Commercial Property Investments, Inc. v. Quality Inns Intern., Inc.

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: Before BOWMAN, Circuit Judge, HEANEY; HEANEY
• Citation: Commercial Property Investments, Inc. v. Quality Inns Intern., Inc., 938 F.2d 870 (8th Cir. 1991)
• Decision Date: 27 August 1991
• Docket Number: Nos. 90-5541,90-5542,s. 90-5541
• Parties: COMMERCIAL PROPERTY INVESTMENTS, INC., a Minnesota corporation, Appellant, v. QUALITY INNS INTERNATIONAL, INC., a Delaware corporation, Appellee. COMMERCIAL PROPERTY INVESTMENTS, INC., a Minnesota corporation, Appellee, v. QUALITY INNS INTERNATIONAL, INC., a Delaware corporation, Appellant.

Page 870

938 F.2d 870

COMMERCIAL PROPERTY INVESTMENTS, INC., a Minnesota

corporation, Appellant, v. QUALITY INNS INTERNATIONAL, INC., a Delaware corporation, Appellee.

COMMERCIAL PROPERTY INVESTMENTS, INC., a Minnesota

corporation, Appellee, v. QUALITY INNS INTERNATIONAL, INC., a Delaware corporation, Appellant.

Nos. 90-5541, 90-5542.

United States Court of Appeals Eighth Circuit.

Submitted March 13, 1991.

Decided July 10, 1991.

Rehearing and Rehearing En Banc

Denied Aug. 27, 1991.

George Ludcke, Minneapolis, Minn., argued; George Huwe, Asst. Atty. Gen., St. Paul, Minn., filed an amicus curiae, on behalf of appellant.

Robert Brunig, Minneapolis, Minn., for appellee.

Before BOWMAN, Circuit Judge, HEANEY, Senior Circuit Judge, and DUMBAULD, ^* Senior District Judge.

HEANEY, Senior Circuit Judge.

This diversity action arises from the district court's grant of summary judgment against Commercial Property Investments, Inc. (CPI). Under claims of violation of the Minnesota Franchise Act and common-law fraud, CPI brought this action against Quality Inns International, Inc. (Quality) for damages sustained because of the alleged misrepresentations and omissions of a Quality vice-president. We affirm the grant of summary judgment on the Minnesota Franchise Act claim and reverse the grant of summary judgment on the claim of common-law fraud.

FACTS ¹

CPI is owned and operated by Jeffrey Nielsen. Quality offers several brands of hotel franchises across the country, including Comfort Inn. Quality employed Walter Francois as its Vice President of Franchise Development. In the fall of 1985, Nielsen contacted Francois with a plan to develop a twelve-acre office complex, including a hotel, in Roseville, Minnesota. Nielsen told Francois that he was interested in either owning and operating the hotel himself or selling the hotel site within the office complex.

On November 21, 1985, Nielsen and Francois met to discuss the hotel project. Before the meeting, they drove to and inspected the hotel site, at which time Francois told Nielsen that it was "one of the best sites for a hotel in the Midwest." During the meeting, Francois and Nielsen discussed the option of Nielsen becoming a Comfort Inn franchisee. Francois orally represented to Nielsen that newly constructed Comfort Inns were averaging sixty-eight percent occupancy in their first year of operation and seventy-five percent in their second and third years. In addition, Francois provided Nielsen with a "128-Room Comfort Inn Sample Pro Forma," which reiterated these figures. The pro forma included the following statement:

The accompanying financial projections are for illustrative purposes only and are based on estimates and assumptions. No implied or expressed representations are made that these projections actually will be achieved for a specific project.

Francois nonetheless emphasized to Nielsen that the occupancy projections were based on historical data and not on estimates or assumptions. Moreover, Francois told Nielsen that the figures were gleaned from "the most sophisticated data base in the industry," and led Nielsen to believe that the occupancy figures were specific to Comfort Inns, when in actuality they were based on industry-wide data.

Only five of the Comfort Inns operating within Francois' territory had been open for business for a sufficient time to accumulate occupancy percentage data. Of these five hotels, only one operated at sixty-eight percent occupancy. The other units averaged thirty-eight percent, thirty-nine percent, fifty-three percent, and fifty-three percent. Francois did not inform Nielsen of these numbers. He told Nielsen, however, that a Comfort Inn on Nielsen's site would out perform the average franchise, that the hotel would at least "break even" during the first year, and that in the worst-case scenario, Nielsen would still achieve at least a sixty percent occupancy rate.

At the November meeting and in subsequent discussions, Francois informed Nielsen that three neighboring hotels in the Roseville area had occupancy percentage rates ranging from the high seventies to the low nineties, and that Nielsen could expect to achieve similar results after one year of operation. Francois' deposition testimony disclosed that the occupancy rates of the three neighboring hotels benefitted from access to on-the-premises or nearby restaurants. In addition, two of the three neighboring hotels relied heavily on contract business, which results in high occupancy rates but discounted billing. Francois failed to disclose the significance of these features to Nielsen.

After the November meeting, Francois continued to court Nielsen. During his presentations, Francois told Nielsen that the nearby Quality Inn Civic Center would complement and improve the occupancy rate of Nielsen's Comfort Inn. At the time of this representation, the Quality Inn Civic Center's occupancy rate was thirty percent, yet Francois told Nielsen that he was "turning the hotel around." Later, while processing Nielsen's franchise application form in February 1986, Francois finally disclosed that the Quality Inn Civic Center was "in bankruptcy [and] will probably withdraw from the system." Francois thus withheld this information from Nielsen until the concluding stages of the negotiations.

With regard to operating the hotel, Francois repeatedly emphasized that management of the Comfort Inn would be easy, particularly since no food or beverage services were involved. In addition, Francois assured Nielsen that he personally, as well as Quality, would assist in operating the hotel.

In mid-December 1985, Nielsen informed Francois that he would apply for a franchise. While completing the franchise sale, Francois discouraged Nielsen from financing a feasibility or market study before finalizing the deal. According to Nielsen, Francois represented himself as a hotel industry expert who could be relied on to evaluate the project.

After Nielsen applied for the franchise, he agreed to a standard Franchise Agreement used by Quality. The Agreement contained the following stipulations:

11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties and supersedes any previous agreements and no representation, inducement, promise or agreement, oral or otherwise, not embodied herein, shall be of any force or effect.

. . . . .

16. TERMINATION OR MODIFICATION BY WRITTEN DOCUMENT. Neither this agreement nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a written instrument signed by the party against which enforcement of the change, waiver, discharge or termination is sought.

. . . . .

27. Quality does not represent or guarantee that the Franchised Inn will receive a specified amount or number of reservations through the Quality System, or that the Franchised Inn's reservations or revenue will increase by a specified number, amount or percentage. By its execution hereof, Franchisee represents and acknowledges that it has relied on no representations, written or oral, except to the extent specifically set forth herein.

After Nielsen hired a general manager and discussed the budget with him, the manager questioned the accuracy of Francois' projections and the information in the pro forma. The general manager then contacted Francois, who referred him to another Quality employee. This employee told the manager that the figures used by Francois were based on industry-wide data and indicated that the room charge quoted in the pro forma was below the market rate and thus not a profitable one for the type of hotel that Nielsen would be operating. After this information was relayed to Nielsen, Nielsen contacted the Quality employee, who confirmed the manager's report.

Nielsen's Comfort Inn opened for business in October 1987. Nielsen quickly discovered that operating a hotel was far more difficult that Francois had represented. Moreover, Francois did not assist Nielsen, and the level of assistance from Quality was not what Francois had promised. During its first year of operation, the hotel's occupancy rate was thirty-three percent. Through 1989, the hotel operated at a loss of more than $830,000, never turning a profit during any year of its existence.

DISCUSSION

CPI argues two issues on appeal: violation of the Minnesota Franchise Act and common-law fraud. In response, Quality argues that its counterclaims were improperly dismissed. Initially, however, we consider a procedural issue raised by Quality.

Appellate Jurisdiction

The district court initially dismissed CPI's action on summary judgment on May 21, 1990. On June 5, 1990, CPI filed a motion requesting the district court to vacate and reverse its May 21 decision. On June 13, 1990, the district court dismissed Quality's counterclaims. On June 19, 1990, CPI filed its notice of appeal

from the Order of the United States District Court granting Final Judgment in this action on the 13th day of June, 1990 and which incorporates the Order of the United States District Court granting defendant's motion for Summary Judgment entered in this action on the 21st day of May 1990.

On July 25, 1990, the district court denied CPI's June 5 motion to vacate. On August 17, 1990, CPI timely filed another notice of appeal from the final judgment entered by the district court on June 13 and reiterated on July 25.

Quality argues that neither CPI's June 19 nor its August 17 appeal specified the May 21 judgment as the particular decision it was appealing. See Fed.R.App.P. 3(c). In this court, "when 'the appeal is otherwise properly taken and the intent of the appellant to appeal from the final judgment is clear, we may treat the appeal as if taken from the final judgment." McGowne v. Challenge-Cook Bros., Inc., 672 F.2d 652, 659 (8th Cir.1982) (citations omitted). Here, CPI timely filed a second notice of appeal after its motion to vacate was denied, see Fed.R.App.P. 4(a)(4), and CPI...