Court Opinion

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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Precedential or Non-Precedential: Non-Precedential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

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Recommended Citation
"Travelodge Hotels v. Honeysuckle Entr" (2007). 2007 Decisions. Paper 599.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/599

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                                                                NOT PRECEDENTIAL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