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IN RE WAGSTAFF MINNESOTA, INC.
In re: Wagstaff Minnesota, Inc., et al., Chapter 11 Bankruptcy, Debtors.
KFC Corporation, Appellant,
v.
Wagstaff Minnesota, Inc. et al., Official Committee of Unsecured Creditors of Wagstaff Minnesota, Inc. et al., General Electric Capital Corporation et al., Appellees.
Bankruptcy No. 11-43073.
United States District Court, D. Minnesota.
January 3, 2012.
Deborah C. Swenson, Esq., Lommen, Abdo, Cole, King & Stageberg, PA, appeared for Appellees Official Committee of Unsecured Creditors of Wagstaff Minnesota, Inc. et al.
Susan G. Boswell, Esq., Quarles & Brady LLP, and Ralph V. Mitchell, Jr., Esq., Lapp, Libra, Thomson, Stoebner & Pusch, Chartered, appeared for Appellees General Electric Capital Corporation et al.
ORDER Jointly AdministeredJOAN N. ERICKSEN, District Judge. KFC Corporation (KFCC) appeals a final order of the United States Bankruptcy Court for the District of Minnesota. Appellees (Debtors) join together in opposition. For the reasons set forth below, the Court reverses the decision of the bankruptcy court. I. BACKGROUNDDebtors own and operate 77 restaurants (Outlets) as KFCC franchisees. Debtors defaulted on their original franchise agreements, KFCC terminated the agreements, and the parties negotiated and executed a new set of documents that form the basis of the dispute on appeal. Specifically, the parties disagree as to whether this set of documents should be considered one indivisible contract. Debtors defaulted on the original franchise agreements at various times prior to October 2009. On June 2, 2010, KFCC and Debtors entered into a Prenegotiation and Forbearance Agreement that provided for a time in which to negotiate reinstatement of the franchise agreements for the limited purpose of the sale of the Outlets. On August 13, 2010, the parties signed a Reinstatement Agreement, an Addendum to Reinstatement Agreement, and a Letter Agreement. The Addendum to Reinstatement Agreement provides that the Kentucky Fried Chicken Franchise Agreement signed pursuant to the Reinstatement Agreement will expire on August 1, 2011. On November 5, 2010, the parties signed new Kentucky Fried Chicken Franchise Agreements effective on August 13, 2010—the same day as the other reinstatement documents. The parties provided the Court with a sample set of these four documents for one of the Outlets. In each new Kentucky Fried Chicken Franchise Agreement, the phrase indicating that the expiration date was to be twenty years from the date of execution is crossed out and replaced with the date that each Outlet's original franchise agreement would have expired. For example, the sample New Franchise Agreement provided to the Court has an expiration date of June 6, 2022. The four documents discussed below were executed for each individual Outlet. All of the documents have the same effective date of August 13, 2010.
1. Debtors claim the standard of review for mixed questions of law and fact is clearly erroneous, citing E.S. v. Independent School District, No. 196 Rosemount-Apple Valley, 135 F.3d 566, 569 (8th Cir. 1998). The E.S. case is not an appeal from a bankruptcy court decision. Instead, it involves special deference to administrative decisions under the Individuals with Disabilities Education Act, 20 U.S.C. § 1415 (2006). Thus, the Court does not find the cited authority binding or even informative on the standard of review for this appeal.
2. Most of the cases relied on by the parties to define Kentucky law involve a single contract and the severability of provisions within that contract. Although this case involves the severability of an entirely separate document, the same contract principles appear to apply under Kentucky law. See Knight, 233 S.W.2d at 970 (interpreting a deed and a contract and citing to Bus. Men's Assurance Co. of Am. v. Eades, 161 S.W.2d 920, 922 (Ky. 1942), for relevant contract interpretation principles where that case involves the severability of a single document).
3. There is no indication that Kentucky deviates from general rules of construction. See 11 Richard A. Lord, Williston on Contracts § 30:26 (4th ed. 1999) ("[I]nstruments executed at the same time, by the same contracting parties, for the same purpose, and in the course of the same transaction will be considered and construed together as one contract or instrument, even though they do not in terms refer to each other." (footnotes omitted)).
4. KFCC argues for the first time on appeal that the Reinstatement Agreement is a "master" agreement. (See New Franchise Agreement section 20.5, ECF No. 1 Doc. 15 at 35) Ordinarily the Court will not consider arguments raised for the first time on appeal, but the Court can consider new arguments if they are a subset of a party's more general arguments and no new evidence is presented on appeal. Hartford Fire Ins. Co. v. Clark, 562 F.3d 943, 946 (8th Cir. 2009). The Court declines to consider KFCC's new argument. There is no evidence in the record regarding "master" agreements, and this argument is not clearly a subset of KFCC's more general argument that focuses on the language of the documents.
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