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Bright LLC v. Best Western International Incorporated

United States District Court, D. Arizona

February 28, 2019

Bright LLC, Plaintiff,
v.
Best Western International Incorporated, Defendant.

          ORDER

          HONORABLE ROSLYN O. SILVER, SENIOR UNITED STATES DISTRICT JUDGE

         Bright is a Kansas entity that operates a hotel in Lenexa, Kansas. Bright applied to become a member of Best Western and to operate its hotel as a Best Western hotel. Pursuant to the parties' executed agreements, Best Western conditionally granted membership to Bright. In order for full membership to vest, Bright was required to perform certain renovations to its hotel by a deadline. Bright requested and received multiple extensions to the deadline. However, in December 2015, Best Western denied Bright's final extension request and terminated Bright's conditional membership. Bright sued Best Western for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, and promissory estoppel. Best Western brought counterclaims for breach of contract and breach of the covenant of good faith and fair dealing. Best Western now moves for summary judgment on Bright's claims and Best Western's counterclaim for breach of contract. For the following reasons, Best Western's Motion for Summary Judgment (Doc. 127) is granted in part and denied in part.

         BACKGROUND

         Best Western International (“Best Western”) is an Arizona non-profit organization that licenses the Best Western brand and reservation system to independent member hotels.[1] (Doc. 131 at 2.) Best Western is governed by a seven-member Board of Directors. (Doc. 131-1 at 16.) Bright LLC (“Bright”) is a Kansas entity owned by Jayesh Koshiya (42%), Sanjay Koshiya (28%), and Ila Patel (30%). (Doc. 139-1 at 36.) In March 2013, Bright owned a hotel in Lenexa, Kansas, operating under the Suburban Extended Stay brand (the “Hotel”). (Docs. 131 at 3; 139 at 4.) Jayesh Koshiya (“Koshiya”) was the manager of Bright. (Doc. 139-1 at 35.) Koshiya testified he was also “the owner or part owner of about at least a half dozen or seven hotels.” (Doc. 139-3 at 16.)

         In March 2013, Bright applied to become a Best Western member and to convert the Hotel to the Best Western brand. (Docs. 131 at 3; 139 at 4.) Koshiya signed the application as Bright's authorized representative. (Doc. 131-1 at 19-20.) The Membership Application stated: “By submitting this Membership Application (‘Application') [you] are requesting that Best Western International, Inc. (‘Best Western') consider your request to affiliate the property identified in this Application (‘Property') with the Best Western brand.” (Doc. 131-1 at 19.) The Application further stated: “In the event the Application is approved by the Board, and as a prior condition to your membership, you will be required to submit: (a) an executed Terms of Approval letter (‘Approval Letter') which will include conditions of membership (e.g. completion of a Property Improvement Plan); and (b) an executed Membership Agreement (‘Agreement'). You may not hold yourself out to the public as a Best Western branded hotel until all conditions are met.” (Doc. 131-1 at 19.)

         The Application contained an “Applicant Information” form. Under a section titled “Proposed Construction/Under Construction Project, ” the form noted: “All facilities associated with the hotel Property . . . are subject to Best Western inspection. If the Property is approved for Best Western membership, all such facilities will be subject to any renovation deemed necessary by Best Western.” (Doc. 131-1 at 24.) The same section contained a question: “Is financing in place?” Koshiya checked the “yes” bubble and wrote Valley View Bank KS as the source of financing. (Doc. 131-1 at 23.) In his deposition, Koshiya testified that when he answered this question, he “did not have the financing in place according to what Best Western wanted to submit the application, but [he] had existing financing in place for [his] existing hotel, which is a Suburban Extended Stay.” (Doc. 131-2 at 66.) In other words, when he answered “yes” to the question about having financing in place, he meant there was existing “debt on the hotel as opposed to financing to do the conversion.” (Doc. 131-2 at 66.) Koshiya further testified that, at the time of the application, there was no financing in place to convert the hotel to a Best Western. (Doc. 131-2 at 66.)

         On May 9, 2013, Koshiya emailed Greg Burgett, Best Western's Regional Director of North American Development, asking whether Best Western had received Bright's application and check. Koshiya also requested Burgett to “[p]lease get elevator and pool waiver approval as well.” (Doc. 139-4 at 2.) Burgett responded that Best Western had received the signed documents and check. Burgett also stated: “Additionally, the elevator and pool waivers will not be a problem.” (Doc. 139-4 at 2.)

         Best Western conditionally approved Bright's application through a letter dated May 28, 2013. (Doc. 131-1 at 38.) Enclosed within the letter were two additional documents: The Terms of Approval and Membership Agreement. (Doc. 131-1 at 38.) Best Western's letter stated: “You must indicate your agreement with the Membership Agreement and the Terms of Approval by returning completed, signed originals of both by June 12, 2013.” (Doc. 131-1 at 38.) Both documents indicated that Best Western membership would not fully vest until certain conditions were met. (Doc. 131-1 at 55 (“Only after all of the Terms of Approval have been timely satisfied, will the Best Western Membership be granted and Membership procedural rights become available.”; Doc. 131-1 at 76 (“Membership rights shall not be granted until such time as the Property has been activated on Best Western's reservation system and the Initial Term has begun.”).)

         The Terms of Approval required: “By signing and returning the Membership Agreement and the Terms of Approval, you agree . . . [t]o complete the Property Improvement Plan.” (Doc. 131-1 at 42.) It further stated: “The property has up to June 12, 2014 (twelve months) to open and operate as a Best Western branded hotel, ” and that the “application was approved with 110 units. Unit Count Changes are subject to Best Western approval.” (Doc. 131-1 at 41, 49.) In the event Bright could not open and operate within that time, the Terms of Approval provided: “If more than ‘twelve months' are needed to be open and operating as a Best Western branded hotel, and an extension is requested at least thirty days prior to the expiration of this ‘twelve month' period, Best Western shall have sole discretion as to whether to grant an extension and whether a fee shall be required for the extension (e.g., a monthly fee).” (Doc. 131-1 at 41.) Best Western's internal policy governed extension requests generally: Best Western management was authorized to “(a) Grant a total of six months of extended time to Activate. The six months of extended time shall be at no cost to the Property; and (b) Grant up to twelve months of additional time in three-month increments to Activate upon the request and agreement of the Property to pay one-fourth (1/4th) of the Property's Best Western Entrance Fee for each three-month increment.” (Doc. 131-1 at 5.) Management was not permitted to grant extensions past eighteen months and “anything further would have to go to the Board to be approved.” (Doc. 131-2 at 88.)

         The Membership Agreement provided, in relevant part, that Bright “shall have no recourse of any kind against Best Western, its directors, officers, employees, agents or Members for failure to grant Membership unless [Bright] has strictly, absolutely and timely complied with each and every requirement imposed upon Member by Best Western.” (Doc. 131-1 at 79.) It also limited damages to “actual damages for any breach or default by Best Western of any obligation or duty owed to [Bright], ” and further limited “Best Western's liability for any damages [to] the amount of Membership fees actually paid by [Bright] in connection with the Property, during a single fiscal year in which the breach or default occurred.” (Doc. 131-1.)

         Among the conditions required by the Terms of Approval was Bright's performance of substantial renovations in accordance with a Property Improvement Plan. (Doc. 131-1 at 42.) The Property Improvement Plan listed required improvements including, for example, adding a breakfast room and renovating the lobby. (Doc. 131-1 at 58-71.) In addition, the Property Improvement Plan stated that hotels with 100-199 rooms, as Bright's hotel had, required a minimum of two elevators. (Doc. 131-1 at 62.) Prior to signing the documents, Bright attempted to obtain a waiver of the second elevator requirement. (Doc. 131-2 at 77.) On May 28, 2013, Burgett informed Koshiya “the waiver for the second elevator was denied due to [the Hotel] being a four story structure, ” despite Burgett's earlier email stating that obtaining the wavier would not be a problem. (Docs. 131-1 at 74; 139-4 at 2.) Burgett apologized and asked if Koshiya wished to “[withdraw] this project and have the check returned to you.” (Doc. 131-1 at 74.) Nevertheless, on June 20, 2013, Koshiya signed both documents on behalf of Bright and agreed to be jointly and severally liable for Bright's obligations to Best Western. (Docs. 131 at 4; 139 at 6.)

         On November 11, 2013, Koshiya emailed Amy Lowry, Best Western's New Member Development Manager. Koshiya informed Lowry that Bright had “just started initial work for conversion.” (Doc. 131-1 at 87.) Koshiya further stated: “We are just getting [a] little set back from our existing [lender] as this is going to be expensive renovation project and we required to have closer to 2 million additional loan.” (Doc. 131-1 at 87.) He stated Bright had found another lender to finance the conversion and that he thought “this deal is going to go through 100%.” (Doc. 131-1 at 87.) Because of the need for additional financing, Koshiya requested an “additional 12 months extension” to the original deadline of June 12, 2014. (Doc. 131-1 at 87.) On February 11, 2014, Koshiya again emailed Lowry, stating “I would like to request extension for [the conversion project] till end of December 2014.” (Doc. 131-1 at 95.) Best Western approved this extension: Lowry wrote to Koshiya confirming that “two 90 day gratis extensions to be open and operating as a Best Western hotel has been granted until December 12, 2014.” (Doc. 131- 1 at 97.) Lowry informed Koshiya that although these two extensions were free, any additional extensions would require a fee. (Doc. 131-1 at 97.)

         On November 24, 2014, Koshiya emailed Verena Zurcher, another Best Western New Member Development Manager. (Doc. 131-2 at 16.) Koshiya stated: “During last year we made our full efforts to get this project loan approved and met with many [lenders] but it was difficult time for everyone in banking industry. . . . We did not start or perform any work so far because we were not able to get the additional fund[ing] required to finish this project. At this point we have met the banker and they are taking our loan to the committee and have assured us that they will get it approved and issue us commitment letter. We feel very strong about getting it approved.” (Doc. 131-2 at 16.) Koshiya asked for “another 7 to 8 month[s] of extension to get this project started and completed.” (Doc. 131-2 at 16.) On December 18, 2014, Cheryl Pollack, Best Western's Director of Member Care and Development Administration, responded to Koshiya's request. She confirmed that “an extension to be open and operating as a Best Western hotel has been granted until September 12, 2015.” (Doc. 131-2.) This included three 90-day extensions; Bright was required to pay $14, 500 for each extension. (Doc. 131-2 at 13.) Bright paid the required fees. (Doc. 131 at 9.)

         In January 2015, Bright again tried to obtain a waiver for the second elevator requirement. (Doc. 131-2 at 77.) Koshiya testified that he spoke with Gloria Gaddis and Greg Burnett, [2] Best Western representatives, about potentially reducing the number of rooms in the Hotel in order to waive the second elevator requirement. (Doc. 131-2 at 77.) The Property Improvement Plan required Bright to “[p]rovide a minimum of two elevators for hotels with 100-199 rooms.” (Doc. 131-1 at 62.) Koshiya testified Bright was willing to “cut down a few rooms and make the room count around 98 rooms so we don't have to have the second elevator.” (Doc. 131-2 at 77.) On January 20, 2015, Best Western denied Bright's request for the waiver after consideration by the Best Western Review Committee. (Doc. 139-3 at 51.) Koshiya testified Best Western denied his request because its bylaws required hotels with four stories or more-even if they had fewer than 100 rooms-to have at least two elevators, which was not explicitly stated in the Property Improvement Plan. (Doc. 131-2 at 77-78.)

         On August 26, 2015, Koshiya requested yet another extension. (Doc. 131-2 at 27.) Koshiya wrote: “There are several reasons we could not start the project on timely manner and they are listed below. Now we are 100% ready to start construction and should be able to complete it quickly.” (Doc. 131-2 at 13.) Koshiya requested an extension until March 31, 2016 and stated he was “100% sure that [Bright] will be able to complete everything on or before 3/31/2016.” (Doc. 131-2 at 28.) David Nuss, Best Western's Regional New Member Development Manager, communicated with Regional Director Chris Campbell regarding Bright's extension request. (Doc. 139-6 at 8.) Nuss informed Campbell: “Their extension is up 9/12. They will need another paid extension to bring them to 12/12/15 (this would be their 4th paid extension). They are not expecting to be completed until the end of Feb of 2015 so any extension requests following this 9/12 to 12/12/15 request would have to go before [B]oard.” (Doc. 139-6 at 8.) Campbell responded: “I'm ok with this next 90 days but I'm going to start working a new construction deal in the market, so [Bright] may not get the one in December if that deal comes about.” (Doc. 131-2 at 30.) Nuss also emailed Ron Pohl, Senior Vice President of Brand Management and Member Services, for approval of Bright's extension request. (Doc. 139-6 at 40.) Pohl responded: “Approved, but this is the last one.” (Doc. 139-6 at 40.) On September 4, 2015, Pohl wrote to Koshiya and granted a 90-day extension until December 12, 2015. (Doc. 131-2 at 33.) This extension required another $14, 500 fee. (Doc. 131-2 at 33.) Although Koshiya had asked for an extension until March 2016, Pohl did not grant the extension until March. Rather, Pohl informed Koshiya that “any further extension requests will require review and approval by the Best Western Board of Directors.” (Doc. 131-2 at 33.) Bright states it began demolition on September 8, 2015, and notified Best Western of its demolition schedule. (Docs. 136 at 5; 139-1 at 14.)

         In November 2015, Koshiya asked Best Western for another extension. (Doc. 131-2 at 47.) Koshiya emailed Nuss, attaching photographs of renovation progress, and promised he “will not need any more extension after this one.” (Doc. 131-2 at 47.) Koshiya informed Nuss that Bright had spent “1.2 million out of pocket and we will [be] spending 1 million in next 90 days to finish outstanding work.” (Doc. 131-2 at 47.) Internal emails show that Best Western considered the options of granting Bright additional paid extensions or allowing another hotel developer to construct a new Best Western hotel in the same area. In the event Best Western received an application from the other developer, Vice President of Owner Relations Michael Morton suggested “telling the board we have a new construction app and recommend we cut ties with [Bright].” (Doc. 139-4 at 19.) In a letter dated December 15, 2015, Best Western informed Koshiya the Board had reviewed his extension request and decided to not approve the request. (Doc. 131-2 at 53.) The letter further stated: “As a result, Best Western International, Inc. considers your application withdrawn and has terminated your conditional approval for this project.” (Doc. 131-2 at 53.) Best Western additionally asked Bright to send payment in the amount of $111, 000.000, pursuant to a provision ...


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