Opinion
Case No. 03-1070-JTM
March 16, 2004
MEMORANDUM AND ORDER
This matter comes before the court on plaintiffs' motion for partial summary judgment (Dkt. No. 18) in this contract dispute. The motion is fully briefed and ripe for disposition. For the reasons stated below, the court grants plaintiffs' motion in part and denies it in part.
I. Background
Plaintiffs are three Kansas limited liability companies, each of which owns a hotel in Wichita. Defendant is a hotel management company; it is a Texas limited liability partnership. On September 5, 2001, each plaintiff entered into a management agreement with defendant. In February, 2003, the Plaintiff's initiated termination of the agreements and defendant ceased providing services under the agreements.
Plaintiffs filed a declaratory judgment action seeking a declaration: 1) Plaintiff's properly terminated the management agreements; 2) the effective date of the termination was February 21, 2003; 3) none of the Plaintiff's owe to defendant the termination fee of $120,000 for termination of its respective management agreement; 4) none of the Plaintiff's owe to defendant any past due management fees; 5) Plaintiff's are entitled to immediate return of their books and records which are in digital form on the computer system in defendant's office; 6) Plaintiff's are entitled to immediate return of the computer system including Solomon IV software.
Defendant filed a breach of contract counterclaim seeking damages and asserting three theories for relief: 1) unpaid management fees due and owing for services performed before Plaintiff's prematurely terminated the agreements; 2) termination fees as provided for in the agreements for plaintiffs' premature termination of the agreements; and 3) in the alternative to termination fees, future compensatory damages for plaintiffs' premature termination of the agreements.
Plaintiffs filed an amended complaint seeking damages in addition to a declaratory judgment.
II. Statement of Facts
The court finds the following facts to be uncontroverted and relevant.
The written instrument attached as Exhibit A to the affidavit of Mordechai Boaziz is a true and correct copy of the contract between Broadview Hospitality Holdings, LLC and Platinum Portfolio, Ltd. The written instrument attached as Exhibit B to the affidavit of Mordechai Boaziz is a true and correct copy of the contract between Wichita Realty, LLC and Platinum Portfolio, Ltd. The written instrument attached as Exhibit C to the affidavit of Mordechai Boaziz is a true and correct copy of the contract between Wichita Hospitality Holdings, LLC and Platinum Portfolio, Ltd.
Plaintiffs initiated a termination of the management agreements by letters dated January 10, 2003, and February 17, 2003, from Mordechai Boaziz on behalf of Plaintiff's to Peter Bheda on behalf of defendant, for the stated reason that defendant had failed to adequately perform its obligations under the management agreements.
The content of these two letters is uncontroverted. Defendant denies the allegations stated in the letters and alleges it adequately performed its obligations under the management agreements.
III. Standard
Summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact, and that the moving party is entitled to judgments as a matter of law. Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, the court must examine all of the evidence in a light most favorable to the opposing party. Jurasek v. Utah State Hosp., 158 F.3d 506, 510 (10th Cir. 1998). The party moving for summary judgment must demonstrate its entitlement to summary judgment beyond a reasonable doubt. Baker v. Board of Regents, 991 F.2d 628, 630 (10th Cir. 1993). The moving party need not disprove the nonmoving party's claim or defense; it need only establish that the factual allegations have no legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812 F.2d 1319, 1323 (10th Cir. 1987).
The party opposing summary judgment must do more than simply show there is some metaphysical doubt as to the material facts. "In the language of the Rule, the nonmoving party must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)) (emphasis in Matsushita.) The opposing party may not rely upon mere allegations or denials contained in its pleadings or briefs. Rather, the opposing party must present significant admissible probative evidence supporting that party's allegations. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).
IV. Analysis
In their motion for partial summary judgment, Plaintiff's seek a ruling that defendant is not entitled to termination fees under the management agreements nor is defendant entitled to percentage management fees figured on a monthly basis. Both of these questions require the court to analyze the management agreement.
Under Kansas law, "the intent of the parties governs the construction of a contract." United Tunneling Enterprises, Inc., v. Havens Construction Co. Inc., 35 F. Supp.2d 789, 793 (D.Kan 1998) (citing Slawson Exploration Co. v. Vintage Petroleum, Inc., 78 F.3d 1479, 1481 (10th Cir. 1996)). "The intention of the parties and the meaning of the contract are to be determined from the [written] instrument itself where the terms are plain and unambiguous." United Tunneling Enterprises, 35 F. Supp.2d at 793 (quoting Wolfgang v. Mid-America Motorsports, Inc., 111 F.3d 1515, 1524 (10th Cir. 1997)) (additional citations omitted). "Ambiguity is a question of law to be determined by the court." Nat'l Minority Supplier Dev. Council Bus. Consortium Fund, Inc., v. First Nat'l Bank of Olathe, 83 F. Supp.2d 1200, 1202 (D.Kan. 1999) (citations omitted). "A finding of ambiguity is not compelled merely because the parties differ over the meaning of a term." United Tunneling Enterprises, 35 F. Supp.2d at 793 (citations omitted).
The court also notes that in reading contracts, "reasonable interpretations, rather than unreasonable ones, are favored by the law." United Tunneling Enterprises, 35 F. Supp.2d at 794 (citations omitted). "Results which vitiate the contract's purpose or reduce its terms to an absurdity should be avoided." In re Villa West Associates, 146 F.3d 798, 803 (10th Cir. 1998) (citing Kansas State Bank Trust Co. v. DeLorean, 7 Kan. App. 2d 246, 640 P.2d 343, 349 (1982) (quoting Weiner v. Wilshire Oil Co., 192 Kan.490, 389 P.2d 803, 808 (1964)). The court reviews the management agreement with these principles in mind.
The court notes that each plaintiff entered into an essentially identical management agreement with defendant. Accordingly, the court's analysis is applicable to each management agreement specified in the statement of facts.
A. Status of termination fees
In its counterclaim, defendant seeks payment of termination fees. The Plaintiff's argue the management agreement requires the payment of termination fees only when it is terminated because of damage to, destruction of or condemnation of the hotel. If the agreement is terminated under other circumstances, Plaintiff's argue the defendant is not entitled to termination fees.
Considering the four corners of the document, the court finds it is unambiguous regarding the payment of termination fees. The mere fact that the parties disagree over the interpretation of the management agreement does not make it ambiguous. 35 F. Supp.2d at 794. Accordingly, the intention of the parties and the meaning of the management agreement must be determined from the written instrument itself. Id. at 793.
The management agreement provides definitions of certain terms, and in § 1.2 it defines Termination Fee. Section 1.2, in part, states:
Termination Fee, in respect of any termination of this Agreement pursuant to which a Termination Fee is payable, shall mean an amount equal to the following:
Date of Termination Termination Fee
First through end of Second $120,000 payable upon termination
Operating Year
During Third Operating Year Three percent (3%) of gain on sale of Property
During Fourth Operating Year Two percent (2%) of gain on sale of Property
During Fifth Operating Year One percent (1%) of gain on sale of Property
The management agreement goes on to discuss termination fees in several specific sections. Section 9.1 provides for the payment of a termination fee if the owner terminates the agreement as the result of damage and destruction to the hotel. Likewise, Section 9.2 provides for the payment of a termination fee if the owner terminates the agreement as the result of condemnation of the hotel. Section 12.1(b) on default also refers to termination fees, stating:
b) Upon the occurrence of any event of default, in addition to and cumulative of any and all rights and remedies available to the non-defaulting party under this Agreement, at law or in equity, the non-defaulting party may give to the defaulting party notice of intention to terminate this Agreement, whereupon this Agreement shall terminate upon the expiration of thirty (30) days after the giving of such notice. In addition to and cumulative of the foregoing, upon the occurrence of any event of default on the part of Owner [plaintiffs], all earned Management Fees and all other sums payable to Manager [defendant] under this agreement shall be immediately due and payable without notice. In no event shall the provisions of this Agreement with respect to the payment of a Termination Fee upon termination of this Agreement under certain circumstances be construed as defining or limiting the amount recoverable by Manager [defendant] from Owner [plaintiffs] by reason of any event of default on the part of the Owner [plaintiffs].
Defendant contends the management agreement requires the payment of a termination fee in any event of premature termination by the plaintiffs. Defendant claims the key language in the management agreement is "in respect of any termination of this Agreement pursuant to which a Termination Fee is payable," arguing that this language was intended to explain that said fee is payable for any termination. Defendant also argues the reason for § 12.1(b) is to establish termination fees are intended to compensate defendant for future unknown damages caused by the termination and prevent plaintiff from "buying out" the contracts if they owe substantial past due fees.
However, the court finds defendant's argument unpersuasive. Adopting defendant's view would render the phrase "pursuant to which a Termination Fee is payable" meaningless. If every instance of termination required the payment of a fee, there would be no reason to use a limiting phrase such as "pursuant to which a Termination Fee is payable." Instead, the phrase "pursuant to which a Termination Fee is payable" is informed by the specific provisions of the management agreement requiring the payment of a fee, i.e., §§ 9.1 and 9.2. Defendant cannot point to a place in the management agreement which states fees are required in any event that the agreement is terminated. Likewise, if fees were required for all terminations, there would be no reason to specify instances in which a termination fee would be paid. The defendant's reading of the management agreement would make §§ 9.1 and 9.2 unnecessary. The defendant's reading of § 12.1(b) is also unpersuasive as it ignores the clearly limiting import of the phrase "the payment of a Termination Fee upon termination of this Agreement under certain circumstances." If termination fees were contemplated in every termination, there would be no reason to include the "under certain circumstances" language.
Based on the aforementioned, the court grants summary judgment to Plaintiff's regarding this issue, and finds defendant is not entitled to termination fees under the management agreements.
B. Status of percentage management fees
In its counterclaim, defendant seeks alleged past due percentage management fees figured on a monthly basis. Plaintiff's argue defendant is not entitled to percentage management fees figured on a monthly basis, rather it is entitled to fees figured on the basis of annual gross revenues.
The following definitions in the management agreement are relevant to the percentage management fees question. Section 1.2 states, in part:
Base Fee for the first four (4) months shall mean an amount equal to $5,000 (five thousand dollars) and for months five (5) through twenty (24) an amount two percent (2.0%) of Gross Revenues for such period or $5,000 whichever is greater.
Incentive Fee in respect of any period shall mean an amount equal to ten percent (10%) of the sum that actual Gross Operating Profit exceeds budgeted GOP set forth in the Operating Budget for such Operating Year. Incentive Fee shall be effective after the first (4) months of the effective date of this Agreement.
Management Fee in respect of any period shall mean the sum of $5,000 per month, or 2% of the Gross Revenue, whichever is greater, payable on the fifth day of each month.
Gross Revenues in respect of any period shall mean all revenues, receipts and income of every kind derived directly or indirectly during such period from all or any part of the Project. . . .
This is the only relevant provision in the management agreements which is not identical. Plaintiff Broadview Hospitality Holdings, LLC's management agreement includes the sum of $5,000 (as seen above). The other two management agreements include the sum of $2,500. This difference is not relevant to the general question of whether defendant is entitled to percentage management fees figured on a monthly basis.
The management fee is also discussed in § 7.2, which states:
Year-End Adjustment to Management Fee. If for any Operating Year, the aggregate amount of the monthly payments of the Management Fee theretofore paid by Owner [plaintiffs] to Manager [defendant] shall be more or less than the Management Fee payable for such Operating Year based upon the final determination of such Management Fee as reflected in the annual financial statements certified by the Independent Auditor in accordance with Section 6.3 of this Agreement, then, by way of year-end adjustment, within fifteen (15) days after the delivery of such annual financial statements to Owner [plaintiffs], Manager [defendant] shall pay into the Operating Accounts the amount of any overpayment or withdraw from the Operating Accounts the amount of any underpayment. . . .
Plaintiffs argue the payment of management fees are made each month on a provisional basis, citing the phrase "final determination of the Management fee as reflected in the annual financial statements" as evidence of this claim. Plaintiff's also argue the phrase "in respect of any period" used in the management fee refers to the operating year.
Considering once again the four corners of the document, the court finds the management agreement is ambiguous as regards the percentage management fees. Plaintiff's cannot adequately prove their claim that the payment of monthly management fees is provisional. The definition of management fees does not indicate they are to be paid on a provisional basis. Section 7.2 offers some support for the claim that the monthly payment is provisional. However, it is also possible § 7.2 was only intended as verification and adjustment of the management fees. Taken alone, § 7.2 does not provide enough support for finding the agreement required the management fees to be calculated on the basis of annual gross revenues. If the fees were figured solely on the basis of annual revenues, it is unclear why base and incentive fees were included in the management agreement. It is also unclear if § 7.2 speaks to the base and incentive fees or governs solely the management fees. Presumably, the term "management fees" encompasses the base and incentive fees, but the definition does not detail this idea. The court also finds the Plaintiff's fail to offer enough support that the phrase "in respect of any period" necessarily is equivalent to the phrase "operating year." As result of these questions, the court denies plaintiffs' motion as to percentage management fees. Accordingly, the question of whether defendant is entitled to percentage management fees figured on a monthly basis remains at issue.
IT IS THEREFORE ORDERED this 15th day of March, 2004 that the court grants plaintiffs' motion (Dkt. No. 18) in part and denies it in part. Accordingly, the court finds defendant is not entitled to termination fees under the management agreements.