PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 555-7200
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
Date: April 26, 2024
TO: Matter File — Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al.
FROM: Priya Anand, Responsible Partner (FL Bar No. 0087451) Douglas Carmichael, Billing Partner (FL Bar No. 0093217)
RE: Matter Closing Memorandum — Case No. 1021-00006 (Circuit Court of the 17th Judicial Circuit, Broward County, Florida)
MATTER NUMBER: 1044-00007
STATUS: CLOSED — April 26, 2024
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I. PURPOSE AND SCOPE OF MEMORANDUM
The purpose of this memorandum is to memorialize the final disposition of the above-referenced matter, provide a comprehensive summary of the engagement from inception through closing, document the financial outcomes of the litigation — including fees, costs, and the terms of the settlement achieved on behalf of the client — capture key learnings and practice points for the benefit of the firm, and establish file-retention instructions in accordance with Calderwood & Harkness LLP's Document Retention Policy. This memorandum is intended to serve as the definitive internal record of the matter for future reference by firm attorneys, the conflicts department, and firm management.
This memorandum has been prepared exclusively for the internal records of Calderwood & Harkness LLP and is protected in its entirety by the attorney-client privilege and the attorney work-product doctrine. It is not to be distributed to any person or entity outside the firm without the express written authorization of the Responsible Partner. Nothing contained herein is intended to constitute, and should not be construed as, legal advice to any person other than the client in the context of the underlying engagement.
The matter was formally closed on April 26, 2024, upon the filing and entry of the Joint Stipulation of Dismissal with Prejudice in Case No. 1021-00006 before the Honorable Richard M. Calloway, Circuit Judge, Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. All substantive obligations of Calderwood & Harkness LLP under the engagement letter dated March 4, 2022, as amended, have been fully performed, and the final invoice for legal services rendered in connection with this matter has been transmitted to the client.
II. MATTER OVERVIEW
A. Client and Parties
1. Client. Verimark Hospitality Group Inc. ("Verimark" or "VHG") is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VHMK. Verimark is headquartered at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. For fiscal year 2021 — the most recent full fiscal year preceding the commencement of this litigation — Verimark reported consolidated revenue of approximately $1.42 billion, of which its franchise segment contributed approximately $218 million. Verimark operates and franchises approximately 340 branded hotel properties under three primary flags — Verimark Suites, Verimark Select, and Verimark Grand — located predominantly across the southeastern United States.
The following individuals served as the firm's primary client contacts throughout the engagement:
• Renata Solis-Vega, Senior Vice President and General Counsel — principal point of contact for all legal strategy, settlement authority, and privilege-related matters.
• Martin Holcomb, Executive Vice President and Chief Financial Officer — primary contact for financial matters, fee and cost approvals, budget discussions, and settlement economics.
• Deidre Langston, Senior Vice President, Franchise Operations — primary contact for operational matters, franchise compliance, property-level data, and post-settlement monitoring of franchise-surrender and enhanced-audit obligations.
2. Defendants. The following parties were named as defendants in this action:
(a) Coastal Palms Franchise Holdings LLC ("Coastal Palms" or "CPFH") — a Florida limited liability company with its principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. Coastal Palms' registered agent is Garrison Registered Agents LLC, 100 S. Ashley Drive, Suite 600, Tampa, Florida 33602. Coastal Palms was, at the time of the filing of this action, Verimark's single largest franchise operator, holding franchise rights to twenty-two (22) hotel properties — eighteen (18) operating under the Verimark Suites flag and four (4) operating under the Verimark Select flag — located across Florida and Georgia, comprising approximately 3,740 total guest rooms.
(b) Randall "Randy" Brecker — Managing Member and sixty percent (60%) equity holder of Coastal Palms. Mr. Brecker served as the day-to-day decision-maker for all Coastal Palms operations and was also the President of Suncoast Room Management Inc., the affiliated management company through which the revenue-diversion scheme was conducted.
(c) Theresa Brecker — Member and fifteen percent (15%) equity holder of Coastal Palms. Ms. Brecker is the spouse of Randall Brecker. Her involvement in the day-to-day operations of Coastal Palms was limited, but she was a signatory on certain financial documents and loan agreements relevant to the litigation.
(d) Nolan Prescott — Member and twenty-five percent (25%) equity holder of Coastal Palms. Mr. Prescott is a retired commercial real estate developer who served as a passive investor in Coastal Palms. His role was principally financial; he did not participate in day-to-day management but was a co-guarantor on several of the Ironclad National Bank mortgage loans and was a signatory on the operating agreement.
(e) Gulf Breeze Hospitality LLC — a Florida limited liability company owning and operating six (6) Verimark Suites properties in Southwest Florida. Gulf Breeze Hospitality LLC was managed by Randall Brecker and functioned as a subsidiary or affiliate entity within the Coastal Palms organizational structure.
(f) Savannah Lodging Partners LLC — a Georgia limited liability company owning and operating four (4) Verimark Suites properties in coastal Georgia (Savannah and Brunswick). Savannah Lodging Partners LLC was likewise managed by Randall Brecker.
(g) Suncoast Room Management Inc. — a Florida corporation; an affiliated management company established by Randall Brecker no later than January 2013. Suncoast collected revenues from direct bookings — including walk-in guests, corporate-direct contracts, and bookings made through the unbranded website gulfcoastrooms.com — and retained a twelve percent (12%) "management fee" on those revenues. Neither Suncoast's gross collections nor the management fee were included in the Gross Room Revenue reports submitted to Verimark. Suncoast was the central vehicle through which the revenue-diversion scheme operated.
3. Defense Counsel
Coastal Palms and all individual and entity defendants were jointly represented by Whitfield, Barrow & Crane LLP ("WBC"), 1221 Brickell Avenue, Suite 3000, Miami, Florida 33131. The defense team was led by:
• Nathan Whitfield III, Senior Partner — lead trial counsel.
• Gabriela Montes, Partner — responsible for discovery and motions practice.
• Ethan Doyle, Associate — supporting research, briefing, and deposition preparation.
B. Nature of the Dispute
This matter involved a breach-of-contract action arising from Coastal Palms' systematic underreporting of Gross Room Revenue ("GRR") over a nine-year period spanning 2013 through 2021. The underreporting resulted in the chronic and substantial underpayment of three categories of fees owed to Verimark under the parties' Franchise License Agreements: (i) royalties, calculated at five percent (5%) of GRR pursuant to FLA § 4.1; (ii) marketing-fund contributions, calculated at two and one-half percent (2.5%) of GRR pursuant to FLA § 4.2; and (iii) technology fees, assessed at $12.50 per available room per month, with consumer price index adjustments capped at three percent (3%) annually, pursuant to FLA § 4.3.
The revenue-diversion scheme at the heart of this dispute operated as follows: Beginning no later than January 2013, Coastal Palms, acting through and at the direction of Randall Brecker, established Suncoast Room Management Inc. as a nominally separate management company. Suncoast collected revenues from direct bookings — a category encompassing walk-in guests paying at the front desk, corporate accounts that booked directly with the properties rather than through Verimark's centralized reservation system, and guests who booked through the unbranded website gulfcoastrooms.com, which Suncoast created and operated. Suncoast retained a twelve percent (12%) "management fee" on all revenues it collected. Critically, neither Suncoast's gross collections nor the management fee were included in the GRR figures that Coastal Palms reported to Verimark for purposes of calculating royalties, marketing-fund contributions, and technology fees.
In addition to the Suncoast-based diversion, Coastal Palms also systematically underreported revenue from third-party online travel agencies ("OTAs") by netting commissions paid to the OTAs against GRR before reporting it to Verimark. This netting practice violated the FLAs' definition of GRR, which was defined on a gross basis without deduction for commissions, discounts, or fees paid to intermediaries.
The underreporting was estimated at between twenty-two percent (22%) and thirty-one percent (31%) of actual GRR across the portfolio, with variation by individual property and by year. The total underreported GRR over the nine-year period was estimated at approximately $197.8 million. For fiscal year 2021 alone — the year immediately preceding the discovery of the scheme — Coastal Palms reported GRR of $112.4 million, whereas estimated true GRR was $145.6 million, representing an underreporting of approximately $33.2 million for that single year.
C. Franchise License Agreements
The contractual relationship between Verimark and Coastal Palms was governed by twenty-two (22) individual Franchise License Agreements ("FLAs"), one for each franchised hotel property. The first FLA was executed on June 15, 2007, for the Naples property, and the most recent FLA was executed on September 3, 2019. Each FLA provided for a twenty (20)-year initial term and was governed by the laws of the State of Florida, with mandatory venue for any litigation in Broward County, Florida.
The following provisions of the FLAs were of central importance to the claims asserted in this matter:
• Section 4.1 — Royalties: Franchisee to pay Verimark a royalty equal to five percent (5%) of Gross Room Revenue, payable monthly, within fifteen (15) days following the end of each calendar month.
• Section 4.2 — Marketing-Fund Contribution: Franchisee to contribute two and one-half percent (2.5%) of Gross Room Revenue to the Verimark National Marketing Fund, payable concurrently with royalties.
• Section 4.3 — Technology Fee: Franchisee to pay a technology fee of $12.50 per available room per month, subject to annual CPI adjustment capped at three percent (3%) per year, to support Verimark's centralized reservation system, property-management system integrations, and brand technology platforms.
• Section 4.6 — Late-Payment Interest: Any amounts not paid when due to bear interest at a rate of one and one-half percent (1.5%) per month, compounded monthly, until paid in full.
• Section 8.2 — Audit Rights: Verimark entitled to audit franchisee's financial records upon ten (10) business days' written notice. If an audit reveals an underpayment exceeding two percent (2%) of reported GRR for the audited period, the franchisee bears all audit costs.
• Section 14.1 — Cure Period for Material Breach: In the event of a material breach, the non-breaching party to provide written notice and a thirty (30)-day cure period.
• Section 14.2(c) — Incurable Breach: "Systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure."
• Section 15.3 — Liquidated Damages upon Termination for Cause: In the event of termination by Verimark for cause, the franchisee shall pay liquidated damages equal to three times (3×) the trailing-twelve-month royalties attributable to the terminated property.
These provisions collectively formed the legal framework upon which Verimark's claims were built and provided the contractual bases for the damages calculations set forth in Dr. Kettlewell's expert report.
D. Court and Case Information
• Court: Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida.
• Case Number: 1021-00006.
• Assigned Judge: Honorable Richard M. Calloway, Circuit Judge.
Judge Calloway presided over all proceedings in this matter from the initial case-management conference through the entry of the Joint Stipulation of Dismissal. The Court's handling of the matter was efficient and well-managed, with the most significant judicial intervention being the Court's October 28, 2022 Order granting the Motion to Compel and the February 9, 2024 Order granting Verimark's Motion for Partial Summary Judgment on Counts I and II.
E. Calderwood & Harkness Engagement Team
The following attorneys and staff comprised the Calderwood & Harkness LLP engagement team for this matter:
• Priya Anand — Responsible Partner, Litigation (General); Florida Bar No. 0087451. Ms. Anand has twenty-two (22) years of experience in complex commercial litigation and franchise disputes and served as the lead strategist and trial counsel for Verimark throughout the engagement. Ms. Anand was responsible for all significant strategic decisions, client communications, settlement negotiations, and the mediation.
• Douglas Carmichael — Billing Partner, Litigation (General); Florida Bar No. 0093217. Mr. Carmichael has nineteen (19) years of experience and served as co-counsel on the matter, with primary responsibility for billing, budget management, and client reporting on financial matters. Mr. Carmichael also participated in the summary-judgment briefing and mediation.
• Yuki Nakamura — Lead Associate, Litigation (General); Florida Bar No. 0119644. Ms. Nakamura has seven (7) years of experience and managed the day-to-day conduct of the litigation, including oversight of discovery, coordination with the e-discovery vendor (Nexagen Document Solutions LLC), preparation of deposition outlines, drafting of significant portions of the summary-judgment briefing, and coordination with expert witnesses. Ms. Nakamura was the primary drafter of the confidential mediation statement and the settlement agreement.
• Carlos Espinoza — Working Associate, Litigation (General); Florida Bar No. 0128903. Mr. Espinoza has four (4) years of experience and provided substantial support on deposition preparation, damages analysis coordination with the forensic expert, research memoranda on franchise-law issues, and drafting of discovery correspondence and motions.
• Additional Timekeepers: Approximately 1,250 hours of work were performed by paralegals and contract attorneys at a blended rate of approximately $285 per hour. This work included document review during the discovery phase, deposition logistics, cite-checking of briefs, and administrative support for the mediation and settlement process.
III. ENGAGEMENT HISTORY AND KEY MILESTONES
A. Pre-Litigation Phase (November 2021 – March 2022)
The origins of this matter trace to a whistleblower complaint received by Verimark's compliance hotline. On November 8, 2021, Janet Kerrigan, a former regional controller for Coastal Palms who had been terminated in October 2021, contacted the Verimark compliance hotline and reported allegations of systematic revenue diversion by Coastal Palms and its affiliated entity, Suncoast Room Management Inc. Ms. Kerrigan alleged that Randall Brecker had directed property-level accounting staff to exclude direct-booking revenues collected by Suncoast from the GRR reports submitted to Verimark, and that this practice had been ongoing for several years.
On November 15, 2021, Calderwood & Harkness LLP, operating under a separate pre-engagement letter agreement with Verimark for advisory services, provided a preliminary analysis of the whistleblower allegations. Yuki Nakamura prepared a memorandum to Priya Anand assessing the legal implications of the allegations under the FLAs, the potential scope of damages, and the recommended investigative steps. The memorandum concluded that, if substantiated, the allegations described conduct that would constitute both a material breach and a potentially incurable breach under FLA § 14.2(c).
On November 22, 2021, Verimark engaged Thornbury & Associates CPAs LLP (lead audit partner: Malcolm Thornbury, CPA; principal office: 1551 N. Flagler Drive, Suite 800, West Palm Beach, Florida 33401) to conduct a franchise-compliance audit of Coastal Palms' ten (10) highest-grossing properties pursuant to the audit-rights provisions of FLA § 8.2. The audit scope covered fiscal years 2019 through 2021 and was designed to test the accuracy of GRR reporting against available bank records, OTA statements, and property-management system data.
On January 18, 2022, Thornbury delivered its preliminary findings. The audit revealed that the ten (10) audited properties had underreported GRR by approximately twenty-six percent (26%) for the period 2019–2021. Extrapolation of these findings across all twenty-two (22) Coastal Palms properties and the full nine-year period of 2013–2021 yielded an estimated $197.8 million in total underreported GRR. These preliminary findings confirmed the substance of Ms. Kerrigan's whistleblower allegations and provided the evidentiary foundation for the pre-suit demand and the subsequent litigation.
On February 4, 2022, Verimark issued a formal Notice of Material Breach to Coastal Palms under FLA § 14.1, demanding that Coastal Palms cure the breach within thirty (30) days by, among other things, providing a full accounting of all revenues collected by Suncoast Room Management Inc. and remitting all underpaid royalties, marketing-fund contributions, and technology fees, together with applicable late-payment interest. Concurrently, Priya Anand transmitted a companion pre-suit demand letter to Nathan Whitfield III of WBC, advising that Calderwood & Harkness LLP had been engaged to pursue Verimark's claims and that litigation would follow if the breach was not cured within the cure period.
On February 28, 2022, WBC responded on behalf of Coastal Palms, denying any material breach. WBC asserted that Suncoast's revenues were properly excluded from GRR under what WBC characterized as a "reasonable interpretation" of the FLA's GRR definition, arguing that revenues collected by a separate management entity fell outside the scope of "Gross Room Revenue" as defined in the FLAs. WBC further contended that Verimark had been aware of Suncoast's role because Suncoast was identified in property-management agreements submitted during the franchise-application process.
On March 6, 2022, the thirty (30)-day cure period expired without any cure being tendered by Coastal Palms. At this juncture, Verimark authorized Calderwood & Harkness LLP to proceed with the filing of a breach-of-contract action.
B. Litigation Phase (March 2022 – February 2024)
1. Initiation of Litigation
On March 4, 2022, the formal engagement letter for litigation services was executed between Verimark and Calderwood & Harkness LLP, formally retaining the firm to prosecute the breach-of-contract action and related claims.
On March 7, 2022, Calderwood & Harkness LLP filed the Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, initiating Case No. 1021-00006. The Complaint set forth ten (10) counts:
• Count I — Breach of Contract (Royalties)
• Count II — Breach of Contract (Marketing Fund Contributions)
• Count III — Breach of Contract (Technology Fees)
• Count IV — Breach of the Implied Covenant of Good Faith and Fair Dealing
• Count V — Fraudulent Concealment
• Count VI — Negligent Misrepresentation
• Count VII — Unjust Enrichment (pleaded in the alternative)
• Count VIII — Declaratory Judgment (FLA Termination Rights)
• Count IX — Accounting
• Count X — Civil Conspiracy (against Randall Brecker and Suncoast Room Management Inc.)
Total claimed damages were approximately $150 million, as further detailed in Section V of this memorandum.
On March 14, 2022, insurance coverage notification was sent to Pinnacle Indemnity Insurance Co. (Arthur Baines, Claims Counsel), referencing Policy No. PLI-VHG-2021-08874.
2. Responsive Pleadings
On April 18, 2022, Coastal Palms, through WBC, filed its Answer, Affirmative Defenses, and Counterclaim. The Answer denied all material allegations and asserted numerous affirmative defenses, including waiver, estoppel, laches, and ambiguity of the GRR definition. The Counterclaim sought $12 million in damages for alleged brand-standard violations and over-billing by Verimark, contending that Verimark had failed to maintain adequate brand standards at properties outside the Coastal Palms portfolio, thereby diminishing the value of the Verimark brand and harming Coastal Palms' properties.
On May 2, 2022, Verimark filed its Answer to the Counterclaim, denying all material allegations and asserting affirmative defenses.
3. Case Management and discovery
On June 14, 2022, the initial Case Management Conference was held before Judge Calloway. The Court set the matter for trial in February 2024 and established a discovery schedule with fact-discovery closing in August 2023.
On June 20, 2022, the parties filed a Joint Stipulation regarding the E-discovery Protocol, establishing procedures for the identification, preservation, collection, processing, review, and production of electronically stored information ("ESI"). Nexagen Document Solutions LLC (400 Northpark Town Center, Suite 500, Atlanta, Georgia 30328) was engaged by Verimark as its e-discovery vendor for document processing, hosting, and analytics.
On July 11, 2022, Verimark served its first set of discovery, consisting of twenty-five (25) interrogatories and one hundred forty-seven (147) requests for production directed to Coastal Palms, as well as fifteen (15) interrogatories directed to Randall Brecker individually.
On August 8, 2022, a subpoena duces tecum was served on Ironclad National Bank (Devon Schultz, Senior Vice President, at 225 Peachtree Street NE, Suite 2600, Atlanta, Georgia 30303), seeking loan documents and financial statements submitted by Coastal Palms in connection with Ironclad's approximately $94 million in first-lien mortgage loans on eighteen (18) of the twenty-two (22) Coastal Palms properties. The financial statements submitted to Ironclad were expected to — and ultimately did — reflect the true revenue figures, creating a critical inconsistency with the GRR reports submitted to Verimark.
On August 22, 2022, Coastal Palms made its initial document production, consisting of approximately 84,000 documents. On August 30, 2022, Calderwood & Harkness LLP transmitted a detailed deficiency letter identifying twenty-three (23) categories of documents that were either missing entirely or incomplete, with particular emphasis on the absence of Suncoast Room Management Inc. financial records, gulfcoastrooms.com booking data, and bank statements for accounts maintained in Suncoast's name.
4. Discovery Disputes and Motion to Compel
On September 8, 2022, Calderwood & Harkness LLP sent a formal meet-and-confer letter to WBC regarding the deficient production, specifically demanding production of all Suncoast Room Management Inc. records. WBC responded by asserting that Suncoast was a separate entity not subject to the discovery requests directed to Coastal Palms, notwithstanding that Suncoast was a named defendant in the action and was managed and controlled by Randall Brecker, the Managing Member of Coastal Palms.
On September 15, 2022, having been unable to resolve the dispute through the meet-and-confer process, Verimark filed a Motion to Compel Production of Suncoast Room Management Inc. Records. The motion was supported by a memorandum of law addressing the alter-ego and common-control doctrines and the relevance of the Suncoast records to the damages analysis.
On October 28, 2022, the Court granted Verimark's Motion to Compel, ordering Coastal Palms and Suncoast to produce all responsive documents within twenty-one (21) days. The Court found that the records sought were clearly within the control of the defendants and were directly relevant to the claims at issue.
On November 18, 2022, Coastal Palms made a supplemental production consisting of approximately 312,000 additional documents, including the Suncoast Room Management Inc. financial records that had been the subject of the Motion to Compel. The total volume of data processed on Verimark's side reached approximately 2.3 million documents comprising approximately 1.1 terabytes of data.
On November 28, 2022, Verimark served its Second Request for Production, consisting of thirty-four (34) requests targeting Suncoast financial data, OTA contracts, and gulfcoastrooms.com booking logs in greater detail.
5. Expert Retention and Reports
On December 12, 2022, Calderwood & Harkness LLP retained Ridgeline Forensic Advisory LLC (Dr. Sharon Kettlewell, CPA/CFF, CFE; principal office: 200 S. Biscayne Boulevard, Suite 1400, Miami, Florida 33131) as Verimark's damages expert. Dr. Kettlewell's engagement rates were $475 per hour for principal-level work and $325 per hour for staff-level support.
On April 14, 2023, Verimark served the expert report of Dr. Kettlewell. The report quantified the following damages:
• Underreported GRR: $197.8 million
• Direct underpayments: $16.095 million (comprising $9.89 million in royalties, $4.945 million in marketing-fund contributions, and $1.26 million in technology fees)
• Contractual late-payment interest: $28.4 million
• Liquidated damages under FLA § 15.3: $105.5 million
On May 15, 2023, Coastal Palms served the expert report of Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., who opined that the maximum underpayment was $6.2 million under a narrowed definition of GRR that excluded walk-in cash payments and attributed only net OTA revenue to the franchisee.
On June 9, 2023, Verimark served the rebuttal expert report of Dr. Kettlewell, which addressed and refuted Prof. Hargrove's methodology and conclusions.
On June 26–27, 2023, the expert depositions of Dr. Kettlewell and Prof. Hargrove were conducted.
6. Fact Depositions
Between January 9 and March 17, 2023, the parties conducted fourteen (14) fact depositions. The key deponents and their significance were as follows:
• Randall Brecker — deposed over two (2) days, totaling fourteen (14) hours. Mr. Brecker's testimony was central to establishing the intent and mechanics of the revenue-diversion scheme. He acknowledged directing Suncoast to collect direct-booking revenues but maintained that the exclusion of those revenues from GRR was based on a good-faith interpretation of the FLA.
• Theresa Brecker — deposed regarding her knowledge of Coastal Palms' financial reporting and her role as a signatory on financial documents.
• Nolan Prescott — deposed regarding his knowledge of the Suncoast arrangement and his role as a passive investor.
• Janet Kerrigan — deposed regarding her whistleblower allegations, her knowledge of the revenue-diversion scheme, and the specific instructions she received from Randall Brecker regarding the exclusion of Suncoast revenues from GRR reports.
• Ten (10) property-level managers and accountants — deposed regarding property-specific revenue-reporting practices, the operation of gulfcoastrooms.com, and the handling of walk-in and corporate-direct revenues.
On January 30, 2023, Verimark served Requests for Admission (48 requests) directed to Coastal Palms, several of which targeted admissions regarding the existence and operation of Suncoast Room Management Inc. and the exclusion of Suncoast revenues from GRR reports.
7. Close of discovery and Summary Judgment
On August 4, 2023, discovery closed.
On September 29, 2023, Verimark filed its Motion for Partial Summary Judgment on Counts I and II (liability only), supported by a forty-two (42)-page memorandum of law and a Statement of Undisputed Material Facts containing one hundred twenty-seven (127) numbered paragraphs. The motion argued that the undisputed documentary evidence and testimony established, as a matter of law, that Coastal Palms' exclusion of Suncoast revenues from GRR constituted a material breach of FLA §§ 4.1 and 4.2.
On October 13, 2023, Coastal Palms filed its Cross-Motion for Summary Judgment on all counts and on its Counterclaim, arguing that the GRR definition was ambiguous and that Coastal Palms' interpretation was reasonable as a matter of law.
On November 17, 2023, the parties filed their respective response briefs.
On December 8, 2023, the parties filed their respective reply briefs.
On January 19, 2024, oral argument on the cross-motions for summary judgment was held before Judge Calloway. Priya Anand presented Verimark's argument; Nathan Whitfield III argued for Coastal Palms. The hearing lasted approximately three (3) hours.
On February 9, 2024, the Court entered its Order granting Verimark's Motion for Partial Summary Judgment on Counts I and II (liability only). The Court found that the FLA's definition of GRR was unambiguous and that Coastal Palms' exclusion of revenues collected by Suncoast Room Management Inc. constituted a material breach of FLA §§ 4.1 and 4.2. The Court denied Coastal Palms' Cross-Motion for Summary Judgment in its entirety. The Court deferred the determination of damages to trial, which was continued to May 2024. This ruling was the single most consequential event in the litigation and proved to be the catalyst that drove the case toward settlement.
C. Mediation and Settlement Phase (February – April 2024)
1. Agreement to Mediate
On February 23, 2024, following the Court's ruling on summary judgment, the parties agreed to mediate the dispute. The timing of this agreement was significant: the summary-judgment ruling had eliminated Coastal Palms' primary defense — the GRR-ambiguity argument — and left only the question of damages for trial. This fundamentally altered the settlement dynamics.
On February 27, 2024, a mediation engagement letter was executed with Everwood Dispute Resolution PLLC (the Honorable Patricia Everwood (Retired), 396 Alhambra Circle, Suite 800, Coral Gables, Florida 33134). Judge Everwood was selected by agreement of the parties based on her extensive experience in complex commercial disputes and franchise litigation. The mediation fee was $38,000, to be split equally between the parties.
2. Mediation Preparation
On March 8, 2024, Verimark submitted its Confidential Mediation Statement to Mediator Everwood. The statement was twenty-eight (28) pages in length and set forth the factual background, procedural history, the significance of the Court's summary-judgment ruling, the damages analysis, and Verimark's settlement range of $80 million to $110 million.
On March 11, 2024, Calderwood & Harkness LLP transmitted a Settlement Authority Memorandum to Renata Solis-Vega and Martin Holcomb. The memorandum recommended that Verimark authorize a settlement range of $75 million to $95 million, based on a comprehensive risk analysis that considered the following factors: (a) the Court's deferral of damages quantification to trial, which left uncertainty regarding the Court's or jury's receptivity to the various damages components; (b) litigation-cost exposure, with an estimated $1.5 million to $2.5 million in additional fees and costs through trial; (c) a probability-weighted damages model assigning varying probabilities of success to each damages category; and (d) significant collectibility concerns arising from Ironclad National Bank's approximately $94 million in first-lien mortgage loans on eighteen (18) of the twenty-two (22) Coastal Palms properties, which would take priority over any judgment Verimark obtained.
3. Mediation Sessions
On March 14–15, 2024, a two-day mediation was conducted at Everwood Dispute Resolution's offices in Coral Gables, Florida.
Day 1 (March 14, 2024): Following opening statements in joint session and an extended caucus, Coastal Palms opened with a settlement offer of $32 million. Verimark opened with a demand of $110 million. Through several rounds of proposals and counterproposals facilitated by Judge Everwood, the parties narrowed the gap but did not reach agreement on Day 1.
Day 2 (March 15, 2024): Negotiations resumed in the morning. After extensive caucuses and Mediator Everwood's assessment of the strengths and weaknesses of each side's position, a tentative agreement was reached at $87.5 million, with a franchise-surrender component covering fourteen (14) of the twenty-two (22) properties. The essential terms of the settlement — including the payment structure, security provisions, and franchise-surrender obligations — were outlined in a mediator's proposal accepted by both parties.
4. Settlement Documentation and Execution
On March 22, 2024, the parties executed an eight (8)-page Settlement Term Sheet memorializing the principal terms of the agreement reached at mediation. The Term Sheet was designated as non-binding except for the exclusivity and confidentiality provisions, which were binding upon execution.
On April 2, 2024, Calderwood & Harkness LLP circulated to WBC the initial draft of the Settlement Agreement (Version 1, 47 pages), prepared principally by Yuki Nakamura under the supervision of Priya Anand.
On April 10, 2024, WBC returned a redline (Version 2) with Coastal Palms' proposed revisions. Calderwood & Harkness LLP prepared marginal comments and a drafting issues memorandum identifying areas requiring further negotiation.
On April 22, 2024, the Final Settlement Agreement and Mutual Release (Execution Version, 52 pages) was fully executed by all parties: Verimark Hospitality Group Inc., Coastal Palms Franchise Holdings LLC, Randall Brecker, Theresa Brecker, Nolan Prescott, Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and Suncoast Room Management Inc. The $25 million cash payment at closing was funded by wire transfer from an Ironclad National Bank escrow account on the same date.
On April 26, 2024, the Joint Stipulation of Dismissal with Prejudice was filed with the Court and entered by Judge Calloway, formally concluding Case No. 1021-00006. The matter was closed as of this date.
IV. FINAL DISPOSITION — SETTLEMENT TERMS SUMMARY
The following is a summary of the material terms of the Settlement Agreement and Mutual Release executed on April 22, 2024. This summary is provided for internal reference purposes only and is not a substitute for the full text of the Settlement Agreement, which is maintained in the matter file.
A. Total Settlement Amount
The total settlement amount is $87.5 million.
B. Payment Structure
The $87.5 million settlement is structured as follows:
• Cash Payment at Closing (April 22, 2024): Twenty-five million dollars ($25,000,000), funded by wire transfer from an Ironclad National Bank escrow account to Verimark's designated account on the date of execution.
• Structured Payments: Sixty-two million five hundred thousand dollars ($62,500,000), payable in eight (8) semi-annual installments of seven million eight hundred twelve thousand five hundred dollars ($7,812,500) each, commencing on October 22, 2024, and continuing every six (6) months thereafter, with the final installment due on April 22, 2028.
• Interest on Deferred Payments: Six and one-half percent (6.5%) per annum, simple interest, calculated on the outstanding balance of the structured payments. Interest is payable concurrently with each semi-annual installment.
C. Security for Structured Payments
The structured-payment obligation is secured by the following:
• First-Priority Lien: A first-priority security interest in eight (8) unencumbered hotel properties owned by Coastal Palms and its affiliates, with an aggregate appraised value of $71.2 million. A UCC-1 Financing Statement has been filed with the Florida Secured Transaction Registry, identifying Coastal Palms Franchise Holdings LLC as the debtor and Verimark Hospitality Group Inc. as the secured party.
• Personal Guaranties: Randall Brecker and Nolan Prescott have each executed personal guaranties of Coastal Palms' payment obligations under the Settlement Agreement, providing additional recovery backstops in the event of default.
D. Franchise Surrender
Coastal Palms is required to surrender franchise rights to fourteen (14) of the twenty-two (22) franchised hotel properties within one hundred twenty (120) days of the execution of the Settlement Agreement — that is, by August 20, 2024. The fourteen (14) surrendered properties are located as follows:
• Sarasota, Florida: 3 properties
• Fort Myers, Florida: 4 properties
• Jacksonville, Florida: 2 properties
• Savannah, Georgia: 3 properties
• Brunswick, Georgia: 2 properties
De-identification requirements include the complete removal of all Verimark branding, signage, proprietary systems, and technology integrations from the surrendered properties within the 120-day deadline. A detailed de-identification checklist is attached to the Settlement Agreement as part of the franchise-surrender provisions.
E. Retained Properties
Eight (8) properties are retained by Coastal Palms under new ten (10)-year Franchise License Agreements with enhanced audit and reporting requirements. The retained properties are located as follows:
• Naples, Florida: 4 properties
• Marco Island, Florida: 2 properties
• Tampa, Florida: 2 properties
The new FLAs incorporate an Enhanced Audit Protocol that includes: (i) quarterly (rather than annual) franchise-compliance audits; (ii) real-time point-of-sale ("POS") integration with Verimark's centralized revenue-management system, providing Verimark with continuous access to revenue data; and (iii) Coastal Palms bearing all audit costs for a period of five (5) years from the effective date of the new FLAs.
F. Counterclaim Dismissal
Coastal Palms dismissed its $12 million counterclaim with prejudice as part of the settlement, without any payment or concession by Verimark.
G. Mutual Release
The Settlement Agreement contains a broad mutual release of all claims arising from or related to the FLAs through the effective date of the Settlement Agreement, with the sole exception of obligations arising under the Settlement Agreement itself, the new FLAs, and the related security instruments.
H. Confidentiality and Non-Disparagement
The settlement amount and terms are subject to confidentiality restrictions, with an exception for Verimark's disclosure obligations under the Securities Exchange Act of 1934. Verimark disclosed the settlement as a "material litigation settlement" in its Q2 2024 Form 10-Q filing with the Securities and Exchange Commission. The Settlement Agreement also contains a mutual non-disparagement clause with a three (3)-year term.
I. Settlement Agreement Exhibits
The Settlement Agreement includes the following exhibits:
• Exhibit A: Payment Schedule
• Exhibit B: List of Surrendered Properties (14 properties)
• Exhibit C: Form of New Franchise License Agreements for Retained Properties (8 properties)
• Exhibit D: Enhanced Audit Protocol
• Exhibit E: Personal Guaranty Forms (Brecker, Prescott)
• Exhibit F: Form of Security Agreement / UCC-1 Financing Statement
V. DAMAGES ANALYSIS — COMPARISON OF CLAIMED DAMAGES TO SETTLEMENT RECOVERY
A. Verimark's Claimed Damages ($150 Million)
Verimark's total claimed damages, as set forth in the Complaint and quantified in Dr. Kettlewell's expert report, were approximately $150 million, comprising the following components:
B. Coastal Palms' Defense Position
Coastal Palms, through its counsel at WBC and its damages expert, Prof. Grant Hargrove, advanced the following defense positions on damages:
• GRR Ambiguity Argument: Coastal Palms argued that the GRR definition in FLA § 4.1 was ambiguous as applied to revenues collected by a nominally separate management entity (Suncoast) and that its exclusion of those revenues was based on a good-faith and reasonable interpretation of the contract. This argument was rejected by the Court in its February 9, 2024 summary-judgment Order.
• Verimark Awareness: Coastal Palms contended that Verimark was aware of Suncoast's role because Suncoast was identified in property-management agreements submitted to Verimark during the franchise-application process. Coastal Palms argued that Verimark's failure to object to Suncoast's role at the time of the franchise applications constituted acquiescence or waiver.
• Defense Expert Opinion: Prof. Hargrove opined that the maximum underpayment was $6.2 million, based on a narrower definition of GRR that excluded walk-in cash payments entirely and attributed only net OTA revenue (after deduction of commissions) to the franchisee.
• Counterclaim: Coastal Palms asserted a counterclaim of $12 million for alleged brand-standard violations and over-billing, which was dismissed with prejudice as part of the settlement.
C. Settlement Recovery Analysis
The total settlement of $87.5 million represents approximately 58.3% of Verimark's total claimed damages of approximately $150 million. The following additional considerations inform the assessment of the settlement recovery:
• Non-Cash Value: In addition to the $87.5 million monetary recovery, Verimark recovers franchise rights to fourteen (14) properties (available for re-franchising to compliant operators or strategic repositioning) and obtains enhanced audit protocols on the remaining eight (8) properties, substantially reducing the risk of future revenue-reporting noncompliance.