Contract analysis

I. PRELIMINARY NOTES AND DAY 1 RECAP A. Purpose of Day 2 Examination Day 1 of the Brecker deposition was conducted on January 9, 2023, at the same location and before the same court reporter. Day 1 covered the following subject-matter areas in substantial detail:

1. The formation and organizational history of Coastal Palms Franchise Holdings LLC, including the operating agreement, the allocation of equity interests among the three members (Brecker at 60%, Prescott at 25%, Theresa Brecker at 15%), and the scope of Brecker's authority as Managing Member.

2. The franchise relationship between Coastal Palms and Verimark Hospitality Group Inc., including the execution of twenty-two (22) Franchise License Agreements ("FLAs") covering eighteen (18) Verimark Suites properties and four (4) Verimark Select properties across Florida, Georgia, South Carolina, and Alabama.

3. The establishment of Suncoast Room Management Inc. as a Florida corporation in or about late 2012 or early 2013, and its commencement of operations no later than January 2013.

4. The creation and operation of the gulfcoastrooms.com website as an unbranded, direct-booking channel operated by Suncoast.

5. Gross Room Revenue ("GRR") reporting practices at the property level, including the flow of information from property-level controllers to Coastal Palms' corporate office and then to Verimark.

6. Brecker's knowledge of FLA § 4.1, which defines Gross Room Revenue, and his interpretation of the language "regardless of the entity collecting such revenue."

7. Brecker's communications with property-level controllers, including specific instructions regarding the treatment of Suncoast-collected revenues in GRR reports submitted to Verimark. Day 2 will focus on the following areas that were not fully explored on Day 1 and that are critical to establishing the scope, methodology, and quantification of the underreporting scheme:

1. Suncoast Financial Details and Management-Fee Structure: The detailed financial operations of Suncoast Room Management Inc., including bank accounts, fund flows, the 12% management-fee arrangement, annual revenues from 2013 through 2021, and the tax treatment of Suncoast income.

2. OTA Net-Rate Netting Methodology: The methodology by which Coastal Palms classified online travel agency ("OTA") net-rate payments and excluded the OTA commission component from reported GRR, resulting in a second independent stream of underreporting distinct from the Suncoast direct-booking diversion.

3. Communications with Nolan Prescott Regarding Franchise Reporting: The content and frequency of financial reports and communications between Brecker and Prescott, Coastal Palms' 25% passive equity holder, to establish that Prescott received more complete revenue information than Verimark and to lock in Brecker's account of Prescott's knowledge before Prescott's own deposition.

4. Revenue Figures and Quantification Topics: A systematic walk-through of the royalty, marketing-fund, and technology-fee underpayment calculations, including the application of FLA § 4.6 late-payment interest, to test Brecker's knowledge of and response to the damages figures. The estimated duration of Day 2 is seven (7) hours of examination time, which is the maximum permitted under Florida Rule of Civil Procedure

II. SUNCOAST ROOM MANAGEMENT INC. — FINANCIAL OPERATIONS A. Suncoast Corporate Structure and Governance The objective of this section is to firmly establish that Suncoast Room Management Inc. was a shell entity controlled entirely by Brecker, with no independent operations, no independent employees, and no business purpose other than diverting guest-room revenues away from the GRR calculations that determined Coastal

1. Confirm that Randall Brecker is the sole officer of Suncoast Room Management Inc. Specifically, confirm that he holds the title of President and that there are no other officers — no Vice President, no Secretary, no Treasurer, and no Chief Financial Officer.

2. Confirm that Brecker is the sole director of Suncoast Room Management Inc. and that the board of directors has consisted of Brecker alone since the date of incorporation.

3. Confirm that Suncoast Room Management Inc. is a Florida corporation incorporated with the Florida Department of State, Division of Corporations, and obtain the date of incorporation for the record (believed to be on or about November 14, 2012, based on the articles of incorporation in the production).

4. Confirm Suncoast's principal office address and registered agent address. Establish that Suncoast's principal office is located at the same address as, or in immediate proximity to, Coastal Palms Franchise Holdings LLC's corporate office at 9500 Gulf Shore Drive, Suite 450, Naples, FL 34108. Probe whether Suncoast ever maintained a separate office space at any time.

5. Establish that Suncoast has no employees independent of Coastal Palms. Probe whether every individual who performed work on behalf of Suncoast — including accounting personnel, front-desk staff processing Suncoast bookings, IT personnel maintaining gulfcoastrooms.com, and sales staff managing corporate-direct accounts — was employed by Coastal Palms or one of the property-level LLCs rather than by Suncoast itself.

6. Probe the overlap of staff, office space, and accounting personnel between Suncoast and Coastal Palms. Establish that the same bookkeepers and controllers who maintained the books and records of Coastal Palms and the property-level LLCs also maintained the books and records of Suncoast. Ask Brecker to identify specifically who maintained Suncoast's general ledger and who prepared Suncoast's financial statements.

7. Probe whether Janet Kerrigan, during her tenure as regional controller for Coastal Palms, performed accounting work for Suncoast. If so, establish the nature and scope of her involvement with Suncoast's books and records and the time period during which she was involved. This line of questioning is important for two reasons: (a) it further establishes the complete overlap between Coastal Palms and Suncoast; and (b

8. Confirm that Suncoast had no independent business purpose other than collecting and processing certain hotel guest-room revenues for properties in Coastal Palms' portfolio. Ask Brecker directly: "Did Suncoast Room Management Inc. provide management services to any hotel or hospitality property that was not part of the Coastal Palms portfolio?" If the answer is no, establish that Suncoast existed solely to serve as

9. Establish that Suncoast did not hold any franchise licenses, did not operate any hotels, did not own any real property, and did not maintain any property-management systems independent of those used by Coastal Palms and the property-level LLCs. Exhibits: • Exhibit 47: Suncoast Room Management Inc. — Articles of Incorporation, filed with the Florida Department of State, Division of Corporations (Bates Nos. CPFH-SUP

1. Ask Brecker to identify all bank accounts maintained by Suncoast Room Management Inc. at any time during the period from January 2013 through the present. For each account, obtain: (a) the name of the financial institution; (b) the account type (checking, savings, money market, etc.); (c) the account number (or last four digits if Brecker claims confidentiality concerns — note that full account numbers are already

2. Probe whether any Suncoast bank accounts were maintained at Ironclad National Bank. This is significant because Ironclad National Bank is Coastal Palms' primary lender, holding approximately $94 million in first-lien mortgage loans on eighteen (18) of the twenty-two (22) properties in the portfolio. The relationship manager for the Coastal Palms account at Ironclad is Devon Schultz. If Suncoast maintained accounts

3. Establish the flow of funds from guest payments through Suncoast to the property-level entities: a. Guest makes a payment (via credit card, debit card, cash, or corporate-direct invoice) through a Suncoast-controlled booking channel (gulfcoastrooms.com, walk-in processed through Suncoast's merchant-processing system, or corporate-direct contract routed through Suncoast). b. Payment is deposited into a Suncoast ban

4. Confirm the frequency of remittances from Suncoast to the property-level LLCs. Was the remittance cycle monthly, bi-weekly, weekly, or on some other cadence? Ask Brecker whether the remittance schedule was documented in any written agreement.

5. Probe what happened to the 12% management fee retained by Suncoast. Specifically: a. Did the retained fees remain in Suncoast's bank accounts as operating capital or reserves? b. Were the retained fees subsequently distributed to Brecker personally? If so, how frequently and in what amounts? c. Were the retained fees distributed to Coastal Palms Franchise Holdings LLC? If so, were they reflected in Coastal Palms'

6. Probe whether Suncoast ever commingled funds with Coastal Palms or any property-level LLC — i.e., whether Coastal Palms funds were deposited into Suncoast accounts or vice versa outside the normal course of the management-fee arrangement. Exhibits: • Exhibit 49: Suncoast Room Management Inc. — Bank Statements, Ironclad National Bank (or other institution), January 2013 through December 2021 (produced in supplement

1. Establish whether the 12% management-fee rate was documented in a written agreement between Suncoast Room Management Inc. and any of the property-level LLCs. If a written management agreement exists, identify when it was executed, by whom, and the material terms.

2. If Brecker identifies a written management agreement, probe the circumstances of its execution: a. Who negotiated the agreement on behalf of Suncoast? (Brecker, as Suncoast's sole officer.) b. Who negotiated the agreement on behalf of the property-level LLC? (Brecker, as the controlling member of Coastal Palms, which in turn controls the property-level LLCs.) c. Establish that Brecker was on both sides of the tran

3. Probe the basis for the 12% rate: a. Was any market analysis or benchmarking study performed to determine whether 12% was a fair, arm's-length rate for the services Suncoast purported to provide? b. Did Brecker consult with any hospitality-industry consultant or advisor about the appropriate rate? c. Was the rate approved by any governing body — the Coastal Palms members, the property-level LLC members, or any ind

4. Confirm whether the 12% was calculated on gross booking revenue (i.e., the full rate charged to the guest before any deductions) or on net revenue (after OTA commissions, credit card processing fees, travel-agent commissions, or other charges). This distinction is important because it affects the total quantum of fees retained by Suncoast.

5. Establish the total management fees retained by Suncoast over the 2013–2021 period. Ask Brecker for his best estimate of the total dollar amount. Compare his estimate to the calculations performed by Dr. Sharon Kettlewell of Ridgeline Forensic Advisory, Verimark's forensic-accounting expert. Dr. Kettlewell's preliminary report estimates total Suncoast management-fee retention at approximately $19.1 million over th

6. Probe whether the management fees retained by Suncoast were reported as expenses on the financial statements of Coastal Palms or the property-level LLCs that were submitted to Ironclad National Bank for loan-covenant compliance purposes. This line of questioning is designed to expose a potential inconsistency: if Suncoast management fees appeared as expenses in the financials submitted to the lender, then Ironclad

1. Establish that Suncoast collected revenues from the following three categories of booking activity: a. Walk-in guests: Guests who arrived at the property without a pre-existing reservation and paid at the front desk through Suncoast's credit-card merchant-processing system rather than through the property's PMS-integrated system. b. Corporate-direct contracts: Negotiated-rate agreements with corporate accounts tha

2. For each fiscal year from 2013 through 2021, walk Brecker through the following data points using Suncoast's tax returns and financial statements: a. Total gross revenues collected by Suncoast (from all three categories above). b. Management fees retained by Suncoast (12% of gross collections). c. Net amounts remitted by Suncoast to the property-level LLCs.

3. For each fiscal year, compare Suncoast's total gross collections to the GRR reported by Coastal Palms to Verimark for the same period. Ask Brecker to confirm whether the Suncoast revenues were included in or excluded from the reported GRR figures. For each year where Brecker confirms exclusion, calculate the dollar amount of underreported GRR.

4. Highlight the most recent full fiscal year (FY 2021) as a specific example: a. Reported GRR to Verimark: $112.4 million. b. Estimated true GRR (including Suncoast-collected revenues): $145.6 million. c. Difference attributable to Suncoast revenue exclusion: $33.2 million. d. Ask Brecker whether he disputes these figures and, if so, on what basis.

5. Present the counsel-prepared comparison chart showing Suncoast annual revenue alongside reported GRR and estimated true GRR for each year, demonstrating that the underreporting ranged from approximately 22% to 31% of true GRR depending on the year. Walk Brecker through the chart year by year and ask him to identify any figures he disputes. Exhibits: • Exhibit 54: Suncoast Room Management Inc. — Federal Corporate I

1. Confirm that Suncoast Room Management Inc. filed its own corporate income-tax returns as a separate entity with the Internal Revenue Service and the Florida Department of Revenue for each year of its operation. Establish whether Suncoast filed as a C-corporation (Form 1120) or as an S-corporation (Form 1120-S). If Suncoast elected S-corporation status, probe whether the income flowed through to Brecker's personal

2. Confirm that the revenues reported on Suncoast's corporate tax returns for each year from 2013 through 2021 were not included in the GRR figures that Coastal Palms reported to Verimark for the same periods. Ask Brecker to acknowledge this fact directly.

3. Probe whether Brecker understood that this created an inherent inconsistency: revenues that were real enough to be reported to the IRS and to generate tax liability were simultaneously treated as nonexistent for purposes of calculating franchise fees owed to Verimark. Ask Brecker to explain how he reconciled these two positions.

4. Probe Brecker's reliance on any tax advisor, accountant, or CPA firm regarding the tax treatment of Suncoast's income: a. Identify the firm or individual who prepared Suncoast's tax returns. b. Establish whether the tax preparer was the same firm or individual who prepared Coastal Palms' tax returns and/or the GRR reports submitted to Verimark. c. Probe whether Brecker ever discussed with the tax preparer the rela

5. Probe whether Brecker ever sought a legal opinion from any attorney regarding the tax or franchise-reporting implications of the Suncoast arrangement.

III. OTA NET-RATE NETTING METHODOLOGY A. OTA Booking Channels Used by Coastal Palms The objective of this section is to establish the full scope of online travel agency ("OTA") booking channels used by Coastal Palms' properties and to distinguish between the two principal OTA business models that are relevant to the GRR-reporting dispute. Line of Questioning:

1. Ask Brecker to identify all OTA platforms used by any of the twenty-two (22) Coastal Palms properties at any time during the 2013–2021 period. For each platform, obtain: (a) the name of the OTA; (b) the approximate date the property or portfolio began using the OTA; (c) the contractual rate structure (commission percentage or margin); and (d) whether the relationship was at the property level or negotiated at the

2. Establish the distinction between the two principal OTA business models: a. Agency Model: Under the agency model, the hotel collects the full room rate from the guest (either at check-in, checkout, or through a pre-payment arrangement facilitated by the hotel's own merchant-processing system). The hotel then pays a commission to the OTA, typically ranging from 15% to 25% of the gross room rate. Under this model, t

3. For each OTA platform identified, ask Brecker to confirm which business model was used — agency, merchant/net-rate, or a combination — and whether the model changed over time. Obtain the commission percentages applicable to each platform and time period.

4. Establish which of the twenty-two (22) properties used merchant/net-rate OTA arrangements and during which periods. Determine whether all properties used the same OTA platforms or whether there was variation across the portfolio. Exhibits: • Exhibit 63: OTA Platform Agreements — Master agreements between Coastal Palms (or individual property-level LLCs) and the principal OTA platforms used by the portfolio, includ

1. Read the FLA § 4.1 definition into the record once again for context: "'Gross Room Revenue' or 'GRR' shall mean all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue, but excluding applicable sales and occupancy taxes collected from guests on behalf of taxing authorit

2. Confirm that Brecker was aware of this definition throughout the 2013–2021 period, consistent with his Day 1 testimony.

3. Direct Brecker's attention to the phrase "regardless of the entity collecting such revenue." Probe whether Brecker believed that this language applied to revenues collected by OTAs on behalf of the hotel under a merchant/net-rate model. In other words, when an OTA collected the full room rate from the guest and remitted only the net amount to the hotel, did Brecker understand that the "revenue" for GRR purposes wa

4. Probe whether Brecker drew a distinction between the Suncoast arrangement (which he acknowledged on Day 1 was at least potentially covered by the "regardless of the entity collecting" language, even if he claimed his interpretation differed) and the OTA net-rate arrangement. If Brecker maintains that the OTA net rate was the proper GRR figure, ask him to reconcile this position with the contractual language of § 4

5. Establish the distinction between the gross room rate charged to the guest (which is the rate "derived from or attributable to the rental of guest rooms") and the net amount remitted by the OTA to the hotel (which is the gross rate minus the OTA's commission). The gross room rate is the GRR; the OTA commission is a cost of distribution, not a deduction from revenue. C. Netting Methodology — How Coastal Palms Repor

1. Establish that Coastal Palms classified merchant/net-rate OTA payments in its internal accounting as "commissions receivable" and netted the OTA commission component against GRR. In other words, when an OTA collected $150 from a guest for a room and remitted $120 to the hotel (retaining a $30 commission), Coastal Palms reported the GRR for that booking as $120 rather than $150.

2. Probe who devised this classification methodology: a. Was it Brecker's decision to classify net-rate OTA payments as "commissions receivable" and to net them against GRR? b. Was this methodology developed by the property-level accountants or controllers? c. Was an outside accounting firm or advisor involved in establishing this methodology? d. Was the methodology documented in any written accounting policy or proc

3. Probe whether the netting methodology was applied consistently across all twenty-two (22) properties or whether different properties used different approaches. If there was variation, identify which properties used gross reporting and which used net reporting for OTA revenue.

4. Walk Brecker through a specific example using actual documents from the production: a. Present a sample monthly GRR report submitted by Coastal Palms to Verimark for a representative property and month. b. Identify the line item showing OTA revenue and the amount reported. c. Present the corresponding OTA settlement statement for the same property and month, showing the gross booking value and the net remittance.

5. For representative properties, calculate the OTA commission percentages and the resulting GRR understatement. Establish that the typical OTA commission percentage across the portfolio was between 15% and 25%, meaning that for every $100 in OTA gross bookings, Coastal Palms reported only $75 to $85 as GRR.

6. Probe whether Brecker sought guidance from Verimark or its franchise-operations team regarding the proper treatment of OTA revenue in GRR reports. Specifically: a. Did Brecker ever contact Deidre Langston, SVP Franchise Operations, to ask how merchant/net-rate OTA revenue should be reported for GRR purposes? b. Did Brecker ever attend any Verimark franchisee conference, webinar, or training session where OTA reven