Gallagher's NYC Steakhouse Franchising, Inc. v. NY Steakhouse Of Tampa, Inc. et al
Filing
25
MEMORANDUM OPINION & ORDER granting re: 12 MOTION for Summary Judgment filed by Gallagher's NYC Steakhouse Franchising, Inc., denying 21 MOTION for Leave to File Amended Answer and Counterclaim Instanter filed by Mitchell J. Walker, N Y Steakhouse Of Tampa, Inc., James Tully. Plaintiffs are entitled to summary judgment on their claims for breach of contract and breach of the personal guarantee. Defendants are therefore jointly and severally liable for damages in the amount of 6;106,393.27, plus interest in the amount of $11,774.57. By no later than December 16, 2011, Plaintiff must submit additional documentation to enable the Court to determine the reasonableness of the requested attorneys fees. Any opposition by Defendants must be submitted by December 23, 2011. Judgment will not be entered until the attorneys fees are determined. (Signed by Magistrate Judge Theodore H. Katz on 12/5/2011) (cd)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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I
GALLAGHER'S NYC STEAKHOUSE
FRANCHISING, INC.,
I
11 Civ. 1456 (THK)
Plaintiff,
-against-
MEMORANDUM OPINION AND
ORDER
NY STEAKHOUSE OF TAMPA, INC.,
JAMES TULLY, AND MITCHELL J.
WALKER,
Defendants.
----- - -- - -- ---------- ---- X
THEODORE H. KATZ, UNITED STATES MAGISTRATE JUDGE.
Plaintiff Gallagher's New York City Steakhouse Franchising,
Inc.
("Gallagher's") brings this action for breach of contract and
breach of personal guarantee against New York Steakhouse of Tampa,
Inc.
("Tampa Gallagher's"),
("Tully")
and Mitchell J.
franchisee.
pursuant
to
a former franchisee,
Walker
("Walker"),
and James Tully
guarantors of the
The parties consented to trial before this Court,
28
U.S.C.
§
636 (c).
Pretrial
discovery
has
been
completed and Plaintiff has filed a motion for summary judgment
pursuant
to
Federal
Rule
of
Civil
Procedure
56.
Defendants,
collectively, oppose the motion for summary judgment and have filed
a motion for leave to amend the Answer and counterclaim instanter.
For the reasons that follow,
Plaintiff's motion for summary
judgment is granted and Defendants' motion for leave to file an
amended Answer and counterclaim is denied.
BACKGROUND
Plaintiff,
Gallagher's,
a
New
York
corporation
with
its
principle place of business in New York City, is a franchisor of
Gallagher
branded
steakhouse
full-service
Complaint (\\Compl.") at 2
~
restaurants.
(See
On August 29, 2006, Plaintiff and
2.)
Tampa Gallagher's entered into a Franchise Agreement
("Franchise
Agreement"
Gallagher's
or
"Agreement")
Steakhouse in Tampa,
Statement
("PI.' s
for
the
at
a
(See Plaintiff's Local Rule 56.1
Florida.
56. I")
operation of
~
1
In conj unction with the
1.)
Franchise Agreement, Tully and Walker signed a personal guarantee,
in which they "j ointly , individually and severally . . . absolutely
and unconditionally guarantee[d] the payment of all amounts and the
performance of all of the covenants, terms, conditions, agreements
and
undertakings
contained
and
set
forth
in
[the]
Franchise
Agreement and in any other agreement(s) by and between Franchisee
and
Franchisor.
Franchising,
II
Inc.
(Guarantee
Franchise
of
Gallagher's
Agreement
("Personal
attached as Exhibit ("Ex. ") A to CompI. at
The
Franchise
Agreement
NYC
Steakhouse
Guarantee"),
1.)
required payment
of
a
continuing
royalty in the amount of 5% of the prior month's gross sales for
Tampa Gallagher l s.
Steakhouse
(See
Franchising l
Pl. s
56.1 at
1
Inc.
Gallagherls
Agreement ("Franchise Agreement")
1
2
2
~3 i
Gallagher l s
Restaurant
NYC
Franchise
attached as Ex. A to Compl. at
5
~
For
5.02.)
past
due
payments
owed
to
Gallagher's,
the
Agreement required payment of interest at a rate of 4% above the
prime rate of
interest on the first day of each month that an
amount was past due, as published in the Wall Street Journal.
(See pI.'s 56.1 at 2 ~ 4; Franchise Agreement at 7 ~ 5.08.)
The
Agreement also included a provision for attorneys' fees, entitling
Gallagher's to recover from Defendants "reasonable attorneys' fees,
experts' fees, court costs and all other expenses of litigation, if
[Gallagher's]
prevail[s]
in
any
action
instituted
against
[Defendants] to secure or protect [Gallagher's] rights under this
agreement.
at 64
~
Pl.'s 56.1 at 4
11
~ 15i
Franchise Agreement
29.01.)
It is undisputed that Tampa Gallagher's breached the Franchise
Agreement
Plaintiff.
Statement
by
failing
to
make
(See Pl.'s 56.1 at 3
("Defs.'
56.1")
at
2
continuing
~
~
royalty
payments
to
9; Defendants' Local Rule 56.1
9.)
Consequently,
terminated the Franchise Agreement on November 17,
Pl.'s 56.1 at 3 ~ 10i Compl. at 7 ~ 28.)
Plaintiff
2010.
Plaintiff entered into a
limited term franchise agreement with Tampa Gallagher's and Tully
to allow Tampa Gallagher's to remain open through January 2, 2011.
(See Pl.'s 56.1 at 3
~ 11.)
This limited term franchise agreement
required payment of royalties to Plaintiff at the same rate as in
the original Franchise Agreement.
3
(See id.
at 4
~
14.)
While
operating under the limited term franchise agreement, Defendants
(See id. at 4 ~ 16; Defs.'
continued to fail to pay royalties.
56.1 at 2 ~ 16.)
Plaintiff
subsequently
filed
this
action
against
Tampa
Gallagher's for breach of contract, and against Tully and Walker
Plaintiff contends that
for breach of the personal guarantee.
Defendants owe $106,393.27 in past due royalty payments (see PI.'s
~
56.1 at 5
payments
17)1
$11,774.57 in interest on the past due royalty
~
(see id. at 5
(see id. at 5
~
royalty payments
fees
Defendants concede that they breached the
19).
Franchise Agreement
and $31,256.50 in attorneys'
18)1
and owe
(see Defs.'
interest (see id. at 2
~ 18) i
Plaintiff
56.1 at
2
$106 / 393.27
~
17)
in past
due
and $11/774.57 in
Tully and Walker admit that they are
personally liable under the personal guarantee (see Defs.1 56.1 at
1
~
Defendants assert,
8).
prevailed
attorneys
in
I
this
action
however,
and
fees (see id. at 2
Furthermore
Plaintiff.
I
Defendants
(See id. at 2
~
~
that
they
do
not
owe
Plaintiff
19).
contest
20.)
that Plaintiff has not yet
the
total
amount
owed
to
SpecificallYI Defendants maintain
that the damages they owe Plaintiff must be offset by the damages
Defendants incurred as a result of Plaintiff/s alleged breach of
the Franchise Agreement.
however
I
is
not
alleged
(See id.
in
the
4
at
Answer
2
~
or
21.)
any
That breach
counterclaim.
l
According to Defendants, by the middle of 2009, Tampa Gallagher's
(See Declaration of James
had lost about two million dollars.
Tully
in
Support
of
Defendants'
Memorandum
in
Opposition
to
Plaintiff's Motion for Summary Judgment (\\Tully Decl.")
at 2 ~ 5.)
In
pursued
an
effort
to
\\save
the
restaurant,"
catering agreement with Tampa Bay Arena
(See
"Arena" ) .
discussed
id.
this
executives,
at
2
~
said
the
("Tampa Bay Arena"
6.)
Defendants allege
with
opportunity
who
Defendants
Gallagher's
opportunity
encouraged Defendants to pursue
sounded
the opportunity.
CEO
that
or
they
and
other
"excellent"
(See id.)
a
and
Based
on Gallagher's alleged approval, Tampa Gallagher's entered into a
sponsorship agreement with Tampa Bay Arena to cater Gallagher's
food to the Arena in exchange for a certain percentage of the
revenues from sales as well as promotional marketing.
2
~
and
8.)
(See id. at
The sponsorship agreement was for a period of five years
required
an
initial
Gallagher's made.
(See id.
payment
of
~
9.)
at 2
$100,000,
which
Tampa
In connection with the
sponsorship agreement, Tampa Gallagher's entered into a licensing
and requirements agreement with Tampa Sportservice,
Inc.,
which
runs concessions at the Tampa Bay Arena, for Tampa Sportservice to
be the purchaser and server of Tampa Gallagher's catered food.
(See id. at 2
~
10.)
Soon after Tampa Gallagher's entered into the sponsorship
5
agreement and the licensing and requirements agreement, on October
28,
2010,
Plaintiff
sent Tampa Gallagher's a
cease and desist
notice to immediately terminate its catering at Tampa Bay Arena.
(See id. at 2 , 11.)
stated
that
According to Defendants, Plaintiff's notice
Defendants
were
operating
a
separate
Gallagher's
restaurant at the Tampa Bay Arena in violation of the Franchise
Plaintiff sent a similar cease and desist
Agreement.
notice
to
Gallagher's
Defendants
Tampa
Bay
business
allege
Arena,
at
that
the
as
a
which
in
(See
Arena.
result
turn
of
suspended
id.
this
at
3
,
Tampa
12.)
suspension,
Tampa
Gallagher's lost its initial $100,000 payment to the Arena and
future profits.
(See id. at 3 , 13.)
On October 12, 2011, Plaintiff filed the instant motion for
summary judgment on its claims of breach of contract and breach of
the personal guarantee.
their
response
to
On November 2,
Plaintiff's
motion
2011,
for
essentially conceding liability and damages.
Defendants filed
summary
judgment,
On the same day,
Defendants filed a motion for leave to file an amended answer to
add a counterclaim against Plaintiff for breach of contract and
breach of the implied covenant of good faith and fair dealing.
The
proposed counterclaim is premised on Gallagher's cease and desist
notice relating to the catering arrangement at the Tampa Bay Arena.
Plaintiff opposes the motion.
6
DISCUSSION
I.
Summary Judgment on Plaintiff's Claims
A.
Legal standard
A motion for summary judgment may not be granted unless the
Court determines that there is no genuine issue of material fact to
be tried, and that the facts as to which there is no such issue
warrant judgment for the moving party as a matter of law.
See
Celotex Corp. v. Catrett, 477 U.S. 317, 322 23, 106 S. ct. 2548,
2552 53
(1986)i
(2d Cir. 2004)
Patterson v. County of Oneida, 375 F.3d 206, 219
Shannon v. N.Y. City Transit Auth., 332 F.3d 95, 98
i
(2d Cir. 2003).
The burden of demonstrating the absence of any
genuine dispute as to a material fact rests upon the party seeking
summary judgment, see Adickes v. S. H. Kress & Co., 398 U.S. 144,
157,
90 S. Ct.
1598, 1608
(1970),
but once a properly supported
motion for summary judgment has been made, the burden shifts to the
nonmoving party to make a
essential elements of
sufficient showing to establish the
that party's case on which it bears the
burden of proof at trial. See Hayut v. State Univ. of N.Y.,
F.3d 733,743 (2d Cir. 2003)
S. Ct. at 2552).
352
(citing Celotex, 477 U.S. at 322, 106
To meet its burden, the non-movant must put forth
"specific facts showing that there is a genuine issue for trial."
Fed. R. Civ. P. 56(e).
\\ [a] ffidavits
Facts may be set forth in affidavits, but
submitted in support of or in opposition to the
7
summary judgment motion must 'be made on personal knowledge, shall
set forth such facts as would be admissible in evidence, and shall
show affirmatively that the affiant is competent to testify to the
matters therein.'
P. 56(c».
If
Patterson, 375 F. 3d at 219 (quoting Fed. R. Civ.
Thus, hearsay and conclusory assertions which would not
be admissible at trial cannot serve to create a genuine issue for
In assessing the record to determine whether there is a
trial.
genuine issue to be tried as to any material fact,
required
factual
to
resolve
inferences
judgment is sought.
all
ambiguities
in favor of
and
draw
all
the Court is
permissible
the party against whom summary
See Anderson v. Liberty Lobby. Inc., 477 U.S.
242, 255, 106 S. Ct. 2505, 2513 (1986); Patterson, 375 F.3d at 219;
Amnesty Am.
v.
Town of W.
Hartford,
361 F.3d 113,
122
(2d Cir.
2004) .
B.
Application
1.
Breach of Contract and Breach of Personal Guarantee
Under New York law,l a party claiming breach of contract must
show
(1)
plaintiff,
the
existence
of
a
contract,
(2)
performance
(3) breach by the defendant, and (4) damages.
I The Franchise Agreement includes a
forum
that mandates that New York law will govern any
out of the Agreement.
(See Franchise Agreement
There is no dispute that the substantive law of
controls.
8
by the
See 24/7
selection clause
disputes arising
at 65 ~ 29.03.)
New York
Records,
Inc. v. Sony Music Entm't,
Cir. 2005)
(applying New York law)
Inc., 429 F.3d 39, 41-42
(2d
(citing Eternity Global Master
Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 177 (2d
Cir.2004)).
a.
Liability
Here, there is no real dispute as to Plaintiff satisfying the
elements of its breach of contract and breach of personal guarantee
claims.
Defendants admit that Tampa Gallagher's entered into a
Franchise Agreement and that this Agreement was properly executed.
(See Defs.' 56.1 at 1
~~
Similarly, Defendants admit that
1-4.)
Tully and Walker entered into an agreement to personally guarantee
Tampa Gallagher's obligations under the Franchise Agreement.
id. at 1
~~
4-8.)
(See
Defendants further admit that Tampa Gallagher's
entered into a limited term franchise agreement that allowed Tampa
Gallagher's to continue operating as a Gallagher's franchise from
November 17, 2010 to January 2, 2011.
(See id. at 2
Finally,
Gallagher's
Defendants
Franchise Agreement
admit
that
(see id.
Tampa
at 2
~~
9-10)
,~
breached
(see id. at 2 ,
that
Plaintiff
continuing royalties
stated by Plaintiff (see id. at 2
~,
to
16 18).
the
and that Tully and
Walker breached the personal guarantee
they owe
11-15.)
20),
and
in the amount
Defendants have not
produced any evidence to show a disputed issue of material fact
regarding Plaintiff's claims.
As there is no disputed issue of
9
material fact,
Plaintiff is entitled to summary judgment on its
claims for breach of contract and breach of the personal guarantee.
b. Damages
Defendants concede that they owe Plaintiff $106,393.27 in past
due royalty payments (see id. at 2 ~ 17) and $11,774.57 in interest
(see id. at 2
~
18).
Nevertheless, Defendants contend that there
is a genuine issue of fact as to the amount of damages Defendants
owe Plaintiff and that this issue bars summary judgment.
response to Plaintiff's motion for summary judgment,
In their
Defendants
contend that Plaintiff breached the Franchise Agreement 2 and the
implied covenant of good faith and fair dealing by sending the
cease and desist notice and interfering with Tampa Gallagher's
catering agreement with the Tampa Bay Arena,
causing Defendants
2It is not clear from Defendants' proposed counterclaim
whether the breach of contract claim arises from the Franchise
Agreement or an alleged oral agreement whereby Gallagher's
provided oral support of Defendants' plan to provide catering
services to the Tampa Bay Arena.
(See Proposed Amended Answer
and Counterclaims ("Proposed Am. Answer"), attached as Appendix B
to Defendants' Motion for Leave to Amend the Answer and
Counterclaim Instanter at 5-6 ~~ 6-16.)
In the Limited Term
Franchise Agreement, Defendants agreed that the "Franchise
Agreement was properly terminated effective November 17, 2010."
(Agreement Regarding Grant of Limited Term Successor Franchise
Agreement ("Limited Term Agreement"), attached as Exhibit C to
Plaintiff's Motion for Summary Judgment.)
It is difficult to
understand how Defendants can claim damages, including lost
profits for a period of five years between 2010 and 2105, from
Plaintiff's alleged breach of the Franchise Agreement, when
Defendants concede that the Franchise Agreement was properly
terminated.
10
damages.
(See Defendants' Memorandum in opposition to Plaintiff's
Motion for Summary Judgment
("Defs.'
Mem.")
at 4.)
Defendants
argue that the damages Defendants owe Plaintiff must be offset by
the damages Plaintiff caused Defendants by this breach.
(See id.
at 4.) Defendants submit a single declaration, prepared by Tully,
that sets forth Plaintiff's alleged breach and the damages suffered
by Defendants.
This
declaration
is
not
sufficient
to
defeat
Plaintiff's motion for summary judgment on either liability or
damages.
Leaving aside the question of whether Defendants will be able
to assert a counterclaim against Plaintiff, as there is none in
their Answer,
and assuming that Defendants have a valid claim
against Plaintiff that would enti tle Defendants to damages,
\I,
there
is no right to set off a possible, unliquidated liability against
a
liquidated
claim
that
is
due
and
payable.'"
Willett
v.
Lincolnshire Mgmt.,756 N.Y.S.2d 9,9,302 A.D.2d 271,271
Dep't 2003)
199,
199,
(quoting Spodek v. Park Prop. Dev. Assoc., 693 N.Y.S.2d
263
A.D.2d
476,
478-79
Correspondent Servs. Corp. v.
412, 424
its
(S.D.N.Y. 2007)
pending
plaintiff's]
law] .")
i
(1st
disputed
present
(\I
and
(2d Dep't
J.V.W.
1999))
Inv. Ltd.,
i
see
also
524 F. Supp.
2d
[Defendant] has no right to 'set-off'
unliquidated
entitlement
to
claim
damages
against
owed
[under
[the
the
Ferguson v. Lion Holdings, Inc., 312 F. Supp. 2d 484, 503
11
(S.D.N.Y.
setoff
to
2004)
("Because debts must be due to the claimant for
apply,
there
is
no
right
to
set
off
a
possible,
unliquidated liability against a liquidated claim that is due an
payable. ,,)
Moreover,
(internal quotation marks and citations omitted)).
\1\
[o]ffset claims do not bar summary judgment on .
payment obligations, unless such obligations and the offset claims
involve contractually \ dependent' promises.'" Computech Int' 1, Inc.
v. Compaq Computer Corp., No. 02 Civ. 2628 (RWS) , 2004 WL 1126320
(S.D.N.Y May 21, 2004)
(quoting Pereira v. Cogan, 267 B.R. 500, 507
\lIf two promises .
(Bankr. S.D.N.Y. 2001)).
are independent,
breach of one does not excuse performance of the other."
Coleman
Co. Inc. v. Hlebanja, No. 96 Civ. 1288 (MBM) , 1997 WL 13189, at *7
(S.D.N.Y. Jan. 15, 1997)
(applying New York law).
Promises within
the same instrument are not necessarily related or dependent.
id.
(\I
See
[E]ven if several contracts that constitute part of the same
transaction are considered one contract, the different obligations
within each contract may be independent and divisible.").
Whether
provisions within a contract are dependent is largely a question of
intent and circumstances. Rudman v. Cowles Commc'ns, 330 N.Y.S.2d
33, 42, 30 N.Y.2d I, 13 (1972)
are
separable
or
entire,
the
(\lIn determining whether contracts
primary
standard
is
manifested, viewed in the surrounding circumstances. 1/).
of the parties should be
"determined from the
12
the
intent
The intent
language of
the
contract and the circumstances under which the contract was made.
Refinement Int'l Co. v.
(S.D.N.Y.
1993)
Here,
Eastbourne N.V.,
(applying New York
Defendants'
proposed
815 F.
law)
Supp.
(citations
counterclaims
738,
/I
742
omitted).
for
breach
of
contract and breach of the implied covenant of good faith and fair
Moreover,
dealing are unliquidated and disputed.
appear
to
arise
from
the
same
instrument,
although they
the
proposed
counterclaims are wholly independent of Plaintiff's claims.
the
provisions
proposed
involved
counterclaims
in
are
Plaintiff's
not
claim
contractually
and
First,
Defendants'
dependent.
No
evidence has been presented that suggests that the breach of one
provision would excuse breach of the other provision.
See Rudman,
330 N.Y.S.2d at 42, 30 N.Y.2d at 13 (explaining that provisions are
mutually dependent when the breach of one undoes the obligation
under
the
other).
Section
5.10
of
the
Franchise
Agreement
indicates the independent nature of the two provisionsi it reads,
"[Franchisee] may not withhold payment of any Continuing Royalty.
on the grounds of the alleged non-performance or breach of any
of our
agreement
obligations under this Agreement or any related
/I
(Franchise Agreement at 7
~
5.l0.)
The words
of the Agreement make clear that the parties intended the royalty
payments to be independent of all other promises and obligations
13
within
the
Franchise
Defendants
Agreement.
have
effectively
conceded that this was the intended meaning of the Agreement, as
they have never asserted that Tampa Gallagher's obligation to pay
the continuing royalty fees ended when Plaintiff allegedly breached
the Franchise Agreement.
A somewhat analogous situation arose in Lazard Freres & Co. v.
Crown Sterling Mgmt.,
901 F. Supp. 133 {S.D.N.Y. 1995}.
There,
the parties entered into a contract for financial services in which
the defendant agreed to pay the plaintiff fees for certain debt
transactions,
regardless of whether the plaintiff arranged the
transactions.
901 F. Supp. at 134-35.
After several of these
transactions occurred, the defendant failed to pay the plaintiff,
who brought suit.
See id.
The defendant asserted counterclaims
for breach of the same contract, alleging that the plaintiff had
failed to adequately perform.
See id.
The district court held
that the defendant's counterclaim did not preclude awarding summary
judgment to the plaintiff even though the counterclaim involved the
same instrument.
See id.
at 136-37.
The court reasoned:
DThe
Agreement specifically provided that [plaintiff]' s payment would be
apportioned
according
[plaintiff] 's
to
performance
various
of
tasks,
these
and
tasks.
was
payable
Under
upon
these
circumstances, the portion of the Agreement pertaining to the debt
restructuring was severable from the other parts of the Agreement.
14
II
at 136.
The court entered judgment for the plaintiff, awarding
damages in the amount of the past due payments plus interest.
See
Similarly, the Franchise Agreement at issue in this
id. at 139.
case contains
a
provision that
clearly dictates
the
amount of
continuing royalties due Plaintiff, and this amount is independent
(See Compl. Ex. A at
of Plaintiff's performance of the Agreement.
5
~
5.02;
7,
~
5.10.)
Accordingly,
Plaintiff's entitlement to
summary judgment on both liability and damages is not undermined by
Defendants' proposed counterclaims.
In addition, Defendants' proposed counterclaims do not present
any facts that affect Plaintiff's right to damages.
v.
Prescription
(S.D.N.Y.
1992)
Plan
Servs.
( finding
Corp.,
no
bar
783
to
See Greenblatt
Supp.
F.
summary
814,
judgment
823-24
when
a
"counterclaim raises no issue of fact material to a determination
of
plaintiffs'
entitlement
[under
its
initial
claim]").
Plaintiff's alleged breach of the Agreement-sending the cease and
desist letter and improperly interfering with Defendants' catering
arrangement-does
not
bear
on
Defendants'
liability
for
the
continuing royalty payments for the operation of the restaurant.
Defendants concede this point by admitting their liability under §
5.02 of the Franchise Agreement and conceding the amount of damages
that resulted from the breach of § 5.02.
9 10, 3
~~
16 28 & 20.)
(See Defs.' 56.1 at 2
~~
As the elements of Plaintiff's claims and
15
proposed
Defendants'
counterclaim
do
not
overlap
and
are
independent, Plaintiff is entitled to summary judgment on the issue
of damages.
See Greenblatt, 783 F. Supp. at 823 ("Under Rule 56 of
the Federal Rules of Civil Procedure, where a counterclaim presents
an independent, unliquidated claim and presents no issue of fact as
to
the
plaintiff's
claim,
the
entry
of
summary
judgment
on
plaintiff's claim is not only proper but is required. ") .
C. Attorneys' Fees
"Under New York law, a contract that provides for an award of
reasonable attorneys' fees to the prevailing party in an action to
enforce the contract is enforceable if the contractual language is
sufficiently clear."
537 F.3d 168,
175
NetJets Aviation. Inc. v. LHC Commc'ns
(2d Cir.
2008)
(citations omitted).
f
LLC,
Section
29.01 of the Franchise Agreement provides that \\ [Gallagher's] shall
be entitled to recover from
[Defendants]
fees,
costs
experts'
litigation,
if
fees,
and
[Gallagher's] prevail[s]
against [Defendants]
II
court
reasonable attorneys'
all
other
expenses
of
in any action instituted
. to enforce the terms of this Agreement
(Franchise Agreement at 64
~
29.01.)
The language of the
provision is clear and enforceable.
Plaintiff now seeks $31,256.50 in attorneys' fees.
Mot. at 6
than
to
~
15.)
argue
(See Pl.'s
Defendants do not contest the fee request other
that
awarding
attorneys'
16
fees
is
premature,
as
Plaintiff has not yet -prevailed."
But the Court has now granted
summary judgment to Plaintiff l and l thus
in this
action.
See
Buckhannon Bd.
1
1839 (2001)
(-[A]
Care
&
Virginia Dep/t of Health and Human Res'
Ct. 1835
Plaintiff has prevailed
I
l
is
entitled to
Franchise Agreement.
I
Inc.
v.
W.
532 U.S. 598 1 603 1 121 S.
'prevailing partyl is one who has been
• 1/) •
awarded some relief by the court
Plaintiff
Home
reasonable
However
I
attorneys
Plaintiff has
Having prevailed l
I
fees
under
the
failed to provide
sufficient documentation to establish the reasonableness of the
requested fees.
It is a well-established rule in this circuit
-that absent unusual circumstances attorneys are required to submit
contemporaneous records with their fee applications." Scott v. City
of New York
l
626 F.3d 130
1
133 (2d Cir. 2010) (citing New York State
Ass/n for Retarded Children v. Carey, Inc'
1983)).
l
711 F.2d 1136 (2d Cir.
AccordinglYI Plaintiff must submit contemporaneous records
documenting the hours and labor spent on the case,
the hourly
rates, and the costs incurred.
II.
Defendants' Motion for Leave to Amend the Answer
A.
Legal Standard
\\[T]he purpose of pleading is to facilitate a proper decision
on the merits.
If
Ct. 13, 18 (1960)
United States v. Hougham, 364 U. S. 310, 317, 81 S.
(citation omitted).
NormallYI -a party may amend
its pleading only with the opposing party's written consent or the
17
court's leave.
requires."
The court should freely give leave when justice so
Fed. R. Civ. P. 15(a) (2).
However, when a court has
issued a scheduling order and established deadlines for amending
the pleadings, the deadlines "may be modified only for good cause
and with the judge's consent."
Fed. R. Civ. P. 16(a)
Grochowski v. Phoenix Constr., 318 F.3d 80,
a scheduling order has been entered,
(4)i
(2d Cir. 2003)
see also
("Where
the lenient standard under
Rule 15 (a)
must be balanced against the requirement under
Rule 16 (b) ." ) .
Accordingly,
"[o]nce the deadline for amendment
in a scheduling order has passed,
'where the moving party has
failed
Presbyterian Church of Sudan v.
244,
267
(2d
Cir.
2009)
leave to amend may be denied
to establish good cause.'"
Talisman Energy,
(quoting
Parker v.
Inc.,
582 F.3d
Columbia
Pictures
Indus., 204 F.3d 326, 340 (2d Cir. 2000)).
In
determining
whether
good
cause
exists,
a
consider the diligence of the party seeking to amend.
204
F. 3d
at
340
(" [A]
finding
of
diligence of the moving party.").
good
cause
court
must
See Parker,
depends
on
the
The Court may also consider
"other relevant factors, including, in particular, whether allowing
the amendment . . . will prejudice [the nonmoving party] ."
Kassner
v. 2nd Avenue Delicatessen, Inc., 496 F.3d 229, 244 (2d Cir. 2007).
"In determining what constitutes 'prejudice,
the assertion of the new claim would:
18
I
we consider whether
(i) require the opponent to
-----------------~.-
..- .
expend significant additional resources to conduct discovery and
prepare for triali
(ii) significantly delay the resolution of the
disputei
prevent the plaintiff from bringing a
or
(iii)
action in another jurisdiction.
F.2d 344,
350
(1993)
H
timely
Block v. First Blood Assocs., 988
Finally,
(internal citations omitted).
a
court may deny leave to amend when the proposed claim would be
See Dluhos v. Floating & Abandoned Vessel, Known as New
futile.
York, 162 F.3d 63, 69 (2d Cir. 1998)
(quoting Foman v. Davis, 371
U. S. 178, 182, 83 S. Ct. 227, 230 (1962)).
B.
Application
Here,
the deadline for amending the pleadings has passed.
This Court issued a
required
any
Scheduling Order on August 19,
motions
September 19, 2011.
to
amend
the
pleadings
to
be
(See Order, dated Aug. 19, 2011.)
2011,
that
filed
by
Defendants
filed their motion to amend the Answer on November 2, 2011, nearly
two months after the deadline,
and after Plaintiff's motion for
summary judgment was filed.
Defendants
delay.
have
failed
to establish good cause
for
their
First, Defendants have not been diligent in asserting their
counterclaims.
Defendants were aware of the factual basis for the
counterclaims at the time they filed their Answer, but they failed
to plead the counterclaims.
{See Defendants' Motion for Leave to
File Amended Answer and Counterclaim Instanter ("Defs.' Mot.") at
19
2; Answer at 4
~
49.)
Defendants explain that they sought to save
the expense and effort of filing their counterclaims by waiting
until settlement proved futile.
(Defs.' Mot. at 3.)
This argument
makes little sense, as amending the Answer to assert counterclaims
would not have taken substantial time or effort, particularly since
the factual basis of the counterclaims was known to Defendants when
the action was commenced.
Healthcare,
misplaced.
Inc.,
679
F.
Defendant's reliance on Naylor v. Rotech
Supp.
2d 50S,
509
(D.
vt.
is
In that case, a party was granted leave to amend after
the case failed to settle and new "facts came to light"
added) .
2009)
Again,
here
the
facts
underlying
the
(emphasis
proposed
counterclaims were known when the initial Answer was filed.
In
addition,
Plaintiff.
granting
Defendants'
motion
would
prejudice
Plaintiff argues that it was unaware of Defendants'
proposed counterclaims until November 2,
2011,
the date on which
Defendants filed their motion for leave to amend the Answer.
Plaintiff's Opposition to Defendants'
(See
Motion for Leave to File
First Amended Answer and Counterclaim Instanter ("PI.'s Opp'n") at
3 & 7-8.)
Defendants contend otherwise.
In any event,
Plaintiff did not have the opportunity to obtain
discovery on the
passed.
(See Defs.' Mot. at 2.)
counterclaims, and the discovery deadline has now
(See Pl.' s Opp' n at 4.)
Granting Defendants' motion would
require reopening discovery on a different set of facts than those
20
See Ansam Assocs. v.
in the present pleadings.
Ltd.,
760 F. 2d 442,
446
(2d Cir.
Cola Petroleum,
1985) (affirming the denial of
leave to amend a pleading where "[t] he proposed . . . claims allege
an entirely new set of operative facts of which it cannot be said
that
the
quotation
original
marks
complaint
provided
This
omitted).
resolution of this dispute.
fair
would
notice
ll
(internal
)
significantly
delay
Given the delay that would result, the
fact that discovery has already been completed, and the fact that
Plaintiff has filed a motion for summary judgment which has been
granted, granting Defendants leave to amend the Answer at this late
date would clearly prejudice Plaintiff.
See Krumme v. Westpoint
Stevens, Inc., 143 F.3d 71, 88 (2d Cir. 1998)
a
motion
for
amendment
leave
to
amend
and
noting
(affirming denial of
that
[is] especially prejudicial
had already been completed and
motion for summary judgment.' II)
[non-movant]
\\ \ [a]
proposed
[when] discovery
had already filed a
{alteration in original} (citing
Ansam Assocs., 760 F.2d at 446).
Finally,
although Plaintiff did not address the merits or
futility of the proposed counterclaims, on their face they appear
to have very limited or no likelihood of success on the merits.
See Benoit v.
Commercial Capital Corp.,
No.
03 civ.
2008 WL 3911007, at *9 (S.D.N.Y. Aug. 25, 2008)
5328
(PKL) ,
(explaining that a
court may deny leave to amend where the proposed claim is futile) .
21
----------------------
First,
Defendants
agreed
that
-
on November
properly terminated the Franchise Agreement.
Agreement. )
17,
2010
Plaintiff
(See Limi ted Term
If, as Defendants concede, the Franchise Agreement was
properly terminated within a month of Plaintiff issuing the cease
and desist notice regarding catering services at the Tampa Bay
Arena, it is dubious that Defendants can claim lost profits damages
through 2015, under the Agreement.
Second, when Defendants agreed
to the Limited Term Franchise Agreement, which was limited solely
to continuing the operation of the Tampa Gallagher's restaurant for
a
six-week period of
general release.
Shelley Decl.)
time,
Defendants
agreed to and signed a
(See General Release, attached as Ex. C to the
In the general release,
Defendants released and
discharged Plaintiff from any claims Defendants may have had prior
to the signing of the release.
Defendants'
id.)
As the facts underlying
proposed counterclaims arose prior to the time the
release was signed,
it would appear that Defendants waived the
right to assert these claims.
In conclusion, given Defendants' failure to demonstrate good
cause for the delay in amending the Answer, lack of diligence, the
prejudice to Plaintiff
if
leave to amend was granted,
and the
likely futility of the proposed counterclaims, Defendants' motion
to amend the Answer to assert counterclaims is denied.
C. Rule 8 (c) (2)
22
-------~
---
-----
Federal Rule of Civil Procedure 8(c) (2) provides,
"If a
party mistakenly designates a defense as a counterclaim, or a
counterclaim as a defense, the court must, if justice requires,
treat the pleading as though it were correctly designated, and
may impose terms for doing so."
to "correct .
The purpose of Rule 8{c) (2) is
. technical pleading error[s]/I and to "ignore
improper designations in order to interpret a pleading in
accordance with its true character./I
Bozsi Ltd. P'ship v.
Lynott, 676 F. Supp. 505, 516 (S.D.N.Y. 1987).
Defendants request that the Court rely upon Rule 8{c) (2) to
convert their single affirmative defense into properly pleaded
counterclaims.
so.
(See Defs.' Mem. at 8.)
The Court declines to do
The affirmative defense in the operative Answer reads:
"Gallagher's breached the franchise agreement by failing to
provide the support services it was obligated to provide.
Because of Gallagher's breach, Defendants' continuing duty of
performance was excused.
In the alternative, Defendants are
entitled to set off their damages against any damages Gallagher's
may have./I
(Answer at 4
~
49.)
The affirmative defense in the
Answer is not simply a misidentified counterclaim and is clearly
distinct from the counterclaims Defendants now seek to assert.
Rocheux Int'l of New Jersey, Inc. v. U.S. Merhs. Fin. Group,
Inc., 741 F. Supp. 2d 651, 660 (D.N.J. 2010)
23
("The question
before the Court, then, is whether Defendants' proposed
modification redresses a simple mistaken designation, for which
Rule 8{c) (2) provides the appropriate standard for relief, or
whether Defendants' modification presents a new claim.
.").
First, the alleged failure of Plaintiff to provide services under
the Franchise Agreement, thus excusing Defendants' performance
was clearly abandoned as an affirmative defense.
Defendants do
not claim that their obligations under the Franchise Agreement
were excused; indeed, they concede that their failure to pay
continuing royalties was a breach of the Agreement.
Second, the
affirmative defense fails to set forth any facts that resemble in
any way the proposed counterclaims.
The affirmative defense does
not reference Defendants' right to cater under the Franchise
Agreement, the alleged conversations between Defendants and
Plaintiff's employees regarding Tampa Gallagher's providing
catering services at the Tampa Bay Arena, or the cease and desist
notices sent by Plaintiff, all of which form the factual basis of
Defendants' proposed counterclaims.
The affirmative defense,
accordingly, fails to provide Plaintiff with any notice of the
proposed counterclaims, making Rule 8{c) (2) inapplicable.
See
Mr. & Mrs. A. ex rel. D.A. v. New York City Dep't of Educ., 769
F. Supp. 2d 403,41516 (S.D.N.Y. 2011)
(invoking Rule 8(c) (2)
where the plaintiffs were "on notice" of defendant's proposed
24
counterclaims).
Because the proposed counterclaims assert new
claims, which the affirmative defense did not assert, Defendants
are precluded from asserting their proposed counterclaims in this
action.
CONCLUSION
For the reasons set forth above,
Plaintiffs are entitled to
summary judgment on their claims for breach of contract and breach
of the personal guarantee.
Defendants are therefore jointly and
severally liable for damages in the amount of $106,393.27
interest in the amount of $11 774.57.
1
the
2011
Plaintiff must submit additional documentation to enable
1
Court
attorneys
I
December
attorneys
plus
By no later than December
1
16
1
to
fees.
23
I
determine
1
the
reasonableness
of
the
requested
Any opposition by Defendants must be submitted by
2011.
Judgment
will
not
be
entered
until
the
fees are determined. 3
3De fendant asserts that the Court should withhold entry of
final judgment under Federal Rule of Civil Procedure 54(b).
(See
Defs.1 Mem. at 7.)
Rule 54(b) provides "When an action presents
more than one claim for relief.
. the court may direct entry of
a final judgment as to one or more, but fewer than alII claims .
. only if the court expressly determines that there is no just
reason for delay." As the Court has denied Defendants motion
for leave to amend see infra and has granted summary judgment
to Plaintiff on all of Plaintiff's claims there is no bar to
entry of a final judgment once the attorneys' fees issue is
resolved.
I
l
I
l
l
25
So Ordered.
~
/
-~~
/~~
/
/
.
/~'.
/7~ .•. •.;;::••. "
7'
THEODORE H. KATZ
UNITED STATES MAGISTRATE JUDGE
Dated: December 5, 2011
New York, New York
26
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