Court Opinion

ID: 202328
Source: CourtListenerOpinion
Date Created: 2011-02-07 05:50:13+00
Date Added: 2024-06-11T17:27:26.260668
License: Public Domain

Not for Publication in West's Federal Reporter
                 Citation Limited Pursuant to 1st Cir. Loc. R. 32.3

          United States Court of Appeals
                          For the First Circuit

No. 05-1944

                    HOTEL ASSOCIATES, INCORPORATED,

                           Plaintiff, Appellant,

                                        v.

               HOWARD JOHNSON FRANCHISE SYSTEMS, INC.,

                           Defendant, Appellee.

         ON APPEAL FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF PUERTO RICO

       [Hon. Carmen Consuelo Cerezo, U.S. District Judge]

                                     Before

              Selya, Lipez, and Howard, Circuit Judges.

     Wallace Vázquez Sanabria for appellant.
     Arthur L. Pressman, with whom Gordon M. Jones, III and Nixon
Peabody LLP were on brief, for appellee.

                                August 1, 2006
          Per Curiam.   This breach of contract case arose from a

dispute   between    Hotel   Associates,     Incorporated    ("Hotel

Associates"), which had entered into a license agreement (the

"Agreement") to open and operate a Howard Johnson hotel at a

property known as the Carib Inn, and Howard Johnson Franchise

Systems, Inc. ("Howard Johnson"), the licensor. The district court

decided the case in Howard Johnson's favor on cross-motions for

summary judgment, and denied Hotel Associates' motion to alter or

amend judgment.   This appeal followed.    For the reasons discussed

below, we affirm.

                                I.

          This court reviews the district court's grant or denial

of summary judgment de novo, applying the same criteria as the

district court, Acosta v. Ames Dep't Stores, Inc., 386 F.3d 5, 8

(1st Cir. 2004), namely, whether "the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law."         Fed. R. Civ. P. 56(c).     "In

conducting this review . . . [w]e are not wed to the lower court's

rationale but, rather, may affirm the entry of summary judgment on

any ground made manifest by the record."     Okmyansky v. Herbalife

Intern. of America, Inc., 415 F.3d 154, 158 (1st Cir. 2005).

                                -2-
                                          II.

                 On appeal, Hotel Associates raises the following three

issues:      (1) was there a "change of ownership" of the Carib Inn,

within the meaning of the Agreement, where the same individual,

Benito R. Fernández ("Fernández"), was the sole shareholder of both

the corporation that sold the property and the corporation that

bought it?; (2) if so, did Hotel Associates' failure to notify

Howard Johnson of this change of ownership result in automatic

termination of the Agreement?; and (3) if the Agreement was not

automatically terminated, did Howard Johnson breach the Agreement

by licensing another entity to operate a Howard Johnson hotel in

the same geographic area?

                 We discuss each of these issues in turn, "look[ing]

solely      to    the   language   used   by    the   parties    to   discern   the

contract's meaning." Vt. Teddy Bear Co. v. 538 Madison Realty Co.,

807 N.E.2d 876, 879 (N.Y. 2004).1

A.               Change of Ownership

                 The Agreement requires the licensee to "notify Howard

Johnson in writing at least 30 days in advance of the occurrence of

any change of ownership of the Facility."              Hotel Associates argues

that there was no change of ownership because Fernández was the

sole       shareholder     of   both   Horizons       Hotel     Corporation,    the

       1
      By its terms, the Agreement is to be construed in accordance
with New York law. Agreement, § 31.

                                          -3-
corporation that previously owned the property, and R.R. Isla Verde

Hotel Corp. ("Isla Verde"), the corporation that purchased the

Carib Inn at a foreclosure sale.             This argument is unavailing.

"[A] corporation is a separate and distinct legal entity apart from

its stockholders."       Hotel Esplanade, Inc. v. Herman, 197 N.Y.S.2d

579, 582 (N.Y. Sup. Ct. 1960) (rejecting the converse argument that

ownership of a hotel changed where the identity of the stockholders

changed,   despite       continuity     of   the    corporate     ownership).

Therefore, Isla Verde's purchase of the Carib Inn at a foreclosure

sale   constituted   a    change   of   ownership,    notwithstanding          the

identity of the shareholder.

B.         No Automatic Termination of Agreement

           Because there was a change of ownership, section 20(a) of

the Agreement required Hotel Associates to notify Howard Johnson of

that change, which Hotel Associates undisputedly did not do.                  This

failure to give such notice, however, did not effect an automatic

termination of the Agreement.         The Agreement provides that it may

be terminated without notice in two sets of circumstances.                In one

set of circumstances – including failure to give notice of a change

of ownership under section 20(a) – "Howard Johnson may, in its sole

discretion,   immediately      terminate     this   Agreement     .   .   .    ."

Agreement, § 21(c) (emphasis added).           By contrast, in other more

serious circumstances not relevant here, the "Agreement shall

automatically and immediately terminate . . . ."                Id. (emphasis

                                      -4-
added).   The use of the word "automatically" in the latter set of

circumstances but not the former indicates that only the latter set

of circumstances results in automatic termination.         See Nat'l Tax

Inst., Inc. v. Topnotch at Stowe Resort & Spa, 388 F.3d 15, 18 (1st

Cir. 2004) (stating that language discrepancies between different

contract provisions "may cast light on meaning").         That reading is

also supported by the use of the words "may, in its discretion

. . . terminate" in the first instance but "shall . . . terminate"

in the second.

          Based    on   those   language   differences,    we   read   the

Agreement to mean that where, as here, a licensee fails to give

notice of a change of ownership, Howard Johnson may exercise its

discretion to terminate the contract, but the contract does not

terminate ex proprio vigore ("by its own force," Black's Law

Dictionary (8th ed. 2004)). Cf. Automatic Ticket Sys., Ltd. v. New

York, 512 N.Y.S.2d 283, 284 (N.Y. App. Div. 1987) (holding that

license agreement terminated automatically upon transfer of control

of   licensee     without   licensor's     approval   where     agreement

"unambiguously" stated that the agreement "shall automatically

terminate" in that event). Because Howard Johnson did not exercise

its discretion to terminate the Agreement, the Agreement remained

in effect despite the change of ownership.       Cf. Eckel v. Francis,

774 N.Y.S.2d 552, 554 (N.Y. App. Div. 2004) (holding that contract

was terminated when party exercised its discretionary right to do

                                   -5-
so under the contract), leave to appeal denied, 820 N.E.2d 291

(N.Y. 2004).2

C.        No Breach of Territorial Protection Provision

          Having    established    that    the   Agreement   did   not

automatically terminate upon the change of ownership of the Carib

Inn, we must decide whether Howard Johnson breached the Agreement

by licensing another entity to operate a Howard Johnson hotel in

the same geographic area as Hotel Associates.           The Agreement

provides that "in the area delineated on Schedule C attached

hereto, Howard Johnson shall not License other Howard Johnson

lodging facilities upon the terms and conditions set forth on

Schedule C."    Agreement, § 30(b).     Schedule C, in turn, provides

that "Howard Johnson shall not license, during the term of this

License Agreement, any Howard Johnson guest lodging facilities . .

. within the [protected] territory."      Id. at Schedule C (emphasis

added).   And, "the term of this Agreement (the 'License Agreement

Term')" is expressly defined as "commenc[ing] upon the integration

of the Facility into the Howard Johnson Reservation System," also

known as the "Effective Date."    Id. at § 4.    Because the Carib Inn

property was never integrated into the Howard Johnson Reservation

     2
      The district court concluded that the failure to give notice
effected an automatic termination of the Agreement, and granted
summary judgment to Howard Johnson on that basis.      Because we
affirm the district court's decision on another independently
sufficient ground, the lack of automatic termination does not
affect the outcome of this appeal.

                                  -6-
System, under the unambiguous language of the Agreement, the

territorial protection provision, which Howard Johnson allegedly

breached by licensing another company to operate a hotel in the

protected area, was not in effect at the time of the alleged

breach.3     Therefore, Howard Johnson did not breach the Agreement

and is entitled to summary judgment in its favor.4

                                    III.

             The district court's grant of summary judgment to Howard

Johnson, denial of summary judgment to Hotel Associates, and denial

of   Hotel   Associates'   motion   to     alter   or   amend   judgment   are

affirmed.     Costs are taxed against Hotel Associates.

      3
       Hotel Associates cites deposition testimony of various
Howard Johnson officials stating that the territorial protection
provision of the Agreement went into effect at the time the
Agreement was signed in 1993. However, that extrinsic evidence is
immaterial, given the clear and unambiguous contractual language to
the contrary. S. Rd. Assocs. v. IBM Corp., 826 N.E.2d 806, 809
(N.Y. 2005).
      4
       Howard Johnson made this argument before the district court
– i.e., that since Hotel Associates failed to integrate the Carib
Inn property into the Howard Johnson Reservation System, the
territorial protection provision never went into effect and, thus,
there was no breach.      The district court never reached this
argument because it concluded that Hotel Associate's failure to
notify Howard Johnson of the change of ownership effected an
automatic termination of the Agreement.

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