JAY C. ZAINEY, District Judge.
The following motions are before the Court:
All motions are opposed. The motions, submitted on June 28, 2017 and July 12, 2017, are before the Court on the briefs without oral argument. For the reasons that follow, Defendants' motions are GRANTED with the exception of the motion to strike, which is MOOT. Plaintiff's motions are DENIED.
This is a diversity action for breach of contract, breaches of fiduciary duties owed between partners, fraud, conversion, civil conspiracy, deceptive or unfair trade practices, and unjust enrichment arising out of the parties' operation and management of, and relationship to, the New Orleans Inter-Continental Hotel located in downtown New Orleans (referred to at times as "the Hotel"). (Rec. Doc. 17, SSAC ¶ 1).
PALIC and Louisiana Acquisitions Corp. ("LAC") formed a Louisiana partnership called PANACON on June 4, 1981, for the purpose of designing, building, and operating a luxury hotel in New Orleans. (SSAC ¶ 9). PALIC owned a two-thirds (2/3) interest in PANACON and LAC owned the other one-third (1/3). (Id. ¶ 10). The hotel opened in 1983 under the Inter-Continental brand name. (Id. ¶ 12). LAC is a wholly-owned subsidiary of Inter-Continental Hotels Corp. ("IHC") and the two entities operate as commonly controlled business entities. (Id. ¶& 4-5).
The PANACON partnership entered into an Operating and Management Agreement ("the Management Agreement") with IHC to manage the Hotel. (SSAC ¶ 13). Later, LAC became manager of the Hotel pursuant to an assignment from IHC. PALIC claims that over the years LAC and IHC used the Management Agreement as a lucrative vehicle to double-charge or over-charge PANACON for services to the detriment of the partnership and PALIC, while garnering significant profits for Defendants. PALIC contends that Defendants failed to perform certain obligations owed under the Management Agreement, which inured to Defendants' financial gain but hurt the Hotel's ability to compete as a luxury hotel. PALIC also alleges that Defendants surreptitiously competed against PANACON by operating other hotels in the local market. Thus, according to PALIC, LAC and IHC maximized their profits not through their one-third ownership of PANACON but rather by abusing the Management Agreement — a scheme that produced profits for Defendants regardless of whether the hotel itself was profitable. PALIC complains that Defendants' strategy resulted in PALIC receiving no profits on its investment for years at a time.
In 2005, PALIC began to take steps to sell the underperforming hotel. (SSAC ¶ 40). PALIC alleges a plethora of acts that Defendants are accused of committing in order to thwart the sale of the Hotel, which again was allegedly losing money for PALIC but proving quite profitable to Defendants.
Prior to the January 2013 sale of the Hotel, PALIC became aware of some of the very conduct by Defendants that PALIC is complaining about in this action. (SSAC ¶ 18). According to PALIC, Defendants demanded that PANACON and PALIC execute two documents, a Side-Letter Agreement (Rec. Doc. 24-4, Exhibit C) and a Voluntary Termination Agreement (Rec. Doc. 24-5, Exhibit D) — documents that PALIC describes as including "a purported release" of PALIC's claims for breaches of the Management Agreement and fraud (Id. ¶¶ 19-20) — as a condition for their agreement to the pending sale of the Hotel. These documents were executed in December 2012. PALIC contends that Defendants insisted on the releases because Defendants knew that they had been discovered in their fraudulent scheme and that PALIC was forced to agree to the releases because of economic duress in light of its eagerness to finally sell the unprofitable hotel. (Id. && 65, 75).
PALIC initiated this action, individually and as a partner in PANACON, against LAC and IHC on July 9, 2013, with a 149 paragraph complaint. Defendants initially responded with a Rule 12(b)(6) Motion to Dismiss (Rec. Doc. 24). On December 20, 2013, the Court granted in part and denied in part that motion, concluding that most of Defendants' arguments could not be resolved on the pleadings (Rec. Doc. 37). After that ruling, PALIC ostensibly had the following remaining claims in this lawsuit: breach of contract (Count I), breach of fiduciary duty (Count II), fraud (Count III), civil conspiracy (Count IV), conversion (Count V), unfair trade practices (Count VI), unjust enrichment (Count VII), and alter ego (Count VIII).
Substantial fact discovery ensued after the Court declined to dismiss the case on the pleadings alone. The record reflects that discovery has not proceeded smoothly. Counsel have appeared for motion hearings before the magistrate judge on ten separate occasions (Rec. Docs. 93, 116, 124, 144, 151, 214, 229, 271, 338, 399). Counsel have appeared in this Court's chambers on numerous separate occasions. Through significant motion practice over the last four years, Defendants have whittled away at Plaintiff's case, narrowing the remaining issues and claims to breach of fiduciary duty, fraud, conversion, and LUTPA.
Defendants LAC and IHC now move for summary judgment as to all remaining claims. Additionally, Defendants move to strike the declaration of Robert Patterson.
The motions are addressed in turn below.
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the light most favorable to the non-movant, "show that there is no genuine issue as to any material fact." TIG Ins. Co. v. Sedgwick James, 276 F.3d 754, 759 (5th Cir. 2002) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. (citing Anderson, 477 U.S. at 248). The court must draw all justifiable inferences in favor of the non-moving party. Id. (citing Anderson, 477 U.S. at 255). Once the moving party has initially shown "that there is an absence of evidence to support the non-moving party's cause," Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986), the non-movant must come forward with "specific facts" showing a genuine factual issue for trial. Id. (citing Fed. R. Civ. P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986)). Conclusional allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation do not adequately substitute for specific facts showing a genuine issue for trial. Id. (citing SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993)).
When faced with a well-supported motion for summary judgment, Rule 56 places the burden on the non-movant to designate the specific facts in the record that create genuine issues precluding summary judgment. Jones v. Sheehan, Young, & Culp, P.C., 82 F.3d 1334, 1338 (5
LAC contends that discovery has confirmed what LAC has been arguing since it first filed its Rule 12(b)(6) motion to dismiss nearly four years ago—that PALIC fully and finally released all of the claims asserted in this lawsuit when it executed the Side-Letter Agreement ("SLA") in exchange for nearly half a million dollars and LAC's cooperation in terminating the Management Agreement before its term expired. LAC contends that discovery has also demonstrated that PALIC has no viable defenses, i.e., fraudulent inducement and economic duress, to the enforceability of that compromise. Even if not compromised and released, LAC argues that PALIC's remaining claims are prescribed nonetheless or otherwise meritless.
LAC filed its motion for summary judgment in October of last year, and the motion was continued to its current submission date for various reasons. In April of this year, LAC filed a supplemental memorandum in support (Rec. Doc. 342) based on documents that PALIC fought long and hard to avoid producing.
PALIC and LAC, the two partners of PANACON, executed the SLA for the purpose of establishing their respective rights and duties regarding the upcoming sale of the Hotel. (Rec. Doc. 308-4, SLA at 1). To the extent that the SLA contains a release of claims, the operative paragraph from the SLA is paragraph 6 which reads in relevant part as follows:
(Rec. Doc. 308-4, Exhibit 1, 12/21/12 SLA) (emphasis added).
In considering LAC's arguments as to this paragraph in the context of LAC's Rule 12(b)(6) motion to dismiss, the Court stated as follows:
(Rec. Doc. 37, Court's Order and Reasons dated 12/23/13 at 6-7) (emphasis added).
In defense of LAC's motion for summary judgment, PALIC characterizes the foregoing language from the Court's opinion as a "holding" that the SLA does not contain a release. This mischaracterizes what the Court stated. The Court was explicit in observing that PALIC did compromise (and therefore release) something because after all, LAC did pay and PALIC did accept the $434,636.00 payment described in Paragraph 6.
So at the outset, the Court once again rejects PALIC's insupportable position that it released nothing in favor of LAC and its affiliates. Paragraph 6 expressly refers to "resolution of any disputes between PALIC and LAC (and its affiliates)" as part of the consideration for LAC and its affiliates to terminate the existing Management Agreement—an agreement that Defendants were contractually entitled to keep in place for at least another year yet one that PALIC considered a negative when trying to fetch the best selling price for the hotel. Paragraph 6 then specifically states the agreed-to monetary consideration ($434,636) that PALIC would receive "in resolution of outstanding disputes."
Assuming that the compromise was not confected contemporaneously with the signing of the SLA, i.e., that it was contingent upon the doing of certain things at some point in the future, it was certainly confected when LAC and its affiliates terminated the Management Agreement as agreed, and actually paid PALIC the agreed-to monetary consideration, which PALIC readily accepted and never returned. Throughout the years of this litigation PALIC has never offered a plausible, credible explanation as to why LAC would pay PALIC such a significant sum of money if it did not do so in return for a release. In its Opposition PALIC makes no attempt to reconcile the nearly half million dollars that it received in addition to realizing its ultimate goal of selling the Hotel unencumbered by the Management Agreement—a feat that it could not have accomplished without LAC's and IHC's cooperation—with its untenable position that it released nothing in exchange for the benefits that it received. It is preposterous to suggest that LAC and IHC were conferring these benefits to PALIC gratuitously.
In support of its contention that the SLA does not contain a release, PALIC posits that the specific release that LAC requested pertained to breaches of the Management Agreement, and that this particular release is included in the Voluntary Termination Agreement, to which PALIC is not a party. PALIC points out that individually it could not have released LAC for claims related to breaches of the Management Agreement because PALIC was not a party to that contract. PALIC contends that this line of argument is confirmed by the Court's ruling that only PANACON could sue for direct breaches of the Management Agreement. (Rec. Doc. 373 at 9).
To be sure, the Voluntary Termination Agreement does contain a release by PANACON because it was a party to the Management Agreement, and therefore would have been the party to release claims for direct breaches of the Management Agreement.
As for the question of which of the remaining claims in this lawsuit survive that compromise, the text of Paragraph 6 is express in that PALIC released claims related to the Management Agreement and the operation of the hotel, including without limitation the matters referenced in three specific letters that PALIC's CEO sent to LAC in 2011, (Rec. Doc. 24-6), and a spreadsheet of allegedly improper intercompany charges that PALIC sent to LAC just days before the parties executed the SLA. Every grievance contained in the letters—grievances and areas of dissatisfaction undisputedly compromised by PALIC for valuable consideration—have been resurrected in this lawsuit. Likewise, PALIC has attempted to resurrect the dispute over the intercompany charges by raising the specter of fraud—a claim that PALIC expressly agreed to waive as part of the compromise agreement.
PALIC argues that even if the SLA contained a release, that release would not foreclose all of PALIC's claims against LAC because Paragraph 6 does not release LAC from liability for breaches of its partnership obligations as a partner in PANACON. To the contrary, Paragraph 6 is broadly worded to encompass all claims related to the Management Agreement and the operation of the Hotel regardless of the legal theory relied upon. Moreover, consideration was paid to resolve the parties' "outstanding" disputes; every claim asserted in this lawsuit was "outstanding" when PALIC executed the SLA. Therefore, regardless of the legal theory being used (breach of fiduciary duty, conversion, or LUTPA), all of PALIC's claims are foreclosed by the compromise memorialized in Paragraph 6 of the SLA.
Even if the SLA were ambiguous as to the scope and breadth of the compromise, the parol evidence of record supports Defendants' position with respect to the compromise.
PALIC attempts to circumvent the negotiated compromise by accusing LAC and IHC of fraudulently inducing PALIC to execute the release, and by raising the claim that PALIC was under economic duress when it executed the SLA, and therefore had no choice but to release its claims.
Consent is vitiated when it has been obtained by duress of such a nature as to cause a reasonable fear of unjust and considerable injury to a party's person, property, or reputation. La. Civ. Code art. 1959. Age, health, disposition, and other personal circumstances of a party must be taken into account in determining reasonableness of the fear. Id. Legal duress sufficient to vitiate consent is determined by applying a subjective as well as an objective standard. Averette v. Indus. Concepts, Inc., 673 So.2d 642, 644 (La. App. 1
The Court will assume for purposes of argument that a sophisticated, multi-billion dollar business entity that conducts business with the benefit of counsel from teams of lawyers, accountants, and experts, can avoid a contractual obligation by claiming economic duress—a specious legal proposition unsupported by any legal authority whatsoever. The Court will also assume for purposes of argument that such a party can rely on the concept of duress to void only the specific portions of a contract that it later deems unfavorable to its interests. This second assumption is an important one because PALIC seeks only to avoid its reciprocal obligations under the release while retaining the full benefit of the contractual promises that Defendants fulfilled in order for PALIC to realize its goal of selling the Hotel at the best price.
But even with the benefit of these dubious legal assumptions, the doctrine of economic duress does not apply in this case to relieve PALIC of the bargain that it struck with Defendants. PALIC had been trying to sell the Hotel for years because it wanted out of the hotel business and because it considered the Hotel to be an underperforming asset. PALIC needed Defendants' cooperation in the sale because Defendants were contractually entitled to keep the Management Agreement in place for another year—a prospect that was unattractive to the interested buyer. In light of the ongoing questions and complaints that PALIC had been raising about intercompany charges and LAC's management of the hotel, Defendants understandably demanded a release of claims in exchange for their cooperation in prematurely terminating the Management Agreement. Contrary to PALIC's characterization of events, there was nothing nefarious in Defendants having conditioned their willingness to terminate their contractual rights on obtaining a release in their favor. As a matter of law the threat of exercising a contractual or legal right does not constitute duress. La. Civ. Code art. 1962.
Again, the contemporaneous email communications contained in Sealed Supplemental in-globo Exhibit A unequivocally demonstrate that PALIC understood the significance of Paragraph 6 of the SLA. Those communications demonstrate that PALIC was apprehensive at the prospect of releasing any potential claims given that the fastapproaching closing on the Hotel would preclude PALIC from fully investigating what it was being asked to release. But the communications also demonstrate that PALIC made an informed decision to forgo any further investigation or negotiation with respect to the release in order to expeditiously move forward with the sale of the Hotel. To do so PALIC made a deliberate decision to release all outstanding claims, while knowingly risking that some of those claims might be more substantial that what PALIC understood them to be at the time.
PALIC's attempt to characterize itself as a powerless victim in its dealings with Defendants is ludicrous. Notwithstanding PALIC's protestations to the contrary, PALIC had the option of continuing to negotiate the release with Defendants and continuing to investigate what it believed to be improper intercompany charges. Of course by doing so such action might have delayed the sale of the Hotel and cost PANACON its buyer. PALIC could have held on to its interest in the underperforming Hotel without suffering financial ruin or severe harm.
PALIC's argument that it should be relieved of the release because LAC fraudulently induced PALIC to release its claims by falsely misrepresenting the amount of the intercompany overcharges is equally without merit.
Simply. four years of litigation and the completion of exhaustive discovery has made clear that the SLA constitutes a compromise between the partners that extinguished all "outstanding disputes" between them, except as specifically carved out therein for fraud unrelated to the disputed charges.
In that vein, PALIC argues that even if the SLA contained a release, that release would not foreclose claims based on LAC's intentional acts of fraud unrelated to the improper charges. (Rec. Doc. 373 at 9). Therefore, according to PALIC, even if there was a release, PALIC would still be able to assert its claims for breach of fiduciary duty, breach of its duty to contribute, conversion, and fraud. (Id. at 10).
Assuming that PALIC has any claims that escape the broad reach of the SLA's release, those claims are prescribed. PALIC has used this litigation to seek vindication over numerous points of disagreement between PALIC and LAC during the course of the parties' years-long relationship. But the facts giving rise to every grievance that PALIC has raised, whether related to competing hotels, the reluctance to renovate, the duty to contribute capital, or the demand for an extended management agreement were known to PALIC more than a year before this action was filed.
In sum, LAC is entitled to judgment as a matter of law on all of PALIC's remaining claims. The motion for summary judgment filed by LAC is GRANTED as to PALIC's remaining claims for breach of fiduciary duty, fraud, conversion, and LUTPA.
IHC moves for summary judgment on all remaining claims. Because the underlying claims against LAC are being dismissed on summary judgment, PALIC's contention that IHC was the alter ego of LAC or that IHC was a coconspirator to LAC's fraudulent conduct is moot. IHC is not derivatively liable for any claims asserted against LAC.
Furthermore, PALIC has failed to establish that it has any basis to assert direct claims against IHC. IHC was LAC's parent entity. IHC owed PALIC no contractual duties. IHC was not a partner in PANACON. IHC owed PALIC no legal duties upon which to premise a tort claim. Moreover, as an affiliate of LAC, IHC benefits from the release contained in Paragraph 6 of the SLA. IHC is entitled to judgment as a matter of law on all of PALIC's remaining claims. The motion for summary judgment filed by IHC is GRANTED.
Defendants' Motion to Strike the Declaration of Robert Patterson is DENIED AS MOOT.
PALIC's Motion for Summary Judgment Against Inter-Continental Hotels Corp. and Motion for Summary Judgment Against Louisiana Acquisitions Corp. are DENIED.
Accordingly, and for the foregoing reasons;
Moreover, this Court is now persuaded that no claim asserted in the case is actionable under LUTPA. Therefore, under any applicable prescriptive period, the LUTPA claims lack merit.
