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Regency Midwest Ventures Limited Partnership v. Best Western International Inc.

United States District Court, D. Arizona

March 13, 2017

Regency Midwest Ventures Limited Partnership, a South Dakota limited partnership, and Tom Biegler, an individual residing in South Dakota, Plaintiffs,
v.
Best Western International, Inc., an Arizona non-profit corporation, Defendant.

          ORDER

          Michelle H. Bums United States Magistrate Judge.

         Pending before the Court are Defendant Best Western International, Inc.'s Motion to Dismiss Complaint (Doc. 13), Memorandum of Law in Opposition to Defendant's Motion to Dismiss (Doc. 18), and Defendant Best Western International, Inc.'s Reply in Support of Motion to Dismiss Complaint (Doc. 21). After considering the arguments raised by the parties in their briefing, the Court now issues the following ruling.

         BACKGROUND

         This case arises out of Plaintiffs' (“Ramkota”[1]) allegation that Defendant (“Best Western”) improperly terminated the Membership Agreement between the two parties. Ramkota is the owner and principle of The Ramkota Hotel in Casper, Wyoming (“the Hotel”). Best Western is a non-profit corporation that serves as a membership association for Best Western branded hotel operators in North America. The Hotel became a Best Western branded property in 2004. In agreeing to become a Best Western branded property, Ramkota's Membership Agreement with Best Western required Ramkota to adhere to Best Western's Bylaws & Articles (the “Bylaws”), and Rules and Regulations. The Bylaws provide for membership termination if the Best Western Board of Directors, after a hearing, finds grounds to cancel the membership, or, if rather than immediately cancelling the member, the Board has granted the member a conditional extension, which sets forth a remedial plan, but the member fails to satisfy the remedial plan. Under the Rules and Regulations, one ground for terminating the Membership Agreement is receiving two failing quality assurance scores in an 18 month period.

         In May 2013, Best Western notified Ramkota that they were considering terminating Ramkota's Membership Agreement because the Hotel had received two failing quality assurance scores during an 18-month period. Ramkota requested and received a hearing before the Best Western Board. Following the hearing, the Board concluded that grounds existed to cancel Ramkota's membership. In lieu of cancellation, as permitted by the Bylaws, the Board granted Ramkota a conditional extension listing conditions that must be met in a timely manner in order for Ramkota to continue their membership. The conditions included the requirement that Ramkota complete all items on the Property Improvement Plan by March 31, 2014. Furthermore, the conditional extension stated that failure to complete all conditions by the March 31, 2014 deadline would result in termination of the Membership Agreement. On February 4, 2014 Ramkota asked for more time to complete the Property Improvement Plan. Best Western granted an extension to October 1, 2014. In October 2014, Best Western inspected Ramkota's compliance with the conditions set forth and took note that portions of the Plan remained unfinished. Instead of terminating the Membership Agreement, the Board once again granted a conditional extension with a deadline of February 24, 2015. Ramkota agreed to the latest extension. On March 4, 2015, a Best Western inspection confirmed that Ramkota had not completed all requirements of the Plan.

         The Hotel was operated as a Best Western member property until April 21, 2015, when Best Western terminated the Membership Agreement with Ramkota. Best Western justified the termination following Ramkota's alleged failure to make agreed upon improvements in a timely manner. Shortly after termination of the Membership Agreement, Ramkota began to remove indications that the Hotel remained affiliated with Best Western. Although Ramkota made an effort to remove Best Western trademarks from the Hotel, a Best Western inspection discovered that some Best Western marks remained at the Hotel. Additionally, a highway billboard had still wrongly signified that the Hotel was affiliated with Best Western.

         On July, 252016, Ramkota filed the Complaint (Doc. 1) against Best Western. The Complaint sets forth claims under both state and federal law. Ramkota's Breach of Contract claim (Count One) and Breach of the Implied Covenant of Good Faith and Fair Dealing claim (Count Two) are predicated upon Arizona law. In Count Three, Ramkota requests declaratory judgment that Ramkota did not violate the Lanham Act or other applicable federal law for failing to remove Best Western trademarks from the Hotel in a timely manner.

         STANDARD OF REVIEW

         The Federal Rules of Civil Procedure require a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 248-49 (9th Cir. 1997). Thus, dismissal for insufficiency of a complaint is proper if the complaint fails to state a claim on its face. See Lucas v. Bechtel Corp., 633 F.2d 757, 759 (9th Cir. 1980). A Rule 12(b)(6) dismissal for failure to state a claim can be based on either: (1) the lack of a cognizable legal theory; or (2) insufficient facts to support a cognizable legal claim. See Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).

         In determining whether an asserted claim can be sustained, all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). As for the factual allegations, the Supreme Court has explained that they “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007). However, even though all allegations of material fact are taken as true, that does not entail that this Court must also accept legal conclusions portrayed as factual allegations as true as well. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A pleading that offers conclusions or a recitation of the elements of a cause of action will not suffice. Iqbal, 556 U.S. 662, 677-78. Thus, in ruling on a motion to dismiss, the issue is not whether the plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims. See Gilligan, 108 F.3d at 249.

         Generally, a district court may not consider any documents beyond the pleadings in ruling on a 12(b)(6) motion. Hal Roach Studios, Inc. V. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1990). However, while ruling upon the 12(b)(6) motion, the Court may consider any documents which are submitted as part of the complaint. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994), overruled on other grounds in Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). Additionally, the Court may consider any documents referred to or “whose contents are alleged in a complaint and whose authenticity no party questions.” Id. at 454. Even if the complaint does not explicitly reference the documents at issue, the district court may still consider a document the parties agree is authentic. Mason v. Arizona, 260 F.Supp.2d 807, 814 (D. Ariz. 2003). This practice is so plaintiffs will not purposely leave out “references to documents upon which their claims are based” upon to survive a Rule 12(b)(6) motion.[2] Id.

         DISCUSSION

         A. Plaintiffs' Claim for Breach of Contract

         To state a claim for breach of contract under Arizona law, a plaintiff must allege (1) the existence of a contract between the parties; (2) defendant's breach of the contract and; (3) plaintiff's resulting damages. Snyder v. HSBC Bank, USA, N.A., 873 F.Supp.2d 1139, 1148 (D. Ariz. 2012). Best Western argues that it did not breach the contract because it was entitled to terminate the Membership Agreement with Ramkota. Ramkota agreed to Best Western's Membership Agreement; its Bylaws and Rules and Regulations; and the conditional extensions. Specifically, Section 13 of the Membership Agreement states that where grounds for termination of the Membership Agreement exist, in lieu of termination, Best Western may impose additional conditions for continuance of membership. Furthermore, the termination did not come until after Ramkota first failed two quality assurance inspections which then made Ramkota eligible for membership termination. Instead of immediately terminating the Membership Agreement, Best Western offered Ramkota conditional extensions which Ramkota accepted. After acceptance of the ...


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