San Francisco Hotel Owner Scores Early Wins Against Virgin Hotels, Lawsuit Proceeds to Trial
November 25, 2020 – Brewer, Attorneys & Counselors today announced two positive developments for its client, 250 Fourth Development L.P. (“Hotel Owner”), in its dispute with Virgin Hotels San Francisco (“Virgin Hotels”). In sum, the court issued two important decisions. First, the court overruled Virgin Hotels’ attempts to avoid having to face Hotel Owner’s claims against Virgin Hotels for damages done to the project before Owner terminated the management agreement. Second, on November 20, 2020, the court denied Virgin Hotels’ efforts to freeze more than $2 million of Hotel Owner’s property. The case now proceeds toward trial.
The underlying legal dispute began on May 6, 2020, when Virgin Hotels filed a lawsuit alleging the Hotel Owner’s termination of the Hotel Management Agreement (“HMA”) on April 8, 2020, violated that agreement. On July 16, 2020, the Hotel Owner filed its Original Cross-Complaint in the Superior Court of the State of California, County of San Francisco. A month later, on August 19, 2020, the Hotel Owner filed its First Amended Cross-Complaint, alleging that Virgin Hotels made numerous misrepresentations to Hotel Owner by, among other things, knowingly overstating Hotel gross revenues to inflate its management fee and misrepresenting bonus amounts due to Hotel employees. As a result of the alleged fraud and mismanagement, the Hotel Owner claims the loss of tens of millions of dollars in unrealized hotel profits and the lost value of the property.
In total, the Hotel Owner asserts five causes of action against Virgin Hotels, including breach of contract and fraud. Virgin Hotels demurred, or moved to dismiss, the claims. On October 30, 2020, the court entered an order overruling the demurer in its entirety, vindicating each and every one of the Hotel Owner’s claims. In so doing, the court noted that the First Amended Cross-Complaint “adequately pleads constructive fraud.”
“Our client is grateful that this case is moving forward and is eager to proceed to trial,” said William A. Brewer III, partner at Brewer and counsel to 250 Fourth Development, L.P. “For years, our client put faith in Virgin and its assurances that it was creating a first-class brand. Our client believes that not only has Virgin failed to create the ‘promised brand,’ it grossly mismanaged the San Francisco property in an effort to boost Virgin Hotels’ own bottom line.”
After failing to obtain dismissal of Hotel Owner’s claims, Virgin Hotels filed an application for a writ of attachment on Hotel Owner’s property – to secure what Virgin Hotels claimed was over $2 million in expenses that Virgin Hotels had either paid or was owed to third parties. On November 20, 2020, the court denied this request in its entirety.
Firm Represents Hotel Operator in Lawsuit Against Gansevoort Hotel Group, LLC
Brewer, Attorneys & Counselors announced that it has filed a lawsuit against Gansevoort Hotel Group, LLC (“Gansevoort”) on behalf of its client, the operator of Gansevoort Turks + Caicos, a Wymara Resort (the “Resort”). The lawsuit claims the Resort has been adversely impacted by Gansevoort’s failure to maintain and grow the Gansevoort hotel brand.
Filed in New York Supreme Court on October 26, 2018, by Wymara Ltd. and Wymara Developments Ltd. (together, “Operator”), the suit seeks declaratory relief to safeguard Operator’s significant financial investment in the Resort, as well as monetary damages to compensate it for the losses the Resort has incurred as a result of Gansevoort’s breaches of contract.
“Our client believes Gansevoort Hotel Group failed to meet its obligation to maintain the quality of the brand, leaving our client with significant damages,” says William A. Brewer III, partner at Brewer, Attorneys & Counselors and lead counsel for Operator. “In fact, our client’s resort is now one of only two Gansevoort-branded properties remaining in the world – and there are no plans to grow the brand in the future. Of course, this reality is a far cry from the promises made to our client – that Gansevoort would be a luxury brand.”
The New York Post reported on the lawsuit in an article dated Oct. 30, 2018, titled “Caribbean resort sues to get out of pact with ‘outdated’ Gansevoort Hotel.”
The Wall Street Journal: Marriott Loses Trendy Waikiki Hotel
August 29, 2011 — The Wall Street Journal reports that, in a "dramatic move," the owners of the Waikiki Edition in Hawaii installed new management and changed the signs and locks on their property overnight to reflect a new name, the Modern Honolulu. The report states that the "changes were made in spite of a contract that allows Marriott [International Inc.] to run the hotel as an Edition for 30 years."
William A. Brewer III, counsel for M Waikiki LLC, the hotel owner, told the Journal that his clients have the legal right to terminate the contract, alleging that Marriott is mismanaging the property.
The Journal reports that, in a legal filing in May in New York Supreme Court, M Waikiki claimed Marriott "had failed to make the flashy new Edition hotel brand a success, resulting in the Waikiki location underperforming relative to its market." The owners said further that occupancy for the fourth quarter of 2010 had been 30% — well below the 62% rate predicted by Marriott.
To read the full report, click here.
Reuters: Marriott, Schrager Sued by Hawaii Hotel Owner
May 30, 2011 — Reuters reports that owners of the Waikiki Edition have filed suit against Marriott International Inc. and hotelier Ian Schrager, Marriott's partner in creating the Edition brand. The lawsuit, filed by Bickel & Brewer on behalf of M Waikiki LLC, "seeks to end a 30-year management agreement and recover losses and overruns tied to the 353-room beachside hotel."
"We believe empty promises were made in connection with the launch of Edition — and the damage done to our clients has been further compounded by Marriott's inability to effectively manage this property," said William A. Brewer III, partner at Bickel & Brewer and lead counsel for M. Waikiki LLC. "Based on the breaches of its contractual obligations to our client, we are seeking to remove Marriott from the management of the Hotel."
To read the full report, click here.
The Wall Street Journal: Hawaii Hotel Sues Marriott
May 26, 2011 — The Wall Street Journal reports that the owners of the "stylish but unsuccessful" Waikiki Edition in Honolulu have filed a lawsuit seeking to end their management agreement with Marriott International Inc. In the lawsuit, filed by Bickel & Brewer on behalf of client M Waikiki LLC, the owners claim Marriott has "failed to make a flashy new hotel brand a success."
The lawsuit also named Ian Schrager, Marriott's partner on the Edition brand, as a defendant in the suit, "alleging that the famed hotelier has been uninvolved in the project."
The report states, "The owners now allege Marriott was responsible for construction overruns, as well as cost overruns after the hotel began operating. The owners say the hotel has lost $6 million since it opened in October 2010, with occupancy just around 30% in the fourth quarter of 2010, far below the 62% occupancy Marriott predicted in August 2009."
To read the full report, click here.
Hospitality Law Reports on Firm Client's $10.3M Trial Award
April 2008 — Hospitality Law reports that the "Ritz-Carlton Hotel Co. was slapped with a $10 million verdict after a District Court jury found the hotel violated its fiduciary duties to an Indonesian property owner" — firm client Karang Mas Sejahtera (KMS).
The article, "Jury Awards Bali Hotel Operator $10.3 Million Verdict," states that the jury in the Greenbelt, Maryland, case found that the Ritz violated its operating agreement with KMS by opening a competing luxury property within three miles of KMS's property, the Ritz-Carlton Bali Resort & Spa.
According to the report, Bill Brewer, counsel to KMS and a partner at Bickel & Brewer, told Hospitality Law that the case "clarifies the rights, responsibilities and obligations of all parties involved in a hotel management agreement and affirmed that his client's position that the Ritz-Carlton breached its fiduciary duty from a financial, operational and competitive point of view."
"It doesn't matter what you call a relationship — if someone is managing your business, your assets, for your benefit and being paid handsomely to do that, they owe you a fiduciary duty," Brewer said. "The Ritz-Carlton attempted to claim that they and their subsidiary didn't have a fiduciary responsibility to the owner [of the Bali property], and the jury absolutely decided otherwise. I think it reminded everybody that between a principal and an agent, honesty and fact are the touchstone of the relationship."
Jury Awards Bali Hotel Operator $10.3 Million Verdict
April 2008 – Hospitality Law reported on the firm’s trial win against the Ritz-Carlton Hotel Co. on behalf of client Karang Mas Sejahtera (KMS), owner of the Ritz-Carlton Bali Resort & Spa. The jury awarded KMS more than $10 million.
As reported, “KMS filed the lawsuit against Ritz-Carlton three years ago, when the company began developing the Bulgari Bali Hotel. KMS accused the Ritz of violating its fiduciary duties by operating a competing property in disregard to KMS’s territorial rights and alleged that the Ritz failed to recognize its responsibilities as an agent of the Ritz-Carlton Bali.”
A Greenbelt, Maryland jury found the Ritz breached its amended and restated operating agreement and violated its fiduciary duties to KMS, among other things.
“It doesn’t matter what you call a relationship – if someone is managing your business, your assets, for your benefit and being paid handsomely to do that, they owe you a fiduciary duty,” said firm partner William A. Brewer III. “I think it [the jury verdict] reminded everybody that between a principal and an agent, honest and fact are the touchstone of the relationship.”
Ten Million Dollar Jury Verdict Announced Against The Ritz-Carlton Hotel Company
February 4, 2008 — One of the hospitality industry's most closely-watched trials has ended in victory for a hotel owner against The Ritz-Carlton Hotel Company, LLC ("Ritz-Carlton"). Bickel & Brewer law firm has announced that its client, Karang Mas Sejahtera ("KMS"), owner of the exclusive Ritz-Carlton Bali Resort & Spa ("Ritz-Carlton Bali"), prevailed in a case that may have wide-ranging implications on the manner in which hotel management agreements are interpreted -- and enforced.
On January 25, following a three-week trial, a nine-person jury in the United States District Court in Greenbelt, Maryland, reached a unanimous decision that Ritz-Carlton violated its fiduciary duties to KMS and the Ritz-Carlton Bali. The jury awarded KMS $382,000 in actual damages and $10 million in punitive damages -- $5 million more than KMS had requested. The landmark verdict also allows KMS to pursue millions more in attorneys' fees.
"The jury's decision affirms our client's position — that Ritz-Carlton breached its fiduciary duty from a financial, operational and competitive point of view," says William A. Brewer III, partner at Bickel & Brewer and counsel for KMS. "This case is of vital importance to the hospitality industry, as it further underscores and clarifies the rights, responsibilities and obligations of all parties involved in a hotel management agreement.”
Filed more than three years ago, this lawsuit has become one of the nation’s most high-profile disputes between a hotel management company and individual hotel owner. The case centers around the development and opening of the Bulgari Bali Hotel, which began operation in September 2006, just three miles from the KMS property. KMS demonstrated that Ritz-Carlton violated its fiduciary duties by operating that competing property in disregard of KMS’ territorial rights and failing to recognize its responsibilities as an agent of the Ritz-Carlton Bali. The Bulgari Bali, which is managed by Ritz-Carlton, is the first resort in the upstart Bulgari Hotels & Resorts chain, a joint venture between Marriott International (Ritz-Carlton’s parent company) and high-fashion Italian jeweler Bulgari SpA.
The Bulgari Bali Hotel opened under Ritz-Carlton management despite concerns from KMS that the luxury hotel would violate the territorial exclusivity provision KMS held with Ritz-Carlton. Among several other claims, KMS alleged that the Bulgari property was benefiting from the use of the Ritz-Carlton brand name in its marketing and promotion — all in direct violation of the operating agreement between the KMS and Ritz-Carlton.
“At the end of the day, we proved that our client suffered a material breach of loyalty,” says James S. Renard, partner at Bickel & Brewer who joined Brewer as counsel for KMS. “We alleged — and the jury emphatically agreed — that Ritz-Carlton was bound by a contractual obligation not to use the Ritz-Carlton name and brand to operate another hotel on the Indonesian Island of Bali without our client’s consent.”
Brewer says this jury verdict may be a seminal moment for the hospitality industry. His law firm has been involved in many of them over the past several decades, representing a wide range of internationally-known hotel franchisors, management companies, owners, developers and investors. As an example, Bickel & Brewer successfully argued Woolley v. Embassy Suites, Inc., the case in which the court held that hotel management agreements are agency agreements and, as such, are always terminable at the option of the owner. In 1999, Bickel & Brewer extended Woolley by establishing that a franchise agreement may also create an agency relationship between the franchisor and the hotel owner.
“This case is like the Woolley cases in that it has the potential to change the industry’s legal landscape,” Renard says. “This jury verdict compels the industry to look more closely at management agreements — and evaluate the manner in which they are interpreted by all involved parties.”