Best Western International Incorporated v. Twin City Lodging LLC

District Court, D. Arizona·Decided July 30, 2019·No. 2:18-cv-03374·Unknown

Opinion

1 2 3 4 5 8

Best W estern International ) No. CV-18-03374-PHX-SPL ) 9 Incorporated, ) 10 ) ORDER Plaintiff, ) ) 11 vs. ) ) 12 Twin City Lodging LLC, et al., ) 13 ) ) 14 Defendants. )

15 Before the Court is Plaintiff Best Western International Incorporated’s (the 16 “Plaintiff”) Motion to Dismiss Defendant/Counter-Claimant’s First Amended 17 Counterclaim (Doc. 22) (the “Motion”). The Motion was fully briefed on February 11, 18 2019. (Docs. 28, 30) The Court’s ruling is as follows. 19 I. Background 20 On September 16, 2016, Defendant Twin City Lodging, LCC (the “Defendant”) 21 purchased a Best Western Hotel in Mankato, Minnesota. (Doc. 16 at 11) On September 22 29, 2016, the Defendant entered into a contract (the “Membership Agreement,” Doc. 1-2 23 at 13−22) with the Plaintiff, giving the Defendant a license to operate the hotel under 24 Plaintiff’s Best Western brand. (Doc. 16 at 10; Doc. 1-2 at 13−14, 20) The Membership 25 Agreement required both parties to act in accordance with Best Western’s Bylaws & 26 Articles (Doc. 1-2 at 24−51), Rules & Regulations (Doc. 1-2 at 53−91), and any other 27 regulatory documents (collectively, the “Regulatory Documents”). (Doc. 16 at 2; Doc. 1-2 28 1 at 13) 2 The Defendant alleges a long history of the Plaintiff performing quality inspections 3 of the Defendant’s hotel in order to assert violations of the Membership Agreement and 4 the Regulatory Documents. (Doc. 16 at 12, 14–19) On one occasion, the Defendant alleges 5 that Michelle Orion, the Best Western District Manager who oversaw the Defendant, called 6 and emailed the Defendant in March 2017 to inform the Defendant that the Plaintiff was 7 terminating the Membership Agreement. (Doc. 16 at 15) The Defendant alleges that Orion 8 offered false reasons for the termination, changed the reasons for the termination, and did 9 not offer a hearing to allow the Defendant to contest the termination, pursuant to the terms 10 of the Membership Agreement. (Doc. 16 at 15−18) However, the Plaintiff did not cancel 11 the Membership Agreement after these incidents. (Doc. 16 at 18) 12 In October 2017, the Plaintiff sent the Defendant a letter indicating that there was 13 an issue related to customer complaints and the Defendant’s “Customer Complaint Ratio” 14 as defined by the “Customer Care Policy”. (Doc. 16 at 19, 20; Doc. 1-2 at 99–100) 15 Pursuant to the Membership Agreement and the Regulatory Documents, the minimum 16 allowable Customer Complaint Ratio is .17. (Doc. 16 at 4) On February 9, 2018, the 17 Plaintiff sent the Defendant a letter stating that its customer complaint ratio for the previous 18 90 days was .44138, and, accordingly, that the Defendant’s hotel was being placed in 19 probationary status. (Doc. 1-3 at 2; Doc. 16 at 20) The letter also advised that if Defendant 20 did not come into compliance with the provision within 90 days, the Defendant’s hotel 21 would be placed in member-with-conditions review status, and the Membership 22 Agreement could be subject to cancellation. (Doc. 1-3 at 3; Doc. 16 at 20) 23 On June 14, 2018, the Plaintiff sent the Defendant another letter, notifying the 24 Defendant that the Plaintiff was considering cancelling its membership due to its non- 25 compliance with the Customer Complaint Ratio provision of the Regulatory Documents. 26 (Doc. 16 at 19; Doc. 1-3 at 13) The letter stated that the Defendant could request a hearing 27 to contest its probationary status, and the Defendant attended a hearing in front of Best 28 Western’s Board of Directors on July 25, 2018, to argue that its Customer Complaint Ratio 1 was being misrepresented. (Doc. 1-3 at 13−14; Doc. 16 at 20−22) The Plaintiff notified 2 the Defendant that the Membership Agreement was terminated on August 7, 2018. (Doc. 3 16 at 22) 4 On October 19, 2018, the Plaintiff filed its complaint against the Defendant, alleging 5 causes of action for breach of contract, trademark infringement, false designation of origin, 6 and unfair competition. (Doc. 1) On December 18, 2018, the Defendant filed its first 7 amended answer and counterclaims for violations of the Minnesota Franchise Act 8 (“MFA”), breach of the covenant of good faith and fair dealing, and breach of contract. 9 (Doc. 16) On January 16, 2019, the Plaintiff filed the Motion seeking to dismiss the 10 Defendant’s counterclaims. (Doc. 22) 11 II. Legal Standard 12 To survive a motion to dismiss, a complaint must contain “a short and plain 13 statement of the claim showing that the pleader is entitled to relief” such that the defendant 14 is given “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. 15 Corp. v. Twombly, 550 U.S. 554, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2); Conley v. 16 Gibson, 355 U.S. 41, 47 (1957)). The Court may dismiss a complaint for failure to state a 17 claim under Federal Rule 12(b)(6) for two reasons: (1) lack of a cognizable legal theory, 18 and (2) insufficient facts alleged under a cognizable legal theory. Balistreri v. Pacificia 19 Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). 20 In deciding a motion to dismiss, the Court must “accept as true all well-pleaded 21 allegations of material fact, and construe them in the light most favorable to the non- 22 moving party.” Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). In 23 comparison, “allegations that are merely conclusory, unwarranted deductions of fact, or 24 unreasonable inferences” are not entitled to the assumption of truth, and “are insufficient 25 to defeat a motion to dismiss for failure to state a claim.” Id.; In re Cutera Sec. Litig., 610 26 F.3d 1103, 1108 (9th Cir. 2010). A plaintiff need not prove the case on the pleadings to 27 survive a motion to dismiss. OSU Student All. v. Ray, 699 F.3d 1053, 1078 (9th Cir. 2012). 28 1 A court ordinarily may not consider evidence outside the pleadings in ruling on a 2 Rule 12(b)(6) motion to dismiss. Zemelka v. Trans Union LLC, 2019 WL 2327813, at 1 3 (D. Ariz. May 31, 2019) (citing United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003)). 4 “A court may, however, consider materials—documents attached to the complaint, 5 documents incorporated by reference in the complaint, or matters of judicial notice— 6 without converting the motion to dismiss into a motion for summary judgment.” Id. A 7 court should also consider documents referenced in the complaint. No. 84 Employer- 8 Teamster Joint Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 fn. 9 2 (9th Cir. 2003). Allegations in the complaint that contradict referenced documents need 10 not be accepted as true. Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). 11 Additionally, “[e]ven if a document is not attached to a complaint, it may be incorporated 12 by reference into a complaint if the plaintiff refers extensively to the document or the 13 document forms the basis of the plaintiff’s claim.” Lovelace v. Equifax Info. Servs. LLC, 14 2019 WL 2410800, at 1 (D. Ariz. June 7, 2019) (citing Ritchie, 342 F.3d at 908).

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