Inova Health Care Services contracted with the Omni Shoreham Hotel for the annual Joan Hisaoka Make a Difference Gala, a black-tie charity event raising funds for cancer victims. The 2019 agreement specified that the event would be held in the Ambassador and Regency Ballrooms. Notably, during negotiations, Inova insisted on deleting a standard clause that would have allowed the hotel to redesignate the event space. In July 2019, Omni unilaterally moved the gala to inferior spaces, including a room with obstructed sightlines and an outdoor tented area, to accommodate the Embassy of Lebanon, which offered to pay three times the Gala's revenue. Inova objected, deemed the alternatives unsuitable, and held the event at a different venue. The district court granted summary judgment on liability to both Inova and the Smith Center, a non-signatory beneficiary, and awarded damages to both. Omni appealed, arguing the breach was not material, that it acted in good faith, and that Inova failed to mitigate its losses.
The court, writing for the panel, applied District of Columbia law. First, it affirmed the breach of contract finding. The court held that the breach was material because Inova specifically bargained for the Ambassador and Regency Ballrooms, evidenced by the deletion of the reassignment clause. The substitute spaces were objectively inadequate, featuring obstructed sightlines and weather exposure, and Omni offered no evidence rebutting these deficiencies. Second, the court affirmed the breach of the implied covenant of good faith and fair dealing. The court reasoned that Omni 'willfully render[ed] imperfect performance' by deliberately subordinating its contractual obligation to financial opportunity. The court rejected Omni's argument that it abandoned the claim by not requesting a separate jury instruction, noting that the general breach instructions covered the implied covenant. Third, regarding the mitigation defense, the court held that the non-breaching party is not required to accept a breaching party's inadequate alternative. The court stated that the mitigation rule does not allow for 'hypercritical examination' of choices forced by the default, and since the alternative rooms were factually inadequate, Inova had no duty to accept them. Finally, the court reversed the summary judgment for the Smith Center. Unlike Inova, the Smith Center was not a party to the contract. The court found a genuine dispute of material fact regarding whether the parties intended to directly benefit the Smith Center, citing testimony from Omni's general manager that the hotel had no knowledge of the Smith Center's involvement or payment history. This factual conflict required a jury determination.
The decision confirms that hotels and event venues cannot unilaterally reassign contracted spaces to higher-paying clients if they have bargained away that right, and that such actions constitute a breach of the implied covenant of good faith. It clarifies that a non-breaching party is not required to mitigate damages by accepting a breaching party's inadequate substitute performance. However, the ruling limits the scope of third-party beneficiary claims in similar contracts, requiring clear evidence of intent to benefit the non-signatory before summary judgment can be granted. The case is remanded for a jury trial to determine the Smith Center's status as an intended beneficiary and to recalculate damages accordingly.
Podcast (federal-narrative-summaries): Play in new window | Download