Tripmasters, Inc. v. Hyatt Intern. Corp.

• Decision Date: 27 September 1988
• Docket Number: No. 82 Civ. 6792 (JFK).,82 Civ. 6792 (JFK).
• Citation: 696 F. Supp. 925
• Parties: TRIPMASTERS, INC., Plaintiff, v. HYATT INTERNATIONAL CORPORATION and the Acapulco Continental Hotel, Defendants.
• Court: U.S. District Court — Southern District of New York

696 F. Supp. 925

TRIPMASTERS, INC., Plaintiff, v. HYATT INTERNATIONAL CORPORATION and the Acapulco Continental Hotel, Defendants.

No. 82 Civ. 6792 (JFK).

United States District Court, S.D. New York.

September 27, 1988.

Patrick H. Barth, New York City, for plaintiff.

Elliot Schnapp, New York City (Mangone & Schnapp, of counsel), for defendants.

ORDER

KEENAN, District Judge:

On May 24, 1988, the Court received the annexed Report and Recommendation of the Honorable Sharon E. Grubin, United States Magistrate. Plaintiff has filed written objections pursuant to 28 U.S.C. § 636(b)(1); Local R. Mag. P. 7. Defendant has relied on its initial motion papers in response to plaintiff's objections. After a thorough review of all submissions and the Report, I hereby adopt the Report as the opinion of this Court.

SO ORDERED.

REPORT AND RECOMMENDATION TO THE HONORABLE JOHN F. KEENAN

SHARON E. GRUBIN, United States Magistrate:

This diversity action concerns an alleged contract for hotel accommodations in 1981 between plaintiff, a New York travel agency which arranges group tours, and defendants Acapulco Continental Hotel ("ACH") and Hyatt International Corporation ("HIC"). Plaintiff alleges that defendants breached an agreement for ACH to host one of plaintiff's tour programs. Pending before the court is a motion by ACH for dismissal on the ground of lack of personal jurisdiction. ACH argues that it is not subject to jurisdiction as it is owned and operated by Mexican corporations and sued herein as a result of business transactions that occurred solely in Mexico. Plaintiff argues that ACH is subject to this court's jurisdiction both because it "does business" here in New York and because it "transacted business" here from which the claim herein arises. The parties have engaged in full discovery on the jurisdictional issue and agreed to submit the motion on stipulated facts without an evidentiary hearing. For the reasons set forth below, I respectfully recommend that your Honor grant defendant ACH's motion because I find no basis for jurisdiction.¹

FACTS

The factual setting from which the parties draw opposite legal conclusions as to jurisdiction is basically undisputed and may be summarized as follows. Defendant ACH, a hotel in Acapulco, Mexico, is owned by Compania Operadora la Joya de Acapulco, S.A. ("la Joya"), a Mexican corporation with its principal place of business in Mexico. ACH is operated by Hoteles Exelaris, S.A. ("Exelaris") pursuant to a management agreement between Exelaris and la Joya. Exelaris is also a Mexican corporation with its principal place of business in Mexico. At no time relevant for the purposes of this motion did ACH maintain any bank, brokerage or other financial account in New York, have any interest in real property in New York, have any office in New York, have any business dealings with any New York media advertisers or send any representatives to New York for any business function. Similarly, neither the hotel's owner la Joya nor its management Exelaris has any offices, accounts or telephone listings in New York. (S.F. 1-3; ACH Int. 1, 5-11; Buenrostro Aff. ¶¶ 85, 86.)

The stock of Exelaris is owned by two corporations. Fifty-one percent is owned by Valores Industriales, S.A., a publicly-held Mexican corporation. Valores is also the owner of a separate subsidiary company (not specified by name in the record) which is the controlling shareholder of la Joya. The other forty-nine percent of Exelaris is owned by Hyatt International Corporation (Mexico) ("HIC(M)"). HIC(M) is a fully-owned subsidiary of Hyatt International Corporation (Delaware) ("HIC(D)") which, in turn, is a fully-owned subsidiary of defendant HIC. All three of these Hyatt corporations are Delaware corporations with their principal places of business in Chicago, Illinois. Throughout their papers the parties generally refer to "Hyatt" or "HIC" without differentiating as to which of the various entities they refer. For this reason and for the reason that on this motion all facts are to be construed in favor of the plaintiff, I have deemed these three companies as one for purposes of this motion and use "HIC" herein to refer to this conglomeration as one entity except where otherwise indicated.² Valores and HIC(M) hold their stock in Exelaris pursuant to a shareholders' agreement executed in October 1979. Under this agreement HIC(M) had the right for five years to maintain operating control of hotels managed by Exelaris and to propose candidates from which Exelaris was required to select its "Director General" who is apparently its chief operating executive. The agreement also provides Exelaris with a right of first refusal for operation of any new hotels in Mexico developed, operated or owned by HIC(M) or affiliated HIC companies and prohibits HIC(M) from operating any hotels in cities in Mexico where Exelaris already operates one.³ (S.F. 3-4, 6-8; Novy Dep. at 6-14; Ex. B.)

Exelaris manages ACH pursuant to a written management agreement with ACH's owner la Joya. This agreement, negotiated in Mexico with the assistance of an HIC representative from Chicago and patterned after a standard HIC management agreement, incorporates HIC's unspecified "standards of quality" for hotels bearing the "Hyatt" name. However, Exelaris did not need HIC's permission to enter into this agreement with la Joya and HIC is not a party to this agreement. (S.F. 2; Novy Dep. at 18-25, 28; Ex. A.) The agreement, entered into in May 1980, provided that la Joya would perform certain alterations, additions and improvements to the already existing hotel by December 15, 1981 to render the hotel qualified for the "5-Star" hotel classification of the Mexican Ministry of Tourism. HIC was not required to be consulted with regard to this work, but, upon completion of the work and HIC's inspection thereof, ACH's name was to be changed to include the name "Hyatt," with the understanding that such name was the exclusive property of HIC. La Joya pays a fee for the use of the Hyatt name pursuant to a separate license agreement. (ACH's name was changed to "Hyatt Continental" on April 2, 1981 and to "Exelaris Hyatt Continental Acapulco" in May 1981.) Under the agreement la Joya is required to maintain various kinds of insurance, which it does independently of any other hotels operated by Exelaris or HIC. All hotel staff are employees of la Joya, not Exelaris or HIC. La Joya pays Exelaris three percent of ACH's revenues as a basic management fee plus an additional ten percent of ACH's "gross operating profit" as an incentive fee. (S.F. 11; ACH Int. 2, 16, 17; Novy Dep. at 37-41, 43; Buenrostro Aff. ¶ 82 n. *; Ex. A. at Art. I § 2, Art. IV §§ 1, 2, Art. VIII.)

This management agreement between Exelaris and la Joya refers to a separate agreement between Exelaris and Hyatt of Hong Kong Limited ("Hyatt H.K."), yet another Hyatt corporation, whereby Hyatt H.K. is to provide to Exelaris the "Group Services and Benefits generally made available by HIC to owners of hotels throughout the world bearing the Hyatt name" (Ex. A at p. 1). The management agreement provides that Exelaris shall provide the hotel with these "Group Services and Benefits," which are defined as "inter-hotel reservation, convention and business promotion, sales promotion, publicity, public relations, and all other group benefits, services and facilities including joint advertising programs to the extent appropriate furnished to other hotels owned or operated by Exelaris or HIC and its affiliated companies." (Id. at Article VII § 2.) Hyatt H.K. is another fully owned subsidiary of HIC(D), incorporated and having its principal place of business in Hong Kong with no employees in the United States. Hyatt H.K. specializes in providing "advisorship" services in the administration and operation of hotels under HIC's "standards." The contract between Exelaris and Hyatt H.K. provides that for these services of Hyatt H.K., Exelaris is to pay Hyatt H.K. 75 percent of Exelaris' net revenues, which amount includes all royalties owed by Exelaris for use of Hyatt names and trademarks (pursuant to the separate license agreement not submitted by the parties) as well as the 49 percent share of profits due HIC(M) as shareholder in Exelaris. (S.F. 10; Novy Dep. at 25-27, 50; ACH Int. 5(f); Ex. B at ¶ II; Ex. C.)⁴

Your Honor may be wondering by now what all of the above has to do with the state of New York. The answer (according to plaintiff) is that included in the "Group Services and Benefits" provided to the hotel by Exelaris pursuant to its contract with Hyatt H.K. is participation in HIC's "Worldwide Sales Office" in New York City and in HIC's toll-free "800" telephone reservation system. The "Worldwide Sales Office" is located in office space leased by HIC and has a small number of employees and a listed New York telephone number. This office performs services primarily for hotels bearing the "Hyatt" name in the United States but provides limited information to consumers regarding group tours and conventions at hotels outside the United States and appears to have worked on ACH's behalf in the following way. When this New York office received an inquiry about a potential group or convention at ACH, that office would not take any reservations or make any commitments, but rather would contact HIC's Chicago office. The Chicago office would then telex ACH directly to determine whether accommodations were available and relay the information back to the New York office which then passed it on to the inquiring customer who would take any further steps directly with the hotel. The office neither makes nor confirms reservations for ACH, instead referring persons wishing to make reservations directly to the appropriate person at the hotel itself. From February 1980 through part of 1982, the work of one employee in the Worldwide Sales Office related solely to Hyatt hotels in Mexico, and, according to the parties,...