Court Opinion

ID: 27608
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:10:22+00
Date Added: 2024-06-11T12:33:53.480163
License: Public Domain

UNITED STATES COURT OF APPEALS
                       For the Fifth Circuit

                           No. 01-11156

                    MELEYCO PARTNERSHIP NO. 2,

                                                    Plaintiff-Appellant,

                               VERSUS

                        TANDY CORPORATION,

                                                    Defendant-Appellee.

           Appeal from the United States District Court
                For the Northern District of Texas
                          (4:99-CV-587-Y)
                           June 3, 2002

Before DUHÉ, DeMOSS, and CLEMENT, Circuit Judges.

PER CURIAM:*

      Appellee Tandy Corporation (Tandy) guaranteed nine leases in

the states of Arizona, Minnesota, and Oklahoma on behalf of its

wholly-owned   subsidiaries,   Color    Tile   of   Colorado,   Inc.   (CT

Colorado) and Color Tile of Oklahoma, Inc. (CT Oklahoma) in 1971

  *
   Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
and 1972.     Subsequently, appellant Meleyco Partnership No. 2

(Meleyco) purchased the properties that were subject to the leases

and obtained assignments of the leases and Tandy's guaranties from

the original lessor.    In 1975, Tandy merged CT Oklahoma into CT

Colorado and renamed the entity Color Tile Supermart, Inc. (CT

Supermart).     The same year, Tandy transferred the stock of CT

Supermart to a newly-formed subsidiary of Tandy called Tandycrafts,

Inc. (Tandycrafts).      Tandycrafts   was   then    spun   off   to   Tandy

shareholders.

     In 1978, Tandycrafts, which was no longer controlled by Tandy,

formed Color Tile, Inc.    Tandycrafts transferred the stock of CT

Supermart to Color Tile, Inc. and then spun off Color Tile, Inc. to

the public.     General Felt Industries, Inc. purchased all of the

Color Tile, Inc. stock through a leveraged buyout in 1986.         General

Felt Industries, Inc. then burdened Color Tile, Inc. with the debt

used to purchase the Color Tile, Inc. stock.        In 1988, CT Supermart

was merged into Color Tile, Inc.   As a result of that merger, Color

Tile, Inc. was burdened by additional debt, which led the company

to file for bankruptcy on January 24, 1996.     After Color Tile, Inc.

filed for bankruptcy protection, it rejected the leases and vacated

the properties.

     Meleyco sued Tandy to enforce the guaranties on July 19, 1999.

Tandy moved for summary judgment, which the district court granted

on August 9, 2001.      The district court found that, under the

guaranty agreements, Tandy agreed to guarantee CT Colorado's and CT

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Oklahoma's performance.          However, the district court noted that

Tandy did not agree to guarantee any other entity's performance.

The court also noted that the leases did not provide any language

allowing the assignment or transfer of the lease obligations

without Tandy's consent.

       According to the court, “[w]hen CT Supermart was merged into

Color Tile, Inc., an entirely different entity was effectively

substituted as lessee of the properties. . . .                The substitution of

this   entity   as     lessee    substantially      increased      Tandy's   risk.

Because Meleyco did not or could not obtain Tandy's consent to the

substitution, the guaranties were discharged.”                   Furthermore, the

district     court    noted   that   “Tandy's      risk   of    loss   drastically

increased when Color Tile, Inc. became the lessee due to the fact

that the company was heavily laden with debt.                 As a result, Tandy's

risk   was    materially      increased       without   its    consent,   and   the

guaranties were discharged.”

       Having carefully reviewed the entire record in this case, and

having fully considered the parties' respective briefing on the

issues in this appeal, we AFFIRM the judgment of the district court

for the reasons stated in its order.

                     AFFIRMED.

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