Opinion
C.A. No. N18C-03-076 FWW
02-28-2020
GLENNON TRAVIS, Plaintiff, v. ESCAPE HOSPITALITY, LLC, Defendant.
James S. Green, Esquire, R. Karl Hill, Esquire, Jared T. Green, Esquire, Seitz, Van Ogtrop & Green, P.A., 222 Delaware Avenue, Suite 1500, Wilmington, DE, 19801; Attorneys for Plaintiff, Glennon Travis. Robert J. Katzenstein, Esquire, Smith, Katzenstein, & Jenkins, LLP, 1000 West Street, Suite 1501, P.O. Box 410, Wilmington, DE, 19899; Attorney for Defendant Escape Hospitality, LLC.
DECISION AFTER TRIAL James S. Green, Esquire, R. Karl Hill, Esquire, Jared T. Green, Esquire, Seitz, Van Ogtrop & Green, P.A., 222 Delaware Avenue, Suite 1500, Wilmington, DE, 19801; Attorneys for Plaintiff, Glennon Travis. Robert J. Katzenstein, Esquire, Smith, Katzenstein, & Jenkins, LLP, 1000 West Street, Suite 1501, P.O. Box 410, Wilmington, DE, 19899; Attorney for Defendant Escape Hospitality, LLC. WHARTON, J.
I. INTRODUCTION
This is the Court's decision following a one-day bench trial held before the Court on March 14, 2019 relating to certain disputes between Plaintiff Glennon Travis ("Travis") and Defendant Escape Hospitality, LLC ("Escape"). After carefully considering the testimony, exhibits, demeanor of the witnesses, and post trial submissions of the parties, the Court finds that there was no "Cause Event" as defined by Escape's operating agreement and, therefore, Travis is entitled to a termination fee of $150,000. The Court further finds that Travis is not entitled to accrued management fees.
II. FACTS
Travis and Marc Chodock ("Chodock") met in 2014 through a mutual acquaintance. Travis, with a Master's Degree in Hotel Management from Cornell University, and Chodock, an experienced corporate finance analyst, having complimentary expertise, decided to own and operate a hotel. They found a 1960's era motor lodge in Hunter, New York. With the help of family and friends, they raised over three million dollars to develop the property, later naming it Scribner's Catskill Lodge ("Scribner's"). The two closed on Scribner's on or about November 30, 2015.
Travis and Chodock executed three agreements, all effective November 30, 2015, formalizing their business and management arrangement for Scribner's. Scribner's was created by the Scribner's Catskill Lodge, LLC Limited Liability Company Agreement. Scribner's functioned as a holding company for the hotel. It was originally funded by over $3,000,000 in investments raised by Travis and Chodock. Of that, $1,000,000 came from Chodock and his family and $500,000 from Travis and his family. Equity in Scribner's was distributed in proportion to the two members' investments. The Scribner's agreement vested day-to-day control in its manager, Escape.
JX 6.
Travis and Chodock formed Escape to manage the hotel. The Limited Liability Operating Agreement of Escape Hospitality, LLC ("Escape Agreement") identifies the two as the only members of the LLC. Chodock and Travis agreed to divide management equally, but divided ownership in proportion to their contribution to Scribner's—Travis at one-third (33.33%) and Chodock, through his company Arvice Capital Management, LLC, at two-thirds (66.67%). In effect, Escape controlled Scribner's and Chodock controlled Escape.
JX 4.
Travis and Choduck executed a management agreement setting forth the business relationship between Scribner's and Escape. Under the terms of the management agreement, Escape managed all aspects of Scribner's operations. In exchange, Scribner's paid a "Management Fee" to Escape and was to reimburse Escape for costs associated with running the operations. There were two components to the Management Fee: (1) 5% of the aggregate gross revenue; and (2) 10% of the net operating income during the fiscal year. Travis and Chodock were to split the management fee equally, so long as Travis and his immediate family members lived within twenty-five miles of the hotel. To manage the hotel, Travis and his family sold their home in Brooklyn, New York and moved to the Catskill Mountains.
Management Agreement By and Between Scribner's Catskill Lodge, LLC and Escape Hospitality, LLC, JX 5.
Id.
Travis has not asserted a claim for the net operating income portion of the management fee. At trial, when asked if Scribner's had generated any operating income, Chodock responded that it had not generated any income "through the year of 2017." Tr. at 156.
While the parties have significantly different interpretations concerning the opposing party's actions, some facts are not in dispute. On November 15, 2017, Travis transferred $10,000 from Escape's checking account to his own. Travis had been receiving management fee payments via recurring transfers from Escape's bank account of $1,000 per week beginning on July 26, 2017, and then $1,500 per week from September 13, 2017 until November 8, 2017. Of the $10,000 Travis withdrew, he returned $8,500 after speaking with Chodock. The return was effective on November 20, 2017. On November 17, Chodock terminated Travis from Escape, and confirmed that termination in writing on November 22nd. The termination letter referenced the November 15th withdrawal, asserted that it was unauthorized, and that the termination was for cause.
JX 22.
III. THE PARTIES' CONTENTIONS
Travis alleges two breaches of the Escape Agreement against Escape. First, he alleges that Escape breached their agreement by failing to distribute a termination fee of $150,000, pursuant to Section 3.8 of the Escape Agreement. Travis claims Escape owes him the fee because firing him constituted a "Termination Event," as defined in Article I of the Agreement. Travis argues that Choduck, through Escape, has the burden to prove that he engaged in theft, as defined by 11 Del. C. § 841, in order to establish a "Cause Event." He further argues that Escape is limited to its initial rationale for his firing - theft - and may not subsequently support that rationale with allegations of embezzlement and misappropriation of tangible assets. Travis contends that Escape cannot meet its burden of establishing a "Cause Event" because he was authorized to make the disputed transfer of funds and he did not intend to steal from Escape.
As opposed to a "Cause Event", also defined in Article 1.
Secondly, Travis asserts that Escape breached the Escape Agreement by refusing to distribute "Net Profits," pursuant to Article 6 of the Agreement. Travis argues that both breaches constitute breaches of the implied covenant of good faith and fair dealing. He requests a total of $238,412.02 plus costs and pre and post-judgment interest in relief.
Escape argues that Travis was fired for a "Cause Event". It contends that Travis was not authorized to take an "extra $8,500" from Escape's bank account. Escape further contends that it need not prove that Travis was guilty of theft as defined in 11 Del. C. § 841, although it argues that it has, because Travis misappropriated $8,500 in Escape's funds. Because he was properly terminated for a "Cause Event," Escape asserts that Travis forfeited his interest in Escape and is owed nothing.
Def. Ans. Br. at 21, D.I. 39.
IV. DISCUSSION
In addition to resolving the facts in dispute, the Court also must parse the contractual relationship between the parties. It is undisputed that contract interpretation is a question of law. When interpreting a contract, a court looks within the four corners of the contract and construes it as a whole so as to give full effect to all provisions. Delaware courts attempt to ascertain the parties' objectively manifested intent by looking to the plain language of the agreement. "The language of the Agreement must therefore be the starting point," and "[o]nly when there are ambiguities may the court look to collateral circumstances." Moreover, "[t]he presumption that the parties are bound by the language of the agreement they negotiated applies with even greater force when the parties are sophisticated entities that have engaged in arms-length negotiations."
Motorola, Inc. v. Amkor Tech., Inc., 958 A.2d 852, 859 (Del. 2008).
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 547 (Del. Super. 2005); see also E.I. duPont de Nemours & Co. v. Allstate Ins. Co., 693 A.2d 1059, 1061 (Del. Super. 1997).
E.I. duPont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985).
Citadel Holding Corp. v. Roven, 603 A.2d 818, 822 (Del. 1992); see also Seaford Golf and Country Club v. E.I. duPont de Nemours and Co., 925 A.2d 1255, 1260 (Del. 2007).
Citadel, 603 A.2d at 822.
Caldera Properties-Lewis/Rehoboth VII, LLC v. Ridings Dev., LLC, 2008 WL 3323926, at *12 (Del. Super. June 19, 2008) (quoting West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC, 2007 WL 3317551, at *9 (Del. Ch. Nov. 2, 2007)).
A contract is not rendered ambiguous merely when the contracting parties disagree as to a provision's meaning. A contract is ambiguous only when the provision at issue is reasonably or fairly susceptible to different interpretations. The Court will consider the agreement as a whole. The Court will not interpret a contract in such a way as to render any of its provisions illusory or meaningless, nor should any section be taken in isolation. Specific provisions of a contract control over more general provisions, and where specific and general provisions conflict, the specific provision ordinarily qualifies the meaning of the general one. Ultimately, the Court looks not to what the parties to the contract intended a provision to mean, but rather what a reasonable person in the parties' position would have thought it to mean.
Rhone-Poulenc, 616 A.2d at 1196.
Id.
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting Sonitrol Holding Co. v. Marceau Investissements, 607 A.2d 1177, 1183, (Del. 1992)).
O'Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del. 2001).
DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005)
Rhone-Poulenc, 616 A.2d at 1196; see also AT&T Corp., 953 A.2d at 253.
While the parties agree on very little, they do agree that the provisions of the Escape Hospitality Agreement provide the framework for guiding the Court's decisions. The first question the Court must answer is whether Travis' termination was a "Cause Event" or not. Secondly, in the event the Court finds that there was no "Cause Event" precipitating Travis' termination, the Court must determine whether Travis is owed a termination fee and/or accrued management fees, and, if so, how much.
A. The Disputed Transfer was not a "Cause Event."
Article I of the Escape Agreement defines relevant terms for purposes of the Agreement. It provides in pertinent part:
"Cause Event" shall mean that (1) a Member or any Affiliate thereof has (a) engaged in an act of theft, embezzlement, perpetration of fraud, or misappropriation of any tangible or intangible assets or property of the
Company, (b) committed a crime, as determined by a court of competent jurisdiction, that is a felony or a plea of nolo contendere or guilty for any felony...The Agreement does not separately define "theft," "embezzlement," or "misappropriation." Nevertheless, all three terms require the taking or appropriating of something belonging to another, in the criminal law referred to as an actus reus, and, in addition, some culpable mental state, the mens rea.
JX 4.
Each party has expended a great deal of energy in this litigation impugning the motivations of the other. Chodock points to the Travises' marital difficulties, which included the couple's personal finances, as pressuring Travis to bring home more money. Escape argues that Travis took an extra $8,500 from Escape's account, which he was not authorized to take, to alleviate those pressures. For his part, Travis argues that the disputed transfer was not only authorized, but was money to which he was entitled and which Chodock was improperly withholding from him. He views Chodock's claim that the transfer was a "Cause Event' as an excuse to remove him from Escape and aggregate to himself sole control of Scribner's now that Scribner's was up and running successfully. The Court has carefully considered these contentions, but in the end finds them unnecessary to address, because it finds that Travis did not intend to steal, embezzle, or misappropriate the property of Escape. The Court simply finds credible Travis' testimony that the extra $8,500 of the disputed transfer was money to which he believed he was entitled and authorized to take.
See Tr. at 42-59.
Accordingly, the Court finds by a preponderance of the evidence that Travis has established that there was no "Cause Event." As a result, pursuant to Section 3.8(c)(3) of the Escape Agreement, Travis is entitled to a termination fee of $150,000.
B. Travis is not Entitled to Accrued Management Fees.
Travis has argued, and the Court has agreed, that his firing by Chodock, effectively acting as Escape, constituted a "Termination Event." Because it was a "Termination Event," he is entitled to a termination fee of $150,000 under Section 3.8(c)(3) of the Escape Agreement. However, that section also provides that a Member who is terminated (Travis) "shall forfeit the entirety of its Membership Interest in the Company." "Membership Interest" is defined in Article I of the Agreement:
JX 4.
"Membership Interest" means the entire ownership interest in the Company at any particular time of a Member...including, without limitation, voting rights, the right to receive Distribution of funds and to receive allocation of income, gain, loss, deduction and credit, and
other rights and obligations of such Member or other person under this Agreement and the LLC law."Distribution" also is defined by the Agreement. It means, "any cash and any property...distributed by the Company to the Members in accordance with this Agreement. The broad language of the Agreement defining what is forfeited in exchange for the termination fee evinces an intent in the Agreement to avoid the type of accounting dispute in which Travis and Escape seek to have the Court engage. By the terms of the Escape Agreement, Travis is entitled to a termination fee, but he is not entitled to accrued management fees.
Id. --------
V. CONCLUSION
For the foregoing reasons, the Court finds in favor of Plaintiff Glennon Travis and against Defendant Escape Hospitality, LLC in the amount of $150,000, plus costs, together with pre and post judgment interest at the legal rate. Plaintiff shall submit a proposed form of Order for entry of judgment no later than March 31, 2020. Defendant shall submit any objections to Plaintiff's proposed form of Order no later than April 20, 2020.
IT IS SO ORDERED.
/s/_________
Ferris W. Wharton, J.