111 F.3d 284 (2nd Cir. 1997), 630, Frank Felix Associates, Ltd. v. Austin Drugs, Inc.

Docket Nº:630, Docket 96-7604.
Citation:111 F.3d 284
Party Name:FRANK FELIX ASSOCIATES, LTD., Plaintiff-Appellant, v. AUSTIN DRUGS, INC., Defendant-Appellee.
Case Date:April 10, 1997
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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111 F.3d 284 (2nd Cir. 1997)

FRANK FELIX ASSOCIATES, LTD., Plaintiff-Appellant,


AUSTIN DRUGS, INC., Defendant-Appellee.

No. 630, Docket 96-7604.

United States Court of Appeals, Second Circuit

April 10, 1997

Argued Dec. 12, 1996.

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Stephen R. Sugrue, New York City (Herriot, Coti & Sugrue, New York City, of counsel), for Plaintiff-Appellant.

James H. Allyn, New York City (Allyn & Fortuna, New York City, of counsel), for Defendant-Appellee.

Before CARDAMONE and PARKER, Circuit Judges, and WEXLER, Judge. [*]

PARKER, Circuit Judge:

Frank Felix Associates ("Felix") appeals from the judgment of the United States District Court for the Eastern District of New York (Thomas C. Platt, Judge ) awarding Felix damages of $10,250 for breach of a settlement agreement. Felix contends that upon breach of the settlement agreement by Austin Drugs, Inc. ("Austin"), Felix was entitled under New York General Obligations Law § 15-501(3) (McKinney 1989) to assert its pre-settlement claims. Finding no error, we affirm.


In the mid-1980s, Felix entered into an oral agreement with Interstate Cigar Company ("ICC"), the predecessor of Austin, to install computer systems on ICC's property. Unfortunately for Felix, ICC went bankrupt. In May of 1991, several investors, some of whom were formerly associated with ICC, bought Austin in the ICC bankruptcy proceedings. Austin was a subsidiary of ICC at the time of the purchase. Subsequent to the purchase of Austin, Austin had Felix install

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computer systems in Austin stores like those Felix previously installed in stores owned by ICC.

On May 20, 1992, one year after the bankruptcy proceedings, Felix sent Austin a memorandum claiming that Austin owed Felix $70,000 in arrearages under the ICC account incurred prior to the bankruptcy sale and $75,000 in arrearages incurred by Austin after May of 1991. After Felix learned that Austin planned to replace the computer system, Felix sent another memorandum to Austin on June 22, 1992, claiming an outstanding balance of over $462,000. Then the parties entered into settlement discussions.

Felix and Austin thereafter executed a written settlement agreement, wherein Austin agreed to pay Felix $50,000 as the amount owed for Austin's past use of the computer system, and agreed to return a tape drive and a high-speed printer. The settlement agreement provided that Austin had to meet these obligations by October 1, 1992, or Felix would renew its prior claims. Austin made the $50,000 payment and returned the printer promptly. However, it did not return the tape drive. When Austin failed to return the tape drive, Felix sent a renewed demand letter on October 22, 1992, claiming an outstanding balance of $412,000.

Austin requested that Felix send someone to remove the tape drive on or about the time Austin received Felix's October 22 letter. Austin indicated that it needed Felix's technical assistance to remove the device. However, Felix agreed to remove the tape drive only if Austin promised to pay Felix $250. Austin refused to pay Felix, but made clear that Felix could come by and pick up the device. Felix never attempted to retrieve it. Months later, after Consumer Value Stores ("CVS") bought out Austin, CVS scrapped the tape drive when it installed a new computer system in the former Austin stores.

Felix then brought this suit, asserting all of its pre-settlement demands. Claiming that the settlement agreement was no longer binding due to Austin's breach, Felix sought in excess of $800,000. After a bench trial, the district court concluded that Austin breached the settlement agreement but that the breach was not material. The court awarded Felix $10,000 in damages for Austin's use of the computer system one month beyond the date when it was supposed to return the tape drive under the settlement agreement, concluding that the tape drive allowed Austin to use the rest of the proprietary software provided in the pre-settlement leasing agreement between Felix and Austin. The court also awarded $250 in damages for the cost Felix would have incurred in retrieving the device. The court did not award any damages for Austin's use of the tape drive beyond the date when Austin asked Felix to remove the system. The court also did not award damages for the destruction of the tape drive, reasoning that the tape drive would not have been destroyed had Felix removed it from Austin's property when given the opportunity.


We agree with the district court that Austin plainly breached the settlement agreement by not returning the tape drive on or before October 1. We also agree that, in light of Austin's payment to Felix of $50,000 under the settlement agreement, Austin's return of the high-speed printer, and Austin's request that Felix remove the tape drive at the end of October, Austin's failure to return the tape drive on October 1 was not a material breach. Assuming, as appears...

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