KFC National Council and Advertising Cooperative, Inc. v. Kazi
Filing
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MEMORANDUM OPINION AND ORDER by Senior Judge John G. Heyburn, II on 11/18/2014;Plaintiffs motion for summary judgment is SUSTAINED as to Kazis liability as described in this Memorandum Opinion. Defendants request to assert affirmative defenses is DENIED and, therefore, his discovery requests are also DENIED. In a subsequent memorandum, the Court will consider the issue of damages. All other motions, besides damages motions, are moot.cc:counsel (DAKS)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:12-CV-564-H
KFC CORPORATION
PLAINTIFF
V.
ZUBAIR M. KAZI
DEFENDANT
****
CIVIL ACTION NO. 3:13-CV-291-H
KFC NATIONAL COUNCIL & ADVERTISING
COOPERATIVE, INC.
PLAINTIFF
V.
ZUBAIR M. KAZI
DEFENDANT
MEMORANDUM OPINION AND ORDER
This matter is before the Court on KFC National Council & Advertising Cooperative,
Inc.’s (“NCAC”) summary judgment motion regarding Zubair Kazi’s liability for personal
guaranties (“the Guaranties”) he signed as well as damages possibly owed for those guaranties.
This was originally a stand-alone case, but the Court consolidated it with a Kentucky Fried
Chicken Corporation (“KFCC”) suit against Kazi to enforce similar guaranties. The Court has
already determined Kazi’s liability under the KFCC guaranties, and it has denied Kazi’s requests
for more discovery and to assert his affirmative defenses against KFCC. Likewise, for the
reasons explained below, the Court now finds that Kazi is liable under the Guaranties he signed
with NCAC. At a later time, the Court will decide the damages issue for both NCAC and KFCC.
I.
As this Court has already described the facts of this case, the Court now lists only those
facts essential for understanding this opinion. Zubair Kazi is the founder, Chairman, and CEO of
Kazi Foods, Inc. Before bankruptcy proceedings in the Eastern District of Michigan, he owned
four Kazi franchisee entities1 that operated 142 KFC restaurants in several states. The franchise
agreements with KFCC required these franchisee entities to pay monthly advertising
contributions to NCAC.
But in 2010 the Kazi entities fell behind on their monthly advertising contributions to
NCAC. Three of the entities—Kazi Florida, Kazi New York, and Kazi Annapolis—entreated
with NCAC to sign promissory notes (“the Notes”) rather than make immediate payments. The
Notes were executed in December 2010. They established a payment schedule for the delinquent
advertising payments and obligated the Kazi entities to begin making payments in January 2011.
The Kazi Florida Note was for the principal amount of $511,228.70, Kazi New York’s Note was
for the principal amount of $1,893,857.36, and Kazi Annapolis’ Note was for $480,117.49.
These Notes were of great import to Kazi—signing them meant that the Kazi entities were no
longer in breach of their NCAC obligations and, thus, would not be in breach of their franchise
agreements with KFCC.
NCAC demanded more, however, than just the Notes. As consideration and additional
security for its willingness to forbear its enforcement of the Kazi entities’ past due payment
obligations, NCAC required Kazi personally to sign the Guaranties on each Note. Kazi Florida
made the first two payments, but then failed to make all subsequent payments. Kazi Annapolis
and Kazi New York made the first three payments, but then missed all subsequent payments.
1
These entities—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”)—
are not parties to this litigation.
2
Despite the Guaranties that Kazi signed he has not made any payments to NCAC. NCAC now
asks the Court for summary judgment on Kazi’s liabilities under the Guaranties. It requests an
order upholding Kazi’s liabilities on his Guaranties with NCAC, denying his requests for
discovery relating to certain affirmative defenses, and enumerating damages.
II.
Summary judgment is appropriate “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); 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)). Viewing this case in the light most favorable to Kazi, the nonmovant, and drawing all reasonable inferences in his favor, the Court concludes that genuine
issues of material fact do not exist and grants NCAC’s motion for summary judgment in regards
to Kazi’s liability under the Guaranties and denies further discovery relating to affirmative
defense. See Bender v. Southland Corp., 749 F.2d 1205, 1210-11 (6th Cir. 1984).
A.
The first question is whether these Guaranties are enforceable. NCAC’s motion for
summary judgment takes for granted that Kazi’s liability under the Guaranties is already
established. Yet this Court has only addressed his liability on a different set of guaranties—the
guaranties Kazi signed with KFCC guaranteeing his entities’ debts under the franchise
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agreements. The Court now determines that the Guaranties pertinent to this opinion are also
enforceable under Kentucky law.
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). Unlike the guaranties this Court addressed in the KFCC portion of this case, the
Guaranties Kazi signed with NCAC were written on the Notes his entities executed. Therefore,
the Guaranties are enforceable under Kentucky law. Moreover, Kazi admits that he signed the
Guaranties. And the Kazi entities did not fulfill their obligations under the Notes, triggering
Kazi’s personal obligations under the Guaranties. He is liable under their terms.
B.
Kazi does not dispute that the Guaranties exists, that they were written on the Notes, nor
that he signed the Guaranties and that his entities began making payments under the Notes.
Instead, he argues that certain affirmative defenses preclude his liability under the Guaranties.
As the Court understands his arguments, he disputes his liability for the following reasons: (1)
there was no contract between the parties; (2) even if there was a contract, there was no
consideration for it; (3) even if there was a contract and consideration, NCAC breached that
contract, thus frustrating the contract and negating his obligation to pay; and (4) that upholding
his obligations under the Guaranties would somehow violate antitrust laws. The Court is
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convinced that Kazi waived all of these affirmative defenses and, moreover, that they are without
merit.
1.
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). This Court interprets the language of
the Guaranties to mean that Kazi has already waived any affirmative defenses. The Guaranties
state that Kazi, the guarantor, “personally guarantee[s], unconditionally, irrevocably and
absolutely, to [NCAC] . . . the due and punctual payment of all amounts payable under [the
Notes] . . . .” See, e.g., Complaint, KFC National Council and Advertising Cooperative, Inc. v.
Kazi, No. 3-13-cv-291-S (W.D. Ky. Mar. 4, 2013), DN 1, Page ID # 14-17 (emphasis added).
They further stipulate that “neither the death, insolvency, bankruptcy, dissolution, or disability of
any one or more of [the Kazi entities] or Guarantor shall affect the obligation hereunder of
Guarantor . . . .” Id. (emphasis added). He also waived “all suretyship and Guarantor’s defenses
generally.” Id. Finally, Kazi waived “all defenses of [the Kazi entities] other than payment in
full of all amounts owed under [the Notes].” Id. The entities, of course, did not pay their full
obligations, and Kazi has not made payments under the Guaranties. The Court’s interpretation is
that these provisions amount to a knowing and voluntary waiver of defenses Kazi may have had
against enforcement of his personal obligations.
2.
Regardless of Kazi’s waiver, the Court is unconvinced of the merits of his affirmative
defenses. First, Kazi argues that the Notes were not a binding contract because there was no
meeting of the minds between the parties. His central rationale is that the two parties never
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agreed on certain material terms, including the maturity dates on the Notes. He also doubts that
NCAC properly assented to revisions he made to the maturity dates. So, he says, he should not
be personally liable on the Guaranties since there was no underlying agreement.
Notwithstanding Kazi’s attempt to reconstruct and recast past events, the full history between the
parties clearly shows a meeting of the minds and formation of a contract.2 Besides,
“[p]erformance, or even partial performance, of a contract will obviate the original lack of a
meeting of the minds of the parties, where an assent may be deduced from the conduct of the
party not bound.” Caskey v. Williams Bros., 11. S.W.2d 991, 993 (Ky. 1928). Kazi cannot
dispute that his entities did make payments under the Notes. This partial performance further
convinces the Court that there was a contract.
3.
Kazi also believes there was no consideration for the Notes. Yet NCAC made a legal
forbearance—it had a right to be paid the contributions Kazi’s entities had missed. It had the
right to late payment interest charges. And it had a right to sue to recover these monies. It chose
not to do so, instead agreeing to let Kazi’s entities pay their obligations under the Notes. As long
as the entities remained current on those Notes, NCAC could not act on the legal right to sue that
it had before the Notes were executed. “Clearly, the forbearance of a right to sue is valid
consideration to support a promise.” Alvey v. Union Inv., Inc., 697 S.W.2d 145, 148 (Ky. App.
1985) (quoting Cooke v. Louisville Trust Co., 380 S.W.2d 255 (Ky. 1964)) . If NCAC’s
forbearance does not qualify as adequate consideration, the Court cannot imagine what would.
2
Apparently, NCAC first sent out unsigned copies of the Notes and Guaranties to Kazi with a four month
maturity date. Kazi and his entities signed these documents but marked out the maturity date, replaced it with a 24
month maturity date, then had Brian Burr, a Kazi representative, send them back to NCAC. The NCAC Executive
Committee voted to approve the agreements so long as NCAC received the November 2010 advertising
contributions that were due in December 2010. The Kazi entities did pay those November 2010 dues and initially
made payments under the Notes.
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The Court finds Kazi’s argument that, even if there was a contract and consideration,
there was an immediate breach and frustration of the contract, to be without merit. It appears
that his sole rationale for this argument is that he understood the Notes would preclude the
termination of his entities’ franchise agreements, but Kazi Michigan had its franchise agreement
terminated when his other entities were paying under the Notes. This is irrelevant. The Notes
applied to Kazi Florida, Kazi New York, and Kazi Annapolis. Yes, if the Kazi entities had
performed under the Notes, then the franchise agreements for those entities would not have been
terminated. And, indeed, the franchise agreements were not terminated until they entered
bankruptcy. The life cycle of Kazi Michigan has no bearing on the performance of these Notes,
and NCAC did not breach or frustrate the contracts.
4.
Kazi’s antitrust arguments are also unpersuasive. In both the KFCC and NCAC portions
of this consolidated suit, Kazi has tried to convince the Court that KFCC and NCAC are engaged
in some diabolical, collusive effort to dominate the market of bone-in, pressure-cooked chicken.
Even though the Court has previously discarded these arguments, Kazi has not abandoned them.
Beyond its conviction that these defenses were waived—as discussed above—the Court rejects
these antitrust arguments for several reasons. Most notably, all of Kazi’s asserted evidence—his
lost profits, his lost business opportunities, his lost future profits— indicate harm to him, not to
the market. But as “the Supreme Court has emphasized, the Sherman Act protects competition,
not competitors.” Innovation Ventures, LLC v. N.V.E., Inc., 694 F.3d 723, 739 (6th Cir. 2012)
(citation omitted).
For all these reasons, the Court denies Kazi’s request for further discovery on possible
affirmative defenses.
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Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Plaintiff’s motion for summary judgment is
SUSTAINED as to Kazi’s liability as described in this Memorandum Opinion.
IT IS FURTHER ORDERED that Defendant’s request to assert affirmative defenses is
DENIED and, therefore, his discovery requests are also DENIED.
In a subsequent
memorandum, the Court will consider the issue of damages.
IT IS FURTHER ORDERED that all other motions, besides damages motions, are moot.
November 18, 2014
cc:
Counsel of Record
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