CALDERWOOD & HARKNESS LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney work product doctrine and was prepared in anticipation of litigation. It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This document is not to be disclosed to any person outside the engagement team without the express written consent of Priya Anand, Partner, Calderwood & Harkness LLP.
MEMORANDUM
TO: Engagement Team File — Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al., Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit, Broward County, Florida
FROM: Priya Anand, Partner (FL Bar No. 0087451)
DATE: January 5, 2023
RE: Deposition Examination Outline — Randall "Randy" Brecker (Day 1 of 2)
Deposition Scheduled: January 9, 2023, 9:00 AM Eastern
Location: Offices of Whitfield, Barrow & Crane LLP, 1221 Brickell Avenue, Suite 3000, Miami, FL 33131
Court Reporter: To be arranged by Nexagen Document Solutions LLC (videographer confirmed; ensure backup audio recording device is operational)
ESTIMATED DURATION: Full day (approximately 7 hours of testimony, within the one-day limit permitted under the Florida Rules of Civil Procedure as modified by the parties' stipulation)
EXAMINING ATTORNEY: Priya Anand
ASSISTING: Carlos Espinoza (exhibit management, real-time note-taking); Yuki Nakamura (available by phone for legal issues that may arise during the examination, including privilege disputes and objection strategy)
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I. PRELIMINARY INSTRUCTIONS AND OBJECTIVES
A. Strategic Objectives for Day 1
The primary strategic objective for the first day of Randall Brecker's deposition is to establish his personal knowledge of, participation in, and control over the revenue-diversion scheme conducted through Suncoast Room Management Inc. ("Suncoast"). This testimony is critical to multiple claims in the operative complaint, including breach of contract (Counts I through IV), fraud and fraudulent concealment (Counts V and VI), unjust enrichment (Count VII), breach of the covenant of good faith and fair dealing (Count VIII), declaratory judgment (Count IX), and, most significantly for this witness, civil conspiracy (Count X). To the extent Brecker can be pinned down on key factual admissions during Day 1, this testimony will serve as a foundation for the remaining depositions in the sequence and for our anticipated motion for partial summary judgment.
The specific objectives are as follows:
1. Pin down Brecker's understanding of the Gross Room Revenue ("GRR") definition in FLA § 4.1. The definition provides that GRR encompasses "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 language is unambiguous on its face, and the objective is to force Brecker to either acknowledge its plain meaning — thereby undermining any claimed defense of ambiguity or good-faith interpretation — or to assert a strained reading that can be impeached by the documents and by his own course of conduct over twelve years and twenty-two franchise agreements.
2. Obtain admissions that Brecker personally directed the formation of Suncoast Room Management Inc. and the establishment of gulfcoastrooms.com as an off-platform booking channel. The documentary evidence, including the Articles of Incorporation, bank-account opening documents, domain-registration records, and internal communications, supports the conclusion that Brecker was the architect and principal decision-maker behind the creation of both Suncoast and its associated booking website. The deposition should elicit testimony confirming this and eliminate any effort to deflect responsibility to subordinates, advisors, or passive investors.
3. Establish that Brecker directed property-level controllers to exclude Suncoast-collected revenues from monthly GRR reports to Verimark. The internal communications produced in discovery — particularly those from the 312,000-document supplemental production ordered by Judge Calloway on October 28, 2022 — contain emails and memoranda from Brecker or his designated "corporate" designees instructing property-level controllers on the GRR reporting methodology. The deposition should force Brecker to acknowledge these communications and the instructions they conveyed.
4. Develop the timeline from formation of Suncoast (no later than January 2013) through the whistleblower complaint (November 8, 2021). This nearly nine-year period of systematic underreporting is central to the damages analysis and to the claim that the breach was "incurable" under FLA § 14.2(c). Establishing a clear timeline during Day 1 will provide a framework for the more granular financial analysis to be conducted during Day 2.
5. Lay the groundwork for the civil conspiracy claim (Count X) by establishing Brecker's individual role. Count X alleges a civil conspiracy among Coastal Palms Franchise Holdings LLC, Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, Suncoast Room Management Inc., and Randall Brecker individually. To sustain this claim, we must show that Brecker acted in concert with the entity defendants to accomplish a common objective — the systematic diversion of revenue from Verimark's royalty and fee base — through means that constitute an independent tort. Day 1 testimony should establish the coordinated nature of the scheme and Brecker's role as its orchestrator.
6. Create impeachment opportunities by testing Brecker's testimony against documents produced in discovery. The initial production consisted of approximately 84,000 documents, and the supplemental production (including Suncoast financial records ordered produced by Judge Calloway on October 28, 2022) added approximately 312,000 documents. The pre-marked exhibit binder for Day 1 contains 90 tabs of selected documents across six categories. The examination should methodically compare Brecker's testimony to these documents, identifying inconsistencies that can be exploited at trial or in connection with dispositive motions.
B. Examination Ground Rules and Preliminary Admonitions
At the commencement of the deposition, the examining attorney will place the following standard deposition instructions on the record, directing them to the witness:
• The witness should listen carefully to each question and make sure he understands the question before answering. If the witness does not understand a question, he should say so, and the question will be rephrased.
• All responses must be verbal — nods, head shakes, and other gestures cannot be captured by the court reporter. The witness should answer "yes" or "no" rather than "uh-huh" or "uh-uh."
• The witness has the right to confer with his counsel at any time, except that he may not confer with counsel while a question is pending. If the witness needs a break, he should ask for one, and the examining attorney will accommodate reasonable requests, subject to the requirement that any pending question be answered first.
• The witness is under oath and his testimony carries the same force and effect as if given in open court. Providing false testimony is subject to penalties for perjury under Florida law.
• If the witness realizes at any time during the deposition that a prior answer was incorrect or incomplete, he should bring that to attention and correct the record. The witness will also have an opportunity to review the transcript and submit an errata sheet with any corrections, though counsel should note that material changes to substantive testimony may be commented upon at trial.
• The deposition is being videotaped. The witness should be aware that both the video and the written transcript may be used at trial.
Opposing Counsel Present: The witness is represented by Nathan Whitfield III of Whitfield, Barrow & Crane LLP. Based on prior proceedings, Gabriela Montes and Ethan Doyle of the same firm may also attend. The examining team should be prepared for speaking objections and instruction-not-to-answer disputes, particularly when the examination approaches topics related to the formation of Suncoast, the 12% management fee, and communications with Nolan Prescott.
CRITICAL REMINDER TO EXAMINING TEAM: Do not reveal Day 2 topics during the Day 1 examination. The following topics are reserved for the follow-up session scheduled for January 11, 2023, and should not be previewed, foreshadowed, or referenced during Day 1 questioning:
• Suncoast detailed financials (general ledgers, bank statements, management-fee invoices)
• Detailed management-fee calculations and distribution methodology
• OTA net-rate netting methodology (including specific OTA agreements and reconciliation reports)
• Communications between Brecker and Nolan Prescott regarding franchise reporting and financial performance
• Counterclaim allegations ($12 million for alleged brand-standard violations)
If Brecker or his counsel voluntarily raises any of these topics during Day 1, take note and follow up briefly if advantageous, but do not open a sustained line of questioning. The strategic advantage of reserving these topics for Day 2 — after Brecker has committed to a narrative during Day 1 — outweighs the benefit of pursuing them opportunistically.
C. Exhibit Binder Organization
The pre-marked exhibit binder for Day 1 has been organized into the following six categories, with individual exhibits arranged in numbered tabs. All exhibits are drawn from documents produced in discovery and bear bates-stamp numbers, which are referenced in the applicable topic sections below. Carlos Espinoza will manage exhibit presentation during the deposition, including handing exhibits to the witness and to the court reporter for marking, and maintaining a running log of exhibits introduced and Brecker's responses to each.
Each tab contains the original document with the applicable bates-stamp range, a one-page summary prepared by the engagement team identifying the key portions to be highlighted during examination, and, where applicable, cross-references to other documents in the binder that should be used in conjunction with the exhibit.
II. BACKGROUND AND PERSONAL HISTORY
A. Personal and Professional Background
Begin the substantive examination by establishing the basic biographical and professional background of the witness. This section serves two purposes: first, to build a complete record of Brecker's qualifications, experience, and sophistication as a hospitality-industry executive; and second, to begin establishing rapport and a rhythm of question-and-answer that will make subsequent, more confrontational topics flow more smoothly.
Confirm the following:
• The witness's full legal name is Randall Brecker. Confirm that he commonly goes by "Randy" in professional and personal contexts.
• The witness is 58 years old as of the date of the deposition. Confirm his current residential address and that he resides in the Naples, Florida area.
• Elicit Brecker's educational background, including the name and location of any undergraduate institution, graduate institution, or professional-certification programs he attended. Confirm that he does not hold a formal degree in accounting, finance, or a related discipline. If he claims any financial-literacy training or continuing education, note the details but emphasize the absence of formal credentials — this will be relevant to undermining any claim that he relied in good faith on the advice of accountants or controllers without understanding what they were doing.
• Elicit Brecker's prior employment history in the hospitality industry. Based on available information, Brecker served as a hotel general manager at one or more properties prior to founding Coastal Palms Franchise Holdings LLC. Establish the properties at which he served as general manager, the dates of that service, the size and brand affiliation of those properties, and the scope of his responsibilities — including, critically, whether he had any responsibility for revenue reporting, financial compliance, or franchise-fee calculations in those prior roles.
• Establish that Brecker's career in hospitality spans approximately three decades, during which he has gained substantial operational and financial knowledge of the hotel industry, including familiarity with booking channels, revenue management, franchise structures, and reporting obligations.
• Confirm his reliance on controllers and accountants for the preparation of financial reports, but establish that he retained ultimate supervisory authority and approval rights over all financial reporting produced by his organizations.
B. Role in Coastal Palms Franchise Holdings LLC
Transition to Brecker's role in the entity that is the primary defendant in this action:
• Confirm that Brecker founded Coastal Palms Franchise Holdings LLC ("Coastal Palms"). Establish when the entity was formed, under the laws of which state, and confirm that Brecker has served as its Managing Member continuously from inception to the present.
• Confirm that Coastal Palms acquired its first hotel property in 2007 — a single Verimark Suites property located in Naples, Florida. Establish this as the genesis of the franchise relationship with Verimark Hospitality Group Inc.
• Confirm that Brecker holds a 60% equity interest in Coastal Palms, making him the controlling member with the single largest ownership stake.
• Elicit the growth trajectory of the Coastal Palms portfolio: from 1 property in 2007 to 22 properties as of the present date. The portfolio comprises 18 Verimark Suites properties and 4 Verimark Select properties, located across the state of Florida and in coastal Georgia, with a combined total of approximately 3,740 guest rooms. Establish that this growth occurred under Brecker's leadership and at his direction.
• Confirm Brecker's day-to-day operational authority over Coastal Palms. Specifically probe the following areas:
(a) Does Brecker make final decisions regarding financial reporting for the organization, including the methodology used to calculate and report Gross Room Revenue to Verimark?
(b) Does Brecker make final decisions regarding staffing, including the hiring and termination of property-level controllers, general managers, and other key personnel?
(c) Does Brecker make final decisions regarding vendor selection, including the engagement of management companies, accountants, legal counsel, and technology providers?
(d) Does Brecker make final decisions regarding booking-channel strategy — that is, the channels through which guest rooms at Coastal Palms properties are marketed and sold?
• Confirm Brecker's role as Managing Member of Gulf Breeze Hospitality LLC, a subsidiary or affiliated entity that holds 6 Verimark Suites properties in Southwest Florida. Establish the relationship between Gulf Breeze Hospitality LLC and Coastal Palms — is Gulf Breeze a wholly owned subsidiary, or does it have separate members? Does Brecker exercise the same degree of operational control over Gulf Breeze as he does over Coastal Palms?
• Confirm Brecker's role as Managing Member of Savannah Lodging Partners LLC, an affiliated entity that holds 4 Verimark Suites properties in coastal Georgia. Establish the same relationship and control questions as for Gulf Breeze.
• Confirm Brecker's role as President of Suncoast Room Management Inc. Note this confirmation carefully — it is the first direct tie between Brecker and the entity at the center of the revenue-diversion scheme. Do not linger on Suncoast at this point; it will be addressed in detail in Section IV. The objective here is merely to confirm the title and role.
C. Other Members of Coastal Palms
Identify and elicit information regarding the other members of Coastal Palms Franchise Holdings LLC:
• Theresa Brecker: Confirm that Theresa Brecker is the wife of Randall Brecker and a Member of Coastal Palms holding a 15% equity interest. Establish that her primary responsibilities within the organization relate to payroll administration and human resources. Probe the scope of her involvement in financial decision-making: Does she participate in decisions regarding revenue reporting? Does she have access to GRR reports? Has she ever reviewed or approved a GRR report submitted to Verimark? Does she attend meetings at which franchise-reporting obligations are discussed? What is her understanding of the GRR definition under the FLAs? This line of questioning is relevant to establishing whether Theresa Brecker is a potential witness or a potential co-conspirator, and to assessing whether she may be called as a witness in her own right.
• Nolan Prescott: Confirm that Nolan Prescott is a Member of Coastal Palms holding a 25% equity interest. Establish that Prescott is described by the defendants as a "passive investor" and that he is a retired commercial real estate developer, age 67. Probe the nature and extent of his "passive" role: What financial information does Prescott receive from Coastal Palms? How frequently does he receive it — monthly, quarterly, annually? In what form is it delivered — written reports, oral updates, emails? Does Prescott receive copies of GRR reports submitted to Verimark? Does Prescott receive copies of financial statements submitted to Ironclad National Bank? Has Prescott ever raised questions about the difference, if any, between internal revenue figures and GRR figures reported to Verimark?
Note: Communications between Brecker and Prescott regarding franchise reporting and financial performance are reserved for Day 2. Do not open this topic in depth during Day 1. The objective here is limited to establishing the factual predicate — who Prescott is, what his role is, and what information flows to him — so that the Day 2 examination can build on this foundation.
D. Organizational Structure
Elicit a comprehensive description of the organizational structure of Brecker's hospitality enterprise:
• Confirm that Coastal Palms Franchise Holdings LLC serves as the holding entity or parent entity for the enterprise.
• Confirm that Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC are property-level entities that hold or operate specific hotel properties within the portfolio.
• Confirm that Suncoast Room Management Inc. is an affiliated management company that provides management services — including, critically, revenue-collection services — to the property-level entities.
• Establish the inter-entity relationships: Are there operating agreements, management agreements, or other contracts governing the relationship among Coastal Palms, Gulf Breeze, Savannah Lodging Partners, and Suncoast? Who are the parties to those agreements? Who signed them? (Anticipated answer: Brecker signed on behalf of each entity in his capacity as Managing Member or President.)
• Confirm that Brecker is the Managing Member or President of each entity in the enterprise. This is critical to the civil conspiracy claim, as it establishes that Brecker served as the common thread linking all of the entity defendants and that he possessed the authority to direct the actions of each.
• Confirm that all entities share office space at 9500 Gulf Shore Drive, Suite 450, Naples, FL 34108. This shared-office arrangement is relevant to establishing the integrated nature of the enterprise and undermining any claim that Suncoast operated independently of Coastal Palms.
• Confirm that the registered agent for Coastal Palms is Garrison Registered Agents LLC, located at 100 S. Ashley Drive, Suite 600, Tampa, FL 33602. This is a housekeeping matter but should be confirmed for the record.
III. THE FRANCHISE RELATIONSHIP WITH VERIMARK
A. Execution of the First Franchise License Agreement
The franchise relationship between Coastal Palms and Verimark is governed by a series of Franchise License Agreements ("FLAs"), the first of which was executed on June 15, 2007, for the Naples, Florida Verimark Suites property. This section of the examination should establish the circumstances under which Brecker entered into the first FLA and the degree of his personal involvement in and understanding of its terms.
• Confirm the date of execution: June 15, 2007. Identify the parties: Verimark Hospitality Group Inc., as franchisor, and Coastal Palms Franchise Holdings LLC, as franchisee.
• Establish who negotiated on behalf of Coastal Palms. Did Brecker conduct the negotiations personally, or did he delegate them to an attorney, broker, or other representative? If negotiations were delegated, to whom, and to what extent was Brecker involved in reviewing and approving the negotiated terms?
• Did Brecker review the FLA personally before signing it? Did he read the entire document, or only selected provisions? If he read only selected provisions, which ones? Did he specifically review the financial provisions, including the definitions of Gross Room Revenue, the royalty obligation, and the marketing-fund contribution?
• Did Brecker retain legal counsel in connection with the negotiation and execution of the first FLA? If so, identify the attorney or firm. What advice, if any, was provided regarding the GRR definition and the scope of the royalty and fee obligations? (Note: Brecker may assert attorney-client privilege with respect to the substance of legal advice. If privilege is asserted, note it for the record but do not press — the question is designed to establish the fact that counsel was retained, which undermines any claim that Brecker was unsophisticated or did not understand the agreement he was signing.)
• Confirm that Brecker understood the key financial obligations under the first FLA before he signed it. Specifically, did he understand that Coastal Palms would be obligated to pay royalties and marketing-fund contributions based on a percentage of Gross Room Revenue, as defined in the agreement?
B. Subsequent FLAs
Following the execution of the first FLA in 2007, Coastal Palms expanded its portfolio by entering into additional franchise agreements with Verimark for newly acquired or newly converted properties. The examination should establish the scope and consistency of this expansion.
• Walk through the portfolio expansion chronologically. Between June 15, 2007 (the first FLA) and September 3, 2019 (the most recent FLA), Coastal Palms executed a total of 22 individual Franchise License Agreements with Verimark. Confirm that each of these 22 FLAs was executed by Brecker in his capacity as Managing Member of Coastal Palms (or, in the case of Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC properties, in his capacity as Managing Member of those entities).
• Confirm that each FLA has a 20-year initial term and is governed by the laws of the State of Florida, with mandatory venue for all disputes in Broward County, Florida. This is relevant to establishing that the forum-selection clause was known and agreed to by Brecker, and to undermining any future motion to transfer venue.
• Did Brecker read each of the 22 FLAs before signing them? Or did he rely on the fact that the terms were materially similar to the first FLA? If he relied on the similarity of terms, does he acknowledge that the GRR definition in each subsequent FLA was materially identical to the definition in the first FLA?
• Were the terms of the 22 FLAs materially similar across all properties? Were there any properties for which the GRR definition, royalty rate, marketing-fund contribution rate, or other key financial terms differed in any material respect? (Anticipated answer: no material differences — the GRR definition and financial terms were standardized across the portfolio.)
C. Key Financial Terms — Establish Brecker's Knowledge
This is the most critical section of Day 1. The examination must establish, with precision and on the record, that Brecker understood the GRR definition and the financial obligations that flowed from it. The examining attorney should use the representative FLA for the Naples property (Exhibit Tab 3) and read key provisions aloud, requiring Brecker to confirm or deny his understanding of each.
Exhibit: Representative FLA — Naples property (June 15, 2007) — Tab 3
1. Gross Room Revenue Definition (§ 4.1)
Read aloud the GRR definition from FLA § 4.1 and have Brecker confirm it on the record:
"'Gross Room Revenue' or 'GRR' means 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."
The following questions should be asked in sequence, and the examining attorney should not move on from this topic until Brecker has provided clear, unequivocal answers to each:
• Mr. Brecker, I have just read aloud the definition of Gross Room Revenue from Section 4.1 of the Franchise License Agreement for your Naples property. Is that an accurate reading of the provision as it appears in the agreement? (Have him confirm.)
• Did you understand this definition when you signed the first Franchise License Agreement in June 2007?
• Has this definition changed in any material way across the 22 Franchise License Agreements you signed between 2007 and 2019?
• In your understanding, does this definition include revenues collected by a third-party management company on behalf of the hotel?
• In your understanding, does this definition include revenues from walk-in guests who arrive at the hotel without a prior reservation and pay for a room at the front desk?
• In your understanding, does this definition include revenues from corporate-direct contracts — that is, arrangements under which a corporation or other business entity contracts directly with the hotel (or a related entity) for rooms at a negotiated rate?
• In your understanding, does this definition include revenues from an unbranded website — that is, a website that does not display Verimark branding, logos, or trademarks — that books rooms at a Verimark-branded hotel?
• The definition states that GRR includes revenue "regardless of the entity collecting such revenue." Do you see that language? What does it mean to you?
• If Brecker asserts that the GRR definition is ambiguous: Ask him to identify the specific words or phrases in § 4.1 that he finds ambiguous. What alternative interpretation does he believe is reasonable? When did he first form the view that the definition was ambiguous — at the time of signing the first FLA in 2007, or at some later date?
• If Brecker asserts that the definition does not encompass Suncoast-collected revenues: Ask him to explain, in his own words, how revenues collected by Suncoast Room Management Inc. on behalf of a Verimark-branded hotel, from a guest who sleeps in a room at that hotel, are not "revenues derived from or attributable to the rental of guest rooms at the Hotel."
This line of questioning is designed to foreclose the anticipated defense of ambiguity and to create a clear record that either (a) Brecker understood the GRR definition and knowingly excluded covered revenues, or (b) Brecker's claimed misunderstanding of an unambiguous definition is not credible.
2. Royalty Obligation (§ 4.1)
• Confirm that under each FLA, Coastal Palms is obligated to pay Verimark a royalty equal to 5% of GRR, payable monthly.
• Confirm that Brecker understood this obligation when he signed the first FLA and that it applied consistently across all 22 agreements.
• Confirm that the royalty is calculated on gross room revenue — not net room revenue, not revenue net of commissions, and not revenue net of management fees.
3. Marketing-Fund Contribution (§ 4.2)
• Confirm that under each FLA, Coastal Palms is obligated to contribute 2.5% of GRR to Verimark's system-wide marketing fund, payable monthly.
• Confirm that this contribution is also calculated on gross room revenue, using the same GRR definition as the royalty obligation.
4. Technology Fee (§ 4.3)
• Confirm that under each FLA, Coastal Palms is obligated to pay a technology fee of $12.50 per available room per month, subject to annual adjustment based on the Consumer Price Index ("CPI"), with the annual increase capped at 3% per year.
• Explore whether rooms were ever added to any properties without notification to Verimark. Based on Verimark's records, approximately 214 rooms were added across 4 properties during the 2013–2021 period without corresponding notification to Verimark, resulting in underpayment of technology fees. Probe whether Brecker was aware of these room additions and whether notification to Verimark was intentionally omitted. If Brecker claims ignorance, establish who at Coastal Palms was responsible for notifying Verimark of room-count changes.
5. Late-Payment Interest (§ 4.6)
• Confirm that FLA § 4.6 provides for late-payment interest at a rate of 1.5% per month, compounded monthly, on any royalty, marketing-fund contribution, technology fee, or other amount that is not paid when due or that is underpaid.
• Confirm that Brecker was aware of this provision at the time he signed the FLAs.
• Confirm his understanding that, under this provision, interest accrues not only on payments that are made late but also on the shortfall arising from any underpayment of amounts due — meaning that if GRR was underreported, interest accrues on the resulting deficiency in royalties, marketing-fund contributions, and technology fees from the date each underpayment occurred.
6. Audit Rights (§ 8.2)
• Confirm that FLA § 8.2 grants Verimark the right to audit the books and records of the franchisee upon 10 business days' written notice.
• Confirm that if the audit reveals an underpayment exceeding 2% of reported GRR for any audited period, the franchisee is obligated to bear all costs associated with the audit, including the fees and expenses of Verimark's auditors.
• Ask: Prior to the Thornbury & Associates audit initiated in November 2021, had Verimark ever exercised its audit rights under § 8.2 with respect to any Coastal Palms property? If so, what was the scope and outcome of the prior audit?
• Ask: What was Brecker's response when he received the audit notification from Thornbury & Associates on November 22, 2021? Did he take any steps to prepare for the audit? Did he consult with counsel? Did he instruct any employees or agents to take any actions in connection with the upcoming audit — including, but not limited to, the collection, organization, alteration, or destruction of financial records?
7. Cure Provision (§ 14.1) and Incurable Breach (§ 14.2(c))
• Confirm that FLA § 14.1 provides a 30-day cure period upon written notice of a material breach.
• Read aloud FLA § 14.2(c) and have Brecker confirm his awareness of this provision:
"Systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure."
• Ask: When did you first become aware of § 14.2(c)? Did you read this provision when you signed the first FLA in 2007? Did your counsel at the time bring it to your attention?
• Ask: Do you understand what it means for a breach to be "incapable of cure"? In your understanding, does that mean that once systematic underreporting is established, the franchisor has the right to terminate the franchise agreement without affording an opportunity to cure?
8. Liquidated Damages (§ 15.3)
• Confirm that FLA § 15.3 provides that upon termination of a franchise agreement for cause, the franchisee is obligated to pay liquidated damages in an amount equal to three times the trailing-twelve-month royalties attributable to the terminated property.
• Confirm that Brecker understood the financial exposure created by this provision. Ask him to estimate, even roughly, the liquidated-damages exposure across all 22 properties. (The correct figure, based on Verimark's calculations, is approximately $105.5 million.)
D. Monthly GRR Reporting Process
Having established Brecker's understanding of the GRR definition and the financial obligations tied to it, the examination should transition to the process by which GRR was actually calculated and reported to Verimark on a monthly basis.
• Who at Coastal Palms or its affiliated entities was responsible for preparing and submitting the monthly GRR reports to Verimark?
• What data sources were used to calculate GRR for each property? Were the data drawn from the property management system ("PMS"), from the general ledger, from bank deposits, from booking-channel reports, or from some combination of these? Which specific PMS did the Coastal Palms properties use?
• What booking channels were included in the GRR figures reported to Verimark? Specifically, was revenue from each of the following channels included or excluded: (a) Verimark's central reservation system; (b) online travel agencies (OTAs) such as Aldermere Technologies, Bramwell Holdings, and Drayton Software; (c) the property's own branded website; (d) walk-in guests; (e) corporate-direct contracts; (f) gulfcoastrooms.com; (g) any other direct-booking channel?
• How were the monthly GRR reports transmitted to Verimark? Were they submitted through an electronic portal, by email, by mail, or by some other method?
• Did Brecker personally review or approve the monthly GRR reports before they were submitted to Verimark? If so, what was the nature and extent of his review? Did he review the underlying data, or only the summary figures? Did he sign or authorize the submission of each report?
• At the property level, who had primary responsibility for calculating and preparing the GRR figures? Were there written instructions, policies, or procedures governing the GRR calculation? If so, who authored them?
IV. FORMATION AND PURPOSE OF SUNCOAST ROOM MANAGEMENT INC.
A. Formation
Exhibit: Suncoast Room Management Inc. Articles of Incorporation (Florida) — Tab 16
This section of the examination is designed to establish the origin of Suncoast Room Management Inc. and to pin Brecker as the decision-maker behind its creation.
• When was Suncoast Room Management Inc. incorporated in the State of Florida? What was the date of filing of the Articles of Incorporation? (Establish that the incorporation occurred no later than January 2013, which is the earliest date from which Verimark's forensic analysis estimates the underreporting began.)
• Who directed the formation of Suncoast? Was it Brecker's idea, or was the formation suggested by someone else? If it was Brecker's idea, what prompted him to create a separate entity? If it was suggested by someone else, identify the person and the circumstances.
• Who are the officers and directors of Suncoast as listed in its corporate records? (Confirm that Brecker is the President. Identify any other officers or directors and their roles.)
• What was the stated business purpose of Suncoast as set forth in its Articles of Incorporation or organizational documents? Was the stated purpose consistent with the entity's actual business activities?
• Was Suncoast formed at the suggestion of an accountant, attorney, tax advisor, or other professional? If so, identify the individual and the firm. What advice was provided in connection with the formation? (Note: privilege may be asserted here. If so, record the assertion and move on. The objective is to establish whether professional advice was sought, not the substance of the advice.)
• Was Verimark Hospitality Group Inc. informed of Suncoast's formation at or around the time it was incorporated? If so, when was Verimark informed, how was the communication made (letter, email, phone call, submission as part of a franchise application), and what specifically was Verimark told about Suncoast's intended role? If Verimark was not informed, why not?
B. Operational Purpose
The examination should transition from the formal creation of Suncoast to its actual business operations, with particular focus on its role as a revenue-collection intermediary.
• Describe, in your own words, Suncoast's actual business operations. What services did Suncoast provide, and to whom?
• Confirm that Suncoast collected revenues from direct bookings at Coastal Palms hotel properties. Specifically, confirm that the categories of revenue collected by Suncoast included: (a) payments from walk-in guests who arrived at the hotel without a prior reservation; (b) payments under corporate-direct contracts negotiated between Suncoast and corporate clients; and (c) payments from bookings made through the unbranded website gulfcoastrooms.com.
• Which of the 22 Coastal Palms/Verimark properties used Suncoast as a booking or revenue-collection channel? Was it all 22 properties, or a subset? If a subset, identify which properties used Suncoast and which did not, and explain the basis for the distinction.
• Did Suncoast have its own employees, separate and apart from the employees of Coastal Palms, Gulf Breeze Hospitality, and Savannah Lodging Partners? Or did Suncoast rely on the employees of those entities to perform its revenue-collection and management functions? If the latter, were those employees aware that they were performing work on behalf of Suncoast? Were they instructed to process certain bookings through Suncoast rather than through the property's standard booking channels?
• Did Suncoast maintain its own bank accounts, separate from the bank accounts of Coastal Palms and the property-level entities? At which financial institution were those accounts held? (Probe for Ironclad National Bank or another institution.) Who were the authorized signers on the Suncoast bank accounts? (Confirm that Brecker was an authorized signer.)
• Walk through the flow of funds for a typical Suncoast transaction. When a guest booked a room at a Verimark-branded hotel through Suncoast (whether via walk-in, corporate-direct, or gulfcoastrooms.com), how was the payment collected? Where was the payment deposited? How was the revenue recorded in Suncoast's books? How and when was revenue remitted from Suncoast to the property-level entity? What records were created to document these transactions?
C. The 12% Management Fee
Exhibit: Suncoast management agreements with property-level LLCs — Tabs 19–22
This subsection addresses the mechanism by which Suncoast retained a portion of the revenues it collected — the 12% "management fee" — before remitting the balance to the property-level entities. This fee is significant both as a measure of the economic benefit Brecker derived from the scheme and as evidence of the deliberate structuring of transactions to divert revenue from Verimark's royalty base.
• Confirm that Suncoast entered into management agreements with each of the property-level entities (Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and other property-level LLCs) under which Suncoast retained a 12% "management fee" on all direct-booking revenues before remitting the remaining 88% to the property-level entity.
• Present the management agreements produced in the supplemental production on November 18, 2022, and have Brecker confirm the terms. Who negotiated these agreements? Who determined the 12% rate? When was the rate established? Was the rate ever changed? Was the 12% rate based on any market analysis or industry benchmark, or was it set arbitrarily?
• Were these management fees and the management agreements themselves disclosed to Verimark? If Brecker contends they were disclosed, probe for specifics: When? How? To whom at Verimark? In what form? Was the disclosure made in a franchise application, in a property-management agreement submitted to Verimark, in correspondence, or in some other manner? Did the disclosure specifically state that Suncoast would retain 12% of room revenues before remittance?
• If the management fees were not disclosed to Verimark: Why not? Did Brecker believe he had an obligation to disclose the management-fee arrangement to Verimark? Did anyone advise him that disclosure was or was not required?
• Where did the retained management fees ultimately go? Were they deposited in Suncoast's bank account? Were they then distributed as dividends, draws, salary, or compensation to Brecker or others? If distributed, to whom, in what amounts, and how frequently?
• This is a critical threshold question: Was the 12% management fee treated as an expense that reduced GRR — that is, was GRR calculated after deducting the management fee? Or was GRR supposed to be calculated before the fee was applied? Under § 4.1, GRR is defined as "all revenues derived from or attributable to the rental of guest rooms" — which would require GRR to be calculated on the full amount collected from the guest, before any management fee or other deduction. Probe Brecker's understanding of this point.
• The most critical question in this subsection: Were Suncoast's collected revenues — either the gross amount collected from guests, or the net amount remitted to the property-level entities after deduction of the 12% management fee — included in the GRR figures reported to Verimark? (Anticipated answer based on the forensic evidence: No. Neither the gross amount nor the net amount was included in reported GRR. The entire stream of Suncoast-collected revenue was excluded from Verimark reporting.)
D. Brecker's Knowledge and Direction
This subsection is the heart of the Day 1 examination. Its purpose is to establish that the exclusion of Suncoast-collected revenues from GRR reports was not an inadvertent error or the unauthorized act of subordinates, but a deliberate decision made by Brecker and implemented at his direction.
• Did Brecker instruct anyone — any employee, controller, accountant, or agent of Coastal Palms, Gulf Breeze, Savannah Lodging Partners, or Suncoast — to exclude revenues collected by Suncoast from the GRR figures reported to Verimark?
• If he denies giving such instructions: Present documents from the supplemental production showing direction from "corporate" (Brecker's office) to property-level controllers specifying the GRR reporting methodology. These documents are consistent with the composite deposition testimony expected from the 10 property-level managers and controllers who are scheduled for deposition in the weeks following Brecker's examination. Direct the witness's attention to specific emails, memoranda, and other communications, identified by bates-stamp number, and ask him to confirm or deny their authenticity and the accuracy of their contents.
• If he admits giving such instructions: Establish the timeline in detail. When did these instructions begin? Were they contemporaneous with the formation of Suncoast, or did they come later? Were the instructions oral, written, or both? To whom were they directed? Were the instructions given to each property individually, or communicated en masse (e.g., at a regional meeting, via a company-wide policy memo, or through an update to the organization's accounting manual)?
• Did Brecker ever discuss with anyone at Verimark whether Suncoast-collected revenues should be included in GRR? If so, identify the Verimark representative, the date and circumstances of the conversation, and the substance of what was discussed. Was any agreement reached? Was any approval given? Was the conversation documented in any written communication?
E. Awareness That Suncoast Revenues Were GRR
This subsection drives to the ultimate question of Brecker's knowledge and intent. The examining attorney should approach these questions directly and without equivocation.
• Did Brecker believe that revenues collected by Suncoast Room Management Inc. on behalf of Verimark-branded hotel properties were "revenues derived from or attributable to the rental of guest rooms at the Hotel"?
• If he answers yes: Then why were those revenues excluded from GRR reports to Verimark?
• If he answers no: Ask him to explain, in his own words, how a walk-in guest who arrives at a Verimark Suites hotel, checks in at the front desk, sleeps in a room at the hotel, and pays Suncoast Room Management Inc. for that room, generates revenue that is not "derived from the rental of guest rooms."
• If he contends that the FLA only covers revenues collected by the franchisee entity (Coastal Palms): Direct his attention to the language in § 4.1 that states GRR includes revenues "regardless of the entity collecting such revenue." Ask him to read those words aloud. Ask him to reconcile his position with this language. Ask him when he first formed the interpretation that the FLA only covered revenues collected by the franchisee entity, and whether he communicated that interpretation to Verimark.
• If he contends that Suncoast was a separate, independent entity and not an agent of the franchisee: Probe the basis for this claim. Suncoast shares office space with Coastal Palms. Brecker is the President of Suncoast and the Managing Member of Coastal Palms. Suncoast has no independent employees. Suncoast's sole clients are the property-level entities controlled by Brecker. Suncoast was formed at Brecker's direction. In what sense is Suncoast "independent"?
V. ESTABLISHMENT OF GULFCOASTROOMS.COM
A. Creation and Operation
Exhibit: Domain registration records for gulfcoastrooms.com — Tab 51; Website screenshots — Tabs 52–55
The examination should now turn to the unbranded website gulfcoastrooms.com, which served as a digital booking channel through which guests could reserve rooms at Verimark-branded properties operated by Coastal Palms. The revenues from bookings made through this website were collected by Suncoast and excluded from GRR reports to Verimark.
• When was the domain name gulfcoastrooms.com registered? Present the domain-registration records (Tab 51) and ask Brecker to confirm the registration date and the identity of the registrant. Was the domain registered in Brecker's name, in Suncoast's name, or in the name of another entity or individual?
• Who directed the creation of gulfcoastrooms.com? Was it Brecker's idea? If so, what was his purpose in creating an unbranded website for booking rooms at Verimark-branded properties? If the idea originated with someone else, identify the person and the circumstances.
• Confirm that the website was unbranded — that is, it did not display Verimark's name, trademarks, logos, or brand identity. Did the website identify the properties listed as Verimark Suites or Verimark Select hotels? Or were the properties listed under different names or described generically (e.g., by location, amenities, or price, without reference to brand affiliation)?
• What hotels were bookable through gulfcoastrooms.com? Was the website limited to Coastal Palms properties, or did it also list properties operated by unrelated entities? If limited to Coastal Palms properties, did it include all 22 properties or a subset?
• Who maintained the website on an ongoing basis? Who managed the pricing and room-inventory information displayed on the site? Was pricing and inventory synchronized with the property management system, or was it managed independently?
• Was Verimark Hospitality Group Inc. ever notified about the existence of gulfcoastrooms.com? If so, when was Verimark notified, by whom, and in what form? What specifically was Verimark told about the website's purpose and the treatment of revenues generated through it? If Verimark was not notified, why not? Did Brecker believe he had an obligation to inform Verimark about an off-platform booking channel for Verimark-branded properties?