Summary
finding that bad economic conditions do not qualify as force majeure where the force majeure clause at issue is silent on economic conditions
Summary of this case from In re Old Carco Llc (f/K/A Chrysler Llc)Opinion
No. A-8809014.
Decided January 10, 1990.
David A. Caldwell, for plaintiffs.
Keating, Muething Klekamp and William A. Posey, for defendant.
This matter comes before the court on the motion for partial summary judgment of cross/counterclaimants Ad Ventures I, Ad Ventures II, Mark X. Glassmeyer, Decade Four, U.S. Developments, Peter Moffatt, Robert G. Sisskind, Marvin Weisler and Thomas G. Whealys. They move the court for partial summary judgment on the issue of the propriety of the limited partners' termination of the management agreements and the removal of the general partner. They contend that plaintiffs Matthew R. Dunaj and Luxbury Hotels, Inc. ("Luxbury Hotels") have failed to meet the performance standards contained in the agreements between the parties and therefore the termination of those agreements was proper as a matter of law.
This case arises from the termination of a management agreement between plaintiff Luxbury Hotels and two limited partnerships, Ad Ventures I limited partnership and Ad Ventures II limited partnership, each of which owns a hotel that was managed by Luxbury Hotels. Besides reinstatement of Luxbury Hotels as manager, this suit seeks reinstatement of Matthew Dunaj as the general partner of both of these limited partnerships. Matthew Dunaj is President of Luxbury Hotels, Inc. Ad Ventures claims that the termination of the managers under the management agreements was appropriate because the agreements specified certain objective performance standards for Luxbury Hotels. For the reasons stated below, this court finds that the motion for partial summary judgment, in certain respects, is well taken and is granted.
To grant a motion for summary judgment, the court must determine there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Civ.R. 56(C). The court cannot try issues of fact on a Rule 56 motion, but is empowered to determine only whether there are any issues to be tried. In re Atlas Concrete Pipe, Inc. (C.A.6, 1982), 668 F.2d 905, 908. The rule imposes a heavy burden upon the party seeking summary judgment to show the absence of issues of material fact. Adickes v. S.H. Kress Co. (1970), 398 U.S. 144, 153, 90 S.Ct. 1598, 1606, 26 L.Ed.2d 142, 152.
The evidence presented on a motion for summary judgment is always construed in favor of the party opposing the motion who is given the benefit of all favorable inferences that can be drawn from it. Williams v. First United Church of Christ (1974), 37 Ohio St.2d 150, 153, 66 O.O.2d 311, 312, 309 N.E.2d 924, 925. As the United States Supreme Court has stated, "[O]n summary judgment the inferences to be drawn from the underlying facts contained in * * * [the affidavits, exhibits, and depositions] must be viewed in the light most favorable to the party opposing the motion. * * *" United States v. Diebold, Inc. (1962), 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176, 177; Day v. United Auto., Aerospace Agr. Implement Workers (C.A.6, 1972), 466 F.2d 83, 99; Equal Emp. Opportunity Comm. v. United Assn. of Journeymen Apprentices of the Plumbing and Pipefitting Industry (C.A.6, 1970), 427 F.2d 1091, 1093. A summary judgment "must be awarded with caution * * *." Norris v. Ohio Standard Oil Co. (1982), 70 Ohio St.2d 1, 2, 24 O.O.3d 1, 2, 433 N.E.2d 615, 617.
The management agreements negotiated here between the parties set forth termination rights to the limited partners. They provide that the partnerships have the right to terminate Luxbury Hotels as manager of the hotels when the actual cash flow from the hotels is seventy percent or less of the named consultants' market feasibility study cash flow projections for a consecutive twelve-month period. Section 15.03 of the management agreements between Luxbury Hotels and the partnerships provides as follows:
"Section 15.03 — Option to Terminate.
"The owner shall have the option to terminate this agreement upon the occurrence of either of the following circumstances:
"* * *
"(b) Excepting events or occurrences as contemplated in Article 21, cash flow for debt service on the hotel is insufficient to the extent that only 70% or less of the Market Feasibility Study Consultant's cash flow projections (and subsequent projections prepared on the same basis each year by the General Partners, which are subject to independent outside third-party consultant review and verification if Owner desires such) is realized for a consecutive twelve-month period * * *."
The test was not to be applied during the first year of the hotel's operation. This effectively gave Luxbury Hotels a two-year grace period before any termination despite the level of performance.
It is clear that Luxbury Hotel's performance did not fulfill the seventy percent requirements specified above. However, plaintiff Dunaj asserts this is not dispositive. Rather, he contends that the income must be insufficient, the definition of "insufficient" turning on whether "cash flow for debt service on the hotel is insufficient." Since here apparently the cash flow was not insufficient to pay the mortgages, Dunaj asserts that this performance standard of the agreement has not been breached. While his may be a common-sense interpretation had the definition of "insufficient" not been specified in the agreement, such is not the case here. Clearly "insufficient" is defined in the agreement as being "only 70% or less of the Market Feasibility Study Consultant's cash flow projections."
Plaintiff Dunaj also contends that projections other than the market feasibility study projections should be the standard. This position is also without merit. The agreements note that the standard should be according to either the market feasibility study projections or "subsequent projections prepared on the same basis each year by the General Partners, which are subject to independent outside third-party consultant review and verification if Owner desires such * * *." However, no such projections were prepared here, as Dunaj admitted in his deposition.
Plaintiffs also contend that performance here is excused by the following "force majeure" language in the management agreement:
"When prevented by any `force majeure' cause beyond the reasonable control of such party (except financial inability of such party) such as strike, lockout, breakdown, accident, compliance with an order or regulation of any governmental authority, failure of supply or inability, by the exercise of reasonable diligence, to obtain supplies, parts or employees necessary to perform such obligation, or war or other emergency."
Plaintiffs assert that surrounding economic conditions such as the development of competing hotels, and incorrect projections concerning expenses and supporting businesses constitute such a "force majeure" so as to excuse the failure to meet seventy percent of cash flow projections.
The "force majeure" clause of the management agreement spells out several specific events of "force majeure" such as fire, war, strikes, and acts of God. These are dramatic unforeseen events which could cause the hotel or hotels to be partially or completely shut down and actually prevent performance. No such catastrophic events have occurred here. Rather, plaintiffs have simply failed to meet the income requirements of the management agreement.
It was well known to all parties involved in the agreement that the performance standards were based on projections, that a grace period was allowed, and that various factors were and are at work in the hotel business that could affect income. These factors include a late startup, varying expenses and the existence or nonexistence of surrounding businesses to support the hotel trade. When a party assumes the risk of certain contingencies in entering a contract, as is the case here, such contingencies cannot later constitute a "force majeure." Austin Co. v. United States (1963), 314 F.2d 518, 520, 161 Ct.Cl. 76, 80-81. Mistaken assumptions about future events or bad economic conditions do not qualify as a "force majeure." See, e.g., Gulf Oil Corp. v. Fed. Energy Regulatory Comm. (C.A. 3, 1983) 706 F.2d 444, 449; Buono Sales, Inc. v. Chrysler Motors Corp. (C.A. 3, 1966), 363 F.2d 43, 47. For all the above stated reasons, the failure of the plaintiffs to meet the performance standards set out in the agreement constitutes a failure to perform which justified the termination of Luxbury Hotels as the manager of the hotels.
Plaintiffs Dunaj and Luxbury Hotels also claim that there was no valid action to terminate the management agreement or to replace Dunaj as the general partner. They claim that a meeting was required to be held for such a vote to terminate. Section 20.02 of each partnership agreement, however, expressly provides that the "limited partners" and the "special limited partner" have the right to vote on the termination of the hotel manager. There is no requirement that such a vote be conducted at a formal meeting. This contention is therefore without merit.
Finally, the defendants move for summary judgment on the issue of whether the "general partner" was properly removed. They base the validity of their action on the assumption that the termination of the management agreement results in the general partner's removal, permitting the "special limited partner" and "limited partners" to elect a "successor general partner." This, however, is not provided for in the partnership agreements. The facts brought to this court do not support the contingencies outlined in the agreement for termination of general partner, to wit, death, or "no general partner remains." Section 13.02. The motion for summary judgment with respect to this issue is therefore not well taken and is denied.
Accordingly, the court concludes that the motion for summary judgment with regard to the termination of the hotel manager is well taken and is granted in favor of the defendants. The motion for summary judgment on the issue of termination of the general partner, however, is not well taken and is denied.
Judgment accordingly.