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Castillo Grand LLC v. Sheraton Operating Corp.

July 9, 2009

CASTILLO GRAND LLC PLAINTIFF,
v.
SHERATON OPERATING CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.

OPINION AND ORDER

On July 21, 2006, Castillo Grand LLC ("Castillo" or "Owner") filed a complaint against Sheraton Operating Corporation ("Sheraton" or "Operator") alleging breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, negligent performance of contract, contractual indemnification, and a claim for attorneys' fees. Sheraton filed an answer and alleged counter-claims of breach of contract, unjust enrichment, and a claim for attorneys' fees on August 29, 2006. On July 8, 2008, Castillo filed an amended complaint (the "Amended Complaint"), adding claims for breach of contract for wrongful termination and breach of fiduciary duty for wrongful termination. On July 28, 2008, Sheraton filed an answer and amended counterclaims of additional breaches of contract, breach of project license fee obligations, and a request for declaration of Sheraton's right to terminate the contract.

On December 8, 2008, Sheraton moved for summary judgment pursuant to Federal Rule of Civil Procedure 56 on Claims One through Five (the "Design Claims") of the Amended Complaint. Castillo responded on January 16, 2009, and Sheraton replied on March 2, 2009. Sheraton also submitted a motion to strike the Affidavit of Fred Bullard ("Bullard Affidavit") and the Declaration of Todd Soloway ("Soloway Declaration") on March 2, 2009. For the reasons that follow, Sheraton's motion for summary judgment is granted in part and denied in part. Because Sheraton has shown that it is entitled to summary judgment on Claims Two, Three, Four, and Five regardless of any facts alleged in the disputed material subject to the motion to strike, and because the denial of Sheraton's summary judgment motion on Claim One is not based on either the Bullard Affidavit or the Soloway Declaration, the motion to strike is denied as moot.

I. BACKGROUND

On January 25, 2001, Castillo, as Owner, and Sheraton, as Operator, entered into a Management Contract (the "Management Contract") "to manage and promote the luxury hotel to be constructed by Owner in the city of Fort Lauderdale, Broward County, Florida (the 'Hotel')." (Declaration of Eric P. Haas, executed December 8, 2008, Ex. B, hereinafter "Management Contract.") The Management Contract divided the parties' relationship into two phases: (1) the period preceding the opening of the Hotel (defined in the Management Contract as the "Pre-Opening Period"), during which Castillo was to construct the Hotel and Sheraton was to perform Pre-Operating Services, including assistance in the design of the hotel (Management Contract, Ex. G, Sch. 6.); and (2) the post-opening period (defined in the Management Contract as the "Operating Term"), during which Sheraton was to supervise, direct, and control the management, operation, and promotion of all aspects of the Hotel as Castillo's agent and as the exclusive operator of the Hotel. (Management Contract, Sec. 4.1.1.)

On or about May 1, 2007, the Hotel opened for business on an on-going basis to the general public. (Deposition of Fred Bullard at 546.) On or about August 11, 2008, Sheraton's affiliation with the Hotel ended, and the Hotel became managed by, and affiliated with, The Ritz-Carlton. (Haas Decl. Ex. J.)

II. LEGAL STANDARD FOR SUMMARY JUDGMENT

Under Federal Rule of Civil Procedure 56(c), summary judgment should be granted where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Fed. R. Civ. P. 56(e). In determining whether a genuine issue of material fact exists, the court must "resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Braham v. Clancy, 425 F.3d 177, 181 (2d Cir. 2005) (internal citations omitted). The non-moving party, however, "may not rest upon mere conclusory allegations or denials, but must bring forward some affirmative indication that his version of relevant events is not fanciful." Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101 (2d Cir. 1997) (internal quotations omitted). Moreover, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

III. DISCUSSION

A. Exculpatory clauses in the Management Contract

Sheraton first argues that all five of Castillo's Design Claims (breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, negligent performance of contract, and contractual indemnification) should be dismissed because they are barred by the following exculpatory provisions, limitations of liability, and releases contained in the Management Contract.

1. The Management Contract Provisions

a. Sections 2.13.5 and 2.13.6 of the Management Contract

Section 2 of the Management Contract is entitled "GENERAL MANAGEMENT AND OPERATIONS," and 2.13 covers "Limitations on Operator's Duties."

Section 2.13.5 states:

None of Operator, its Affiliates and their respective officers, trustees, directors, employees, agents or successors shall have any liability of any nature whatsoever with respect to the design, construction, initial furnishing, equipping or decoration of the Hotel, including with respect to any advice, assistance, recommendations or other services or approvals furnished or given by Operator or its Affiliates in connection with the Initial Capital Program*fn1 or any other alteration or renovation of the Hotel. If Operator or any Affiliate thereof shall review and/or approve any plans, specifications, budgets or the like in connection with the Initial Capital Program or any other alteration or renovation of the Hotel, no such review or approval shall impose on Operator or its Affiliate any responsibility for the content thereof, for any errors or defects contained therein or for any other matter related to the design or construction of such alteration or renovation or the cost thereof.

(Management Contract, Sec. 2.13.5.)

Section 2.13.6 states:

Owner hereby unconditionally releases Operator, its Affiliates and their respective officers, trustees, directors, employees, agents and succesors from any and all claims, liabilities and obligations, whether now existing or hereafter arising, and whether known, unknown, fixed, contingent, or otherwise, arising from or related to the matters for which Operator has disclaimed responsibility pursuant to Sections 2.13.1 through 2.13.5. (Management Contract, Section 2.13.6.)

b. Exhibit G to the Management Contract

Exhibit G to the Management Contract is entitled "Technical Service and Pre-Opening Services." It lists a number of Pre-Opening Services to be performed by Sheraton, including preparation of a Pre-Opening Budget, development of a Pre-Opening Marketing Plan, assistance with retail space and licenses, etc., and performance of the Technical Services. (Management Contract, Ex. G, Sec. 1.) Section 1.i states:

In consideration of the payment of the Technical Services Fee, Operator shall perform the technical services described in Schedule 2 (collectively, the "Technical Services"), in the manner and at the times contemplated in said Schedule 2. Although the bulk of the Technical Services will be performed at Operator's corporate headquarters and divisional offices, at appropriate stages in design, development and construction, Operator shall make such visits to the site and/or to the offices of Owner or Owner's architects, engineers, designers, contractors or manufacturers, as Operator may, in its sole discretion, consider appropriate to perform the Technical Services, or upon the reasonable request of Owner. Moreover, Operator shall perform such site inspections during construction as it considers appropriate to determine whether the construction program is being completed in accordance with final plans and specification approved by Operator. Operator shall participate in the final acceptance inspection of the Hotel with Owner's consultants and contractors upon substantial completion and assist Owner's consultants in the preparation of a punchlist of deficiencies requiring correction. (Management Contract, Ex. G, Sec. 1.i.)

Exhibit G goes on to discuss Fees, Expenses and Payments to Operator in Section 3 and the Opening Date in Section 4. Section 5 of Exhibit G is entitled "Limitations on Scope of Operator's Services" and reads:

Owner acknowledges and agrees that Operator's and its Affiliates' review and approval of conceptual, preliminary or final plans and specifications for the Hotel, periodically reviewing its construction and assisting in final acceptance procedures are (a) for the purpose of determining that the plans and specifications incorporate the standards and guidelines set forth in the Design Guide defined in Schedule 6 and the Operating Standard contemplated by this Contract; (b) for improving the Hotel from a functional and aesthetic point of view; and (c) for making changes that may result in cost savings in respect of the construction and/or operation of the Hotel. Operator is not providing architectural, engineering or other professional services to Owner and does not undertake to advise Owner of Legal Requirements and shall not be responsible for compliance therewith. Owner and Operator agree that neither any provision of this Contract nor Operator's review and approval (or deemed approval) of construction documents or construction work shall be deemed to constitute a representation or warranty by Operator as to the adequacy or quality of any such documents or materials. Without limiting the foregoing, nothing in this Contract, and no review by Operator (or opportunity for review) of any construction documents or construction work shall be deemed to create a duty on the part of Operator that could give rise to any cause of action against Operator by Owner or any third party based on any alleged deficiency in the adequacy or the quality of the Hotel or its construction or ultimate cost. Operator acknowledges, however, that its approval (or deemed approval) of any documents or materials submitted to Operator by Owner for review and approval pursuant to this Contract shall constitute a waiver of any right Operator might otherwise have to require changes to such items on the grounds that they do not satisfy the standards of Operator and its Affiliates. Neither Operator nor its Affiliates shall review foundation plans or plans and specifications relating to structural matters, the foundation and structural soundness of the Hotel being wholly the responsibility of the Owner and Owner's architects and consultants. (Management Contract, Ex. G, Sec. 5.)

Section 6 of Exhibit G is entitled "Construction of the Hotel and Installations by Owner," and subsection 6(e) contains the schedule for Castillo to submit various plans and specifications to Sheraton for approval. The "Dates Required" for those submissions are blank. Subsection 6(e) states,

Within fifteen (15) business days after receipt by Operator of submitted documents specified above, Operator shall either give its approval thereof or give written comments or corrections to Owner for re-submittal within the time set forth in such comments. If Operator does not so ...


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