CALDERWOOD & HARKNESS LLP Attorneys at Law
110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is intended solely for the use of the addressee and may not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Verimark Hospitality Group Inc.
MEMORANDUM
March 10, 2022
FROM: Priya Anand, Partner (FL Bar No. 0087451), and Douglas Carmichael, Partner (FL Bar No. 0093217), Calderwood & Harkness LLP
TO: Renata Solis-Vega, Senior Vice President & General Counsel, Verimark Hospitality Group Inc.
RE: Preliminary Litigation Budget — 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
I. INTRODUCTION AND PURPOSE
This memorandum presents a preliminary litigation budget estimate for Verimark Hospitality Group Inc.'s ("Verimark" or "VHG") breach-of-contract action against Coastal Palms Franchise Holdings LLC ("Coastal Palms"), Randall "Randy" Brecker ("Brecker"), and Suncoast Room Management Inc. ("Suncoast") (collectively, "Defendants"). The action was initiated by the filing of a ten-count Complaint on March 7, 2022, in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida (Case No. 1021-00006). The Complaint seeks approximately $150 million in damages arising from the Defendants' systematic underreporting of Gross Room Revenue ("GRR") across Coastal Palms' 22-property franchise portfolio over a nine-year period spanning 2013 through 2021.
The purpose of this memorandum is to provide Verimark's General Counsel and executive leadership with a comprehensive, phase-by-phase cost estimate covering all anticipated stages of the litigation from the present through trial. Based on the Case Management Conference expected to be scheduled for June 2022 before the Honorable Richard M. Calloway, Circuit Judge, we currently anticipate a trial setting of approximately February 2024. The budget has been constructed around that timeline.
Our overall budget estimate ranges from $4.5 million to $7.5 million through trial. This range is inclusive of Calderwood & Harkness attorney fees, expert fees (principally forensic accounting and damages quantification), e-discovery vendor costs for processing, hosting, and analytics, deposition and court reporter costs, and all other reasonably anticipated litigation expenses. The midpoint of this range is approximately $6.0 million.
We emphasize that actual costs may vary materially based on a number of factors, including the scope and intensity of discovery, the volume of motion practice, the aggressiveness of defense counsel's litigation strategy, the scope of any counterclaim filed by Defendants, and the potential for settlement activity at various stages of the case. We recommend that this budget be treated as a planning estimate and reserve benchmark, subject to quarterly review and adjustment. We propose quarterly budget review calls among the engagement team and Verimark's legal and financial leadership, with the first such review anticipated for the third quarter of 2022.
II. MATTER OVERVIEW AND SCOPE
A. Case Summary
Client. Verimark Hospitality Group Inc. is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VHMK. Verimark is headquartered at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. VHG is one of the nation's leading hospitality franchise companies, operating through its Verimark Suites and Verimark Select brand families and licensing its trademarks, operating systems, and reservation platforms to franchised hotel properties throughout the southeastern United States and beyond.
Defendants. The primary defendant, Coastal Palms Franchise Holdings LLC, is a Florida limited liability company with its principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. Coastal Palms is one of Verimark's largest multi-unit franchisees, operating 22 hotel properties (comprising approximately 3,740 guest rooms) under the Verimark Suites and Verimark Select flags across Florida, Georgia, and South Carolina. The individual defendant, Randall "Randy" Brecker, is the Managing Member and controlling principal of Coastal Palms. Mr. Brecker is also the sole shareholder and president of co-defendant Suncoast Room Management Inc., a Florida corporation that served as the vehicle through which the revenue diversion scheme was executed. The corporate relationships among these entities are central to the allegations in the Complaint.
Nature of the Claims. Verimark's claims arise from Coastal Palms' systematic underreporting of GRR across its entire franchise portfolio. Under the applicable Franchise License Agreements ("FLAs"), GRR is broadly defined (at FLA § 4.1) to encompass substantially all revenue derived from the rental of guest rooms, including revenue from all booking channels — direct, online travel agency ("OTA"), corporate-direct, and walk-in. Coastal Palms was obligated to report GRR on a monthly basis and to pay royalties, marketing-fund contributions, and technology fees calculated as percentages of GRR.
The Complaint alleges that beginning no later than January 2013, Defendants diverted a substantial portion of room revenue through Suncoast Room Management Inc. and an unbranded third-party booking website, gulfcoastrooms.com, which was registered and controlled by Brecker. Revenue generated through this channel was not reported to Verimark as GRR. Instead, Defendants classified these revenues as "management fees" or "ancillary service income" payable to Suncoast, thereby excluding them from the GRR calculations on which royalties, marketing-fund contributions, and technology fees were based.
discovery of the Scheme. The underreporting scheme came to light on November 8, 2021, when Janet Kerrigan, a former regional controller for Coastal Palms, submitted a detailed whistleblower report to Verimark's franchise compliance department. Ms. Kerrigan's report described the mechanics of the revenue diversion, identified the gulfcoastrooms.com booking channel, and provided supporting documentation including internal Coastal Palms financial statements that showed material discrepancies between total room revenue and GRR reported to Verimark.
Pre-Litigation Investigation. Following receipt of the whistleblower report, Verimark retained Thornbury & Associates CPAs LLP to conduct a pre-litigation compliance audit under the audit rights provisions of the FLAs. The audit was led by Malcolm Thornbury, CPA, and encompassed a representative sample of Coastal Palms properties across multiple years. Mr. Thornbury's preliminary findings, delivered on January 18, 2022, identified approximately 26% underreporting of GRR across the audited properties. Extrapolating these findings across the full portfolio and the full nine-year period, Mr. Thornbury estimated cumulative underreported GRR of approximately $197.8 million.
Pre-Suit Notice. On February 4, 2022, Verimark issued a formal Notice of Material Breach to Coastal Palms in accordance with FLA § 14.2, demanding cure within the 30-day period provided by the FLAs. The cure period expired on March 6, 2022, without any cure having been tendered. On March 7, 2022, the Complaint was filed.
B. Damages at Issue
The Complaint seeks damages in the following categories, which are summarized below for budgeting purposes. We note that the damages quantification will be refined through the forensic accounting expert engagement described in Phase 3 of this budget.
Underpaid Royalties. Franchise royalties are calculated at 5% of GRR under FLA § 4.3(a). Applied to the estimated $197.8 million in underreported GRR, the resulting underpayment of royalties is approximately $9.89 million.
Underpaid Marketing-Fund Contributions. Marketing-fund contributions are calculated at 2.5% of GRR under FLA § 4.3(b). Applied to the same base, the resulting underpayment is approximately $4.945 million.
Underpaid Technology Fees. Per-room technology fees are assessed on all rooms in the franchise system under FLA § 4.4. Approximately 214 rooms across the portfolio were not reported to Verimark for purposes of technology-fee assessments. The resulting underpayment is approximately $1.26 million.
Subtotal — Direct Underpayments: $16.095 million.
Contractual Late-Payment Interest. FLA § 4.6 provides for late-payment interest at a rate of 1.5% per month, compounded monthly, on all amounts not paid when due. Applied to the underpayments over the relevant periods, the estimated accrued interest totals approximately $28.4 million.
Liquidated Damages. FLA § 15.3 provides for liquidated damages in the event of a material breach resulting in termination of a Franchise License Agreement. The liquidated-damages formula is three times the trailing-twelve-month royalties for each affected property. Applied across the 22-property portfolio, the maximum liquidated-damages claim is approximately $105.5 million.
The total damages claimed in the Complaint are approximately $150 million. This figure represents the aggregate of direct underpayments, late-payment interest, and liquidated damages, after certain adjustments to avoid double counting.
C. Defense Counsel
Coastal Palms and its co-defendants are represented by Whitfield, Barrow & Crane LLP, a 200-lawyer Florida-based litigation firm headquartered at 1221 Brickell Avenue, Suite 3000, Miami, Florida 33131. The lead defense attorneys are Nathan Whitfield III, Senior Partner, and Gabriela Montes, Partner. Both are experienced commercial litigators with substantial franchise and hospitality industry experience.
Based on Whitfield, Barrow & Crane's pre-suit response to the Notice of Material Breach — in which defense counsel denied any breach and asserted that Defendants' treatment of Suncoast revenues reflected a "reasonable interpretation" of the GRR definition — we expect defense counsel to mount an aggressive defense. In particular, we anticipate that Defendants will contest the scope of the GRR definition, challenge the applicability of the liquidated-damages provisions under the Florida penalty doctrine, and potentially assert a counterclaim against Verimark. The nature and scope of defense counsel's litigation posture is a significant driver of overall budget, as discussed in Section VII below.
D. Court and Judge
The case is pending in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida, and has been assigned Case No. 1021-00006. The case has been assigned to the Honorable Richard M. Calloway, Circuit Judge. Judge Calloway has a reputation as a well-prepared and efficient jurist who favors streamlined discovery and strict adherence to case-management deadlines. We anticipate a Case Management Conference in approximately June 2022, at which the Court will set a discovery schedule and a trial date. Based on Judge Calloway's typical docket, we expect the trial to be set for early 2024, likely February 2024. Our budget projections are built around this anticipated timeline.
III. CALDERWOOD & HARKNESS ENGAGEMENT TEAM AND BILLING RATES
A. Attorney Staffing
The following table sets forth the proposed engagement team, the role of each timekeeper, current hourly billing rates, and the anticipated scope of each team member's involvement in the matter.
This staffing plan reflects our commitment to appropriate leverage — using senior attorneys for strategic and advocacy tasks while deploying associates and support staff for the substantial document review and discovery workload that this matter will require. We will adjust staffing as necessary throughout the life of the matter and will report any material changes in the quarterly budget updates.
B. Note on Rate Adjustments
The billing rates set forth above are current as of March 2022. Calderwood & Harkness typically implements annual rate adjustments effective January 1 of each year. Given the anticipated multi-year duration of this matter, one or more rate adjustments may occur during the pendency of the case. For purposes of consistency and comparability, all budget estimates in this memorandum are calculated using current (March 2022) rates. Any rate adjustments will be communicated to Verimark in advance and will be reflected in the quarterly budget updates. We do not anticipate that rate adjustments will have a material effect on the overall budget range, but we will quantify any impact as part of the quarterly review process.
IV. BUDGET ASSUMPTIONS AND METHODOLOGY
The budget set forth in this memorandum is based on the following key assumptions and methodological principles. We encourage Verimark to review these assumptions carefully, as changes to any of them could materially affect the overall budget.
Trial Timeline. The budget assumes that the matter proceeds through a full jury trial in Broward County Circuit Court in approximately February 2024 — a horizon of approximately 24 months from the filing of the Complaint. This timeline is consistent with Judge Calloway's typical docket management and the complexity of the issues presented.
No Settlement Credit. No settlement credit or offset has been built into the budget estimate. While we fully expect that settlement discussions will occur at various points during the litigation, predicting the timing, likelihood, and terms of any settlement is speculative at this stage. If meaningful settlement activity occurs — whether through direct negotiation, mediation, or otherwise — total costs would likely be reduced, but the settlement process itself may involve additional mediation and negotiation expense that would partially offset savings from avoiding later-phase costs.
discovery Scope and Complexity. The budget assumes a contested, document-intensive discovery phase. This assumption is driven by the nine-year underreporting period, the 22-property portfolio, the involvement of multiple entity defendants and affiliated entities (including Suncoast Room Management Inc., Gulf Breeze Hospitality LLC, and Savannah Lodging Partners LLC), and the financial complexity of the underlying revenue-diversion scheme. We estimate that the total document universe on the Verimark side alone could potentially comprise millions of documents requiring e-discovery processing, hosting, and review. Coastal Palms' document production — particularly financial records, booking-channel data, and communications among the affiliated entities — is expected to be similarly voluminous.
Expert Engagement. The budget assumes retention of a forensic accounting and damages expert, with expert fees estimated separately from Calderwood & Harkness attorney fees. The expert engagement will encompass reconstruction of true GRR across all 22 properties for the full 2013–2021 period, quantification of underpaid royalties, marketing-fund contributions, and technology fees, and computation of late-payment interest under the FLA § 4.6 compounding methodology.
Anticipated Counterclaim. Based on defense counsel's pre-suit correspondence and general litigation posture, we believe it is likely that Coastal Palms will file a counterclaim against Verimark. We anticipate a counterclaim in the range of up to $12 million, likely alleging brand-standard violations, failure to provide adequate marketing support, or similar franchisee grievances. The budget includes an allowance for the additional discovery, expert analysis, and briefing that a counterclaim would necessitate.
Appellate Costs Excluded. This budget does not include any estimate for potential appellate costs, whether arising from an interlocutory appeal or a post-trial appeal. If appellate proceedings become likely, we will prepare a separate appellate budget for Verimark's consideration.
V. PHASE-BY-PHASE BUDGET BREAKDOWN
The following sections present a detailed breakdown of the anticipated litigation budget, organized into six discrete phases. For each phase, we identify the anticipated timeframe, the principal tasks to be performed, the estimated hours, the estimated attorney fees, the estimated expenses, and the phase subtotal. Where phases overlap in time, we have noted the overlap and have allocated costs to the phase in which the primary work is performed.
Phase 1: Pleadings and Initial Case Management
Timeframe: March 2022 – June 2022 (approximately 4 months)
This initial phase encompasses the activities required to establish the case, respond to Defendants' anticipated pleadings, and prepare for the Case Management Conference at which the discovery schedule and trial date will be set.
Tasks:
Complaint and Initiating Filings. The ten-count Complaint was prepared and filed on March 7, 2022. This work is substantially complete. Remaining tasks include finalization of civil cover sheets and issuance of summonses for service on all three Defendants. Service will be effectuated on Coastal Palms Franchise Holdings LLC through its registered agent, Garrison Registered Agents LLC, located at 100 S. Ashley Drive, Suite 600, Tampa, Florida 33602. Separate service will be made on Randall Brecker individually and on Suncoast Room Management Inc. at their respective addresses of record.
Defendants' Responsive Pleadings. We anticipate that Defendants will file an Answer asserting numerous affirmative defenses, including defenses based on the scope of the GRR definition, waiver, estoppel, laches, and the unenforceability of the liquidated-damages provisions as penalties under Florida law. We further anticipate a Counterclaim, as discussed above. Upon receipt of Defendants' responsive pleadings, we will conduct a thorough analysis and prepare Verimark's Answer to the Counterclaim.
Case Management Conference. We will attend the Case Management Conference before Judge Calloway, expected in June 2022, and will prepare a joint Case Management Report in coordination with defense counsel. This report will address proposed discovery schedules, deadlines for expert disclosures, and a trial date. We will advocate for a discovery schedule that allows adequate time for the complex discovery anticipated in this matter while maintaining an expeditious path to trial.
Litigation Hold Coordination. We will work closely with Verimark's in-house legal team and IT department to ensure that all electronically stored information ("ESI") relevant to this matter is identified, preserved, and made subject to appropriate litigation holds. We have already provided preliminary litigation-hold guidance, and we will formalize this process with a comprehensive written litigation-hold memorandum to be distributed to all relevant Verimark custodians.
Initial Document Collection. We will begin the process of collecting documents from Verimark that will be relevant to the prosecution of the claims and to responding to Defendants' anticipated discovery requests. Priority document categories include franchise files for all 22 Coastal Palms properties, GRR reports and royalty payment records for the 2013–2021 period, the Thornbury & Associates audit materials and working papers, and all correspondence with and relating to Janet Kerrigan's whistleblower report.
Insurance Coverage Notification. We will coordinate with Verimark's risk management team to ensure timely notification of the litigation to Pinnacle Indemnity Insurance Co. under Policy No. PLI-VHG-2021-08874. A coverage notification letter will be sent promptly (currently anticipated for March 14, 2022). Any resulting coverage for defense or indemnity costs will be factored into future budget updates.
Estimated Hours: 400 – 550 hours
Estimated Attorney Fees: $225,000 – $325,000
Estimated Expenses: $15,000 – $25,000
Expenses for this phase include filing fees (approximately $1,900), service-of-process costs for three Defendants, initial document-management and e-discovery platform setup costs, and incidental research and communication expenses.
Phase 1 Subtotal: $240,000 – $350,000
Phase 2: Fact discovery
Timeframe: July 2022 – March 2023 (approximately 9 months)
Fact discovery is expected to be the most time-intensive and costly phase of this litigation. The nine-year underreporting period, the 22-property portfolio, the multi-entity corporate structure of the Defendants, and the financial complexity of the revenue-diversion scheme all contribute to a large and complex discovery process. This phase will consume the bulk of the total budget and will require substantial attorney, paralegal, and contract-attorney resources.
Tasks:
Written discovery — Propounding. We will draft and serve comprehensive written discovery on all Defendants. We anticipate serving approximately 25 interrogatories on Coastal Palms and 15 interrogatories on Randall Brecker individually, addressing the mechanics of the revenue-diversion scheme, the corporate structure and operations of Suncoast Room Management, the purpose and operation of the gulfcoastrooms.com booking website, and the methodology used to calculate and report GRR to Verimark. We further anticipate serving approximately 140 or more Requests for Production on Coastal Palms, targeting the following categories of documents, among others:
• Financial records and statements for all 22 franchise properties, 2013–2021;
• GRR calculation worksheets and supporting documentation;
• All agreements between Coastal Palms and Suncoast Room Management Inc.;
• Bank statements and financial records for Suncoast Room Management Inc.;
• OTA contracts and booking-channel data (Aldermere Technologies, Bramwell Holdings, Drayton Software, etc.);
• Records related to the gulfcoastrooms.com website, including booking data, revenue records, and customer information;
• Tax returns for Coastal Palms, Suncoast, and affiliated entities;
• Internal communications (email, text messages, memoranda) regarding revenue reporting to Verimark;
• Communications with Whitfield, Barrow & Crane or other counsel regarding revenue-reporting practices (to the extent not privileged).
We will also draft and serve approximately 40 to 50 Requests for Admission targeting key factual and legal predicates, including Coastal Palms' acknowledgment of the GRR definition, its control of Suncoast, and the existence and operation of the gulfcoastrooms.com booking channel.
Written discovery — Responding. We anticipate that Coastal Palms will serve extensive discovery on Verimark, including interrogatories, requests for production, and requests for admission. We will coordinate with Verimark's in-house team to identify responsive documents, prepare objections as appropriate, and produce responsive documents in an organized and defensible manner.
Third-Party discovery. We anticipate the need for third-party subpoena practice. Our primary third-party target is Ironclad National Bank, where Devon Schultz serves as Senior Vice President in the commercial lending division. Coastal Palms maintains approximately $94 million in outstanding mortgage loans across 18 of its 22 properties with Ironclad. The financial statements, loan applications, and operating statements submitted by Coastal Palms to Ironclad in connection with those loans are expected to contain revenue figures that are materially different from — and materially higher than — the GRR figures reported to Verimark during the same periods. These documents are potentially among the most powerful evidence of the systematic underreporting scheme. We will serve subpoenas duces tecum on Ironclad to obtain these records.
Depending on the discovery landscape as it develops, we may also need to serve third-party subpoenas on OTA platforms (such as Hollowell Industries) or corporate-direct booking customers to obtain independent verification of room revenue generated at Coastal Palms properties during the relevant period. The cost of such additional third-party discovery is factored into the high end of the budget range.
discovery Disputes and Motion Practice. Based on Defendants' pre-suit posture, we anticipate that discovery will be contentious. We expect Coastal Palms to resist production of Suncoast Room Management Inc. financial records on the grounds that Suncoast is a separate legal entity not party to the Franchise License Agreements. We anticipate filing a motion to compel production of Suncoast records, supported by evidence that Suncoast is Brecker's alter ego and that its financial records are directly relevant to the claims at issue. We also anticipate meet-and-confer correspondence regarding the adequacy and completeness of Coastal Palms' discovery responses, potential disputes over the scope of ESI search terms and custodians, and possible protective-order disputes regarding the confidentiality of financial records.
E-discovery Processing, Hosting, and Review. Given the anticipated volume of the document universe (estimated at 1 to 3 million documents when both sides' productions are included), we will engage an e-discovery vendor for processing, hosting, and analytics. The vendor engagement will include ingestion of native-format ESI, de-duplication, application of agreed-upon search terms and technology-assisted review protocols, and hosting on a document review platform. Our associates, paralegals, and contract attorneys will conduct the substantive review of documents identified through the processing workflow, coding documents for relevance, privilege, and issue categories.
We will negotiate and file a joint e-discovery protocol or stipulation with defense counsel, establishing agreed-upon procedures for the format of productions, search methodology, privilege logging, and clawback provisions.
Fact Depositions. We estimate that 12 to 16 fact depositions will be required during this phase. The following witnesses are among those we anticipate deposing:
• Randall "Randy" Brecker — Managing Member, Coastal Palms; sole shareholder and president of Suncoast Room Management Inc. (2-day deposition anticipated given his central role);
• Theresa Brecker — CFO, Coastal Palms (Brecker's spouse); expected to testify regarding financial reporting, GRR calculations, and Suncoast transactions;
• Nolan Prescott — COO, Coastal Palms; expected to testify regarding property operations, booking channels, and the gulfcoastrooms.com website;
• Janet Kerrigan — Former Regional Controller, Coastal Palms (whistleblower); expected to testify regarding discovery of the underreporting scheme, internal financial practices, and the documents she provided to Verimark;
• Property-level general managers, controllers, and accountants — Up to 8–10 witnesses from representative properties, to establish the mechanics of the revenue-diversion scheme at the property level and to authenticate financial records;
• Ironclad National Bank representative (Devon Schultz or designee) — To authenticate loan documents and financial statements submitted by Coastal Palms.
For each deposition, we will prepare comprehensive deposition outlines, assemble document binders for use at the deposition, and conduct witness preparation sessions for any Verimark-affiliated witnesses. Following each deposition, we will prepare deposition summary memoranda for internal use, identifying key admissions, areas of strength, and areas requiring further investigation.
Deposition Defense. We anticipate that Defendants will notice depositions of multiple Verimark witnesses, including potentially Renata Solis-Vega, Martin Holcomb, Deidre Langston (VP, Franchise Compliance), and franchise compliance auditors. We will prepare these witnesses thoroughly for their depositions and will defend all noticed depositions.
Ongoing Client Reporting. Throughout the discovery phase, we will provide regular status updates to Renata Solis-Vega, including periodic discovery status memoranda summarizing key developments, significant documents produced or received, deposition highlights, and strategic assessments.
Estimated Hours: 4,200 – 5,800 hours
This estimate reflects the substantial document review burden that this matter will impose. The bulk of the hours in this phase will be incurred by associates, paralegals, and contract attorneys engaged in document review, deposition preparation, and discovery management.
Estimated Attorney Fees: $2,200,000 – $3,200,000
Estimated Expenses:
Phase 2 Subtotal: $2,820,000 – $4,250,000
Phase 3: Expert Engagement and Expert discovery
Timeframe: December 2022 – June 2023 (overlaps with the late stages of fact discovery)
The forensic accounting and damages expert engagement is a critical component of this litigation. Given the complexity of the GRR reconstruction analysis across 22 properties and nine years, and the need to quantify damages with precision sufficient to withstand Daubert-type challenges and jury scrutiny, this phase will involve significant attorney time and substantial expert fees.
Tasks:
Expert Retention. We recommend retaining Ridgeline Forensic Advisory LLC for the forensic accounting and damages engagement. The engagement would be led by Dr. Sharon Kettlewell, CPA/CFF, CFE. Dr. Kettlewell is a nationally recognized forensic accounting expert with extensive experience in franchise revenue disputes, hospitality industry financial analysis, and complex damages quantification. Her principal rate is estimated at $475 per hour, with supporting staff billed at approximately $325 per hour. We have worked with Dr. Kettlewell on prior engagements and have confidence in both the quality of her analysis and her effectiveness as an expert witness. A separate retention letter will be prepared for Verimark's review and approval at the appropriate time, estimated for December 2022.
Scope of Expert Analysis. The expert engagement will encompass the following principal work streams:
• Reconstruction of true GRR across all 22 Coastal Palms properties for the period 2013 through 2021, using all available data sources including Coastal Palms' internal financial records, Suncoast Room Management records, gulfcoastrooms.com booking data, OTA platform data, Ironclad National Bank loan documents, and tax returns;
• Quantification of underpaid royalties (5% of underreported GRR), marketing-fund contributions (2.5% of underreported GRR), and technology fees (based on unreported rooms);
• Computation of late-payment interest under FLA § 4.6, applying the 1.5%-per-month compounded methodology to each period of underpayment;
• Computation of liquidated damages under FLA § 15.3 (three times trailing-twelve-month royalties per property);
• Coordination with and validation of the preliminary audit findings of Thornbury & Associates CPAs LLP.
Data Coordination and Analysis Support. We will coordinate closely with Dr. Kettlewell's team to ensure that all necessary data sets are collected, organized, and provided in usable format. This coordination will be led by Yuki Nakamura and Carlos Espinoza, with partner oversight from Priya Anand.
Expert Strategy Memoranda. We will prepare internal memoranda addressing the scope of the expert's report, the key data sets on which the analysis will rely, the methodology to be employed, and the coordination between the expert's analysis and the Thornbury preliminary audit findings. These memoranda will guide the expert engagement and will serve as a basis for discussion with Verimark's leadership regarding the damages presentation strategy.
Draft Expert Report Review. We will review and provide detailed comments on Dr. Kettlewell's draft expert report before finalization. This review will address the accuracy and completeness of the analysis, the persuasiveness of the methodology and presentation, and any potential vulnerabilities that defense counsel may exploit.
Defendant's Expert. We anticipate that Defendants will retain their own damages expert, likely a forensic accountant or economist who will challenge the scope and methodology of our GRR reconstruction, argue for a narrower definition of GRR, and propose a lower damages figure. We will review and analyze Defendants' expert report thoroughly and prepare a detailed rebuttal strategy.
Rebuttal Expert Report. Dr. Kettlewell will prepare a rebuttal report addressing the opinions and methodology of Defendants' expert. We will coordinate the preparation of this rebuttal report and review it in draft.
Expert Depositions. We anticipate two expert depositions during this phase — the deposition of Dr. Kettlewell by defense counsel (which we will defend) and our deposition of Defendants' damages expert (which we will take). We will prepare Dr. Kettlewell extensively for her deposition, including a mock deposition session addressing anticipated cross-examination topics.
Estimated Hours (Calderwood & Harkness attorney time): 600 – 900 hours
Estimated Attorney Fees: $350,000 – $550,000
Estimated Expert Fees (Ridgeline Forensic Advisory LLC): $1,200,000 – $2,000,000
The expert fee estimate reflects the comprehensive scope of the forensic analysis — reconstruction of revenue data across 22 properties over a nine-year period, using multiple data sources and applying multiple damages methodologies. The estimate includes preparation of the initial expert report, the rebuttal expert report, and deposition testimony preparation. We recognize that this is a significant expense; however, the damages quantification is the core of this case, and the quality and credibility of the expert analysis will be a decisive factor at trial. We will work closely with Dr. Kettlewell to manage costs and will provide regular updates on expert-fee expenditures as part of the quarterly budget review.
Estimated Expert Deposition Costs: $15,000 – $25,000
Phase 3 Subtotal: $1,565,000 – $2,575,000
Phase 4: Dispositive Motions
Timeframe: August 2023 – February 2024 (approximately 6 to 7 months)
Following the close of discovery, we intend to pursue a strategic motion for partial summary judgment targeting liability on the core breach-of-contract claims. A favorable ruling on summary judgment could narrow the issues for trial, potentially catalyze settlement discussions, and significantly strengthen Verimark's bargaining position.
Tasks:
Legal Research. We will conduct extensive legal research on the key issues likely to be contested on summary judgment, including:
• Florida law on franchise revenue-reporting obligations and the interpretation of contractual GRR definitions;
• The enforceability and scope of franchisor audit rights under Florida franchise law;
• The standard for material breach under Florida contract law, including the distinction between material and immaterial breach;
• The enforceability of liquidated-damages provisions under FLA § 15.3, with particular attention to the Florida penalty doctrine and the test for whether a liquidated-damages provision constitutes an unenforceable penalty under Florida law (a defense we anticipate Coastal Palms will raise);
• The alter ego and instrumentality doctrines as they relate to Brecker's personal liability and the availability of discovery into Suncoast's records.
Strategic Assessment. We will assess the strength of a partial summary judgment motion on liability with respect to Counts I and II of the Complaint (breach of contract for underpaid royalties and underpaid marketing-fund contributions, respectively). The GRR definition in FLA § 4.1 is broadly drafted and, in our preliminary assessment, unambiguously encompasses the revenue that was diverted through Suncoast and gulfcoastrooms.com. Combined with the documentary and deposition evidence we expect to develop during discovery — including the Ironclad National Bank loan documents showing higher revenue figures — we believe there is a strong basis for a finding of breach as a matter of law.
Statement of Undisputed Material Facts. We will prepare a detailed Statement of Undisputed Material Facts, which we estimate will include 100 or more numbered paragraphs supported by specific record citations to deposition transcripts, documentary exhibits, and expert reports.
Memorandum of Law. We will prepare a comprehensive Memorandum of Law in Support of Verimark's Motion for Partial Summary Judgment, which we estimate will be approximately 40 or more pages. The memorandum will address liability on the core breach-of-contract claims, the proper interpretation of the GRR definition, the applicability of Defendants' anticipated affirmative defenses, and — if strategically appropriate — the enforceability of the liquidated-damages provisions.
Response to Defense Motions. We anticipate that Defendants will file an opposition to our motion and may file a cross-motion for summary judgment on certain issues, including potentially the enforceability of the liquidated-damages clause or the counterclaim. We will prepare a thorough response in opposition to any defense cross-motion.
Reply Memorandum. Following receipt of Defendants' opposition, we will prepare a reply memorandum addressing the arguments raised.
Oral Argument. We will prepare extensively for oral argument before Judge Calloway, including preparation of a bench memorandum, anticipation of questions from the Court, and preparation of talking points for the argument. Priya Anand will argue the motion.
Estimated Hours: 1,200 – 1,800 hours
Estimated Attorney Fees: $700,000 – $1,100,000
Estimated Expenses: $10,000 – $20,000
Expenses for this phase are relatively modest and principally comprise research database costs (Westlaw, Sundial Solutions), printing and binding of motion papers, and courier/filing costs.
Phase 4 Subtotal: $710,000 – $1,120,000
Phase 5: Trial Preparation
Timeframe: December 2023 – February 2024 (approximately 2 to 3 months of intensive preparation, overlapping with the late stages of the dispositive motions phase)
Trial preparation is a concentrated, resource-intensive period during which the entire engagement team will focus on readying the case for presentation to a jury.
Tasks:
Trial Exhibits. We will identify, organize, and prepare the trial exhibits from the documentary record developed during discovery. Given the anticipated volume of produced documents (potentially millions), the process of selecting and organizing trial exhibits will require substantial effort. We estimate that the trial exhibit list will include hundreds of exhibits, including franchise agreements, GRR reports, Suncoast financial records, gulfcoastrooms.com booking data, bank records, internal communications, and the expert reports.
Witness Lists and Deposition Designations. We will prepare Verimark's witness list and, for any witnesses who will not be available to testify live at trial, designations of deposition testimony for presentation at trial. We will also review and object to Defendants' deposition designations.
Motions in Limine. We will prepare and file motions in limine seeking to exclude or limit certain categories of evidence that Defendants may attempt to introduce, including, for example, evidence of Verimark's alleged brand-standard deficiencies (to the extent offered to justify the revenue diversion), parol evidence regarding the GRR definition, and any expert testimony that does not meet the Daubert reliability standard.
Witness Preparation Sessions. We will conduct thorough preparation sessions with all Verimark witnesses expected to testify at trial. Key witnesses include:
• Renata Solis-Vega — Senior Vice President & General Counsel, Verimark (anticipated testimony regarding the franchise relationship, the whistleblower report, the investigation, and the pre-suit notice and cure process);
• Martin Holcomb — Executive Vice President & CFO, Verimark (anticipated testimony regarding financial impact of the underreporting on Verimark's revenues and the damages calculations);
• Deidre Langston — Vice President, Franchise Compliance, Verimark (anticipated testimony regarding Verimark's franchise compliance audit program and the detection of the underreporting scheme);
• Dr. Sharon Kettlewell — Forensic accounting and damages expert (anticipated testimony regarding her GRR reconstruction analysis and damages opinions);
• Janet Kerrigan — Former Regional Controller, Coastal Palms (anticipated testimony as a fact witness regarding her observations of the revenue-diversion scheme and her decision to report it).
Trial Brief and Jury Instructions. We will prepare a comprehensive trial brief for the Court and will draft proposed jury instructions addressing the elements of each claim, the burden of proof, and the applicable damages standards.
Pretrial Conference. We will attend the pretrial conference before Judge Calloway and will file all required pretrial submissions, including the pretrial stipulation, exhibit lists, witness lists, and proposed jury instructions.
Trial Logistics. We will coordinate all trial logistics, including establishment of a war room near the courthouse, trial technology (presentation software, document display systems, and demonstrative aids), and daily transcript arrangements.
Estimated Hours: 800 – 1,200 hours
Estimated Attorney Fees: $475,000 – $725,000
Estimated Expenses: $50,000 – $100,000
Expenses for this phase include trial technology setup and support, preparation of demonstrative exhibits and visual aids, war room rental and setup, travel expenses for witnesses and team members, and costs associated with daily transcript orders during the trial preparation period.
Phase 5 Subtotal: $525,000 – $825,000
Phase 6: Trial
Timeframe: February 2024 (estimated 2 to 3 week jury trial)
This phase encompasses the trial itself, from jury selection through post-trial motions. The full engagement team will be deployed during trial. We estimate that the trial will last approximately two to three weeks, depending on the number of witnesses, the length of cross-examinations, and any issues that arise during the proceedings.
Tasks:
Jury Selection (Voir Dire). We will conduct jury selection with a focus on identifying jurors who are receptive to complex financial evidence and who understand the importance of contractual obligations. We may recommend the engagement of a jury consultant, depending on the strategic assessment closer to trial; jury consultant fees, if any, would be addressed in a future budget update.
Opening Statements. Priya Anand will deliver the opening statement, presenting the jury with a clear and compelling narrative of Coastal Palms' systematic underreporting scheme and its financial impact on Verimark.
Plaintiff's Case-in-Chief. We will present Verimark's case-in-chief through a combination of fact witnesses, documentary evidence, and expert testimony. The presentation will be designed to establish, step by step, the existence of the franchise agreements and the GRR-reporting obligations, the mechanics of the revenue-diversion scheme through Suncoast and gulfcoastrooms.com, the magnitude and duration of the underreporting, and the resulting damages. Dr. Kettlewell's expert testimony will be a centerpiece of the damages presentation.
Cross-Examination of Defense Witnesses. We will conduct cross-examinations of Defendants' witnesses, including Randall Brecker, Theresa Brecker, Nolan Prescott, and Defendants' damages expert. The cross-examinations will be designed to highlight inconsistencies between Defendants' testimony and the documentary record, and to undermine the credibility of Defendants' "reasonable interpretation" defense.
Closing Arguments. Priya Anand will deliver the closing argument, summarizing the evidence, addressing Defendants' defenses, and requesting a verdict in Verimark's favor on all claims.
Post-Trial Motions. If necessary, we will prepare and file post-trial motions, including motions for judgment as a matter of law, motions for new trial, or motions to amend the judgment. We will also respond to any post-trial motions filed by Defendants.
Estimated Hours: 600 – 1,000 hours
This estimate reflects full engagement-team deployment for the duration of the trial. All team members — partners, associates, and paralegals — will be fully dedicated to the trial during this period.
Estimated Attorney Fees: $375,000 – $625,000
Estimated Expenses: $25,000 – $50,000
Expenses include daily transcript costs, trial technology support (courtroom presentation equipment, real-time transcription feeds), and local expenses (meals, lodging for out-of-town team members and witnesses, parking, and transportation).
Phase 6 Subtotal: $400,000 – $675,000
VI. CONSOLIDATED BUDGET SUMMARY
The following table consolidates the phase-by-phase budget estimates presented above.
The rounded budget range of $4.5 million to $7.5 million reflects the all-in estimate inclusive of Calderwood & Harkness attorney fees, expert fees (principally Ridgeline Forensic Advisory LLC), e-discovery vendor costs, deposition and court reporter costs, travel expenses, and all other reasonably anticipated litigation expenses.
The midpoint estimate is approximately $6.0 million.
We recommend that Verimark establish reserves at the midpoint of this range for financial planning purposes, while maintaining awareness of the upper bound in the event that cost-escalating factors (discussed below) materialize.
VII. KEY BUDGET DRIVERS AND VARIABLES
The budget range presented above reflects our best estimate based on current information and assumptions. However, several variables could cause actual costs to move toward the high end or the low end of the range. We identify the most significant of these variables below.
A. Factors That Could Push Costs Toward the High End
Aggressive discovery Posture by Defense Counsel. Whitfield, Barrow & Crane LLP is a well-resourced litigation firm with a reputation for aggressive discovery practice. If defense counsel adopts a particularly combative approach — filing extensive objections, resisting production of key documents, and forcing multiple rounds of motions to compel and protective-order disputes — the discovery phase costs could escalate significantly. Additional motion practice beyond what is currently budgeted could add $200,000 to $500,000 in attorney fees.
Larger-Than-Anticipated Document Universe. Our current estimate assumes a document universe of 1 to 3 million documents. If the actual volume — particularly from Coastal Palms and its affiliated entities, including Suncoast Room Management Inc., Gulf Breeze Hospitality LLC, and Savannah Lodging Partners LLC — exceeds this estimate, e-discovery processing and hosting costs will increase proportionally, and additional document review hours will be required.
Additional Third-Party discovery. The current budget contemplates third-party subpoenas principally to Ironclad National Bank. If additional third-party discovery proves necessary — for example, subpoenas to OTA platforms such as Hollowell Industries or Ridgeway & Co., or to corporate-direct booking customers — the costs of issuing and enforcing those subpoenas, and of reviewing the resulting productions, would add to the budget.
Extended Depositions. We have estimated 12 to 16 fact depositions, with Randall Brecker's deposition anticipated to span two days. If additional depositions are required, or if depositions of key witnesses extend beyond their anticipated length due to the complexity of the testimony or obstruction by defense counsel, deposition costs and associated attorney time will increase.
Complex Expert Analysis. The forensic reconstruction of GRR across all 22 properties for the full nine-year period is inherently complex. If the available data proves incomplete or unreliable, requiring Dr. Kettlewell's team to employ more labor-intensive reconstruction methodologies, expert fees could approach or exceed the upper bound of the estimate.
Substantial Counterclaim. If Coastal Palms files a substantial counterclaim — potentially seeking up to $12 million for alleged brand-standard violations, as suggested by defense counsel's pre-suit correspondence — the additional discovery, expert analysis, and briefing required to defend against the counterclaim will increase costs across multiple budget phases.
Extended Trial. If the trial extends beyond the estimated two to three weeks — due to a larger number of witnesses, complex evidentiary disputes, or other factors — the trial-phase costs will increase accordingly.
B. Factors That Could Reduce Costs