In Town Hotels Ltd. Partbership v. Marriott Inter.

• Decision Date: 25 February 2003
• Docket Number: No. CIV.A. 2:02-0481.,CIV.A. 2:02-0481.
• Citation: 246 F.Supp.2d 469
• Court: U.S. District Court — Southern District of West Virginia
• Parties: IN TOWN HOTELS LIMITED PARTNERSHIP, fka In Town Hotels, Ltd., and in Town Hotels, Inc., Plaintiffs, v. MARRIOTT INTERNATIONAL, INC., and Avendra, LLC, Defendants.

246 F.Supp.2d 469

IN TOWN HOTELS LIMITED PARTNERSHIP, fka In Town Hotels, Ltd., and in Town Hotels, Inc., Plaintiffs, v. MARRIOTT INTERNATIONAL, INC., and Avendra, LLC, Defendants.

No. CIV.A. 2:02-0481.

United States District Court, S.D. West Virginia, Charleston Division.

February 25, 2003.

COPYRIGHT MATERIAL OMITTED

Benjamin L. Bailey, Brian A. Glasser, & Jennifer S. Fahey, Bailey & Glasser, LLP, Charleston, WV, Edward P. Tiffey, Charleston, WV, William M. Bosch & Brian H. Corcoran, Katten Muchin Zavis Rosenman, Washington, DC, for Plaintiffs In Town Hotels Limited Partnership and In Town Hotels, Inc.

James R. Snyder & John Philip Melick, Jackson Kelly PLLC, Charleston, WV, Karen Grubber, Marriott International, Inc., Bethesda, MD, Patrick Lynch, O'Melveny & Myers, Los Angeles, CA, for Defendant Marriott International, Inc.

John J. Polak, Rose & Atkinson, Charleston, WV, Mark London & Christopher B. Mead, London & Mead, Washington, DC, for Defendant Avendra, LLC.

MEMORANDUM OPINION AND ORDER

GOODWIN, District Judge.

Pending is defendant Marriott International, Inc.'s motion to dismiss Counts IV and XIV [Docket 15] and defendant Avendra, LLC's motion to dismiss all counts [Docket 18]. For the following reasons the court DENIES Marriott's motion to dismiss Counts IV and XIV. The court GRANTS in part and DENIES in part Avendra's motion to dismiss all counts. Specifically, the court DISMISSES count VI (fraud) as against Avendra for failure to plead fraud with specificity.

I. Background

The plaintiffs, In Town Hotels Limited Partnership and In Town Hotels, Inc. (collectively, "In Town Hotels"), brought suit against Marriott International, Inc. (Marriott) and Avendra, LLC (Avendra), alleging breach of contract, breach of fiduciary duty, negligence, and fraud arising out of Marriott's management of the plaintiffs' hotel, known as the Charleston Town Center Marriott (the Hotel). In an amended complaint, the plaintiffs further alleged that Marriott and Avendra violated the West Virginia Unfair Practices Act (WVUPA), W. Va.Code § 47-11A-3, as well as § 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), a federal antitrust provision which prohibits the payment and acceptance of commissions that are not in exchange for services rendered.

Because the court is considering motions to dismiss, the following facts are set out as alleged by the plaintiffs in the complaint. For approximately twenty years the plaintiffs have contracted with Marriott to manage the plaintiffs' Hotel. Under the terms of the contract, Marriott is granted unfettered authority to manage and control the Hotel. The contract purports to create an agency relationship between Marriott and In Town Hotels whereby Marriott has a fiduciary duty to operate the Hotel solely for the benefit of the plaintiffs. The contract provides that Marriott's compensation for its services would consist solely of management fees as set forth in the agreement. For the purpose of their antitrust claim, the plaintiffs allege that Marriott, acting in conjunction with Avendra, entered into exclusive or preferred contracts with vendors to provide goods to the Hotel. In so doing, Marriott and Avendra solicited and received "sponsorship funds," which were payments and rebates by vendors made in the course of selling, or in exchange for the opportunity to sell, goods to the Hotel. Marriott and Avendra retained these payments and rebates for themselves and did not disclose them to the plaintiffs. As a consequence, the plaintiffs allege, the Hotel has been restricted in its choice of vendors, has paid a higher price for goods than it would otherwise have paid, and has suffered vis-a-vis rival hotels (some of which are owned or managed by Marriott) that are not paying these higher prices.

According to the plaintiffs, this scheme violates, among other things, section 2(c) of the Robinson-Patman Act as well as the WVUPA, and entitles them to treble damages. Marriott moved to dismiss both of these claims. Marriott argues that the plaintiffs have failed to allege that they have suffered an antitrust injury and that without such an allegation they lack standing to bring a section 2(c) claim. In addition, Marriott argues that the plaintiffs have failed to allege an injury to a competitor, a requirement of § 47-11A-3 of the WVUPA. The plaintiffs respond that they have adequately plead the necessary injuries for both statutes.

Avendra filed a separate motion to dismiss all claims against it. It joins in Marriott's arguments regarding the Robinson-Patman Act and the WVUPA. It also claims that the contract specifically authorizes all of the alleged conduct, and thus that all counts should be dismissed. Finally, it argues that the bulk of the plaintiffs' claims are fraud-based and that these claims must be dismissed because the plaintiffs have failed to plead fraud with particularity. The plaintiffs respond that the contract does not authorize the conduct in question, and that they have plead all counts with adequate specificity.

The court will first address Marriott's motion regarding the Robinson-Patman Act and the WVUPA. The court will then turn to Avendra's additional grounds for dismissal.

II. Marriott's Motion to Dismiss

A. Robinson-Patman Act section 2(c) Claim

The plaintiffs allege that Marriott's receipt of undisclosed payments and rebates in the course of purchasing goods for the Hotel violates section 2(c) of the Robinson-Patman Act. Section 2(c) provides, in pertinent part, that:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, ... except for services rendered in connection with the sale or purchase of goods, wares, or merchandise ....

15 U.S.C. § 13(c) (West 2003). This provision has been described as a "prolix and obscure statute [which] is a model of bad drafting." XIV Herbert Hovenkamp, Antitrust Law ¶ 2362, at 219 (1999) [hereinafter Hovenkamp]. Thankfully, the Supreme Court has provided a useful explanation of the intent and function of section 2(c). In FTC v. Henry Broch & Co., 363 U.S. 166, 80 S.Ct. 1158, 4 L.Ed.2d 1124 (1960), the Court explained that "[t]he Robinson-Patman Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power." Id. at 168, 80 S.Ct. 1158. Prior to the Act, large buyers were obtaining indirect price concessions while evading the Clayton Act's prohibitions on direct price discrimination. Id. at 168-69, 80 S.Ct. 1158. They did this by "setting up `dummy' brokers who were employed by the buyer and who, in many cases, rendered no services. The large buyers demanded that the seller pay `brokerage' to these fictitious brokers who then turned it over to their employer." Id. at 169, 80 S.Ct. 1158.

In response to this practice, Congress passed section 2(c) of the Robinson-Patman Act, which prohibits brokerage or similar payments in the absence of services rendered for those payments. "Congress in its wisdom phrased section 2(c) broadly, not only to cover the other methods then in existence but all other means by which brokerage could be used to effect price discrimination." Id. Indeed, the Court noted that "the [Congressional] debates on the bill show clearly that section 2(c) was intended to proscribe other practices such as the `bribing' of a seller's broker by the buyer." Id. at 169 n. 6, 80 S.Ct. 1158 (citing 80 Cong. Rec. 7759-60, 8111-12). Thus, the Court indicated in Henry Broch & Co. that section 2(c) reaches commercial bribery as well as the use of dummy brokers to obtain indirect price discrimination. This statement from Henry Broch & Co. has been characterized as dicta, but most courts interpreting section 2(c) have concluded that it does prohibit commercial bribery. See Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 903 F.2d 988, 992 & n. 6 (4th Cir.1990) ("commercial bribery" language is dicta, but noting cases recognizing section 2(c)'s application to commercial bribery).

In this case, the plaintiffs allege that Marriott, acting in conjunction with Avendra, received rebates and payments—socalled "sponsorship funds"—from vendors in the course of or in exchange for the opportunity to do business with the Hotel. These payments and rebates were not related to services rendered by Marriott, the plaintiffs allege, but were essentially commercial bribes of Marriott, which was supposed to be acting solely in the interest of In Town Hotels, not in its own conflicting self-interest. Marriott has not asserted that section 2(c) does not reach commercial bribery, nor has it attacked the merits of the plaintiffs claim under section 2(c). Rather, Marriott argues that even if the plaintiffs have adequately stated a section 2(c) claim, they lack standing to pursue that claim because they have not alleged an antitrust injury.

The private cause of action for antitrust violations is provided in section 4 of the Clayton Act, which states that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States." 15 U.S.C. § 15(a) (West 2003). According to the Supreme Court, this means that not every private party who is somehow injured as a result of conduct forbidden by the antitrust laws has standing to bring a private antitrust suit. Rather, an antitrust plaintiff "must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). Accordingly, even when a plaintiff properly alleges a clear antitrust violation, the plaintiff will nonetheless suffer dismissal if it does...