burger King franchised restaurants in Texas and Missouri.
Pursuant to the terms of their respective franchise agreements with Burger King, Beaton/Gilbertson, Day and Shipp/Teater, were obligated to pay Burger King certain royalties and advertising fees. In September 2002, the FL Trust was assigned promissory notes and related loan documents regarding loans to the Beaton/Gilbertson, Day and Shipp/Teater restaurants. The loan agreements state that breach of the franchise agreements on the part of the Franchisee constitutes a default under the loan agreements.
Each franchise agreement provides that default occurs, among other reasons, for failure to pay royalties or advertising fees when due.
The Franchisees subsequently ran into financial difficulties and ceased paying their royalty payments to Burger King and their loan payments to the FL Trust as they became due. Specifically, Beaton/Gilbertson began missing royalty payments to Burger King in October 2001 and started to default on its loan obligations to the FL Trust on May 29, 2003. Day began missing royalty payments to Burger King in February 2003 and started to default on its loan obligations to the FL Trust on May 29, 2003. Shipp/Teater began missing royalty payments to Burger King in December 2002 and started to default on its loan obligations to the FL Trust on January 1, 2003. It is undisputed that plaintiff and Burger King entered into separate financial workout discussions regarding their mutual debtors Beaton/Gilbertson, Day and Shipp/Teater, but they were not successful.
Burger King sponsored a franchisee financial restructuring program to assist its insolvent franchisees, which included obtaining debt relief from their lenders (the Program). In doing so, on January 22, 2003, Burger King entered into an engagement agreement with Trinity (the Engagement Agreement), whereby Trinity would "advise and assist [Burger King] to implement" the Program. The Engagement Letter provides that Trinity is an "independent contractor with no fiduciary or agency relationship" with Burger King or to any other party. Pursuant to the Engagement Letter, Burger King agreed to pay Trinity's fees for the services Trinity would render directly to the franchisees enrolled in the Program. In February 2003, Trinity provided a package to the Burger King franchisees, including the Franchisees, to introduce itself and the Program. The package included an introductory letter, "Responses to Frequently Asked Questions," and an application/questionnaire. Trinity's introductory letter to each franchisee explained that "[t]he Program will be directed by [Burger King] . . . and administered by Trinity." According to such letter, before a franchisee could be admitted into the Program, a triage analysis had to be completed and Burger King needed to approve its participation in the Program. After a franchisee is accepted into the Program, the franchisee is required to submit detailed financial information to Trinity. Trinity would use the franchisee's financial data to create memoranda and term sheets for distribution to the transaction parties (franchisee, Burger King, lenders). The transaction parties would then negotiate and attempt to agree upon a final workout.
The National Franchise Association endorsed the Program.
According to the complaint, Burger King contracted with Trinity "to assure the flow of an unimpeded stream of royalty payments to [Burger King]." On the other hand, defendants allege that Burger King contracted with Trinity "to assist insolvent franchisees in negotiating a debt restructuring with creditors, including [Burger King]."
Beaton/Gilbertson was in contact with Trinity as early as February 3, 2003. On or about March 1, 2003, Shipp/Teater signed an application/questionnaire and submitted it to Trinity as the first step in the process of participating in the Program.
The Franchisees filled out their applications to the Program, which Trinity used to assess the degree of financial distress and to determine eligibility. In addition, they signed confidentiality agreements that allowed for documents and information to be shared among Trinity, Burger King, and the Franchisees. Pursuant to these agreements, confidential documents and information could be shared also with other creditors, as long as they agreed to keep all documents and information confidential.
Later on in 2003, Trinity recommended Burger King to accept the Franchisees into the Program. As a result, Burger King notified each Franchisee that it was accepted into the Program and that Burger King would partially defer future royalty payments, provided each Franchisee obtained a specified percentage reduction of its current debt service from its other lenders. Specifically, Beaton/Gilbertson was accepted into the Program in September 2003, and Day was accepted into the Program on June 4, 2003. On June 30, 2003, Burger King sent to Shipp/Teater a letter offering to partially defer future royalty payments, but Shipp/Teater never returned an executed copy of the letter to agree with its terms.
Trinity sent to Burger King its "Analysis Recommendation" pertaining to Day on May 28, 2003; its "Analysis Recommendation" pertaining to Shipp/Teater on June 23, 2003; and its analysis pertaining to Beaton/Gilbertson in September 2003.
Although each Franchisee worked closely with Trinity, it also communicated directly and had meetings with its creditors, such as Burger King and the FL Trust. The Franchisees asked the FL Trust to agree to allow them to pay interest only for a six-month period. Separate workout discussions were not successful, as the FL Trust offered to accept interest-only payments for three months in exchange for a forbearance agreement, but each Franchisee refused to sign such an agreement. Subsequently, the Franchisees stopped communicating with the FL Trust and providing timely and accurate financial information to it.
With letter dated March 28, 2003, to the servicer of the FL Trust's loans, Beaton/Gilbertson requested that the FL Trust accept interest-only payments for the following six months, in order to "meet Burger King's demand for royalty payments." With letter postmarked March 27, 2003, Day informed the servicer of the FL Trust's loans that it had issued a permanent stop payment request for the FL Trust loans coming through its loans, and that they were working with Trinity through a Burger King approved restructuring program. Subsequently, at a meeting on June 18, 2003, Day requested that the FL Trust accept interest-only payments for the following six months. Shipp/Teater made the same request at a meeting on July 1, 2003.
Trinity requested to be present at these meeting and the FL Trust denied its request. However, during the Beaton/Gilbertson meeting on June 18, 2003, the FL Trust called Trinity to intercede with Burger King. In addition, on June 19, 2003, Beaton/Gilbertson, the FL Trust, Trinity, and Burger King participated at a conference call to discuss possible workout options.
On or about July 1, 2003, the FL Trust received payment of the interest that had accrued on the Beaton/Gilbertson loans.
Day made interest-only payments to the FL Trust through December 22, 2003, and, on April 8, 2004, it filed for bankruptcy.
On December 15, 2004, in exchange for a payment in the amount of $3,205,000, the FL Trust sold and assigned all of its rights and interests in the Day loans to Burger King. Pursuant to the assignment, the FL Trust
"sells, negotiates, assigns, endorses, transfers, grants, conveys and delivers unto [Burger King] all of FL Trust's right, title, interest and benefit to, in and under the Loans, the Notes and the Loan Documents and all sums payable thereunder, including without limitation, all indebtedness, documents, collateral, security, rights, benefits, indemnities and claim related thereto. . . . FL Trust hereby directs that all payments due and unpaid under the Loans, the Notes and/or the Loan Documents prior to and subsequent to the Effective Date be made directly to [Burger King] and FL Trust agrees to provide notice thereof to each of Debtors upon the request of [Burger King].
Additionally, the assignment states that the FL Trust and Burger King:
"release each other from and against any and all claims, causes of action, liabilities and obligations that either party may have against the other related solely to the Loans and the Debtors through the date thereof, provided however, that such release will not relieve or release either party from its obligations under this Assignment Agreement. Notwithstanding anything herein to the contrary, this Assignment Agreement will not affect, impair or release any claims that [Burger King] and FL Trust may have against each other in cases other than Chapter 11 Cases of the Debtors."
Plaintiff brought this action, as it incurred in excess of $8 million losses on accounts of loans to Beaton/Gilbertson, Day, and Shipp/Teater, and maintains that Burger King, through the conduct of its undisclosed agent, Trinity, intentionally induced the Franchisees to breach such loan agreements. Specifically, plaintiff asserts that defendants' conduct constitute tortious interference with contract, because they used wrongful means to induce the Franchisees to commit the following breaches: (1) defaulting on their debt obligations to plaintiff; (2) impairing plaintiff's collateral without its consent by reducing lease payments unilaterally on properties pledged to the Trust; (3) communicating with plaintiff through Trinity, instead of directly; and (4) refusing to provide timely, complete financial information. According to plaintiff, Burger King and Trinity did so by falsely representing that Trinity was an independent party retained by Burger King to restructure the Franchisees' debt obligations when, in fact, Trinity was Burger King's agent acting solely for the benefit of Burger King to ensure that the Franchisees' lenders received less than full payment of their debt obligations while Burger King continued to receive monies due it under its franchise agreements. Specifically, according to plaintiff, the Burger King/Trinity relationship was not adequately disclosed to the Franchisees, because they were not told that Trinity could be paid more "depending on how many Franchisees it brought into the Program and how small it could keep [Burger King]'s contribution to each work-out." Moreover, plaintiff states that Trinity turned the Franchisees' curable default into a disaster.
In its motion for summary judgment, Burger King asserts that it is entitled to summary judgment as a matter of law, because the prerequisites to a claim for tortious interference with contract cannot be met. Specifically, according to Burger King, it has a contractual interest in the franchisees with which it has allegedly interfered and, thus, plaintiff must prove that the defendants are guilty of an independent tort against the Franchisees (i.e., employed fraudulent or illegal means to induce a breach). Moreover, Burger King maintains that plaintiff did not prove that it caused damages to plaintiff. Finally, Burger King maintains that because Trinity is not its agent, Burger King cannot be held vicariously liable for defendant Trinity's purported interference. Specifically, Burger King states that Trinity was an independent contractor and it disclosed such relationship to the Franchisees. As for the Day loans, Burger King claims that plaintiff lacks standing to assert its claim, given that plaintiff has sold and assigned those loans to Burger King.
In its motion for summary judgment, Trinity alleges that plaintiff's allegation of tortious interference must fail, since the Franchisees were insolvent and in breach of their loan agreements with plaintiff before the Franchisees even entered into the Program and before Trinity was able to provide them any advice. Likewise, Trinity could not have induced Beaton/Gilbertson, Day and Shipp/Teater to breach agreements that were already breached. Thus, Trinity maintains, as a matter of law, defendants could not be the cause of plaintiff's damages, which resulted from the Franchisees' breaching their loan agreements prior to Trinity's assistance. Additionally, Trinity denies being Burger King's undisclosed agent, given that Burger King never authorized Trinity to act on its behalf and that Burger King had no control over how Trinity provided consulting to the Franchisees. As to the Day loans, Trinity asserts that plaintiff's claim must fail, given that plaintiff sold and assigned to Burger King all of the plaintiff's loans and all actions arising from loans made to Day.
In its opposition, plaintiff argues that there is competent evidence of its cause of action and genuine disputes of material facts whereby the summary judgment should be denied.
In the alternative, plaintiff argues that since the defendants refused to provide discovery of material facts exclusively within defendants' knowledge, summary judgment must be denied according to CPLR 3212(f). Plaintiff alleges that there are missing documents, and additional depositions to be completed, regarding the selection and engagement of Trinity. Also, plaintiff requests e-mails generated prior to May 2003 and alleges that Trinity has only provided a limited number of them. Therefore, plaintiff demands full discovery before any decision on summary judgment is approached as to the following issues: (1) agency; (2) misrepresentations about Trinity's independence and neutrality; (3) inducement to breach; (4) causation and injury; and (5) bias and credibility.
Both defendants counter that plaintiff's request for further discovery is not warranted, because they have produced all the relevant documents in their possession and plaintiff failed to explain how any additional discovery would be relevant to the uncontroverted material facts of the case. Furthermore, Burger King points to the inconsistency between plaintiff's needs for discovery and its voluntary inaction in seeking discovery.
Discussion
CPLR 3212(b) states that a motion for summary judgment "should be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party."
Tortious interference with contract requires (1) the existence of a valid contract between the plaintiff and a third party; (2) defendant's knowledge of that contract; (3) defendant's intentional procurement of the third-party's breach without justification; (4) actual breach of the contract; and (5) damages. Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 424 (1996).
In this case, there is no dispute that the FL Trust had valid loan agreements with the Franchisees, that defendants were aware of those contracts and that the Franchisees breached those contracts. The issue is whether defendants showed, as a matter of law, that they did not procure the breaches or that the FL Trust did not suffer damages as a result of the breaches. The Court of Appeals held that "[p]rocuring the breach of a contract in the exercise of equal or superior right is acting with just cause or excuse and is justification for what would otherwise be an actionable wrong. " Felsen v. Sol Cafe Mfg. Corp., 24 NY2d 682, 687 (1969). Specifically, "[e]conomic interest is a defense to an action for tortious interference with a contract unless there is a showing of malice or illegality." Foster v. Churchill, 87 NY2d 744, 750 (1996).
One of the few situations in which a court has found a particular "interest," the protection of which may justify the interference with a contract, is the interest of a creditor to receive full payments from its debtor. Ultramar Energy, Ltd. v. Chase Manhattan Bank, N.A., 179 AD2d 592 (1st Dep't 1992). However, whether conduct which interferes with another's contractual relations is actionable, is determined by reference to a number of factors, including the nature of the conduct itself, the motives of the interfering party and the interests which it acts to protect, the nature of the rights interfered with, the relationship between the parties, and the social interests involved. See Guard-Life Corp. v. Parker Hardware Mfg. Corp., 50 NY2d 183, 190 (1980).
As a preliminary issue, this Court notes that defendants established a prima facie right to summary judgment dismissing the cause of action asserted against them with regard to the Day and the Shipp/Teater loans.
As far as the Day loans are concerned, plaintiff concedes that on or about December 15, 2004, plaintiff conveyed all of its right, title and interest in the Day loans, including all claims related thereto, to Burger King. The FL Trust received value for its assignment. As a result, as assignor, plaintiff no longer has any interest in the Day loans. Superior Brassiere Co. v. Zimetbaum, 214 AD 525, 528 (1st Dep't 1925); see also Commonwealth Land Title Ins. Co. v. Lituchy, 161 AD2d 517, 518 (1st Dep't 1990).
According to the assignment agreement, in releasing each other "from and against any and all claims, causes of action, liabilities and obligations . . . related solely to the Loans . . .," the FL Trust and Burger King expressly preserved all claims that they may have against each other "in cases other than the Chapter 11 Cases of [Day]." Thus, the release applies to the claims (1) relating exclusively to the Day loans, and (2) relating to the Day loans in any foreclosure proceeding against Day. On the other hand, the release does not apply to any other causes of actions that plaintiff and Burger King may have, which are unrelated to the Day loans. It is this Court's view that this action is a claim that is "related solely to the Loans," given that the loan agreement between plaintiff and Day is precisely the contract alleged to be the object of the interference and that the damages that plaintiff is seeking in this action "consist of all amounts still due and owing on the Day notes." Because of this relation, it is apparent that the parties to the assignment agreement intended this action to be a claim to be released. Thus, plaintiff is without standing to bring this action against Burger King.
See affidavit, dated March 24, 2005, of a representative of the servicer of the Franchisees's loans for plaintiff, Mr. Hollis.
Trinity was not part of the assignment, nor is Trinity mentioned anywhere in the assignment. Since the assignment does not reserve to plaintiff any claims against Trinity relating to the Day loans, as a matter of law plaintiff is now barred from maintaining its action for tortious interference with respect to the Day loans against Trinity.
Regarding the Shipp/Teater loans, it is undisputed that Shipp/Teater defaulted on January 1, 2003. Trinity was hired by Burger King on January 22, 2003. Plaintiff fails to show that Trinity was involved in any way with the Program or had any information regarding Shipp/Teater prior to that time. Furthermore, Shipp/Teater expressed its intention of participating in the Program only on March 1, 2003, when it signed a Program questionnaire. This questionnaire reveals that Shipp/Teater was in financial distress (and had already defaulted on its obligations to some lenders) prior to any involvement by Trinity with Burger King's restructuring plan. In light of this evidence, plaintiff cannot carry its burden of showing that Shipp/Teater would have continued making payments under the loan contracts and that the defendants induced Shipp/Teater to breach such agreements. As a result, the tortious interference claim with regard to the Shipp/Teater loans must be dismissed as a matter of law.
According to the Shipp/Teater questionnaire, as of March 1, 2003, Shipp/Teater was delinquent with GMAC on three months for $301,220.25. GMAC services the Franchisees' loans for the FL Trust.
The only remaining issue is the claim relating to the Beaton/Gilbertson loans. Whether defendants' liability will attach for causing a breach of the Beaton/Gilbertson's contracts with the FL Trust depends upon whether there exists sufficient justification and the means employed.
I. Burger King's Motion
As far as Burger Kings's conduct, such justification exists. In Ultramar Energy, Ltd., supra, the plaintiff, one of the participants in an oil transaction, which had contracted to buy oil through the debtor, alleged that it fully performed on its contract, but that the debtor was unable to reciprocate because defendant interfered and took proceeds owing to the debtor in that particular circular sale sequence, thereby rendering the debtor financially unable to meet its obligations to the plaintiff. Since defendant was attempting to protect its secured interest, the court held that its conduct could not be construed as malicious to make out a prima facie case for tortious interference with contracts. Similarly here, as a creditor of the Franchisees, Burger King was also trying to protect its own economic interest. It is unclear whether Burger King had a secured interest or not, but this fact is not controlling, given that, in order to justify a third party's "interfering" conduct, its interest must be an "equal or superior right," and not necessarily a superior one. To the extent that Burger King acted to preserve its interest as creditor of Beaton/Gilbertson and the Franchisees, its actions were economically justified.
Thus, in order to make out a claim for tortious interference with contract against Burger King, plaintiff must prove that Burger King employed fraudulent or illegal means to induce the Franchisee to breach its contract with the FL Trust. Plaintiff's amended complaint alleges that Burger King committed the independent torts of economic duress and fraudulent misrepresentation against its franchisees. However, in its opposition, plaintiff did not address defendant's argument that economic duress did not exist; therefore, that claim is deemed abandoned.
Regarding the allegation of fraud, plaintiff failed to show the existence of this tort's elements, including fraudulent intent, materiality, causation, and damages. It is plaintiff's contention that the Franchisees were not told enough about the relationship between Burger King and Trinity, namely the higher amount that, ideally, Trinity could have been paid through the implementation of the Program. First, the fees or awards to be paid to Trinity are set by the Engagement Letter. As such, it is information that only the parties to such agreement have a right to be fully disclosed. However, it is undisputed that, although benefitted from it, the Franchisees were not parties to the Engagement Letter. Second, it is this Court's view that the conduct complained is of omission, rather than of commission. Accordingly, a fraud can be predicted only in the presence of a duty to disclose, which Burger King does not owe to the Franchisees. Indeed, "[t]he suppression of material facts which a person is in good faith bound to disclose is evidence of and equivalent to a false representation." Merrill Lynch, Pierce, Fenner Smith v. Chipetine, 221 AD2d 284, 285(1st Dep't 1995). However, "an arm's length borrower-lender relationship is not of a confidential or fiduciary nature and therefore does not support a cause of action for negligent misrepresentation." River Glen Assocs., Ltd. v. Merrill Lynch Credit Corp., 295 AD2d 274, 275 (1st Dep't 2002).
But even assuming that Burger King's efforts in establishing the Program and in using Trinity to induce Beaton/Gilbertson and the Franchisees to seek a debt reduction from plaintiff could amount to a form of misrepresentations to the Franchisees, and that the Franchisees relied on these representations, there is no evidence that Burger King did so with the purpose of defrauding the Franchisees and of harming a specific creditor of the Franchisees, namely the FL Trust. On the contrary, the Franchisees themselves decided to accord preferential treatment to Burger King, and, regardless of whether they, in the end, desired the Program's outcome and/or Burger King's actions, Beaton/Gilbertson and the Franchisees themselves were extremely anxious to join Burger King's Program. In other words, another creditor, if not Burger King, could have been preferred over the FL Trust by the Franchisees. After all, aside from the provision of the Bankruptcy Law prohibiting preferences, a debtor can select the creditors whom it chooses to pay and there is nothing improper about preferring certain creditors over other creditors. Debtor and Creditor Law § 272, 273.
Additionally, there is no proof of causation. Regardless of the exact dates when Beaton/Gilbertson could be considered in default on the obligations of either creditor, it already had financial difficulties. In short, Beaton/Gilbertson and the Franchisees would be in exactly the same position as they are in today, regardless of any purported fraud. Plaintiff failed to establish that the cause of Beaton/Gilbertson's missed payments to the FL Trust was Burger King's action.
Thus, plaintiff's claim fails as a matter of law, notwithstanding its desire for yet more discovery. Therefore, Burger King's liability can be asserted, only vicariously, for acts of its agents. As a result, unless this Court finds that there are triable issues of fact (1) regarding an agent-principal relationship between Trinity and Burger King and (2) regarding Trinity's interference with the Franchisees' contracts with the Fl Trust, plaintiff's claim for tortious interference against Burger King fails.
A. Agent-principal relationship between Trinity and Burger King
Under the Restatement (Second) of Agency § 248 (1957), a principal can be liable if his or her agent tortiously interferes with the business relations of a third party. "[An agency may be implied from the parties' words and conduct as construed in light of the surrounding circumstances." Riverside Research Institute v. KMGA, 108 AD2d 365, 370 (1st Dept. 1985), affd, 68 NY2d 689 (1986).
On the other hand, "a principal is not liable for the acts of independent contractors because, unlike the master-servant relationship, principals cannot control the manner in which independent contractors perform their work. Control of the method and means by which work is to be performed, therefore, is a critical factor in determining whether one is an independent contractor or an employee for the purposes of tort liability, and such a determination typically involves a question of fact.
However, where the evidence on the issue of control presents no conflict, the matter may properly be determined by the court as a matter of law. Moreover, the mere retention of general supervisory powers over independent contractors cannot form a basis for the imposition of liability against the principal."
Melbourne v. New York Life Ins. Co., 271 AD2d 296, 297 (1st Dep't 2000).
Here, the contract between Burger King and Trinity specifies that Trinity is an independent contractor. An examination of other provisions in the Engagement Letter, and, most importantly, of the parties' actual practices, provides further support for this conclusion.
See section 11(a) of the Engagement Letter.
Section 4(a) of the Engagement Letter, provides that Burger King controlled the pace and scope of the Program and could determine the people that Trinity assigned to the Program. Under this section, Trinity decides whether to make available the services of the individuals of either the Core Team or the Expanded Team, "depending on the scope of, and the pace at which [Burger King] wishes to pursue." Thus, it is not Burger King that determines which person should provide services to the Franchisees. On the other hand, Burger King can decide to what extent and how quickly to implement the Program: this is minimal supervision, that is expected to be exercised by Burger King, given that Burger King, not Trinity or the other lenders, sponsored the Program. Based on such determination of scope and pace, Trinity is then free to utilize the appropriate human resources. This is not undermined by the fact that Section 5 provides that Burger King can request that Trinity deploy either of the two teams: each team not only involves a different amount of personnel, but also triggers a different monthly base fee to be paid to Trinity, and it makes sense that Burger King has the authority to determine how much to spend, in terms of money and time, for the implementation of the program that it sponsored.
Under section 4(a) of the Engagement Letter, Burger King and Trinity agreed to a list of individual members of each of the two team. This is why, according to the same section, Burger King's "written approval" of their successors is required.
Under section 3(a)(xv) and (xvi), and section 3(b)(v) and (vi) of the Engagement Letter, Burger King has the right to approve, in advance, various financial documents prepared by Trinity, including the "Restructuring Plan for each Participating Franchisee," the "proposed term sheets" to be provided to the Franchisee's other creditors, and "levels of capex and amortization of balloon debt, [Burger King] notes and claw back notes." As indicated by the title of the section, these are "guidelines" for Trinity to follow for a successful implementation of the Program, which are part of minimal "instructions," that a person hiring an independent contractor generally gives. Again, it makes sense that as a creditor sponsoring a program for the restructuring of its debtors, Burger King contributes to identifying the scope of Trinity's services and approves the eligibility of each participating debtor, based on its current financial situation. Even if Burger King relies on Trinity's expertise for the implementation of the Program, in the end, it is Burger King that will use Trinity's end results and pay for Trinity's services: thus, it is appropriate for Burger King to make sure that Trinity will render services satisfactory to Burger King. This is not "control of the manner" in which Trinity performs its work. Rather, it is incidental supervision, that is essential for an independent contract relationship to properly work. Specifically, subsection (xi) of this section provides that in order to perform its services, Trinity will obtain from the franchisees "financial and other data deemed necessary by Trinity." Trinity, not Burger King, determined what type of information to request to the franchisees.
Section 7 of the Engagement Agreement is an indemnification provision in favor of Trinity. Plaintiff cites Beach v. Velzy ( 238 NY 100, 104) for the proposition that a factor in determining an agency relationship is whether one bears the risks associated with doing the work. While it is true that the assumption of liability is one of the many indicia to determine the status of independent contractor or agent, its presence is not conclusive. Beach itself teaches us that the principal and most important test is who has the right to control the manner of doing the work. Beach, id. at 103. In addition, plaintiff's reference is inappropriate, because in Beach the court found that Beach was an independent contractor and not an employee because he undertook to assume all liability "for accidents." Here, Burger King agreed to indemnify Trinity for "any and all claims, losses, damages, deficiencies, liabilities (joint or several), lawsuits, judgments, costs and expenses (. . .), which arise out of, are based upon or are related to Trinity's engagement . . . or services . . ." Additionally, Trinity's right to be indemnified does not have to be necessarily implied from the relationship between Trinity and Burger King. A right to be indemnified may arise from contractual relations or from the status of the parties as a matter of law, or it may be imposed by statute. Burke v. New York, 2 NY2d 90, 96 (1956). Thus, the Engagement Letter provided Trinity with such a right, exactly because the circumstances did not otherwise warrant it.
Furthermore, there is no provision in the Engagement Letter allowing Burger King to authorize Trinity to act on its behalf with regard to the negotiations with any Franchisees and/or the Franchisees' lenders. While Trinity did try to facilitate discussions between the Franchisees and Burger King, undisputed evidence shows that the Franchisees communicated directly with Burger King and other creditors, including agents of the FL Trust. E-mail correspondence, after April 2003 until August 2004, between Shipp/Teater and Burger King and between Shipp/Teater and their other creditors are such examples.
See Exhibit G of the affidavit of Trinity's Senior Vice President, Mr. Shepherd, dated February 25, 2005. See also paragraph 10 of Mr. Shepherd's affidavit. Similarly, see also the affidavits of Burger King's managers of business development, Messrs. Moufflet and Gerstenfeld, dated March 3, 2005, at paragraph 23 and 19, respectively.
Finally, the Engagement Letter does not preclude Trinity from engaging with other franchisers while working on the Program for Burger King. On the contrary, Trinity seems to be an experienced financial restructuring specialist for franchise systems and plaintiff itself concedes that in the past Trinity did assist other companies in similar restructuring plans, namely Taco Bell. Thus, there is no special relationship between Trinity and Burger King, whereby the former can be considered an "ad hoc" agent of the latter, for the exclusive protection of the latter's interest.
See Mr. Hollis' affidavit.
Plaintiff maintains that many e-mails produced by the parties indicate that Burger King regularly controlled the manner and type of advice that Trinity gave to the Franchisees. Such communications do not amount to an indicia of an agency relationship. Rather, this is the level of supervision which an entity engaging the services of an independent contractor usually gives if it wants to make sure that the independent contractor achieves the agreed upon results. Plaintiff claims that Burger King's behind-the-scenes control over Trinity is also evidenced by the fact that Trinity had no power to seek debt relief for the Franchisees from Burger King and sought such reliefs only from the other lenders, including the FL Trust. This assertion is undermined by the e-mails exchanged on June 19, 2003 between Burger King and Trinity, wherein Trinity pleaded with Burger King to increase its offer for royalty relief. It does not matter that such increase was not obtained. Plaintiff makes much out of the absence of communications between Trinity and other creditors. It is not surprising. Other creditors did not communicate with Trinity like Burger King did, because it was Burger King, and not any of the other lenders, that sponsored the Program. It is one thing to act on behalf of another and a different thing to act for the benefit of another. This Court finds that under the Engagement Letter an independent contractor relationship was created, and that although Trinity performed its services for the benefit of Burger King as required by the Engagement Letter, it was not authorized to act on Burger King's behalf and was free to determine the means employed to perform the assigned work. The plaintiff is unable to establish a traditional employment relationship between Burger King and Trinity. ( Beach, supra at 103; Melbourne v. New York Life Ins. Co., 271 AD2d 296, 297 1st Dep't 2000]; Raben v. Conde Nast Publ'ns, Inc., 2 AD3d 117 [1st Dep't 2003]; De Feo v. Frank Lambie, Inc., 146 AD2d 521 [1st Dep't 1989]; Kueckel v. Ryder, 54 AD 252, 254 (1st Dep't 1900).
Thus, there are no triable issues of fact as to the existence of an agency relationship between Burger King and Trinity. Regardless on the outcome of Trinity's motion, Burger King's motion for summary judgment is granted.
II. Trinity's Motion
Unlike Burger King, Trinity is not a creditor of the Franchisees. Nevertheless, this Court finds that, by acting at the behest of both Burger King and the Franchisees, Trinity was not pursuing a personal interest. Rather, it was clearly advancing an "economic interest," which deserves to be protected under Foster: Burger King's interest that its franchisees stay in business. Thus, also with regard to Trinity's conduct, the defense of economic justification exists.
Additionally, Guard-Life Corp. reminds us that the decision as to whether the interference is improper or not under the circumstances depends on several factors, and specifically, "upon a judgment and choice of values in each situation". Guard-Life Corp., id. supra at 190. Here, there are social interests involved that warrant the protection of Trinity's freedom of action. As Burger King's independent contractor hired for assisting the Franchisees, Trinity acted in furtherance of a "cause" broader than the mere Burger King's financial interest. Essentially, Trinity's role was to enable the Franchisees, including Beaton/Gilbertson, to keep paying their creditors and, thus, avoid bankruptcy. This practice, also called "budget planning," is sanctioned by both state and federal law, and by society as well. To the extent that Trinity was engaged in such a legitimate activity, it was privileged to interfere with the contracts between the Franchisees and other creditors. It is not relevant that Trinity did so at the request of only one of the Franchisees' creditor, and that the Franchisees did, in the end, go bankrupt.
See Section 455 of New York General Business Law and Section 579 of New York Banking Law. See also 11 USCS § 528 governing the so called debt relief agencies.
Before concluding that Trinity is entitled to summary judgment in its favor, it is, however, necessary to determine whether Trinity's action evidenced "malice or illegality."
Plaintiff cannot establish that Trinity's conduct was motivated by any malice toward the FL Trust; rather, Trinity was retained to implement the Program, and thus, with finding the best way to restructure the Franchisees.
Nor, is there evidence suggesting that Trinity committed an illegal act. Plaintiff asserts that Trinity used wrongful means to induce the Franchisees to breach the loan contracts by misrepresenting Trinity's neutrality and independence. However, as explained above, Trinity acted as an independent contractor to Burger King. In addition, its introductory letter to the Franchisees, did not make any untrue statements regarding the Program and how Trinity would administer it. Let alone the fact that Trinity did not misrepresent to the Franchisees its status as an intermediary of Burger King, including the fact that Burger King was paying "the cost of [Trinity] financial consultants assigned to the workout," as with the claim against Burger King, plaintiff cannot establish the elements of fraudulent misrepresentation. Accordingly, plaintiff's claim for tortious interference against Trinity fails as a matter of law.
See question number 6 of the "Responses to Frequently Asked Questions" in the package sent to each Franchisee.
III. FL Trust's Request under CPLR 3212(f)
Plaintiff invokes CPLR 3212(f) as authority to engage in further discovery in order to show that defendants' motions for summary judgment should not be granted.
CPLR 3212(f) provides that if "it appear from affidavits submitted in opposition to the motion that facts essential to justify opposition may exist but cannot be stated, the court may deny the motion or may order a continuance to permit affidavits to be obtained or disclosure to be had and may make such other order as may be just."
With its opposition papers, plaintiff submitted the affidavit, dated March 24, 2005, of a representative of the servicer of the Franchisees's loans for plaintiff, Mr. Hollis. This Court recognizes that this affidavit assisted in obtaining a better picture of the factual background of this action. Nevertheless, this Court does not find that in light of the information contained in the affidavit crucial facts exist that would justify a denial of defendants' motions, or that further discovery is needed for that purpose. The basis upon which these motions are granted render immaterial the matters sought in further disclosure.
In his affidavit, Mr. Hollis essentially explains what are the elements for a successful workout and expresses an opinion regarding Trinity's activity as a financial services firm that specializes in restructuring financially troubled franchise companies.
Accordingly, it is
ORDERED that Burger King's motion is granted and that the cause of action against it is dismissed with costs and disbursements to Burger King as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that Trinity's motion is granted, and that the cause of action against it is dismissed with costs and disbursements to Trinity as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.