Domed Stadium Hotel, Inc. v. Holiday Inns, Inc.

• Decision Date: 21 May 1984
• Docket Number: No. 83-3074,83-3074
• Citation: 732 F.2d 480
• Parties: 1984-1 Trade Cases 66,008 The DOMED STADIUM HOTEL, INC., d/b/a Holiday Inn-Superdome, Plaintiff-Appellant, v. HOLIDAY INNS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 480

732 F.2d 480

1984-1 Trade Cases 66,008

The DOMED STADIUM HOTEL, INC., d/b/a Holiday Inn-Superdome, Plaintiff-Appellant, v. HOLIDAY INNS, INC., Defendant-Appellee.

No. 83-3074.

United States Court of Appeals, Fifth Circuit.

May 21, 1984.

Leach, Paysee & Baldwin, Ford J. Dieth, New Orleans, La., for plaintiff-appellant.

Sessions, Fishman, Rosenson, Snellings & Boisfontaine, Curtis R. Boisfontaine, Robert E. Barkley, Jr., Sally Shushon, New Orleans, La., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before POLITZ, RANDALL and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The Domed Stadium Hotel, Inc. (Superdome Hotel), a Louisiana corporation, brought this action against Holiday Inns, Inc., a Tennessee corporation, alleging that Holiday Inns' acquisition of the Chateau LeMoyne Hotel in downtown New Orleans breached its franchise agreement with Holiday Inns and also violated sections one and two of the Sherman Act, 15 U.S.C. Secs. 1, 2, and section seven of the Clayton Act, 15 U.S.C. Sec. 18. After lengthy discovery the district court orally granted Holiday Inns' motion for summary judgment on both the antitrust claims and the contract claims. We agree with the district court that the contract claims, Clayton Act claims and section one Sherman Act claims are without merit. We also hold that as a matter of law, the relevant product market is hotel rooms generally, and not the submarket of Holiday Inn hotel rooms. We agree with the district court that Holiday Inns does not have legally sufficient market power within the hotel room product market so that its actions violate section two of the Sherman Act or Section seven of the Clayton Act. We therefore affirm the decision of the district court.

I.

In December of 1974, after more than a year of negotiating, Joseph M. Rault, Jr., President of The Domed Stadium Hotel, Inc., entered into a management agreement with Holiday Inns providing for Holiday Inns to manage the seventeen-story building he owned in downtown New Orleans as a Holiday Inn hotel. Dissatisfied with this arrangement, in 1976 the parties altered their relationship, and the Superdome Hotel became a franchised member of the Holiday Inn chain. The franchise agreement between the parties granted the Superdome Hotel the right to operate a Holiday Inn hotel at a specific site in downtown New Orleans, and explicitly reserved to Holiday Inns the right to construct and operate other Holiday Inn hotels "at any place other than on the site licensed." ¹ As a franchised Holiday Inn hotel, the Superdome Hotel enjoyed all the benefits of Holiday Inns' nationwide advertising and marketing programs, and also obtained business through Holiday Inns' toll-free nationwide computerized reservations service known as "Holidex."

Prior to 1974 when the Superdome Hotel first began operating as a Holiday Inn, Holiday Inns owned and operated the Holiday Inn-French Quarter, the only Holiday Inn hotel in downtown New Orleans. The approximately 250-room Holiday Inn-French Quarter enjoyed a high rate of occupancy and often could not accommodate all the patrons who, through Holidex, attempted to reserve hotel rooms in downtown New Orleans. After the Superdome Hotel became part of the Holiday Inns chain, Holiday Inns referred Holidex patrons to the Superdome Hotel. Some of these Holidex referrals were patrons whom the Holiday Inn-French Quarter could not accommodate.

In 1978 Holiday Inns entered into an agreement to acquire the Chateau LeMoyne, a 172-room hotel located in the French Quarter area of New Orleans, between the Holiday Inn-French Quarter and the Superdome Hotel. Prior to acquiring the Chateau LeMoyne, Holiday Inns asked a private market research firm to conduct a routine market analysis to determine the impact of Holiday Inns' acquisition of the Chateau LeMoyne on other Holiday Inn hotels in the area. The study concluded that, because the Chateau LeMoyne added 172 rooms "to the market serviced by the Holidex reservation system," the Superdome Hotel would lose twelve to fifteen percent of its occupancy during the three-month tourist season, or three to five percent over a year. The study concluded, however, that if tourism continued to grow in New Orleans, the Superdome Hotel's losses would be temporary and could be minimized further by aggressive marketing. In 1979 Holiday Inns incorporated the Chateau LeMoyne into its system as a company-owned hotel. The rooms in the two company-owned Holiday Inn hotels--the Chateau LeMoyne and the Holiday Inn- French Quarter--gave Holiday Inns, at most, approximately four percent of the total number of hotel rooms in downtown New Orleans. ²

In December of 1978 the Superdome Hotel filed this lawsuit against Holiday Inns. It alleged that by operating the Chateau LeMoyne as a company-owned Holiday Inn hotel, Holiday Inns competed against the Superdome Hotel in violation of the 1976 franchise agreement. The Superdome Hotel also alleged that Holiday Inns attempted to monopolize the Holiday Inn room market in downtown New Orleans by acquiring the Chateau LeMoyne and thereby violated the Sherman and Clayton antitrust acts. Finally, the Superdome Hotel alleged that by referring Holidex patrons to the company-owned Chateau LeMoyne rather than the franchised Superdome Hotel, Holiday Inns acted anticompetitively in violation of the Sherman Act.

In 1980 Holiday Inns terminated the franchise agreement. The Superdome Hotel attempted to obtain a preliminary injunction in federal district court to prevent the termination, but, after more than three weeks of hearings, the district court denied the preliminary injunction, and this court affirmed that decision. Domed Stadium Hotel v. Holiday Inns, Inc., 644 F.2d 32 (5th Cir.1982). Holiday Inns subsequently filed a motion for partial summary judgment, seeking dismissal of the Superdome Hotel's antitrust claims. On May 12, 1982, the district court granted this motion. Holiday Inns then brought a motion for summary judgment seeking dismissal of the Superdome Hotel's remaining claims, all of which were contract claims. On December 27, 1982, the district court granted this motion, thus disposing of the entire case. The Superdome Hotel filed a timely notice of appeal pursuant to 28 U.S.C. Sec. 1291.

II.

The Superdome Hotel argues that by acquiring the Chateau LeMoyne, Holiday Inns violated the express terms of their franchise agreement, breached the implied obligation of good faith that exists in every contractual relationship, and breached the fiduciary relationship existing between the parties. The district court correctly held that these claims are unmeritorious.

Under Louisiana law, which governs this franchise agreement, we must enforce the contract to ratify the intent of the parties. Acree v. Shell Oil Co., 548 F.Supp. 1150, 1153 (M.D.La.1982); Smith v. Moncrief, 421 So.2d 1127, 1131 (La.Ct.App.1982). We must ascertain intent by referring to the words of the contract, as long as the words are clear, explicit, and lead to no absurd consequences. Maloney v. Oak Builders, Inc., 256 La. 85, 235 So.2d 386 (1970). The words also must be interpreted consistently with their common and usual significance, and any doubt or ambiguity in their meaning must be resolved by referring to other words or phrases in the contract and to the contract as a whole. Lambert v. Maryland Casualty Company, 418 So.2d 553 (La.1982).

The franchise agreement grants the Superdome Hotel the right to operate a Holiday Inn hotel at a specific site. It specifically states that the license is not exclusive, and that Holiday Inns may "construct and operate one or more Holiday Inns at any place other than on the site licensed." ³ Nothing could be clearer than the fact that Holiday Inns did not grant the Superdome Hotel a territorial license, and that consequently, Holiday Inns did not breach the express terms of the franchise agreement by acquiring the Chateau LeMoyne Hotel.

The Superdome Hotel argues that by using the terms "construct and operate," the franchise agreement reserved to Holiday Inns only the right to build new hotels and operate them as Holiday Inns hotels. By negative implication, the agreement does not allow Holiday Inns to purchase ongoing enterprises and convert them to Holiday Inn hotels. This creative interpretation of the words "construct and operate" is unsound under Louisiana's general principles of contract construction. Not only is it contrary to the common and usual significance of the words "construct and operate," but it also is inconsistent with other provisions of the agreement that specify the non-exclusivity of the Superdome Hotel's rights, and limit its right to a specific site in downtown New Orleans.

The Superdome Hotel's argument that Holiday Inns breached the implied general obligation of good faith that permeates every contractual relationship must fall with our holding that the terms of the franchise agreement do not grant the Superdome Hotel a territorial license. The implied obligation to execute a contract in good faith usually modifies the express terms of the contract and should not be used to override or contradict them. Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129, 138 (5th Cir.1979) (interpreting Uniform Commercial Code article I).

Finally, Holiday Inns did not breach any fiduciary obligation toward the Superdome Hotel by acquiring the Chateau LeMoyne and converting it into a Holiday Inn hotel. Except in cases of franchise termination, in which courts have refused to give literal effect to the language of the franchise agreement, courts have not imposed general fiduciary obligations upon franchisors. Murphy v. White Hen Pantry Co., 691 F.2d 350, 355 (7th Cir.1982); Newark Motor Inn Corp. v. Holiday Inns, Inc., 472 F.Supp. 1143, 1151-52 (D.N.J.1979). Cf. Carter Equipment Co. v. John Deere Industrial Equipment Co., 681 F.2d 386,...