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 30624(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 09:53 AM 1] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: .J:1Q,~. EILEEN BR.AN_STE11_L________________________________________" PART 3 Justice ----------------------------------~----------------------------------------------X !HG MANAGEMENT {MARYLAND} LLC, INDEX NO, 6559 ·14/20 ·17 Plaintiff, MOTION SEQ. NO. -vWEST 44TH STREET HOTEL LLC, T!SHMAN ASSET CORPORATION 002 DECISION AND ORDER Defendant. The following e-filed docL1ments, listed by NYSCEF document number 59, 60, 61, 62, 63, 64, 65, 66. 67,68,88,89,90,91, 92,93, 94, 95, 111 were read on this application to/for rnsrnlss Upon the foregoing documents, it is ORDERED Defendant's Motion to Dismiss is GRANTED in part and DENIED in part as stated on the April 4, 2018 record and transcript (Michael Barfield, OCR) at 5:23-22:11; it is further ORDERED while the Comi relies on the rationale provided in the above referenced transcript it also explains as follows: The question presented to this Court was: Can Defondant, a hotel mvner, terminate a kmg-tem1 contract with Plaintiff, a hotel management company, under Maryland law and under the plain terms of the contract? To some extent, this appeared to be a case of first impression insomuch as the subject Maryland law -Title 23 of th(: Commercial La\v Article of the Annotated Code of Maryland ~has never been challenged in Court nor has any Court been asked 1 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 2] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Afanagement v. W 44th Street Hotel 655914/2017 2of10 to determine whether a Hotel Management Agreement (HMA) is a personal services contract under Maryland law, Underlying Defendants' position supporting dismissal is the argument that Personal Service contracts cannot be enforced by injunctive relief: largely relying on the seminal case of ,Marriott Int'! v. Eden Roe, LLLP, 104 A.D.3d 583 (1st Dep't 2013), In Eden Roe, the First Department found that HMA at issue \.vas, indeed, a personal services contract, and therefore was exempt from injunctive relief: Applying that same .logic, Defendants assert the subject HMA also is a personal services contract and, therefore, Plaintiff is not entitled to Specific Perfonnance. Alternatively, Defendants argue ifthls HiviA. is not considered a personal service contract, it is nevertheless terminable upon the occurrence of an event --- that event being Plaintiff's default. In opposition, Plaintiff argues Maryland Title 23 specifically addresses the availability of specific perfom1ooce as a remedy for anticipatory or actual breach or attempted or actual termination of a HMA. As such, Plaintiff argues the holding of Eden Roe, a New York case, is inapposite and inapplicable to this case which is governed by Title 23 and Maryland Law. Plaintin: relying entirely on Section 23 of the Maryland Annotated Code, argues entitlement to an injunction as a matter of law. Drawing on the definition of"operating agreement" under Section.§23-lOl(c), Plaintiff argues hotel management agreements were specifically contemplated by the legislature when enacting Title 23 in 2004 and, as such, hotel management agreements are afforded its protection. See, Afaryland Fiscal Note, 2004 Sess. S.R 603. Plaintiffs argue it is axiomatic that the 65591412017 !HG MANAGEMENT {MARYLAND) LLC Mot!r:m No. 002 vs. WEST 44TH STREET HOTEL LLC 2 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 3] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 JHG Afanagement v, W 44th Street Hotel 655914/2017 3of10 rvfaryland legislature, fully aware of other jurisdictions position on hotel management contracts and the potential for them to be found exempt from specific perfom1ance (vis a vis Eden Roe's progeny), took care to create a law that prohibits that unilateral tennination ability from hotel owners. That is likely why the term "operating agreement" was so defined in §23-101 (c) to remove any question as to whether a hotel management ab'Teement falls under the definition of "operating agreement", Indeed, §23-10 l (c) removes all ambiguity from interpretation as to whether a hotel management agreement may be specifically performed, Maryland legislature has said yes. Section §23-lOl(c) defines operating agreement as a '"vvritten contract, agreement, instrument, or other document between at least two persons that relates to the management, operation, or franchise of a hotel , ... " Still, however, to ensure Defendants personal service argument is aptly dealt with, the Court v1ill 11evertheless address whether this HMA is exempt from injunctive relief under Eden Roe and similar cases, Eden Roe 's H1HA vs, The Subject HlvL4 The First Department has observed that a business can be found to have entered into a personal services contract where "the partiesi detailed management agreement places full discretion \?vith plaintiffs to manage virtually every aspect of the [Defendant's business]," Afarriott Int1!, Inc. v. Eden Roe, LLLP, 104 A.D.3d 583, 584 (1st Dep't, 2013); see ab;o Wien & Afalkin LLP v, Helmsley-Spear, Inc., 12 A.D.3d 65, 70 (l "t Dep't 2004), rev'd on other grounds, 6 N.Y3d 471 (2006) (applying NY standards of a personal services contract to rnanagerial contracts). 655914/20'!7 !HG MANAGEMENT (MARYLAND} LLC vs, WEST 44TH STREET HOTEL LLC Motion No. 002 3 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 4] NYSCEF DOC. NO. 114 RECEIVED NYSCEF: 04/10/2018 !HG ,~fanagement V. 655914/2017 ,.b·l(~, V,. }~,'{.l{:" ll A~ot:~ INDEX NO. 655914/2017 rr 44th Street Hotel 4of10 z.L.z:.I 1 'J 04, i~.. I).3d 583:: 584 (1 '' [)f;fl't~ 201 3). i\_s s:~- > suc.t1~ turning to the laT1~;u.a.~;e HJ\,1A §Us.Ol(b). Distinguishing itself from the HMA discussed in Eden Roe, the subject HMA states it is an agency agreement. (Eden Roe expressly disclaimed agency). Also, the subject Htvi..<\ requires Ovvner to actively participate in the management and operation of the hotel and the Manager's discretion is restricted by ow11er's rights and obligations, again unlike Eden Roe. See, HMA §§1.05, 1.08(d), 5.03. Additionally, the H.MA provides the Ov·mer \vith various rights, including to enter into a lease, license or management agreement for any restaurants located within the Hotel, and enter into any leases or other agreements related to the retail space and external signage, See, H.NlA §1.06, OV\.'ner also retained the right to approve candidates for all new openings for key hotel personnel positions and approve the strategy with respect to the negotiation oflabor union contracts, See, HMA §5.03(b), (c). 655914/2011 !HG MANAGEMENT (MARYLAND) LLC vs, WEST 44TH STREET HOTEL LLC Motion No. 002 4 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 5] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 !HG lvfanagement v. W 44th Street Hotel 655914/2017 5of10 The Eden Roe agreement provides no such rights to the owner. Rather, the Eden Roe agreement states explicitly that "the operation of the Hotel shall be under the exclusive supervision and control of Manager," and "Manager shall have the discretion and control in all rights of mvner. Soloway,{fjlrm. Ex, F § l.Ol(c) (emphasis added). Indeed, the Eden Roe O\h;Tier was not required -- or even permitted -- to actively participate in management of the hoteL Most importantly, perhaps, Eden Roe was decided under New York law. While the seminal New York case, Eden Roe indeed held the HMA used at that hotel, in that case, was a personal services contract - the case did not stand for the broad stroked proposition that any and all HMAs are inherently personal services contract exempt from specific performance. Rather, as this Court already remarked, om.~ must look at the terms of the contract first before ma.king such a determination. (Septem.ber 19, 2017 Tr: 18:2-19:4; 20:15), Significantly, here, Section 14.02(d) and 14.02(e) of the subject HlViA specifically contemplate Specific Perfom1ru1ce of the Agreement Section 16.01 also states the "agreement may not be terminable at will". HMA §16.0l (emphasis added). In the face of this, it is difficult to consider Defondru1ts argument that the HMA is nevertheless entirely a personal services contract, exempt from specific performance and one that can be terminated at wilL If this Comt were to hold that the Hl\.i.;\ is one for personal services, incapable of being subject to specific performance, the Comt would simultaneously be rendering those provisions in the Agreement which permit specific performance meru1ingless. See, Vermont Teddy Bear Co, v. 538 A1adison Realty, Co., l N. Y.3d 470, 475 (2004) ("Courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the 65591412017 !HG MANAGEMENT (MARYLAND) LLC vs. WEST 44TH STREET HOTEL LLC Motion No. 002 5 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 6] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 !HG Afanagement v. W 44th Street Hotel 655914/2017 6of10 parties under the guise ofinterpretjng the writing,") See, Pl. Memo in Opp at 16. For those reasons, this Court declines to find that this particular Hl\/IA is one for personal services contract, exempt from specific perfo1111ance. Notably, while Maryland's statute declares Hl\/1A's are su~ject to specific perfonnance, it does not foreclose the ability to terminate hotel management services, In fact, Section §23-104 clearly states operating agreements shall continue for the specified amount of time or until the happening of an event An HMA can also be terminated if it contains an early right of tem1inatio11 (which \Vould remove it from Title 23 altogether). Again, §16.01 confirms the parties '\Naived the right to terminate the EHvL4.. at \vilL Section §23-104 coincides with the plain reading of the HMA. That is, the HMA clearly states upon the occurrence of an event, the HMA may be cancelled. The "default" can be considered the event contemplated by this Maryland statute. Defondant has aln.~ady noticed Plaintiffs default and, if valid, shall be grounds to terminate the contract and escape specific performance, As such, this Court finds there are sufficient differences between the two HMAs (Eden Roe and this subject HMA), and, \Vhen analyzed together with Maryland Title 23 which specifically includes HMAs, this Court declines to determine thls subject HMA is a personal services contract subject to exemption from specific performance. Therefore, the portion of Defendant's motion which seeks to dismiss Plaintiffs First Cause of Action fr)r Specific Perfom1ance is Denied. 6559'1412017 !HG MANAGEMENT (MARYLAND) LL.C vs, WEST 44TH STREET HOTEL LLC Motion No. 002 6 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 7] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG 1\fanagement v, W. 44th Street Hotel 655914/2017 7of10 Injunctive relief will be afforded only in those extraordinary situations where the plaintiff has no adequate remedy at law and such relief is necessary to avert irreparable injury. Chicago Research and Trading v Nevv York Futures R-rch, Inc., 84 AD2d 413, 416 (1st Dep't 1982), Supporting disrnissal of this cause of action, Defendants argue Plaintiff cannot demonstrate the requisite "irreparable harm'" which would warrant such injunctive relief. De.f Afemo in Supp at 20, Specifically, Defendants return to the "personal services contract" argument insomuch as they argue the HMA is a personal sen1ices contract which cannot be enforced by injunction, As discussed already, however, the Court has rejected the argument that this HMA is a personal services contract and exempt from specific performance "as a matter of la\v". Def .Memo in Support at 7, 11. Alternatively, Defendants argue Plaintiff IH G is nothing other than Ovvner' s property manager, whose sole entitlement under the HMA is monthly fees in return for its management services. See, Gov 't Guar, Fund v. Ffyatt Corp., 166 F.RD. 311, 329 (D,V.L 1996) ("Hyatt's sole interest in the Management Agreement 1s its right to compensation."), aff d, 95 F3d 291 (3d Cir. 1996). Section 7 of the HMA sets forth IHG's compensation for its services. Defendants argue where a hotel manager's damages are calculable, no iITeparable harm exists. See, Woolley v. Embassy Suites, Inc, 278 Cal. Rptr. 719 (Ct App. 1991). Plaintiff does not attempt to argue Defendant W. 44th Street Hotel is not the mvner of the hotel and readily concede it is the 0-wner's property. Complaint ~3. The HMA also makes clear that Plaintiff has no possessory interest in the Hotel, See, HMA §16.01. 65591412017 IHG MANAGEMENT (MARYLAND} LLC Motion No. 002 vs. WEST 44TH STREET HOTEL LLC 7 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 8] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 !HG Afanagement v. fV. 44th Street Hotel 655914/2017 8of10 Supporting its claim for a Permanent Injunction, Plaintiff argues the Complaint sufficiently alleges if the O\;vner follows through -w'ith its termination of the HMA, Plaintiff rvfanager wiH lose a unique and irreplaceable asset and experience damage to its reputation and goodwill. See, Complaint ~~1, 4, 20-22, 47-79. However, as held in FHR TB, LLC v. TB Isle Resort, LP, 865 F. Supp. 2d 1172 (S.D Fla, 2011), the loss of one hotel does not constitute irreparable ham1 where it was '~only one of 67 luxury resorts which Fairmont operates internationally"" IHG touts that the brand has more than 180 hotels in more than 60 countries, of which the subject hotel is just one. See, Complaint ~19. It is also notable to this Court that Plaintiff already negotiated a bn.~ak-up fee, which is contained within the HMA, should the Ovmer sell the Hotel to a third-party. As such, it was clearly contemplated that circumstances could arise whereby Plaintiff would no longer manage the hotel in exchange for money. See, HivlA §14.05. And, while at the Motion to Dismiss stage, the Court shall accept all allegations in the Complaint as true, it need not where facts underlying the cause of action were contradicted by other allegations in the pleadings and/or belied by documentary evidence. Therefore, Plaintiff's allegation that the hotel is IHG's '<asset" or that IHG has some "possessory interest" in the Hotel need not be accepted as true by this Court See, Greene v. Doral Conjerence Ctr. Assocs., 18 A.D.3d 429, 430 (2 11d Dept 2005) (plaintiff failed to state a cause of action where facts underlying the cause of action were contradicted by other allegations in the pleadings). Compare, Complaint ~3 and ~60. 655914/2017 !HG MANAGEMENT (MARYLAND) LLC vs, WEST 44TH STREET HOTEL lLC Motion No. 002 8 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 9] NYSCEF DOC. NO. 114 IHG 1~.fanagement v. 655914/2017 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 w: 44th Street Hotel 9of10 Finally, the Court agrees with Defendants argument that potentially avvarding Plaintiff a permanent injunction would impermissibly re-write the H1v1A to eliminate the Owner's bargained-for-right to terminate IHG in the event of uncured defaults. See, Def Memo in Support at 11; see also, HMA §14.01, 14.02. As such, the Court finds precedent in granting Defondants Motion to Dismiss Plaintiff's St.~cond cause of Action for a Permanent Injunction. If Plaintiff ultimately demonstrates it did not default and the Ow11er breached the contract, Plaintiff is entitled to seek specific performance of the HMA and/or money damages. As discussed in connection "With l'vfotion Sequence 001, because the Court will have a preliminary injunction in place preventing the termination of the HMA until it can be determined whether an event of default has occurred, Plaintiffs claimed irreparable harm wm be prevented as the HMA vviU only be terminated if, in fact, Plaintiff defa.ulted. Therefore, Plaintiffs First Cause of Action shall remain and Plaintiff's Second Cause of Action is dismissed with prejudice, Defendant Tishman Asset Corporation ("Tishman") also seeks dismissal of an actions as against it under CPLR 321 l(a)(l). Specifically, Defendant Tishman contends the mere 3 references made to it in Plaintiff's Complaint al! concern IHG's mistaken belief that Tishman is the asset manager for the Hotel and has some hand in decision making. Def li1emo in Supp at 15, Supporting its argument, Defendant annexes an asset management agreement, together with an1endments, showing Tishman is not the asset manager. See, Solo"way Affirm., Ex. G. Plaintiff opposes, arguing the document provided does not conclusively establish that Tishman Asset Corp. is not the hotel's asset manager. Plaintiff also argues all the Tishman entities ('act on behalf of one another". However, the only support provided to this asse1iion is 65591412017' !HG MANAGEMENT (MARYLAND} LLC vs. WEST 44TH STREET HOTEL LLC Motion No. 002 9 of 38 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 09:53 AM 10] NYSCEF DOC. NO. 114 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 !HG 1Hanagement v. W 44th Street Hotel 655914i2017 10of10 that they all "share the same address", PL Memo in Opp at 24. While it may be true that both entities share the same address, such a speculative conclusion shall be rejected by Courts when confronted with documentary evidence, including written agreements. See, Arboleda v. 1Hicrodot, LLC, 2016 WL 881185 at* 3 (Sup Ct N.Y., March 2016) (Hagler, J.). (dismissing improper party based on documentary evidence including written agreements and rejecting opponent's "speculative and conclusory" assertions that the party was proper), See also, Robinson v, Robinson, 303 AD.2d 234, 235 (l st Dep't 2003) (dismissing complaint 'i.Vhere documentary evidence made dear that defendant had no obligation to plaintiff that could have been breached). A plain reading of the asset management agreement shows Tishman Hotel, LP as asset manager, not Tishman Asset Corporation. Therefore, Defendant Tishman's motion is GRA.NTED and the Complaint is dismissed against it -..vi.th prejudice. (') \,~"~ ._3L.........~......l~_Q1.~............ DATE CHECK ONE: APPLlCATiON: I , ! SETTLE ORDER l ~ CHECK IF APf'ROPR!ATE: CASE DISPOSED GRANTED D lX l ~..{ DEN!ED !\!ON·F!NAL D!Sf'OSITlON j GRANTED IN PART DO NOT POST t·i SUBMIT ORDER r-------1 ............"-t j i X F!DUCIARY APPOINTMENT ~~~'''''' 655914/2017 !HG MANAGEMENT (MARYLAND) LLC vs. WEST MTH STREET HOTEL LLC Motion No. 002 10 of 38 D D OTHER REFERENCE

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