Filed: Aug. 10, 2007
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2007 Decisions States Court of Appeals for the Third Circuit 8-10-2007 Travelodge Hotels v. Honeysuckle Entr Precedential or Non-Precedential: Non-Precedential Docket No. 05-5254 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007 Recommended Citation "Travelodge Hotels v. Honeysuckle Entr" (2007). 2007 Decisions. Paper 599. http://digitalcommons.law.villanova.edu/thirdcircuit_2007/599 This decision is brought to you for free and
Summary: Opinions of the United 2007 Decisions States Court of Appeals for the Third Circuit 8-10-2007 Travelodge Hotels v. Honeysuckle Entr Precedential or Non-Precedential: Non-Precedential Docket No. 05-5254 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007 Recommended Citation "Travelodge Hotels v. Honeysuckle Entr" (2007). 2007 Decisions. Paper 599. http://digitalcommons.law.villanova.edu/thirdcircuit_2007/599 This decision is brought to you for free and o..
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Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
8-10-2007
Travelodge Hotels v. Honeysuckle Entr
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-5254
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007
Recommended Citation
"Travelodge Hotels v. Honeysuckle Entr" (2007). 2007 Decisions. Paper 599.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/599
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-5254
TRAVELODGE HOTELS, INC.
a Delaware Corporation
v.
HONEYSUCKLE ENTERPRISES INC.
a Missouri Corporation;
RYAN RICHARDSON, an individual,
Appellants
On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 02-cv-2889
(Honorable Dickinson R. Debevoise)
Submitted Pursuant to Third Circuit LAR 34.1(a)
April 23, 2007
Before: SCIRICA, Chief Judge, FUENTES and ALARCÓN * , Circuit Judges.
(Filed August 10, 2007 )
OPINION OF THE COURT
*
The Honorable Arthur L. Alarcón, United States Circuit Judge for the Ninth Judicial
Circuit, sitting by designation.
SCIRICA, Chief Judge.
This case involves a dispute over a license agreement under which an independent
hotel in Branson, Missouri, briefly operated as part of a nationwide chain of lodging
facilities. On appeal, the hotel operator, Honeysuckle Enterprises, Inc., and
Honeysuckle’s owner, Ryan Richardson,1 ask us to reverse the judgment of the United
States District Court that it owed monthly contractual payments, liquidated
damages—both with interest and attorney’s fees—to Travelodge Hotels, Inc., the
licensor. Honeysuckle and Richardson also ask that we enter judgment for them on their
claim of fraudulent inducement of contract, breach of contract and breach of the covenant
of good faith and fair dealing. We will affirm.
I.
Travelodge Hotels, a Delaware corporation, operates a guest lodging franchise
system comprising trade names, service marks, standards of service and a centralized
support system that includes a nationwide computer reservation system. Honeysuckle is a
Missouri corporation owned by Richardson. Richardson built an eighty-room hotel in
Branson, Missouri in 1988, and, over time, expanded the number of guest rooms and
added a convention center. In 2000, Richardson received an unannounced visit from a
1
Richardson, who was the guarantor on Honeysuckle’s agreement with Travelodge, is
listed as a codefendant. Though they are distinct parties, their arguments and claims are
identical. For clarity, references to Honeysuckle as a party, unless otherwise indicated,
are intended to include both Honeysuckle and Richardson.
2
Travelodge salesman, but Richardson indicated he was not interested in a franchise.
Some months later, the salesman arranged another meeting with Richardson at which he
told Richardson Travelodge wanted to expand its franchises in the Branson market, and
indicated that as a Travelodge franchise, Richardson could expect a fifteen percent
increase in business. They also discussed Travelodge’s franchise fee of eight and a half
percent of all sales, regardless of whether they were produced by Travelodge’s system.
Richardson requested assurance that a Travelodge franchise would result in a fifteen
percent increase in revenues, roughly $300,000, couching this as a deal-breaking point.
At a subsequent meeting, Richardson met with the salesman and a sales supervisor
for Travelodge, and was shown a document purportedly showing that in 1999, Travelodge
was unable to fulfill more than 13,000 reservation requests at its Branson locations,
Richardson testified the three computed that 5,400 completed reservations at Honeysuckle
would have been enough to increase profits by fifteen percent. Richardson said he was
convinced to enter a franchise deal with Travelodge after reviewing the document, called
a “Monthly Lost Business Summary Report,” with the two salesmen.
On at least one occasion Richardson received a Travelodge Uniform Franchise
Offering Circular. The uniform offering warned prospective licensees to read it and all
agreements carefully, and added this caution: “WE DO NOT FURNISH OR
AUTHORIZE OUR SALESPERSONS TO FURNISH ANY ORAL OR WRITTEN
INFORMATION CONCERNING ACTUAL, PROJECTED OR POTENTIAL COSTS,
3
EXPENSES OR PROFITS OF A PROPOSED FACILITY.” Richardson testified that he
discarded the uniform offering without reading it.
Negotiations began, and a license agreement was signed in January 2001.
Richardson successfully negotiated three changes from the original agreement offered by
Travelodge. These were: (1) an “Additional Termination Right” that gave Honeysuckle
the right to terminate the license agreement after two years, rather than after fifteen years;
(2) liquidated damages were reduced to $50,000 from the original $420,000; and (3) a
monthly recurring fee was changed from eight and a half percent of gross room revenues
to a flat fee of $8,125 in the first year.
The agreement did not contain any provision requiring that reservations received
through Travelodge result in a fifteen percent profit increase. In fact, the agreement
explicitly disavows any express or implied covenants or warranties, and releases
Travelodge from “any claim against us or our agents based on any oral or written
representation or promise not stated in this Agreement. . . . [The agreement] is the entire
agreement superseding all previous oral and written representations, agreements and
understandings of the parties.” Further the agreement contains this provision: “You
acknowledge that no salesperson has made any promise or provided any information to
you about projected sales, revenues, income, profits or expenses from the Facility except
as stated [in the uniform offering] or in a writing that is attached to this Agreement.”
4
Honeysuckle was to begin operating as a Travelodge on April 1, 2001, and
franchise fees were to begin that day. But Honeysuckle never paid the monthly fees. At a
bench trial, Richardson testified Honeysuckle received just thirteen reservations from
Travelodge, and that these did not come in through the centralized reservations system.
He also testified that he called the Travelodge reservations 800 telephone number and
was told that Honeysuckle was not on the list of Travelodge facilities. Honeysuckle’s
manager gave inconsistent testimony about the number of times she called the
reservations number.
Travelodge representatives apparently had no record of complaints from
Honeysuckle. In July, Honeysuckle was notified that Travelodge might cut it off from the
central reservations system. Ultimately, after no resolution could be reached, Travelodge
cut Honeysuckle from the reservations service in August 2001. Honeysuckle then
notified Travelodge that it intended to terminate the franchise, and Travelodge issued an
acknowledgment of termination effective December 18, 2001, and demanded payment of
outstanding fees and liquidated damages.
Travelodge sued Honeysuckle and Richardson for the unpaid amounts in the
United States District Court for the District of New Jersey. Honeysuckle counterclaimed
that Travelodge fraudulently induced it to enter into a contract by presenting it with the
monthly lost business report and suggesting that, if it had been a Travelodge franchisee,
Honeysuckle could have seen a fifteen percent increase in that period.
5
The case was tried without a jury. The court found Honeysuckle was liable under
the contract, and that Honeysuckle had failed to prove its fraudulent misrepresentation
claim. This appeal followed.
II.
We have jurisdiction under 28 U.S.C. § 1332. The license agreement, under its
own terms is governed by the laws of New Jersey. We exercise plenary review over a
district court’s interpretations of law and of the application of the law to the facts. Banjo
Buddies, Inc. v. Renosky, 399 F.3d 168, 173 (3d Cir. 2005). We review the District
Court’s factual findings for clear error. Banjo
Buddies, 399 F.3d at 173. We review a
district court’s evidentiary rulings for abuse of discretion. United States v. Pelullo,
964
F.2d 193, 199 (3d Cir. 1992).
III.
Honeysuckle’s appeal comprises three general contentions: that the District Court
erred by failing to find Travelodge fraudulently induced it to enter into a contract; the
court erred because it did not find Travelodge had breached the license agreement; and,
the court erred because it found Honeysuckle had breached the lease. Separately,
Honeysuckle challenges evidentiary decisions by the District Court.
A. Fraudulent Inducement
Both as a defense and as a counterclaim, Honeysuckle argued at trial that it was
fraudulently induced to enter into a contract with Travelodge. It contends the District
6
Court improperly overruled a statement about the relevance of certain evidence contained
in an earlier summary judgment ruling by a prior judge; it misunderstood or misconstrued
Honeysuckle’s claim by focusing on a promise of future profits rather than statements
about past facts; and it went against the weight of the evidence.
To prove a claim for fraudulent inducement, Honeysuckle was required to show
Travelodge made a “material representation of a presently existing or past fact, made with
knowledge of its falsity and with the intention that the other party rely thereon, resulting
in reliance by [Honeysuckle] to [its] detriment.” Jewish Center of Sussex County v.
Whale, 432 A.2d 521, 524 (N.J. 1981). Representations in a written agreement do not
create an absolute defense or bar the introduction of parol evidence when the claim is
fraud in the inducement. Ocean Cape Hotel Corp. v. Masefield Corp.,
164 A.2d 607, 611
(N.J. Super. App. Div. 1960). But the fraud exception for parol evidence is limited where
an alleged oral understanding is expressly contradicted in a written agreement. Filmlife,
Inc. v. Mal “Z” Ena, Inc.,
598 A.2d 1234, 1236 (N.J. Super. App. Div. 1991).
Honeysuckle contends it relied on the Monthly Lost Business Report it was shown
by Travelodge representatives. The District Court found the evidence established
Richardson told Travelodge he was not interested in a franchise agreement unless it
would result in a fifteen percent increase in sales. The court found it was likely that in
showing him the Monthly Lost Business report, Travelodge representatives tried to
persuade him that his business would increase by that amount. The District Court also
7
noted that the Monthly Lost Business Report apparently reported inaccurately the number
of room requests Travelodge was unable to accommodate. But the evidence also showed
that Honeysuckle signed an agreement that did not contain a guaranteed fifteen percent
increase in sales, and, rather, that expressly contradicted any such representation or
guarantee. As noted, one of the express provisions released Travelodge from any oral or
written claims by its representatives not included in the agreement, and it included a
provision that no salesperson had made any such promise or projection.
A person who signs an agreement is presumed to have read it. Here, the District
Court heard evidence about three significant changes to the original proposed agreement
which Richardson negotiated. As the District Court noted, had Richardson believed
Travelodge had guaranteed a fifteen percent increase in sales, he would have insisted it be
referenced in the agreement and he would not have signed an agreement that explicitly
negated any such guarantee.
Honeysuckle contends the District Court erroneously focused on future statements,
when, Honeysuckle argues, its actual contention was that the Monthly Lost Business
Report constituted a false statement of a past fact because actual lost business was lower
than the number indicated on the report. The District Court concluded that even if this
were so, Honeysuckle could not be deemed to have relied on that representation because
the agreement it signed contained multiple acknowledgments that no Travelodge
representative had made representations about sales or profits. Furthermore, Richardson
8
negotiated several changes to the agreement facilitating its termination by Honeysuckle,
but none of these changes included a statement about representations made about past
sales or profits.
Honeysuckle failed to establish its fraud defense or claim. It did not establish any
fraudulent representations by Travelodge representatives, nor did it show it relied on any
future guarantees or statements of past facts made by Travelodge or its representatives.
We see no clear error in the District Court’s findings of fact as to the fraud defense or
counterclaim. We agree with the District Court’s interpretations of the relevant law and
with its application of the law to the facts of this case.2
B. Breach of the Agreement
Honeysuckle contends the District Court committed clear error in failing to find
Travelodge breached the agreement by failing to add Honeysuckle to the centralized
reservations system.
The evidence Honeysuckle offered to support this contention at trial included
testimony by Richardson and Honeysuckle’s manager that they had placed test calls to the
Travelodge reservations number, and that they were not referred to Honeysuckle. The
District Court determined that the manager’s testimony was not credible because of a
2
Honeysuckle contends the trial judge misapplied New Jersey law as laid out in a
summary judgment opinion by another judge from whose court the case was transferred.
This claim, however, is meritless, as it confuses the applicable burdens at summary
judgment and at trial, and it ignores the requirement that all elements of a claim be proven
for the claim to succeed.
9
discrepancy between her deposition testimony, where she said she had placed one test
call, and her trial testimony, where she said she made five test calls. Honeysuckle did not
present any other evidence to support its contention, either as a defense or as a
counterclaim.
Contemporaneous memoranda from Travelodge’s franchise service manager do
not indicate any dissatisfaction or complaints by Honeysuckle about the reservations
phone line.3 The District Court also noted, contrary to Honeysuckle’s claims here, that it
received just fourteen reservations from Travelodge, a defense exhibit showed a total of
133 residential room reservations were provided by Travelodge during the six months
Honeysuckle was on the central reservations system. The District Court was also
persuaded that Honeysuckle understood it was on the reservations system because its
manager asked for a delay to consult with Richardson when Travelodge threatened
removal from the system for nonpayment of fees. Honeysuckle has failed to show any
error, much less a clear error.
Separately, Honeysuckle contends the District Court committed clear error because
it found Honeysuckle had breached the contract. This argument depends on
3
Honeysuckle contends Boyd failed to register Honeysuckle’s complaints, particularly
several complaints Richardson testified he made by phone or letter, because her job
included a quota of contacts with franchisees, and that resolution of complaints did not
count toward this quota. Honeysuckle suggests, therefore, that Boyd did not include the
complaints so as to register the contacts in satisfaction of her job requirements. This is a
fact question that could have been raised at trial, not on appeal, and if it had been, it
would have required supporting evidence beyond the bald assertion presented here.
10
Honeysuckle’s earlier arguments of fraudulent inducement and breach by Travelodge. As
noted, we agree with the District Court’s findings of law and application of the law to the
facts of the case on the fraudulent inducement issue. Consequently, we find no clear
error, nor error in law, in the District Court’s finding that Honeysuckle breached the
agreement.4
C. Evidentiary Rulings
Honeysuckle contends the District Court committed reversible error in two
evidentiary decisions. First, Honeysuckle contends it was improperly barred from
introducing into evidence a receipt for the uniform offer circular that it determined, after
the trial had begun, included a forgery of Richardson’s signature. Honeysuckle sought to
introduce the receipt to demonstrate a pattern of fraudulent behavior by a Travelodge
salesman. The District Court rejected admission of the receipt, stating that Honeysuckle
had access to the receipt from the beginning of discovery and that the new contention
should have been raised earlier so as to give Travelodge time to investigate it.
Honeysuckle now contends, though without offering any support, that the District Court
erred in barring the evidence. It also contends the District Court could have continued the
trial to give Travelodge time to investigate and respond. The only case Honeysuckle cites
in support is not applicable. See Nutt v. Black Hills State Lines, 452 F.2d 480, 483 (8th
4
For the same reasons, we find Honeysuckle has not shown clear error by the District
Court for failing to find breach of the covenant of good faith and fair dealing.
11
Cir. 1971) (holding a last minute pretrial attempt to introduce expert testimony to support
a new element for trial should have been barred, or, if the introducing party refused, the
court should have granted a reasonable continuance). Honeysuckle has not shown the
District Court abused its discretion in barring evidence of the allegedly forged receipt.
Second, Honeysuckle contends the District Court erred by excluding evidence of
prior bad acts by one of the Travelodge salesmen who worked on the Honeysuckle
agreement. The evidence, testimony by an employee of Travelodge’s parent company,
concerned the circumstances surrounding the firing of the salesman, which Honeysuckle
contended included using his own credit card to pay for another franchisee’s business so
as to meet his sales quota. The District Court barred this testimony, finding it was
irrelevant under Fed. R. Evid. 401, and even if relevant, that it was unduly prejudicial
under Fed. R. Evid. 403. In addition, the District Court determined the proffered
character evidence was not admissible under Fed. R. Evid. 404(b), which bars evidence of
prior bad acts to show conformity with character. We find no abuse of discretion by the
District Court in barring admission of this evidence.
IV.
We will affirm the judgment of the District Court.
12
