669 B.R. 822
Bankr. D. Kan.2025Background
- American Hotel Income Properties REIT, Inc. ("American Hotel") sold equity interests in Lodging Enterprises, LLC (the Debtor) and a related entity to VCM Lodging Enterprises, LP (VCM) for $215.5 million.
- As part of the sale, $7 million was held back (the "UP 15 Renewal Amount") pending renewal of a key contract between Debtor and Union Pacific Railroad, with release conditions specified in the sales documents and subject to the lender’s (UBS AG’s) security interest.
- Debtor was not a party to the Purchase and Sale Agreement or its amendment; VCM (the Purchaser) was solely responsible for direct contractual obligations to American Hotel.
- American Hotel filed proofs of claim in the Debtor’s bankruptcy case, arguing it was owed the $7 million; Debtor objected, arguing it had no legal obligation to American Hotel under the sale agreement or related theories.
- The court's review was limited solely to whether American Hotel had a claim against Debtor under bankruptcy law—not whether American Hotel was otherwise entitled to the holdback amount.
- After trial, the court found against American Hotel's claim on multiple legal and equitable grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Liability as non-signatory | Debtor assumed contract obligation by conduct | Debtor was never a signatory or party | Debtor did not assume obligations; not liable |
| Implied covenant of good faith | Debtor violated implied covenant by not paying | Only signatories can breach implied covenant | Only signatories bound; claim against Debtor fails |
| Unjust enrichment/equitable claims | Debtor unjustly retains benefit at Am. Hotel’s loss | No enrichment; contract governs funds | No unjust enrichment; contract controls; claim denied |
| Other theories (constructive trust, alter ego, conversion, fraudulent transfer) | Equitable/fraud remedies entitle recovery | No factual or legal basis for liability under these theories | Claims unsupported by facts/law; not permitted |
Key Cases Cited
- MBIA Ins. Corp. v. Royal Bank of Canada, 706 F. Supp. 2d 380 (S.D.N.Y. 2009) (non-signatories are generally not liable for breach unless they manifest an intent to be bound)
- Simonds v. Simonds, 380 N.E.2d 189 (N.Y. 1978) (defining constructive trust under New York law)
- Columbia Mem. Hosp. v. Hinds, 192 N.E.3d 1128 (N.Y. 2022) (elements of unjust enrichment in equity)
- Cordero v. Transamerica Annuity Serv. Corp., 211 N.E.3d 663 (N.Y. 2023) (implied covenant of good faith applies only to parties to contract)
- Colavito v. New York Organ Donor Network, Inc., 860 N.E.2d 713 (N.Y. 2006) (elements of conversion in New York)