Burger King Europe GmbH v. Groenke

Filing 144

MEMORANDUM OF DECISION. (Ordered by Senior Judge A. Joe Fish on 11/5/2015) (axm)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

BURGER KING EUROPE GMBH,
Plaintiff,
VS.
CHRISTIAN GROENKE,
Defendant.

)
)
)
)
)
)
)
)
)

CIVIL ACTION NO.
3:14-CV-1417-G

MEMORANDUM OF DECISION
I. INTRODUCTION
This action was brought by the plaintiff, Burger King Europe GmbH (“BKE”),
against the defendant, Christian Groenke (“Groenke”), to recover on a guaranty
agreement. Following a bench trial on June 22-24, 2015, the court makes the
following findings of fact and conclusions of law.
II. FINDINGS OF FACT
A. Parties
1.

Plaintiff, BKE, is a Swiss entity with its principal place of business in

Zug, Switzerland. Joint Pretrial Order at 25 (docket entry 99). BKE operates and
franchises restaurants throughout Europe. [Trial Tr. vol. 1 128 (docket entry 136)].

2.

Burger King Corporation (“BKC”) is based in Miami, Florida and has an

ownership interest in BKE. [Trial Tr. vol. 1 188:7-13]. BKC created BKE, and
transferred to BKE the responsibility to sign the franchise agreements with
franchisees in Europe, the Middle East, and Africa. [Trial Tr. vol. 1 176:15-177:1,
128:17-24].
3.

Burger King Beteiligungs GmbH (“BKB”) is a German company based

in Munich, Germany. [Trial Tr. vol. 1 185:17-22, 187:13-14]. BKE is not the
parent of BKB and owns no interest in BKB. [Trial Tr. vol. 1 187:8-12]. BKB is an
affiliate of BKE to whom BKE has delegated day-to-day management functions over
the German market. [Trial Tr. vol. 1 13:23-14:6, 187:8-9].
4.

Global Business Services (“GBS”) is a division of BKC. [Trial Tr. vol. 1

220:19-21]. GBS creates the franchise fee invoices and then sends them to BKB by
email. [Trial Tr. vol. 2 48:1-12, 49:5-11 (docket entry 137)].
5.

Defendant, Groenke, is a resident of Dallas, Texas and is a United

States citizen. [Trial Tr. vol. 3 5:10-22 (docket entry 138)]. In 1997, Groenke
formed HEGO System-Gastronomie GmbH & Co. KG (“HEGO”). [Trial Tr. vol. 3
8:8-16]. From 1997 to 2010, HEGO operated approximately eighteen Burger King®
franchises in and around Berlin. [Trial Tr. vol. 3 8:23-9:19]. Groenke has an
ownership interest in various entities, some of which operate Burger King®
restaurants in Germany. [Trial Tr. vol. 3 26].

-2-

B. Witnesses
6.

At trial, BKE presented the testimony of its retained expert, Stephanie

Bschorr (“Bschorr”), a German lawyer specializing in the areas of commercial law, tax,
and insolvency. [Trial Tr. vol. 1 58:11-59:18, Pl. Trial Ex. 34]. Bschorr testified
regarding relevant German legal issues in the case, including the applicability and
requirements of German Civil Code sections 313, 765, and 767, and the accessories
rule. [Trial Tr. vol. 1 58:10-125:18]; BÜRGERLICHES GESETZBUCH [BGB] [CIVIL
CODE] §§ 313, 765, 767.
7.

BKE presented the testimony of Andreas Bork (“Bork”), the managing

director of BKB and Vice President and General Manager for the Central Division of
BKE, who testified regarding the relevant franchise agreements and the general
business practices of BKE and BKB in Germany. [Trial Tr. vol. 1 126:16-246:20].
Bork started working for BKB on August 18, 2010. [Trial Tr. vol. 1 128:6-8].
8.

Lastly, BKE presented the testimony of Erick Azen (“Azen”), BKB’s

finance director who manages the net restaurant growth for BKE. Azen testified to
Burger King’s® accounting procedures and how the relevant royalty and advertising
fees were calculated and processed. [Trial Tr. vol. 2 6:6-84:16].
9.

Groenke presented the testimony of his German law expert, Dr.

Christoph Schulte-Kaubrugger (“Schulte”), who testified to the accessories rule and

-3-

the role of an insolvency administrator in a German insolvency proceeding. [Trial Tr.
vol. 2 94:14-136:13].
10.

Groenke presented the testimony of Ahmed Asmar (“Asmar”), who is

the managing director for HEGO, which still operates Burger King® franchised
restaurants in Germany. [Trial Tr. vol. 2 137:17-25, 138:11-13, 139:19-21]. Asmar
is a former managing director of HEGO’s sister company Burger King GmbH Berlin
(“BK Berlin”), the company associated with the franchises that were placed into
insolvency. [Trial Tr. vol. 2 150:21-151:17]. Asmar testified to the financial
reporting procedures of a Burger King® franchisee and franchisee business operations.
[Trial Tr. vol. 2 137:16-191:23].
11.

Lastly, Groenke testified regarding the execution of the guaranty

agreement, further negotiations with Burger King®, the alleged relatedness between
other negotiations and the guaranty agreement, and events surrounding the
insolvency proceedings. [Trial Tr. vol. 3 5:9-99:24].
C. Summary of the Claims
12.

On April 17, 2014, BKE sued Groenke asserting breach of a guaranty

agreement dated June 9, 2010 (the “guaranty”), signed by Groenke. See Complaint
(docket entry 1). The guaranty provides that Groenke guarantees the performance
and obligations, including payment, of franchised Burger King® restaurants in
Europe, twenty (20) of which are at issue in this lawsuit. [Pl. Trial Ex. 21]. BKE

-4-

asserted that Groenke was in breach of the personal guaranty that he executed in June
of 2010 that guaranteed the “fulfillment of all obligations of the respective franchisee
arising from the franchise contracts.” Id. The complaint included a chart that listed
the Burger King® store number, the name of the franchisee, the restaurant address
and an amount each allegedly owed. Complaint ¶ 18.
13.

Groenke signed the guaranty in connection with his company SAVE

Vermogensver Waltungs GmbH, Holding KG (“SAVE”)’s June 2010 acquisition of
15 restaurants in Berlin, Germany. [Pl. Trial Ex. 21]. SAVE purchased the
restaurants pursuant to a purchase transfer agreement by which it purchased the
stock of the franchise operating companies for the restaurants. [Def. Trial Ex. 29; Pl.
Trial Ex. 24 (English excerpts)]. As part of the transaction, another company owned
by Groenke, HEGO, received a development agreement to develop as many as 38
restaurants in a geographic area surrounding Berlin. [Def. Trial Ex. 31; Pl. Trial Ex.
28 (English translation)].
14.

Groenke was an indirect owner of the operating companies for the

relevant restaurants at the time that the obligations to BKE accrued. [Trial Tr. vol. 3
26]. Operation of the restaurants was pursuant to the franchise agreements by which
each of the operating companies agreed to pay BKE a royalty of 5% of monthly gross
sales for the use of the Burger King® system and the Burger King® marks, and to pay
BKE through BKB, an amount equal to 5% of monthly gross sales to be used for

-5-

advertising, sales promotion and public relations. [Pl. Trial Exs. 1-20, Pl. Trial Ex. 5
(English translation of franchise agreements at 16-23), Trial Tr. vol. 1 130].
15.

Additionally, BKE seeks to recover, according to the terms of the

franchise agreements, payment of a $10,000 transfer fee on the sale or transfer of any
restaurant. [Pl. Trial Ex. 5 (English translation of franchise agreements at 16-23); Pl.
Trial Exs. 1-20; Trial Tr. vol. 2 76-78]. Groenke sold at least one restaurant to Mr.
Mura, which triggered the franchise fee. [Trial Tr. vol. 1 147:8-148:2, Trial Tr. vol. 3
84:1-9]. The franchise fee of €6.731,25 that BKE is seeking in the invoice BKE 1767
is dated December 4, 2012 and states it is due on December 20, 2012. [Pl. Trial Ex.
35]. BKB entered into an agreement with the insolvency administrator effective
December 3, 2012 that waived BKE’s right to seek any franchise fees from the
insolvent franchisees from that date forward. [Def. Trial Ex. 5]. Groenke argued the
invoice dated December 4th falls under this waiver and thereby cannot be sought
because this agreement constituted a waiver extinguishing the principal obligation.
Groenke’s Proposed Findings of Fact ¶ 74 (docket entry 141). The court concludes
that the agreement with the insolvency administrator applies to debts incurred in or
after December 2012 and thus does not waive BKE’s rights to the fees Groenke
incurred before December 2012. [Def. Trial Ex. 5, Trial Tr. vol. 1 147:8-148:2]. The
transfer fee is listed on a December 2012 invoice, but it is a debt that accrued in
November 2012. [Pl. Trial Ex. 35, Trial Tr. vol. 1 147:8-148:2]. Therefore, BKB’s

-6-

agreement with the insolvency director did not waive BKE’s right to collect the
transfer fee.
16.

BKE seeks to recover royalties and advertising contributions unpaid for

each of the restaurants below in the amounts indicated below, inclusive of a transfer
fee of €6.731,25 (then equivalent to $10,000) due as a result of the transfer of
BK#16811.
BK#

Address

08734
13927
15470
14562
15971
15455
16499
09570
16811
17215
17619
14264
14190
14471
14798
08141
08592

Berlin, Landsberger Allee, Allee Center
Berlin, Alt-Mahlsdorf
Berlin, Straβe des 17. Juni
Berlin, Teltower Damm
Berlin, Landsberger Allee 277
Potsdam, Rudolf-Moos-Straβe
Berlin, Tempelhofer Damm
Berlin, Johannisthaler Chaussee 1.2
Berlin, Saatwinkler Damm
Berlin, Groβbeerenstraβe
Teltow, Mahlower Straβe
Berlin, Buckower Damm
Berlin, Nahmitzer Damm
Berlin, Ostpreuβendamm
Berlin, Charlottenburger Chaussee
Neubrandenburg, Juri- Gagarin-Ring
Schwedt/Oder, Werner- SeelenbinderStraβe
Wildau, Chausseestraβe
Berlin, Schlossstraβe
Brandenburg/Wust, An der Bundesstraβe

10039
03297
08590

-7-

Amounts Due
Pursuant to
Guaranty
EUR 18.869,14
EUR 25.510,82
EUR 39.125,16
EUR 7.801,48
EUR 29.420,04
EUR 42.758,80
EUR 30.935,98
EUR 16.247,60
EUR 31.422,71
EUR 17.414,50
EUR 16.008,94
EUR 22.300,80
EUR 20.725,60
EUR 19.141,80
EUR 29.110,52
EUR 14.525,98
EUR 7.375,78
EUR 22.057,66
EUR 39.849,38
EUR 27.614,68

D. Groenke’s Defenses
17.

Groenke’s answer pleads the following affirmative defenses: (1) that

BKE’s claims are barred by a failure of consideration in that Groenke did not receive
reasonably equivalent value for his guaranty; (2) that the claims are barred in whole
or in part by BKE’s misrepresentations; (3) that the claims are barred in whole or in
part by BKE’s own contributory negligence; (4) that BKE’s claims are barred in whole
or in part because the royalty payments that BKE claims are subject of an insolvency
proceeding in Germany and any recovery from Groenke is barred pending
distribution from such proceeding; and (5) that the claims are barred in whole or in
part by a right of setoff. Groenke’s Answer (docket entry 12) at 4. Also, Groenke
later argued that (6) BKE could not recover because BKE had written off the
underlying debt on its internal accounting books [Declaration of Dr. Schulte attached
in support of Defendant’s Response to Plaintiff’s Motion for Summary Judgment
(docket entry 77)], and (7) BKE could not recover because the guaranty was not a
valid contract due to a frustration of purpose defense under BGB § 313. Joint Pretrial
Order at 23-24, 30-31. These defenses are not pled in Groenke’s answer, and
Groenke has not sought to amend his answer to conform to the evidence. See
Answer. The court will address the additional affirmative defenses, but it ultimately
concludes that all such defenses are unsupported by the evidence.

-8-

E. The Guaranty Agreement
18.

In June 2010, one of Groenke’s companies, SAVE, acquired 15

additional franchises that were owned by BK Berlin. [Trial Tr. vol. 1 194:25-195:13;
Trial Tr. vol. 2 150:1-14, 163:17-24, 152:8-18; Trial Tr. vol. 3 17:18-22]. The BK
Berlin stores were losing money heavily, and the losses were significant. [Trial Tr.
vol. 2 163:25-164:19, Trial Tr. vol. 3 18:4-6, 18:24-19:1]. As part of the transaction,
HEGO received a Development Agreement to develop as many as 38 restaurants in a
geographic area surrounding Berlin. [Def. Trial Ex. 31; Pl. Trial Ex. 28 (English
translation)].
19.

Groenke testified that he was promised a regional development

agreement for the greater Berlin area under which he could acquire an additional 91
stores that Burger King® was still operating in Germany, and he would be given a
larger development agreement for a greater portion of Germany. [Trial Tr. vol. 3
19:18-20:8, 35:23-36:6]. He testified that BKE’s agreement to provide the additional
91 stores and the larger development agreement was necessary consideration for
Groenke’s agreement to execute the guaranty because the BK Berlin stores’ losses
would absorb all the profits of the HEGO performing stores. [Trial Tr. vol. 3 80:681:3]. Groenke testified that he agreed to purchase the nonperforming 15 stores
because he was “given promises” that “induced [him] to sign the guaranty in the first
place.” [Trial Tr. vol. 3 19:13-17]. Groenke testified that these promises were made

-9-

by Heinz-Peter Dickes, the head of development for Burger King® in Germany,
Austria and Switzerland, and Jonathan Fitzpatrick of BKE. [Trial Tr. vol. 3 20:1023]. He also testified that the promises were made to him in multiple meetings
before the BK Berlin transaction closed and before he executed the guaranty. [Trial
Tr. vol. 3 20:19-23, 53:20-54:25].
20.

However, the court concludes that Groenke has failed to show that the

alleged promises were part of the guaranty agreement. Groenke testified that the
“general outline of the deal” had been discussed before the BK Berlin transaction
closed. [Trial Tr. vol. 3 54:1-25]. Yet, over two years later, he wrote a letter to BKE
representatives seeking to continue negotiations on the potential transaction for the
91 restaurants. [Pl. Trial Ex. 31; Trial Tr. vol. 3 90:2-93:11]. It is clear that the deal
was far from definite enough to be considered a legally binding agreement in June
2010, let alone in August 2012. The alleged verbal promises were not consideration
for the guaranty agreement.
F. The Royalty and Advertising Fees
21.

The royalty and advertising fees paid by the franchisees are determined

by the franchisee’s sales. [Trial Tr. vol. 2 156:19-25]. The franchisees calculate the
amount of their own sales and then send that information to GBS. [Trial Tr. vol. 2
48:21-25, 142:14-16]. The operation of the restaurants was pursuant to franchise
agreements by which each of the operating companies agreed to pay BKE a royalty of

- 10 -

5% of monthly gross sales for the use of the Burger King® system and the Burger
King® marks, and to pay BKE through BKB, an amount equal to 5% of monthly
gross sales to be used for advertising, sales promotion and public relations. [Pl. Trial
Exs. 1-20; Trial Tr. vol. 1 130].
22.

HEGO and BK Berlin reported their sales the same way. [Trial Tr. vol.

2 156:19-158:4]. The franchisee has until the second day of the month to report the
sales for the prior month. [Trial Tr. vol. 1 132:13-18; Trial Tr. vol. 2 16:1-5]. If a
franchisee does not report sales data by the second day of the month, GBS estimates
the sales data with a form calculation. [Trial Tr. vol. 2 16:9-15].
23.

A franchisee receives two separate invoices, one from BKE for the

royalty fee and one from BKB for the advertising fee. [Trial Tr. vol. 1 136:22-24,
Def. Trial Exs. 6-25; Trial Tr. vol. 2 147:3-11]. The royalty fees were invoiced by
and payable to BKE. [Trial Tr. vol. 1 138:1-139:16; Def. Trial Exs. 6-25]. The
advertising fees were invoiced by and payable to BKB, who paid for and ran the
German advertising fund. [Trial Tr. vol. 1 140:24-141:3, 232:24-233:25; Def. Trial
Exs. 6-25].
24.

Groenke argues that BKE is not the proper party to recover the

advertising contributions because the invoices are in the name of BKB. See Groenke’s
Proposed Findings of Fact ¶¶ 75-77. However, the evidence is to the contrary. The
advertising invoices all contain a legend that the money is due in the name of and on

- 11 -

behalf of BKE. [E.g., Def. Trial Ex. 6, at CG000409; Trial Tr. vol. 1 141]. The
franchise agreements all make clear that the money is due to BKE, and that BKB
claims no interest in the sums sought. [Pl. Trial Exs. 1-20, Trial Tr. vol. 1 141].
25.

BKE’s witnesses testified that their method of invoicing franchisees is

reliable and has been regularly utilized with respect to approximately 700 restaurants
in Germany for many years. [Trial Tr. vol. 1 133:15-135:17; Trial Tr. vol. 1 134-35].
26.

The Groenke owned franchises subject to the guaranty failed to make

the required payments from August 2012 through December 2012 before insolvency
proceedings commenced.1 [Trial Tr. vol. 1 22:21-23:4]. The fees the franchises
failed to pay, that Groenke guaranteed he would pay if the franchises did not, have
still not been paid to BKE. [Trial Tr. vol. 3 98]. At trial, Groenke testified “I am not
suggesting that I do not owe anything,” but stated he was unsure of the amount
owed. [Trial Tr. vol. 3 98]. Groenke presented no evidence disputing BKE’s
calculations. [Trial Tr. vol. 3 97:13-21]. Additionally, he presented no evidence that
BKE’s methods of invoicing franchisees have ever been unreliable. BKB’s director of
finance and supply chain, who is responsible for managing finance issues in Germany,
testified that he reconciled the amounts sought by BKE against invoices Groenke
acknowledged having received and confirmed that the amounts due were identical
1

The Groenke-owned franchise, BK #8592, filed for insolvency sometime
after April 2013. [Trial Tr. vol. 2 32-33]. BKE seeks to recover royalties and
advertising contributions from that restaurant for amounts due as of April 1, 2013.
[Pl. Trial Ex. 25].
- 12 -

and accurate. [Trial Tr. vol. 2 8:1-10:25, 40:15-21]. The court concludes that the
testimony of BKE’s witnesses is credible and their method of calculating the amounts
due is reliable based upon BKE’s established practices.
G. Alleged Additional Promises
27.

Groenke signed the guaranty in connection with SAVE’s acquisition of

15 Burger King® restaurants in Berlin and HEGO’s written development agreement
to develop as many as 38 additional Burger King® restaurants in the Berlin area.
[Def. Trial Exs. 29, 31; Pl. Trial Ex. 24]. In addition, Groenke testified that BKE
representatives made verbal promises during the transaction that he would receive the
right to purchase an additional 91 restaurants owned by BKE and to enter a second
development agreement for as many as 300 restaurants throughout Germany. [Trial
Tr. vol. 3 19-20]. Groenke contends that BKE did not fulfill these promises and that
BKE therefore cannot enforce the guaranty. See Groenke’s Proposed Findings of Fact
¶¶ 78-84. The evidence does not support these allegations.
28.

First, Groenke acknowledged that none of the terms material to either of

these purported agreements (91 restaurants or the 300 restaurant development plan)
was agreed to prior to his signing of the guaranty. [Trial Tr. vol. 3 35:15-36:6, 91:411, 92:10-18]. As Groenke admitted, and as is evident by email correspondence and
a term sheet all exchanged over a year after the guaranty was signed, the parties had
not agreed on an exact price, the amount of any development fees, the number of

- 13 -

restaurants that could be developed, the geographic territory subject to development,
or other material terms. [Trial Tr. vol. 3 54-66; Def. Trial Exs. 36, 37 41; Pl. Trial
Ex. 32]. Instead, all of these terms were still being negotiated in the fall of 2011,
more than a year after the guaranty was signed. [Trial Tr. vol. 3 54-66; Def. Trial
Exs. 36, 37, 41; Pl. Trial Ex. 32]. Groenke argued that the parties had agreed that
the price of the 91 restaurants would be calculated by using a multiplier based on
EBITDA (earnings before interest, taxes, depreciation and amortization). [Trial Tr.
vol. 3 20:24-21:12, 52:10-22, 75:11-76:6]. The court does not find credible that
Groenke (a sophisticated businessman represented by counsel) would sign the
guaranty based solely on the alleged, indefinite, oral promises of such possible future
transactions. [Trial Tr. vol. 3 6:8-9:19, 54:16-25].
29.

The purported promises are also contrary to the integration clause in the

agreements entered at the same time as the guaranty. The agreements affirmed that
there were no other agreements between the parties (other than those mentioned)
and stated only that any additional development rights would be no less than any
other franchisee. [Def. Trial Ex. 29 at § 4.3.3 (“no other agreements have been
entered into”); Pl. Trial Ex. 28 at § 9 (“any changes . . . shall be required to be in
written form to take effect”); Pl. Trial Ex. 28 at § 1 (5) (“this agreement shall have no
effect on the Developer’s option to, like any other potential Franchisee, submit an

- 14 -

application requesting the approval to develop Burger King Restaurants outside of the
development territory . . .”)].
30.

Additionally, had there been definitive enforceable promises, Groenke

relieved BKE of any such commitments when he signed a term sheet outlining the
parties’ deal points in October 2011. [Pl. Trial Ex. 32]. The term sheet expressly
provides that the parties were not bound to enter any transaction, stating that “any
party shall have the right to terminate the negotiation of the potential transaction . . .
for any reason or no reason,” that “no party owes the other parties any duty to
negotiate a formal agreement,” that there is no “obligation to negotiate in good faith,”
and that there would be no enforceable agreements until execution of final definitive
agreements. [Pl. Trial Ex. 32].
31.

Moreover, contrary to his present assertions, Groenke characterized the

promises quite differently in a letter to BKE more than two years after the guaranty
was signed. In a letter written by Groenke in August 2012, he stated only that he
had an “understanding” that he would be the “front runner for any further refranchising” should his operation of the Berlin restaurants “run smoothly.” [Pl. Trial
Ex. 31]. In the August 2012 letter, Groenke acknowledged that the parties had even
broken off discussions regarding the potential joint venture and purchase of the 91
restaurants. Id. (“[W]e continue to stand by our offer to reenter the negotiations and
finalize the definitive agreements for the BK91 joint venture.”).

- 15 -

32.

Therefore, the court concludes that the execution of the guaranty did

not depend upon the oral promises now alleged by Groenke, or alternatively, that
Groneke relieved BKE of any responsibility for those promises by the time he signed
the October 2011 Term Sheet. [Pl. Trial Ex. 32].
H. Insolvency Proceeding
33.

It is undisputed that Groenke’s franchise companies, HEGO and SAVE,

operated the restaurants during the August-December 2012 time period for which
recovery is sought. [Trial Tr. vol. 3 26; Trial Tr. vol. 3 94:9-95:20].
34.

The insolvency proceeding for 19 of the 20 restaurants at issue in this

case officially opened on December 3, 2012.2 [Trial Tr. vol. 1 203:16; Def. Trial Ex.
64]. When an official insolvency proceeding opens, the insolvency administrator has
to operate the companies or close them down [Trial Tr. vol. 1 203:21-24], but he
cannot incur any losses. [Trial Tr. vol. 1 212:19-23]. After December 3, 2012, the
restaurants at issue were operated by an insolvency administrator. [Trial Tr. vol. 3
69]. Because of the prohibition against incurring losses, BKB and the insolvency
administrator entered into an agreement where BKB waived its right to franchise fees
that the franchises would incur beginning in December 2012. [Def. Trial Ex. 5].

2

The exception is BK #8592. That restaurant filed for insolvency
sometime after April 2013. [Trial Tr. vol. 2 32-33]. BKE seeks to recover royalties
and advertising contributions for that restaurant only for amounts due as of April 1,
2013. [Pl. Trial Ex. 25].
- 16 -

BKE does not seek to recover any amounts for operations of these restaurants
incurred during or after December 2012. [Trial Tr. vol. 1 147:23-148:2].
35.

At the time Groenke’s companies filed their insolvency proceedings,

BKE assigned the Groenke debts to a write-off account on its internal books. [Trial
Tr. vol. 1 160-61]. German law expert, Bschorr, testified that German legal and
accounting principles required this action because the insolvencies rendered collection
of the obligations risky or doubtful. [Trial Tr. vol. 1 80-82]. Andreas Bork testified
that the amounts were assigned to a write-off account to comply with German
accounting requirements. [Trial Tr. vol. 1 160-62].
36.

An insolvency administrator requires every party to timely file their

claims -- with proof -- against the insolvent companies. [Trial Tr. vol. 1 76:11-23].
During the course of the insolvency proceeding, BKE and BKB each filed a claim for
“franchising fees” in the insolvency proceeding. [Def. Trial Ex. 1A]. In February
2013, BKB filed claim number 20 in the insolvency proceeding for €105.367,00.
[Trial Tr. vol. 1 78:6-23; Def. Trial Ex. 1A]. On the same day, BKE filed claim
number 21 for €112.098,25. [Trial Tr. vol. 1 78:22-23, 80:19-23].
37.

BKE sent Groenke demand letters on July 8, 2013 and August 1, 2013

for payment of the amounts due. [Pl. Trial Exs. 22, 23; Trial Tr. vol. 1 156].
Groenke contends that he did not see the demand letters until after this suit was filed
[Trial Tr. vol. 3 10:15-17, 88:11], but acknowledges that the addresses are to his

- 17 -

address on the guaranty [Pl. Trial Ex. 21] and to his email address. [Trial Tr. vol. 3
10-11]. Although the guaranty does not require that BKE make demand prior to suit,
the court concludes that BKE sent notices demanding payment on the dates
indicated.
I. Evidence and Amount of Damages
38.

Based on the foregoing, the greater weight of the evidence supports that

the franchisees have failed to pay the above amounts to BKE which were due
pursuant to their franchise agreements. [Trial Tr. vol. 3 98]. Likewise, Groenke has
failed to pay to BKE the amount of franchise fees which have accrued. [Trial Tr. vol.
3 98]. The total amount due and owing to BKE is €478.217,37. At the relevant
currency exchange rate, as discussed infra, the amount equates to $629,800.77. This
court can take judicial notice of the exchange rate between the euro and the dollar.
Ruiz v. Federal Government of Mexican Republic, No. 07-CV-079, 2007 WL 2978332, at
*2 n.13 (W.D. Tex. Sept. 28, 2007), appeal dism’d, 286 Fed. App’x. 843 (5th Cir.
2008).
III. CONCLUSIONS OF LAW
1.

Both parties agree that the guaranty was entered into by BKE and

Groenke under BGB §§ 765 and 767. [Pl. Trial Ex. 21]. Accordingly, German law
applies to the guaranty agreement. See BGB §§ 765, 767. The principles of German

- 18 -

law have been acknowledged by both parties’ German law experts. [Trial Tr. vol. 1
70; Trial Tr. vol. 2 133-34].
2.

The German Civil Code is contained in the BGB. [Trial Tr. vol. 1

120:19-21]. Courts regularly rely on interpretations or commentaries like the
Palandt. [Trial Tr. vol. 1 67:12-69:15, 119:14-25; Def. Trial Ex. 66]; Palandt-Sprau,
COMMENTARY ON THE GERMAN CIVIL CODE (74 ed. 2015). The Palandt covers all
German court rulings every year. [Trial Tr. vol. 1 68:23-69:4]. Both of the German
law experts relied upon the Palandt in formulating their opinions. [Pl. Trial Ex. 34;
Def. Trial Ex. 64].
A. Groenke Breached the Guaranty
3.

Groenke breached the guaranty by failing to pay BKE the royalties and

other fees due. See BGB § 767; [Pl. Trial Ex. 34]. BKE has shown the existence of
the underlying franchise agreements; the terms of the guaranty agreement; the
occurrence of the conditions upon which liability is based; and Groenke’s failure or
refusal to make payment under the franchise agreements and guaranty.
4.

The guaranty states that it was entered pursuant to BGB §§ 765 and

767. [Pl. Trial Ex. 21]. BKE’s German law expert, Bschorr, testified that the
guaranty meets the requirements to be enforceable under German law, and her
written report also makes evident that conclusion. [Trial Tr. vol. 1 70; Pl. Trial Ex.
34]. Groenke’s German legal expert, Dr. Schulte, concurred. [Trial Tr. vol. 2

- 19 -

133:12-134:7]. The terms of the guaranty are clear and unambiguous in requiring
that Groenke guarantee the prompt payment and performance of all obligations
under the franchise agreements during the time period in question. [Pl. Trial Ex. 21].
5.

BKE is not required to first seek payment against the principal obligors

before seeking recovery on the guaranty. [Trial Tr. vol. 1 70:1-71:24; Pl. Trial Ex.
34]. BKE’s enforcement of the guaranty in accordance with its plain terms is
consistent with German and Texas law. BGB §§ 765, 767; [Trial Tr. vol. 1 70:171:24; Trial Tr. vol. 2 133:12-134:22]; Barrand, Inc. v. Whataburger, Inc., 214 S.W. 3d
122, 129 (Tex. App.--Corpus Christi 2006, pet. denied).
B. Sufficiency of Evidence of Franchise Agreements and Damages
6.

In order for BKE to be able to recover from Groenke, it must first

establish that there were valid and enforceable franchise agreements in effect with the
insolvent franchisees that would make the franchisees liable for the principal
obligation. See BGB § 767, ¶ 1; [Def. Trial Ex. 64]. BKE met its burden of proof by
offering the relevant franchise agreements. [Pl. Trial Exs. 1-20].
7.

In addition, Groenke’s obligations under the guaranty are tied to the

“obligations of the respective franchisee arising from the franchise contracts.” [Pl.
Trial Ex. 21]. BKE met its burden of proof by offering the guaranty agreement,
sufficient evidence of the invoices and data supporting its calculations, and proof that
neither the franchisees nor Groenke had paid the fees at issue. [Pl. Trial Exs. 1-20,

- 20 -

25, 33, 35; Trial Tr. vol. 3 98]; see United States v. Hutson, 821 F.2d 1015, 1019-20
(5th Cir. 1987); United States v. Moore, 923 F.2d 910, 915 (1st Cir. 1991); United
States v. Catabran, 836 F.2d 453, 457 (9th Cir. 1988).
C. Conflict of Law and Burden of Proof on Affirmative Defenses
8.

Groenke bears the burden of proof on his affirmative defenses. Sunburst

Media Management, Inc. v. Devine, No. 3:08-CV-1170-G, 2010 WL 1962499, at *5
(N.D. Tex. May 17, 2010) (Fish, J.). Although the guaranty was entered pursuant to
German law, Texas law applies to matters of remedy and procedure. See Morris v.
LTV Corporation, 725 F.2d 1024, 1027 (5th Cir. 1984). Likewise, Texas law applies
in areas where a party has failed to conclusively establish the applicable foreign law,
or its differences from the law of the forum. Matter of Reznick, 370 Fed. App’x 552,
553-54 (5th Cir. 2010) (citing Banco de Credito Industrial, S.A. v. Tesoreria General, 990
F.2d 827, 836 (5th Cir. 1993) (“When the parties have failed to conclusively
establish foreign law, a court is entitled to look to its own forum’s law in order to fill
in any gaps.”)); Enigma Holdings, Inc. v. Gemplus International S.A., No. 3:05-CV-1168B, 2006 WL 2859369, at *8 (N.D. Tex. Oct. 6, 2006) (Boyle, J.) (noting that the
parties seeking to apply foreign law have the burden of proving its substance to a
reasonable certainty); Pavlick v. Advance Stores Co., No. 2:10-CV-67147, 2013 WL
1100679, at *1 n.1 (E.D. Pa. Feb. 21, 2013) (“Under Rule 44.1, it is incumbent
upon the parties to “carry both the burden of raising the issue that foreign law may

- 21 -

apply in an action, and the burden of adequately proving foreign law to enable the
court to apply it in a particular case.”).
D. Statute of Frauds
9.

The court does not reach the statute of frauds issue (i.e., whether the

contract could have been performed within one year) because it concludes that the
alleged oral promises were speculative at the time the guaranty was entered into in
June 2010. Groenke failed to establish that the alleged oral promises were considered
part of the June 2010 guaranty agreement because the terms were never finalized
[Trial Tr. vol. 3 60:11-15, 66:13-15], Groenke entered into a term sheet as a
proposed plan in 2011 [Pl. Trial Ex. 32], and Groenke tried to keep negotiating the
terms of the alleged oral agreement in August 2012 [Def. Trial Ex. 47]. See supra,
Findings of Fact, Section G, ¶¶ 27-32.
E. Groenke’s Failure of Consideration Affirmative Defense Fails
10.

Groenke’s first affirmative defense (failure of consideration) fails based

on the evidence and law. In exchange for the guaranty, Groenke’s company, SAVE,
entered the purchase transfer agreement and received ownership of 15 Burger King®
restaurants. [Pl. Trial Ex. 21]. Additionally, his company, HEGO, entered the
regional development agreement and received the right to develop as many as 38
additional restaurants. Id. The 15 restaurants and the Berlin regional development
plan are sufficient consideration to support Groenke’s guaranty. [Trial Tr. vol. 1 88];

- 22 -

see also Garcia v. Lumacorp, Inc., No. 3:02-CV-2426-L, 2004 WL 1686635, at *11
(N.D. Tex. July 27, 2004) (Lindsay, J.) (failure of consideration claim failed as a
matter of law where facts were not such that there was a failure of consideration but
rather a question of adequacy of consideration), aff’d, 429 F.3d 549 (5th Cir.2005).
F. Groenke’s Misrepresentation, Set-off, and Contributory
Negligence Affirmative Defenses Fail
11.

Groenke’s second (misrepresentations), third (contributory negligence)

and fifth (setoff) affirmative defenses allege that Groenke is entitled to a setoff or that
the guaranty is invalid due to BKE’s purported wrongdoing. However, the guaranty
bars any defense of setoff or invalidity. [Pl. Trial Ex. 21 (“I hereby waive any defense
of invalidity and set-off pursuant to § 770 of the BGB, unless the counterclaim to
offset is recognized or legally established.”)]. BKE’s German law expert, Bschorr,
testified that this language constitutes a waiver of any right of setoff against the debts
due under the guaranty. [Trial Tr. vol. 1 73-74]. These principles are consistent with
Texas law which provides that as a contract, the guaranty is to be enforced in
accordance with its plain language. Whataburger, Inc., 214 S.W.3d at 129. A
guarantor has no right to assert setoffs as defenses where setoff is waived by the
guaranty. LaSalle Bank National Association. v. Sleutel, 289 F.3d 837, 840-42 (5th Cir.
2002). Therefore, Groenke’s setoff, misrepresentations and contributory negligence
affirmative defenses fail because they are attempts to setoff in contravention of the

- 23 -

guaranty. Further, Groenke neither pled nor proved any facts to support his
misrepresentations and contributory negligence affirmative defenses.
G. Groenke’s Insolvency Proceeding Affirmative Defense Fails
12.

Groenke’s fourth affirmative defense asserts that BKE’s claims are

barred because the payments BKE claims here are the subject of insolvency
proceedings in Germany and, under German law, any recovery from Groenke is
barred pending distribution from such proceeding. Answer at 4. The court is
persuaded by the contrary testimony of Bschorr that neither the financial collapse of
Groenke’s franchise companies, nor their filing of insolvency proceedings, impacts
BKE’s ability to proceed directly against Groenke based upon the independent
security provided by his guaranty. [Trial Tr. vol. 1 75-77]. Indeed, this principle is
consistent with United States bankruptcy law. See 11 U.S.C. §524(e). Whether or
not the insolvency administrator allowed, acknowledged, or disallowed BKE’s and
BKB’s claims in the Germany insolvency proceeding does not affect BKE’s right and
ability to enforce the guaranty here. [Trial Tr. vol. 1 75:6-81:3].
H. Groenke’s Write-off Affirmative Defense Fails
13.

Groenke’s sixth affirmative defense (write-off) fails because writing off

or depreciating a debt in one’s internal records does not constitute a waiver of the
principal obligation. See HANDELSGESETZBUCH [HGB] [COMMERCIAL CODE], § 253;
[Pl. Trial Ex. 34 ¶ 5; Trial Tr. vol. 1 81:4-19]. Andreas Bork testified that BKE was

- 24 -

not forgiving the debt by its accounting entry [Trial Tr. vol. 1 162], and German law
expert Bschorr testified that BKE did not extinguish the debt by this action. [Trial
Tr. vol. 1 77, 81-83 (testifying that under German law the right to collect on a
guaranty is waived only by payment, or by a written agreement of a knowing waiver
of the debt by the creditor)]. Neither payment nor knowing waiver occurred here.
[Trial Tr. vol. 1 83:14-25; Trial Tr. vol. 3 98]. The court finds that BKE did not
waive its right to recover the debt by virtue of these accounting practices.
I. Groenke’s Frustration of Purpose Affirmative Defense Fails
14.

Groenke belatedly attempted to assert that the guaranty is

unenforceable pursuant to BGB § 313, his seventh affirmative defense (frustration of
purpose). The court notes that this issue was first raised one week before the pretrial
conference but was not pled as an affirmative defense. See Answer at 4. Groenke
waited until after the close of discovery -- and the eve of trial -- to raise this defense.
At trial, the court expressed its concern with Groenke’s inexplicable delay in raising
this issue, and made clear that the court would take this delay into account in
deciding whether to consider this defense and what weight to give it. [Trial Tr. vol. 3
107]. No fact or circumstance in this case -- such as recently discovered evidence -justifies the delay. The court finds this notice to be unreasonable. See Thyssen Steel
Company v. M/V Kevo Yerakas, 911 F. Supp. 263, 266 (S.D. Tex. 1996) (purpose of
Rule 44.1 is to prevent unfair surprise during discovery or at trial); see also Northrop

- 25 -

Grumman Ship Systems, Inc. v. Ministry of Defense of the Republic of Venezuela, 575 F.3d
491, 496-97 (5th Cir. 2009) (noting that Rule 44.1 is intended to “avoid unfair
surprise” and one of the factors to be considered in determining whether the notice
was reasonable include the stage which the case had reached at the time of the notice)
(internal citations omitted).
15.

Nonetheless, the court considers the defense, and concludes that the

defense fails. Groenke alleges that he would not have signed the guaranty but for
BKE’s alleged promise to sell him 91 additional restaurants and enter into the 300
store development agreement for most of Germany. [Trial Tr. vol. 3 19-20].
However, the court does not find Groenke’s testimony credible that his execution of
the guaranty depended upon such vague and uncertain verbal promises. See supra
¶¶ 18-20, 28-32. Moreover, Groenke relieved BKE from any responsibility for such
promises upon entering the October 2011 Term Sheet expressly stating that BKE had
no obligation to enter such transactions with him. [Pl. Trial Ex. 32]. Lastly, BGB
§ 313 is an exception to German law principles honoring the sanctity of contracts.
[Trial Tr. vol. 1 121]. Its provisions have rare applications, limited to situations
where underlying assumptions between the parties become invalid or unlawful. [Pl.
Trial Ex. 34]. This case involves no such circumstances because the alleged verbal
promises, which relate to Groenke’s stated “purpose” of this transaction (the 91
restaurants and the greater Germany development plan), were not definite enough or

- 26 -

agreed upon at the time of the guaranty agreement, nor even in August 2012. [Trial
Tr. vol. 3 60:11-15, 66:13-15, Def. Trial Ex. 47, Pl. Trial Ex. 32]. Therefore, the
frustration of purpose defense fails because the alleged “purpose” was not frustrated
for any reason other than that the parties were still negotiating this frustrated
“purpose” years after the guaranty was signed.
16.

Nor does the court find credible Groenke’s testimony regarding

enforceable verbal promises in light of the integration clauses contained in the
purchase and transfer agreement [Def. Trial Ex. 29] and regional development
agreement [Pl. Trial Ex. 28] executed contemporaneously with the guaranty. See
supra, Findings of Fact, Section G, ¶ 29; see also U.S. Quest Ltd. v. Kimmons, 228 F.3d
399, 403 (5th Cir. 2000) (holding that an integration clause is evidence that the
written agreement is the entire agreement).
J. BKE is Entitled to Judgment
17.

BKE has proven that Groenke breached his obligations under the

guaranty. Further, the court concludes that Groenke has failed to meet his burden of
proof on any of his affirmative defenses. Thus, the court concludes that BKE is
entitled to judgment against Groenke for breach of the guaranty.
K. The Amount of the Judgment
18.

The evidence at trial establishes that Groenke owes BKE €478.217,37

for amounts past due under the guaranty. This amount must be converted to dollars.

- 27 -

In a diversity action, the proper date for the conversion of foreign currency debt or
contract damages is a question of state law. Elite Entertainment, Inc. v. Khela Brothers
Entertainment Inc., 396 F. Supp. 2d 680, 694 (E.D. Va. 2005) (citing Competex, S.A. v.
Labow, 783 F.2d 333, 334 (2d Cir. 1986)).
19.

In the absence of pertinent state law precedent, federal courts sitting in

diversity look to federal precedent for guidance. Siematic Mobelwerke GmbH & Co. KG
v. Siematic Corporation, 669 F. Supp. 2d 538, 542 (E.D. Pa. 2009) (citing ReliaStar Life
Insurance Co. v. IOA Re, Inc., 303 F.3d 874, 883 (8th Cir. 2002)); Ventas, Inc. v. HCP,
Inc., 647 F.3d 291, 323 (6th Cir.), cert. dism’d,

U.S.

, 132 S.Ct. 572 (2011).

Here, however, Texas law is clear on this issue. In El Universal, Compania Periodistica
Nacional, S.A. de C.V. v. Phoenician Imports, Inc., the Texas court of appeals stated that
due to fluctuation inherent in currency, Texas courts are given the discretion to
convert foreign judgments based on the rate of exchange applicable on either the date
of judgment or date of the breach. 802 S.W.2d 799, 803 (Tex. Civ. App.--Corpus
Christi 1990, writ denied); Butler v. Merchant, 27 S.W. 193 (Tex. Civ. App. 1894, no
writ); RESTATEMENT 3RD, RESTATEMENT OF FOREIGN RELATIONS LAW OF UNITED
STATES, § 823(2) (1986).
20.

Under the approach utilized in Phoenician Imports, if the foreign currency

has depreciated in value since the time of breach, then the date of the breach sets the
applicable rate of exchange. 802 S.W.2d at 803-04. If, however, the foreign currency

- 28 -

appreciates after the breach, then the judgment date sets the applicable rate of
exchange. Id. The court reasoned that “these principles should be followed to ensure
the only just result: placing the injured party in the position in which he would be
had the loss not occurred.” Id. at 804. The court concluded that since plaintiff
“should not have to bear this loss as a result of [the defendant’s] delay in payment,”
the rate of currency exchange at the time of the breach should have been used. Id. at
804.
21.

In reaching its decision, the Texas court reviewed the two approaches

that have emerged in cases interpreting federal statutory law. Under the first
approach, “the judgment day rule applies when the contract is payable in a foreign
country in that country’s currency; the breach day rule applies when the payment is
to be made in the United States. Under the second approach, the judgment day rule
applies if the obligation arises entirely under foreign law; the breach day applies if the
plaintiff could recover under United States law at the time of breach.” Id. at 802
(citing In re Good Hope Chemical Corporation, 747 F.2d 806, 811 (1st Cir. 1984), cert.
denied, 471 U.S. 1102 (1985)).
22.

Groenke argues that the Fifth Circuit’s decision in Sembawang Shipyard,

Ltd. v. Charger, Inc., 955 F.2d 983, 990 (5th Cir. 1992), which applied the judgment
day rule, controls the court’s conclusion here. See Groenke’s Proposed Findings of
Fact ¶ 66 n.15. However, the Sembawang Shipyard case involved a federal question,

- 29 -

not a federal court sitting in diversity over a question of Texas substantive law. See
Sembawang Shipyard, Ltd. v. M/V Charger, Inc., No. 88-CV-5005, 1990 WL 179782, at
*1 (E.D. La. Nov. 13, 1990). Therefore it is not applicable here, and this court has a
duty to follow Texas substantive law under Erie Railroad Co. v. Tompkins, 304 U.S. 64,
78 (1938).
23.

Here, because this is a diversity case, the court applies state law to

determine the conversion date. Phoenician Imports, 802 S.W.2d at 803-05. Further,
the court concludes that there has been a significant decline in the euro’s value since
the date of Groenke’s breach. BKE’s Supplement in Support of its Request for
Judicial Notice (docket entry 143) (as of December 31, 2012, the exchange rate was
.7590 euros per dollar (day of breach for 19 of 20 restaurants), and as of June 2015
trial in this action the exchange rate was 0.8950 euros per dollar). Therefore, the
court converts the damages from euros to dollars using the exchange rate as of the day
of breach. Id. at 2 (as of December 31, 2012, the exchange rate was .7590 euros per
dollar, and as of April 1, was 0.7800 per dollar). This court takes judicial notice of
the exchange rate between the euro and the dollar on the day of breach. Ruiz, 2007
WL 2978332, at *2 n.13. Of the €478.217,37 sought by BKE, €470.841,59 were
past due as of December 1, 2012 and €7.375,78 became due as of April 1, 2013.
When the appropriate exchange rates are applied, Groenke owes BKE a total of
$629,800.77.9, or rounding down $629,800.77.

- 30 -

IV. CONCLUSION
For the reasons stated above, the plaintiff is entitled to judgment in its favor.

November 5, 2015.

___________________________________
A. JOE FISH
Senior United States District Judge

- 31 -