Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—C.D. Cal.: BoConcept furniture franchisee breaches agreement, ordered to pay over $200K, (Aug 11, 2014)

By Greg Hammond, J.D.

Two brothers were ordered to pay more than $200,000 to Danish furniture franchisor BoConcept USA, Inc. for violating a franchising agreement. In holding the brothers personally liable for monetary damages, the federal district court in Los Angeles determined that they signed a written guaranty provision by printing their names, and they intended to personally guaranty the franchise agreement (Degla Group for Investments, Inc. v. BoConcept USA, Inc., August 8, 2014, Morrow, M.).

Background. BoConcept USA, Inc. is a company that sells modern Danish furniture and accessories. The company entered into a franchise agreement with Degla Group for Investments, Inc.—owned by Hussein H. Sidky, Hasan H. Sidky, and Hassan M. Morshedy—in early 2007. During the negotiation process, the Sidkys informed BoConcept that they would not be willing to personally guaranty the franchise agreement, but they were aware that BoConcept required either a personal guaranty, or a bank guaranty. When executing the personal guaranty amendment to the franchise agreement, the Sidkys printed their names instead of signing them, in an attempt to identify themselves as principals of Degla, but not agreeing to be bound by the personal guaranty.

After three months in business, Degla became delinquent on payments to BoConcept. The franchisor eventually terminated the franchise agreement, and Degla filed suit, alleging—in part—breach of contract and unlawful termination of franchise agreement. BoConcept counterclaimed, alleging breach of franchise agreement, among other claims. The only issues remaining before the court were whether the Sidkys entered into a guaranty agreement with BoConcept; whether BoConcept performed under the contract; whether Degla breached the contract; and the amount of damages.

Guaranty agreement. The court first concluded that the Sidky brothers signed the guaranty addendum to the franchise agreement. Specifically, it determined: (1) the provision was in writing, (2) the Sidkys signed the acknowledgment section in their individual capacities as guarantors when they printed their names there; and (3) they intended to for their written names to be binding signatures, as they wrote their names under an acknowledgment statement, and they knew a guaranty was required by BoConcept in order to obtain a franchise.

Performance. Next, the court determined whether the parties performed or breached the franchise agreement. It found that BoConcept successfully demonstrated it performed under the contract, and the parties did not dispute that Degla violated the agreement by not making prompt payment of all amounts due. Consequently, the court was required to determine the amount of damages to be awarded against Degla and the Sidkys.

Damages. In reviewing the amount of damages, the court discovered that there was a discrepancy in BoConcept’s records and evidence regarding how much money Degla owed. BoConcept claimed that Degla owed over $950,000 based on the company’s aging report. However, the court found that the aging report was unreliable after December 31, 2008, as BoConcept was unable to explain why the debt increased substantially. Consequently, the court determined that BoConcept was entitled to $205,083.99, and that the Sidkys were personally liable as guarantors under the franchise agreement.

The case number is 09-05278 MMM (AGRx).

Attorneys: Ahmed Elmokadem for Degla Group for Investments, Inc. Peter C. Ver Halen for BoConcept USA, Inc.

Companies: Degla Group for Investments, Inc.; BoConcept USA, Inc.

Cases: FranchisingDistribution CaliforniaNews