On October 13th, District Court Judge Donald Graham denied plaintiff's request for preliminary injunctive relief in FHR TB, LLC v. TB Isle Resort, LP. As reported in the WSJ Developments blog, the case arose after the owner of the Turnberry Isle Hotel & Resort near Miami dismissed Fairmont Hotels & Resorts as the luxury hotel’s manager and brand.
Given the hurdles Fairmont faced, the result wasn't unexpected. As noted by the magistrate in his Report and Recommendations, "injunctive relief is an extraordinary remedy." To succeed on its motion, Fairmont had to first demonstrate, by a preponderance of the evidence, that it was likely to succeed on the merits of its claims.
"We can do this the easy way or the hard way"
This was the cliche reportedly uttered when Turnberry personnel began their early Sunday morning "surprise takeover" of the resort. Without providing the contractually required notice of material default (or acknowledging the applicable cure provisions), Turnberry demanded that senior hotel management leave the property and then systematically "changed the branding of the hotel, from napkins to marquee, retained employees 'loyal' to Turnberry, switched to a different room reservation system and website, and removed all references to the Fairmont name." Testimony from Turnberry's own witnesses indicated that the ouster had been planned over a period of at least 4 months and that Fairmont might have been able to cure the alleged grievances had Turnberry provided an opportunity. Taking all the evidence into account, the magistrate described the the Turnberry business strategy as follows:
"Yes, we're violating the notice and cure provisions of [the hotel management agreement], but we have the power to do this whenever we want because the agency is revocable, so go ahead and sue us if you don't like it."
Prior Case Law Controls Outcome
Given the above, Fairmont was able to present "a compelling and sympathetic narrative about a wronged company which has been victimized by the resort owner and its principals." However, this narrative was not sufficient to overcome the precedent established by Woolley v. Embassy Suites, Pacific Landmark Hotel v. Marriott, Government Guaranty Fund v. Hyatt, Woodley Road v. ITT Sheraton, etc. In evaluating the evidence that Fairmont's agency was coupled with an interest and thus irrevocable, the magistrate found:
- Contractual terms asserting the existence of an agency coupled with an interest are alone insufficient (citing Woodley Road and Government Guaranty).
- Rights of first offer and first refusal must have vested, and no longer be contingent, for the agency to be irrevocable (citing Woolley).
- The existence of a present vested interest held by a management company affiliate is not sufficient as the agency and the interest must be united in the same person (citing Pacific Landmark).
Given the above, the magistrate determined that "it is far from clear that Fairmont is likely to prevail." As a consequence, the District Court was compelled to recommend a denial of Fairmont's request for a preliminary injunction.