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Best Western International Inc. v. Twin City Lodging LLC

United States District Court, D. Arizona

July 29, 2019

Best Western International Incorporated, Plaintiff,
Twin City Lodging LLC, et al., Defendants.


          Honorable Steven P. Logan, United States District Judge.

         Before the Court is Plaintiff Best Western International Incorporated's (the “Plaintiff”) Motion to Dismiss Defendant/Counter-Claimant's First Amended Counterclaim (Doc. 22) (the “Motion”). The Motion was fully briefed on February 11, 2019. (Docs. 28, 30) The Court's ruling is as follows.

         I. Background

         On September 16, 2016, Defendant Twin City Lodging, LCC (the “Defendant”) purchased a Best Western Hotel in Mankato, Minnesota. (Doc. 16 at 11) On September 29, 2016, the Defendant entered into a contract (the “Membership Agreement, ” Doc. 1-2 at 13-22) with the Plaintiff, giving the Defendant a license to operate the hotel under Plaintiff's Best Western brand. (Doc. 16 at 10; Doc. 1-2 at 13-14, 20) The Membership Agreement required both parties to act in accordance with Best Western's Bylaws & Articles (Doc. 1-2 at 24-51), Rules & Regulations (Doc. 1-2 at 53-91), and any other regulatory documents (collectively, the “Regulatory Documents”). (Doc. 16 at 2; Doc. 1-2 at 13)

         The Defendant alleges a long history of the Plaintiff performing quality inspections of the Defendant's hotel in order to assert violations of the Membership Agreement and the Regulatory Documents. (Doc. 16 at 12, 14-19) On one occasion, the Defendant alleges that Michelle Orion, the Best Western District Manager who oversaw the Defendant, called and emailed the Defendant in March 2017 to inform the Defendant that the Plaintiff was terminating the Membership Agreement. (Doc. 16 at 15) The Defendant alleges that Orion offered false reasons for the termination, changed the reasons for the termination, and did not offer a hearing to allow the Defendant to contest the termination, pursuant to the terms of the Membership Agreement. (Doc. 16 at 15-18) However, the Plaintiff did not cancel the Membership Agreement after these incidents. (Doc. 16 at 18)

         In October 2017, the Plaintiff sent the Defendant a letter indicating that there was an issue related to customer complaints and the Defendant's “Customer Complaint Ratio” as defined by the “Customer Care Policy”. (Doc. 16 at 19, 20; Doc. 1-2 at 99-100) Pursuant to the Membership Agreement and the Regulatory Documents, the minimum allowable Customer Complaint Ratio is .17. (Doc. 16 at 4) On February 9, 2018, the Plaintiff sent the Defendant a letter stating that its customer complaint ratio for the previous 90 days was .44138, and, accordingly, that the Defendant's hotel was being placed in probationary status. (Doc. 1-3 at 2; Doc. 16 at 20) The letter also advised that if Defendant did not come into compliance with the provision within 90 days, the Defendant's hotel would be placed in member-with-conditions review status, and the Membership Agreement could be subject to cancellation. (Doc. 1-3 at 3; Doc. 16 at 20)

         On June 14, 2018, the Plaintiff sent the Defendant another letter, notifying the Defendant that the Plaintiff was considering cancelling its membership due to its non-compliance with the Customer Complaint Ratio provision of the Regulatory Documents. (Doc. 16 at 19; Doc. 1-3 at 13) The letter stated that the Defendant could request a hearing to contest its probationary status, and the Defendant attended a hearing in front of Best Western's Board of Directors on July 25, 2018, to argue that its Customer Complaint Ratio was being misrepresented. (Doc. 1-3 at 13-14; Doc. 16 at 20-22) The Plaintiff notified the Defendant that the Membership Agreement was terminated on August 7, 2018. (Doc. 16 at 22)

         On October 19, 2018, the Plaintiff filed its complaint against the Defendant, alleging causes of action for breach of contract, trademark infringement, false designation of origin, and unfair competition. (Doc. 1) On December 18, 2018, the Defendant filed its first amended answer and counterclaims for violations of the Minnesota Franchise Act (“MFA”), breach of the covenant of good faith and fair dealing, and breach of contract. (Doc. 16) On January 16, 2019, the Plaintiff filed the Motion seeking to dismiss the Defendant's counterclaims. (Doc. 22)

         II. Legal Standard

         To survive a motion to dismiss, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief” such that the defendant is given “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007) (quoting Fed.R.Civ.P. 8(a)(2); Conley v. Gibson, 355 U.S. 41, 47 (1957)). The Court may dismiss a complaint for failure to state a claim under Federal Rule 12(b)(6) for two reasons: (1) lack of a cognizable legal theory, and (2) insufficient facts alleged under a cognizable legal theory. Balistreri v. Pacificia Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

         In deciding a motion to dismiss, the Court must “accept as true all well-pleaded allegations of material fact, and construe them in the light most favorable to the non-moving party.” Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). In comparison, “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences” are not entitled to the assumption of truth, and “are insufficient to defeat a motion to dismiss for failure to state a claim.” Id.; In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). A plaintiff need not prove the case on the pleadings to survive a motion to dismiss. OSU Student All. v. Ray, 699 F.3d 1053, 1078 (9th Cir. 2012).

         A court ordinarily may not consider evidence outside the pleadings in ruling on a Rule 12(b)(6) motion to dismiss. Zemelka v. Trans Union LLC, 2019 WL 2327813, at 1 (D. Ariz. May 31, 2019) (citing United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003)). “A court may, however, consider materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice- without converting the motion to dismiss into a motion for summary judgment.” Id. A court should also consider documents referenced in the complaint. No. 84 Employer-Teamster Joint Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 fn. 2 (9th Cir. 2003). Allegations in the complaint that contradict referenced documents need not be accepted as true. Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). Additionally, “[e]ven if a document is not attached to a complaint, it may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim.” Lovelace v. Equifax Info. Servs. LLC, 2019 WL 2410800, at 1 (D. Ariz. June 7, 2019) (citing Ritchie, 342 F.3d at 908). A plaintiff need “not explicitly allege the contents of that document in the complaint” for the court to consider it, as long as the “plaintiff's claim depends on the contents of [the] document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). “[T]he district court may treat such a document as part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” Ritchie, 342 F.3d at 908.

         III. Analysis

         A. Count I - Violations of Minnesota ...

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