Burton Way Hotels, Ltd. v. Four Seasons Hotels Limited, 663 F. App'x 567

Background

Burton Way Hotels (owner) contracted Four Seasons to manage the Four Seasons Los Angeles under a 1989 HMA and a 1998 HMA amendment; dispute arose over scope of 1998 restrictive covenant (Section 26.01).
Section 26.01(a) barred Four Seasons from providing Four Seasons Operational Benefits (FSOBs) within 14 miles of the Burton Way hotel; § 26.01(b) carved a limited exception permitting Four Seasons to “manage or operate” the Regent Beverly Wilshire subject to specified provisions.
Burton Way claimed § 26.01(b) did not permit provision of FSOBs to the Regent; Four Seasons contended the exception allowed FSOBs as part of its right to manage and operate the Regent.
At arbitration, both sides submitted conflicting extrinsic evidence and declarations about the parties’ intent; the arbitration panel granted summary judgment to Four Seasons on breach, found no fiduciary-duty breach, ruled Burton Way waived fraud claims via a 2010 HMA, and imposed sanctions for alleged spoliation.
The district court confirmed the arbitration award; Burton Way appealed. The Ninth Circuit reviews legal issues de novo but defers to the panel’s factual findings.

Issues

Issue	Plaintiff's Argument (Burton Way)	Defendant's Argument (Four Seasons)	Held
Whether § 26.01(b) permits Four Seasons to provide FSOBs to the Regent Beverly Wilshire	§ 26.01(b) does not authorize FSOBs; § 26.01(a) bars them within 14 miles	§ 26.01(b)’s right to “manage or operate” includes providing FSOBs	Reversed in part: panel erred granting summary judgment — extrinsic evidence conflict must go to factfinder; remanded for factual determination
Whether Four Seasons owed a fiduciary duty of disclosure when negotiating the 1998 amendment	Four Seasons, as agent, had a duty to disclose adverse facts about the Regent acquisition	Negotiations over the management contract were outside ordinary agency scope; Four Seasons negotiated on its own account	Affirmed: arbitration panel correctly found negotiations outside scope of agency and no fiduciary-duty breach
Whether Burton Way waived fraud-in-the-inducement claims by entering the 2010 HMA	Burton Way argued it did not waive because it lacked knowledge of fraud prior to 2010 HMA	Four Seasons argued the 2010 HMA (which reaffirmed prior agreements) constituted waiver/ratification	Affirmed: panel did not err concluding Burton Way waived fraud claims by entering the 2010 HMA
Whether sanctions for spoliation were appropriate and non-prejudicial	Burton Way argued spoliation prejudiced its case	Four Seasons argued destruction did not prejudice arbitration	Reversed as to sanctions: remanded so the panel can reassess prejudice and remedies in light of new arbitration on breach claim

Key Cases Cited

First Nat’l. Morg. Co. v. Federal Realty Inv. Trust, 631 F.3d 1058 (9th Cir. 2011) (extrinsic evidence admissible when contract language is reasonably susceptible to that meaning)
Pacific Gas & Electric Co. v. G. W. Thomas Drayage & Rigging Co., 442 P.2d 641 (Cal. 1968) (Californian rule on admissibility of extrinsic evidence for contract interpretation)
Wolf v. Superior Court, 8 Cal. Rptr. 3d 649 (Ct. App. 2004) (when extrinsic evidence conflicts, the factfinder must resolve credibility before contractual meaning can be decided as a matter of law)
Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty. v. California, 618 F.3d 1066 (9th Cir. 2010) (when material conflict in extrinsic evidence exists, submit evidence to factfinder for credibility determinations)
Batson v. Strehlow, 441 P.2d 101 (Cal. 1968) (agent must act with utmost good faith and disclose material facts when acting within scope of agency)
Schmidt v. Mesmer, 48 P. 54 (Cal. 1897) (affirmation or new agreement after discovery of alleged fraud can constitute waiver of fraud claims)
Oakland Raiders v. Oakland-Alameda Cty. Coliseum, Inc., 51 Cal. Rptr. 3d 144 (Ct. App. 2006) (ratification / entry into new agreement after discovering fraud can waive fraudulent inducement claims)