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P & J G ENTERPRISES v. BEST WESTERN INTL.

March 8, 1994

P AND J G ENTERPRISES, INC., PUSHPA GARG and JAGADISH GARG, Plaintiffs,
v.
BEST WESTERN INTERNATIONAL, INC., Defendant.



The opinion of the court was delivered by: DAVID N. HURD

 United States Magistrate Judge

 MEMORANDUM-DECISION and ORDER

 I. INTRODUCTION.

 The defendant, Best Western International, Inc. ("Best Western"), has moved for an order transferring this action to the United States District Court for the District of Arizona. The plaintiffs oppose the motion. Oral argument was heard on February 10, 1994.

 II. FACTS.

 Plaintiff, P and J G Enterprises, Inc., is a closely held corporation which owned and operated a hotel known as The Albany Thruway House ("Thruway House") on Western Avenue in Albany, New York, since 1983. The sole shareholders of this corporation are the plaintiffs Jagadish Garg ("Garg") and his wife, Pushpa Garg. At the present time, the creditors of P and J G Enterprises, Inc. are operating the Thruway House. Plaintiffs claim to have invested approximately Five Million Dollars in the business.

 Best Western is an Arizona Not for Profit corporation which franchises out its name and other services to independently owned hotels, motels, and resorts. It does not own, operate, or lease any properties, but provides its members with the support needed to compete with larger chain hotels and motels through services such as the use of name and logo, reservation system, advertising, and other support services.

 In order for a hotel property to become a Best Western member, it must submit a formal application to Best Western which is evaluated and acted upon by the company's Board of Directors. An application may be either denied, conditionally granted, or contingently granted. A conditional grant of an application means that the applicant is offered membership on the condition that certain improvements are made to the property within a specified time period. During the conditional membership period, the hotel may not display the Best Western name or logo, nor may it use the services of Best Western. Once these improvements are made, the hotel moves to the contingent status and then to full membership. A contingency grant of membership is similar to a conditional membership, except there may be fewer conditions to be met and the hotel may use the Best Western name and logo, and it may take advantage of all the normal Best Western services.

 In 1985, Garg was allegedly approached by Jack Barry ("Barry"), the Regional Manager of Best Western, to encourage the Thruway House to seek affiliation with Best Western. *fn1" Following some extended discussions in which Barry allegedly informed plaintiff that Best Western would definitely be interested in the Thruway House becoming a franchise member, Garg made an application in October 1987, to affiliate 110 rooms of the Thruway House with Best Western (Def.'s Not. Mot. Ex. A), and submitted an entrance fee in the amount of $ 17,500. On December 10, 1987, after inspection of the property, Garg's application was denied by Best Western's Board of Directors, and $ 15,500 of the entrance fee was refunded. Best Western kept $ 2,000 as a non-refundable "evaluation" fee. (Id. at Ex. B)

 In 1988, Barry again allegedly approached Garg and encouraged him to re-apply for a Best Western franchise. Garg submitted a second application on July 8, 1988, with an entrance fee of $ 16,700 to affiliate 102 units. (Id. at Ex. C) On August 25, 1988, this second application was also rejected by the Board of Directors, and the company again indicated that it was retaining $ 2,000 of the fee as non-refundable. (Id. at Ex. D) After the threat of legal action, Best Western refunded the full fee to the plaintiffs. In late 1988, Barry, together with Ron Evans (CEO of Best Western), and attorney Kenneth Sundlof allegedly again convinced Garg to apply for a franchise. On March 17, 1989, for the third time, Garg applied for a membership for 110 units, and submitted an entrance fee of $ 20,225. (Id. at Ex. D & E)

 On May 2, 1989, Garg received a conditional approval from the Board of Directors. (Id. at Ex. G) One of the conditions was that Garg affiliate all of the guest room units in the Thruway House, totalling 212 units *fn2" (including Buildings 700 and 800), and send an additional check of $ 10,200 for the balance of the entrance fee. Plaintiff replied by letter dated May 9, 1989, requesting that Best Western accept 104 units and exclude the 108 rooms in Buildings 700 and 800. (Pltf.'s Reply Aff. Ex. B) Plaintiff also requested a modification of other conditions. In a letter reply dated July 13, 1989, Best Western agreed to waive some of the conditions, but denied Garg's request to only affiliate 104 units, insisting that all units at the Thruway House be affiliated, including those in Buildings 700 and 800. (Def.'s Not. Mot. Ex. H at 2) It also extended the time for payment of the additional entrance fee to July 17, 1989. In a letter of July 14, 1989, Garg wrote to Best Western agreeing to include the 67 units in Building 800, but again requested a waiver of the remaining rooms in Building 700. (Id. at 4) On July 25, 1989, Best Western denied this request and extended the entrance fee payment deadline to July 28, 1989. (Id. at 6) On July 27, 1989, Garg accepted Best Western's conditions to include the units in Building 700, subject to receiving a loan of $ 200,000 which Garg subsequently received. (Id. at 7; Pltf.'s Reply Aff. Ex. C) He also sent an additional check in the sum of $ 10,200 as the remaining balance on the entrance fee.

 In order to meet the conditions of the affiliation, especially the renovation of the rooms in Buildings 700 and 800, plaintiffs received financing, and spent over $ 800,000 to make the necessary improvements. Garg claims that in order to raise the additional $ 200,000 needed to complete renovation of Building 700, he subleased the property to a development corporation which, instead of providing the additional monies to obtain a Best Western franchise, embezzled funds belonging to the hotel. He was unable to meet the conditions set forth for the renovating of the units in Building 700.

 In May and July 1990, Garg again attempted to have Best Western exclude the units in Building 700 from its affiliation. The Board of Directors again refused to waive the condition that the units in Building 700 be included, and further refused to grant Garg a further extension to complete the items on the conditional list. By letter of August 7, 1990, Best Western rescinded its conditional approval and denied Garg's application. (Id. at 14) The total entrance fee of $ 30,200 that Garg paid was retained by Best Western.

 Plaintiffs allege that as a result of not obtaining the Best Western franchise, there was a default on loans secured to improve the property, a personal judgment was taken against Garg and his wife, and the Thruway House was lost to creditors, as well as any resulting profits.

 The four causes of action in the complaint allege breach of contract, estoppel, unjust enrichment, and fraud/misrepresentation. The plaintiffs seek Five Million Dollars in compensatory damages, Two Million Dollars in punitive damages, and the return of the $ 30,450 entrance fee. Defendant in its answers denied the material allegations in the complaint and set forth a number of affirmative defenses, including that the action should be transferred to the United States District Court of Arizona, pursuant to 28 U.S.C. ยง 1404(a).

 III. DISCUSSION.

 All of the applications submitted by Garg included the following language:

 
APPLICATION OF LAW
 
37. This Application and Agreement shall be governed and construed according to the laws of the State of Arizona, unless any obligations under this Application and Agreement shall be invalid or unenforceable under such laws, in which event the laws of the state whose laws can apply to and validate the obligations under this Agreement shall apply. This Application and Agreement shall be deemed executed in Phoenix, Arizona.
 
38. Applicant acknowledges that Best Western is headquartered in Phoenix, Arizona, that the majority of Best Western's records and employees are in Phoenix, Arizona, and that Phoenix, Arizona, is the most convenient ...

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