Larken, Inc., Respondent, vs. Larken Airport Hotel Limited Partnership, et al., Appellants, Larken Minnesota, Inc., Respondent. C3-97-82, Court of Appeals Unpublished, September 9, 1997.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).

STATE OF MINNESOTA

IN COURT OF APPEALS

C3-97-82

Larken, Inc.,

Respondent,

vs.

Larken Airport Hotel Limited Partnership, et al.,

Appellants,

Larken Minnesota, Inc.,

Respondent.

Filed September 9, 1997

Affirmed

Amundson, Judge

Hennepin County District Court

File No. 95-004299

L. Richard Williams, Mark C. Dangerfield, Grant, Williams, Lake & Dangerfield, P.C., 302 North First Avenue, Ninth Floor, Phoenix, AZ 85003, Gary Stoneking, Katz & Manka, Ltd., 4150 First Bank Place, 601 Second Avenue South, Minneapolis, MN 55402 (for respondent)

Howard O. Boltz, Jr., Bryan Cave, L.L.P., 777 South Figueroa Street, Suite 2700, Los Angeles, CA 90017, Michael J. Wahoske, Edward B. Magarian, Dorsey & Whitney, L.L.P., 220 South Sixth Street, Minneapolis, MN 55402 (for appellants)

Considered and decided by Amundson, Presiding Judge, Parker, Judge, and Peterson, Judge.

U N P U B L I S H E D O P I N I O N

AMUNDSON, Judge

Appellants challenge the district court's determination that they did not terminate their management agreement with respondent. We affirm.

FACTS

Appellant Larken Airport Hotel Limited Partnership, et al. (partnership), was formed to purchase and operate the Airport Hilton Hotel (hotel) in Bloomington, Minnesota. In September 1991, respondent Larken, Inc. (Larken) and the partnership entered into a hotel management agreement (agreement). In July 1995, Pine Hill Minnesota, Inc. bought out Larken's controlling interest in the partnership through federal litigation.[1] In October 1995, Pine Hill sought to terminate the agreement with Larken, alleging that Larken had violated its terms. Larken sought declaratory judgment, arguing that it had performed its obligations under the agreement, and therefore the agreement was not terminated. Pine Hill counterclaimed for declaratory judgment. On September 12, 1996, the district court held in favor of Larken. This appeal followed.

D E C I S I O N

Pine Hill challenges the district court's factual determinations. Factual findings will not be reversed unless clearly erroneous. Minn. R. Civ. P. 52.01; First Trust Co., Inc. v. Union Depot Place Ltd. Partnership, 476 N.W.2d 178, 181 (Minn. App. 1991), review denied (Minn. Dec. 13, 1991).

I. Removal of Hotel Furnishings

In its letter of termination, Pine Hill alleged, among other alleged defaults of the agreement, that Larken had removed eight floors of carpeting, 300 shower curtains, and 600 pieces of artwork from the hotel. The letter stated that "[b]y their nature, these defaults are not curable; the Owners cannot entrust their money, property and business to a steward who so systematically abuses the trust of the Owners" What Pine Hill portrays as a theft on the part of Larken appears to be far more complicated. Larken principal Larry Cahill testified that he directed the furnishings to be removed from the hotel and stored at a Larken-owned hotel. However, Cahill testified that he had done that because of the federal litigation, where among other issues, Pine Hill alleged that Larken had purchased those items without Pine Hill approval. In that case, Larken had agreed to pay $700,000, partly to cover the cost of the furnishings. When Pine Hill later complained about the removal of the furnishings, which Larken had considered its property, Larken returned the property, deciding to wait to resolve the matter.

The agreement requires a 30-day notice and opportunity to remedy any default in order to terminate the agreement. Pine Hill argues that no notice or opportunity to cure was required because the removal was incurable. Pine Hill also argues that there is no notice to remedy requirement because the agreement also states that the notice to remedy "shall not be deemed to preclude or impair the right of any party to exercise any right or remedy * * * upon any breach of any terms of this Agreement." However, the breach must be material. Materiality is determined by considering several factors:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Restatement (Second) of Contracts § 241 (1981). The district court determined that the breach was not material, if it was a breach at all, and that if it was a breach, it was cured. The district court did not clearly err.

II. Telephone Contract

Pine Hill argues that the agreement was breached and that it was entitled to termination because Larken entered into a 10-year contract for telephone service without Pine Hill's approval. The district court determined that the contract was a violation of the agreement, but because Pine Hill did not give proper notice and an opportunity to cure, the agreement was not terminated.

Larken's principal, Larry Cahill, is the majority owner of LDDP, a long-distance telephone carrier; in June 1993, Larken entered into a 10-year contract with LDDP for ongoing maintenance of the telephone service (primarily pay telephones) at the hotel without the approval of Pine Hill. While it does appear that entering into such a contract without Pine Hill's approval is a violation of the agreement, the agreement bars Pine Hill from terminating the agreement for any alleged default unless and until Larken fails to remedy such default within 30 days after Larken receives a notice. Pine Hill's October 31, 1995, letter requested reimbursement of LDDP long distance charges exceeding AT&T rates[2] and did not demand that the maintenance contract be submitted for approval.

Pine Hill argues, as it did as to the removal of furnishings, that no notice to remedy was required because the agreement also stated that the notice to remedy "shall not be deemed to preclude or impair the right of any party to exercise any right or remedy * * * upon any breach of any terms of this Agreement." However, as with the previous issue, the district court found that there was no material breach. The district court determined that "[t]he primary benefit that Pine Hill could reasonably expect to flow from the Management Agreement was that the Hotel would be profitable on a continuing basis." Larken has performed under the agreement, as the hotel is extremely profitable for Pine Hill. For example, in 1995 the hotel had a gross operating profit per occupied room night of $66.98, compared with $48.65 for comparable competitors in the Twin Cities area.

The district court's finding that entering into the telephone contract without approval did not represent a material breach is not clearly erroneous.

III. Fiduciary Duty

Pine Hill alleges that Larken had a fiduciary duty to Pine Hill, which was violated by Larken's defaults. The district court determined that there was no fiduciary relationship between Larken and Pine Hill under the agreement. The court need not defer to the district court's decision on a legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). Pine Hill argues that the agreement states that Larken "is authorized to make, enter into and perform in the name, for the account of on behalf of and at the expense of [Pine Hill] any contracts and agreements deemed necessary by [Larken]," and therefore Larken is a fiduciary of Pine Hill. The district court, however, determined that although Larken initially had a fiduciary relationship as a partner, that relationship was extinguished by Pine Hill's buyout of Larken's partnership interest. Larken had no fiduciary duty to Pine Hill after Pine Hill bought Larken's partnership interest.

Affirmed.

[ ]¹ Appellants will be referred to collectively as Pine Hill.

[ ]² The district court did not find that the LDDP rates were higher than AT&T's.