IHG Mgt. (Maryland) LLC v West 44th St. Hotel LLC

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IHG Mgt. (Maryland) LLC v West 44th St. Hotel LLC 2018 NY Slip Op 30623(U) April 9, 2018 Supreme Court, New York County Docket Number: 655914/2017 Judge: Eileen Bransten Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:41 AM 1] NYSCEF DOC. NO. 113 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON~JiU,_~~.M"[2.Bt!NSTEN ---------~----------------·····"""·- PART 3 Justice -----------------------------------------------------------------------------------X IHG MANAGEMENT (MARYLAND) LLC, INDEX NO. 655914/2017 Plaintiff, MOTION DATE MOTION SEQ. NO. -v\rVEST 44TH STREET HOTEL LLC, TISHMAN ASSET CORPORATION 04/09/2018 001 DECISION AND ORDER Defendant -----------------------------------------------------------------------------------X The following e-filed documents, listed by NYSCEF document number 3, 17, 18, 19, 20, 21, 22, 23, 24, 25,26,27,28,29, 30, 31, 32, 33, 34,35, 36, 37, 38, 39,40,41,42,43,44,45,46,47,48,49, 50, 51, 52,53, 54, 55,56,57,69 were read on this application to/for Preliminary injunction Upon the foregoing documents, it is ORDERED Plaintiffs Motion for a Preliminary Injunction is GRANTED as stated on the April 4, 2018 record and transcript (Michael Barfield, OCR) at 22: 12-29: 19; it is further ORDERED Plaintiff shall remit a bond or undertaking in the amount of $10,000 within 5 days following the Entry of this Order as stated on the April 4, 2018 record and transcript (Michael Barfield, OCR) at 29:20-37: l; it is further ORDERED while the Court relies on the rationale provided in the above referenced transcript it also explains as follows: 1 of 34 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:41 AM 2] NYSCEF DOC. NO. 113 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Management v, Vl. 44th Street Hotel 655914/2017 2 of6 Plaintiff has moved pursuant to CPLR 6301 for a preliminary injunction enjoining Defondants from terminating the Management Agreement, removing Plaintiff as manager of the Hotel and self-operating the Hotel, until a foll resolution of this matter on the merits. To obtain a preliminary injunction, Plaintiff must show (1) a likelihood of success on the merits, (2) in-eparable harm absent the injunction, and (3) a balancing of the equities in its favor. Aetna Ins. Co. v. Capasso, 75 N.Y2d 860 (1990). On a motion for a preliminary injunction, the movant need only make a prima facie showing of a likelihood of success on the merits of its underlying claims. See Parkmed Co. v. Pro-Life Counselling, Inc., 91 A.D.2d 551, 553 (1st Dep't 1982). First, Plaintiff argues no event of default occun-ed entitling Defendants to tem1inate the HMA. Plaintiff asserts the provisions of the HMA are extremely generic and Plaintiff has satisfied those provisions, The HMA requires (1) Plaintiff "exercise commercially reasonable, good faith and diligent efforts," (2) use "reasonable discretion and business judgment, consistent with som1d and prudent practices of first class hotel operators in the Borough of Manhattan, New York" in operating the Hotel, and (3) comply \Vith the "duties of care, loyalty, good faith and fair dealing and other duties customarily owed by an agent to a principal in an agency relationship to the extent recognized under common law or otherwise." HMA §§1.01, L04, 16.01. Plaintiff also argues it has properly passed every performance test outlined in§ 14,03, 655!!14/:W17 !HG MANAGEMENT (MARYLAND} LLC Motion No. 001 Vj!L WEST 44TH STREET HOTEL LLC 2 of 34 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:41 AM 3] NYSCEF DOC. NO. 113 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Management v, W, 44tl1 Street Hotel 655914/2017 3 of6 Ddendant argues O\vner terminated the HMA purslliillt to its contractu.al rights, Defendants provided a detailed statement of all of Plaintiff's alleged defaults in its six-page Notice of Default dated April 18, 2017. Moreover, Defendant asserts the perfonnance test outlined in§ 14.03 has nothing to do \Vith O\vner's rights to terminate IHG pursuant to the default provisions under Sections 14.01 and 14.02. Contrarily, Plaintiff argues each and every default allegation relates to the bottom-line performance of the Hotel, which is objectively measured by the performance test provided in§ 14.03. In opposition to the motion, Defendants again argue the Managing Agreement is a personal services contract, that cannot be enforced by specific performance or injunction and can be terminated at will. In conjunction with Motion Sequence 002, however, the Court already disposed of the argument that this HMA is exempt from specific performance under both an analysis of appl.icable Maryland law and an analysis of personal service contracts. Also, under Section §16.01, the parties expressly agreed the HMA could NOT he terminated at will, Plaintiff also argues specific performance and preliminary i11junction are relief available for anticipatory breach under Maryland law. Title 23 of the Maryland Commercial Code provides for specific pe1formance as a remedy for anticipatory breach of a management agreement l'vfd, Code, Com. La<vv § 23-102(b). (A court may order the remedy of specific perfonnance for anticipatory or actual breach or attempted or actual termination of an operating agreement notwithstanding the existence of an agency relationship between the parties to the operating agreement). While the Court is not charged with determining whether Plaintiff ultimately defaulted under the HMA at this time, it does find Plaintiff has made a prirna facie showing of a likelihood of success which has not been successfully refuted by Defendants. 65591412017 !HG MANAGEMENT {MARYLAND) lLC vs. WEST 44TH STREET HOTEL i..LC Motion No. 001 3 of 34 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:41 AM 4] NYSCEF DOC. NO. 113 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Management v. W. 44th Street Hotel 655914/2017 4 of6 Plaintiff argues the Managing Agreement provides Manager also is entitled to additional benefits, including construction of the Hotel to Intercontinental brand standards and specifications, the Hotel would be identified to the public as associated >vvit.h the Intercontinental Brand, and that Manger would be entitled to include the Hotel in its nm:rketing program. See Recitals at A, § 1.03, § l .040). The loss of a business reputation and good will sometimes constitute irreparable harm. See DlvfF Leasing v. Budget Rent-A-Car ofAfaryland, Inc., 161 Md. App, 640, 651 (Md. Ct Spec. App. 2005). Most compelling to this Court is, however, if a Preliminary Injunction is denied Plaintiff Y'.ill be deprived of its contractual right (under Maryland Law) to seek specific performance of the HMA. It is not disputed if the Preliminary Injunction is not issued, Defondants will follow through on their attempt to terminate the HMA Therefore, if Plaintiff can demonstrate it. did not default, it will be unable to retroactively return as manager to the property. The necessary forfeiture of a contractual right outweighs Defendants alleged hann in having to work \:Vith Plaintiff for a few more months, [Continued on Next Page] 65591412011 !HG MANAGEMENT {MARYLAND) llC vs, WEST 44TH STREET HOTEL LLC Mot!on ll!o. Of.I'! 4 of 34 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:41 AM 5] NYSCEF DOC. NO. 113 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Management v. \V. 44tn Street Hotel 655914/2017 Finally, the equities prong 5 of6 "n.~quires the comi to look to the relative prejudice to each party accruing from the grant or a denial of the requested relief." Sau Thi lv!a v. Xaun T. Lien, 198 A.D.2d 186, 186-87 (1st Dep't 1993). Maryland courts have held "with respect to the balance of the equities, in tem1ination cases, courts usually find that the equities tip in favor of a long-tenn franchisee facing termination, reasoning that maintenance of the status quo will not injure the franchisor while failure to e,'Tant an injunction and pe1111it tennination might result in destruction of the franchisee's business," Dll.fF Leasing, 161 Md. App. at 651. Plaintiff argues if the injunction is not granted, Plaintiff will be deprived of its day in court. In addition, Plaintiff contends such a decision would cause significant uncertainty with respect to hotel management agreements that are governed by Maryland law. Defendants argue they are being prohibited from managing their ov.n Hotel, and, if forced to continue to employ Plaintiff as manager, Owner might default on its loan obligations. Defondants claim their Q,;\-uer's debt financing recently matured and all refinancing options are at significantly less favorable terms that may require debt payments in excess of the Hotel's available cash flow. \Vhile Defendants complaints may have credence, the Court is also cognizant that the Defendants voluntarily entered into a long-tenn management agreement with Plaintiff. To permit Defendants to unilaterally terminate the contract, in violation of l\/faryland law and without establishing whether the grounds on which the termination is based are valid, would unduly prejudice Plaintiff, Therefore, the Court finds all factors tip in favor of Plaintiff and GRANTS Plaintiffs motion for a Preliminary injunction (l\tfotion Sequence 001), enjoining Defendants from terminating the H1i!A until the action has been resolved. 655914/2!'.1'!7 !HG MANAGEMENT (MARYLAND) LLC Mot!on No, 001 v~L WEST 44TH STREET HOTEL LLC 5 of 34 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:41 AM 6] NYSCEF DOC. NO. 113 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Management v. W. 44th Street Hotel 655914/2017 6 of6 Consequently, Defendant's motion to vacate the TRO (Motion Sequence 003) is DENIED. (Separate Order issued for Motion Sequence 003). Pursuant to CPLR 6312(b), the Court finds Plaintiff needs to pay a bond/undertaking in order to obtain this Preliminary Inji.mction. Undertakings should be rationally related to tht.~ quantum of damages which \vould be sustained in the event that it is later detem1i11ed the injunction was not proper, See, 51 rV 62nd lM•ners Corp. v. Harness Apt. Oivners Corp., 173 A.D.2d 372, 373 (1st Dep't 1991). The parties have agreed Plaintiff shall remit a bond in the amount of $10,000 which shall be posted within 5 days of the entry of this Order. EILEEN BRANSTEN, J.S.C. CHECK ONE: APPllCATlON: CHECK !F APPROPRIATE: 1-~ CASE DISPOSED l~J j i SETTLE ORDER :-........~ ~-..l j GRANTED ~-------1 GRANTED !N PART SUSM!T ORDER ~ .._.._.._.._.._.._~ DENIED ! ~.._.._.._.._.._.._.._~ ! DO NOT POST t j ... ....._.._.._.._.._ v ........... w 655914/2017 !HG MANAGEMENT {MARYLAND} LLC Motion No. 001 NON-F!NAL DISPOS!T!ON i D f"x'"j ... ~ V$. FIDUCIARY APPOINTMENT WEST 44TH STREET HOTEL LLC 6 of 34 D D OTHER REFERENCE

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