Gov't Guarantee Fund of the Republic of Finland v. Hyatt Corp.

• Citation: 36 V.I. 295
• Decision Date: 04 April 1997
• Docket Number: Civil No. 1995–49.
• Parties: GOVERNMENT GUARANTEE FUND OF THE REPUBLIC OF FINLAND, Saastopankkien Keskus–Osake–Pankki (Skopbank), 35 Acres Associates, 12 Acres Associates and Benefori Oy, Plaintiffs, v. HYATT CORPORATION, Defendant.
• Court: U.S. District Court — Virgin Islands

36 V.I. 295

GOVERNMENT GUARANTEE FUND OF THE REPUBLIC OF FINLAND, Saastopankkien Keskus–Osake–Pankki (Skopbank), 35 Acres Associates, 12 Acres Associates and Benefori Oy, Plaintiffs,

v.HYATT CORPORATION, Defendant.

Civil No. 1995–49.

District Court of the Virgin Islands, Division of St. Thomas and St. John.

April 4, 1997.

Owner and lender of hotel sued manager, claiming breach of management contract. Manager counterclaimed. Following summary judgment in their favor on some counterclaims, owner and lender moved for partial summary judgment on balance of claims. The District Court, Moore, Chief Judge, held that: ( l ) lender, as owner of hotel following foreclosure, could declare manager in default under management contract without complying with notice and cure provisions of contract previously afforded by owner; (2) manager was required to remit to owner sums identified as representing excess of revenues over expenses (Base Debt), even though manager claimed that payment was discretionary; (3) manager was not relieved of its obligations to remit Base Debt when it chose to disregard default notice and remained as manager; (4) there had been no waiver of right to insist upon payment of Base Debt amounts; (5) guaranty agreement signed by lender in connection with owner's performance under management agreement did not bar claim; (6) implied obligation of good faith and fair dealing was not violated by termination; (7) failure to show damages precluded recovery by manager against lender under guaranty agreement.

Summary judgment motion granted. Warren B. Cole, Richard Hunter, Hunter, Colianni, Cole & Turner, St. Croix, U.S.V.I., Michael Baylson, Edward G. Biester, III, Duane, Morris & Heckscher, Philadelphia, PA, for plaintiffs.

John Zebedee, Hymes & Zebedee, St. Thomas, U.S.V.I., R. Eric Moore, St. Croix, U.S.V.I., James Renard, John Sopuch, Jamil Alibhai, Bickel & Brewer, Dallas, TX, for defendant.

MEMORANDUM

MOORE, Chief Judge.

A hearing was held on March 12, 1997 on the plaintiffs' motion for partial summary judgment on the defendant's remaining counterclaims for breach of contract. For the following reasons, plaintiffs' motion will be granted.

I. Factual And Procedural Background

Hyatt Corporation [“Hyatt” or “defendant”] managed a resort on the island of St. John [“the hotel”] from March of 1990 until it was removed from the hotel pursuant to this Court's order in September of 1996. Government Guarantee Fund v. Hyatt Corp., 166 F.R.D. 321 (D.Vi.), aff'd,95 F.3d 291 (3d Cir.1996). In 1988, Skopbank, a Finnish banking corporation, had loaned over 100 million dollars to the former owner, Great Cruz Bay Development Co. [“Great Cruz”] to develop the hotel. Great Cruz consistently had difficulty keeping up with the mortgage payments to Skopbank. In 1990, Skopbank agreed to lend an additional $10.5 million to Great Cruz but insisted that another management company manage the hotel such as “Hyatt Corporation or another management group similar in size and reputation to the Hyatt Corporation.” (Hyatt's Second Amended Counterclaim [“Counterclaim”], at ¶ 13.)

As a result, Hyatt, Great Cruz and Skopbank entered into a series of agreements on March 9, 1990, which included (1) a management agreement [“Management Agreement”] between Hyatt and Great Cruz; (2) a transition agreement [“Transition Agreement”] between Hyatt and Great Cruz; (3) a subordination, nondisturbance and attornment agreement [“Subordination Agreement”] between Skopbank and Hyatt; (4) a letter agreement [“Letter Agreement”] between Hyatt and Great Cruz; (5) a guaranty of payment and performance signed by Skopbank [“the Guaranty”] and (6) the loan documents. The agreements are collectively referred to as the “March 1990 Agreements.”

The Management Agreement provided that Hyatt would manage the hotel for a fee. Under the Management Agreement and the Transition Agreement, the owner, Great Cruz, promised to contribute working capital and pay for the ongoing renovation program. Under the Guaranty, Skopbank promised to pay to Hyatt any working capital or renovation program expenses that Great Cruz failed to pay, subject to certain limitations. Under the Letter Agreement, Great Cruz directed Hyatt to pay directly to Skopbank any money it was supposed to pay to Great Cruz under the Management Agreement. And finally, under the Subordination Agreement, Skopbank agreed that, so long as Hyatt was not in default, the Management Agreement would remain undisturbed in the event of a foreclosure of the hotel.

In 1991 Skopbank began foreclosure proceedings against Great Cruz in this Court (Civil Number 1991–355), under the supervision of Senior District Judge Stanley S. Brotman, sitting by designation. Control of Skopbank in the interim had been taken over by the Government Guarantee Fund [“GGF”], a Finnish governmental agency, as part of GGF's handling of the Finnish banking crisis. The foreclosure litigation was settled in February of 1995. As part of the settlement and pursuant to a court order to pay to Great Cruz, Hyatt released $5.4 million from the hotel accounts. (Response of Hyatt in Opp'n Mot. Partial Summ. J. of Skopbank & 35 Acres [“Response”] at 62.) At the judicial sale on March 20, 1995, the hotel was purchased by 35 Acres, a general Virgin Islands partnership consisting of two Finnish corporations, which are each wholly owned by Skopbank. (Counterclaim ¶¶ 48–50; Statement of Uncontested Facts, found in Mot. Partial Summ. J. of Skopbank & 35 Acres [“Uncontested Facts”] Nos. 34, 35.)

This litigation soon followed. On March 16, 1995, four days before the foreclosure sale, GGF and Skopbank filed this suit against Hyatt seeking a declaratory judgment finding Hyatt in breach of the March 1990 Agreements and alleging various claims in tort and contract. GGF and Skopbank filed an amended complaint on November 8, 1995, adding 35 Acres, 12 Acres and Benefori Oy as additional plaintiffs.¹ All of the plaintiffs, excluding GGF (which has withdrawn as a plaintiff), are referred to collectively as the “Skopbank Parties.” On April 25, 1995 Hyatt filed suit against 35 Acres (Civil No.1995–68), which the Court dismissed in January of 1996. Hyatt Corp. v. 35 Acres Assoc., No. Civ.1995–49, 1995–68, 1996 WL 165008 (D.V.I. Jan. 8, 1996). Subsequently, the Court granted partial summary judgment in favor of 35 Acres and held that the agency relationship with Hyatt was terminated as a matter of law, that 35 Acres was entitled to possession of the hotel, and that Hyatt must leave the premises. GGF v. Hyatt, 166 F.R.D. 321. Hyatt stayed on as manager of the hotel pending its appeal of that order to the United States Court of Appeals for the Third Circuit, and only vacated the hotel premises in September of 1996 after the Court of Appeals affirmed this Court in all respects. GGF v. Hyatt, 95 F.3d 291.

In January of 1997 this Court granted, in part, Skopbank's motion to dismiss or strike Hyatt's Counterclaim. GGF v. Hyatt Corp., 955 F.Supp. 441 (D.V.I. 1997). The Court also granted GGF's motion to be allowed to withdraw as a plaintiff. Id. All that remains of Hyatt's Counterclaim are the causes of action for breach of contract against Skopbank and 35 Acres (Count One), breach of Guaranty of payment and performance against Skopbank (Count Ten) and part of the tortious interference with contracts against Skopbank and GGF (Count Three). The Skopbank Parties, plus GGF solely as counter-defendant, now seek, and this Court will grant, summary judgment on Counts One and Ten, finding that as a matter of law Hyatt cannot prevail on its causes of action for breach of contract and breach of Guaranty. Because it depends upon the viability of the breach of contract counts, Count Three, Hyatt's tortious interference cause of action against Skopbank and GGF, necessarily falls. Accordingly, Hyatt's Second Amended Counterclaim will be dismissed in its entirety, and GGF is no longer a party to this case in any capacity.

The liability phase of the Skopbank Parties' contract claims against Hyatt will be tried to the Court sitting without a jury during the week of April 28, 1997.² The Skopbank Parties's other causes of action and damages, if any, will be scheduled and tried to the Court once the parties have had an opportunity to complete discovery on these phases of the case.

II. DiscussionA. Standards for Summary Judgment

Summary judgment is appropriate “if the pleadings ... together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509–10, 91 L.Ed.2d 202 (1986). Summary judgment may be entered “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Once the moving party properly supports its motion for summary judgment, the non-moving party must establish a genuine issue of material fact in order to preclude a grant of summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585–86, 106 S.Ct. 1348, 1355–56, 89 L.Ed.2d 538 (1986). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment[.]” Anderson, 477 U.S. at 247–48, 106 S.Ct. at 2510. In addition “a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.” Celotex, 477 U.S. at 323, 106 S.Ct. at 2552.

B. Preliminary Matters

Along with the motion for partial summary judgment, the parties have submitted various related motions concerning the evidence placed before the Court. These include Hyatt's “Motion to Strike and Objections to...