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Inc. v. Faison Office Products, Inc.

United States District Court, D. North Dakota

November 16, 2016

Gaffaney's of Williston, Inc., Plaintiff,
Faison Office Products, Inc., Defendant and Third-Party Plaintiff,
Paul Weyrauch, individually, Gaffaney's Properties, LLP, Third-Party Defendants.


          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.

         I. BACKGROUND

         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”).

         A. Purchase Agreement

         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.

         B. Promissory Note

         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.

         C. Lease with GP

         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.

         D. Weyrauch's Employment with Faison

         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].”

         E. The Fire and Aftermath

         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.[1] Still disputing its responsibility, Faison subtracted the $20, 602.03 from a $52, 449.07 installment payment to GW under the Promissory Note. After informing Faison it considered this to be a default, GW accelerated payment under the Promissory Note, making the outstanding balance immediately payable.

         F. Current Litigation

         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.[2] The court and the parties are well-versed in the appropriate standard for summary judgment and the court will not repeat it here.

         A. GW v. Faison

         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.'” Forbes Equity Exchange, Inc. v. Jensen, 2014 ND 11, ¶ 11, 841 N.W.2d 759 (quoting Dakota Partners, L.L.P. v. Glopak, Inc., 2001 ND 168, ¶ 21, 634 N.W.2d 520). Offsetting “recognizes that the debtor may satisfy a creditor's claim by acquiring a claim that serves to counterbalance or to compensate for the creditor's claim.” Id. Any “valid offset necessitates a mutuality of debt between the parties.” Id.

         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, see N.D.C.C. ยง 41-03-31(1), Faison has failed to proffer any submissible evidence that: (1) GW (as opposed to possibly GP) had any liability to the City with respect to the waste disposal charges; (2) that GW and GP have ignored corporate formalities and, for that reason, should be treated as one and the same entity; or (3) that Weyrauch was acting on behalf of GW when he purportedly made the statement that Faison was liable for the disposal charge. In addition, Faison has failed to cite any ...

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