Hotel Associates, Inc. v. Howard Johnson Franchise Systems, Inc. , 198 F. App'x 13 ( 2006 )

Not for Publication in West's Federal Reporter
Citation Limited Pursuant to 1st Cir. Loc. R. 32.3
United States Court of Appeals
For the First Circuit
No. 05-1944
HOTEL ASSOCIATES, INCORPORATED,
Plaintiff, Appellant,
v.
HOWARD JOHNSON FRANCHISE SYSTEMS, INC.,
Defendant, Appellee.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen Consuelo Cerezo, U.S. District Judge]
Before
Selya, Lipez, and Howard, Circuit Judges.
Wallace Vázquez Sanabria for appellant.
Arthur L. Pressman, with whom Gordon M. Jones, III and Nixon
Peabody LLP were on brief, for appellee.
August 1, 2006
Per Curiam. This breach of contract case arose from a
dispute between Hotel Associates, Incorporated ("Hotel
Associates"), which had entered into a license agreement (the
"Agreement") to open and operate a Howard Johnson hotel at a
property known as the Carib Inn, and Howard Johnson Franchise
Systems, Inc. ("Howard Johnson"), the licensor. The district court
decided the case in Howard Johnson's favor on cross-motions for
summary judgment, and denied Hotel Associates' motion to alter or
amend judgment. This appeal followed. For the reasons discussed
below, we affirm.
I.
This court reviews the district court's grant or denial
of summary judgment de novo, applying the same criteria as the
district court, Acosta v. Ames Dep't Stores, Inc., 386 F.3d 5, 8
(1st Cir. 2004), namely, whether "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Fed. R. Civ. P. 56(c). "In
conducting this review . . . [w]e are not wed to the lower court's
rationale but, rather, may affirm the entry of summary judgment on
any ground made manifest by the record." Okmyansky v. Herbalife
Intern. of America, Inc., 415 F.3d 154, 158 (1st Cir. 2005).
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II.
On appeal, Hotel Associates raises the following three
issues: (1) was there a "change of ownership" of the Carib Inn,
within the meaning of the Agreement, where the same individual,
Benito R. Fernández ("Fernández"), was the sole shareholder of both
the corporation that sold the property and the corporation that
bought it?; (2) if so, did Hotel Associates' failure to notify
Howard Johnson of this change of ownership result in automatic
termination of the Agreement?; and (3) if the Agreement was not
automatically terminated, did Howard Johnson breach the Agreement
by licensing another entity to operate a Howard Johnson hotel in
the same geographic area?
We discuss each of these issues in turn, "look[ing]
solely to the language used by the parties to discern the
contract's meaning." Vt. Teddy Bear Co. v. 538 Madison Realty Co.,
807 N.E.2d 876, 879 (N.Y. 2004).1
A. Change of Ownership
The Agreement requires the licensee to "notify Howard
Johnson in writing at least 30 days in advance of the occurrence of
any change of ownership of the Facility." Hotel Associates argues
that there was no change of ownership because Fernández was the
sole shareholder of both Horizons Hotel Corporation, the
1
By its terms, the Agreement is to be construed in accordance
with New York law. Agreement, § 31.
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corporation that previously owned the property, and R.R. Isla Verde
Hotel Corp. ("Isla Verde"), the corporation that purchased the
Carib Inn at a foreclosure sale. This argument is unavailing.
"[A] corporation is a separate and distinct legal entity apart from
its stockholders." Hotel Esplanade, Inc. v. Herman, 197 N.Y.S.2d
579, 582 (N.Y. Sup. Ct. 1960) (rejecting the converse argument that
ownership of a hotel changed where the identity of the stockholders
changed, despite continuity of the corporate ownership).
Therefore, Isla Verde's purchase of the Carib Inn at a foreclosure
sale constituted a change of ownership, notwithstanding the
identity of the shareholder.
B. No Automatic Termination of Agreement
Because there was a change of ownership, section 20(a) of
the Agreement required Hotel Associates to notify Howard Johnson of
that change, which Hotel Associates undisputedly did not do. This
failure to give such notice, however, did not effect an automatic
termination of the Agreement. The Agreement provides that it may
be terminated without notice in two sets of circumstances. In one
set of circumstances – including failure to give notice of a change
of ownership under section 20(a) – "Howard Johnson may, in its sole
discretion, immediately terminate this Agreement . . . ."
Agreement, § 21(c) (emphasis added). By contrast, in other more
serious circumstances not relevant here, the "Agreement shall
automatically and immediately terminate . . . ." Id. (emphasis
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added). The use of the word "automatically" in the latter set of
circumstances but not the former indicates that only the latter set
of circumstances results in automatic termination. See Nat'l Tax
Inst., Inc. v. Topnotch at Stowe Resort & Spa, 388 F.3d 15, 18 (1st
Cir. 2004) (stating that language discrepancies between different
contract provisions "may cast light on meaning"). That reading is
also supported by the use of the words "may, in its discretion
. . . terminate" in the first instance but "shall . . . terminate"
in the second.
Based on those language differences, we read the
Agreement to mean that where, as here, a licensee fails to give
notice of a change of ownership, Howard Johnson may exercise its
discretion to terminate the contract, but the contract does not
terminate ex proprio vigore ("by its own force," Black's Law
Dictionary (8th ed. 2004)). Cf. Automatic Ticket Sys., Ltd. v. New
York, 512 N.Y.S.2d 283, 284 (N.Y. App. Div. 1987) (holding that
license agreement terminated automatically upon transfer of control
of licensee without licensor's approval where agreement
"unambiguously" stated that the agreement "shall automatically
terminate" in that event). Because Howard Johnson did not exercise
its discretion to terminate the Agreement, the Agreement remained
in effect despite the change of ownership. Cf. Eckel v. Francis,
774 N.Y.S.2d 552, 554 (N.Y. App. Div. 2004) (holding that contract
was terminated when party exercised its discretionary right to do
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so under the contract), leave to appeal denied, 820 N.E.2d 291(N.Y. 2004).2
C. No Breach of Territorial Protection Provision
Having established that the Agreement did not
automatically terminate upon the change of ownership of the Carib
Inn, we must decide whether Howard Johnson breached the Agreement
by licensing another entity to operate a Howard Johnson hotel in
the same geographic area as Hotel Associates. The Agreement
provides that "in the area delineated on Schedule C attached
hereto, Howard Johnson shall not License other Howard Johnson
lodging facilities upon the terms and conditions set forth on
Schedule C." Agreement, § 30(b). Schedule C, in turn, provides
that "Howard Johnson shall not license, during the term of this
License Agreement, any Howard Johnson guest lodging facilities . .
. within the [protected] territory." Id. at Schedule C (emphasis
added). And, "the term of this Agreement (the 'License Agreement
Term')" is expressly defined as "commenc[ing] upon the integration
of the Facility into the Howard Johnson Reservation System," also
known as the "Effective Date." Id. at § 4. Because the Carib Inn
property was never integrated into the Howard Johnson Reservation
2
The district court concluded that the failure to give notice
effected an automatic termination of the Agreement, and granted
summary judgment to Howard Johnson on that basis. Because we
affirm the district court's decision on another independently
sufficient ground, the lack of automatic termination does not
affect the outcome of this appeal.
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System, under the unambiguous language of the Agreement, the
territorial protection provision, which Howard Johnson allegedly
breached by licensing another company to operate a hotel in the
protected area, was not in effect at the time of the alleged
breach.3 Therefore, Howard Johnson did not breach the Agreement
and is entitled to summary judgment in its favor.4
III.
The district court's grant of summary judgment to Howard
Johnson, denial of summary judgment to Hotel Associates, and denial
of Hotel Associates' motion to alter or amend judgment are
affirmed. Costs are taxed against Hotel Associates.
3
Hotel Associates cites deposition testimony of various
Howard Johnson officials stating that the territorial protection
provision of the Agreement went into effect at the time the
Agreement was signed in 1993. However, that extrinsic evidence is
immaterial, given the clear and unambiguous contractual language to
the contrary. S. Rd. Assocs. v. IBM Corp., 826 N.E.2d 806, 809
(N.Y. 2005).
4
Howard Johnson made this argument before the district court
– i.e., that since Hotel Associates failed to integrate the Carib
Inn property into the Howard Johnson Reservation System, the
territorial protection provision never went into effect and, thus,
there was no breach. The district court never reached this
argument because it concluded that Hotel Associate's failure to
notify Howard Johnson of the change of ownership effected an
automatic termination of the Agreement.
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