Contract analysis

I. Introduction and Purpose The purpose of this memorandum is to provide a comprehensive survey of Florida appellate authority and statutory provisions bearing on three interrelated legal questions central to Verimark Hospitality Group Inc.'s ("Verimark") breach-of-contract claims against Coastal Palms Franchise Holdings LLC ("Coastal Palms") and related defendants. This memorandum addresses the following three focal

II. Summary of Conclusions Florida law strongly favors Verimark's position on all three central legal questions. The key conclusions are as follows: GRR Definition. Florida courts enforce broad, inclusive revenue definitions in franchise agreements according to their plain language. The objective theory of contract interpretation, which is firmly established in Florida jurisprudence, requires courts to give effect to

III. Factual Background Relevant to Legal Analysis The following factual summary draws upon the closed discovery record, including deposition transcripts, audit workpapers, expert reports, and documentary evidence produced by both parties. All facts recited below are either undisputed or established by evidence that Coastal Palms has not controverted with competent record evidence. A. The Franchise License Agreements

Section 4.1 — Royalty on Gross Room Revenue. Each FLA requires the franchisee to pay Verimark a continuing royalty equal to 5% of Gross Room Revenue. GRR is defined in § 4.1 as: "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." This definition is central to the pr

Section 4.2 — Marketing-Fund Contribution. Each FLA requires the franchisee to contribute 2.5% of GRR to Verimark's system-wide marketing fund, which supports national advertising, brand promotion, and reservation-system maintenance for the benefit of all franchised properties.

Section 4.3 — Technology Fee. Each FLA requires the franchisee to pay a technology fee of $12.50 per available room per month, subject to annual adjustment based on the Consumer Price Index, capped at 3% per year. This fee supports the property-management system, central reservation system, and related technology infrastructure provided by Verimark.

Section 4.6 — Late-Payment Interest. Any amounts not paid when due accrue interest at the rate of 1.5% per month, compounded monthly, from the date such amounts were originally due until the date of actual payment. Beyond the financial provisions, the FLAs contain detailed audit, cure, and termination provisions that are directly relevant to the legal analysis:

Section 8.2 — Audit Rights. Verimark is entitled to audit the franchisee's books and records related to the calculation and payment of royalties, marketing-fund contributions, and other fees upon 10 business days' written notice. If such an audit reveals underpayment exceeding 2% of reported GRR for the audited period, the franchisee is obligated to bear all costs of the audit, including fees of accountants, auditors

Section 14.1 — Cure Period. In the event Verimark provides written notice of a material breach, the franchisee has 30 days from the date of such notice to cure the breach to Verimark's reasonable satisfaction. If the breach is not cured within the 30-day period, Verimark may terminate the FLA and exercise all remedies available under the agreement and at law.

Section 14.2(c) — Incurable Breach. Notwithstanding the 30-day cure period provided in § 14.1, the FLAs designate certain categories of breach as constituting material breaches that are "incapable of cure." Section 14.2(c) provides, in relevant part, that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." Upon the occurrence of an incurable breach, Verimark

Section 15.3 — Liquidated Damages. Upon termination for cause, the franchisee is obligated to pay Verimark liquidated damages in an amount equal to three times (3×) the trailing-twelve-month royalties for each affected property. This provision reflects the parties' agreed-upon estimate of the damages Verimark would sustain from premature termination of the franchise relationship, including lost future royalty income,

IV. Legal Analysis A. Construction of Gross Room Revenue Definitions in Florida Franchise Agreements

1. Florida's Rules of Contract Interpretation Florida adheres to the objective theory of contract interpretation, under which the plain meaning of unambiguous contract language controls the determination of the parties' rights and obligations. This foundational principle is firmly established in Florida Supreme Court jurisprudence and is consistently applied by the Florida District Courts of Appeal. In Acceleration N

2. Franchise-Specific Revenue Definitions Under Florida Case Law Florida appellate courts have addressed the scope of revenue definitions in franchise agreements on multiple occasions, and the decisions are consistently favorable to Verimark's position. In Burger King Corp. v. Austin, 805 So. 2d 1007 (Fla. 3d DCA 2001), the Third District Court of Appeal considered a dispute over the scope of a "Gross Sales" definiti

3. The "Separate Entity" Argument: Revenues Collected by Affiliates Coastal Palms' principal defense to Verimark's breach-of-contract claims rests on the argument that because Suncoast Room Management Inc. is a separately incorporated Florida corporation — not a party to the FLAs — its revenue collections fall outside the scope of § 4.1. This argument fails for multiple, independent reasons. First, the plain language

4. OTA Net-Rate Revenue Netting In addition to the Suncoast diversion, Coastal Palms systematically reduced reported GRR by netting OTA commissions against the gross room revenues received from OTA bookings. Specifically, when a guest booked a room through an OTA such as Aldermere Technologies or Bramwell Holdings at a posted rate of, for example, $200 per night, and the OTA remitted the net amount of $160 to the pro

Section 4.1 of the FLAs contains no netting provision. It does not authorize the deduction of OTA commissions, distribution fees, credit-card processing costs, or any other expense from the GRR calculation. The full gross amount attributable to the rental of guest rooms — including the full posted room rate for OTA bookings — is therefore includable in GRR. Coastal Palms' contrary practice resulted in the systematic

5. Alleged Verimark Knowledge and Waiver/Estoppel Arguments Coastal Palms asserts that Verimark's alleged awareness of Suncoast's role in managing certain booking channels constitutes waiver of Verimark's right to include Suncoast-collected revenues in GRR, or alternatively, that Verimark is estopped from asserting a breach claim based on the exclusion of those revenues. These defenses are without merit under Florida

1. Contractual Audit Provisions as Enforceable Rights

Section 8.2 of the FLAs grants Verimark the right to audit the franchisee's books and records related to the calculation and payment of royalties, marketing-fund contributions, and other fees upon 10 business days' written notice. This provision represents a bargained-for contractual protection that is essential to the franchise relationship, and Florida courts have consistently enforced such provisions with vigor. T

2. Florida Statutory Framework The Florida statutory framework governing franchise relationships includes the Florida Franchise Act, codified at Chapter 817, Part VIII, of the Florida Statutes (Fla. Stat. §§ 817.400–817.416), as well as related provisions governing deceptive and unfair trade practices. While the Florida Franchise Act primarily governs franchise registration and disclosure — imposing requirements on f

3. Consequences of Franchisee Obstruction The evidentiary record reveals that Coastal Palms did not simply fail to report all required revenue; it also actively obstructed Verimark's efforts to exercise its contractual audit rights and discover the extent of the underreporting through the litigation discovery process. Following the filing of this action in April 2022, Verimark served discovery requests seeking produc

1. General Standard for Material Breach Under Florida Law Under Florida common law, a material breach of contract is one that "goes to the essence of the contract" and is "so substantial and fundamental as to defeat the purpose of the agreement or to render it impossible for the other party to receive substantially what it bargained for." Abbottott Labs., Inc. v. Gen. Elec. Capital, 765 So. 2d 737, 740 (Fla. 5th DCA

2. Contractual Specification of Material Breach Independent of the common-law multi-factor analysis, § 14.2(c) of the FLAs provides a contractual specification of material breach. That provision states: "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." Florida courts generally enforce contractual provisions in which the parties have defined, by mutual agre

3. Cure Period and Failure to Cure Even if the incurability designation of § 14.2(c) were disregarded, the undisputed facts regarding Coastal Palms' failure to cure independently support the material breach finding.

Section 14.1 of the FLAs provides a 30-day cure period from the date of Verimark's written notice of a material breach. Verimark issued a formal Notice of Material Breach on February 4, 2022, by certified mail and overnight courier to Coastal Palms' registered agent and to Randall Brecker personally at his principal office address. The Notice identified the underreporting scheme in detail, cited the specific FLA prov

4. Systematic vs. Isolated Breach A critical distinction in the material breach analysis is between isolated instances of underpayment — which might be curable and non-material — and the type of systematic, extended scheme established by the evidence in this case. Florida courts have consistently recognized that the distinction between occasional errors and intentional patterns of misconduct is dispositive of the mat