United States District Court, E.D. Kentucky, Central Division, Frankfort
CARROLLTON HOSPITALITY, LLC, et. al. Plaintiffs,
KENTUCKY INSIGHT PARTNERS II, LP, Defendant.
MEMORANDUM OPINION & ORDER
GREGORY F. VAN TATENHOVE, District Judge.
This case involves questions of which party is obligated to pay a debt for cable television services in a situation involving several different contracts with different entities. The Plaintiffs maintain they are not liable for the debt owed to the Defendant for unpaid cable bills, and the Defendant has filed a counterclaim contending that Plaintiffs must pay the debt. Defendant now requests summary judgment in its favor on all of Plaintiffs' claims and also on its counterclaims against the Plaintiffs. [R. 31.] Plaintiffs in turn request partial summary judgment in their favor on Count I of Defendant's counterclaims. [R. 32.] For the reasons explained below, the Defendant's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART, and the Plaintiffs' Motion for Partial Summary Judgment is DENIED.
The Plaintiffs in this case all own or operate hotels located in Carrollton, Kentucky. Plaintiff Carrollton Hospitality, LLC ("Hospitality") owns the Carrollton Best Western Hotel; Plaintiff Carrollton Host Enterprises, LLC ("Host") owns the Carrollton Hampton Inn; Plaintiff Holiday Host, LLC ("Holiday") owns the Carrollton Holiday Inn Express; and Plaintiff Lloyd Abdoo is the managing member of each of these organizations. [R. 1-2 at ¶¶ 1-2.] All the Plaintiffs are citizens of Kentucky. [ Id. ] The Defendant, Insight Kentucky Partners II, LP ("Insight"), is a citizen of Delaware and provides telecommunications services to Plaintiffs as well as other entities. [ Id. at ¶ 3.] This Court has diversity jurisdiction over this matter, pursuant to 28 U.S.C. §1332.
Before the events giving rise to this litigation took place, the owner of the Carrollton Best Western hotel was Best Host, LLC, who contracted with SAI Hospitality, LLC ("SAI") to operate the hotel. [R. 31-5 at 16.] In July 2001, SAI entered into a contract with Insight called the SAI Standard Hotel Agreement. [R. 31-13.] Pursuant to that agreement, Insight contracted to provide cable television services in exchange for monthly payments and necessary installation costs. [ Id. ] The contract was to remain in effect for a three-year term with subsequent automatic renewals for periods of one year unless either party notified the other party in writing otherwise. [ Id. at §4.] The SAI Agreement also stated that it would be "binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, " and the hotel owner agreed to give notice of this agreement to any prospective purchasers of the hotel. [ Id. at §12(b).] SAI Hospitality was administratively dissolved in November 2002, well before the expiration of its contract with Insight [R. 32-13], and Best Host eventually sold the Best Western hotel to NC Capital. [R. 31-5 at 15.] Despite these changes in management, Insight continued to provide services under the SAI agreement, and continued to receive monthly payments for those services. [R. 31-8 at ¶5; R. 36 at 11.]
Plaintiff Hospitality was formed as an LLC in July 2007, and in November 2007, Hospitality purchased the Carrollton Best Western hotel from NC Capital. [R. 1-2 at ¶ 4; R. 32-7 at 14.] As before, Insight continued to provide services and continued to receive payment for those services, pursuant to the automatic yearly renewals of the SAI Agreement. [R. 31-8 at ¶5; R. 36 at 11.] In May 2009, Hospitality entered into an agreement with Prewitt Holdings, LLC and Kelly Prewitt ("Prewitt") to manage and operate the Best Western Hotel for Hospitality with an option to purchase the hotel within a certain period of time. [R. 31-14.] Between May 2009, and January 2011, Prewitt operated the hotel on behalf of Hospitality, and during that time, Insight continued to bill for its services to the Best Western Hotel, and payments were made to Insight for those services. [R. 31-9.] Also during that time period, Prewitt defaulted on several payments to Insight, and by January 26, 2011, owed Insight a balance of $9, 566.71 for unpaid cable services. [R. 32-10 at 7.]
On January 28, 2011, Hospitality resumed management of the Best Western hotel from Prewitt and informed Insight of this development. [R. 32-9; R. 31-16.] Lloyd Abdoo, on behalf of Hospitality, acknowledged that Prewitt owed an outstanding debt to Insight, and asked Insight to review the past due bills along with company documents in order to "come to a fair and equitable settlement" of the amounts owed. [R. 31-16.] Shortly afterward a dispute apparently ensued concerning whether Hospitality was obligated to pay the debt owed by Prewitt. [R. 36 at 4-5.] Insight requested documentation establishing that Hospitality did not own the Best Western hotel during the time period that Prewitt managed the hotel, but the documents Hospitality submitted in response do not establish that it did not own the hotel during the period in question. [R. 36 at 5; R. 31-17.] Even now, Hospitality does not dispute that it owned the hotel during that time period. [R. 31-5 at 24-25.]
On March 10, 2011, Hospitality entered into a new seven-year exclusive contract with Insight for cable television services in exchange for a monthly fee to be paid in advance. [R. 31-4.] This agreement is referred to as the "CHL Standard Hotel Agreement." [R. 31-1 at 4.] The circumstances under which that agreement was entered into comprise one of the primary disputes at issue in this litigation. Hospitality claims that Insight's sales representative Chad Reynolds verbally promised Mr. Abdoo that Insight would not attempt to collect the unpaid balance on the Prewitt account if Mr. Abdoo would cause Hospitality, Host, and Holiday to each enter into a seven-year contract with Insight for cable television services, and that this promise not to collect Prewitt's delinquencies from Hospitality was the "material inducement" to enter into the contracts. [R. 1-2 at ¶¶ 12-13.] Insight, however, denies the existence of any such verbal agreement.
The existence of the 2011 contract between Insight and Hospitality, however is undisputed. That contract gave Insight the exclusive right to provide television programming services to the three hotels for the term of the agreement, and was to be effective for seven years with automatic renewal for one-year periods unless otherwise terminated. [R. 31-4.] Termination before the end of the seven-year term would only occur "by either party on thirty (30) days prior written notice in the event of a material breach of this Agreement...." [ Id. ] The parties also do not dispute that Abdoo as managing member of Hospitality, Host, and Holiday, reviewed the agreement and told Hospitality's Director of Operations, Melissa Petty, to sign it. [R. 31-5 at 31-32.] On the same day, Melissa Petty also signed the same agreement with Insight for Host and Holiday, also at Abdoo's direction. [ Id. ] Collectively, these contracts are referred to as the "2011 Service Agreements."
Insight alleges, and Hospitality does not dispute, that soon after these new contracts were signed, Hospitality fell behind on payments to Insight for services to the Best Western hotel. [R. 31-1 at ¶¶ 17-19; R. 31-10.] By September, 2011, Hospitality owed a balance on its account with Insight of $15, 308.70, not including the amount owed by Prewitt. [R. 31-9.] Insight attempted to contact Hospitality about the unpaid balance in September 2011, and in February 2012, but did not receive any response. [R. 31-1 at ¶¶19-20; R. 31-8; R. 31-10.] In September 2012, Hospitality paid part of the outstanding charges, but not the amount owed on the Prewitt account. [R. 31-1 at ¶ 22; R. 31-9.] On or about October 8, 2012,  Insight employee Erin Durham informed Melissa Petty by phone that Insight would discontinue its services by October 15, 2012, if the outstanding balance owed to Insight was not paid. [R. 31-8 at ¶ 20.] Two days after this conversation Hospitality entered into a separate contract with a different internet and cable provider, MDU Enterprises, Inc., to provide television services to the Best Western hotel for seven years. [R. 31-12.] Hospitality also filed a complaint in Carroll Circuit Court on October 12, 2012, and obtained a restraining order prohibiting Insight from discontinuing its cable, internet and telephone service at the Best Western Hotel. [R. 1-1; R. 1-6.] Insight alleges, and Hospitality does not dispute, that Hospitality has not made any payments due to Insight since October 23, 2012, although Insight has had to continue providing services because of the restraining order. [R. 31-8; R. 31-9.]
Hospitality filed an amended complaint in Carroll Circuit Court in 2013 adding Host, Holiday, and Abdoo as named plaintiffs and alleging claims against Insight for breach of contract, anticipatory breach of contract, fraud, and breach of the implied covenant of good faith and fair dealing. [R. 1-2.] Insight then removed this case to federal court in April, 2013, invoking this Court's diversity jurisdiction. [R. 1.] Plaintiffs moved to remand the case to state court, but the Court denied the motion to remand and held that the requirements for diversity jurisdiction under 28 U.S.C. §1332(a)(1) had been met. [R. 26.]
In May 2013, Insight filed an amended answer and counterclaim, alleging that Hospitality had breached its contract with Insight and seeking a declaratory judgment against Hospitality, Host, and Holiday declaring that the 2011 Service Agreements with each of those entities are valid and enforceable. [R. 5.] Insight then moved for summary judgment against Plaintiffs on each of the Plaintiffs' claims and for judgment in its favor on each of Insight's counterclaims. [R. 31.] The Plaintiffs then moved for partial summary judgment in their favor on Counts I, III, and IV of Insight's counterclaims. [R. 32.] Since that time, the parties have agreed to dismiss without prejudice Counts III and IV of Insight's counterclaim, which alleged breach of contract against Plaintiffs Host and Holiday. [R. 35.] The summary judgment motions on the remaining claims and counterclaims have been fully briefed and are now ripe for adjudication.
Accordingly, the claims presently before the Court are as follows: The Plaintiffs' claims against Insight are for 1) breach of contract with Hospitality; 2) anticipatory breach of contract with Hospitality; 3) fraud; and 4) breach of the implied covenant of good faith and fair dealing. Insight's remaining counterclaims are: 1) that Hospitality breached the SAI Standard Hotel Agreement because Hospitality succeeded to that contract and Prewitt breached the contract by failing to make required payments to Insight while acting as Hospitality's agent; 2) that Hospitality breached the 2011 Service Agreement between Insight and Hospitality by carrying an unpaid balance for more than thirty days and by contracting with another service provider; and 3) Insight requests a declaratory judgment that the 2011 Service Agreements with Hospitality, Host, and Holiday are all valid and enforceable. Insight requests summary judgment in its favor on all of these claims and counterclaims, and also requests attorneys' fees and costs pursuant to the terms of the SAI Standard Hotel Agreement and the 2011 Service Agreements. Plaintiffs request partial summary judgment in their favor on Insight's counterclaim alleging Hospitality's breach of the 2001 SAI Standard Agreement.
As stated above, this action is in federal court on the basis of diversity jurisdiction, pursuant to 28 U.S.C. § 1332. Because Kentucky is the forum state, its substantive law will be used. Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521, 526 (6th Cir. 2006) (citations omitted). However, federal procedural law will govern as applicable, including in establishing the appropriate summary judgment standard. Weaver v. Caldwell Tanks, Inc., 190 F.Appx. 404, 408 (6th Cir. 2006).
Summary judgment is appropriate when "the pleadings, discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). "A genuine dispute exists on a material fact, and thus summary judgment is improper, if the evidence shows that a reasonable jury could return a verdict for the nonmoving party.'" Olinger v. Corp. of the President of the Church, 521 F.Supp.2d 577, 582 (E.D. Ky. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). Stated otherwise, "[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252.
The moving party has the initial burden of demonstrating the basis for its motion and identifying those parts of the record that establish the absence of a genuine issue of material fact. Chao v. Hall Holding Co., Inc., 285 F.3d 415, 424 (6th Cir. 2002). The movant may satisfy its burden by showing "that there is an absence of evidence to support the non-moving party's case." Celotex Corp., 477 U.S. at 325. Once the movant has satisfied this burden, the nonmoving party must go beyond the pleadings and come forward with specific facts to demonstrate there is a genuine issue. Hall Holding, 285 F.3d at 424 (citing Celotex Corp., 477 U.S. at 324). In applying the summary judgment standard, the Court must review the facts and draw all reasonable inferences in favor of the non-moving party. Logan v. Denny's, Inc., 259 F.3d 558, 566 (6th Cir. 2001) (citing Anderson, 477 U.S. at 255). Yet even when construing the evidence in the light most favorable to the non-moving party, the non-moving party still "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushitu Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Rather, the Federal Rules of Civil Procedure require the non-moving party to present "specific facts showing that there is a genuine issue for trial." Id. (citing Fed.R.Civ.P. 56(e)).
"It is well settled that the interpretation of contracts is an issue of law for the court to decide." Equitania Ins. Co. v. Slone & Garrett, P.S.C., 191 S.W.3d 552, 556 (Ky. 2006). To establish a claim for breach of contract, Kentucky common law requires the plaintiff to establish: "1) existence of a contract; 2) breach of that contract; and 3) damages flowing from the breach of contract." Fifth Third Bank v. Lincoln Fin. Sec. Corp., 453 F. Appx. 589, 601 (6th Cir. 2011) (quoting Metro Louisville/Jefferson Cnty. Gov't v. Abma, 326 S.W.3d 1, 8 (Ky. Ct. App. 2009). Thus, a plaintiff seeking to recover for breach of contract must first establish "by clear and convincing evidence that an agreement existed between the parties." MidAmerican Distribution, Inc. v. Clarification Tech., Inc., 807 F.Supp.2d 646, 666-67 (E.D. Ky. 2011) aff'd, 485 F.Appx. 779 (6th Cir. 2012) (internal quotation omitted).
While "an oral contract is ordinarily no less binding than one reduced to writing, " where the parties execute a written instrument, an unambiguous written contract "will be enforced strictly according to its terms, " and the court will interpret those 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, 105-06 (Ky. 2003) (internal quotations omitted). Thus, in the absence of ambiguity, the terms in a written contract cannot be varied by parol evidence, which "consists of evidence of agreements between or the behavior of the parties prior to or contemporaneous with the contract, " including "evidence of a contemporaneous oral agreement on the same subject matter, verifying, modifying, contradicting, or enlarging a contract.'" Luttrell v. Cooper Indus., 60 F.Supp.2d 629, 631 (E.D. Ky. 1998) (quoting M.R. Kopmeyer Co. v. Barnes, 276 S.W.2d 21, 23-24 (Ky. 1955)). The unambiguous, written agreement "is presumed to be final and complete, with all prior negotiations abandoned or incorporated into the final document." Grass v. Akins, 368 S.W.3d 150, 153 (Ky. Ct. App. 2012) (citations omitted). Consequently, "when parties reduce their agreement to a clear, unambiguous, and duly executed writing, all prior negotiations, understandings, and agreements merge into the [written] instrument, " which "cannot be modified or changed by prior parol evidence, except in certain circumstances such as fraud or mistake." New Life Cleaners v. Tuttle, 292 S.W.3d 318, 322 (Ky. Ct. App. 2009).
An exception to the prohibition on introducing parol evidence exists in situations of fraud. To prevail on a claim for fraud under Kentucky law, the plaintiff must establish "by clear and convincing evidence" each of the following elements: "(1) that the declarant made a material representation to the plaintiff, (2) that this representation was false, (3) that the declarant knew the representation was false or made it recklessly, (4) that the declarant induced the plaintiff to act upon the misrepresentation, (5) that the plaintiff relied upon the misrepresentation, and (6) that the misrepresentation caused injury to the plaintiff." Flegles, Inc. v. TruServ Corp., 289 S.W.3d 544, 549 (Ky. 2009) (citing United Parcel Serv. Co., v. Rickert, 996 S.W.2d 464, 468 (Ky. 1999)). Because of the higher burden of proof required for fraud claims, evidence to overcome summary judgment must also meet this higher standard. Liberty Lobby, 477 U.S. at 253.