Picture Lake Campground v. Holiday Inns, Inc.

• Decision Date: 13 August 1980
• Docket Number: Civ. A. No. 79-0972-R.
• Parties: PICTURE LAKE CAMPGROUND, INC., etc., et al. v. HOLIDAY INNS, INC., etc.
• Court: U.S. District Court — Eastern District of Virginia

497 F. Supp. 858

PICTURE LAKE CAMPGROUND, INC., etc., et al. v. HOLIDAY INNS, INC., etc.

Civ. A. No. 79-0972-R.

United States District Court, E. D. Virginia, Richmond Division.

August 13, 1980.

COPYRIGHT MATERIAL OMITTED

Charles F. Witthoefft, Richmond, Va., for plaintiffs.

Thomas G. Slater, Jr., Richmond, Va., for defendants.

MEMORANDUM AND ORDER

WARRINER, District Judge.

I

Picture Lake Campground, Inc. (Picture Lake), a Virginia Corporation and a franchisee in the Trav-L-Park system, and First Management Corporation (First Management), another Virginia corporation, bring this action against Holiday Inns, Inc. (Holiday Inns), a Tennessee Corporation, and the franchisor of the Holiday Inn Trav-L-Park system, for damages with respect to a Trav-L-Park franchise transaction.¹

In September of 1971 First Management applied to Holiday Inns for a franchise in the Holiday Inn Trav-L-Park system, a franchised recreational vehicle campground system offering camper rental spaces, recreation, food, and other accommodations, and using Holiday Inns trade names, trademarks, and service marks. A Commitment Agreement dated 29 October 1971 was issued to First Management and the application was approved by Holidays Inns by letter dated 2 November 1971. The Commitment Agreement, which required the fulfillment of certain conditions for constructing and equipping the Trav-L-Park, was executed by First Management and was returned to Holiday Inns in January 1972 along with a letter dated 13 January 1972 requesting that the License Agreement be issued in the name of Picture Lake Campgrounds, Inc. In July, 1972 Picture Lake and Holiday Inns executed a written License Agreement and the Holiday Inn Trav-L-Park of Petersburg, Virginia, was opened to the public.

Plaintiffs allege that Holiday Inns has breached the License Agreement and has effectively discontinued the development of the Trav-L-Park franchise system, thus destroying its value, in violation of representations made by Holiday Inns to plaintiffs, thereby causing plaintiffs considerable damage. Specifically, the complaint sets forth seven grounds for recovery:

1. Count One: breach of contract and breach of warranty;

2. Count Two: tortious interference with business;

3. Count Three: conspiracy to injure business;

4. Count Four: negligent breach of contract;

5. Count Five: fraud and misrepresentation;

6. Count Six: violations of the Virginia Retail Franchising Act; and,

7. Count Seven: breach of fiduciary duty.

The parties are presently before the court pursuant to three motions to dismiss filed by Holiday Inns. Respective counsel having briefed the issues raised thereby, the motions are ripe for disposition.

II

Holiday Inns filed a motion to dismiss First Management from Counts One, Two, Three, Four and Six of plaintiffs' complaint for lack of standing. The legal issues posed with respect to each count will be considered seriatim.

a. Count One

The gravamen of Count One is that "Holiday Inns by its actions and inactions has breached and violated the License Agreement, and its various warranties and representations, in several material respects and has effectively abandoned the Trav-L-Park system and the remaining licensees." In support of its motion to dismiss First Management from Count One for lack of standing, Holiday Inns has referred the Court to the general rule that in order to have standing to sue on a contract, one must either be a party to the contract, or be in privity with the contract.²

It is Holiday Inns' contention that First Management is not a party to nor is it in privity with the License Agreement and, therefore, it should be dismissed as to Count One for lack of standing. Plaintiffs' response to this contention is twofold. First, plaintiffs assert that in Count One First Management has stated a cause of action for breach of the Commitment Agreement. Secondly, while plaintiffs concede that First Management is not a party to or in privity with the License Agreement, plaintiffs assert nevertheless that First Management has standing to sue as a third party beneficiary of the License Agreement.

With respect to the cause of action for breach of the Commitment Agreement, the Court notes that Paragraph 18 of the complaint contains a specific allegation as to Holiday Inns' breach of the License Agreement, but it contains no such allegation as to the Commitment Agreement. The mere references to the Commitment Agreement in Paragraph 17 and to the breach of various warranties and representations in Paragraph 8 are insufficient to state a breach of the Commitment Agreement. Accordingly, with respect to the Commitment Agreement, First Management has failed to state a claim for which relief can be granted. Fed.R.Civ.P. 12(b)(6).

With respect to the third party beneficiary theory, the parties have correctly identified the ultimate issue as to whether the parties to the License Agreement, Picture Lake and Holiday Inns, intended to benefit First Management through the making of the contract.³ The Court is constrained to point out, however, that Count One is devoid of any allegations as to First Management's right to recover from Holiday Inns as a third party beneficiary of the License Agreement. Indeed, plaintiffs make this allegation for the first time in their Brief in Opposition to Holiday Inns' motion to dismiss. Until plaintiffs' complaint is formally amended to reflect the third party beneficiary claim, First Management has not stated a claim for which relief can be granted. Fed.R.Civ.P. 12(b)(6).

Since First Management is not a party to nor in privity with the License Agreement, and since First Management has not otherwise stated a claim for which relief can be granted, First Management is DISMISSED from Count One of the complaint with leave to amend.

b. Count Two

Count Two alleges a common law claim for tortious injury to business and property.⁴ In support of its motion to dismiss First Management from Count Two for lack of standing, it is Holiday Inns' contention that First Management and Picture Lake are two corporations engaged in separate businesses: First Management is in the business of owning and leasing the Picture Lake Property to Picture Lake, and Picture Lake is in the business of leasing and operating the Holiday Inn Trav-L-Park of Petersburg. The allegations in Count Two, Holiday Inns further contends, could directly injure only the Trav-L-Park business of Picture Lake and could only indirectly or consequentially injure First Management's business of owning and leasing the Picture Lake property.

While admitting that First Management and Picture Lake are engaged in distinct businesses, plaintiffs argue that "the business and property interest of First Management and Picture Lake are completely intertwined and were and are dependent upon the success of the Trav-L-Park System." Moreover, plaintiffs argue that First Management, as the owner of the Picture Lake property, has a property interest at stake which has been injured by the conduct of Holiday Inns, thereby affording First Management standing to sue.

The Court is unconvinced by plaintiffs' argument that First Management is entitled to sue for tortious injury to business or property because the business and property interest of First Management and Picture Lake are allegedly intertwined and dependent upon the success of the Trav-L-Park system. With respect to the Trav-L-Park franchise, the officers and directors of First Management determined that two corporations were necessary, one to own and lease the Picture Lake property, and one to manage and operate the Trav-L-Park. Whether that determination was made for liability or tax purposes is irrelevant. Once the decision was made, plaintiffs were bound by the disadvantages as well as the advantages of separate incorporation.

As the Fourth Circuit stated in Terry v. Yancey, 344 F.2d 789 (4th Cir. 1965):

A corporation is, of course, an entity separate and apart from its officers and stockholders, and where an individual creates a corporation as a means of carrying out his business purposes he may not ignore the existence of the corporation in order to avoid its disadvantages.

Id. at 790.

The Court believes that the logic of this statement applies with equal force to a sister corporation as well as to a stockholder of the corporation. Thus, the Court concludes that First Management has no independent standing to sue simply because the business and property interest of First Management and Picture Lake are allegedly intertwined and dependent upon the success of the Trav-L-Park system.

To have standing to sue for damages for tortious injury to business or property, First Management must have an interest in the business or property allegedly injured. Keepe v. Shell Oil Co., 220 Va. 587, 590, 260 S.E.2d 722, 724 (1979). In addition, just as a stockholder of a corporation has no standing to sue third parties for wrongs inflicted by those third parties upon the business and property interest of the corporation, it is evident that First Management has no standing to sue Holiday Inns for wrongs allegedly inflicted by Holiday Inns on the business or property interest of Picture Lake.⁵ Moreover, the Court believes that First Management has no standing to sue for injuries inflicted indirectly or consequentially upon the business or property interest of First Management as a result of the alleged tortious conduct of Holiday Inns towards Picture Lake. The parties have not cited and the Court is not aware of any authority to the contrary.

Applying these principles to Count Two of the complaint, the Court concludes that plaintiffs have not alleged that First Management has suffered any direct injury to its business and property interest in the Picture Lake Property as a result of the alleged tortious conduct of Holiday Inns.⁶ This being the case, First Management is DISMISSED from Count Two of the complaint with leave to amend.

c. Count...