meet-and-confer-suncoast-records.docx

1021-00006 · Client 1021 · Discovery/Correspondence

meet-and-confer-suncoast-records.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 523-7800 Facsimile: (954) 523-7801

September 8, 2022

Via Email (gmontes@wbclaw.com) and U.S. Mail

Gabriela Montes, Esq. Whitfield, Barrow & Crane LLP 1221 Brickell Avenue, Suite 3000 Miami, Florida 33131

Re: Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC, Randall Brecker, and Suncoast Room Management Inc., Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida — Deficiencies in Production of Suncoast Room Management Inc. Financial Records

Dear Ms. Montes:

I. Purpose of This Letter

This letter memorializes the substance of the good-faith meet-and-confer telephonic conference held on September 6, 2022, between the undersigned, Yuki Nakamura, and Carlos Espinoza of this firm, on behalf of Plaintiff Verimark Hospitality Group Inc. ("Verimark" or "Plaintiff"), and you and Ethan Doyle of Whitfield, Barrow & Crane LLP, on behalf of Defendants Coastal Palms Franchise Holdings LLC ("Coastal Palms"), Randall Brecker ("Brecker"), and Suncoast Room Management Inc. ("Suncoast") (collectively, "Defendants"). This letter is sent pursuant to the requirements of Florida Rule of Civil Procedure 1.380(a)(2) and Paragraph 8 of the Court's Case Management Order entered on June 17, 2022, following the June 14, 2022 Case Management Conference before the Honorable Richard M. Calloway, which requires the parties to engage in good-faith meet-and-confer efforts and to exchange written correspondence documenting those efforts prior to filing any discovery motion.

Despite the September 6, 2022 telephonic conference and the parties' prior written exchanges, the parties were unable to resolve the discovery dispute outlined herein. Accordingly, unless Coastal Palms remedies the deficiencies described below within seven (7) days of the date of this letter — that is, by no later than September 15, 2022 — Verimark intends to file a Motion to Compel Production of Suncoast Room Management Inc. Financial Records with the Court, together with all supporting materials. We write to set forth our respective positions and to provide Defendants with a final opportunity to resolve this matter without the need for Court intervention and the attendant expense and delay.

II. Background — Discovery Requests at Issue

As you are aware, on July 11, 2022, Verimark served its First Request for Production of Documents to Defendant Coastal Palms Franchise Holdings LLC (the "First RFP"), consisting of one hundred forty-seven (147) individually numbered requests for production. These requests were directed at documents and electronically stored information necessary to prosecute Verimark's claims for breach of the Franchise License Agreements ("FLAs"), breach of the implied covenant of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, and civil conspiracy, as well as to test the defenses raised by Defendants in this matter.

The specific requests for production at issue in this dispute include, but are not limited to, the following categories:

RFP Nos. 34–41: All financial records — including general ledgers, bank statements, profit-and-loss statements, and balance sheets — of Suncoast Room Management Inc. for the period January 1, 2013 through December 31, 2021.

RFP Nos. 42–48: All management-fee invoices, agreements, schedules, or calculations between Suncoast Room Management Inc. and the property-level entities operating the franchised hotel properties, including but not limited to Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, Emerald Coast Lodging LLC, Panhandle Suites Management LLC, and each of the other property-level entities identified in Exhibit A to the Complaint.

RFP Nos. 49–53: All records relating to revenue collected through the website gulfcoastrooms.com, including booking logs, payment processing records, credit card merchant account statements, and reconciliation reports for the period January 1, 2013 through December 31, 2021.

RFP Nos. 54–59: All records of revenues collected by Suncoast Room Management Inc. from direct bookings — including walk-in guests, corporate-direct contracts, group bookings, and any other reservations not processed through the Verimark central reservation system — at any of the twenty-two (22) franchised hotel properties (eighteen (18) branded as Verimark Suites and four (4) branded as Verimark Select).

RFP Nos. 60–67: All contracts, net-rate agreements, commission schedules, and reconciliation reports reflecting Suncoast's or any property-level entity's revenues from online travel agency ("OTA") channels and other third-party booking platforms, including but not limited to Aldermere Technologies, Bramwell Holdings, Penmark Industries, Drayton Software, and Drayton Corporation.

On August 22, 2022, Coastal Palms served its Objections and Responses to Plaintiff's First Request for Production, accompanied by an initial production of approximately eighty-four thousand (84,000) documents, which were delivered in native format via the Nexagen Document Solutions LLC platform in accordance with the Joint Stipulation Regarding discovery of Electronically Stored Information filed on June 20, 2022.

Upon review of the initial production, Verimark identified significant and material deficiencies. On August 30, 2022, the undersigned sent to you a detailed discovery Deficiency Letter identifying twenty-three (23) categories of deficient or missing production. Among the most significant deficiencies identified was the complete absence of any financial records of Suncoast Room Management Inc. from the initial production. This is despite the fact that the First RFP expressly requested such records and despite the central role that Suncoast's diversion of revenue plays in this litigation. To date, Coastal Palms has not supplemented its production to include any Suncoast financial records.

III. Summary of the September 6, 2022 Telephonic Conference

A. Participants and Logistics

As noted above, the parties held a telephonic meet-and-confer conference on September 6, 2022, beginning at approximately 2:00 p.m. Eastern Time. The participants were as follows:

• For Plaintiff Verimark Hospitality Group Inc.: Yuki Nakamura (FL Bar No. 0119644) and Carlos Espinoza (FL Bar No. 0128903), Calderwood & Harkness LLP.

• For Defendants Coastal Palms Franchise Holdings LLC, Randall Brecker, and Suncoast Room Management Inc.: Gabriela Montes and Ethan Doyle, Whitfield, Barrow & Crane LLP.

The conference lasted approximately forty-five (45) minutes and addressed multiple categories of deficient production identified in our August 30 letter. The parties were able to reach agreement on certain ancillary categories of documents; however, the parties reached an impasse with respect to the production of Suncoast Room Management Inc. financial records. The balance of this letter addresses that impasse.

B. Coastal Palms' Stated Objections

During the call, you articulated the following objections on behalf of Coastal Palms to the production of Suncoast Room Management Inc. financial records. We set forth each objection below together with our understanding of the basis for the objection, and then address Verimark's response in Section IV.

Objection 1: Separate Entity / Third-Party Argument. You stated that Coastal Palms takes the position that Suncoast Room Management Inc. is a separate Florida corporation, that it maintains its own corporate books and records, and that it is not a party to the Franchise License Agreements between Verimark and Coastal Palms. You contended that Coastal Palms cannot be compelled to produce documents belonging to a separate corporate entity and that Verimark should, if it desires Suncoast's records, serve a subpoena duces tecum upon Suncoast directly pursuant to Florida Rule of Civil Procedure 1.410.

You acknowledged during the call that Randall Brecker serves as the President of Suncoast Room Management Inc. and is simultaneously the Managing Member and holder of a sixty percent (60%) equity interest in Coastal Palms Franchise Holdings LLC. However, you contended that this overlapping control does not collapse the corporate distinction between the two entities for purposes of discovery obligations and that each entity must be treated independently.

Objection 2: Relevance. You stated that Coastal Palms contends Suncoast's financial records are not relevant to the claims or defenses in this action. You argued that the Franchise License Agreements govern only the reporting obligations of Coastal Palms and the property-level entities (Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and the other operating LLCs identified in the FLAs), not those of Suncoast, which you characterized as a "management services provider" whose internal financial records have no bearing on the determination of Gross Room Revenue.

You further stated that Coastal Palms maintains the position articulated in the February 28, 2022 letter from Nathan Whitfield III to Verimark's General Counsel, Sandra Hoffmeister, denying Verimark's Notice of Material Breach. Specifically, Coastal Palms maintains that revenues collected by Suncoast were properly excluded from Gross Room Revenue under what you described as a "reasonable interpretation" of the FLA definition of Gross Room Revenue and that Suncoast's management fees constitute legitimate arms-length charges for management services rendered.

Objection 3: Burden and Scope. You argued that the requests are overbroad insofar as they seek nine (9) years of financial records — January 2013 through December 2021 — for all of Suncoast's operations. You stated that Suncoast may have operations and revenue streams unrelated to the twenty-two (22) franchised hotel properties, and that requiring production of all financial records across the entire nine-year period would impose an undue burden.

You proposed that if any production were required, it should be limited to the period 2019 through 2021 and restricted to records that directly reference one or more of the twenty-two (22) Coastal Palms franchised properties by name or property identification number.

Objection 4: Confidentiality / Proprietary Business Information. Finally, you raised a general objection that Suncoast's financial records contain proprietary business information and trade secrets — including management-fee structures, vendor pricing, and OTA negotiation terms — that are not adequately protected by the existing Confidentiality Stipulation and Protective Order entered in this case on July 6, 2022. You stated that absent additional protections, production of these records could cause competitive harm to Suncoast and its affiliated entities.

C. Verimark's Responses During the Conference

During the September 6, 2022 call, the undersigned responded substantively to each of Coastal Palms' objections and explained why Verimark believes the objections are without merit. The positions articulated during the call are set forth more fully below.

IV. Verimark's Position — Why Suncoast Records Must Be Produced

A. Response to the Separate-Entity Objection

Coastal Palms' attempt to characterize Suncoast Room Management Inc. as a mere "third party" whose records are beyond Defendants' discovery obligations is unavailing for several independent reasons.

First, Suncoast Room Management Inc. is not merely a third party; it is an entity wholly controlled by Randall Brecker, who simultaneously serves as the President of Suncoast and the Managing Member and sixty percent (60%) equity holder of Coastal Palms Franchise Holdings LLC. Under well-established Florida law, a party to litigation is required to produce documents that are within its "possession, custody, or control." See Fla. R. Civ. P. 1.350(a). The concept of "control" is construed broadly and encompasses the legal right, authority, or practical ability to obtain documents from a non-party source. See Gertz v. Allen, 850 So. 2d 656, 657 (Fla. 4th DCA 2003). Where, as here, a single individual controls both the responding party and the entity whose records are sought, the responding party plainly has "control" over those records within the meaning of Rule 1.350. Brecker's concurrent control of both Coastal Palms and Suncoast — exercised through his roles as Managing Member and President, respectively — gives Coastal Palms the practical ability and legal authority to direct Suncoast to produce the requested records.

Second, Suncoast was created no later than January 2013 — as reflected in its Florida Division of Corporations filing dated January 7, 2013, a certified copy of which was attached as Exhibit 14 to the Complaint — specifically to collect revenues from direct bookings (walk-ins, corporate-direct contracts, and the unbranded website gulfcoastrooms.com) at the very hotel properties that are the subject of the Franchise License Agreements. The establishment of Suncoast as a revenue-collection vehicle for the franchised properties is central to Verimark's claims and renders any attempt to treat Suncoast as a garden-variety unrelated third party fundamentally misleading.

Third, Coastal Palms' own initial production undercuts its separate-entity argument. The eighty-four thousand (84,000) documents produced on August 22, 2022 include numerous intercompany communications between Coastal Palms and Suncoast, including emails between Brecker (using both his @coastalpalmsfranchise.com and his @suncoastrm.com email addresses) and property-level managers concerning the allocation of revenue between Suncoast and the property-level LLCs. If Coastal Palms truly lacked access to Suncoast's records, it could not have produced these intercompany documents. The production of such documents demonstrates that Coastal Palms has access to and control over Suncoast's records and selectively produced some while withholding others.

Fourth, and dispositively, Suncoast Room Management Inc. is itself a named defendant in this action. Count VII of Verimark's Complaint asserts a claim for Unjust Enrichment against Suncoast, and Count X asserts a claim for Civil Conspiracy against Suncoast, Coastal Palms, and Brecker jointly. As a party defendant, Suncoast has its own independent obligation to respond to discovery, and the assertion that Verimark must serve a subpoena on a named defendant is wholly without basis. Suncoast's status as a party defendant eliminates any colorable argument that its financial records are beyond the scope of production obligations in this case. To the extent that your firm represents Suncoast in this action — as reflected in the Notice of Appearance filed by Nathan Whitfield III on behalf of all three Defendants on April 4, 2022 — you have a professional obligation to ensure that Suncoast complies with its discovery obligations.

B. Response to the Relevance Objection

The contention that Suncoast's financial records are not relevant to this action is, with respect, difficult to credit. Suncoast's financial records are not merely relevant; they are directly and centrally relevant to the core allegations of this case and are, in fact, indispensable to the determination of damages.

The gravamen of Verimark's claims is that Coastal Palms and Brecker systematically underreported Gross Room Revenue ("GRR") by diverting hotel revenue through Suncoast Room Management Inc. — a corporate entity created by Brecker specifically for the purpose of collecting revenues that should have been reported to Verimark as part of GRR and upon which franchise fees, royalties, and marketing contributions were owed under the FLAs.

Section 4.1 of each of the twenty-two (22) Franchise License Agreements defines Gross Room Revenue as follows:

"'Gross Room Revenue' shall mean all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue, but excluding applicable state and local room taxes collected and remitted to the appropriate taxing authority."

The operative phrase "regardless of the entity collecting such revenue" was included in the FLAs precisely to prevent the kind of revenue diversion at issue here. It expressly contemplates that revenues may be collected by an affiliated entity or management company rather than by the named franchisee or property-level LLC, and it requires that such revenues nonetheless be included in GRR. Coastal Palms' position that revenues collected by Suncoast were "properly excluded" from GRR is irreconcilable with the plain language of the contract.

Verimark's forensic accounting analysis — supported by the preliminary audit findings of Thornbury & Associates CPAs LLP, delivered on January 18, 2022 — found approximately twenty-six percent (26%) underreporting of GRR at the top ten (10) revenue-producing properties for the 2019–2021 audit period. That preliminary audit was necessarily limited in scope because Thornbury & Associates did not have access to Suncoast's financial records. Access to the full universe of Suncoast's financial records is essential to (i) quantify the total magnitude of diverted revenue across all twenty-two (22) properties and the full nine-year period, (ii) identify the specific booking channels and revenue streams that were improperly excluded from GRR, and (iii) reconstruct the true GRR for each property in each year for purposes of calculating damages.

Our current estimate of total underreported GRR across all twenty-two (22) properties for the period January 2013 through December 2021 is approximately $197.8 million. Suncoast's financial records are indispensable to validating and refining that estimate, and Coastal Palms' refusal to produce those records effectively prevents Verimark from proving its damages.

Moreover, we note that the twelve percent (12%) management fee that Suncoast retained before remitting the balance of collected revenues to the property-level LLCs is itself a component of revenue that was improperly excluded from GRR. Under FLA § 4.1, management fees deducted by Suncoast before reporting revenue to the property-level entities — and, in turn, to Verimark — constitute revenue "derived from or attributable to the rental of guest rooms" and should have been included in GRR. Suncoast's financial records are necessary to determine the total amount of management fees retained by Suncoast over the relevant period and to calculate the franchise fees, royalties, and marketing contributions that should have been paid on those amounts.

In short, Suncoast's financial records are not tangential to this case. They are at its very center.

C. Response to the Burden and Scope Objection

Coastal Palms' proposal to limit production to the period 2019 through 2021 is unacceptable. The Complaint alleges systematic underreporting of GRR beginning no later than January 2013, which corresponds to the establishment of Suncoast Room Management Inc. Limiting the production period to 2019–2021 would exclude six full years of alleged underpayments, encompassing the majority of the estimated $197.8 million in underreported GRR. Verimark's claims for breach of the Franchise License Agreements are subject to a five-year statute of limitations under Florida law, see Fla. Stat. § 95.11(2)(b), and the Complaint was filed on March 15, 2022. Verimark's breach-of-contract claims therefore reach back to at least March 2017, and its fraud and fraudulent concealment claims — which are subject to the discovery rule — reach back to the inception of the scheme in January 2013. The full 2013–2021 time period is necessary to allow Verimark to prove its claims and calculate its damages.

To the extent that Suncoast has business operations unrelated to the twenty-two (22) franchised hotel properties — a contention that Defendants have not substantiated with any specificity — Verimark is willing to discuss reasonable accommodations to reduce burden. For example, the parties could agree on a set of search terms or custodian limitations to narrow the universe of responsive documents while still ensuring that all hotel-related financial records are produced. However, the mere possibility that some Suncoast records may be non-responsive to specific requests cannot serve as a basis for withholding the entire category of records. Relevance-based culling is a routine part of e-discovery, and the e-discovery protocol agreed upon by the parties in the Joint Stipulation filed June 20, 2022 — including the use of Nexagen Document Solutions LLC for hosting and processing — already provides an efficient framework for review and production.

We further note that the burden argument rings hollow in a case involving an estimated $197.8 million in underreported revenue. Whatever costs are associated with collecting, reviewing, and producing Suncoast's financial records, they are proportional to the stakes of this litigation and to the needs of this case. See Fla. R. Civ. P. 1.280(b)(1) (Discovery must be "proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit").

D. Response to the Confidentiality Objection

We do not dispute that financial records may contain sensitive business information. However, the existing Confidentiality Stipulation and Protective Order, entered by the Court on July 6, 2022, provides robust protections for confidential business information produced in this litigation. The Protective Order restricts the use of confidential materials to this litigation, limits access to counsel of record, designated experts, and certain identified support personnel, and requires the return or destruction of confidential materials at the conclusion of the case.

If Coastal Palms believes that specific categories of Suncoast documents warrant protections beyond those provided by the existing Protective Order, Verimark is willing to discuss the addition of an "Attorneys' Eyes Only" designation tier that would further restrict access to outside counsel and testifying experts. We have proposed such a tier in other matters represented by this firm and are prepared to circulate a draft amendment to the Protective Order for your review.

However, confidentiality concerns cannot serve as a blanket basis for refusing production altogether. See Surterra Holdings Inc. v. Parallel Infrastructure Fund I, LLC, No. 2020-CA-000487, at *3 (Fla. 11th Cir. July 14, 2020) (rejecting confidentiality objection where protective order was in place and noting that "the proper remedy for confidentiality concerns is a protective order, not a refusal to produce"). The existence of a protective order, combined with Verimark's willingness to negotiate additional protections, fully addresses any legitimate confidentiality concern.

V. Proposals for Resolution

In the interest of resolving this dispute without the need for Court intervention, Verimark proposes the following:

1. Production of Suncoast Financial Records. Coastal Palms shall produce all responsive financial records of Suncoast Room Management Inc. for the period January 1, 2013 through December 31, 2021, including but not limited to: general ledgers, trial balances, bank statements (for all accounts), profit-and-loss statements, balance sheets, tax returns and related schedules, management-fee invoices and calculations, intercompany transfer records, gulfcoastrooms.com booking logs and payment processing records, OTA reconciliation reports, and records of direct-booking revenues (including walk-in, corporate-direct, and group bookings) for all twenty-two (22) franchised properties.

2. Production Deadline. Production shall be completed within fourteen (14) calendar days of the date of this letter — that is, by no later than September 22, 2022 — via the Nexagen Document Solutions LLC platform in accordance with the parties' agreed-upon e-discovery protocol.

3. Search-Term Limitations for Non-Hotel Records. If Coastal Palms identifies specific categories of Suncoast records that genuinely contain non-hotel-related business information, the parties will promptly meet and confer regarding appropriate search-term or custodian limitations to narrow the scope of review while ensuring that all hotel-related financial records are produced. Any such limitations must be agreed upon in writing by both parties.

4. Amendment to Protective Order. If Coastal Palms determines that additional confidentiality protections are necessary for specific categories of Suncoast documents beyond those provided by the existing Confidentiality Stipulation and Protective Order, the parties will jointly prepare and submit to the Court a proposed amendment to the Protective Order adding an "Attorneys' Eyes Only" designation tier, with terms to be agreed upon by the parties.

Verimark believes these proposals are reasonable and represent a good-faith effort to accommodate Coastal Palms' stated concerns while ensuring that Verimark obtains the discovery to which it is entitled.

VI. Notice of Intent to File Motion to Compel

Please be advised that if Coastal Palms does not agree to produce the Suncoast Room Management Inc. financial records on the terms outlined above, or propose an acceptable alternative, within seven (7) days of the date of this letter — that is, by no later than September 15, 2022 — Verimark intends to file a Motion to Compel Production of Suncoast Room Management Inc. Financial Records with the Court. The motion will be supported by a memorandum of law and a declaration of the undersigned attaching the relevant correspondence documenting the parties' meet-and-confer efforts, including the August 30, 2022 discovery Deficiency Letter, this letter, and any response received from your office.

In connection with the motion, Verimark will seek an award of reasonable attorneys' fees and costs incurred in connection with the preparation and prosecution of the motion, pursuant to Florida Rule of Civil Procedure 1.380(a)(4), which provides that if a motion to compel is granted, the court "shall" require the party whose conduct necessitated the motion to pay the movant's reasonable expenses, including attorneys' fees, unless the court finds that the opposing party's position was substantially justified or that other circumstances make an award of expenses unjust.

We also note that FLA § 8.2 entitles Verimark to audit the books and records of its franchisees and requires the franchisee to bear the costs of such audit if the audit reveals an underpayment exceeding two percent (2%) of reported Gross Room Revenue. The preliminary audit conducted by Thornbury & Associates CPAs LLP has already established underreporting far in excess of that threshold — approximately twenty-six percent (26%) at the top ten (10) properties for the 2019–2021 period. Coastal Palms' continued refusal to produce Suncoast's financial records impedes Verimark's contractual right to a full and complete audit and exacerbates the harm to Verimark.

VII. Reservation of Rights

Nothing in this letter shall be construed as a waiver of any rights or remedies available to Verimark under the Franchise License Agreements, applicable law, or the Florida Rules of Civil Procedure. Verimark expressly reserves all such rights and remedies, including but not limited to the right to seek sanctions, adverse inference instructions, or other relief in connection with Defendants' discovery conduct. This letter and the meet-and-confer efforts described herein are without prejudice to any arguments Verimark may raise in connection with a Motion to Compel or any other discovery motion, and Verimark does not concede the validity of any objection articulated by Coastal Palms during the September 6, 2022 telephonic conference or in its written objections and responses.

VIII. Closing

We respectfully request written confirmation of Coastal Palms' position regarding the matters addressed in this letter by no later than September 15, 2022. You may direct your response to the undersigned at the address listed above, or via email at ynakamura@calderwoodharkness.com, or by telephone at (954) 523-7818 (direct line).

Thank you for your attention to this matter. We remain willing to engage in further meet-and-confer discussions if Defendants are prepared to address the deficiencies identified herein in a meaningful way, and we trust that this dispute can be resolved cooperatively.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Yuki Nakamura Florida Bar No. 0119644 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 523-7818

Email: ynakamura@calderwoodharkness.com

Counsel for Plaintiff Verimark Hospitality Group Inc.

cc: (via email)

Priya Anand, Esq., Calderwood & Harkness LLP (Responsible Partner, FL Bar No. 0087451)

Douglas Carmichael, Esq., Calderwood & Harkness LLP (Billing Partner, FL Bar No. 0093217)

Nathan Whitfield III, Esq., Whitfield, Barrow & Crane LLP

Ethan Doyle, Esq., Whitfield, Barrow & Crane LLP

CALDERWOOD & HARKNESS LLP Attorneys at Law 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 523-7800 Facsimile: (954) 523-7801
September 8, 2022
Via Email (gmontes@wbclaw.com) and U.S. Mail
Gabriela Montes, Esq. Whitfield, Barrow & Crane LLP 1221 Brickell Avenue, Suite 3000 Miami, Florida 33131
Re: Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC, Randall Brecker, and Suncoast Room Management Inc., Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida — Deficiencies in Production of Suncoast Room Management Inc. Financial Records
Dear Ms. Montes:
I. Purpose of This Letter
This letter memorializes the substance of the good-faith meet-and-confer telephonic conference held on September 6, 2022, between the undersigned, Yuki Nakamura, and Carlos Espinoza of this firm, on behalf of Plaintiff Verimark Hospitality Group Inc. ("Verimark" or "Plaintiff"), and you and Ethan Doyle of Whitfield, Barrow & Crane LLP, on behalf of Defendants Coastal Palms Franchise Holdings LLC ("Coastal Palms"), Randall Brecker ("Brecker"), and Suncoast Room Management Inc. ("Suncoast") (collectively, "Defendants"). This letter is sent pursuant to the requirements of Florida Rule of Civil Procedure 1.380(a)(2) and Paragraph 8 of the Court's Case Management Order entered on June 17, 2022, following the June 14, 2022 Case Management Conference before the Honorable Richard M. Calloway, which requires the parties to engage in good-faith meet-and-confer efforts and to exchange written correspondence documenting those efforts prior to filing any discovery motion.
Despite the September 6, 2022 telephonic conference and the parties' prior written exchanges, the parties were unable to resolve the discovery dispute outlined herein. Accordingly, unless Coastal Palms remedies the deficiencies described below within seven (7) days of the date of this letter — that is, by no later than September 15, 2022 — Verimark intends to file a Motion to Compel Production of Suncoast Room Management Inc. Financial Records with the Court, together with all supporting materials. We write to set forth our respective positions and to provide Defendants with a final opportunity to resolve this matter without the need for Court intervention and the attendant expense and delay.
II. Background — Discovery Requests at Issue
As you are aware, on July 11, 2022, Verimark served its First Request for Production of Documents to Defendant Coastal Palms Franchise Holdings LLC (the "First RFP"), consisting of one hundred forty-seven (147) individually numbered requests for production. These requests were directed at documents and electronically stored information necessary to prosecute Verimark's claims for breach of the Franchise License Agreements ("FLAs"), breach of the implied covenant of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, and civil conspiracy, as well as to test the defenses raised by Defendants in this matter.
The specific requests for production at issue in this dispute include, but are not limited to, the following categories:
RFP Nos. 34–41: All financial records — including general ledgers, bank statements, profit-and-loss statements, and balance sheets — of Suncoast Room Management Inc. for the period January 1, 2013 through December 31, 2021.
RFP Nos. 42–48: All management-fee invoices, agreements, schedules, or calculations between Suncoast Room Management Inc. and the property-level entities operating the franchised hotel properties, including but not limited to Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, Emerald Coast Lodging LLC, Panhandle Suites Management LLC, and each of the other property-level entities identified in Exhibit A to the Complaint.
RFP Nos. 49–53: All records relating to revenue collected through the website gulfcoastrooms.com, including booking logs, payment processing records, credit card merchant account statements, and reconciliation reports for the period January 1, 2013 through December 31, 2021.
RFP Nos. 54–59: All records of revenues collected by Suncoast Room Management Inc. from direct bookings — including walk-in guests, corporate-direct contracts, group bookings, and any other reservations not processed through the Verimark central reservation system — at any of the twenty-two (22) franchised hotel properties (eighteen (18) branded as Verimark Suites and four (4) branded as Verimark Select).
RFP Nos. 60–67: All contracts, net-rate agreements, commission schedules, and reconciliation reports reflecting Suncoast's or any property-level entity's revenues from online travel agency ("OTA") channels and other third-party booking platforms, including but not limited to Aldermere Technologies, Bramwell Holdings, Penmark Industries, Drayton Software, and Drayton Corporation.
On August 22, 2022, Coastal Palms served its Objections and Responses to Plaintiff's First Request for Production, accompanied by an initial production of approximately eighty-four thousand (84,000) documents, which were delivered in native format via the Nexagen Document Solutions LLC platform in accordance with the Joint Stipulation Regarding discovery of Electronically Stored Information filed on June 20, 2022.
Upon review of the initial production, Verimark identified significant and material deficiencies. On August 30, 2022, the undersigned sent to you a detailed discovery Deficiency Letter identifying twenty-three (23) categories of deficient or missing production. Among the most significant deficiencies identified was the complete absence of any financial records of Suncoast Room Management Inc. from the initial production. This is despite the fact that the First RFP expressly requested such records and despite the central role that Suncoast's diversion of revenue plays in this litigation. To date, Coastal Palms has not supplemented its production to include any Suncoast financial records.
III. Summary of the September 6, 2022 Telephonic Conference
A. Participants and Logistics
As noted above, the parties held a telephonic meet-and-confer conference on September 6, 2022, beginning at approximately 2:00 p.m. Eastern Time. The participants were as follows:
• For Plaintiff Verimark Hospitality Group Inc.: Yuki Nakamura (FL Bar No. 0119644) and Carlos Espinoza (FL Bar No. 0128903), Calderwood & Harkness LLP.
• For Defendants Coastal Palms Franchise Holdings LLC, Randall Brecker, and Suncoast Room Management Inc.: Gabriela Montes and Ethan Doyle, Whitfield, Barrow & Crane LLP.
The conference lasted approximately forty-five (45) minutes and addressed multiple categories of deficient production identified in our August 30 letter. The parties were able to reach agreement on certain ancillary categories of documents; however, the parties reached an impasse with respect to the production of Suncoast Room Management Inc. financial records. The balance of this letter addresses that impasse.
B. Coastal Palms' Stated Objections
During the call, you articulated the following objections on behalf of Coastal Palms to the production of Suncoast Room Management Inc. financial records. We set forth each objection below together with our understanding of the basis for the objection, and then address Verimark's response in Section IV.
Objection 1: Separate Entity / Third-Party Argument. You stated that Coastal Palms takes the position that Suncoast Room Management Inc. is a separate Florida corporation, that it maintains its own corporate books and records, and that it is not a party to the Franchise License Agreements between Verimark and Coastal Palms. You contended that Coastal Palms cannot be compelled to produce documents belonging to a separate corporate entity and that Verimark should, if it desires Suncoast's records, serve a subpoena duces tecum upon Suncoast directly pursuant to Florida Rule of Civil Procedure 1.410.
You acknowledged during the call that Randall Brecker serves as the President of Suncoast Room Management Inc. and is simultaneously the Managing Member and holder of a sixty percent (60%) equity interest in Coastal Palms Franchise Holdings LLC. However, you contended that this overlapping control does not collapse the corporate distinction between the two entities for purposes of discovery obligations and that each entity must be treated independently.
Objection 2: Relevance. You stated that Coastal Palms contends Suncoast's financial records are not relevant to the claims or defenses in this action. You argued that the Franchise License Agreements govern only the reporting obligations of Coastal Palms and the property-level entities (Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and the other operating LLCs identified in the FLAs), not those of Suncoast, which you characterized as a "management services provider" whose internal financial records have no bearing on the determination of Gross Room Revenue.
You further stated that Coastal Palms maintains the position articulated in the February 28, 2022 letter from Nathan Whitfield III to Verimark's General Counsel, Sandra Hoffmeister, denying Verimark's Notice of Material Breach. Specifically, Coastal Palms maintains that revenues collected by Suncoast were properly excluded from Gross Room Revenue under what you described as a "reasonable interpretation" of the FLA definition of Gross Room Revenue and that Suncoast's management fees constitute legitimate arms-length charges for management services rendered.
Objection 3: Burden and Scope. You argued that the requests are overbroad insofar as they seek nine (9) years of financial records — January 2013 through December 2021 — for all of Suncoast's operations. You stated that Suncoast may have operations and revenue streams unrelated to the twenty-two (22) franchised hotel properties, and that requiring production of all financial records across the entire nine-year period would impose an undue burden.
You proposed that if any production were required, it should be limited to the period 2019 through 2021 and restricted to records that directly reference one or more of the twenty-two (22) Coastal Palms franchised properties by name or property identification number.
Objection 4: Confidentiality / Proprietary Business Information. Finally, you raised a general objection that Suncoast's financial records contain proprietary business information and trade secrets — including management-fee structures, vendor pricing, and OTA negotiation terms — that are not adequately protected by the existing Confidentiality Stipulation and Protective Order entered in this case on July 6, 2022. You stated that absent additional protections, production of these records could cause competitive harm to Suncoast and its affiliated entities.
C. Verimark's Responses During the Conference
During the September 6, 2022 call, the undersigned responded substantively to each of Coastal Palms' objections and explained why Verimark believes the objections are without merit. The positions articulated during the call are set forth more fully below.
IV. Verimark's Position — Why Suncoast Records Must Be Produced
A. Response to the Separate-Entity Objection
Coastal Palms' attempt to characterize Suncoast Room Management Inc. as a mere "third party" whose records are beyond Defendants' discovery obligations is unavailing for several independent reasons.
First, Suncoast Room Management Inc. is not merely a third party; it is an entity wholly controlled by Randall Brecker, who simultaneously serves as the President of Suncoast and the Managing Member and sixty percent (60%) equity holder of Coastal Palms Franchise Holdings LLC. Under well-established Florida law, a party to litigation is required to produce documents that are within its "possession, custody, or control." See Fla. R. Civ. P. 1.350(a). The concept of "control" is construed broadly and encompasses the legal right, authority, or practical ability to obtain documents from a non-party source. See Gertz v. Allen, 850 So. 2d 656, 657 (Fla. 4th DCA 2003). Where, as here, a single individual controls both the responding party and the entity whose records are sought, the responding party plainly has "control" over those records within the meaning of Rule 1.350. Brecker's concurrent control of both Coastal Palms and Suncoast — exercised through his roles as Managing Member and President, respectively — gives Coastal Palms the practical ability and legal authority to direct Suncoast to produce the requested records.
Second, Suncoast was created no later than January 2013 — as reflected in its Florida Division of Corporations filing dated January 7, 2013, a certified copy of which was attached as Exhibit 14 to the Complaint — specifically to collect revenues from direct bookings (walk-ins, corporate-direct contracts, and the unbranded website gulfcoastrooms.com) at the very hotel properties that are the subject of the Franchise License Agreements. The establishment of Suncoast as a revenue-collection vehicle for the franchised properties is central to Verimark's claims and renders any attempt to treat Suncoast as a garden-variety unrelated third party fundamentally misleading.
Third, Coastal Palms' own initial production undercuts its separate-entity argument. The eighty-four thousand (84,000) documents produced on August 22, 2022 include numerous intercompany communications between Coastal Palms and Suncoast, including emails between Brecker (using both his @coastalpalmsfranchise.com and his @suncoastrm.com email addresses) and property-level managers concerning the allocation of revenue between Suncoast and the property-level LLCs. If Coastal Palms truly lacked access to Suncoast's records, it could not have produced these intercompany documents. The production of such documents demonstrates that Coastal Palms has access to and control over Suncoast's records and selectively produced some while withholding others.
Fourth, and dispositively, Suncoast Room Management Inc. is itself a named defendant in this action. Count VII of Verimark's Complaint asserts a claim for Unjust Enrichment against Suncoast, and Count X asserts a claim for Civil Conspiracy against Suncoast, Coastal Palms, and Brecker jointly. As a party defendant, Suncoast has its own independent obligation to respond to discovery, and the assertion that Verimark must serve a subpoena on a named defendant is wholly without basis. Suncoast's status as a party defendant eliminates any colorable argument that its financial records are beyond the scope of production obligations in this case. To the extent that your firm represents Suncoast in this action — as reflected in the Notice of Appearance filed by Nathan Whitfield III on behalf of all three Defendants on April 4, 2022 — you have a professional obligation to ensure that Suncoast complies with its discovery obligations.
B. Response to the Relevance Objection
The contention that Suncoast's financial records are not relevant to this action is, with respect, difficult to credit. Suncoast's financial records are not merely relevant; they are directly and centrally relevant to the core allegations of this case and are, in fact, indispensable to the determination of damages.
The gravamen of Verimark's claims is that Coastal Palms and Brecker systematically underreported Gross Room Revenue ("GRR") by diverting hotel revenue through Suncoast Room Management Inc. — a corporate entity created by Brecker specifically for the purpose of collecting revenues that should have been reported to Verimark as part of GRR and upon which franchise fees, royalties, and marketing contributions were owed under the FLAs.
Section 4.1 of each of the twenty-two (22) Franchise License Agreements defines Gross Room Revenue as follows:
"'Gross Room Revenue' shall mean all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue, but excluding applicable state and local room taxes collected and remitted to the appropriate taxing authority."
The operative phrase "regardless of the entity collecting such revenue" was included in the FLAs precisely to prevent the kind of revenue diversion at issue here. It expressly contemplates that revenues may be collected by an affiliated entity or management company rather than by the named franchisee or property-level LLC, and it requires that such revenues nonetheless be included in GRR. Coastal Palms' position that revenues collected by Suncoast were "properly excluded" from GRR is irreconcilable with the plain language of the contract.
Verimark's forensic accounting analysis — supported by the preliminary audit findings of Thornbury & Associates CPAs LLP, delivered on January 18, 2022 — found approximately twenty-six percent (26%) underreporting of GRR at the top ten (10) revenue-producing properties for the 2019–2021 audit period. That preliminary audit was necessarily limited in scope because Thornbury & Associates did not have access to Suncoast's financial records. Access to the full universe of Suncoast's financial records is essential to (i) quantify the total magnitude of diverted revenue across all twenty-two (22) properties and the full nine-year period, (ii) identify the specific booking channels and revenue streams that were improperly excluded from GRR, and (iii) reconstruct the true GRR for each property in each year for purposes of calculating damages.
Our current estimate of total underreported GRR across all twenty-two (22) properties for the period January 2013 through December 2021 is approximately $197.8 million. Suncoast's financial records are indispensable to validating and refining that estimate, and Coastal Palms' refusal to produce those records effectively prevents Verimark from proving its damages.
Moreover, we note that the twelve percent (12%) management fee that Suncoast retained before remitting the balance of collected revenues to the property-level LLCs is itself a component of revenue that was improperly excluded from GRR. Under FLA § 4.1, management fees deducted by Suncoast before reporting revenue to the property-level entities — and, in turn, to Verimark — constitute revenue "derived from or attributable to the rental of guest rooms" and should have been included in GRR. Suncoast's financial records are necessary to determine the total amount of management fees retained by Suncoast over the relevant period and to calculate the franchise fees, royalties, and marketing contributions that should have been paid on those amounts.
In short, Suncoast's financial records are not tangential to this case. They are at its very center.
C. Response to the Burden and Scope Objection
Coastal Palms' proposal to limit production to the period 2019 through 2021 is unacceptable. The Complaint alleges systematic underreporting of GRR beginning no later than January 2013, which corresponds to the establishment of Suncoast Room Management Inc. Limiting the production period to 2019–2021 would exclude six full years of alleged underpayments, encompassing the majority of the estimated $197.8 million in underreported GRR. Verimark's claims for breach of the Franchise License Agreements are subject to a five-year statute of limitations under Florida law, see Fla. Stat. § 95.11(2)(b), and the Complaint was filed on March 15, 2022. Verimark's breach-of-contract claims therefore reach back to at least March 2017, and its fraud and fraudulent concealment claims — which are subject to the discovery rule — reach back to the inception of the scheme in January 2013. The full 2013–2021 time period is necessary to allow Verimark to prove its claims and calculate its damages.
To the extent that Suncoast has business operations unrelated to the twenty-two (22) franchised hotel properties — a contention that Defendants have not substantiated with any specificity — Verimark is willing to discuss reasonable accommodations to reduce burden. For example, the parties could agree on a set of search terms or custodian limitations to narrow the universe of responsive documents while still ensuring that all hotel-related financial records are produced. However, the mere possibility that some Suncoast records may be non-responsive to specific requests cannot serve as a basis for withholding the entire category of records. Relevance-based culling is a routine part of e-discovery, and the e-discovery protocol agreed upon by the parties in the Joint Stipulation filed June 20, 2022 — including the use of Nexagen Document Solutions LLC for hosting and processing — already provides an efficient framework for review and production.
We further note that the burden argument rings hollow in a case involving an estimated $197.8 million in underreported revenue. Whatever costs are associated with collecting, reviewing, and producing Suncoast's financial records, they are proportional to the stakes of this litigation and to the needs of this case. See Fla. R. Civ. P. 1.280(b)(1) (Discovery must be "proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit").
D. Response to the Confidentiality Objection
We do not dispute that financial records may contain sensitive business information. However, the existing Confidentiality Stipulation and Protective Order, entered by the Court on July 6, 2022, provides robust protections for confidential business information produced in this litigation. The Protective Order restricts the use of confidential materials to this litigation, limits access to counsel of record, designated experts, and certain identified support personnel, and requires the return or destruction of confidential materials at the conclusion of the case.
If Coastal Palms believes that specific categories of Suncoast documents warrant protections beyond those provided by the existing Protective Order, Verimark is willing to discuss the addition of an "Attorneys' Eyes Only" designation tier that would further restrict access to outside counsel and testifying experts. We have proposed such a tier in other matters represented by this firm and are prepared to circulate a draft amendment to the Protective Order for your review.
However, confidentiality concerns cannot serve as a blanket basis for refusing production altogether. See Surterra Holdings Inc. v. Parallel Infrastructure Fund I, LLC, No. 2020-CA-000487, at *3 (Fla. 11th Cir. July 14, 2020) (rejecting confidentiality objection where protective order was in place and noting that "the proper remedy for confidentiality concerns is a protective order, not a refusal to produce"). The existence of a protective order, combined with Verimark's willingness to negotiate additional protections, fully addresses any legitimate confidentiality concern.
V. Proposals for Resolution
In the interest of resolving this dispute without the need for Court intervention, Verimark proposes the following:
1. Production of Suncoast Financial Records. Coastal Palms shall produce all responsive financial records of Suncoast Room Management Inc. for the period January 1, 2013 through December 31, 2021, including but not limited to: general ledgers, trial balances, bank statements (for all accounts), profit-and-loss statements, balance sheets, tax returns and related schedules, management-fee invoices and calculations, intercompany transfer records, gulfcoastrooms.com booking logs and payment processing records, OTA reconciliation reports, and records of direct-booking revenues (including walk-in, corporate-direct, and group bookings) for all twenty-two (22) franchised properties.
2. Production Deadline. Production shall be completed within fourteen (14) calendar days of the date of this letter — that is, by no later than September 22, 2022 — via the Nexagen Document Solutions LLC platform in accordance with the parties' agreed-upon e-discovery protocol.
3. Search-Term Limitations for Non-Hotel Records. If Coastal Palms identifies specific categories of Suncoast records that genuinely contain non-hotel-related business information, the parties will promptly meet and confer regarding appropriate search-term or custodian limitations to narrow the scope of review while ensuring that all hotel-related financial records are produced. Any such limitations must be agreed upon in writing by both parties.
4. Amendment to Protective Order. If Coastal Palms determines that additional confidentiality protections are necessary for specific categories of Suncoast documents beyond those provided by the existing Confidentiality Stipulation and Protective Order, the parties will jointly prepare and submit to the Court a proposed amendment to the Protective Order adding an "Attorneys' Eyes Only" designation tier, with terms to be agreed upon by the parties.
Verimark believes these proposals are reasonable and represent a good-faith effort to accommodate Coastal Palms' stated concerns while ensuring that Verimark obtains the discovery to which it is entitled.
VI. Notice of Intent to File Motion to Compel
Please be advised that if Coastal Palms does not agree to produce the Suncoast Room Management Inc. financial records on the terms outlined above, or propose an acceptable alternative, within seven (7) days of the date of this letter — that is, by no later than September 15, 2022 — Verimark intends to file a Motion to Compel Production of Suncoast Room Management Inc. Financial Records with the Court. The motion will be supported by a memorandum of law and a declaration of the undersigned attaching the relevant correspondence documenting the parties' meet-and-confer efforts, including the August 30, 2022 discovery Deficiency Letter, this letter, and any response received from your office.
In connection with the motion, Verimark will seek an award of reasonable attorneys' fees and costs incurred in connection with the preparation and prosecution of the motion, pursuant to Florida Rule of Civil Procedure 1.380(a)(4), which provides that if a motion to compel is granted, the court "shall" require the party whose conduct necessitated the motion to pay the movant's reasonable expenses, including attorneys' fees, unless the court finds that the opposing party's position was substantially justified or that other circumstances make an award of expenses unjust.
We also note that FLA § 8.2 entitles Verimark to audit the books and records of its franchisees and requires the franchisee to bear the costs of such audit if the audit reveals an underpayment exceeding two percent (2%) of reported Gross Room Revenue. The preliminary audit conducted by Thornbury & Associates CPAs LLP has already established underreporting far in excess of that threshold — approximately twenty-six percent (26%) at the top ten (10) properties for the 2019–2021 period. Coastal Palms' continued refusal to produce Suncoast's financial records impedes Verimark's contractual right to a full and complete audit and exacerbates the harm to Verimark.
VII. Reservation of Rights
Nothing in this letter shall be construed as a waiver of any rights or remedies available to Verimark under the Franchise License Agreements, applicable law, or the Florida Rules of Civil Procedure. Verimark expressly reserves all such rights and remedies, including but not limited to the right to seek sanctions, adverse inference instructions, or other relief in connection with Defendants' discovery conduct. This letter and the meet-and-confer efforts described herein are without prejudice to any arguments Verimark may raise in connection with a Motion to Compel or any other discovery motion, and Verimark does not concede the validity of any objection articulated by Coastal Palms during the September 6, 2022 telephonic conference or in its written objections and responses.
VIII. Closing
We respectfully request written confirmation of Coastal Palms' position regarding the matters addressed in this letter by no later than September 15, 2022. You may direct your response to the undersigned at the address listed above, or via email at ynakamura@calderwoodharkness.com, or by telephone at (954) 523-7818 (direct line).
Thank you for your attention to this matter. We remain willing to engage in further meet-and-confer discussions if Defendants are prepared to address the deficiencies identified herein in a meaningful way, and we trust that this dispute can be resolved cooperatively.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Yuki Nakamura Florida Bar No. 0119644 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 523-7818
Email: ynakamura@calderwoodharkness.com
Counsel for Plaintiff Verimark Hospitality Group Inc.
cc: (via email)
Priya Anand, Esq., Calderwood & Harkness LLP (Responsible Partner, FL Bar No. 0087451)
Douglas Carmichael, Esq., Calderwood & Harkness LLP (Billing Partner, FL Bar No. 0093217)
Nathan Whitfield III, Esq., Whitfield, Barrow & Crane LLP
Ethan Doyle, Esq., Whitfield, Barrow & Crane LLP

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