Two hotel owners became reasonably upset after spending millions building out a downtown Houston Holiday Inn only to lose their franchise license agreement, so they sued the national chain in a Houston federal court.
But Dallas lawyer Deborah Coldwell recently made quick work the breach of contract and fraud claims lodged against Holiday Hospitality Franchising—the company that licenses Holiday Inn hotels —by not only convincing a U.S. district judge to dismiss those claims but also to block the plaintiffs from repleading them again.
Jay Z. Dalwadi and Jay Shree Kapi Hospitality alleged in their lawsuit that before they signed an initial license agreement with Holiday Inn in 2000, they were assured by the hotel chain that franchisee agreements get renewed “almost automatically” as long as the franchisee is in compliance with the agreement. But then in 2013, Holiday Inn notified the franchisees that the company had received applications to build a new hotel in downtown Houston and did not renew Dalwadi and Kapi’s license. The plaintiffs kept operating their own hotel “without a flag,” causing its value to diminish by more than a million dollars, according to the complaint they filed against the hotel chain in 2016.
“They had a 10-year agreement and they wanted to extend it,” said Coldwell, a partner in Dallas’ Haynes & Boone who represents Holiday Inn, said of the plaintiff’s claims. “Our client didn’t have the duty to renew and so they sued us.”
While the plaintiffs alleged Holiday Inn breached the implied covenant of fair dealing by not renewing their hotel’s license, the hotel chain pointed to the language in the license agreement that provides “this license is not renewable.”
That was enough for Senior U.S. District Judge Ewing Werlein of Houston to toss the breach of contract claim against Holiday Inn.
“In sum, this provision establishes that plaintiffs’ license was non-exclusive and that it did not constrain defendant from licensing other hotels at other locations of its choosing,” Werlein wrote in a July 5 order.
Werlein also dismissed the fraud allegations, finding the plaintiffs’ claims that they relied on false promises from the defendant were “hopelessly convoluted and conclusory allegations.”
“In sum, plaintiffs have not identified the who, what, when, where and how of defendant’s alleged misrepresentations that allegedly form the basis of fraud,” Werlein wrote.
While the plaintiffs amended their pleadings two times—each time making significant changes to their fraud claim—Werlein declined to give them a third chance and dismissed the case with prejudice.
Coldwell was pleased with Werlein’s decision, especially his call to dismiss the case with prejudice.
“The only thing they have to do now is appeal [to the U.S. Court of Appeals for the Fifth Circuit] if they want to,” Coldwell said of the plaintiffs’ case.
Coldwell believes the plain language of the contract and the plaintiffs’ decision to replead the fraud allegations twice helped convince Werlein to resolutely reject the claims.
“He’s one who will enforce a contract,” Coldwell said. “He just looked at the contract and said everything in the contract says ‘We don’t have to renew you.’ “
Danny Crabtree, a Little Rock solo practitioner who represented the plaintiffs, said that although Coldwell scored a defense win on all counts, “there is some chance we’ll appeal the case.”
Crabtree said he believes Werlein’s decision was “frankly a little too simplistic and didn’t address the fraud allegations.”