PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION
MEMORANDUM
FROM: Priya Anand, Partner, Calderwood & Harkness LLP (FL Bar No. 0087451)
TO: Dr. Sharon Kettlewell, CPA/CFF, CFE, Ridgeline Forensic Advisory LLC
CC: Yuki Nakamura, Associate, Calderwood & Harkness LLP; Carlos Espinoza, Associate, Calderwood & Harkness LLP
DATE: June 19, 2023
RE: Deposition Preparation — 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
PRIVILEGE LEGEND: This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is intended solely for the use of the addressee in connection with the above-captioned litigation. Do not distribute, copy, or disclose without prior authorization from Calderwood & Harkness LLP.
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I. Introduction and Purpose
Dear Dr. Kettlewell,
The purpose of this memorandum is to prepare you comprehensively for your expert deposition, which is scheduled for Monday, June 26, 2023. Your deposition is designated as Day 1 of expert depositions in this matter; the deposition of the defense's retained expert, Prof. Grant Hargrove, is set for the following day, June 27, 2023. This memorandum addresses the procedural framework for the deposition, the substantive topics you should expect to be examined on, guidance for responding to anticipated lines of cross-examination, the contents of the exhibit binder we will prepare for your use, and the agenda for our in-person preparation session on June 22, 2023.
The deposition will be taken by defense counsel from Whitfield, Barrow & Crane LLP. We anticipate that Nathan Whitfield III, Senior Partner, will serve as the lead examiner. Mr. Whitfield is a seasoned trial attorney with extensive experience in franchise litigation and commercial disputes. His style is methodical and persistent; he tends to build incrementally toward concessions through a series of seemingly innocuous questions before pivoting to more challenging hypotheticals. We also anticipate possible questioning by Gabriela Montes, a Partner at the firm who has handled the bulk of discovery and pretrial motions in this case, and by Ethan Doyle, an Associate who has been closely involved in the defense's expert-retention process. Ms. Montes is more aggressive in her questioning style and may probe the technical underpinnings of your methodology, while Mr. Doyle typically handles foundational and document-authentication questions.
The deposition will be conducted at Calderwood & Harkness LLP's Fort Lauderdale office, located at 110 SE 6th Street, Suite 2800, Fort Lauderdale, FL 33301, in Conference Room 28A. Under Florida Rule of Civil Procedure 1.310(a), expert depositions are limited to a maximum of seven (7) hours of actual testimony in a single day. We expect defense counsel to use the full allotment. A court reporter has been arranged by Whitfield, Barrow & Crane LLP, and we have been informed that a videographer may also be present to record the proceedings.
As you know, your Expert Report was served on April 14, 2023, and your Rebuttal Expert Report responding to Prof. Hargrove's opinions was served on June 9, 2023. Both reports, together with their appendices, schedules, and supporting workpapers, will form the centerpiece of the deposition examination. Defense counsel's overarching objective will be to challenge the methodology, data inputs, and ultimate conclusions of both reports in order to lay the groundwork for a potential Daubert-style motion to exclude your testimony or, failing that, to generate impeachment material for use at trial.
Your qualifications are formidable and should instill confidence as you approach this deposition. You bring 28 years of forensic accounting experience, including your designations as a Certified Public Accountant with a specialization in Financial Forensics (CPA/CFF) and as a Certified Fraud Examiner (CFE). You have testified as an expert witness in more than forty matters in state and federal courts, and your firm, Ridgeline Forensic Advisory LLC, is nationally recognized in franchise revenue disputes. While defense counsel will inevitably test your credentials and probe for potential bias, your record speaks for itself and provides a solid foundation for your testimony.
This memorandum is organized as follows: Section II provides a concise overview of the key opinions in your Expert Report and Rebuttal Expert Report; Section III identifies and analyzes the specific cross-examination topics we anticipate; Section IV sets forth general deposition guidance and ground rules; Section V describes the exhibit binder we will prepare; Section VI details the agenda for our June 22 preparation session; Section VII summarizes the key themes you should reinforce throughout your testimony; and Section VIII provides logistical information for deposition day.
Please review this memorandum carefully in advance of our preparation session. If you have any questions or concerns after reviewing this document, please contact me directly at the number provided under separate cover.
II. Overview of Dr. Kettlewell's Expert Opinions
This section summarizes the principal opinions set forth in your Expert Report and Rebuttal Expert Report. Although you are intimately familiar with the substance of your analyses, this summary is intended to provide a quick-reference framework and to highlight the specific figures, ranges, and conclusions that defense counsel is most likely to target during the deposition.
A. Expert Report (April 14, 2023) — Key Conclusions
Your Expert Report, which was served on April 14, 2023, addresses the damages sustained by Verimark Hospitality Group Inc. ("Verimark") as a result of systematic underreporting of Gross Room Revenue ("GRR") by Coastal Palms Franchise Holdings LLC and its affiliated entities ("Coastal Palms") across their portfolio of 22 franchised hotel properties operating under the Verimark brand. The portfolio consists of 18 Verimark Suites properties and 4 Verimark Select properties, located in Florida and Georgia, covering the period from 2013 through 2021.
Your report concludes that the cumulative underreported GRR across all 22 properties during this nine-year period totals $197.8 million. This underreporting was achieved principally through two distinct mechanisms:
(1) Diversion of direct-booking revenue through Suncoast Room Management Inc. Revenues generated through walk-in guests, corporate-direct contracts, and bookings made through the website gulfcoastrooms.com were routed through Suncoast Room Management Inc. ("Suncoast"), a Florida corporation controlled by Randall Brecker, the managing member and ultimate beneficial owner of the Coastal Palms enterprise. Suncoast retained a 12% management fee on all revenues it collected before remitting the remaining balance to the property-level limited liability companies. None of the revenues collected by Suncoast — neither the 12% fee nor the 88% remittance — was included in the GRR figures reported to Verimark for purposes of calculating royalties, marketing-fund contributions, or technology fees.
(2) Improper netting of OTA payments. Coastal Palms classified payments received from online travel agencies ("OTAs") under net-rate arrangements as "commissions receivable" and deducted the full OTA commission amount from reported GRR, thereby reporting only the net amount received from OTA bookings rather than the gross booking revenue attributable to the rental of guest rooms.
The underreporting percentage across the 22-property portfolio ranged from 22% to 31%, with variation by individual property and by year. To illustrate the magnitude of the underreporting in a single fiscal year, your report examines FY 2021 in detail: Coastal Palms reported GRR of $112.4 million for that year, whereas the estimated true GRR — based on your forensic analysis of all available financial records — was $145.6 million, yielding $33.2 million in underreported GRR for FY 2021 alone.
Based on the cumulative underreported GRR of $197.8 million, your report calculates the following categories of damages:
The technology-fee underpayment of $1.26 million arises from the failure to report 214 guest rooms that were added to four specific properties through renovation and expansion projects. Under FLA § 4.3, Coastal Palms was obligated to pay Verimark a technology fee of $12.50 per room per month for all rooms at each franchised property. The 214 unreported rooms were in service for an average of approximately 47 months before Verimark's investigation identified the discrepancy.
The contractual late-payment interest of $28.4 million is computed at the rate of 1.5% per month, compounded monthly, as expressly stated in FLA § 4.6. This interest is calculated on the direct underpayment amounts from the date each payment was due (the fifteenth day of the month following each reporting period) through the projected judgment date.
The liquidated-damages figure of $105.5 million is computed under FLA § 15.3, which provides for liquidated damages in the amount of three times the trailing-twelve-month corrected royalties for each property upon termination of a franchise license agreement due to an incurable material breach. The per-property trailing-twelve-month corrected royalty figures vary across the 22 properties, reflecting differences in property size and revenue levels, and aggregate to the $105.5 million total.
B. Rebuttal Expert Report (June 9, 2023) — Key Conclusions
Your Rebuttal Expert Report, served on June 9, 2023, responds to the expert report of Prof. Grant Hargrove, which was served by the defense on May 15, 2023. Prof. Hargrove opined that the maximum underpayment attributable to Coastal Palms' GRR reporting practices was only $6.2 million — a figure approximately 96% lower than the total damages you calculated.
Your rebuttal report addresses the critical flaws in Prof. Hargrove's analysis on several fronts:
First, you demonstrated that Prof. Hargrove adopted a narrowed GRR definition that excluded walk-in cash payments and used only net OTA revenue. This narrowed definition directly contradicts the plain language of FLA § 4.1, which defines GRR as "all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue." Prof. Hargrove's approach effectively reads out of the FLA definition the words "any booking channel, direct or indirect" and "regardless of the entity collecting such revenue," which are the very provisions that capture the Suncoast-diverted revenues and gross OTA booking amounts at issue in this case.
Second, you identified specific methodological errors in Prof. Hargrove's analysis. Among other things, Prof. Hargrove failed to account for revenues collected by Suncoast Room Management Inc. at all, treating Suncoast as though it were an unrelated third party despite the undisputed evidence that Randall Brecker serves as managing member or president of every entity in the Coastal Palms corporate structure. Additionally, Prof. Hargrove employed improper statistical sampling techniques in his attempt to independently verify GRR figures, including the use of a convenience sample rather than a random or stratified sample, and the application of confidence intervals that were inappropriately wide for the dataset in question.
Third, your rebuttal report confirmed the reliability of the extrapolation methodology used in your primary Expert Report. The extrapolation extends the findings from the 10 properties initially audited by Thornbury & Associates CPAs LLP (Malcolm Thornbury, CPA, lead audit partner) to all 22 properties across the full 2013–2021 period. Thornbury's preliminary audit findings, delivered on January 18, 2022, identified approximately 26% underreporting for the 10-property sample during the 2019–2021 period. Your rebuttal report explains in detail the corroborating data sources — including Suncoast financial records, property-level PMS data, and Ironclad National Bank loan-underwriting documents — that validate the extension of the 2019–2021 findings both to additional properties and to earlier years.
III. Anticipated Cross-Examination Topics
This section identifies the principal topics we expect defense counsel to address during your deposition, analyzes the likely lines of questioning, and provides specific preparation guidance for each topic. The topics are presented roughly in the order we anticipate they will arise, although defense counsel may vary the sequence.
A. Qualifications and Potential Bias
Defense counsel will almost certainly begin the deposition with an extended inquiry into your qualifications, professional background, and prior engagements. While this may appear routine, Mr. Whitfield will use this portion of the examination to establish themes he intends to develop later.
Specifically, we anticipate that defense counsel will probe your prior engagements for franchisor clients in an effort to argue that you have a systematic bias toward franchisor positions in revenue-dispute matters. Mr. Whitfield may elicit testimony that a significant percentage of your past engagements have been on behalf of franchisors rather than franchisees, and he may attempt to characterize your firm, Ridgeline Forensic Advisory LLC, as a "franchisor-side shop" whose conclusions are predictable.
Defense counsel is also likely to question the fee arrangement in this engagement. Your engagement rate is $475 per hour for principal time and $325 per hour for staff time. The total engagement fee, inclusive of testimony preparation, analysis, and reporting, stands at $1.85 million to date. Defense counsel will seek to suggest that the magnitude of this fee creates a financial incentive to reach conclusions favorable to Verimark in order to secure future engagements.
Preparation Guidance: You should address these lines of questioning with candor and composure. Emphasize your professional independence and the established forensic-accounting methodology you apply consistently regardless of which side retains you. Note that your fees are time-based and bear no relationship to the outcome of the case; you are compensated for your time and expertise, not for reaching any particular conclusion. When asked about the total engagement fee, acknowledge the $1.85 million figure openly and without defensiveness. Place it in context by noting the extraordinary scope and complexity of this analysis: the engagement required a forensic examination of 22 hotel properties over a 9-year period, involving the review and analysis of approximately 2.3 million documents produced in discovery, as well as the construction of a property-by-property damages model. If asked about your franchisor-side engagement history, you may note that you have also been retained by franchisees and by neutral arbitrators in franchise disputes, and that in several prior engagements, your analysis concluded that the franchisor's claimed damages were overstated — a fact that underscores your independence.
B. Extrapolation Methodology
The extrapolation methodology will be the primary line of attack during your deposition. Defense counsel will challenge the extrapolation from the 10 properties audited by Thornbury & Associates to all 22 properties in the Coastal Palms portfolio, and from the 3-year period (2019–2021) covered by Thornbury's audit to the full 9-year period (2013–2021) covered by your damages analysis.
We expect the following specific arguments from defense counsel:
(a) Non-representative sample. Mr. Whitfield will point out that the 10 properties audited by Thornbury were selected as the "top 10 by reported GRR" and will argue that this selection criterion produced a non-representative sample. He will contend that the highest-revenue properties may have had unique characteristics — such as higher proportions of direct bookings or greater exposure to Suncoast's management-fee structure — that do not translate to the remaining 12 properties.
(b) Geographic and market variation. Defense counsel will note that the 22-property portfolio spans multiple geographic markets across Florida and Georgia. He will argue that revenue-diversion patterns may differ significantly at smaller properties or those operating in different competitive environments, and that extrapolating findings from a Florida-concentrated sample to Georgia properties introduces unacceptable uncertainty.
(c) Temporal extrapolation. Defense counsel will challenge the extension of 2019–2021 findings backward to 2013–2018, arguing that this assumes underreporting patterns remained stable over the entire nine-year period without sufficient evidence to support that assumption. Mr. Whitfield may suggest that underreporting may have been less prevalent — or even nonexistent — in earlier years, and that the gulfcoastrooms.com booking channel may not have been operational during the earlier period.
Preparation Guidance: This will be the most sustained and critical portion of the cross-examination, and your responses must be precise and well-supported. You should be prepared to address each argument as follows:
(1) The top-10 sample is conservative, not inflating. Explain that the 10 properties selected by Thornbury were the highest-revenue properties in the portfolio. Because these larger properties had proportionally more direct-booking volume — particularly corporate-direct contracts and walk-in traffic — the per-dollar underreporting rate identified in the audit sample, when applied to smaller properties with relatively lower direct-booking volume, is more likely to understate than to overstate actual diversion at those smaller properties. In other words, the extrapolation is conservative in that it extends a rate derived from properties most susceptible to direct-booking diversion to properties that may have experienced comparatively less diversion.
(2) Suncoast financial records cover all 22 properties. The Suncoast Room Management financial records produced in the November 18, 2022 supplemental production — encompassing approximately 312,000 documents — provided transaction-level data for all 22 properties, not merely the 10 in the Thornbury audit. Your analysis confirmed that the same revenue-diversion structure was in place at all 22 properties, including the Georgia properties. This is not a case in which you relied solely on the 10-property audit sample; rather, the Suncoast records provided independent corroboration across the entire portfolio.
(3) Cross-checks against Ironclad National Bank loan-underwriting documents. The financial statements submitted by Coastal Palms to Ironclad National Bank (Devon Schultz, SVP, Commercial Lending) in connection with approximately $94 million in mortgage loans showed Coastal Palms reporting higher revenue figures to its lender than it reported to Verimark. These discrepancies were consistent across both the audited and non-audited properties and across time periods predating the 2019–2021 audit window, providing corroboration for the pre-2019 extrapolation.
(4) Property-by-property regression analysis. Your Expert Report includes a regression analysis that validated the extrapolation by demonstrating a statistically significant relationship between property characteristics (room count, market segment, geographic location, proportion of OTA versus direct bookings) and underreporting rates. This analysis showed that the extrapolation model had strong explanatory power across the full range of property types and sizes in the portfolio.
When responding to these questions, you should maintain the position that your methodology is well-grounded in both forensic-accounting best practices and the specific evidentiary record in this case. If defense counsel presses you to concede that the extrapolation introduces some degree of uncertainty, you may acknowledge that, as with any statistical methodology, there is an inherent range of uncertainty, but you should immediately note that you have quantified that range through the sensitivity analyses in your report and that, even under the most conservative assumptions, the underreporting is substantial.
C. Suncoast Room Management Inc. Revenue Attribution
Defense counsel will focus considerable attention on the treatment of revenues collected by Suncoast Room Management Inc. This is the factual and contractual crux of the case, and your testimony on this point will be critical.
The defense position is that revenues collected by Suncoast were properly excluded from GRR because Suncoast is a separate legal entity — a Florida corporation with its own articles of incorporation, its own bank accounts, and its own federal employer identification number. The defense will point to Suncoast's president, Randall Brecker, as the head of a distinct entity providing legitimate management services, and will argue that the 12% management fee retained by Suncoast represents a fair-market-value cost of revenue generation, not a diversion mechanism.
Defense counsel may also attempt to characterize Suncoast's role as analogous to that of an independent management company — such as those commonly used in the hotel industry — and to suggest that franchisor royalties are customarily calculated only on revenues received at the property level, not on revenues passing through a third-party management entity.
Preparation Guidance: Your response to these questions should focus on two key points:
First, the FLA's GRR definition in § 4.1 is dispositive. That definition captures "all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue." The phrase "regardless of the entity collecting such revenue" was plainly intended to prevent exactly the kind of structure Coastal Palms created through Suncoast. The contractual language does not limit GRR to revenues collected by the property-level LLC or by the franchisee entity itself; it encompasses all room-rental revenue, period. Your role as a forensic accountant is to apply the contractual definition of GRR to the financial data, and you have done so.
Second, the defense's focus on the 12% management fee is a misdirection. Even if one were to accept the defense's argument that the 12% management fee represents a legitimate cost of revenue generation — which, to be clear, your report does not concede — the critical point is that the remaining 88% of Suncoast-collected revenues was also never reported to Verimark. Coastal Palms did not report gross Suncoast revenue and deduct a management-fee expense; it excluded the entire revenue stream from its GRR reports. The management-fee issue is therefore secondary to the fundamental question of total exclusion.
If pressed on the separate-entity argument, you should note that Randall Brecker is the managing member or president of every entity in the Coastal Palms corporate structure, including Suncoast, the property-level LLCs (Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and others), and the parent entity Coastal Palms Franchise Holdings LLC. The "separate entity" characterization, while technically accurate as a matter of corporate formation, does not alter the economic reality that a single individual controlled both sides of every Suncoast management transaction.
D. OTA Revenue Treatment — Gross vs. Net
Defense counsel will argue that Coastal Palms' practice of netting OTA commissions from reported revenue was consistent with industry practice and that treating OTA payments as "commissions receivable" is a reasonable accounting interpretation. This argument has some superficial appeal because many hotel operators do, in fact, record OTA revenue on a net basis in their internal financial statements under applicable accounting standards.
Preparation Guidance: Your response should distinguish clearly between two distinct questions: (1) how OTA revenue is recorded for purposes of internal financial reporting under generally accepted accounting principles, and (2) how OTA revenue must be reported for purposes of the franchise agreement's GRR calculation.
On the first question, you should acknowledge that under ASC 606, the determination of whether a hotel reports OTA revenue on a gross or net basis depends on whether the hotel or the OTA is the "principal" in the transaction. Under the "merchant model" — in which the hotel sets the room price, the OTA collects payment from the guest, and the OTA remits the net amount after deducting its commission — some operators record revenue on a net basis. Under the "agency model" — in which the guest pays the hotel directly, and the hotel subsequently pays the OTA a commission — revenue is typically recorded on a gross basis. Both models exist in the marketplace.
On the second question, however, the FLA § 4.1 definition controls. That definition requires GRR to include "all revenues derived from or attributable to the rental of guest rooms," without regard to whether OTA commissions are deducted before or after the hotel receives payment. The GRR definition makes no distinction between the merchant model and the agency model. It captures gross booking revenue — the amount the guest pays for the room — not the net amount the hotel retains after paying a distribution intermediary.
You should be prepared to point to specific OTA contracts produced in discovery — including agreements with Hollowell Industries, Ridgeway & Co., and other OTAs — that show gross booking amounts for Coastal Palms properties. These gross amounts were never included in the GRR reports submitted to Verimark. The gap between gross OTA bookings and net amounts recorded by Coastal Palms is quantified on a property-by-property and year-by-year basis in your workpapers.
E. Interest-Compounding Assumptions
Defense counsel will challenge the $28.4 million in late-payment interest that constitutes a significant component of the total damages figure. Your calculation applies the interest rate of 1.5% per month, compounded monthly, as specified in FLA § 4.6.
We expect the following specific arguments:
(a) Punitive compounding. Defense counsel will argue that the 1.5% per month compounded monthly rate — which equates to an effective annual rate of approximately 19.56% — is punitive and may not be enforceable under Florida usury law or public policy.
(b) Timing assumptions. Defense counsel will argue that your calculation assumes all underreported revenue was known and due at the beginning of each reporting period, rather than being discovered at a later date. The defense position is that interest should run, if at all, only from the date Verimark discovered or should have discovered the underreporting, or alternatively from the date demand was made.
(c) Alternative calculations. Defense counsel will present alternative interest calculations using simple interest or lower compounding frequencies (e.g., quarterly or annual compounding) and will seek to demonstrate that the interest component would be dramatically lower under these alternatives.
Preparation Guidance: Your position on the interest calculation should be straightforward and consistent: you applied the express terms of FLA § 4.6, which specifies interest at the rate of 1.5% per month, compounded monthly, on any amounts not paid when due. Your role as a forensic accountant is to calculate damages according to the contractual terms; whether those terms are enforceable under Florida law is a legal question that falls outside the scope of your expert opinion.
You should have readily available — and we will include in the exhibit binder — a comparison table showing the interest figure under several alternative assumptions:
This table demonstrates that you considered alternative interest methodologies but applied the contractual rate because that is what the FLA requires. If defense counsel asks you to recalculate interest under a different framework, you should note that your sensitivity analysis already addresses several alternative scenarios, and you can direct the examiner to the relevant table. If the hypothetical falls outside the scenarios you have already analyzed, you should state that you have not performed that specific calculation and would need to do so.
On the timing issue, you should explain that under FLA § 4.2, royalties and other fees are due on the fifteenth day of the month following each reporting period. Because the underreported revenue should have been included in each month's GRR report, the resulting underpayment of royalties, marketing contributions, and technology fees was, under the contract, due on those monthly due dates. Interest therefore accrues from each respective due date.
F. Alternative GRR Definitions (Hargrove's Approach)
Defense counsel will use Prof. Hargrove's expert report as a platform for asking you to recalculate damages under his narrower GRR definition. Prof. Hargrove's definition excludes walk-in cash payments from GRR entirely and uses only net OTA revenue (after deduction of OTA commissions), which yielded a maximum damages figure of $6.2 million — a figure that is less than four percent of the $150 million total damages you calculated.
Mr. Whitfield is likely to pose a series of questions along the following lines: "If the Court were to adopt Prof. Hargrove's GRR definition, would you agree that the damages figure would be approximately $6.2 million?" or "Can you tell us what your damages figure would be if walk-in cash payments were excluded from GRR?"
Preparation Guidance: You should decline to adopt Prof. Hargrove's GRR definition as the basis for your analysis. Your opinion is based on the FLA's actual GRR definition in § 4.1, and you were retained to opine on damages under that definition. You were not asked to opine under alternative or hypothetical GRR definitions, and doing so at deposition would be outside the scope of your engagement and your expert report.
That said, you should acknowledge that you are aware of Prof. Hargrove's alternative damages figure and that you addressed his methodology in your Rebuttal Expert Report. You should be prepared to explain clearly and concisely why Prof. Hargrove's exclusion of walk-in cash payments is unjustifiable: a walk-in guest who pays cash at the front desk for a room is paying for the rental of a guest room, which is squarely and unambiguously within the FLA's definition of GRR. There is no basis in the contract language, in industry practice, or in accounting standards for excluding this category of revenue. Similarly, Prof. Hargrove's use of net OTA revenue understates GRR by the full amount of OTA commissions, which, as discussed in Section III.D above, are not deductible under the FLA's GRR definition.
If defense counsel frames the question as a pure hypothetical — "Assume for purposes of this question only that the GRR definition excluded walk-in cash payments; what would your damages figure be?" — you may respond by noting whether your sensitivity analysis addresses that scenario. If it does, you can direct the examiner to the relevant table. If it does not, you should state that you have not performed that specific calculation and cannot provide an accurate figure without doing so.
G. Liquidated Damages Calculation
Defense counsel may probe whether the $105.5 million liquidated-damages figure was calculated correctly. This figure represents the single largest component of the total damages claim and therefore warrants careful attention.
The liquidated-damages calculation under FLA § 15.3 calls for an award of three times the trailing-twelve-month ("TTM") corrected royalties for each property upon termination of the franchise license agreement due to an incurable material breach (as defined in FLA § 14.2(c), which expressly includes "systematic underreporting of Gross Room Revenue"). The TTM corrected royalties for all 22 properties, calculated using the corrected GRR figures from your analysis, total approximately $7.28 million per year in the aggregate. However, because the liquidated-damages formula operates on a per-property basis — applying the 3× multiplier to each property's individual TTM corrected royalty figure — the aggregate liquidated-damages total of $105.5 million reflects the sum of 22 individual calculations, each based on property-specific revenue data.
Defense counsel may attempt to create confusion by suggesting that the aggregate figure should simply be 3 × $7.28 million = $21.84 million. This would be incorrect because the FLA provides for liquidated damages per franchise license agreement terminated, and each property operates under its own separate FLA.
Preparation Guidance: You should have property-by-property TTM corrected royalty calculations readily available and be able to walk through the computation for any individual property upon request. The exhibit binder will include a summary schedule showing the TTM corrected royalty for each of the 22 properties, the 3× multiplier, and the resulting per-property liquidated-damages figure. You should be prepared to explain the arithmetic clearly and to identify the source data for each property's corrected GRR.
You should also note, as with the interest calculation, that the liquidated-damages figure is computed under the express terms of FLA § 15.3. Whether the liquidated-damages provision is enforceable — including whether the amount constitutes an unenforceable penalty under Florida law — is a legal question that falls outside the scope of your forensic-accounting opinion. If pressed on enforceability, you should defer to counsel.
H. Reliance on Whistleblower Information
Defense counsel may attempt to undermine your analysis by suggesting that it was shaped by, or unduly reliant upon, the allegations made by Janet Kerrigan. Ms. Kerrigan filed a whistleblower complaint on November 8, 2021, alleging that Coastal Palms had systematically underreported GRR to Verimark. Ms. Kerrigan, who served as a regional controller overseeing several Coastal Palms properties, was terminated by Coastal Palms in October 2021 — approximately one month before filing her complaint. The defense has aggressively pursued the theory that Ms. Kerrigan is a disgruntled former employee whose allegations are unreliable and motivated by personal animus.
Mr. Whitfield is likely to ask whether Ms. Kerrigan's allegations formed the basis for your damages model, whether you interviewed her as part of your analysis, whether you relied on any documents she provided outside of the formal discovery process, and whether your findings would change if her testimony were excluded from the evidentiary record.
Preparation Guidance: You should emphasize that while Ms. Kerrigan's allegations prompted Verimark's initial investigation — which led to the retention of Thornbury & Associates for the compliance audit — your forensic analysis was conducted independently and is based entirely on documentary evidence. Specifically, your analysis rests on the following independent data sources:
(1) Thornbury & Associates CPAs LLP's compliance audit findings, which were based on Thornbury's independent review of property-level financial records and identified approximately 26% underreporting for the 2019–2021 period across the 10-property audit sample;
(2) Suncoast Room Management Inc.'s financial records, including bank statements, general ledger entries, management-fee invoices, and gulfcoastrooms.com booking logs, produced in the November 18, 2022 supplemental production;
(3) Property-level property management system ("PMS") data for all 22 properties, covering room-night counts, occupancy data, and revenue by booking channel for the 2013–2021 period;
(4) OTA contracts and monthly reconciliation reports showing gross booking amounts and net payments;
(5) Bank statements for the property-level LLCs and for Suncoast; and
(6) Financial statements submitted by Coastal Palms to Ironclad National Bank in connection with mortgage-loan underwriting.
Ms. Kerrigan's deposition testimony corroborated the findings of your forensic analysis, but her testimony was not a data input to the damages model. You did not interview her as part of your engagement, and your conclusions do not depend on the credibility of her allegations. If every piece of information Ms. Kerrigan ever provided were excluded from the record, your analysis would remain unchanged because it is grounded in independent documentary evidence.
I. Technology Fee Calculation
Defense counsel may argue that the $1.26 million technology-fee underpayment calculation is speculative because it rests on estimates of the number of unreported rooms and the duration over which those rooms were in service without being reported.
The calculation is based on 214 unreported rooms across 4 specific properties, each of which underwent renovation or expansion during the relevant period. The rooms were in service for an average of approximately 47 months before the discrepancy was identified. Under FLA § 4.3, Coastal Palms was obligated to pay Verimark a technology fee of $12.50 per room per month for all guest rooms at each franchised property. The underpayment is therefore calculated as 214 rooms × $12.50/room/month × approximately 47 months average = $1.26 million.
Preparation Guidance: You should reference the specific property records supporting both the 214-room figure and the 47-month average. These records include:
• Building permits issued by local authorities for the renovation and expansion projects at the four properties in question, which specify the number of rooms added;
• PMS room-count data showing the date on which each newly added room was first placed into the property management system and made available for booking;
• Ironclad National Bank loan draw requests submitted by Coastal Palms in connection with construction-financing facilities for the renovation/expansion projects, which reference the number of rooms being added and the anticipated completion dates; and
• Coastal Palms' own internal capital-expenditure reports, which were produced in discovery and which detail the number of rooms added at each property.
The 214-room figure and the 47-month average are derived from this documentary evidence, not from assumptions or estimates. If defense counsel characterizes these figures as "speculative," you should respectfully disagree and direct the examiner to the specific exhibits supporting the calculation.
IV. General Deposition Guidance and Ground Rules
This section sets forth guidance on deposition conduct and communication that applies throughout your testimony, regardless of the specific topic being examined.
A. Demeanor and Communication
Your demeanor during the deposition is as important as the substance of your testimony. The following guidelines should govern your conduct throughout the proceedings:
Listen carefully to each question. Before responding, pause briefly — approximately two to three seconds — after the examiner finishes speaking. This pause serves two purposes: it gives you time to formulate a clear and concise response, and it allows Calderwood & Harkness counsel (Priya Anand or Yuki Nakamura) to interpose an objection if appropriate. If an objection is made, stop speaking immediately and wait for instructions from our counsel before answering.
Answer only the question asked. Do not volunteer information beyond the scope of the question. If the question calls for a "yes" or "no" answer, provide a "yes" or "no" and stop. If additional context is necessary to make the answer accurate and complete, you may provide a brief qualification, but do not launch into extended explanations unless the question specifically invites one. Extended answers provide defense counsel with more material to probe and more opportunities to identify apparent inconsistencies.
If a question is unclear or compound, ask for clarification. You are under no obligation to answer a question you do not understand. If a question is ambiguous, compound, or assumes facts not in evidence, you should say: "Could you please rephrase that question?" or "I want to make sure I understand what you are asking. Could you break that into parts?" This is not evasion; it is professional diligence.
Do not guess or speculate. If you do not know the answer to a question, you should say so. Appropriate responses include: "I don't know," "I don't recall," or "I would need to review my workpapers to answer that accurately." Do not estimate or approximate unless you are confident in the range and can explain the basis for the estimate.
Avoid humor, sarcasm, or argumentative responses. Maintain professional composure throughout the deposition, regardless of the tone or aggressiveness of the examiner's questions. Defense counsel may attempt to provoke frustration or anger as a tactic to elicit less careful responses. Do not take the bait. Your role is to be the calm, authoritative forensic-accounting expert throughout the proceeding.
Refer to your reports when appropriate. When a question touches on a topic addressed in your Expert Report or Rebuttal Expert Report, you should feel free to reference the specific location in the report: "As stated in my report at page , …" or "I addressed that issue in my rebuttal report at pages through __." This both grounds your testimony in the written record and provides a natural structure for your responses.
B. Handling of Hypotheticals
Defense counsel will almost certainly pose hypothetical questions designed to elicit concessions that can be used to undermine your conclusions. For example, Mr. Whitfield may ask: "If the GRR definition excluded revenues collected by a separate management entity, would your damages figure change?" or "Hypothetically, if OTA commissions were properly deducted from GRR, what impact would that have on your royalty underpayment calculation?"
These questions are designed to force you onto the defense's preferred analytical terrain. Your approach should be as follows:
You may acknowledge the hypothetical's premise — "I understand the hypothetical you are posing" — but you should then clarify that your analysis is based on the FLA's actual GRR definition in § 4.1 and that you were not asked to opine under alternative or hypothetical definitions. You should not adopt the hypothetical's premises as your own.
If your report includes a sensitivity analysis that addresses the hypothetical scenario, you may direct the examiner to the relevant table or appendix. For example: "My report includes a sensitivity analysis at Appendix D that examines the impact of several alternative assumptions, including the one you have described."
If the hypothetical falls outside the scenarios analyzed in your report, you should state: "I have not performed that calculation. I would need to do so before I could provide an accurate figure."
Under no circumstances should you perform mental arithmetic at the deposition to generate an approximate damages figure under a hypothetical scenario. Any such figure, no matter how carefully hedged, will be treated as a binding concession in subsequent proceedings.
C. Documents and Exhibits
The handling of documents during the deposition requires particular care:
Do not bring personal materials. You should not bring any documents to the deposition beyond those contained in the exhibit binder prepared by Calderwood & Harkness (described in detail in Section V below). Do not bring personal notes, draft reports, handwritten calculations, or any communications with counsel. Any document you bring to the deposition is potentially subject to inspection by defense counsel under Florida Rule of Civil Procedure 1.280(b)(5).
Read documents carefully before answering. If defense counsel shows you a document at the deposition — whether a page from your report, a financial record, a contract provision, or any other exhibit — you should read it carefully and completely before answering any questions about it. Take your time. Do not allow defense counsel to rush you through a document review. If the document is lengthy, request time to review it fully. If defense counsel asks a question before you have finished reading, politely state: "I would like to finish reviewing the document before answering."
Do not accept characterizations. Defense counsel may attempt to paraphrase or characterize documents in ways that are misleading or incomplete. Do not agree to defense counsel's characterization of a document without first reviewing the document yourself. If a question begins with "Would you agree that this document shows…," you should look at the document and form your own assessment before responding.
D. Privilege and Work-Product Protections
Certain categories of information are protected by the attorney-client privilege and the work-product doctrine, and you must not disclose them during the deposition:
Communications with counsel. You should not disclose the contents of any communications with Calderwood & Harkness attorneys, including this memorandum, discussions about litigation strategy, feedback on your reports, or any other communications made in connection with this engagement. If asked about communications with counsel, you should state: "I communicated with counsel in the course of my engagement, but I understand those communications are privileged." Calderwood & Harkness counsel will interpose an objection and instruct you not to answer if necessary.
Draft reports. If asked about drafts of your Expert Report or Rebuttal Expert Report, you should note that any revisions made during the drafting process were made to ensure the accuracy and clarity of your independent opinions. Under Federal Rule of Civil Procedure 26(b)(4)(B) and analogous Florida principles, draft expert reports are generally protected as work product. Our counsel will assert the appropriate objections if defense counsel pursues this line of questioning.
This memorandum. This memorandum is attorney work product prepared in anticipation of litigation. Do not acknowledge its existence, discuss its contents, or produce it if requested. If asked whether you reviewed any preparation materials, you may state that you prepared for the deposition with the assistance of counsel, but you should not describe the nature or content of the preparation materials.
V. Exhibit Binder Contents
Calderwood & Harkness will prepare an indexed exhibit binder for your reference during the deposition. The binder will be organized into twelve tabs, as described below. You should familiarize yourself with the binder's contents and organization during our June 22 preparation session so that you can locate specific documents and data points efficiently during the deposition itself.
Tab 1: Expert Report (April 14, 2023)
Full text of your Expert Report as served on April 14, 2023, including all appendices, schedules, and supporting tables. This is the version that was formally served on defense counsel and filed with the Court; it does not include any subsequent annotations or notes.
Tab 2: Rebuttal Expert Report (June 9, 2023)
Full text of your Rebuttal Expert Report as served on June 9, 2023, including all appendices and supporting materials. As with Tab 1, this is the as-served version.
Tab 3: Representative Franchise License Agreement
A clean copy of a representative Franchise License Agreement ("FLA") from the Coastal Palms portfolio, with key provisions highlighted for quick reference. The highlighted provisions include:
• § 4.1 — Definition of Gross Room Revenue ("GRR") and calculation of royalties at 5% of GRR
• § 4.2 — Marketing-fund contribution at 2.5% of GRR
• § 4.3 — Technology fee at $12.50 per room per month
• § 4.6 — Late-payment interest at 1.5% per month, compounded monthly
• § 8.2 — Audit rights and 2% underpayment threshold triggering audit-cost reimbursement
• § 14.1 — 30-day cure period for curable defaults
• § 14.2(c) — Systematic underreporting of GRR as an incurable material breach
• § 15.3 — Liquidated damages at 3× trailing-twelve-month royalties per property
Tab 4: Thornbury & Associates Preliminary Audit Findings (January 18, 2022)
The Thornbury & Associates CPAs LLP report delivered to Verimark on January 18, 2022, summarizing the preliminary findings of the compliance audit conducted by Malcolm Thornbury, CPA, lead audit partner. The report identifies approximately 26% underreporting of GRR for the top 10 properties (by reported GRR) during the 2019–2021 period.
Tab 5: Suncoast Room Management Financial Records (Selected)
Selected documents from the Suncoast Room Management Inc. financial records produced in the November 18, 2022 supplemental production (approximately 312,000 documents total). The tab includes key Suncoast bank statements, general ledger entries, management-fee invoices, and gulfcoastrooms.com booking logs that support the revenue-diversion analysis in your Expert Report.
Tab 6: OTA Contracts and Reconciliation Reports (Selected)
Representative OTA agreements between Coastal Palms property-level entities and major OTA platforms, together with monthly reconciliation reports showing gross booking amounts versus net payments remitted to the property-level LLCs. These documents support your gross-versus-net OTA revenue analysis.
Tab 7: Ironclad National Bank Loan Documents (Selected)
Financial statements submitted by Coastal Palms entities to Ironclad National Bank (Devon Schultz, SVP, Commercial Lending) in connection with approximately $94 million in mortgage loans across the portfolio. These documents show revenue figures reported to the lender that are higher than the GRR figures reported to Verimark during the same periods.
Tab 8: Property-Level PMS Data Summaries
Revenue summaries extracted from property management systems ("PMS") for all 22 franchised properties, organized by property and by year for the 2013–2021 period. These summaries were used as a cross-check against other data sources in the damages model.
Tab 9: Damages Calculation Workpapers (Summary)
Summary-level workpapers showing the computation of each damages component:
• Underpaid royalties: $9.89 million
• Underpaid marketing-fund contributions: $4.945 million
• Underpaid technology fees: $1.26 million
• Contractual late-payment interest: $28.4 million
• Liquidated damages: $105.5 million
• Total: approximately $150 million
These are summary-level workpapers suitable for use during testimony; the full detailed workpapers remain available for reference if needed.
Tab 10: Defense Expert Report — Prof. Grant Hargrove (May 15, 2023)
Full text of Prof. Hargrove's expert report, served on May 15, 2023, for reference during questioning. Key passages have been flagged with adhesive tabs, including Prof. Hargrove's narrowed GRR definition, his exclusion of Suncoast-collected revenues, his net OTA revenue methodology, and his alternative damages figure of $6.2 million.
Tab 11: Deposition Transcripts (Selected Excerpts)
Selected excerpts from the following deposition transcripts:
• Randall Brecker deposition (January 9–10, 2023, two days): Key excerpts include Mr. Brecker's admission that he personally directed property-level controllers to exclude Suncoast-collected revenues from monthly GRR reports submitted to Verimark, and his testimony regarding the purpose and operation of the gulfcoastrooms.com website.
• Janet Kerrigan deposition: Key excerpts regarding the instructions she received to exclude direct-booking revenues from GRR reports and her testimony about the 12% Suncoast management fee and its treatment in property-level accounting records.
Tab 12: Sensitivity Analysis Tables
Tables from your Expert Report showing damages under alternative assumptions, including:
• Alternative interest calculations (simple interest, quarterly compounding, annual compounding, Florida statutory rate)
• Alternative room counts for the technology-fee calculation
• Alternative underreporting percentages at the low and high ends of the 22%–31% range
• Damages excluding liquidated damages
These tables are designed for use in responding to hypothetical questions during the deposition.
VI. Preparation Session Agenda
A. Session Logistics
A full-day preparation session has been scheduled as follows:
Date: Thursday, June 22, 2023 (four days before the deposition)
Time: 9:00 AM – 4:00 PM (with breaks as noted below)
Location: Calderwood & Harkness LLP, 110 SE 6th Street, Suite 2800, Fort Lauderdale, FL 33301
Attendees:
• Dr. Sharon Kettlewell, CPA/CFF, CFE, Ridgeline Forensic Advisory LLC
• Priya Anand, Partner, Calderwood & Harkness LLP
• Yuki Nakamura, Associate, Calderwood & Harkness LLP
• Carlos Espinoza, Associate, Calderwood & Harkness LLP
B. Morning Session (9:00 AM – 12:00 PM)
The morning session will cover foundational topics and document preparation:
9:00 – 9:30 AM: General Deposition Protocol and Ground Rules Review. We will review the deposition guidance set forth in Section IV of this memorandum, including demeanor and communication guidelines, procedures for handling hypotheticals, rules regarding documents and exhibits, and the scope of privilege and work-product protections. We will discuss the format and logistics of the deposition, the roles of the various participants, and the procedures for breaks, objections, and instructions not to answer.