Construction Interior Systems, Inc. v. Marriott Family Restaurants, Inc.

Decision Date02 April 1993
Docket Number91-3373,Nos. 91-3330,s. 91-3330
Citation984 F.2d 749
CourtU.S. Court of Appeals — Sixth Circuit

Larry A. Temin, Charles G. Atkins (argued and briefed), Strauss & Troy, Cincinnati, OH, for plaintiff-appellee.

Thomas E. Palmer (briefed), William A. Klatt (argued and briefed), Squire, Sanders & Dempsey, Columbus, OH, for defendant-appellant.

Before JONES and NORRIS, Circuit Judges, and JOINER, Senior District Judge. *

JOINER, Senior District Judge.

The defendant, Marriott Family Restaurants, Inc., appeals, and the plaintiff, Construction Interior Systems, Inc., cross-appeals the district court's judgment for Construction Interior Systems, Inc., in this diversity contract action based upon an alleged breach of a settlement agreement. For the reasons that follow, we reverse the judgment of the district court.


The plaintiff in this action is Construction Interior Systems, Inc. (CIS), a company engaged in refurbishing motel rooms. The defendant is Marriott Family Restaurants, Inc. (Marriott), a corporation which previously conducted business as the Howard Johnson Company (Howard Johnson). John Penker, CIS's president, and his associate, Lowell Cady formed CIS in 1979. From 1980-83, CIS performed 90 to 95 percent of its work for Howard Johnson. In 1983, a dispute, over an issue that remains unidentified in the record, arose between CIS and Howard Johnson. As a result, Howard Johnson removed CIS from its list of approved bidders for future work and cancelled all then-current contracts with CIS.

CIS protested Howard Johnson's actions. The parties negotiated the dispute extensively and resolved their differences in a meeting. The terms of their settlement were set out in two letters: one dated January 24, 1984, sent by John Sterns, a vice president at Howard Johnson, to Penker, and one dated February 1, 1984, sent by Penker to Stearns. The parties agreed that CIS would release all claims that it had against Howard Johnson arising out of the cancelled contracts in exchange for Howard Johnson's promise of the following:

We agree immediately to put you on the bidders' list for construction and rehab work. If after one year from this date you have not been the successful bidder on $300,000 worth of work, we agree to negotiate with you in good faith, subject to prevailing rates and quotes, for the performance by you of work which, together with the amount of work you may have been awarded during the prior year, would equal the sum of $300,000.

The parties further agreed that Howard Johnson could cancel any contract with CIS and again remove the company from the bidders' list if the work was not properly performed but that Howard Johnson would, in that event, pay CIS the sum of $15,000.

Marriott contends that Howard Johnson restored CIS to the bidders' list by early February 1984 just as it had agreed to do. Marriott insists, however, that every contractor on the bidders' list was not solicited for bids on every project; moreover, Marriott claims that solicited bids were evaluated based upon a number of factors, and projects were usually, but not necessarily, awarded to the lowest bidder.

On the other hand, CIS contends that it was one of the four primary bidders on Howard Johnson's list for motor lodge refurbishing work, that it had received invitations to bid on all such work for Howard Johnson in the past, and that it had been successful approximately 55 percent of the time. CIS alleges that because the bidders were pre-approved, Howard Johnson awarded contracts for the refurbishing work to the lowest bidder. Thus, in CIS's view, the settlement agreement provision requiring Howard Johnson to restore CIS to the bidders' list meant that CIS would have the opportunity to bid on all refurbishing work as it had before the dispute.

CIS did not receive an invitation to bid for motor lodge room refurbishment work in January or February of 1984. Defendant does not dispute this. In early March 1984, CIS attempted to reach Howard Johnson to find out what bids were upcoming. In late April 1984, Howard Johnson responded, apprising CIS of the fact that all 1984 refurbishment work already had been contracted. Penker then wrote to Robert Wickham, another vice president of Howard Johnson who had been involved in negotiating the settlement agreement, stating his regrets that all 1984 work had been awarded to other contractors. He further stated:

Unfortunately, these circumstances suggest that we will not have an opportunity to re-establish a working relationship with your company for the major portion of this year as hoped and anticipated by our recent agreement. We wish to recommend therefore that our agreement be extended to cover the 1984-85 fiscal year in lie[u] of discussing any cash settlement necessary to terminate our agreement.

Wickham responded in May 1984, confirming that all 1984 work had been awarded and consenting to extend the agreement as Penker requested to cover the 1984-85 fiscal year.

By the spring of 1985, it became clear that the potential for Marriott Corporation to buy out Howard Johnson was great, and, as a result, all refurbishing work was put on hold until the new management came in to make decisions. By June of 1985, CIS apparently was aware of this situation--albeit from outside sources--as evidenced by a June 11 letter Penker sent to Stearns asking what impact all of these events would have on the settlement agreement.

Assuming that our knowledge is reasonabl[y] accurate and a sale could occur in 1985 we are concerned first that our settlement agreement will transfer and be recognized by any new ownership and secondly, that the agreement terms can be fulfilled in 1985 since a change in ownership could result in delays of renovation programs while a reassessment or restructuring period occurs within the Company.

Stearns responded that Howard Johnson intended for CIS to continue to receive bid invitations, with the hope that their former business relationship would resume.

In November 1985, Marriott Corporation purchased the stock of Howard Johnson, and Howard Johnson began doing business under the name Marriott Family Restaurants, Inc. Contemporaneously, the motor lodges were sold separately to a new and unrelated entity, Howard Johnson Corporation, Inc. (HJC), a wholly-owned subsidiary of Prime Motor Inns, Inc. All contracts specifically relating to the motor lodges were transferred, along with the lodges themselves, under an indenture of transfer. Additionally, HJC entered into an assumption and indemnity agreement pursuant to which it assumed all obligations and liabilities relating to the assets, including claims arising from contractual obligations undertaken or assumed by Howard Johnson during the time when it was the owner of the assets. In 1986, HJC accepted and awarded bids for the 1985 motor lodge refurbishment program, which had been held in abeyance by Howard Johnson pending the purchase of the company. CIS was on the bidders' list HJC obtained from Howard Johnson. CIS was the successful bidder on four of these 1985 projects, giving the contractor in excess of $495,000 worth of refurbishment work.

Defendant asserts that the $495,000 worth of work given to CIS by HJC was in satisfaction of the settlement agreement. CIS complains to the contrary that from 1984 to 1985, Howard Johnson--as opposed to HJC--gave CIS only four invitations to bid on projects, two of which were not the type of work CIS was qualified to do. CIS was not the low bidder on the remaining two and was not awarded the project. CIS alleges that it was never reinstated on Howard Johnson's bidders' list, as CIS understood that term to mean, and that it never had the opportunity to bid on the 1500 rooms that constituted the 1984 refurbishment work or on the over 12,000 rooms that were in the 1985 and subsequent refurbishing programs. Cady, of CIS, alleges that on March 5, 1986, after Marriott had become the owner of the company, he spoke with David Vancura, the head of Marriott's architectural, design, and construction department, who told him that Marriott intended to work with only local, as opposed to national, contractors on refurbishment jobs in the future. During negotiations in an April 1986 meeting, a Marriott attorney, Mr. Peltz, said that he could not give Cady an answer about the settlement agreement at that time. Peltz later stated to Cady that "he could not do anything for [CIS]." CIS insists that this statement constituted a repudiation of the settlement agreement and that Marriott never offered to cure the repudiation. 1

CIS filed suit in federal court, asserting that the settlement agreement was void and alleging claims relating to the originally disputed projects. The district court granted Marriott's motion for partial summary judgment on the ground that the settlement agreement between CIS and Howard Johnson was valid and constituted a full and complete settlement of all CIS's original claims. The district court held that any claims of CIS were limited solely to those based on the terms of the settlement agreement.

CIS amended its complaint, seeking damages for the alleged breach of the settlement contract. The named defendants were Marriott Corporation (parent corporation that purchased the stock of Howard Johnson in 1985); Marriott Family Restaurants, Inc. (Howard Johnson doing business under a new name); and the new entity known as HJC (which purchased the motor lodges from the old Howard Johnson).

The defendants filed a motion for summary judgment on the grounds that (1) their obligations under the settlement agreement were satisfied because CIS received in excess of $300,000 worth of motor lodge refurbishment work; (2) if not, any potential damages recoverable by CIS must...

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