FT Travel—N.Y., LLC v. Your Travel Ctr., Inc., Case No. CV 15–01065 MMM (MANx).

• Decision Date: 26 June 2015
• Docket Number: Case No. CV 15–01065 MMM (MANx).
• Parties: FT TRAVEL—NEW YORK, LLC, d/b/a Frosch Travel, Plaintiff, v. YOUR TRAVEL CENTER, INC.; YTC Travel, LLC ; and Colin Weatherhead, Defendants.
• Court: U.S. District Court — Central District of California

112 F.Supp.3d 1063

FT TRAVEL—NEW YORK, LLC, d/b/a Frosch Travel, Plaintiff,

v.YOUR TRAVEL CENTER, INC.; YTC Travel, LLC ; and Colin Weatherhead, Defendants.

Case No. CV 15–01065 MMM (MANx).

United States District Court, C.D. California.

Signed June 26, 2015.

Shaunt T. Arevian, Vincent J. Davitt, Meylan Davitt Jain Arevian and Kim LLP, Los Angeles, CA, Michael V. Rella, Soren E. Packer, Murphy and McGonigle PC, New York, NY, for Plaintiff.

Archana Ramma Acharya, Foley and Lardner LLP, Los Angeles, CA, Peter N. Wang, Yonaton Aronoff, Foley and Lardner LLP, New York, NY, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

MARGARET M. MORROW, District Judge.

On February 13, 2015, FT Travel New York, LLC, d/b/a Frosch Travel ("Frosch"), filed this breach of contract action against Your Travel Center, Inc. ("YTC"), YTC Travel, LLC ("LLC"), and Colin Weatherhead (collectively, "defendants").¹ On April 10, 2015, defendants filed a motion to dismiss Frosch's complaint for failure to state a claim on which relief could be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.² Frosch opposes defendants' motion.³

Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7–15, the court finds this matter appropriate for decision without oral argument. The hearing calendared for June 29, 2015, is therefore vacated, and the matter is taken off calendar.

I. FACTUAL BACKGROUND

A. The Parties

Frosch is a travel management company that has headquarters in Houston, Texas and New York, New York.⁴ It was founded more than forty years ago and specializes in providing high-touch leisure and corporate travel services to individuals and companies by, among other things, selling air transportation.⁵ It purportedly employs more than 1,400 employees nationwide. Its current president and Chief Executive Officer ("CEO") is Bryan Leibman.⁶ During Leibman's tenure, Frosch has purportedly been ranked as one of the top ten travel management companies in the United States.⁷

YTC is an independent retail travel agency that is headquartered in Santa Barbara, California.⁸ Colin Weatherhead is YTC's current president and CEO.⁹ YTC allegedly provides services similar to those offered by Frosch; specifically, YTC sells air transportation and various other travel services to its clients.¹⁰ Unlike Frosch, however, YTC allegedly operates on a smaller scale—it maintains approximately seven offices and primarily serves clients in Southern California and Arizona.¹¹ LLC is a non-existent entity that Frosch asserts was mistakenly named in a business contract between Frosch and defendants.¹²

B. Frosch's Relationship With YTC

Leibman purportedly first met Weatherhead in 2009; during the ensuing five years, the men developed a personal relationship.¹³ Frosch alleges that, on multiple occasions, Weatherhead professed admiration for Frosch's business model and Leibman's leadership, and conveyed an interest in entering into a business relationship with Frosch.¹⁴ To that end, Leibman and Weatherhead purportedly discussed a contractual arrangement pursuant to which YTC would report all of its airline sales through a Frosch Airlines Reporting Corporation ("ARC") branch office.¹⁵ The parties further purportedly contemplated that when Weatherhead decided to retire from the travel management business, he would sell YTC to Frosch for a price based on a formula set forth in a written sale agreement.¹⁶ As consideration for its agreement to report airline sales through a Frosch ARC office and be purchased by Frosch, YTC was purportedly to receive, inter alia, access to Frosch's network of service providers and preferred relationships, and to benefit from Frosch's operating and technological expertise.¹⁷

The parties also purportedly contemplated that YTC would receive significant cash payments and credits in the form of "commissions" and "overrides" from airline companies as a result of reporting airline sales through Frosch's ARC office.¹⁸ The amount of these commissions and overrides is allegedly tied to the volume of sales reported by a travel agency through a particular ARC branch office.¹⁹ As a result, smaller travel agencies allegedly receive small commission or override payments because their air travel sales are generally on a small scale while large travel agencies purportedly receive large commissions and overrides due to the substantial volume of sales they report through ARCs.²⁰ Frosch alleges that, under the agreement contemplated, YTC was likely going to receive larger overrides and commissions by reporting its sales through Frosch's ARC branch office than it otherwise would.²¹

At some point between 2009 and 2014, while Leibman and Weatherhead were purportedly negotiating a business agreement between Frosch and YTC, Leibman allegedly traveled to YTC's office in Arizona to meet with Weatherhead and YTC's other shareholders.²² Weatherhead also purportedly traveled to Frosch's Houston headquarters to meet with Leibman during the course of negotiations.²³ Frosch alleges that during the parties' numerous discussions between 2009 and 2014, Weatherhead stated it was his intent to transfer YTC's business to Frosch and to have Frosch acquire YTC ultimately. At no time was severing the planned business relationship discussed.²⁴

Unbeknownst to Frosch, YTC allegedly entered into an agreement with another travel management company, Tzell Travel LLC ("Tzell"), on August 26, 2009 (the "Tzell Agreement").²⁵ Under the terms of the Tzell Agreement, Tzell was purportedly obligated to establish a joint ARC branch office with YTC (the "Tzell/YTC Branch") through which YTC was to report its airline and other travel services sales.²⁶

C. Frosch's Purported Contract with YTC

In November 2014, Leibman and Weatherhead allegedly resumed their discussion of a business arrangement pursuant to which YTC would report all of its airline sales through Frosch's ARC branch office and Frosch would ultimately acquire YTC.²⁷ On November 23, 2014, Frosch and YTC purportedly entered into an agreement (the "Frosch Agreement" or "Agreement") reflecting Leibman's and Weatherhead's discussions.²⁸

Frosch asserts that the Frosch Agreement was collectively negotiated and drafted by Leibman and Weatherhead.²⁹ It names two parties: FT Travel–New York, LLC, d/b/a Frosch Travel ("Frosch"), and YTC Travel, LLC ("LLC").³⁰ Frosch alleges that LLC is a non-existent entity that was erroneously identified by Robin Sanchez, YTC's COO, on October 21, 2014, when she filled in the name of Frosch's counter-party on the Frosch Agreement.³¹ The parties purportedly intended to name YTC as a party to the contract.³²

The Frosch Agreement allegedly requires YTC to report airline sales through Frosch's ARC branch office.³³ It states that "YTC shall transfer all of its business to an ARC ... branch office of FROSCH at the YTC location; and in this regard, shall process all its client requests for air transportation using ARC facilities contracted to FROSCH."³⁴ So that YTC could report airline sales through a Frosch branch office, Frosch agreed to establish an ARC branch office at YTC's main office and transfer the address of its ARC office to that location.³⁵ After this was done, YTC was required to "begin reporting all of its airline sales through the FROSCH ARC."³⁶ The Agreement sets forth a payment structure under which YTC would receive a portion of the commissions and overrides generated by sales it reported through the ARC branch. Frosch was to receive the balance of the commissions and overrides.³⁷

Frosch alleges that the Agreement required YTC to report airline sales through Frosch's ARC branch office until Weatherhead decided to sell YTC to Frosch.³⁸ It also asserts the Agreement sets forth the process by which YTC would be sold to Frosch.³⁹ The Agreement's "Succession" provision states, in relevant part:

"FROSCH and YTC wish to prepare for the following scenarios:

A) Colin Weatherhead. In the event Colin is no longer able to operate in his current capacity as CEO, the following will occur should Brenda [Weatherhead's wife] and YTC's Senior Management agree: 1) FROSCH will assume interim CEO responsibilities and work closely with YTC senior management including Brenda, Robin [YTC's COO], Jacki [YTC's CFO], Chris [YTC's CIO], and Shane [YTC's Implementation and Training Officer] for $100,000 annual fee; 2) FROSCH will have an option of first refusal to acquire all company shares except those of Robin Sanchez at the following formula (x5 trailing 12 months EBITDA with following adjustment for Colin's takeout) whenever Brenda chooses to sell; [and] 3) Grant Robin Sanchez an additional 5% of the company to vest 3 years from effective date of FROSCH ownership.

B) Jacki. In the event Jacki is no longer able to operate in her current capacity while Colin is still running YTC, the following will occur: 1) Colin/YTC will acquire Jacki's shares at the following formula set out in Jacki's current Ownership Agreement; 2) FROSCH will assume responsibility for the financial operations of YTC at the following terms (annual management fee of $120,000 which can be reviewed annually and adjusted if gross sales increase or decrease by more than 25%)."⁴⁰

Frosch alleges that these provisions reflect the parties' intent that Frosch would ultimately acquire YTC's business.⁴¹ It contends that, in connection with the Agreement's "Succession" provision, Leibman met and spoke with YTC's shareholders, each of whom purportedly agreed and confirmed that YTC would ultimately be sold to Frosch.⁴²

The Succession provision also states:

"[i]n the event that Bryan Leibman is no longer able to serve as CEO and President of FROSCH or if FROSCH changes ownership, the following will occur: 1) YTC will have an option to continue with this agreement or to terminate at any time thereafter merely by providing 30 days written notice."⁴³

Frosch contends that this provision addresses termination of the Frosch...