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Presidential Hospitality, LLC v. Wyndham Hotel Group, LLC

United States District Court, D. New Mexico

June 2, 2018

PRESIDENTIAL HOSPITALITY, LLC, a New Mexico limited liability company; ACE DEVELOPMENT, INC., a New Mexico Corporation and SAM BLUE, Plaintiff,
v.
WYNDHAM HOTEL GROUP, LLC, a New Jersey limited liability company; BAYMONT INN AND SUITES FRANCHISE SYSTEMS, INC., a Delaware Corporation and MICROTEL INN AND SUITES FRANCHISING, INC., a Georgia corporation, Defendants.

          Bobbie Jo Collins Lewis Roca Rothgerber Christie LLP Albuquerque, New Mexico

          E. Martin Enriquez Anovven Law Greenwood Village, Colorado Attorneys for the Plaintiffs

          Rufus E. Thompson Elizabeth Ann Martinez Modrall, Sperling, Roehl, Harris & Sick, PA Albuquerque, New Mexico

          David S. Sager Steven R. Marino DLA Piper Short Hills, New Jersey Attorneys for the Defendants

          MEMORANDUM OPINION AND ORDER

         THIS MATTER comes before the Court on: (i) the Motion for Temporary Restraining Order and Preliminary Injunction in Federal Court, filed September 27, 2017 (Doc. 8)(“Motion”); and (ii) the Plaintiffs' Petition for Temporary Restraining Order and Preliminary Injunction (Eleventh Judicial District Court, County of San Juan, State of New Mexico), filed in state court September 22, 2017, filed in federal court September 26, 2017 (Doc. 1-2)(“State Motion”). The Court held a hearing on November 28, 2017. The primary issue is whether to issue a temporary restraining order reinstating the Microtel Inn and Suites Franchising, Inc. License Agreement (dated March 18, 2011), filed September 27, 2017 (Doc. 15-1)(“Contract”), which was terminated on September 18, 2017. The Court will not issue a TRO reinstating the Contract, because irreparable harm is unlikely to occur absent such an order. The primary harm alleged -- revenue loss -- can be cured with money damages, so the harm is not irreparable. The Court is also unpersuaded that the revenue loss is certain to result in the Plaintiffs' business' failure. Record evidence suggests that the late September, 2017, drop in reservations, upon which the Plaintiffs' heavily rely in arguing that their hotel is doomed was an expected dip in business. Moreover, there are many actions, such as relisting their hotel online under a different name, that the Plaintiffs can take to keep their hotel afloat. Accordingly, the irreparable-harm prong of issuing a TRO weighs against the Plaintiffs. In addition, the Plaintiffs have not established a likelihood of success on the merits. There is insufficient factual evidence for the Court to conclude that Defendants Wyndham Hotel Group, LLC or Microtel Inn and Suites Franchising, Inc. waived the Contract's termination provisions with their conduct. Indeed, much of their conduct suggests that they reserved their Contract termination rights with written notices that stated expressly that they reserved their rights. Because those two factors --irreparable harm and substantial likelihood of success on the merits -- are the most important factors in the TRO analysis, and because those two factors weigh against the Plaintiffs, the Court will not issue a TRO. Accordingly, the Court denies the Motion and the State Motion.

         FACTUAL BACKGROUND

         Pursuant to rule 52(a)(2) of the Federal Rules of Civil Procedure, the Court makes findings of fact and conclusions of law to support its disposition of the Motion. See Fed.R.Civ.P. 52(a)(2), 65(d)(1). The Court will first introduce the parties and then outline the timeline of events in this case. The Court will then discuss the arguments for and against the Motion.

         The parties did not, at the TRO hearing, present any evidence, so the Court may rely on the Complaint, the FAC, the briefing, attachments, and oral arguments to determine the applicable facts. The following Findings of Fact and Conclusions of Law are only the Court's early expression of its views on the facts and the law. They do not bind the Court or the parties down the road. See University of Texas v. Camenisch, 451 U.S. 390, 395 (1981)(“[T]he findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits.”). Thus, the Findings of Fact and Conclusions of Law serve the limited purpose of deciding the Motion and the State Motion and do not fully resolve the case.

         1. Wyndham Hotel through its affiliates, Defendant Baymont Inn and Suites Franchise Systems Inc., and Microtel Inn offers, sells, owns, and operates hotels and hotel chains throughout the United States. See Presidential Hospitality, LLC v. Wyndham Hotel Group, LLC, No. D-1116-CV-2017-01329, First Amended Complaint for Violation of the New Mexico Unfair Practices Act; Fraudulent Inducement; Negligent Misrepresentation; and Jury Demand ¶ 1, at 2 (Eleventh Judicial District Court, County of San Juan, State of New Mexico), filed September 25, 2017, filed in federal court on September 26, 2017 (Doc. 1-5)(“FAC”).

         2. Plaintiff Sam Blue is a New Mexico citizen, who is a managing member of Plaintiff Presidential Hospitality, LLC. See Draft Transcript of Motion Proceedings at 10:7-17 (taken September 28, 2017)(Court, Enriquez)(“Tr.”).[1]

         3. The other member of Presidential Hospitality is Plaintiff Ace Development, Inc., a New Mexico corporation with its principal place of business in New Mexico. See Tr. at 10:11-14 (Court, Enriquez); id. at 10:18-24 (Court, Enriquez).

         4. In March, 2011, Blue entered the Contract, purchasing the rights to a Microtel Inn franchise. See Contract at 1.

         5. In May, 2013, Blue assigned his rights and obligations under the Contract to Presidential Hospitality. See Amendment Assignment and Assumption Agreement at 1, filed September 27, 2017 (Doc. 15-2)(“Assignment Agreement”).

         6. According to the Plaintiffs, “through various representations, promises, omissions, ” of which many were “false, incomplete, and misleading, ” in addition to “high-pressure-sales tactics, ” the Wyndham Hotel and Microtel Inn induced Blue to purchase that Microtel Inn franchise. FAC ¶ 2, at 1.

         7. Again, according to the Plaintiffs, that inducement resulted from a relationship formed among Blue and an agent of the Wyndham Hotel, Gregg Koffler. See FAC ¶¶ 12-49, 65-70, at 4-11, 14-16.

         8. Blue first met Koffler in June, 2010, because Koffler had contacted Blue to tell him that the Wyndham Hotel was interested in property that Blue owned in Aztec, New Mexico. See FAC ¶¶ 15-19, at 4-5.

         9. Blue believed that the Wyndham Hotel wanted to buy his land. See FAC ¶ 18, at 5.

         10. At his meeting with Koffler, however, instead of discussing the Wyndham Hotel's interest in buying Blue's property, Koffler solicited Blue to purchase a Baymont Inn franchise. See FAC ¶ 19, at 5.

         11. Koffler told Blue that, if Blue purchased the franchise, Blue would be able to quickly flip the property for a profit. See FAC ¶ 21, at 5 (“Mr. Koffler told Mr. Blue that there would be a line of people interested in purchasing the hotel and he guaranteed a buyer by the time the hotel was built.”); id. ¶ 28, at 7.

         12. Blue was initially uninterested, because he wanted to sell his property. See FAC ¶¶ 13, 20, at 4-5.

         13. To further persuade Blue that purchasing the franchise was a solid investment, Koffler told Blue that the Wyndham Hotel “would most likely want to invest in the construction of the hotel, ” FAC ¶ 22, at 5, and that Blue, who had no experience in running a hotel, would not have to operate it, see FAC ¶¶ 1, 21, 27 at 2, 5-6.

         14. After speaking briefly with a Wyndham Hotel executive, Koffler represented to Blue that the Wyndham Hotel would invest $150, 000.00 in the property. See FAC ¶ 23, at 6.

         15. Koffler did not tell Blue that the Wyndham Hotel's investment would be a loan. See FAC ¶ 23, at 6.

         16. Upon Koffler's representations, in particular the representation that the Wyndham Hotel would invest $150, 000.00 of its own money in the property's development, Blue agreed to apply for a Baymont Inn franchise. See FAC ¶ 25, at 6.

         17. About a month later, and after Blue had been preliminarily approved to buy the franchise, Blue had second thoughts and said to Koffler that he did not think anyone would want to buy the hotel from him. See FAC ¶ 26, at 6.

         18. Koffler again told Blue that the Wyndham Hotel “was going to have buyers ‘lined up, '” FAC ¶ 28, at 7, and also that, if Blue did not agree to purchase the franchise, Koffler would probably lose his job, see FAC ¶ 29, at 7.

         19. Blue subsequently agreed to the purchase and entered into the Baymont Franchise Systems Inc., Franchise Agreement (“Baymont Contract”). See FAC ¶¶ 34-35, at 8.

         20. Baymont Inn did not provide Blue “a complete and timely copy of its Franchise Disclosure Document” (“FDD”). FAC ¶ 36, at 8.[2]

         21. According to Blue, as a result of the Baymont Contract, he and Koffler befriended each other. See FAC ¶¶ 37-38 at 8.

         22. “Mr. Koffler often told Mr. Blue what a great person he was and that he bragged to his family about him.” FAC ¶ 38, at 8.

         23. Accordingly, “Mr. Blue felt compelled to help Mr. Koffler who referred to Mr. Blue as his ‘friend.'” FAC ¶ 38, at 8.

         24. Shortly after entering the Baymont Contract, Koffler asked Blue to accompany him on a potential deal to sell another franchise. See FAC ¶ 37, at 8 (“Mr. Koffler asked Mr. Blue to vouch for him and Wyndham.”).

         25. Koffler told Blue that his job had been stressful lately, straining relations with his family, so “he needed to make this sale.” FAC ¶ 37, at 8.

         26. When the potential deal did not happen, Koffler confessed to Blue that he needed to sell another franchise or the Wyndham Hotel would fire him, and he would lose both his house and his family. See FAC ¶ 39, at 9.

         27. Koffler also told Blue that he “owed people money” and that those people “would hurt his family” if he did not pay them back. FAC ¶ 40, at 9.

         28. As Koffler later recounted, the threats against him were “either you pay me or I'll come knock on your door; I know where you live and I am going to tell your wife exactly what's going on here and you know, who knows what else was going to happen.” FAC ¶ 65, at 14.

         29. In the following weeks, Koffler frequently solicited Blue to buy a Microtel Inn franchise for a property in Durango, Colorado. See FAC ¶ 41, at 9.

         30. Koffler again aggressively pitched the deal to Blue. See FAC ¶ 41, at 9.

         31. Koffler told Blue that Blue could easily re-sell the property for profit and that “Wyndham would have several buyers ready to purchase the hotel.” FAC ¶ 42, at 9.

         32. Koffler added that the Microtel Inn franchise would be an even better deal than the Baymont franchise, because Microtel Inn was a “new brand” that would be Wyndham Hotel's “top money maker.” FAC ¶ 41, at 9.

         33. Koffler also told Blue that “it was hard to get a Microtel franchise, ” but he could get Blue a special price. FAC ¶ 41, at 9.

         34. To further induce the sale, Koffler provided Blue a Smith Travel Research Report (“Smith Report”). See FAC ¶ 43, at 9-10.

         35. The Smith Report contained information about hotels in Durango from 2005 to 2011, including: (i) occupancy percentage; (ii) average daily rate; (iii) revenue per available room; (iv) supply; (v) demand; and (vi) revenue. See FAC ¶ 43, at 10.

         36. Koffler represented that any Microtel Inn hotel would “perform as well or better than the hotels in the S[mith] report.” FAC ¶ 43, at 10.

         37. Relying on Koffler's representations, Blue entered the Contract for a Microtel Inn franchise and paid a $30, 000.00 initial franchise fee. See FAC ¶¶ 44-46, at 10.

         38. Under the Contract, Wyndham Hotel and Microtel Inn have the right to terminate the Contract with an opportunity to cure if Presidential Hospitality “fail[s] to pay us or any of our affiliates fees or other amounts due under this Agreement . . . including, without limitation, Application Fees, Royalty Fees, Contributions, GDS fees, travel agent commission fees or ISP fees.” Contract at 22.

         39. Wyndham Hotel and Microtel Inn also have the right to terminate the Contract “without giving you an opportunity to cure the default, effective upon written notice to you” if “you receive from us three (3) notices of default of this Agreement within a twelve (12) month period, regardless of whether the defaults are cured.” Contract at 22.

         40. Microtel Inn did not provide Blue “a complete and timely copy of its FDD.” FAC ¶ 50, at 11.

         41. A few months after Blue entered the Contract, Blue had still not yet started building the Baymont hotel. See FAC ¶ 47, at 10.

         42. When Koffler asked about the delay, Blue responded that he again had doubts about the Baymont hotel, and that he was willing to renege on it, losing his initial investment franchise fee. See FAC ¶ 47, at 10.

         43. Koffler told Blue that building a Microtel Inn hotel in Aztec would cost less than building a Baymont hotel in the same location. See FAC ¶ 47, at 11.

         44. Accordingly, Koffler stated to Blue that he would work with the Wyndham Hotel to transfer the Microtel Inn franchise from Colorado to New Mexico. See FAC ¶ 47, at 11.

         45. Koffler assured Blue that a Microtel Inn hotel in Aztec would “perform equally as profitable as the hotels in the March 8, 2011 S[mith] report.” FAC ¶ 48, at 11.

         46. Blue agreed to the transfer. See FAC ¶ 51, at 11.

         47. Thus, Blue assigned the Microtel Inn franchise to Presidential Hospitality -- of which Blue was a managing member -- and the Microtel Deal's franchise site was moved from Durango to Aztec. See FAC ¶¶ 51, 55, 57 at 11-12; Assignment Agreement, at 1.

         48. There are several hotels in the Aztec area, many of which do not have brand names associated with them. See Step Back Inn, http://stepbackinn.com/; Miss Gail's Inn, https://bit.ly/2xxKple; Enchantment Lodge, https://bit.ly/2xxKple.

         49. Many people who travel to Aztec do not travel there again.

         50. Many hotels exist without a well-known brand, such as Wyndham or Hilton or Hyatt, attached to their name. See, e.g., Hotel Encanto, https://www.hotelencanto.com/; MCM Elegenté Hotel, http://www.mcmelegantealbuquerque.com/.

         51. Under the Assignment Agreement, Blue and the other owner of Presidential Hospitality -- ACE Development -- remain secondarily liable for Presidential Hospitality's performance under the Contract. See FAC ¶¶ 54, 59 at 12.

         52. Presidential Hospitality subsequently built the Microtel Inn hotel in Aztec. See FAC ¶ 58, at 12.

         53. As the Microtel Inn hotel neared completion, Blue contacted the Wyndham Hotel to determine whether it had found a buyer. See FAC ¶ 60, at 12.

         54. At that time, Koffler no longer worked for the Wyndham Hotel. See FAC ¶ 60, at 12-13.

         55. The Wyndham Hotel had no buyers yet, but a representative said it would “put the word out.” FAC ¶ 60, at 13.

         56. When the Microtel Inn hotel was completed on October 3, 2013, the Wyndham Hotel still had not found a buyer. See FAC ¶ 63, at 13.

         57. According to Blue, “Wyndham never intended or tried to find a buyer. . . . Mr. Koffler's representations and promises were only intended to induce Mr. Blue to purchase the hotel franchises and construct the hotel so that Wyndham could collect on royalty payments for 20 years.” FAC ¶ 63, at 13.

         58. Since completion, the Microtel Inn hotel has not performed on par or better than the hotels listed in the Smith Report that Koffler gave to Blue. See FAC ¶ 64, at 13.

         59. On March 10, 2015, Wyndham Hotel sent Presidential Hospitality and Blue a notice of monetary default, stating that they were past due in recurring fees and charges in the amount of $38, 453.96. See Letter from Wyndham Hotel Group to Sam Blue and Presidential Hospitality, LLC at 1 (dated March 10, 2015), filed September 26, 2017 (Doc. 1-3)(“March Default Notice”).

         60. The default notice also states that:

If you do not pay this amount within the time permitted, we reserve all rights under the terms of the Agreement including but not limited to termination of the Agreement and your right to operate in the Microtel Inn and Suites by Wyndham System. This Notice does not modify, replace, or affect any default under the Agreement, or any other default and termination notices, if any, from us or any of our affiliates regarding the Facility. We also reserve the right to take any interim steps permitted ...

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