Louisa Lodging, LLC v. Falls Creek, Inc.

Filing 70

MEMORANDUM OPINION & ORDER: IT IS HEREBY ORDERED that Plaintiff Louisa Lodging, LLC's Motion for Partial Summary Judgment DE 44 be OVERRULED and Defendant Falls Creek, Inc.'s Motion for Summary Judgment DE 54 be SUSTAINED. Signed by Judge Henry R. Wilhoit, Jr on 11/14/18.(KSS)cc: COR

UNITED ST ATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
ASHLAND

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CIVIL ACTION NO. 16-151-HRW
LOUISA LODGING, LLC,
v.

PLAINTIFF,

MEMORANDUM OPINION AND ORDER

FALLS CREEK, INC.

DEFENDANT.

This matter is before the Court upon Plaintiff Louisa Lodging, LLC's Motion for Partial
Summary Judgment [Docket No. 44] and Defendant Falls Creek, Inc.'s Motion for Summary
Judgment [Docket No. 54]. The motions have been fully briefed by the parties [Docket Nos. 441, 54-1, 55, 56, 59 and 65]. For the reasons set forth herein, the Court finds that Defendant is
entitled to judgment as a matter of law.

I.
This cases arises from an almost twenty year lease of property in Louisa, Kentucky.

A.

The Lease

Falls Creek, Inc. is a Kentucky entity that develops land at the intersection of U.S. Route
23 and Kentucky Route 3 in Louisa, Kentucky. Louisa Lodging is a South Dakota Limited
Liability Company. In early 1997, the parties entered into a lease. [Lease, Docket 1-3]. By the
terms of the Lease, Louisa Lodging agreed to lease a portion of Falls Creek's property for a term
of forty years for the purpose of constructing and operating a Super 8 Motel. Id at p.1.
According to Falls Creek, this relationship continued amicably for two decades.
On June 2, 2016, Joel W. Albrecht, Treasurer of Louisa Lodging, LLC, sent a

letter to Mark Clevenger of Falls Creek advising him that Louisa Lodging had entered into a
Purchase and Sales Agreement with three individuals prospective purchasers for the Super 8
Motel. [Docket No. 61-9]. Those individuals were identified as Pramod Kumar Patel, Nilesh
Patel and Vipul Parmar.
The potential sale of the motel implicated several provisions of the Lease. First, the Lease
states that Louisa Lodging "covenants and agrees that it will not sell, assign, sublease, mortgage,
pledge or otherwise transfer or encumber ... this Lease ... without having first obtained the written
consent of' Falls Creek. [Docket No. 1-3, at p. 4].
The Lease also provides that Falls Creek has the discretion to approve or disapprove any
potential assignment of Louisa Lodging's interest. Id.
The Lease requires Louisa Lodging to provide Falls Creek with any requested
information to assist it with its evaluation of any potential assignee:
[Falls Creek] shall thereafter have at least sixty (60) days
time to conduct an examination of the purchaser's credit

standing, financial condition, business suitability to
function as a lessee of [Falls Creek] and to evaluate the
proposed sale of [Louisa Lodging's] business. In this
respect, [Louisa Lodging] and purchaser(s) shall provide

[Falls Creek] with all information as [Falls Creek]
requests for purposes of making its examination of
purchaser's credit standing.
[Docket No. 1-3](emphasis added).
The Lease also provides that if it is Falls Creek's "opinion, based upon objective
and accepted business practices, such person does not have sufficient credit

standing or business experience to function as a tenant in the manner required by
this Agreement, then [Falls Creek] shall notify [Louisa Lodging] in writing of its opinion
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and may refuse to permit the contemplated sale". Id at p. 6 (emphasis added).
Further, per the express terms of the Lease, "[Falls Creek] shall not be held liable for
any losses caused [Louisa Lodging] by such disapproval or conditioned approval." Id. at p.
6. (emphasis added).
Finally, under the Lease, Louisa Lodging agreed to remain as a guarantor under the Lease.
The Lease specifies that Louisa Lodging "shall remain fully liable for all of it's
[sic] obligations hereunder, notwithstanding any such assignment or sublease." Id. at p. 5.
B.

The potential sale and assignment.

Shortly after being notified of the potential sale, by letter dated June 16, 2016, Clevenger
sought clarification of the proposed transaction and certain financial information regarding the
potential buyers, including certified financial statements of the purchasers, credit check and
possible background check on each potential owner, detailed information concerning the
experience of the proposed purchasers in operating motel properties and federal tax returns of the
proposed purchasers for the past three years .. [Docket No. 61-10].
Louisa Lodging sent several documents to Clevenger. Clevenger, however, felt that
information provided was incomplete or otherwise inadequate. [Docket No. 61-12]. Moreover,
despite Louisa Lodging agreeing to guaranty the assignees, it informed Falls Creek that all of its
assets would be liquidated after assignment, thus, according to Clevenger, rendering any guaranty
of Louisa Lodging effectively meaningless. [Docket No. 61-11].
Falls Creek expressed its concern to Louisa Lodging regarding the lack of information on
the proposed assignees, and stated that the information provided showed that the "proposed
acquirer may not have sufficient credit standing or business experience; although we do not have

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the detailed information as to the purchaser's credit worthiness and experience to finalize that
decision." [Docket No. 61-13]. However, as a nod to the longstanding relationship, Falls Creek
offered a conditional acceptance of the assignment and stated that "with an acceptable guarantor

their [Louisa Lodging's] proposed buyers could be approved very quickly."Jd.
No further information regarding the potential assignees was provided by Louisa
Lodging. Nor did Louisa Lodging conduct any due diligence of its own into the prospective
purchasers' ability to operate the hotel, as Falls Creek requested. Albrecht never spoke with the
three potential purchasers; he merely "scanned" through their financial information. [Deposition
of Joel Albrecht, Docket No. 61-2, p. 67].
On October 4, 2016, Louisa Lodging provided a "Conditional Loan Commitment" to
support the prospective purchasers creditworthiness, the terms of which, despite the
admitted lease obligation, specifically included a provision requiring Louisa Lodging be
released "from all obligations pursuant to the existing Ground Lease" contrary to the
terms of Lease and Falls Creek's repeated requests that Louisa Lodging abide by the
terms of the Lease by providing a guaranty. [Docket No. 61-14]. As stated supra, such a
condition was not only unacceptable to Falls Creek, but violated the terms of the Lease, which
required that Louisa Lodging remain obligated under any assignment.
Yet, a few days later, by letter from Clevenger to Albrecht, Falls Creek offered to accept
the current proposed purchasers with a guarantee by Louisa Lodging, and again outlined its
concerns and reasons for its conditional approval, to-wit, that the "cash allegedly held by the
purchasers is unverified"; the amount of assets compared with the amounts to be placed as down
payment leave a small amount for operations of the Motel; the fact that a mortgage lien would be

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placed on the facility and the previous net income for the years being so low that it would not
cover the debt; and the claims that the potential purchasers intend to increase profitability but no
specifics as to how this is to be accomplished. [Docket No. 61-15].
Louisa Lodging did not respond directly to this offer of conditional acceptance.
Instead, Louisa Lodging sent Falls Creek with a Renewed Conditional Loan Commitment issued
by Citizens Bank of Kentucky for the potential sale. [Docket No.; 61-16]. For the first time, this
revised Loan Commitment removed any language regarding the release of Louisa Lodging, but
provided that the loan was now being extended to an unknown and previously undisclosed
purchaser, Bhoomi, LLC, not the three individuals previously identified as potential purchasers.
Pursuant to the terms of the Lease, Falls Creek requested information regarding Bhoomi,
LLC. [Docket No. 61-17]. Louisa Lodging informed Falls Creek that Bhoomi, LLC was "an
operating company with no assets," and provided no documentary or otherwise verifiable
financial information. Id.
Incredibly, during his deposition, Albrecht testified that he had no knowledge whatsoever
with regard to Bhoomi, LLC.

Q. At any point during your discussions on the sale of this
2016 lease, or the assignment of it, had you heard of
Bhoomi, LLC before?
A. No.
Q. Was Falls Creek ever provided with any
financial information regarding Bhoomi, LLC?
A. Not to my knowledge. I don't know.

Q. Do you have any idea what financial information
Bhoomi, LLC provided to Citizens Bank of Kentucky?
A. No.

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Q. Do you have any understanding of the three potential purchasers
Mr. Patel, Patel, and Parmar - - what their
relationship was with Bhoomi, LLC?
A.No.
Q. Do you know where Bhoomi, LLC is incorporated?
A.No.
Q. Do you know who the principals of it are?
A. No, I don't.

[Deposition of Joel Albrecht, Docket No. 61-2, p. 45-47] (emphasis added).
Notwithstanding Falls Creek's requests for information or its effort to try to work
through the deal, Louisa Lodging did not provide any documents or meaningfully respond to Fall
Creek's offers of conditional approval.

C.

The lawsuit.

Less than a month later, Louisa Lodging filed this lawsuit in Lawrence Circuit Court. In
its Complaint, it alleged that Falls Creek breached the Lease by wrongfully refusing to consent of
the assignment of the Lease. [Docket No. 1-1]. Specifically, Plaintiff seeks "a Declaratory
Judgment declaring that the Defendant, Falls Creek, is obligated to consent to an Assignment of
the Lease." Id Plaintiff also claims it "is entitled to recover damages of and from the
Defendant, Falls Creek, for its refusal to consent to the proposed Assignment and otherwise its
breach of the parties' Lease".
Plaintiff then Amended its Complaint to add what purports to to be retaliation claims
under 42 U.S.C. Section 1981 and Section 1982 based on the national origin of the potential
motel purchasers, Mr. Patel, Mr. Patel and Mr. Parmar.

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The matter was removed to this Court pursuant t 4 2 U.S. C. §§ 13 31 and 13 32.
Falls Creek filed a Motion to Dismiss seeking the partial dismissal of Plaintiffs
Amended Complaint as the alleged discrimination by Falls Creek, national origin discrimination,
is not cognizable as a matter of law under either 42 U.S.C. Section 1981 or Section 1982 as
allegations of discrimination based upon national origin are not actionable under either section.
This Court sustained the motion.
Thus, the only claim which remains is breach of contract.
Both parties seek summary judgment.
II.

Under Federal Rule of Civil Procedure 56( c), summary judgment is proper "ifthe
pleadings, depositions, answers to interrogatories, and admissions on file, 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 judgment as a matter of law." Fed.R.Civ.P. 56©; see also Celotex Corp. v.

Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). So long as the movant has
met its initial burden of "demonstrat[ing] the absence of a genuine issue of material fact,"

Celotex, 477 U.S. at 323, and the nonmoving party is unable to make such a showing, summary
judgment is appropriate. Emmons v. McLaughlin, 874 F.2d 351, 353 (6th Cir.1989). In
considering a motion for summary judgment, "the evidence as well as all inferences drawn
therefrom must be read in a light most favorable to the party opposing the motion." Kochins v.

Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986); see also Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When confronted with a properly-supported motion for summary judgment, the

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nonmoving party "must set forth specific facts showing that there is a genuine issue for trial."
Fed.R.Civ.P. 56(e); see also Abeita v. TransAmerica Mailings, Inc., 159 F.3d 246, 250 (6th
Cir.1998). A genuine issue of material fact exists for trial "if the evidence [presented by the
nonmoving party] is such that a reasonable jury could return a verdict for the nonmoving party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91L.Ed.2d202 (1986). In

essence, the inquiry is "whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."
Id. at 251-52.

The standard of review for cross-motions of summary judgment does not differ from the
standard applied when only one party files a motion. Taft Broad. Co. v. US., 929 F.2d 240, 248
(6th Cir.1991). "The fact that both parties have moved for summary judgment does not mean that
the court must grant judgment as a matter of law for one side or the other; summary judgment in
favor of either party is not proper if disputes remain as to material facts. Rather, the court must
evaluate each party's motion on its own merits." Id. (citations omitted). Thus, when the court
reviews cross-motions for summary judgment, it "must evaluate each motion on its own merits
and view all facts and inferences in the light most favorable to the nonmoving party." Westfield
Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506-07 (6th Cir.2003).

III.
Plaintiff asserts that by refusing to consent to the assignment of the Lease, Falls Creak
breached the contract between them, a.k.a the Lease.
As this is a diversity action, Kentucky contract law governs. Erie v. Tompkins, 304 U.S.

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64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see also Associated Indus. of Ky., Inc. v. US. Liab. Ins.
Grp., 531 F.3d 462, 465 (6th Cir. 2008) (applying Kentucky law in a diversity action concerning
the interpretation of an insurance contract).
In Kentucky, "the first step in cases involving contract interpretation is determining
whether the contested provisions are ambiguous Ky. Shakespeare Festival, Inc. v. Dunaway, 490
S.W.3d 691, 694 (Ky. 2016) (internal alteration and quotations omitted)). "In the absence of
ambiguity a written instrument will be enforced strictly according to its terms, and a court will
interpret the contract's terms by assigning language its ordinary meaning and without resort to
extrinsic evidence." Frear v. P. T.A. Indus., Inc., 103 S.W.3d 99, 106 (Ky. 2003) (internal
alterations and quotations omitted).
Louisa Lodging does not argue that the contract is ambiguous; nor can it credibly argue
the same in the face of the clear terms of the Lease. Rather, it appears that Louisa Lodging
misconstrues the terms of the Lease. Nowhere in the Lease is it stated that Falls Creek is
obligated to consent to a sale or assignment. Rather, the Lease provides that Falls Creek has
discretion to approve or conditionally approve an assignment, if, in Falls Creek's opinion, the
assignee would be able to perform as a tenant under the Lease. [Docket No. 1-3, pp. 5-6]. Falls

Creek's ability to consent to an assignment of the Lease is predicated upon its opportunity to
review and evaluate potential assignees, and, in reviewing the proposed assignee, to evaluate the
assignee's credit standing, financial condition, and business sustainability as a lessee. Id. The
plain, clear terms of the Lease undercut any argument that Falls Creek was required to consent to
an assignment of the Lease.

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Moreover, the undisputed facts establish that if any breach occurred, it was by the hands
of Louisa Lodging. It is undisputed that under the Lease, Falls Creek has the right to
examine the potential assignees, and that Louisa Lodging and any potential purchaser
was required to provide Falls Creek with "all information request[ ed] for purposes of making its
examination of the purchaser's credit standing." [Docket No. 1-3]. It is also undisputed that Falls
Creek requested information to evaluate not only the three initial proposed assignees, but also the
final assignee Bhoomi, LLC. It is also undisputed that no financial information was provided
regarding Bhoomi, LLC and incomplete information as to the three individuals. Rather than put
forth evidence of Falls Creek's failings under the Lease, Louisa Lodging has demonstrated its
own violations of the Lease.
Plaintiff devotes much of its briefing to the information it provided to Falls Creek
regarding Pramod Kumar Patel, Nilesh Patel, and Vipul Parmar and Falls Creek's unreasonable
objections to that information. However, it is entirely irrelevant whether Louisa Lodging
provided "ample and reasonable documentation" for Pramod Kumar Patel, Nilesh Patel, and
Vipul Parmar because they were not the final assignee under the Lease Agreement. Here, the only
relevant fact is whether Louisa Lodging provided documentation pertaining to the final assignee,
Bhoomi, LLC, which despite Falls Creek's requests, it failed to supply. Indeed, Albrecht
testified that, under the terms of the Lease, Falls Creek was entitled to financial information
regarding Bhoomi, LLC.

Q. Would you agree with me that under the terms
of the 1997ground lease, that Falls Creek was entitled
to financial information associated with Bhoomi, LLC?

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A. Yes.

[Docket No. 61-2, p. 48] (emphasis added).
Per the unambiguous language of the Lease and giving the same its plain and
ordinary meaning, the Lease provides that: (1) Falls Creek has the express right to evaluate
potential assignees; (2) it is Louisa's obligation to provide Falls Creek with any requested
information to assist with the evaluation; (3) that Falls Creek would provide either conditional
approval or disapproval of any potential assignee; and (4) that Falls Creek is relieved of any
liability with respect to damages resulting from the conditional approval or disapproval of any
assignment. Louisa Lodging has not presented any evidence, much less disputed material facts,
that these conditions were beached by Falls Creek. There was no breach and, therefore, no
damages.

IV.
Accordingly, IT IS HEREBY ORDERED that Plaintiff Louisa Lodging, LLC's Motion
for Partial Summary Judgment [Docket No. 44] be OVERRULED and Defendant Falls Creek,
Inc.'s Motion for Summary Judgment [Docket No. 54] be SUSTAINED.
This /

l/ ~fNovember,

2018.

Signed By:
f:f.anry R. Wilhoit. Jr.

Untted States District JudQ•

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