Colortyme, Inc. v. Grace Rentals, Inc.

Filing 32

ORDER granting in part and denying in part 22 Motion for Summary Judgment; granting 28 Motion for Extension of Time to File Response. Signed by District Judge John Corbett O'Meara. (WBar)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

COLORTYME, INC., and
COLORTYME FINANCE, INC.,
Plaintiffs,
Case No. 12-12338
v.
Hon. John Corbett O’Meara
GRACE RENTALS, INC., and
GARY D. MOORE,
Defendants.
____________________________/

ORDER GRANTING IN PART AND DENYING
IN PART PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT
Before the court is Plaintiffs’ motion for summary judgment as to Counts
VI, VII, VIII, IX, and XI of the complaint, filed May 1, 2014. Defendants filed an
untimely response on June 4, 2014, and, subsequently, a motion for an extension of
time to file the response. Seeing no undue prejudice to Plaintiffs, the court will
grant Defendants’ motion and consider their response.
BACKGROUND FACTS
Defendant Grace Rentals, Inc., through its principal, Defendant Gary Moore,
operated a ColorTyme “rent to own” franchise store in Flint, Michigan.

Defendants entered into various agreements with Plaintiffs ColorTyme, Inc., and
ColorTyme Finance, Inc. (“ColorTyme”), including a Franchise Agreement.
Defendants also obtained a line of credit for the store through Citibank in the
amount of approximately $225,000 (“the Note”).
In 2012, Grace was in default under the Franchise Agreement, having failed
to pay certain royalty fees, and in default under the Note. ColorTyme terminated
the Franchise Agreement. In addition, pursuant to an agreement with Citibank,
ColorTyme Finance paid Grace’s indebtedness under the Note in the amount of
$226,802.55.
Plaintiffs filed this action seeking, among other relief, unpaid royalties and
late fees under the Franchise Agreement (in the amount of approximately $15,000),
the amount it paid under the Note and guaranty ($226,802.55), and attorney’s fees
(now $51,506.91). Shortly after this action was filed, Defendants filed for
bankruptcy. This case was administratively closed during the bankruptcy
proceedings. The bankruptcy case was dismissed on August 1, 2013.
On August 2, 2013, the parties entered into a stipulated order to reopen this
case. In that order, Defendants agreed “to surrender the Collateral defined as
accounts, chattel paper, deposit accounts, documents, equipment, general
intangibles, instruments, inventory and letter of credit rights as well as proceeds
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therefrom, to Plaintiffs on August 5, 2013.” The parties further agreed that
“Plaintiffs shall apply the net proceeds from the liquidation of the Collateral to the
outstanding balance owed to ColorTyme Finance, Inc.” See Docket No. 14.
LAW AND ANALYSIS
Plaintiffs seek summary judgment, contending that they are entitled to relief
under the Franchise Agreement and Note. Plaintiffs state that, after giving a credit
of $178,602.35 for the collateral, they are entitled to the remaining balance of
$104,122.12 under the Note. Plaintiffs further contend that they are due
$15,589.24 in unpaid royalties and late fees under the Franchise Agreement and
$51,506.91 in attorney’s fees and costs.
Defendants do not dispute liability to Plaintiffs under the Note or Franchise
Agreement. Nor do Defendants appear to dispute that they owe $15,589.24 in
unpaid royalties and late fees under the Franchise Agreement. Defendants do
dispute the total amount of indebtedness ($282,724.47) Plaintiffs are seeking under
the Note, which is larger – presumably due to interest – than the balance due under
the note as of May 2012 ($226,804.22). Plaintiffs do not explain how they
calculated the total indebtedness. The court agrees that Plaintiffs must justify the
total amount of the debt they are seeking, by providing interest calculations or
other appropriate factual and/or legal support.
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Defendants also dispute that Plaintiffs properly calculated and credited them
for the liquidation of the collateral. Plaintiffs applied a credit of $178,602.35,
which they calculated under section 14.8 of the Franchise Agreement. This section
of the Franchise Agreement provides:
[Upon termination or expiration of the
agreement],Company shall have the right (but not the
obligation) to acquire all customer accounts an/or other
accounts receivable associated with any products,
supplies and inventory associated with the Store, as well
as the inventory which is subject to such accounts, at a
price equal to 5 times the average monthly “Adjusted
Revenue” applicable to such accounts/account receivable
and received in the prior 3 completed months as
evidenced by reports generated from Franchisee’s pointof-sale system. . . . If Company elects to exercise any
option to purchase herein provided, closing shall take
place within 45 days after the Company’s notice of intent
to purchase has been furnished to Franchisee.
Pls.’ Ex. A. at § 14.8. Plaintiffs used the formula of “5 times the average monthly
‘Adjusted Revenue’” to arrive at the credit of $178,602.35 for the collateral.
Plaintiffs have not liquidated or otherwise provided a fair market valuation of the
collateral. Defendants contend that the bulk of the collateral assets are accounts
receivable with a total balance in the amount of approximately $400,000.
Defendants contend that “88-90 percent” of these accounts are collectible and that
many of them have ongoing payment obligations. Defendants maintain that the
actual value of the assets surrendered, including physical assets, should be applied
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to the debt.
Plaintiffs have not met their burden of establishing that the amount of
credit applied to the debt is limited by the formula set forth in section 14.8 of the
Franchise Agreement. Like any plaintiff in a breach of contract case, Plaintiffs are
obligated to mitigate their damages. Further, the stipulated order entered by the
court on August 14, 2013, provides: “The parties agree that the Plaintiffs shall
apply the net proceeds from the liquidation of the Collateral to the outstanding
balance owed to ColorTyme Finance, Inc.” Plaintiffs have not liquidated the
collateral and have not provided an accounting as to the net proceeds.
Plaintiffs have neither established the total amount of the indebtedness nor
the amount of credit as a result of the sale of the collateral. Accordingly, Plaintiffs
have not met their burden of showing that there is no genuine issue of material fact
regarding their damages.
Defendants also dispute the amount of attorney’s fees sought by Plaintiffs.
Although Plaintiff have submitted an affidavit from counsel, they have not
provided billing records in support of their request. Billing records are necessary
so that the court may assess the reasonableness of the requested fees. Accordingly,
Plaintiffs have not sufficiently supported their request for fees and costs.
ORDER
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IT IS HEREBY ORDERED that Plaintiffs’ motion for summary judgment is
GRANTED IN PART with respect to liability and DENIED IN PART with respect
to damages, consistent with this opinion and order.
IT IS FURTHER ORDERED that Defendants’ motion for extension of time
to file response is GRANTED.

s/John Corbett O’Meara
United States District Judge
Date: July 9, 2014

I hereby certify that a copy of the foregoing document was served upon
counsel of record on this date, July 9, 2014, using the ECF system.

s/William Barkholz
Case Manager

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