Florida: Miami Federal District Court denies preliminary injunction to be reinstated as hotel operator

Excerpt from the court’s opinion:One of the Plaintiffs, FHR TB, LLC (“Fairmont”), manages hotels as the agent for the owners of the hotels. The other Plaintiff, Fairmont Hotels & Resorts (U.S.) Inc. (“FHRUSI”), owns Fairmont. Both Plaintiffs seek a preliminary injunction reinstating Fairmont as the manager of Defendant’s hotel in Aventura, Florida. Defendant, TB Isle Resort, LP (“Turnberry”) built and operated the hotel in the 1970s , later repurchasing it and contracting with Fairmont to manage it on a long-term basis, under a hotel management agreement (“HMA”).Until August 28, 2011, Fairmont operated and managed the Fairmont Turnberry Isle Resort and Club in Aventura, Florida, pursuant to the HMA. Defendant Turnberry owns the hotel. Jeffrey Soffer and Jacquelyn Soffer are, for all practical purposes, the principals of the Defendant. Under the HMA’s termination provisions, the Owner cannot contractually terminate the HMA without providing at least 30 days advance written notice which specifies the material defaults and provides an opportunity to cure. The Owner may then terminate the HMA if Fairmont fails to cure the material defaults specified in the written notice. The operating term of the HMA (entered into in 2006) is 25 years, with extensions for five additional consecutive 5-year terms if Fairmont is not in material default. Thus, Fairmont had, for all practical purposes, a 50-year HMA interest in operating and managing the luxury resort, consisting of a 392-room hotel, two golf courses, a spa and fitness center, a tennis facility, three swimming pools, several restaurants and other amenities.On the early morning of Sunday, August 28, 2011, Defendant Turnberry effectively evicted (i.e., ousted) Fairmont from the resort. Without advance notice of material defaults or an opportunity to cure the purported defaults, Turnberry engaged in what can fairly be described as a bold, surprise takeover. It demanded that senior hotel management appear at the hotel on short notice on a Sunday morning, informed them once they arrived that Turnberry was “debranding” the hotel and resort, and directed them to immediately leave the hotel property under the escort of an outside security team.Shortly after Turnberry removed Fairmont’s senior on-site management, Fairmont received a letter from Turnberry, stating that Turnberry was unilaterally and immediately terminating the HMA. Turnberry further purported to notify Fairmont that it changed the branding of the hotel, from napkins to marquees, retained employees “loyal” to Turnberry, switched to a different room reservation system and website, and removed all references to the Fairmont name. Finally, the letter purported to bar Fairmont personnel from entering the Resort without prior permission.Turnberry did not provided prior notice of a material default, did not advise Fairmont that Turnberry was considering termination of the HMA if material defaults were not cured and did not provide any specific grounds for termination other than a vague and conclusory reference, in the post-ouster letter, that Fairmont is “incapable of running the property to the standards we have expected, and in an efficient, profitable manner.” The letter also advised Fairmont that Turnberry was relying on New York law (which, under the HMA, is the governing law) and that under New York law a hotel owner always has the unrestricted power to revoke the operator’s control.Having been ousted from the resort in an orchestrated plot to take over the hotel without compliance with the notice, cure and termination provisions of the HMA, Fairmont portrays Turnberry and the Soffers as hardball business partners who acted outrageously and in bad faith by intentionally scheming to engineer an unprecedented tactic in blatant violation of a comprehensive HMA which took months to negotiate.Given this scenario, Fairmont presents a compelling and sympathetic narrative about a wronged company which has been victimized by the resort owner and its principals. But the Court’s current task is not to determine whether Fairmont would prevail at an arbitration hearing and obtain a significant damages award. Instead, the Court’s limited, current agenda is to determine whether to recommend the entry of a preliminary injunction which would oust Turnberry from its own property and reinstate Fairmont as the resort manager pending resolution of the arbitration.Despite the business practices pursued by Turnberry and the Soffers, the Court is compelled to recommend denial of Fairmont’s request for a preliminary injunction, becauseit is far from clear that Fairmont is likely to prevail on the merits as Fairmont concedes that the general rule under New York law is that a principal always has the power to revoke an agency, subject to a damages claim;Fairmont might be deemed to be seeking a mandatory injunction, which creates an even greater hurdle for the party seeking the extraordinary remedy of injunctive relief; The answer is far from clear and the Court believes that a logical conclusion (on whether the requested injunction is mandatory or prohibitory) could be reached either way;Fairmont has not adequately demonstrated the requisite irreparable injury necessary for obtaining a preliminary injunction;Fairmont’s request for a preliminary injunction runs afoul of the legal principle (applicable in Florida, as well as in New York) that personal service contracts (which include agreements to provide business management services) are not enforceable by specific performance or injunction.FHR TB, LLC, et. al. v. TB ISLE RESORT, LP. (Fairmont v. Turnberry)Full court decision and opinion available here>>.

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