Bradley v. Dean Witter Realty, Inc.

• Decision Date: 30 May 1997
• Docket Number: Civil Action No. 95-11387-PBS.
• Citation: 967 F.Supp. 19
• Parties: James M. BRADLEY, Plaintiff, v. DEAN WITTER REALTY, INC. and Dean Witter Realty Growth Properties, Inc., Defendants.
• Court: U.S. District Court — District of Massachusetts

967 F.Supp. 19

James M. BRADLEY, Plaintiff, v. DEAN WITTER REALTY, INC. and Dean Witter Realty Growth Properties, Inc., Defendants.

Civil Action No. 95-11387-PBS.

United States District Court, D. Massachusetts.

May 30, 1997.

COPYRIGHT MATERIAL OMITTED

Joanne D'Alcomo, Schneider, Reilly, Zabin & Costello, Boston, MA, for James M. Bradley.

Gerald F. Rath, Bingham, Dana & Gould, Boston, MA, for Dean Witter Realty, Inc. and Dean Witter Realty Growth Properties, Inc.

MEMORANDUM AND ORDER

SARIS, District Judge.

I. INTRODUCTION

Plaintiff James Bradley ("Bradley"), a hotel-industry consultant, seeks to recover payment of an incentive fee allegedly promised to him by defendants Dean Witter Realty, Inc. and Dean Witter Realty Growth Properties, Inc. (collectively "Dean Witter"). Dean Witter retained Bradley in July of 1993 to render financing and management advice regarding the Hyatt Regency Westshore in Tampa, Florida, a troubled Dean Witter hotel investment. The written employment contract provided that Bradley would receive a "base fee" of $10,000 a month for three months and, in addition, that Bradley would receive an "incentive fee" to the extent that one could be negotiated in terms that were satisfactory to both parties.

Bradley contends that the parties negotiated over the terms of the incentive fee payment and that they agreed upon an incentive fee arrangement under which Bradley would receive ten percent of the improved cash flow of the hotel for five years beginning in 1994, and five percent each year thereafter until the year 2003. Dean Witter maintains that no incentive fee agreement was ever reached, and it has refused to pay Bradley any amount above the base fee in exchange for his consulting services.

Dean Witter now moves for summary judgment. After a hearing, this Court ALLOWS IN PART and DENIES IN PART Dean Witter's summary judgment motion.

II. BACKGROUND

Drawing all inferences in favor of the nonmoving party, the Court treats the following facts as undisputed.

Dean Witter is a Delaware corporation with its principal place of business in New York. As a part of its business, Dean Witter manages various properties, including the Hyatt Westshore ("the hotel"), a 448-room hotel in Tampa, Florida that is operated by Hyatt Corporation. By the summer of 1993, Dean Witter's luxurious hotel property was facing financial crisis. Seeking assistance in restructuring its investment, Dean Witter executives solicited Bradley, a hotel industry expert and former high-level executive who owns and operates a Massachusetts-based consulting firm that specializes in the hotel trade.

A. Bradley Retained

Bradley had his first meeting with Dean Witter representatives in New York in June of 1993. Several Dean Witter spokesmen were present, including Ed Lord and Davisson Hardman. Before the meeting began, Bradley spoke with Lord about his consulting fee, telling Lord that his usual retainer was $350 per hour, but that, as an alternative, he would accept a smaller monthly stipend plus a substantial incentive fee. During the meeting, Bradley again explained his salary structure, describing the incentive fee as a percentage of the improvement in the investment status of the property. Due to the hotel's serious financial condition, both Lord and Hardman indicated that the incentive fee approach would be preferable to higher monthly payments. (Bradley Int. No. 5).

Lord later sent Bradley a written contract in Massachusetts on behalf of Dean Witter dated July 20, 1993. The agreement provided that, in exchange for various consulting services,¹ Dean Witter would pay Bradley a base fee of $10,000 per month from July 19, 1993 until October 19, 1993 (i.e., for a period of three months).² In addition, the contract provided for compensation in the form of

"an incentive fee (with a payment scheme), acceptable to both parties, in the sole discretion of each, to be structured during the term of this Agreement, which will be based upon (i) the improved net present value of the Hyatt-Westshore to its owner as a result of debt and management restructuring and/or (ii) the consummation of a Hyatt-Westshore management contract with a new management company, it being agreed that if the parties are unable to agree on an acceptable incentive fee, this Agreement shall terminate and Dean Witter shall not be obligated to pay Bradley any incentive fee."

¶ 4(b). The written agreement also provided that "the construction, interpretation and performance of this Agreement shall be governed by the laws of the state of New York." ¶ 8.

Shortly after the June 20, 1993 contract was executed, Dean Witter and Bradley began negotiations regarding the terms of the incentive fee (Hardman Aff.¶ 4). The parties negotiated primarily via telephone and fax machine, and documents relating to the amount and structure of Bradley's incentive payment were circulated among Dean Witter executives and between Dean Witter and Bradley on several occasions.

On August 12, 1993, Dean Witter drafted a memo proposing a structure that used operating cash flow estimates as benchmarks for the incentive fee calculation (the "Concept" Memo). In this written statement, Dean Witter offered to give Bradley Associates "five percent of improved Cash Flow After Debt Service (`CFADS') for 1994-2003 following the restructure of the Solus loan and Hyatt Management Agreement." Also, Dean Witter proposed an alternative, lump-sum payment to Bradley in the event of a sale "during the five-year incentive period." The Concepts Memo was revised internally on August 27, 1993, and sent to Bradley at his home in Massachusetts via fax on August 30, 1993. On September 1, 1993, Bradley sent to Lord certain significant "adjustments," including most notably a proposal that Bradley associates should participate in ten percent of Dean Witter's financial services position before a return on guarantee funds. Bradley telephoned Lord at some point thereafter seeking agreement on his proposed increase in the proposed percentage of the CFADS that would be the basis for his incentive fee.

On September 7, 1993, Bradley and Lord orally agreed to modify the incentive fee proposal stated in the written concepts memo (Brad.Aff. ¶¶ 11-12; Brad.Aff. Ex. 5). Under the revised fee structure, which was sent to Bradley from Dean Witter by fax, Bradley Associates was to receive ten percent of the CFADS for the first five years through 1998, and then five percent thereafter. The one-page "pro forma" that purportedly represents these agreed-upon numerical revisions, is entitled "Bradley Incentive Calculations," and is the last written communication sent by Dean Witter to Bradley in regard to the incentive fee. From Bradley's vantage, negotiations stopped on September 7, 1993 because the parties had reached a final agreement on the essential terms of an incentive fee.

Bradley contends that after receiving the revised figures he spoke with Lord and on the telephone and Lord told him that, since a basic agreement had been reached the "fine points" could be worked out and incorporated into a formal document at a later date. (Brad.Aff.¶ 11-13).

On July 25, 1994, Bradley wrote a memo to Lord and Hardman stating that he "would like to focus on the attached incentive fee proposal" of 8/27/93, and seeking to "finalize the discussion" of the incentive fee "as soon as possible." In a January 30, 1995 letter to Hardman, Bradley expressed pleasure at having spoken with Hardman about the status of the hotel, and stated that, in light of the pending restructuring of the management agreement with Hyatt, "it is appropriate that you prepare a more formal document regarding the incentive structure that you, Ed, and I agreed to on 9/7/93 which calls for incentive income to Bradley Associates or my estate of 10% of owner cash flow through 1998 and 5% thereafter." No formal document memorializing the terms of the alleged incentive fee agreement was ever constructed.

B. Bradley's Performance

Bradley worked for Dean Witter from July of 1993 until October of 1993 under the terms of the original consulting fee agreement. Dean Witter then extended the consulting arrangement until December of 1993, as the written contract provided. After the written contract expired, Bradley continued to work at a rate of $5,000 per month (half his initial rate) until June of 1994. (Hardman Aff. ¶ 8; Bradley Aff. ¶ 16-18). Even after the summer of 1994, when Dean Witter ceased paying Bradley any fee, Bradley rendered some services to Dean Witter in regard to its hotel investment. (Brad.Aff. 14, 16-18; Lord Dep. pp. 302-304; D'Alcomo Aff. Ex. 13).

After Bradley was retained in 1993, the hotel's performance dramatically improved. Using a Bradley Associates strategy, Dean Witter was able to enjoy smaller interest payments on the hotel's mortgage.³ Moreover the hotel experienced substantially increased cash flow after debt service after Bradley was consulted. Whereas the hotel's cash flow sum was negative -$576,000 in 1992 and the cash flow prediction for 1993 was a negative -$471,000, after Bradley's retention, the actual cash flow after debt service in 1993 was a positive $2,000. The improvements continued: in 1994, the actual cash flow after debt service was approximately $1,831,053⁴; and in 1996, the hotel's after debt cash flow was approximately $2,392,726. In January of 1995, Dean Witter's management agreement with Hyatt was successfully renegotiated.

C. Procedural History

On June 27, 1995, after Dean Witter expressed an unwillingness to remit any incentive fee in addition to the base wage, Bradley filed this lawsuit against Dean Witter. The complaint alleges that Dean Witter committed fraud in representing that it would pay Bradley an incentive fee (Count I); that Dean Witter has engaged in unfair and deceptive business practices (Count II); that Dean Witter breached both its contractual obligation to pay the additional fee and the implied covenant...