Opinion ID: 536607
Heading Depth: 2
Heading Rank: 1

Heading: The Wynfield Inns Concept

Text: 2 Wynfield Inns hotels are limited service, rooms only hotels that offer no expensive frills or unneeded amenities such as food and beverage services. Associated Inns & Restaurants Company of America, (AIRCOA), a Colorado corporation which operates about 150 hotels nationwide, developed the Wynfield Inns concept in 1983. 3 In order to franchise the Wynfield Inns concept, AIRCOA created a wholly-owned subsidiary, AIRCOA Equity, Inc., which joined with Fairfield Inns (Fairfield), a Florida corporation, to form the plaintiff Wynfield Inns, a Florida general partnership. AIRCOA Equity and Fairfield entered their general partnership agreement on July 26, 1983. Each corporate partner held a 50% interest and made a $50,000 capital contribution to the partnership. The partnership's stated purpose was to develop, finance, sell, lease, franchise and manage the limited service hotels. David Theophilus, an executive vice president of AIRCOA, was appointed to manage the Wynfield partnership. Kurt Thelan, an AIRCOA employee, became Wynfield's director of operations. 4 Fairfield's principal shareholders were John F. Lowndes, an Orlando, Florida attorney, and James E. Russell, an Orlando real estate developer. Russell has extensive expertise in hotel development.B. The Franchise Contract 5 Wynfield entered the disputed franchise contract with defendant LeRoux Group, a Massachusetts corporation. Edward Buddy LeRoux, LeRoux Group's chairman, held a 95% ownership stake in the corporation. LeRoux Group's extensive operations include a real estate development division. The real estate development division forms real estate partnerships to build and operate various office complexes, condominiums and apartments. Orchestrated Management, which LeRoux Group purchased in 1984, was responsible for managing the real estate division's assets and Raymond J. Dunn, III, was Orchestrated Management's president and chief executive officer. 6 In the summer of 1984, Michael J. Bradley, the president of LeRoux Group's real estate development division, expressed interest in the Wynfield Inns project. In his previous position with Aetna Life Insurance Company, Bradley had become acquainted with Mr. Russell and Mr. Lowndes in connection with a $20,000,000 loan by Aetna to Fairfield. Bradley knew of Mr. Russell's extensive experience in hotel development and the two men shared a mutual respect. Theophilus, Wynfield's manager, sent Bradley materials explaining and promoting the Wynfield Inns concept. After reviewing the materials sent to him by Theophilus, Bradley conferred with Buddy LeRoux. Later, Russell met with Mr. LeRoux, Bradley and Dunn in Boston to discuss the possibility of the LeRoux Group joining the project. Mr. LeRoux, Bradley, Dunn, and Mr. LeRoux's attorney later met with Russell, Lowndes and Theophilus in Orlando for further discussions. Soon thereafter Bradley was sent drafts of a Territorial Rights Agreement. 7 In the Territorial Rights Agreement the Wynfield partnership granted LeRoux Group the exclusive right to build, own and operate Wynfield Inns hotels in two geographic areas, which included the New England states, New Jersey and Westchester County, New York. LeRoux Group was to build five hotels in each of the two areas over the next few years. The Agreement contained a non-assignability provision which stated: 8 Neither party shall have the right to assign this agreement without the prior written consent of the other, which consent may be arbitrarily withheld. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, legal representatives and permitted successors and assigns. 9 Territorial Rights Agreement, Art. X. Mr. LeRoux signed the Agreement on behalf of LeRoux Group on December 31, 1984. Bradley returned the signed Agreement to Lowndes, informing him that LeRoux Group had not executed the license and management agreements because it had some reservations about the terms of those agreements. In that correspondence, Bradley disclosed some, but not all, of his reservations about the terms. Bradley and Theophilus engaged in ongoing negotiations regarding these agreements for about eight or nine months, but the license and management agreements were never executed. 10 After the Territorial Rights Agreement was signed, Bradley located possible hotel sights in Portland, Maine and New Jersey. On April 8, 1985, he entered into contracts for the design and supervision of the construction of the hotels with Alan Berman, an Orlando architect. C. Fairfield Checks Out 11 The Wynfield partnership agreement between Fairfield and AIRCOA Equity permitted the transfer of an interest in the partnership with the prior written consent of controlling partners. 1 The partnership agreement specified that only certain events constituted a dissolution of the partnership. Partnership Agreement, Arts. I, XIV. Transfer of a partnership interest was not an event which would result in the partnership's dissolution. 12 On June 1, 1985, Fairfield assigned its entire partnership interest in Wynfield to Wynfield Inns, Inc., a newly created, wholly-owned AIRCOA subsidiary. Assignment Agreement, Defendant's Exh. 8. AIRCOA, therefore, became the sole owner of the Wynfield general partnership through its ownership and control of both AIRCOA Equity and Wynfield Inns, Inc. 13 On August 8-9, 1985, Bradley went to Orlando to meet with Berman and Theophilus to discuss the Wynfield venture. Upon Bradley's arrival, Theophilus directed him to Lowndes's office where Lowndes explained that Fairfield had transferred its interest in the Wynfield partnership and that he and Russell were thus no longer involved in the Wynfield deal. Bradley explained that this turn of events would pose a major problem because Mr. LeRoux and Mr. Dunn would be very upset by the fact that Russell would no longer be involved and that they had not been notified of this transfer of partnership interest when it occurred several weeks earlier. 14 D. LeRoux Group Checks Out--Wynfield Left Holding the Bag 15 Mr. Bradley subsequently explained the situation to Mr. LeRoux and Mr. Dunn. Both men expressed extreme displeasure at this news and Dunn instructed Bradley to confirm it with Russell. Bradley arranged for the Chairman of AIRCOA, Willis McFarlane, to attend a Boston Red Sox game in Mr. LeRoux's private viewing room at Fenway Park. During the game Mr. LeRoux spoke with Mr. McFarlane only briefly, and afterward Mr. LeRoux persisted in his decision to terminate the relationship with the Wynfield partnership. Soon thereafter, Mr. LeRoux ordered Dunn and Bradley to investigate other alternatives to the Wynfield franchise, including other management companies. Bradley complied by contacting Hampton Inns, a subsidiary of Holiday Inns, Inc., and Boykin Management Company, a Wynfield competitor, in early September and October to discuss the possibility of entering into a management contract for LeRoux Group's two hotels. However, he also continued to conduct business with the Wynfield partnership. He met with Theophilus and McFarlane to inspect the Maine hotel site on August 21, 1985, the day after McFarlane's brief meeting with Mr. LeRoux at the Red Sox game, and continued to negotiate the terms of the management and license agreements. Thelan, Wynfield's operations director, continued to send LeRoux Group a number of memoranda containing valuable how to information for operating a Wynfield Inn. 2 16 On about September 16, 1985, however, Bradley telephoned Theophilus and told him that LeRoux Group was out of the deal and that it was going to operate the two hotels independent of Wynfield under different names and management. LeRoux Group ultimately opened the two hotels (one each in Maine and New Jersey) and operated them under different names and through different limited partnerships (Philbrook Hotel Associates and Whittier ACY Associates). E. Wynfield Calls Upon the District Court 17 Wynfield Inns filed an amended multi-count complaint against Mr. LeRoux, Bradley, LeRoux Group, Orchestrated Management, Whittier ACY Associates, and Philbrook Hotel Associates. Count I alleged that LeRoux Group breached the franchise contract by opening non-Wynfield hotels within the restricted territorial areas. Count II alleged that the defendants received benefits such as assistance in locating, building, and operating the hotels, under an implied contract for which quantum meruit damages were recoverable. The final six counts were various fraud, trade secret, and RICO claims asserting that the various defendants intentionally defrauded Wynfield Inns because they never had any intention of honoring the franchise contract but instead were only interested in receiving the know-how of the hotel business. 18 LeRoux Group filed a counter-claim alleging that the Wynfield partnership breached the franchise contract. In a ruling from the bench at the close of evidence on January 28, 1988, the district court directed a verdict for the defendants on plaintiff's first count, the contract claim, as well as counts three through eight. On the contract claim, the court ruled that Fairfield's transfer of its partnership interest in the Wynfield partnership constituted a prohibited assignment barring Wynfield's recovery under a contract theory. On the defendant's counterclaim for breach of contract, the court directed the jury to find that Fairfield's assignment of its partnership interest in Wynfield Inns amounted to a breach of the Territorial Rights Agreement by the Wynfield partnership. The court also directed a verdict for the defendants on the trade secret count, finding an absence of proof that the defendants misappropriated any protectible trade secrets. Under the fraud count, the court held that Wynfield failed to provide any evidence that the defendants intended to defraud Wynfield at the time they entered the Territorial Rights Agreement in December 1984; further, the court held that the defendants did not fraudulently induce or perform the Agreement. Wynfield voluntarily dismissed the state law deceptive trade practices count. Finally, the court dismissed the two RICO counts, implicitly finding that the defendants had not violated the mail fraud statute. 3 The jury returned a $323,667 verdict for Wynfield 4 under count two (quantum meruit) and nothing for LeRoux Group on its contract counter-claim. In the present case, Wynfield appeals the directed verdicts on its contract, fraud and RICO claims. LeRoux Group did not appeal the jury's finding that it suffered no damages as a result of Wynfield's breach of the Territorial Rights Agreement. 19 Subsequent to filing the appeal, Wynfield registered and accepted payment of the quantum meruit judgment in the District Court for the District of Massachusetts pursuant to 28 U.S.C. Sec. 1963. In its June 24, 1988 motion to register the Florida judgment with the Massachusetts district court, Wynfield specifically stated that it had filed a notice of appeal from the Florida district court's order directing verdicts on the other counts and included a copy of the notice of appeal. The Massachusetts district court granted the motion on July 11, 1988 because it found the Florida district court judgment to be final. On September 8, 1988, LeRoux Group fully paid the quantum meruit judgment. First Execution, United States District Court for the District of Massachusetts, filed September 16, 1988.