United States District Court, D. Arizona
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 ...