The hotel management agreement (HMA) between hotel manager Four Seasons and hotel owner Burton Way provided that Four Seasons could not license any of the “Four Seasons Operational Benefits” within 14 miles of the Four Seasons Los Angeles, but provided an exception permitting Four Seasons to “manage or operate” the Regent Beverly Wilshire hotel. A dispute arose as to whether Four Seasons’ provision of Four Seasons Operational Benefits to the Regent Beverly Wilshire was permitted under the “manage or operate” exception. Both parties at arbitration presented extrinsic evidence as to the interpretation of the exception, and the panel made determinations as to the credibility of both interpretations.
On appeal of the district court’s order confirming the arbitration award, the Ninth Circuit reversed, holding that such fact-finding at summary judgment by the panel was legal error and required an evidentiary hearing. The court also reversed the confirmation of the panel’s determination of sanctions against Four Seasons for spoliation of evidence, remanding for purposes of re-determining the question of prejudice to Burton Way. The Ninth Circuit affirmed, however, on the issues of fiduciary duty and fraudulent inducement. On the issue of fiduciary duty, the court held that it was not legal error for the panel to conclude that negotiations between the two parties over the terms of their management agreement fell outside the scope of the principal-agent relationship. Regarding the inducement claim, the court held that it was not legal error for the panel to conclude that Burton Way waived its fraudulent inducement claim where, despite the fact that it included a clause reserving its claims, it signed a later agreement continuing the relationship. Burton Way Hotels, Ltd. V. Four Seasons Hotels Ltd., Case No. 14-56846 (9th Cir. Oct. 18, 2016).