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Lenexa Hotel, LP v. Holiday Hospitality Franchisin, Inc.

United States District Court, Tenth Circuit

September 3, 2013

LENEXA HOTEL, LP, Plaintiff,


KATHRYN H. VRATIL United States District Judge

Lenexa Hotel, LP brings suit against Holiday Hospitality Franchising, Inc. for breach of contract, breach of the implied duty of good faith and fair dealing and for a declaration that it has complied with its contractual obligations or is excused from doing so based on defendant’s actions. Plaintiff alleges that defendant breached both express and implied obligations imposed under the parties’ License Agreement. Through this License Agreement, plaintiff obtained the rights to convert a hotel which it owns and operates to a Crowne Plaza branded hotel, and to operate it as part of the Crowne Plaza franchise system.

This matter is before the Court on Holiday Hospitality Franchising Inc.’s Motion To Dismiss Plaintiff’s First Amended Complaint For Failure To State A Claim (Doc. #7) filed February 1, 2013. Defendant seeks dismissal because (1) plaintiff fails to identify any specific provision under the License Agreement which defendant has purportedly breached; (2) plaintiff consequently cannot assert a claim for breach of the implied duty of good faith and fair dealing; and (3) the facts alleged do not give rise to a case or controversy and therefore this Court cannot grant declaratory relief. For the following reasons, the Court overrules defendant’s motion.

Legal Standards

In ruling on a motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P., the Court assumes as true all well-pleaded factual allegations and determines whether they plausibly give rise to an entitlement of relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter to state a claim which is plausible – and not merely conceivable – on its face. Id. at 679-80; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In determining whether a complaint states a plausible claim for relief, the Court draws on its judicial experience and common sense. Iqbal, 556 U.S. at 679.

The Court need not accept as true those allegations which state only legal conclusions. See id.; Hall v. Bellmon, 935 F.3d 1106, 1110 (10th Cir. 1991). Plaintiff bears the burden of framing its complaint with enough factual matter to suggest that it is entitled to relief; it is not enough to make threadbare recitals of a cause of action accompanied by conclusory statements. Twombly, 550 U.S. at 556. Plaintiff makes a facially plausible claim when it pleads factual content from which the Court can reasonably infer that defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 678. Plaintiff must show more than a sheer possibility that defendant has acted unlawfully – it is not enough to plead facts that are “merely consistent with” defendant’s liability. Id. (quoting Twombly, 550 U.S. at 557). A pleading which offers labels and conclusions, a formulaic recitation of the elements of a cause of action, or naked assertions devoid of further factual enhancement will not stand. Iqbal, 556 U.S. at 678. Similarly, where the well-pleaded facts do not permit the Court to infer more than the mere possibility of misconduct, the complaint has alleged – but has not “shown” – that the pleader is entitled to relief. Id. at 679. The degree of specificity necessary to establish plausibility and fair notice depends on context, because what constitutes fair notice under Rule 8(a)(2), Fed. R. Civ. P., depends on the type of case. Robbins v. Oklahoma, 519 F.3d 1242, 1248 (10th Cir. 2008) (quoting Phillips v. Cnty. of Allegheny, 515 F.3d 224, 232-33 (3d Cir. 2008)).

Factual Background

The first amended complaint alleges the following facts:

Plaintiff is a Kansas limited partnership owned by Ventura Hotel Corporation and Stephen J. Craig. Craig owns 100 per cent of Ventura Hotel Corporation. For more than 25 years, Craig has owned companies that have owned and operated more than 100 hotels in 25 states. He was Executive Vice President of Brock Hotel Corporation when it owned and managed 76 Holiday Inns in 23 states. One of the entities in which Craig was an executive acquired the hotel which is the subject of this action (“the Hotel”) from Holiday Inns, Inc. in 1980. The Hotel was then a 112-room Holiday Inn. In 1984 it was converted to a 297-room Holidome Indoor Recreation Center. In 2003 it was converted to a Radisson and remained as such until its ultimate conversion to the Crowne Plaza brand. The Hotel has 257 guest rooms and offers upscale amenities including a health and fitness center, indoor pool, restaurant, bar, business center and meeting and banquet space.

Holiday Hospitality Franchising, Inc. (“HHFI”) is a Delaware corporation with its principal place of business in Atlanta, Georgia. It is one of the largest hotel groups in the world, operating 4, 500 hotels worldwide with more than 650, 000 rooms. Of its nine brands, the three major brands are InterContinental (luxury), Crowne Plaza (upscale), and Holiday Inn (midscale). Defendant holds itself out as a world-leading hotel franchisor able to drive demand through a number of different channels, including Priority Club rewards, sales and marketing professionals, internet sites and global call centers. In its United States business operations, defendant uses the trade name “InterContinental Hotels Group.” In metropolitan Kansas City, defendant has one upscale and two luxury hotels. In addition to the Hotel, defendant has the InterContinental Hotel on the Country Club Plaza and another Crowne Plaza in downtown Kansas City, Missouri.

In early 2007, plaintiff contemplated converting the Hotel to another brand. Craig and William Stuckeman, another executive for plaintiff, began discussions with defendant through Keith Biumi, defendant’s Regional Vice President for Upscale Franchising and Business Development. Because such a conversion is an expensive proposition, Craig insisted upon assurances that defendant would generate sufficient demand for the Hotel to justify spending millions of dollars in conversion costs and paying hundreds of thousands of dollars in annual royalties. Craig understood that the Hotel’s location would require regional and national marketing to attract out-of-town business travelers and groups. To that end, Craig had extensive conversations and communications with defendant’s representatives about defendant’s abilities. Defendant repeatedly represented that its reservation system, supported through the web, call centers around the world and the travel agent booking system, was designed to market the Hotel as one of only three HHFI upscale or luxury hotels in the Kansas City metropolitan area. Defendant further represented that its marketing and internet experts would develop a plan to drive room revenue and attract out-of-town business travelers and groups to the Hotel, and that its Priority Club rewards program, world-class revenue systems, sales force of thousands and marketing system fund would generate demand.

During the parties’ 2007 negotiations, defendant represented to plaintiff that a hotel located in downtown Kansas City was converting from a Radisson to a Crowne Plaza, and that another hotel on the Country Club Plaza was converting and was flagged as defendant’s luxury brand, the InterContinental Hotel. Biumi represented that Crowne Plaza, through its director Mike FitzMaurice, would coordinate efforts between the Hotel and the Crowne Plaza downtown and would collectively enhance the HHFI upscale and luxury brands in the Kansas City area. In August of 2007, Stuckeman made it clear that the key issue for plaintiff was whether defendant could demonstrate the ability to generate corporate transient and group demand for the Hotel. He pointed out to Biumi that a Holiday Inn was opening on I-435 (about seven miles from the Hotel). Biumi responded by email, pointing out differences between the Holiday Inn and Crowne Plaza brands and marketing and explaining why a midscale Holiday Inn would not prevent a Crowne Plaza from drawing out-of-town business travelers.

Talks between the parties stalled. In February of 2008, Biumi encouraged Craig and Stuckeman to submit plaintiff’s conversion application because defendant had received an application from another party to build a new hotel as a Crowne Plaza in Olathe, Kansas. Based on this representation and on defendant’s representations that it could effectively market the Hotel as an upscale Kansas City metropolitan area hotel and drive demand, plaintiff moved forward with the conversion process. Later that month, Stuckeman wrote to Biumi and asked if the Hotel could be called “Crowne Plaza Kansas City South.” Biumi referred the question to FitzMaurice as the person best able to determine what search was most common, but he continued to acknowledge in other communications defendant’s obligation and ability to effectively market the Hotel.

As negotiations continued, Biumi and FitzMaurice made representations about the various means defendant would employ to drive demand to the Hotel, including maximizing the Hotel’s internet presence, getting the Hotel to the forefront of travel sites and search engines and using defendant’s central reservations system for the Crowne Plaza brand. Based on these representations, plaintiff agreed to a Property Improvement Plan (“PIP”), [1] committed to paying royalties to defendant which were significantly higher than those paid to Radisson, submitted its application and committed to converting the Hotel to a Crowne Plaza. On its application, plaintiff ...

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