Contract analysis

1. This action arises from Defendants' systematic and deliberate underreporting of Gross Room Revenue ("GRR") over a nine-year period spanning from 2013 through 2021 in connection with twenty-two (22) Franchise License Agreements ("FLAs") governing hotels operated under Verimark's branded flags, including the "Verimark Suites" and "Verimark Select" hospitality brands. Through a carefully orchestrated revenue-diversio

2. Verimark brings claims against Defendants for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent concealment, negligent misrepresentation, unjust enrichment, declaratory relief, accounting, and civil conspiracy. Verimark seeks damages of approximately One Hundred Fifty Million Dollars ($150,000,000.00), comprising underpaid royalties, marketing-fund contributions, and tec

I. THE PARTIES A. Plaintiff Verimark Hospitality Group Inc.

3. Plaintiff Verimark Hospitality Group Inc. is a corporation organized and existing under the laws of the State of Delaware and is publicly traded on the Nasdaq Stock Market under the ticker symbol "VHMK." Verimark's principal executive offices and corporate headquarters are located at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301.

4. Verimark operates and franchises approximately 340 branded hotel properties across the southeastern United States under three distinct hospitality flags: "Verimark Suites," "Verimark Select," and "Verimark Grand." These flags serve the upper-midscale, upscale, and upper-upscale segments of the hospitality market, respectively, and are widely recognized by business and leisure travelers throughout the region.

5. For the fiscal year ending December 31, 2021, Verimark reported consolidated revenue of approximately $1.42 billion. Of that total, the franchise segment—encompassing royalties, marketing-fund contributions, technology fees, and related franchise-derived income—generated approximately $218 million in revenue, representing a significant and growing component of Verimark's overall business.

6. Renata Solis-Vega serves as Senior Vice President and General Counsel of Verimark. Martin Holcomb serves as Executive Vice President and Chief Financial Officer. Deidre Langston serves as Senior Vice President, Franchise Operations, and oversees franchise compliance, including the monitoring and auditing of franchisee financial performance and reporting obligations. B. Defendant Coastal Palms Franchise Holdings LL

7. Defendant Coastal Palms Franchise Holdings LLC is a limited liability company organized and existing under the laws of the State of Florida, with its principal office located at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. Coastal Palms' registered agent is Garrison Registered Agents LLC, located at 100 S. Ashley Drive, Suite 600, Tampa, Florida 33602.

8. Coastal Palms is Verimark's single largest franchise operator. As of the date of this Complaint, Coastal Palms operates twenty-two (22) franchised hotel properties under Verimark's branded flags, consisting of eighteen (18) "Verimark Suites" properties and four (4) "Verimark Select" properties. These properties are located throughout the State of Florida and the coastal region of the State of Georgia and collectiv

9. Coastal Palms' principal members and their respective equity interests are as follows: Randall "Randy" Brecker, who serves as Managing Member and holds a sixty percent (60%) equity interest; Theresa Brecker, who holds a fifteen percent (15%) equity interest and is the spouse of Randall Brecker; and Nolan Prescott, who holds a twenty-five percent (25%) equity interest as a passive investor and retired commercial re

10. For the fiscal year ending December 31, 2021, Coastal Palms reported GRR to Verimark of approximately $112.4 million across its twenty-two franchised properties. However, Verimark's forensic accounting analysis, conducted by Thornbury & Associates CPAs LLP as described herein, estimates that Coastal Palms' true GRR for fiscal year 2021 was approximately $145.6 million—reflecting an underreporting of approximately

11. Defendant Randall Brecker is a natural person residing in Naples, Collier County, Florida. Brecker is approximately fifty-eight (58) years of age. He serves as the Managing Member and sixty percent (60%) equity holder of Coastal Palms Franchise Holdings LLC. He also serves as President of Suncoast Room Management Inc. and as Managing Member of both Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC.

12. Brecker is a former hotel general manager who built the Coastal Palms portfolio from a single Verimark Suites property acquired in 2007 to a twenty-two-hotel portfolio spanning two states. Throughout the relevant period, Brecker personally directed and supervised the revenue-diversion scheme detailed herein, including the establishment of Suncoast as an undisclosed revenue-collection vehicle, the creation and ope

13. Defendant Suncoast Room Management Inc. is a corporation organized and existing under the laws of the State of Florida. Randall Brecker serves as its President and sole director. Suncoast's principal office is located at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108.

14. Suncoast was established no later than January 2013 as an affiliated management company. Its primary function was to collect revenues from direct bookings at Coastal Palms' franchised hotel properties, including walk-in guests, corporate-direct contracts negotiated outside of Verimark's central reservation system, and bookings received through the unbranded website gulfcoastrooms.com. Suncoast also operated and m

15. Upon receiving guest-room revenue from these direct-booking sources, Suncoast retained a twelve percent (12%) "management fee" before remitting the remaining balance to the relevant property-level entities, including Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC. Neither Suncoast's collections nor the management fee it retained were reported to Verimark as part of GRR at any time during the 2013–2

16. Defendant Gulf Breeze Hospitality LLC is a limited liability company organized and existing under the laws of the State of Florida. Randall Brecker serves as its Managing Member. Gulf Breeze's principal office is located at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108.

17. Gulf Breeze owns and operates six (6) Verimark Suites properties located in Southwest Florida. Gulf Breeze is one of the property-level entities through which diverted revenues were funneled and from which materially understated GRR reports were submitted to Verimark during the relevant period. F. Defendant Savannah Lodging Partners LLC

18. Defendant Savannah Lodging Partners LLC is a limited liability company organized and existing under the laws of the State of Georgia. Randall Brecker serves as its Managing Member. Savannah Lodging's principal office is located at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108.

19. Savannah Lodging owns and operates four (4) Verimark Suites properties located in coastal Georgia, including properties in the Savannah and Brunswick metropolitan areas. Savannah Lodging is one of the property-level entities through which diverted revenues were funneled and from which materially understated GRR reports were submitted to Verimark during the relevant period.

20. This Court has subject-matter jurisdiction over this action pursuant to Article V, Section 5 of the Florida Constitution and Sections 26.012(2)(a) and 86.011 of the Florida Statutes, as the amount in controversy exceeds Thirty Thousand Dollars ($30,000.00), exclusive of interest, attorneys' fees, and costs, and this action involves claims for declaratory relief under the Florida Declaratory Judgment Act.

21. Venue is proper in Broward County, Florida, pursuant to Section 47.011 of the Florida Statutes and, independently, pursuant to the mandatory forum-selection provision contained in each of the twenty-two (22) FLAs at issue. Specifically, each FLA designates Broward County, Florida, as the exclusive forum for the resolution of any and all disputes arising out of or relating to the FLA or the franchise relationship

22. This Court has personal jurisdiction over Defendant Coastal Palms Franchise Holdings LLC, which is a Florida limited liability company that maintains its principal office in the State of Florida and conducts business throughout the state.

23. This Court has personal jurisdiction over Defendant Randall Brecker, who is a natural person residing in Naples, Collier County, Florida.

24. This Court has personal jurisdiction over Defendant Suncoast Room Management Inc., which is a Florida corporation that maintains its principal office in the State of Florida and conducts business throughout the state.

25. This Court has personal jurisdiction over Defendant Gulf Breeze Hospitality LLC, which is a Florida limited liability company that maintains its principal office in the State of Florida and owns and operates hotel properties within the state.

26. This Court has personal jurisdiction over Defendant Savannah Lodging Partners LLC pursuant to Section 48.193 of the Florida Statutes (Florida's long-arm statute). Savannah Lodging, although organized under the laws of the State of Georgia, transacts substantial and not isolated business activity in the State of Florida, including maintaining its principal office address in Naples, Florida; operating under the dir

III. GENERAL ALLEGATIONS A. The Franchise Relationship

27. On or about June 15, 2007, Coastal Palms entered into its first Franchise License Agreement with Verimark for a single "Verimark Suites" hotel property located in Naples, Collier County, Florida (the "Original FLA"). The Original FLA granted Coastal Palms the right to operate the hotel under the Verimark Suites brand and to use Verimark's trademarks, trade names, proprietary reservation systems, marketing platfor

28. Over the ensuing twelve years, Coastal Palms executed a total of twenty-two (22) individual FLAs with Verimark for hotel properties located throughout the State of Florida and the coastal region of the State of Georgia. The most recent FLA was executed on or about September 3, 2019, for a Verimark Select property located in Jacksonville, Duval County, Florida. The property-level entities that are signatories to c

29. Each of the twenty-two FLAs has an initial term of twenty (20) years from its respective effective date and is governed by the laws of the State of Florida, as expressly provided in each agreement's choice-of-law provision. While the FLAs were executed at various times over the twelve-year period from 2007 to 2019, each FLA is substantially identical in its material financial terms, including the provisions gover

30. Royalties (FLA § 4.1). Under Section 4.1 of each FLA, the franchisee is required to pay Verimark a continuing royalty equal to five percent (5%) of Gross Room Revenue. The term "Gross Room Revenue" is defined in Section 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 collectin

31. Marketing-Fund Contribution (FLA § 4.2). Under Section 4.2 of each FLA, the franchisee is required to pay Verimark a marketing-fund contribution equal to two and one-half percent (2.5%) of Gross Room Revenue. These contributions are deposited into Verimark's system-wide marketing fund, which finances national and regional advertising, digital marketing campaigns, loyalty-program operations, and brand-awareness in

32. Technology Fee (FLA § 4.3). Under Section 4.3 of each FLA, the franchisee is required to pay a technology fee of Twelve Dollars and Fifty Cents ($12.50) per available room per month. This fee supports Verimark's central reservation system, property-management system interfaces, revenue-management tools, cybersecurity infrastructure, and guest-facing technology platforms. The technology fee is adjusted annually by

33. Reporting Obligations. Under the FLAs, the franchisee is required to report GRR to Verimark on a monthly basis, no later than fifteen (15) calendar days following the close of each calendar month. Each monthly GRR report must be prepared in accordance with Verimark's standard reporting format and must include a certification by an authorized representative of the franchisee that the reported figures are true, com

34. Late-Payment Interest (FLA § 4.6). Under Section 4.6 of each FLA, any amounts not timely paid by the franchisee shall bear interest at the rate of one and one-half percent (1.5%) per month, compounded monthly, from the date such payment was due until the date of payment. This interest provision applies to all underpayments of royalties, marketing-fund contributions, and technology fees. C. FLA Audit and Breach Pr

35. Audit Rights (FLA § 8.2). Under Section 8.2 of each FLA, Verimark is entitled to audit the franchisee's books and records, including all financial statements, bank records, tax returns, guest-folio data, property-management system records, and third-party booking-channel statements, upon ten (10) business days' written notice. The franchisee is required to provide full access to all such records and to cooperate

36. Cure Period (FLA § 14.1). Under Section 14.1 of each FLA, upon Verimark's delivery of a written Notice of Material Breach, the franchisee must cure any material breach within thirty (30) days of the date of such notice. The cure must be complete and unconditional, including full payment of all amounts owed and implementation of corrective measures satisfactory to Verimark to prevent recurrence.

37. Incurable Breach (FLA § 14.2(c)). Section 14.2 of each FLA identifies certain categories of breach that are deemed "incapable of cure." Among these, Section 14.2(c) provides: "Systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." This provision reflects the parties' shared understanding that the trust and confidence underlying the franchise relationship can

38. Liquidated Damages (FLA § 15.3). Under Section 15.3 of each FLA, upon termination of the agreement for cause, the franchisee shall owe Verimark liquidated damages equal to three times (3×) the trailing-twelve-month royalties for the terminated property, calculated on the basis of corrected GRR. The parties agreed at the time of execution of each FLA that actual damages resulting from early termination for cause w

39. Beginning no later than January 2013, Defendants implemented a systematic and deliberate scheme to divert hotel guest-room revenue away from Verimark's reporting systems and to understate the Gross Room Revenue upon which royalties, marketing-fund contributions, and technology fees were calculated and paid. The scheme was multi-faceted and evolved over the nine-year period from 2013 through 2021 as Defendants exp

40. As a central component of the scheme, Defendant Brecker established Suncoast Room Management Inc. as an affiliated management company whose primary purpose was to collect revenues from direct bookings at Coastal Palms' franchised hotel properties. These direct bookings included walk-in guests who arrived at the hotel without a prior reservation, corporate-direct contracts negotiated by Brecker and his team direct

41. The website gulfcoastrooms.com was designed to function as an independent, unbranded booking platform that listed available rooms at Coastal Palms' franchised properties without any reference to the Verimark brand, the Verimark Suites flag, or the Verimark Select flag. Guests booking through gulfcoastrooms.com were presented with property descriptions, photographs, and room rates that made no mention of the hotel

42. Upon collecting guest-room revenue from direct-booking sources, Suncoast retained a twelve percent (12%) "management fee" before remitting the remaining eighty-eight percent (88%) of the revenue to the relevant property-level entities, including Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC. The management fee retained by Suncoast was not disclosed to Verimark and was not reported as part of GRR.

43. In addition to the direct-booking diversion, Defendants also engaged in a separate but related scheme to underreport revenue from third-party online travel agency ("OTA") channels, including major booking platforms. Specifically, Defendants classified net-rate OTA payments as "commissions receivable" and netted the OTA commissions against gross revenue before reporting GRR to Verimark. This netting methodology wa

44. The revenue-diversion scheme was deliberately and affirmatively concealed from Verimark throughout the entire nine-year period. At no time between January 2013 and November 2021 did Defendants disclose to Verimark: (a) the existence of Suncoast Room Management Inc. or its role in collecting guest-room revenue; (b) the existence or operation of the gulfcoastrooms.com website; (c) the diversion of direct-booking re

45. On or about November 8, 2021, Janet Kerrigan, a former regional controller employed by Coastal Palms, contacted Verimark's confidential compliance hotline and reported the existence of the systematic revenue-diversion scheme described herein. Ms. Kerrigan had been employed by Coastal Palms as a regional controller from approximately March 2015 through October 2021, during which time she had direct knowledge of th

46. In her initial report and subsequent interviews with Verimark's compliance team, Ms. Kerrigan described in detail: (a) Brecker's standing instructions to property-level controllers and front-desk managers to route walk-in bookings and corporate-direct bookings through Suncoast rather than through the Verimark-branded property-management system; (b) the operation of gulfcoastrooms.com as an unbranded, competing bo

47. Ms. Kerrigan's report was received by Verimark's Vice President of Internal Audit, Gerald Farnsworth, who immediately escalated the matter to Senior Vice President and General Counsel Renata Solis-Vega and Senior Vice President of Franchise Operations Deidre Langston. Within forty-eight hours, Verimark assembled an internal investigation team consisting of members of its legal, compliance, internal audit, and fra

48. On or about November 22, 2021, following its initial internal assessment and determination that Ms. Kerrigan's allegations were credible and supported by preliminary documentary evidence, Verimark engaged Thornbury & Associates CPAs LLP to conduct a comprehensive franchise-compliance audit of Coastal Palms' franchised properties. The engagement was led by Malcolm Thornbury, CPA, Lead Audit Partner, at Thornbury &

49. The initial phase of the audit focused on Coastal Palms' top ten (10) properties by reported GRR, encompassing hotel locations in Naples, Fort Myers, Sarasota, Tampa, Orlando, Jacksonville, and Savannah, Georgia. The audit team reviewed available property-management system data, bank records, OTA settlement statements, corporate-direct contracts, and tax filings for the fiscal years 2019 through 2021.

50. On or about January 18, 2022, Thornbury & Associates delivered its preliminary audit findings to Verimark. The preliminary findings indicated that the ten audited properties had underreported GRR by approximately twenty-six percent (26%) during the 2019–2021 period. The underreporting was attributable to two primary sources: (a) the complete exclusion of direct-booking revenues collected by Suncoast, which accoun

51. Based on these preliminary findings, and extrapolating the identified underreporting patterns across all twenty-two (22) Coastal Palms properties and the full nine-year period from 2013 through 2021, Thornbury & Associates estimated that Coastal Palms had underreported total GRR by approximately One Hundred Ninety-Seven Million Eight Hundred Thousand Dollars ($197,800,000.00). The rate of underreporting varied by

52. On February 4, 2022, Verimark issued a formal Notice of Material Breach (the "Notice") to Coastal Palms pursuant to Section 14.1 of each FLA. The Notice was sent by certified mail, return receipt requested, and by email to Coastal Palms' principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108, and to Brecker individually. A copy of the Notice was simultaneously transmitted to Nathan Whitfield

53. The Notice identified the systematic underreporting of GRR as a material breach of each of the twenty-two FLAs, specifically citing violations of Sections 4.1 (royalty obligations), 4.2 (marketing-fund contribution obligations), 4.3 (technology-fee obligations), and the monthly GRR reporting requirements. The Notice further stated that, pursuant to Section 14.2(c) of each FLA, "systematic underreporting of Gross

54. On or about February 28, 2022, Coastal Palms' counsel, Whitfield, Barrow & Crane LLP, acting through Nathan Whitfield III, responded to the Notice by letter. In that response, Coastal Palms denied that any material breach of the FLAs had occurred. Coastal Palms asserted that the revenues collected by Suncoast were properly excluded from GRR under what it characterized as a "reasonable interpretation" of the FLA's

55. The thirty-day cure period prescribed by Section 14.1 of each FLA expired on March 6, 2022. No cure was tendered by Coastal Palms or any other Defendant during the cure period or at any time thereafter. Coastal Palms' purported defense—that revenues collected by a wholly controlled affiliated entity in connection with guest-room rentals at Verimark-branded properties somehow fall outside the FLA's comprehensive G

56. Coastal Palms' systematic underreporting of GRR constitutes a material breach of each of the twenty-two FLAs. Such breach is, by the express terms of Section 14.2(c) of each FLA, incapable of cure. H. Damages Summary

57. Based upon the forensic analysis conducted by Thornbury & Associates CPAs LLP and Verimark's own internal analysis, Verimark's damages are summarized as follows: