Annbar Associates v. American Exp. Co.

• Decision Date: 03 April 1978
• Docket Number: No. KCD,KCD
• Parties: ANNBAR ASSOCIATES, a partnership, Respondents, v. AMERICAN EXPRESS COMPANY and American Express Reservations, Inc., Appellants. 28792.
• Court: Missouri Court of Appeals

Page 701

565 S.W.2d 701

ANNBAR ASSOCIATES, a partnership, Respondents, v. AMERICAN EXPRESS COMPANY and American Express Reservations Inc., Appellants.

No. KCD 28792.

Missouri Court of Appeals,Kansas City District.

April 3, 1978.

Rehearing Denied May 1, 1978.

Dick H. Woods, George E. Feldmiller, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, for appellants.

David Skeer, David W. Howard, Kansas City, for respondents.

Before WELBORN, Special Judge Presiding, PRITCHARD, J., and HIGGINS, Special Judge.

ROBERT R. WELBORN, Special Judge Presiding.

Action for damages by hotel owners against operators of reservations service for misrepresentation as to the availability of rooms at plaintiffs' hotel. Upon trial to jury, verdict was for plaintiffs for $25,000 actual damages and for punitive damages of $100,000 against each of the two defendants. Defendants have appealed.

Annbar Associates is a partnership whose members were Mrs. Ann Goldstein and Mrs. Barbara Goldsmith. From 1962 to 1974 the partnership owned the Muehlebach Hotel in Kansas City. Alfred Goldstein, a resident of New York and husband of Ann, managed the partnership affairs. Day to day operation of the hotel was in the hands of a resident manager, Ralph Hitz, Jr., from 1971 through 1973. An assistant manager, Ken Vincent, was in charge of the Muehlebach's reservations department.

American Express Company is a corporation engaged in various activities, including a credit card business. American Express Reservations, Inc., is a wholly owned subsidiary of American Express. It provided a computerized reservation system for member hotels and motels, involving the employment of a telephone reservations service for use by members of the public by means of a toll-free call in making reservations for accommodations at member hotels and motels.

Prior to 1972, the Muehlebach had not honored national credit cards. Mr. Goldstein did not favor their use by the hotel, although Mr. Hitz and Mr. Vincent believed that the hotel should honor them and on several occasions they made such recommendation to Mr. Goldstein. In 1972, Goldstein acceded to Hitz's "pestering" and authorized Hitz to contract for acceptance of American Express credit cards and membership in Reservations Space Bank system.

On May 9, 1972, the Muehlebach entered into separate agreements with American Express and Reservations. The agreement with the former called for the hotel to permit holders of American Express credit cards to charge purchases at the hotel by use of that card. Such charges were to be sold to American Express at a 31/2% discount.

The agreement with Reservations set both the terms and conditions of the hotel's membership and use of the Reservations system. Reservations was to be paid a $50 monthly fee plus 5% of the rental for accommodations reserved through the system, subject to a minimum charge of $1.50 for each rental unit.

The Muehlebach began operating under the agreements. In January, 1973, Goldstein, upon reviewing the hotel's monthly operating statement for December, 1972, directed Hitz to cancel both agreements because they were costing too much. Hitz unsuccessfully tried to talk Goldstein out of the action. Hitz then notified the American Express Regional Hotel Sales Manager that the agreements were being cancelled. A written notice to that effect was made by Hitz on February 1, 1973.

The Muehlebach immediately began refusing to accept American Express credit cards. However, Muehlebach reservations personnel were not told of cancellation of the reservations agreement and they continued to receive and accept reservations under the system. The hotel, which experienced a serious "cash crunch" from February to September, 1973, paid none of Reservations' monthly invoices from February to June 8, 1973. As of April 30, 1973, $699.99 was owed on the account. The agreement between Reservations and Muehlebach called for payment of invoices within ten days of receipt. On May 30, 1973, Reservations notified the Muehlebach that because of its delinquency, its Space Bank service had been terminated, effective May 21, 1973. On June 8 and 13, Muehlebach paid the $699.99 owed as of April 30. Charges continued to be made on the basis of reservations made before May 8. As of August 31, 1973, Muehlebach owed $141.73 on the account.

In accordance with Reservations' May 30 notice, the Muehlebach was placed "off-line" and was ineligible to receive reservations through Space Bank. In August, 1973, a reservations clerk at the hotel told Vincent that there had been some confusion about a guest who attempted to obtain a reservation through Space Bank and was told the Muehlebach was filled. The guest then called the hotel directly. Vincent did nothing about the incident. He couldn't imagine that Space Bank would try to turn a person away from the hotel and concluded it was a misunderstanding.

Around the middle of September, the executive assistant in charge of reservations told Vincent that other reservations clerks had found a "very common problem" in this regard. She, Vincent and Hitz discussed the matter, talked to Muehlebach's attorney and decided to make some test calls to Reservations.

Between September 29 and October 22, seventeen calls were made to Space Bank by Muehlebach employees, requesting rooms there on nights when rooms were available. In seven instances, the operator responded that the Muehlebach was "sold out" on the night desired. In two instances, the response was that the Muehlebach was "booked." In six instances, the response was Muehlebach "not available." On the final call on October 22, the response was "Muehlebach not serviced by American Express." In one instance, the reservation was "confirmed."

On October 10, 1973, suit was filed by Muehlebach against American Express, charging that plaintiffs had been deprived of substantial business because defendants had misrepresented to plaintiffs' customers that plaintiffs could not accommodate such customers, when in fact it could have accommodated such customers. The petition stated that damages could not be determined until plaintiffs obtained the records from defendants of the number of such calls, but alleged that damages were at least $1,000.00. The petition also charged that the false advice to customers was deliberate, intentional and malicious and sought punitive damages of $2,500,000.00.

By an amended petition, Reservations was named a party defendant. The amended petition charged that Reservations had given false information to potential Muehlebach customers as "the result of an agreement between it and (American Express), both defendants having conspired together against plaintiff immediately after they were notified on January 30, 1973 that plaintiff was cancelling the agreements previously entered into by plaintiff * * * ." Again the petition prayed for $1,000 actual and $2,500,000 punitive damages. Both defendants filed what were essentially general denials and the case was tried on such pleadings.

A further understanding as to the basis of plaintiffs' claim as well as to the defense offered requires some detail as to the operation of the Space Bank Reservation Service.

The basic instrument of the system was a computer, located in Phoenix, Arizona, in which was stored data concerning all hotels and motels which belonged to the Space Bank system. Telephone calls from persons seeking reservations for accommodations were received by operators, employed by Reservations, located at Memphis, Tennessee. Each of some 200 to 250 operators had a telephone, a computer terminal and a manually operated "microfiche" viewer which displayed microfilmed information covering addresses, rates, types of rooms, etc., of member hotels. Upon receipt of a request for information or for a reservation, the operator would type the request, which would then appear on a cathode ray tube. The operator sends the message to the computer by depressing the "send" key. The computer responds and its response is displayed on the screen.

Operators were instructed to respond to callers in the language in which the reply appeared on the screen.

When the system was originally set up in 1968 it operated on what was known as a "single threading" computer program concept known as Space Bank System I. Under such program, only one message could be handled by the computer at a single time. In 1970, steps were begun to convert to a "multiple threading" system (SBS II), in which a large number of messages could be handled simultaneously by the computer. Design and implementation of the new program took some 21/2 years. The new system was considerably more complicated than the old, evidenced by the fact that the program for SBS I required six volumes whereas that for SBS II required 15 to 18 volumes.

One response programmed into SBS I was "Location Not Open." This response indicated that the hotel was not "presently on the Space Bank System." By directive dated April 13, 1972, Harvey Dice, Director of Reservation Services, advised Reservation Managers: "When this response is received, please advise your Reservation Agents to advise guests that 'The Hotel is not being served by Space Bank at the present time.'

"Agents should not try to guess why the hotel is not being serviced by Space Bank, just state it isn't being serviced."

When SBS II went into operation in February, 1973, the "Location Not Open" response no longer appeared.

According to Robert Vanderven, an employee of American Express who directed the development and maintenance of computer "software," was in charge of the programming for SBS I, and who worked on SBS II, the response "Location Not Open" was not programmed into SBS II. The response "Not Available" was programmed into SBS I to be used whenever a hotel closed out to the system for any reason. The "Location Not Open" applied when the hotel had been "taken off-line." In the SBS II programming, the response "Not...