KFC National Council and Advertising Cooperative, Inc. v. Kazi

Filing 37

MEMORANDUM OPINION AND ORDER by Senior Judge John G. Heyburn, II on 6/26/2014; SUSTAINING 26 Motion for Consolidation/SEALED MOTION . Consolidated with 3:12-cv-564-H. cc:counsel (DAK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE

KFC CORPORATION and KFC U.S PROPERTIES, INC.
PLAINTIFFS
v.

Civil Action No. 3:12-cv-564-H

ZUBAIR M. KAZI
DEFENDANT
KFC NATIONAL COUNCIL & ADVERTISING COOPERATIVE, INC.
PLAINTIFF
v.

Civil Action No. 3:13-cv-291-H

ZUBAIR M. KAZI
DEFENDANT
MEMORANDUM OPINION AND ORDER
Defendant, Zubair Kazi, is the founder, Chairman, and CEO of Kazi Foods, Inc. Prior to
a recent bankruptcy, four Kazi franchisees1 operated 142 KFC restaurants.

Kazi signed a

guaranty agreement for each restaurant (“the Guaranties”). KFC Corporation (“KFCC”) and
KFC U.S. Properties (“KFC USP”) seek to collect various debts allegedly covered by the
Guaranties (collectively, “Plaintiffs”). The parties have cross-motioned for summary judgment.
Kazi claims the Guaranties are unenforceable because (1) they do not meet the requirements of
Kentucky’s guaranty statute and (2) they lack consideration. Kazi has also requested that this
case be consolidated with a breach of guaranty suit that KFC National Council and Advertising

1

These entities, not parties to this litigation, are Kazi Foods of Florida, Inc. (“Kazi Florida”), Kazi Foods of New
York, Inc. (“Kazi New York”), Kazi Foods of Annapolis, Inc. (“Kazi Annapolis”), and Kazi Foods of Michigan, Inc.
(“Kazi Michigan”).

Cooperative, Inc. (“NCAC”) has filed against him.2 For the reasons that follow, the Court
concludes that KFCC may enforce the Guaranties up to the liability cap and that consolidation is
appropriate.
I.
The franchisees whose obligations Kazi guaranteed operated 142 KFC restaurants across
a swath of states.3 Each franchisee filed for Chapter 11 bankruptcy in February and March 2011
in the Eastern District of Michigan and the cases were eventually consolidated into one
proceeding. As debtors-in-possession whose “primary goal” was “to effectuate a reorganization
plan that would allow them to maintain their business operations through the restructuring of
their debt obligations to both the GE Affiliates [a secured creditor] and KFC,”4 the franchisees
obtained approval to retain a Chief Restructuring Officer (the “CRO”). Many of the restaurants
continued operating until February 2012 under the CRO’s direction. KFCC, KFC USP, NCAC
and other KFC affiliates were unsecured creditors and participated actively in the proceeding.
Restructuring was subject to KFC’s willingness to allow the franchisees to assume
franchise agreements5 but KFC declined to consent to that course of action.6 “Because [the
franchisees] could not reach agreements with KFC with respect to (a) the terms of the

2

The NCAC suit has been transferred to this Court for a decision on the motion for consolidation because this case
was pending before the NCAC suit. A pending motion for consolidation, identical for all pertinent purposes, is
found at DN 26 in the record for Case No. 13-cv-291, and at DN 31 in this Court’s docket for Case No. 12-cv-564.
The Plaintiffs jointly filed a response in opposition.
3
Kazi Florida operated 20 restaurants, Kazi New York operated 56, Kazi Annapolis operated 21, and Kazi Michigan
operated 45.
4
Amended Combined Plan of Liquidation and Disclosure Statement, DN 14-9.
5
KFC terminated the Michigan restaurants’ licenses in December 2010 for pre-petition defaults under various
agreements. The other restaurants lost their licenses upon filing for bankruptcy, which was a default termination
provision in the franchise agreements. See DN 1-6, ¶ 17.2(a).
6
The bankruptcy court denied the franchisees’ motion for assumption of the restaurants in an Order entered August
4, 2011. KFC successfully opposed this motion by arguing that none of the restaurants were licensed and/or had not
cured defaults or given adequate assurance of future performance on franchise agreement obligations. Each of the
restaurants’ licenses had been revoked, and a condition for renewing them was that a restaurant be current on all
monetary obligations—a condition that was unmet for each of the restaurants. Because of these failings, KFCC
refused to consent to assumption.

2

assumption and/or assignment of the Franchise Agreements and (b) the restructuring of royalty,
CAPEX and equipment finance payments,” the franchisees decided the best course of action was
to sale substantially all of their assets under section 363 of the Bankruptcy Code. Two buyers,
Star KFC Realco Two, LLC and Star Partner Enterprises Two, LLC, purchased most of the
restaurants in February 2012. The buyers assumed a specific list of liabilities on closing, but
only property taxes and obligations under acquired contracts to the extent those obligations arose
after the closing date. Aside from a payment of $150,000 to KFCC which partially paid down
royalty amounts owed for the month of February 2012, neither KFCC nor KFC USP received
any sales proceeds.
In this action, Plaintiffs seek to collect five main types of obligations: (1) pre-petition
and post-petition7 royalties owed under each restaurant’s franchise agreement; (2) pre-petition
and post-petition advertising and marketing fees owed to local co-ops, contemplated and
required by the franchise agreements; (3) payments owed on third party equipment leases for
special grilled chicken ovens, which KFCC guaranteed; (4) various obligations owed on ground
leases for 13 restaurants that were leased, where KFC USP was either the sub-lessor or alleges it
was contingently liable on the lease;8 and (5) de-imaging costs KFC incurred to remove trade
dress on certain restaurants, which costs were contemplated in the franchise agreements.

7

Certain Kazi restaurants continued operating under the direction of a CRO after their bankruptcy petition. In the
franchise agreements, royalty payments hinge on periods when a restaurant is “in operation” rather than when it is
licensed, whereas advertising fees are owed “[d]uring the license term.” DN 1-6, ¶ 8.1 and ¶¶ 10.1, 10.3, 10.4. The
Michigan restaurants’ licenses were terminated pre-petition, while the rest of the restaurants’ licenses were
terminated upon the franchisees’ bankruptcy petition. See Bankr. Dkt. No. 356; DN 1-6, ¶ 17.2(a). The timeline of
post-petition operations/closures is still unclear from the bankruptcy and this Court’s record. That question can be
determined when this Court determines the extent of Kazi’s guarantor liability.
8
Obligations owed include rent, property taxes, and/or lease termination fees. From the charts provided with the
complaint, it appears that this part of the complaint implicates only 13 of the restaurants: Kazi New York leased 5
restaurants, Kazi Michigan leased 7, and Kazi Florida leased 1. DN 1-1-4. There are no ground leases in the record,
so it is unclear which of the properties KFC USP subleased to a franchisee versus which properties it claims to be
contingently liable on a franchisee’s lease obligations to a third party: “As a result of the Franchisees’ failure to pay
all obligations, KFC USP has become liable for, and has been required to pay, the Franchisees’ unpaid rent, rent for

3

Kazi’s 142 Guaranties are identical except for the specific franchisee named as Obligor,
the specific restaurant involved, the duration of the agreement, and the date of execution. The
following exemplar provides the pertinent language in each Kazi guaranty:
For value received, the receipt and sufficiency of which is hereby acknowledged,
and in order to induce KFC Corporation (“KFC”) and/or KFC National Council
and Advertising Cooperative, Inc., Delaware corporations, (hereinafter referred to
as “Obligees,” whether one or both) to enter into certain Franchise Agreements,
Advertising Agreements, Leases, Subleases, Promissory Notes, Mortgages, Deeds
of Trust, Security Agreements, or Contracts and to do certain business with KAZI
FOODS OF ANNAPOLIS, INC. (the “Obligor”), of Hershey Pennsylvania, the
undersigned [Zubair Kazi] (hereinafter referred to as the “Guarantor[]” . . .) . . .
guarantee[s] unconditionally and absolutely to Obligees that the Obligor will
fully, promptly and faithfully perform, pay and discharge all of the Obligor’s
present and future indebtedness or obligations to Obligees, whether direct or
indirect, absolute or contingent, primary or secondary, joint or several, and all
renewals and extensions thereof, including but not limited to, any indebtedness
or obligations arising by any terms, covenants or conditions of any Franchise
Agreements, Advertising Agreements, Leases, Subleases, Promissory Notes,
Mortgages, Deeds of Trust, Security Agreements, or Contracts between
Obligees and the Obligor, including, without limitation, any representations,
warranties and indemnities contained in such Franchise Agreements, Advertising
Agreements, Leases, Subleases, Promissory Notes, Mortgages, Deeds of Trust,
Security Agreements, or Contracts (collectively the “Guaranteed Obligations”),
relating to or arising out of the operation of a Kentucky Fried Chicken
restaurant (hereinafter referred to as the “Outlet”) located at 1978 West Street,
Annapolis, Maryland.
(bold added). Each Kazi guaranty provides, “[I]n the event of default by the [named franchisee],
[Kazi] . . . shall, on demand and without further notice of dishonor . . . perform, pay or discharge
[the] Guaranteed Obligations and pay all losses, costs, and expenses which Obligees may suffer
by reason of the default.” The Guaranties identify themselves as “continuing” and “absolute” in
nature. Because this enforcement action follows the franchisees’ bankruptcy, the following
provisions are uniquely operative:
[Kazi] . . . waive[s] diligence, presentment, demand protest and notice of nonpayment, protest and suit on the part of Obligees in the enforcement or collection
the remaining lease terms, termination fees, property taxes, and other amounts due under the leases for the Leased
Restaurants.” DN 1, ¶ 37.

4

of any of the Guaranteed Obligations and agree[s] that Obligees shall not be
required first to endeavor to secure performance or discharge of or collect from
the Obligor . . . or to foreclose, proceed against or exhaust any collateral or
security for any Guaranteed Obligations, before requiring [Kazi] to perform, pay,
or discharge the full liability hereby created.
...
Any action or inaction by Obligees with regard to the Guaranteed Obligations or
this Guaranty shall not impair or diminish the obligations of [Kazi]. Obligees
shall not be liable for their failure to use diligence in the enforcement of collection
of the Guaranteed Obligations or in preserving the liability of any person liable
thereon.
...
[Kazi] hereby unconditionally and absolutely guarantee[s] the payment of all of
said Guaranteed Obligations . . . and [Kazi] agree[s] that Obligees shall in no way
be obligated to bring or prosecute any action against Obligor of said Guaranteed
Obligations or make any demand on Obligor or give any notice of any kind to any
party.9
Other notable terms in the Guaranties are (1) a provision for attorney’s fees to any party that
prevails entirely in a lawsuit invoking the guaranty, and (2) a provision capping the amount of
maximum aggregate liability on each guaranty at $250,000.
Kazi’s motion for summary judgment focuses on contesting the enforceability of the
Guaranties. The Court limits its Opinion to that issue and the question of consolidation. Kazi’s
argument against enforceability is twofold: (1) the Guaranties do not satisfy the formalities
required by Kentucky’s guaranty statute; and (2) the Guaranties lack consideration. The Court
will consider each argument in turn.
II.
On summary judgment, a moving party is only entitled to judgment “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986);

9

Pursuant to these clear terms, KFC had no duty to take action against the Obligors, in bankruptcy court or
otherwise, even though KFCC did in fact participate in the bankruptcy.

5

Fed.R.Civ.P. 56(c). The Court must determine whether “the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party must
prevail as a matter of law.” Patton v. Bearden, 8 F.3d 343, 346 (6th Cir. 1993) (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)).
III.
Kentucky’s guaranty statute provides three ways for a guaranty to be enforceable:
No guaranty of an indebtedness which either is not written on, or does not
expressly refer to, the instrument or instruments being guaranteed shall be valid or
enforceable unless it is in writing signed by the guarantor and contains provisions
specifying the amount of maximum aggregate liability of the guarantor
thereunder, and the date on which the guaranty terminates.
KRS § 371.065(1). If any one of the three prongs is met, the statute is satisfied and the guaranty
is valid and enforceable. Wheeler & Clevenger Oil Co., Inc. v. Washburn, 127 S.W.3d 609 (Ky.
2004). The interpretation and construction of a contract is a question of law for courts to decide.
See, e.g., Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872, 875 (Ky. 2006); Equitania Ins. Co. v.
Slone & Garrett, P.S.C., 191 S.W.3d 552, 556 (Ky. 2006). Here, the parties do not dispute that
the Guaranties are not written on the instruments they purport to guarantee, so they must satisfy
one of the other two prongs.
As an initial matter, the Court finds that neither Plaintiff is entitled to the ground leaserelated obligations outlined in the complaint, at least not by operation of the Guaranties.10 KFC

10

The ground leases are not in the record, so the Court is unable to determine whether KFCC or KFC USP is
entitled to ground lease-related debts under an express indemnity provision found in the leases, or whether the
contracts give rise to implied contractual indemnity. The Guaranties are each plainly titled “Guaranty” at the top, so
the Court will not construe the Guaranties themselves as indemnity agreements, notwithstanding the broad language
purporting to entitle Obligors KFCC and/or NCAC to “all . . . indebtedness . . . whether direct or indirect, absolute
or contingent, primary or secondary . . . arising by any terms . . . of any . . . Leases, Subleases, [etc.] . . ..” Cf. BP
Prods. N. Am. Inc. v. McGuirk Oil Co., 2011 WL 2149627, *6 (W.D. Ky. 2011) (refusing to enforce a guaranty
agreement as one for indemnity despite indemnity language).

6

USP is not a named Obligor in the Guaranties, so it may not enforce them for its benefit. 11
KFCC is not entitled to enforce the Guaranties for ground lease payments because the plain
terms of the Guaranties limit Kazi’s guarantor liability on “Leases” to obligations arising under
leases “between Obligees and the Obligor.”

KFC USP, not KFCC, was the lessor or

contingently liable on the ground leases at issue, thus KFCC may not enforce the Guaranties for
ground lease obligations. Therefore, the Court will limit its discussion to whether KFCC may
enforce the Guaranties to require Kazi to pay outstanding royalty payments, advertising fees,
equipment lease obligations, and de-imaging costs.
A.
Kentucky’s legislature does not prescribe a specific type of description necessary to
“expressly refer to” an underlying instrument in order for a guaranty to be enforceable under the
second avenue to enforcement.

The statute’s plain language is not excessively restrictive.

“Express,” when used as a modifier, means “particular[ly]; [with] specific[ity]”; “refer” means
“to direct to a source for help or information,” or “to direct the attention of.”12 The statute has
been described as “a consumer-protection provision designed to protect the guarantor by
reducing the risk of a guarantor agreeing to guarantee an unknown obligation.” Wheeler, 127
11

The Guaranties at issue are “special guaranties”: they are not addressed to all persons generally but name as
definite entities as Obligees thereunder (“KFC Corporation and/or KFC National Council and Advertising
Cooperative, Inc.”). Special guaranties may be enforced only by the specifically named entities. There is an
exception to this rule when the guaranty is intended to benefit someone other than the addressee or named obligee.
In that case, the guaranty is not considered “special,” despite having been addressed to the specific individual. See
38A C.J.S. Guaranty § 116 (2013) (collecting cases). KFC USP does not argue, nor do the franchise agreements
reflect, that KFCC intended the Guaranties to benefit KFC USP. It would have been easy enough to include KFC
USP as an Obligee if that were so. The fact that KFC USP is not a named beneficiary also precludes KFC USP from
benefitting from any argument that the Guaranties are, in effect, indemnity agreements. It is not a named obligee,
and neither is it a constructive promisee/indemnified party.
While these rules are not explicitly recognized in any Kentucky case, they derive from general contract
principles followed in Kentucky, such as who may bring an action to enforce a contract. The Court is confident that
Kentucky’s highest courts would follow the general rule that a guaranty goes with the principal obligation and is
enforceable (only) by the same person who can enforce such obligation.
12
Webster’s II New University Riverside Dictionary (1994 ed.). Kentucky’s General Assembly directs that the
words of statutes are to be interpreted “according to the common and approved usage of language.” KRS §
446.080(4).

7

S.W.3d 609, 615 (Ky. 2004) (emphasis added); see also Smith v. Bethlehem Sand & Gravel Co.,
342 S.W.3d 288, 292 (Ky. Ct. App. 2011) (quoting Wheeler and explaining the statute “does not
seek to ‘eliminate’ unknown obligations; it only seeks to reduce the risk.”). Importantly, the
second prong of the guaranty statute is met if a guaranty “expressly refer[s] to[] the . . .
instruments being guaranteed,” not the specific obligations.
Each respective Kazi guaranty expressly refers to the only instrument that matters for
KFCC’s purposes:

the franchise agreement.13

Each franchise agreement between Obligor

KFCC and a franchised restaurant outlines the identical performance and/or payment obligations
KFCC seeks to enforce: the obligation to pay specified royalties, to enter agreements and pay a
minimum amount of profits to local advertising cooperatives, to de-image restaurants upon
closure, and to update equipment upon reasonable request.14 In each guaranty, Kazi agreed to
perform, pay and discharge all of the [specified franchisee’s] present and future
indebtedness or obligations to [KFCC and/or NCAC] . . . including . . . any
indebtedness or obligations arising by any terms, covenants or conditions of any
Franchise Agreements . . . relating to or arising out of the operations of a
Kentucky Fried Chicken restaurant (. . . “the Outlet”) located at [specified street
address].

13

The complaint states that each of the restaurants’ franchisee agreements are “identical in all pertinent respects” to
the franchise agreement exhibited in the record, which is for an Annapolis store. DN 1, ¶¶ 14, 16, 18, 20.
14
To determine the discrete question before the Court, which is whether the Guaranties are enforceable for certain
obligations (versus the extent of liability), it is immaterial that franchisees entered specific oven leases and specific
advertising contracts after Kazi signed the Guaranties, or that the precise payment terms for equipment, advertising
obligations, and even remodel obligations, all mentioned in the franchise agreements, are more particularly
elucidated in those other, more specific contracts. To be enforced under the second prong, Kentucky’s statute
requires a guaranty to expressly refer to an underlying instrument, not underlying obligations. Here, reading the
statute to require otherwise would impermissibly disregard the provision in each guaranty that declares itself to be
“continuing” in nature.
Whether KFCC was an intended beneficiary and may collect amounts owed by the franchisees under the
advertising and equipment lease contracts is a question that can be decided at a later date, when the Court
determines the extent of guarantor liability owed by Kazi.

8

Although the Guaranties purport to obligate Kazi to pay a bevy of other types of present and
future indebtedness and obligations under various other agreements, all that matters to KFCC’s
claims is that the Guaranties expressly refer to each restaurant’s franchise agreement.15
Kazi relies in part on the unreported case of Brunswick Bowling & Billiards v. NgCadlaon, 2011 WL 5244971 (Ky. Ct. App. Nov. 4, 2011). This opinion does not decide our
case.16 There, the court held that the guaranty at issue did not expressly refer to an underlying
promissory note: “[R]ather, [the guaranty] binds [Ng-Cadlaon] to a broad range of potential
present and future obligations. The fact that the note at issue falls within one of the categories of
obligations listed in the guaranty is insufficient in itself to constitute an express reference.”17
Here, there is more to consider than the lone fact that the material obligations are found within
one of the categories of agreements referenced in the guaranty. Each guaranty identifies a
specific restaurant by its geographic street address. Because each restaurant was subject to but
one franchise agreement at all times, the generic term “Franchise Agreements,” although
pluralized and found among a “laundry list” of other types of instruments, actually refers to a
specific document in each guaranty. Further, though not a prerequisite to enforceability under
the second prong, each franchise agreement lists the geographic address of the subject restaurant
on the first page of the document.

15

The fact that the Guaranties may be ineffective to enforce other obligations is inconsequential; the Guaranties
contain a severability provision: “[I]f any provision or provisions of this Guaranty should be invalid or ineffective,
then all other provisions shall continue in full force and effect notwithstanding.” The Guaranties also insure that
they will be enforced (at least under Kentucky’s statute) by capping “the maximum aggregate liability of the
Guarantors under this Guaranty” at $250,000 and including a termination provision that refers to the execution date.
16
Defendant Margaret Ng-Cadlaon signed a guaranty that read, in pertinent part, “To induce [bank/Obligee] to enter
into one or more security agreements, including but not limited to conditional sales agreements, leases, chattel
and/or real estate, notes or other deferred or time payment paper . . . (the ‘Security Obligations’) with the
[guarantor’s company] . . . the undersigned . . . agree to be . . jointly, severally and directly liable to you for the
performance of all such Security Obligations.”
17
Id. at *2.

9

Our case more resembles Alliant Tax Credit Fund 31-A, Ltd. et al. v. Murphy, 494 Fed.
App’x 561 (6th Cir. 2012). There, the Sixth Circuit examined the second prong of Kentucky’s
statute and concluded, like the district court before it, that the guaranty was enforceable. In
reaching its decision, the district court rejected the argument that the phrase “expressly refer to”
requires that an obligation be apparent without reference to any other documents.18 The guaranty
at issue there explicitly guaranteed “obligations of the General Partner under the Agreement,”
and defined “Agreement” as the “Amended and Restated Agreement of Limited Partnership as of
December 8, 2003.” Similar to Kazi’s position here, the guarantor argued that the guaranty
purported to obligate him on “another set of ‘Instruments,’” and because these instruments were
(a) not expressly referenced and (b) not executed, he could not “determine the full extent of [his]
indebtedness” under the guaranty and, therefore, the whole guaranty should be held
unenforceable.

The Sixth Circuit found this to be immaterial to the enforceability of the

guaranty as to the obligations found in the “Agreement.”
Likewise here, what matters is that Kazi’s Guaranties expressly refer to the franchise
agreement for each outlet.

And they do:

they list “Franchise Agreements” in the list of

instruments covered, name the specific parties to the Guaranties by name and, in the franchisee’s
case, by specific geographic address (this information also appears on the first page of the
corresponding franchise agreement), and identify each restaurant outlet’s specific geographic
address (also found on the first page of the corresponding franchise agreement).
For all these reasons, the Court concludes that the Guaranties are enforceable.

18

Alliant Tax Credit Fund 31-A, Ltd. et al. v. Nicholasville Cmmty. Housing, LLC, et al., 663 F.Supp.2d 575, 583
(E.D. Ky. 2009).

10

B.
The Guaranties arguably satisfy the third prong of Kentucky’s guaranty statute as well.
Each guaranty caps the maximum aggregate liability thereunder at $250,000 and includes a
termination date that refers to the date of execution “set forth below.” The Guaranties typically
stated that they terminated twenty-five years from the date of execution. Kazi argues that the
guaranty agreements did not have a termination date when he executed them, therefore they are
unenforceable. By way of answer, KFCC does not rebut this specific argument but claims that
its practice was to stamp a date onto the signed guaranties after receiving them (and other
documents and licensure payments due under the franchise agreement) in the mail.
Neither of the party’s explanations of the sequence of events appears to be entirely
accurate. A review of the Guaranties reveals that in almost every single date-stamped guaranty,
a handwritten date of execution was redacted before the date-stamp was applied. That is, the
Guaranties did have a termination date when Kazi signed them (X number of years from
whatever date Kazi wrote on the lines “Executed this ____ day of ____, 19 [or 20]___”), but in
most cases, KFCC redacted that date and stamped a slightly later date upon receipt of the
Guaranties in the mail. In any event, KFCC is not attempting to enforce the Guaranties after the
termination date—none of the termination dates are close to ending, rendering inconsequential
any discrepancy between the date Kazi wrote in (or did not) and the date KFCC subsequently
date-stamped onto the Guaranties. More importantly, the liability cap of $250,000 for each
restaurant applies whether the Guaranties are enforceable under the second or third prong of the
statute, which significantly weakens any threat of overreaching. Because the Court has already
concluded that the Guaranties satisfy the second prong for most of the obligations, and that

11

neither plaintiff can enforce the Guaranties for the ground lease obligations, the Court need not
definitively decide whether the Guaranties satisfy the third prong of the statute.
C.
Finally, Kazi also argues that the Guaranties are not enforceable because they lack
consideration. The Court does not find this argument sufficient. “[W]here the consideration
between the principal obligor and the creditor has passed and become executed before the
contract of the guarantor is made and the guaranty was part of the inducement to the creation of
the original debt, such consideration is sufficient to the contract of the guarantor.” Smith v.
Bethlehem Sand & Gravel Co., LLC, 342 S.W.3d 288 (Ky. Ct. App. Apr. 22, 2011) (citing
Snowden v. Leight, Ky. L. Rptr. 121 (1883)). Kazi’s attempt to distinguish this case from Smith
is unpersuasive; the minor differences do not detract from the application of the general rule
here.
Here, each guaranty expressly recites that KFCC gave sufficient consideration for the
guaranty and was induced to do business with the Kazi franchisees, including entering franchise
agreements with it, based on Kazi’s willingness to personally guarantee certain debt and
obligations:
For value received, the receipt and sufficiency of which is hereby acknowledged,
and in order to induce KFC Corporation (“KFC”) and/or KFC National Council
and Advertising Cooperative, Inc., Delaware corporations, (hereinafter referred to
as “Obligees,” whether one or both) to enter into certain Franchise Agreements . .
. . [Kazi] . . . guarantee[s] unconditionally and absolutely to Obligees that [the
named franchisee] will fully, promptly and faithfully perform, pay and discharge
all of the [the franchisee’s] present and future indebtedness or obligations to
Obligees.
Extrinsic evidence also confirms that the guaranties and franchise agreements were basically part
and parcel of the same transaction.

Under these circumstances, the Court finds sufficient

consideration to enforce the Guaranties.

12

D.
In sum, KFCC may enforce the Guaranties to collect (1) royalty payments, (2)
advertising payments, (3) de-imaging costs, and (4) equipment lease payments because each of
these obligations are explicitly contemplated in each outlet’s franchise agreement and the subject
Guaranties each expressly refer to their corresponding outlet’s franchise agreement. 19
Nevertheless, the liability cap provision remains operative to cap the damages at $250,000 for
each restaurant.20
IV.
Consolidation is discretionary under Federal Rule of Civil Procedure 42(a). 21 The Court
sees some benefit in consolidating this case with the one that NCAC has filed against Kazi.
NCAC is suing Kazi for guarantor liability arising from three separate promissory notes that
NCAC extended to various bankrupted franchisees. Kazi argues that, because NCAC is a named
Obligee in the 142 Guaranties discussed here, NCAC could resort to those Guaranties if need be.
However, the need to resort to the “KFC Corporation and/or NCAC” Guaranties discuss herein is
virtually nonexistent: the three guaranties NCAC invokes are written on the promissory notes
they guaranty and dated on the same date (December 15, 2010). Regardless, the two cases arise
from the same operative facts and it would seem that consolidation benefits judicial efficiency
and does not unduly prejudice any party.
Being otherwise sufficiently advised,

19

Kazi is potentially liable for all four categories of obligations because the Guaranties expressly refer to the
restaurants’ franchise agreements, which in turn embody all of these obligations. But KFCC’s ability to collect
amounts owed for obligations (2) and (4) will depend on its ability to prove that it is an intended beneficiary of the
franchisees’ contracts with various local advertising co-ops and the oven equipment lessor.
20
Plaintiffs concede that the liability cap applies here. DN 17, p. 10.
21
Rule 42(a) provides “If actions before the court involve a common question of law or fact, the court may: (1) join
for hearing or trial any or all matters at issue in the action; (2) consolidate the actions; or (3) issue any other orders
to avoid unnecessary cost or delay.”

13

IT IS HEREBY ORDERED that Defendant’s motion for summary judgment (DN 19) is
DENIED.
IT IS FURTHER ORDERED that Plaintiffs’ motion for summary judgment is
SUSTAINED as to Kazi’s liability as described in this Memorandum Opinion.
IT IS FURTHER ORDERED that on or before July 21, 2014, Plaintiffs here shall file a
memorandum setting forth their damages; Defendant shall reply on or before August 18, 2014.
IT IS FURTHER ORDERED Defendant’s motion for consolidation (DN 31, DN 2622) is
SUSTAINED and KFC Nat’l Council & Adver. Coop., Inc. v. Kazi, Case No. 13-cv-291, already
transferred here, will remain for further proceedings.

June 26, 2014

cc:

22

Counsel of Record

A motion to consolidate is found at DN 31 in Case No. 12-cv-564, and at DN 26 in Case No. 13-cv-291.

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