Meleyco Prtnshp No 2 v. Tandy Corporation

*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opinion should not be published and is not precedent except under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.
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

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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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