Court Opinion

ID: 1006193
Source: CourtListenerOpinion
Date Created: 2013-07-04 19:07:38.713146+00
Date Added: 2024-06-11T15:12:44.804534
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

GENERAL ELECTRIC CAPITAL BUSINESS      
ASSET FUNDING CORPORATION,
                Plaintiff-Appellant,
                 v.                               No. 01-1614
GOLDEN CORRAL CORPORATION; S. S.
RESTAURANT CORPORATION,
            Defendants-Appellees.
                                       
            Appeal from the United States District Court
       for the Eastern District of North Carolina, at Raleigh.
              Terrence W. Boyle, Chief District Judge.
                       (CA-99-225-5BO(2))

                       Argued: October 31, 2001

                      Decided: December 28, 2001

  Before WILKINS, NIEMEYER, and LUTTIG, Circuit Judges.

Affirmed by unpublished per curiam opinion.

                             COUNSEL

ARGUED: Robin Kenton Vinson, SMITH, ANDERSON, BLOUNT,
DORSETT, MITCHELL & JERNIGAN, L.L.P., Raleigh, North Car-
olina, for Appellant. Keith Harrison Johnson, POYNER & SPRUILL,
L.L.P., Raleigh, North Carolina, for Appellees. ON BRIEF: J. Mitch-
ell Armbruster, SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P., Raleigh, North Carolina, for
2        GENERAL ELECTRIC CAPITAL v. GOLDEN CORRAL CORP.
Appellant. Andrew O. Whiteman, HARTZELL & WHITEMAN,
Raleigh, North Carolina, for Appellees.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                               OPINION

PER CURIAM:

   General Electric Capital Business Asset Funding Corporation ("GE
Capital") sued Golden Corral Corporation and its sister corporation,
S. S. Restaurant Corporation, to collect from them a debt of several
million dollars on loans made to Golden Corral franchisees. On cross-
motions for summary judgment, the district court entered judgment in
favor of Golden Corral and S. S. Restaurant. We affirm.

                                    I

   GE Capital is the successor in interest on ten loans made by Metro-
politan Life Capital Corp. ("MetLife") to Corral Northeast ("CNE")
and Corral Midwest ("CMW"). CNE and CMW are subsidiaries of
Corral America, Inc., which in turn is a subsidiary of Golden Corral.
They are also Golden Corral franchisees, owning numerous family-
style restaurants franchised by Golden Corral.

   Because of financial difficulties in operating its family-style restau-
rants, Golden Corral decided in the 1980s to franchise its underperfor-
ming restaurants rather than sell them outright. In 1993, it approached
MetLife about funding its franchising program, assuring MetLife that
Golden Corral would "attempt to assist [its] franchisees with meeting
their financial needs" by providing franchisees with lists of lenders to
contact. Golden Corral stated that it was "willing to commit [its]
resources (without recourse to Golden Corral)" to help the franchisees
and that it would provide limited guarantees for some loans, based on
the amount of the loan and other specified guidelines.
         GENERAL ELECTRIC CAPITAL v. GOLDEN CORRAL CORP.               3
   In reviewing Golden Corral’s proposal, MetLife generated internal
review documents which stated that MetLife would consider making
loans to Golden Corral franchisees that had two years of restaurant
experience "in the event that Golden Corral will provide limited
recourse for the obligation." These internal documents observed that
"Golden Corral has indicated that they may be willing to provide a
10% guaranty of the principal."

   Despite these observations in its internal documentation, MetLife
wrote to Golden Corral on July 20, 1994, that it would provide
franchisee financing under MetLife’s Franchising Financing Program
in an amount up to $10 million, referring in its letter only to "possible
support by Golden Corral." Thereafter, MetLife negotiated a Master
Loan Agreement, as well as specific loan documents, with CNE and
CMW. Golden Corral did not provide any guarantees, nor was it sig-
natory to any of the loan documents; indeed, the documents did not
even reference Golden Corral. The Master Loan Agreement included
a cross-default provision that permitted MetLife, in the event of a
default by CNE or CMW, "to enter any premises where any Collateral
is situated and take possession thereof without notice or demand and
without legal proceedings."

   In 1997, as Golden Corral expanded its franchise program, it
requested an additional $5 million of funding from MetLife for Gol-
den Corral franchisees. In its request, Golden Corral stated that it
would not "guarantee any of the franchisee obligations."

   Beginning in 1996, Golden Corral’s franchisees began to suffer
financially, and Golden Corral decided to restructure the franchising
program to bail out some of the franchisees through a "1996 Restruc-
turing." Under the restructuring arrangement, Golden Corral’s sister
corporation, S. S. Restaurant, signed an Asset Purchase and Assump-
tion Agreement with CNE under which S. S. Restaurant purchased
five underperforming restaurants (the "Whitehall Restaurants") from
CNE. It paid for the five restaurants by assuming "all liabilities and
obligations of [CNE] relating to the operation of [the five] Restau-
rants." The loans made to the Whitehall Restaurants never went into
default.

  Several other loans made by MetLife to CNE and CMW, however,
went into default. GE Capital, as successor in interest to MetLife,
4        GENERAL ELECTRIC CAPITAL v. GOLDEN CORRAL CORP.
commenced this action in January 2000 against Golden Corral and S.
S. Restaurant to collect on the loans that MetLife had made to Golden
Corral’s franchisees and that were in default. It sued not only for
breach of contract, but also on an agency theory, asserting that the
defaulting franchisees were Golden Corral’s agents. It also alleged
claims against Golden Corral and S. S. Restaurant for negligence and
mismanagement and against Golden Corral for negligent misrepresen-
tation.

   The district court rejected all of GE Capital’s claims and entered
judgment in favor of Golden Corral and S. S. Restaurant. From the
judgment entered, GE Capital filed this appeal.

                                   II

   GE Capital contends first that Golden Corral, as a principal, is
vicariously liable for the acts and omissions of both its franchisees
and S. S. Restaurant, as agents. This claim relies on both actual and
apparent agency. The district court dismissed this claim under Federal
Rule of Civil Procedure 12(b)(6) because it failed to state a claim
upon which relief could be granted. We affirm this ruling. GE Capi-
tal’s complaint does not allege any facts that would demonstrate that,
when CNE and CMW executed the notes with MetLife, they were
acting on behalf of Golden Corral. Nor does its complaint allege that
Golden Corral authorized these franchisees to enter into loan agree-
ments that would bind Golden Corral.

   GE Capital next contends that Golden Corral and S. S. Restaurant
are contractually liable to repay the franchisees’ defaulted loans,
either by reason of the 1996 Restructuring or by reason of oral state-
ments made by Golden Corral’s executives in 1994. Again, this claim
has no merit.

   As an initial matter, it is undisputed that Golden Corral did not sign
the Master Loan Agreement between MetLife and CNE and CMW,
and there is no evidence that Golden Corral expressly assumed the
loan obligations of these franchisees. Although MetLife’s internal
documentation referring to Golden Corral’s original funding proposal
stated that Golden Corral "may be willing to provide a 10% guaranty"
for some of the loans and MetLife’s financing approval letter said that
         GENERAL ELECTRIC CAPITAL v. GOLDEN CORRAL CORP.                5
there would be "possible support by Golden Corral" for the loans,
there is simply no evidence that Golden Corral ultimately agreed to
assume the loan obligations. In fact, the evidence is to the contrary.
Golden Corral explicitly stated that it would financially assist its fran-
chisees only in finding lenders, and it wrote MetLife that it "does not
guarantee any of the franchisee obligations." Furthermore, in a 1999
demand letter that GE Capital sent to Golden Corral with respect to
the defaulted loans, GE Capital requested specifically that Golden
Corral at that time undertake to guarantee the loans, a recognition that
GE Capital knew that Golden Corral had not previously done so.

   GE Capital also attempts to rely on oral statements by Golden Cor-
ral’s officers in 1994. When MetLife’s vice president Steere was
asked whether "anybody with Golden Corral ever promised [him] that
MetLife would get paid on loans that it made to Corral Northeast or
Corral Northwest," he answered, "[n]ot in those words." But Steere
testified that "it was implied that these companies [CNE and CMW]
had every bit of support from Golden Corral" and that he was told by
someone at Golden Corral that no lender had ever lost money financ-
ing Golden Corral’s franchisees. These vague statements suggesting
that MetLife’s risk would be low, however, are not sufficient to form
binding contracts by Golden Corral to repay millions of dollars in
debt that it never undertook to repay.

   Moreover, such oral statements are unenforceable under North Car-
olina’s statute of frauds. See N.C. Gen. Stat. § 22.1 (requiring that a
"promise to answer the debt, default, or miscarriage of another per-
son" be in writing). GE Capital contends that an exception to the stat-
ute of frauds applies under the "main purpose" or "leading object"
rule where "the promisor has the requisite personal, immediate, and
pecuniary interest in which a third party is the primary obligor." Bur-
lington Industries, Inc. v. Foil, 284 N.C. 740, 748 (N.C. 1974). In
those circumstances, "the promise is said to be original rather than
collateral and therefore need not be in writing to be binding." Id. GE
Capital argues that the doctrine is applicable to this case because Gol-
den Corral stood to earn royalties from CNE and CMW when their
loans were approved. GE Capital, however, presented no evidence
that shows that Golden Corral had such a royalty agreement with the
franchisees. Additionally, any such royalties would be based on future
6        GENERAL ELECTRIC CAPITAL v. GOLDEN CORRAL CORP.
profits and therefore Golden Corral could not have an "immediate"
interest in such royalties.

   GE Capital also contends that Golden Corral and S. S. Restaurant
assumed the loans during the 1996 Restructuring. This contention,
however, is belied by the language of the applicable documents
involved in the 1996 Restructuring. In those documents, S. S. Restau-
rant assumed only the loans associated with the five Whitehall Res-
taurants, and those loans were not in default and therefore were not
the subject of this litigation.

   On its claim for negligence, GE Capital contends that Golden Cor-
ral failed to supervise and manage its franchisees adequately, result-
ing in harm to GE Capital when the franchisees defaulted. But GE
Capital has not been able to identify any legal duty that Golden Corral
owed GE Capital to supervise and manage the Golden Corral fran-
chisees. The district court correctly granted summary judgment for
Golden Corral on this claim.

   Finally, GE Capital contends that Golden Corral is liable to GE
Capital for negligent misrepresentations made to MetLife. GE Capital
asserts that Golden Corral represented to MetLife that Golden Corral
would support and monitor its franchisees and that no lender had ever
lost money lending money to Golden Corral’s franchisees. The first
alleged misrepresentation, however, was not a representation of fact
but at most a promise to act in the future. In any event, there was no
evidence to support the statement. Golden Corral only stated to
MetLife that it would pre-approve the franchisees for participation in
the franchise program. On the second alleged misrepresentation, GE
Capital did not demonstrate the statement to be false. Accordingly,
the district court correctly granted summary judgment on GE Capi-
tal’s misrepresentation claim.

   S. S. Restaurant filed a cross-claim for a declaratory judgment that
it was not liable under the cross-default provision of the Master Loan
Agreement, and the district court granted S. S. Restaurant a summary
declaratory judgment. GE Capital also challenges that ruling on
appeal. Again, we affirm the district court. Under the Master Loan
Agreement between MetLife and CNE, a default on any "note" of the
"debtor" creates default on all other "notes" of the "debtor" and per-
         GENERAL ELECTRIC CAPITAL v. GOLDEN CORRAL CORP.             7
mits MetLife (or GE Capital) to seize the assets of the debtor. The
agreement, however, defines "debtor" as CNE. Therefore, the cross-
default provision applies only to defaults of CNE’s loans. Since S. S.
Restaurant did not default on any of the CNE loans and was current
on the loans that it assumed, the cross-default provision does not
apply to S. S. Restaurant. On the loans that it did not assume, S. S.
Restaurant was not the "debtor," as defined under the Master Loan
Agreement.

  For the foregoing reasons, the judgment of the district court is

                                                         AFFIRMED.