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 30625(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 10:06 AM 1] NYSCEF DOC. NO. 115 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: Jj_Q_~-~J;';JLEEM_~B_t\NSJE~-------"""'""'"""'"'"'""""""" PART 3 Justice ---------------------------------------------------------------------------------X IHG MANAGEMENT (MARYLAND) LLC, !NDEXNO, 655914/2017 Plaintiff, MOTION DATE MOTION SEQ. NO, 04/09/2018 003 WEST 44TH STREET HOTEL LLC, TlSHMAN ASSET CORPORATION DECISION AND ORDER Defendant -----------------------------------------------------------------------------------X The following e-f!ied documents, listed by NYSCEF document number 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 96, 97, 98, 99, 100, 10"1, 102, 103, 104, 105, 106, 107, 108, 109, 110 were read on this application to/for Vacate TRO Upon the foregoing documents, it is ORDERED Plaintiffs Motion for a Preliminary Injunction is GR.ANTED as stated on the April 4, 2018 record and transcript (Michael Barfield, OCR) at 22:12-29:19; it is further ORD:KRED Defendant's Motion to Vacate the TRO is DENIED as stated on the April 4, 2018 record and transcript (Michael Barfield, OCR) at 29: 18-19. ORIJEREU 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 10:06 AM 2] NYSCEF DOC. NO. 115 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 !HG .A1anagement v. W 44th Street 655914/2017 Plaintiff has moved pursuant to CPLR 6301 for a preliminary injunction enjoining Defendants from terminating the Management Agreement, removing Plaintiff as manager of the Hotel and self-operating the Hotel, until a full resolution of this matter on the merits. To obtain a preliminary injunction, Plaintiff must sh(_n.v (1) a likelihood of success on the merits, (2) im;parable hann absent the injunction, and (3) a balancing of tht~ equities in its favor. Aetna lns. Co. v. Capasso, 75 N.Y2d 860 (1990). On a mot.ion for a preliminary injunction, the movant need only make a prima facle showing of a likelihood of success on the merits of its lillderlying claims. See Parlaned Co. v. Pro-Life Counselling, Inc., 91A.D.2d551, 553 (1st Dep't 1982). First, Plaintiff argues no event of default occun-ed entitling Defendants to terminate 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 vvith sound and prudent practices of first class hotel operators in the Borough of Manhattan, New York" in operating the Hotel, and (3) comply with the "duties of care, loyalty, good faith and fair dealing and other duties customarily mved by an agent to a principal in an agency relationship to the extent recognized under common law or otherwise." HMA §§LOI, L04, 16.0 l. Plaintiff also argues it has properly passed every perfonmmce test outlined in §14.03. Defendant argues 0\:vner terminated the HMA pursuant to its contractual rights. Defendants provided a detailed statement of all of Plaintiff's alleged defaults in its six-page Not.ice of Default dated April 18, 2017 ..Moreover, Defendant asserts the performance test 65591412017 !HG MANAGEMENT (MARYLAND) LLC vs. WEST 44TH STREET HOTEL LLC Motion No. 003 2 of 34 Page 3 of 6 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 10:06 AM 3] NYSCEF DOC. NO. 115 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG Jtfanagement v. W 44th Street 655914/2017 3 outlined in§ 14.03 has nothing to do \Vith Ovv1ier's rights to terminate IHG pursuant to the default provisions under Sections 14.01 and 14.02. Contrarily, Plaintiff argues ~:ach and every default aHegation re fates to the bottom-line performance of the Hotel, which is objectively measured by the perfonnance test provided in§ 14,03. In opposition to the motion, Defendants again argue the Managing Agreement is a personal services contract, that ca!lllot be enforced by specific performance or injunction and can be terminated at wilt In conjunction with Motion Sequence 002, however, the Court already disposed of the argument that this 1Th1A is exempt from specific perfonnance under both an analysis of applicable Maryland Iaw and an analysis of personal sen;ice contracts. Also, under Section §16.01, the parties expressly agreed the HMA could NOT be terminated at will. Plaintiff also argues specific performance and preliminary injunction are relief available for anticipatory breach under Maryland law. Title 23 of the J\tlaryiand Commercial Code provides for specific performance as a remedy for anticipatory breach of a management agreement Md. Code, Com. Law§ 23-102(b). (A court may order the remedy of specific performance for anticipatory or actual breach or attempted or actual termination of an operating agreement notwithstanding the existence of an agency relationship bet\veen the parties to the operating agreement). While the Court is not charged \:Vith determining whether Plaintiff ultimately defaulted under the HMA at this time, it does find Plaintiff has made a prima fade showing of a likelihood of success which has not been successfully refuted by Defendm1ts. (Continued on Next Page] 65591412017 iHG MANAGEMENT (MARYLAND} LLC vs, WEST 44TH STREET HOTEL LLC Motion No. 1.103 3 of 34 Page 4 of 6 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 10:06 AM 4] NYSCEF DOC. NO. 115 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 !HG Afanagement v. W. 44th Street 655914/2017 4 Plaintiff argues it \:vi.11 suffer irreparable ham1 due to (1) loss of a unique and irreplaceable asset and (2) harm to its business reputation and goodwill. Defendants assert where a hotel manager receives foes in return for its services managing the Hotel, the Manager's damages are Galculable and thus no irreparable harm exists. See Woolley v. Embas:,y Suites, 1Y£c., 278 CaL Rptr, 719, 728 (Ct App. 1991). Plaintiff argues the Managing Agreement provides Manager also is entitled to additional benefits, including constrnction of the Hotel to Intercontinental brand standards and specifications, the Hotel would be identified to the public as associated with the IrrterContinental Brand, and that Manger would be entitled to include the Hotel in its rna:rketing program, See Recitals at A,§ 1.03, § l .04(j). The loss of a business reputation and good wi!l sornetimes constitute irreparable harm. See DJ\1F Leasing v. Budget Rent-A-Car ofA1aryland, Inc., 161 Md. App. 640, 651 (Md. Ct Spec. App. 2005). Most compelling to this Court is, however, if a Preliminary btjunct1on is denied Plaintiff will b(~ deprived of its contractual right (under Maryland Law) to seek specific perfonnance of the HMA. It is not disputed if the Preliminary 1njunction 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 forfoiture of a contractual right outweighs Defendants alleged harm in having to work with Plaintiff for a few more monthso [Continued on Next Page] 655914/2017 !HG MANAGEMENT {MARYLAND} ll.C Motion No. 003 vs. WEST 44TH STREET HOTEL LLC 4 of 34 Page 5 of 6 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 10:06 AM 5] NYSCEF DOC. NO. 115 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 IHG lvlanagement v. W 44th S'treet 655914/2017 5 Finally, the equities prong "requires the comt to look to the relative prejudice to each party accruing from the grant or a denial oft.he requested relief." Sau Ihi Ma 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 termination cases, courts usually find that the equities tip in favor of a long-term franchisee fa.cfag tem1ination, reasoning that maintenance of the status quo will not injure the franchisor while failure to grant an injunction and permit terrnination might result in destruction of the franchisee's business," DlvlF Leasing, 161 Md. App. at 651. Plaintiff argues if the injunction is not granted, Plaintiff \Vill be deprived of its day in court. In addition, Plaintiff contends such a decision would cause si&,rnificant uncertainty with respect to hotel management agreements that are governed by Maryland law. Defondants argue they are being prohibited from managing their own Hotel, and, if forced to continue to employ Plaintiff as manager, o,.,ner m.ight default on its loan obligations. Defendants claim their Owner's debt financing recently matured and all refinancing options are at si~'Ilificantly 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-term management agreement with Plaintiff To permit Defendants to unilaterally tem1inate the contract, in violation of Maryland lmv and without establishing whether the grounds on w-hich the termination is based are valid, would unduly prejudice Plaintiff. Therefore, the Court finds all factors tip in favor of Plaintiff and GRA.NTS Plaintiff's motion for a Preliminary Injunction (Motion Sequence 001 - Separate Order issued), enjoining Defendants from tem1inating the HMA until the action has been resolved. 655914/2017 !HG MANAGEMENT {MARYLAND} lLC vs. WEST 44TH STREET HOTEL LLC Motion No. 003 5 of 34 Page 5 of 6 [*FILED: NEW YORK COUNTY CLERK 04/10/2018 10:06 AM 6] NYSCEF DOC. NO. 115 INDEX NO. 655914/2017 RECEIVED NYSCEF: 04/10/2018 JHG kfanagement v. W 44th Street 655914/2017 6 Consequently, Defendant's motion to vacate the TRO (Motion Sequence 003) is DENIED, Cf 41 12018......................,,... .. ~ DATE ",,,,,,,,,,,,,,,,,,, _._._._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._.._ EILEEN BRANSTEN, J.S.C, CHECK ONE: !! CASE DISPOSED APPLICATION;. l SETTLE ORDER ' CHECK IF APPROPRIATE: I DO NOT POST t_-_·_·_·_·_·J FIDUCIARY APPOINTMENT r=ll r4 i L........; GRANTED [!] DENIED f"x"l t~~~~~-1~ NON-FINAL DISPOSITION GRANTED IN PART SUBMlT ORDER 65591412017 !HG MANAGEMENT (MARYLAND) llC vs. WEST 44TH STREET HOTEL LLC Motion No. 003 6 of 34 D D OTHER REFERENCE Page 7 of 6

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