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MICROTEL FRANCHISE & DEV. CORP. v. COUNTRY INN HOT

May 1, 1996

MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION, Plaintiff,
v.
COUNTRY INN HOTEL, and JOSEPH GELOSO, Defendants.



The opinion of the court was delivered by: LARIMER

 This is an action for service mark infringement, unfair competition, and breach of contract. The plaintiff Microtel Franchise and Development Corporation ("Microtel") is a hotel franchisor. The defendant Country Inn Hotel ("Country Inn") was operated as a Microtel Hotel pursuant to a Franchise Agreement ("Agreement") entered into March 1992. Defendant Joseph Geloso is the President and owner of Country Inn and the personal guarantor of its obligations under the Agreement. This dispute arises out of the termination of that relationship and the alleged rights and obligations of Country Inn thereafter, under the terms of the Agreement.

 In essence, Microtel alleges that after the Agreement was terminated, Country Inn continued using proprietary items in violation of various federal and state laws, to Microtel's detriment.

 Country Inn *fn1" asserts three counterclaims. In its first counterclaim, Country Inn alleges that Microtel made "false representations to [Country Inn] during its promotion of the Microtel franchise." Answer at P 21. Specifically, Country Inn alleges that Microtel failed to provide various services related to operating a "1-800" number. Id. at PP 22-24.

 The second counterclaim is also for "false representations." Answer at P 41. In this counterclaim, Country Inn specifically alleges that Microtel failed to provide a variety of promised services (e.g., an "800" number, advertising, marketing, promotion, continuing consultation and advice, and other related services) or that Microtel failed to produce certain promised results (i.e., a certain number of reservations, a certain occupancy rate, and a certain number of other franchisees). Id. at PP 29-40.

 Finally, in its third counterclaim, Country Inn alleges that those same failings that are set forth in Counterclaim No. 2 also constitute a breach of the Agreement.

 Presently before me is Microtel's motion to dismiss all of Country Inn's counterclaims. Microtel asserts that the first and second counterclaims should be dismissed because they are not pled with the particularity required under Fed. R. Civ. P. 9(b), and because they fail to constitute a cause of action for fraud.

 Microtel asserts that the third cause of action should be dismissed because it fails to state a claim upon which relief can be granted (pursuant to Fed. R. Civ. P. 12(b)(6)).

 For the reasons set forth below, I grant Microtel's motion in part and deny it in part.

 MICROTEL'S MOTION

 A. The First and Second Counterclaims -- For Fraud.

 Microtel's first argument in support of its motion to dismiss is that the first two counterclaims are not pleaded with sufficient particularity to satisfy Fed. R. Civ. P. 9(b). It is unnecessary for me to determine whether this is true because I agree with Microtel's second argument: I find as a matter of law that those counterclaims fail to state a claim upon which relief can be granted.

 By its own terms, the Agreement is to be "interpreted and construed under the laws of the State of New York." Agreement at P 23. In New York, the elements of a common law fraud claim are a material, false representation, an intent to defraud, reasonable reliance on the representation, and damage to the plaintiff as a result. Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 153 (2d Cir. 1995). *fn2"

 However, a claim for fraud will not be recognized where it is based "solely upon the failure to perform the promises of future acts which constitute the contractual obligations themselves." Chase v. Columbia Nat'l Corp., 832 F. Supp. 654, 660 (S.D.N.Y. 1993) (citations omitted); see also Zinaman v. USTS New York, Inc., 798 F. Supp. 128, 134 (S.D.N.Y. 1992) ("A failure to perform promises of future acts is merely a breach of contract to be enforced by an action on the contract") (citations omitted). If the rule were otherwise, then every contract breach would constitute a tort. Chase, supra, at 660 (citation omitted).

 In a case involving a breach of contract, a fraud claim may arise only where the alleged misrepresentations concern a matter separate from the contract obligations themselves. In other words, a fraud claim may exist only where the alleged misrepresentations concern a "present" fact (i.e., the financial stability of the company) as opposed to a statement of future intent (i.e., that something will be provided as part of the proposed contract). Chase, supra, at 661.

 In this case, none of the alleged misrepresentations set forth in the first and second counterclaims constitutes a "present" fact. For instance, Country Inn alleges that Microtel failed to do the following things in accordance with the Agreement: set up an "800" number for reservation referrals maintained by Microtel (Answer at PP 22; 29); provide advertising, marketing or promotional support (Answer at P 30); provide support regarding guest complaints (Answer at P 31); provide continuing consultation and advisory assistance (Answer at P 34); provide continuing training programs, conferences or seminars (Answer at P 36); distribute a national directory (Answer at P 37); ...


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