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PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure under the work-product doctrine, Florida Rule of Civil Procedure 1.280(b)(4), and all other applicable state and federal privileges. Transmittal of this memorandum to Dr. Sharon Kettlewell is made solely in furtherance of her engagement as a testifying expert witness under the December 12, 2022 retention letter executed between Calderwood & Harkness LLP and Ridgeline Forensic Advisory LLC, and does not constitute a waiver of any applicable privilege or protection. Any unauthorized review, use, disclosure, or distribution of this memorandum or any information contained herein is strictly prohibited.

May 30, 2023

MEMORANDUM

FROM: Yuki Nakamura, Calderwood & Harkness LLP (FL Bar No. 0119644)

TO: Dr. Sharon Kettlewell, CPA/CFF, CFE, Ridgeline Forensic Advisory LLC

RE: Rebuttal Report Topics and Additional Data — 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)

CC: Priya Anand, Esq., Responsible Partner (FL Bar No. 0087451) Carlos Espinoza, Esq., Working Associate (FL Bar No. 0128903)

DEADLINE: Rebuttal expert report must be finalized and served no later than June 9, 2023.

I. Purpose of This Memorandum

This memorandum serves three interrelated purposes. First, it transmits to Dr. Kettlewell the specific rebuttal topics, supplemental data, and requested analyses that should be addressed in her rebuttal expert report. The rebuttal report is being prepared in response to the expert report of Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., which was served on behalf of Defendant Coastal Palms Franchise Holdings LLC ("Coastal Palms") on May 15, 2023 (the "Hargrove Report"). Prof. Hargrove was retained by Coastal Palms to opine on the calculation of Gross Room Revenue ("GRR") under the Franchise License Agreement ("FLA"), the quantification of franchise-fee underpayments, and the computation of late-payment interest, and his opinions differ materially from those expressed in Dr. Kettlewell's initial expert report served on April 17, 2023.

Second, this memorandum cross-references and builds upon the internal analysis memorandum prepared by Carlos Espinoza on May 22, 2023, which identified the principal methodological errors and analytical deficiencies in the Hargrove Report and recommended specific rebuttal topics for Dr. Kettlewell's consideration. This memorandum formalizes those recommendations into discrete requests and transmits the supporting documents and data that Dr. Kettlewell will need to complete her rebuttal analysis.

Third, this memorandum addresses procedural and logistical matters bearing on the preparation and service of the rebuttal report. As noted above, the Court's scheduling order requires that the rebuttal report be served by June 9, 2023. Expert depositions of both Dr. Kettlewell and Prof. Hargrove are currently set for June 26–27, 2023, and adequate time must be reserved between service of the rebuttal report and those depositions for preparation. We therefore request that Dr. Kettlewell provide a draft of the rebuttal report to Calderwood & Harkness no later than June 2, 2023, to allow for review and any clarifications before the service deadline.

II. Summary of Prof. Hargrove's Key Opinions to Be Rebutted

Before turning to the specific rebuttal topics requested, it is useful to summarize the principal opinions set forth in the Hargrove Report that require a response. What follows is a condensed overview of those opinions, together with our preliminary observations on the vulnerabilities of each. Dr. Kettlewell should use this summary as a roadmap for structuring her rebuttal report, though she is of course free to organize her analysis in whatever manner she deems most effective.

A. Hargrove's Conclusion on Total Damages

Prof. Hargrove opines that, even assuming some degree of GRR underreporting by Coastal Palms, the total underpayment of franchise fees amounts to no more than $6.2 million over the nine-year period from 2013 through 2021. This figure represents a small fraction of the damages calculated in Dr. Kettlewell's initial expert report. As Dr. Kettlewell documented in that report, cumulative underreported GRR across the 22-property Coastal Palms portfolio totaled approximately $197.8 million, resulting in direct franchise-fee underpayments of approximately $16.095 million (exclusive of interest). Prof. Hargrove's dramatically lower figure is the product of several compounding methodological choices, each of which narrows the damages calculation in a manner favorable to Coastal Palms. These include: (1) a narrowed definition of GRR that excludes revenues collected by Suncoast Room Management Inc.; (2) the exclusion of walk-in cash payments for alleged lack of documentation; (3) the treatment of OTA revenues on a net rather than gross basis; (4) the rejection of Dr. Kettlewell's extrapolation methodology; and (5) the application of simple interest rather than the compounded interest expressly required by FLA § 4.6. Each of these methodological choices is addressed in greater detail below.

B. Hargrove's Narrowed GRR Definition

A central pillar of the Hargrove Report is the contention that FLA § 4.1's definition of "Gross Room Revenue" is ambiguous as applied to revenues collected by Suncoast Room Management Inc. ("Suncoast"), a separate entity incorporated in Florida by Randall Brecker, the President and controlling principal of Coastal Palms. Prof. Hargrove excludes from his GRR calculation all revenues collected through Suncoast on the theory that Suncoast is a "separate legal entity" from Coastal Palms and that revenues collected by Suncoast are not, in his view, "derived from or attributable to the rental of guest rooms at the Hotel" within the meaning of § 4.1.

This interpretation is untenable on the face of the contract. Section 4.1 of the FLA defines GRR as follows:

"'Gross Room Revenue' means all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue."

The phrase "regardless of the entity collecting such revenue" directly and unambiguously forecloses the separate-entity interpretation advanced by Prof. Hargrove. That language was plainly designed to prevent precisely the kind of revenue-diversion structure that Coastal Palms implemented through Suncoast. Moreover, the undisputed evidence demonstrates that Suncoast was incorporated by Brecker, controlled by him as President, operated out of the same offices as Coastal Palms at 1700 Palm Beach Lakes Boulevard, West Palm Beach, Florida, and its sole function was collecting guest-room revenues for the very hotel properties subject to the FLA. Under these circumstances, Suncoast revenues are inescapably "derived from or attributable to the rental of guest rooms at the Hotel."

Dr. Kettlewell's rebuttal report should address this definitional issue squarely.

C. Exclusion of Walk-In Cash Payments

Prof. Hargrove excludes walk-in cash payments entirely from his GRR calculation, asserting that there is "insufficient documentation" to verify the amounts of such payments. This exclusion is both factually and methodologically unsound.

Dr. Kettlewell's initial expert report quantified walk-in cash payments using three independent data sources: (1) Suncoast bank deposit records reflecting cash deposits attributable to the hotel properties; (2) property-management-system ("PMS") data from the Opera and RoomKey platforms used at the Coastal Palms properties, which log check-in and check-out events along with payment method and amount; and (3) daily cash-drawer reconciliation reports maintained at the property level and produced as part of the November 18, 2022 supplemental production (which encompassed approximately 312,000 documents, including the Suncoast records, compelled by the Court's October 28, 2022 order granting Verimark's motion to compel). The cross-referencing of these three independent sources provided a reliable basis for quantifying walk-in cash payments, and Dr. Kettlewell's rebuttal report should demonstrate this reliability in detail.

D. Net vs. Gross OTA Revenue Treatment

Prof. Hargrove attributes only net-rate OTA payments to GRR, excluding the commission component retained by the online travel agencies. His rationale is that Coastal Palms "never received" the commission portion and therefore it cannot constitute GRR. This argument confuses cash receipts with revenue derivation.

Section 4.1 defines GRR as "all revenues derived from or attributable to the rental of guest rooms," not "all revenues received." The gross amount charged to the guest is the revenue "derived from" the room rental; the OTA commission is a cost of distribution — analogous to a credit-card processing fee or travel-agent commission — not a reduction in the revenue generated by the room rental. Notably, Coastal Palms' own internal accounting practices confirm this interpretation: Coastal Palms classified net-rate OTA payments as "commissions receivable" in its general ledger and netted them against GRR in its reports to Verimark, which itself constituted a violation of § 4.1's gross-revenue construct.

The rebuttal report should address this distinction with reference to the specific OTA contracts produced in discovery and should quantify the aggregate impact of the net-versus-gross treatment across the full portfolio and time period.

E. Rejection of Extrapolation Methodology

Prof. Hargrove devotes a significant portion of his report to criticizing the extrapolation methodology employed by Dr. Kettlewell in her initial report. Specifically, Dr. Kettlewell's initial report relied in part on the preliminary audit findings of Thornbury & Associates CPAs LLP ("Thornbury"), which audited 10 of the 22 Coastal Palms properties and delivered preliminary findings on January 18, 2022. Those findings indicated an average GRR underreporting rate of approximately 26% for the fiscal years 2019 through 2021. Dr. Kettlewell used the Thornbury findings, supplemented by additional data analysis, to extrapolate an estimated underreporting range of 22% to 31% across all 22 properties and across the full 2013–2021 period.

Prof. Hargrove asserts that this extrapolation is unreliable because the 10 audited properties "may not be representative" of the remaining 12 properties. He argues that property-level differences in size, location, booking mix, and management could produce materially different underreporting rates at non-audited properties.

This criticism can be addressed on multiple fronts. First, the 10 audited properties were selected by Thornbury using a stratified random sample across geographic regions, property sizes, and revenue tiers, providing a statistically sound basis for extrapolation. Second, and more fundamentally, the underreporting was not driven by property-level idiosyncrasies but by a centralized, uniform scheme directed by Brecker — all 22 properties used the same Suncoast booking channel and gulfcoastrooms.com website, and Brecker issued uniform directives to all property-level controllers to exclude Suncoast-collected revenues from GRR reports. This uniformity was established through the depositions of 10 property-level managers and accountants taken between January 9 and March 17, 2023. Third, and most importantly, the full Suncoast financial records for all 22 properties are now available, having been produced on November 18, 2022. These records allow Dr. Kettlewell to perform direct, property-by-property calculations for the entire portfolio, effectively superseding the extrapolation methodology and rendering Hargrove's representativeness critique moot.

F. Challenge to Late-Payment Interest Compounding

Finally, Prof. Hargrove challenges Dr. Kettlewell's calculation of late-payment interest under FLA § 4.6. Dr. Kettlewell's initial report calculated accrued late-payment interest of $28.4 million through the projected judgment date, applying the 1.5% per month compounded-monthly methodology prescribed by the contract. Prof. Hargrove asserts that § 4.6's interest provision should be applied as simple interest, not compounded, arguing that the compounding interpretation is "unconscionable" and unenforceable under Florida law.

The contractual language, however, is unambiguous. Section 4.6 provides:

"Any amounts due and payable under this Agreement that remain unpaid after the applicable due date shall accrue interest at the rate of one and one-half percent (1.5%) per month, compounded monthly, from the date such payment was due until the date of actual payment."

The phrase "compounded monthly" leaves no room for the interpretation that Prof. Hargrove advances. Dr. Kettlewell's rebuttal report should defend the compounding methodology as a straightforward application of the express contractual terms. To the extent Prof. Hargrove's unconscionability argument raises a legal question regarding enforceability, that issue will be addressed separately in our motion briefing; Dr. Kettlewell's role is to calculate damages as the contract defines them.

III. Rebuttal Topics — Specific Requests

The following sets forth the specific rebuttal topics that we request Dr. Kettlewell address in her rebuttal report. These topics track the principal areas of disagreement between Dr. Kettlewell's initial opinions and those expressed in the Hargrove Report. We have organized them as discrete numbered topics to facilitate Dr. Kettlewell's workflow, though the final report may be organized differently at her discretion.

Topic 1: Reaffirmation of GRR Definition Under FLA § 4.1

We request that Dr. Kettlewell restate and defend her interpretation of the § 4.1 GRR definition as encompassing all revenues generated from guest-room rentals at the Coastal Palms hotel properties, regardless of the booking channel through which the reservation was made (whether direct bookings, OTA bookings, walk-in reservations, corporate-direct bookings, or bookings through gulfcoastrooms.com) and regardless of the legal entity that collected the revenue (whether Suncoast Room Management Inc., Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, or any property-level entity within the Coastal Palms organizational structure).

In addressing this topic, Dr. Kettlewell should:

(a) Cite the contractual language of § 4.1 verbatim, with particular emphasis on the phrase "regardless of the entity collecting such revenue."

(b) Address Prof. Hargrove's separate-entity argument directly, explaining why it is inconsistent with the plain language of § 4.1 and noting the undisputed facts regarding the relationship between Suncoast and Coastal Palms — specifically, that Suncoast was incorporated by Randall Brecker, controlled by him as President, operated out of the same offices as Coastal Palms at 1700 Palm Beach Lakes Boulevard, West Palm Beach, Florida, and that its sole function was collecting guest-room revenues for the same hotel properties that are the subject of the FLA.

(c) Explain how the inclusion of Suncoast-collected revenues in GRR affects the overall damages calculation, quantifying the dollar impact of Hargrove's exclusion of Suncoast revenues.

Topic 2: Walk-In Cash Payment Quantification — Reliability of Data Sources

We request that Dr. Kettlewell provide a detailed explanation and defense of the three-source cross-referencing methodology she employed to quantify walk-in cash payments in her initial report. Specifically, Dr. Kettlewell should:

(a) Describe in detail the three independent data sources used for quantification: (i) Suncoast bank deposit records, (ii) PMS check-in/check-out logs from the Opera and RoomKey property-management systems, and (iii) daily cash-drawer reconciliation reports maintained at the property level.

(b) Explain the reconciliation process used to cross-reference these three sources, including the matching criteria, the tolerance thresholds applied, and the results of the reconciliation.

(c) Address Prof. Hargrove's "insufficient documentation" criticism by demonstrating that the reconciliation between these sources yields a high degree of confidence in the quantified amounts and by identifying the margin of error associated with the walk-in cash payment figures.

(d) Reference specific Bates-numbered documents from the Suncoast financial records produced on November 18, 2022, to provide an evidentiary foundation for the analysis. To the extent that representative examples would be illustrative, Dr. Kettlewell may include selected documents as exhibits to the rebuttal report.

Topic 3: Gross vs. Net OTA Revenue Analysis

We request that Dr. Kettlewell prepare a detailed analysis demonstrating that GRR properly includes gross OTA revenue — i.e., the full room rate charged to the guest — rather than the net amount remitted to Coastal Palms after deduction of OTA commissions. In conducting this analysis, Dr. Kettlewell should:

(a) Articulate the distinction between "revenue derived from the rental of guest rooms" (which is the contractual measure under § 4.1) and "cash collected by the franchisee" (which is not the contractual measure), and explain why OTA commissions represent a cost of distribution rather than a reduction in room revenue.

(b) Include illustrative calculations using actual OTA contracts produced in discovery — specifically, the master services agreements and rate schedules with the principal OTA platforms used by Coastal Palms during the 2013–2021 period — showing the difference between the gross room charge to the guest and the net remittance to Coastal Palms, and demonstrating the commission percentages applicable under each contract.

(c) Address Prof. Hargrove's argument that Coastal Palms "never received" the commission portion, explaining that the relevant inquiry under § 4.1 is whether the revenue was "derived from" the room rental (which it indisputably was), not whether Coastal Palms physically received the funds.

(d) Quantify the aggregate impact of the gross-versus-net OTA revenue treatment across the full 22-property portfolio for the 2013–2021 period, broken down by year and, if practicable, by OTA platform.

Topic 4: Extrapolation Methodology — Defense and Enhancement

This topic is of particular importance because the availability of the full Suncoast financial records (transmitted herewith; see Section IV below) now enables Dr. Kettlewell to perform direct calculations for all 22 properties, effectively superseding the extrapolation methodology that was a necessary feature of her initial report. We request that Dr. Kettlewell address Prof. Hargrove's representativeness criticism by undertaking the following steps:

(a) Explanation of original extrapolation: Explain the statistical basis for the original extrapolation from the 10-property Thornbury audit sample, including the stratified random sampling methodology employed by Thornbury, the confidence interval and margin of error associated with the extrapolation, and the reasonableness of extending the Thornbury findings to the broader portfolio.

(b) Systematic and uniform underreporting: Demonstrate that the underreporting pattern identified by Thornbury was not the product of property-level idiosyncrasies but was systematic and uniform across the portfolio, driven by: (i) the centralized Suncoast booking channel used by all 22 properties; (ii) the gulfcoastrooms.com website, which served as a single booking portal for all Coastal Palms hotels; and (iii) Randall Brecker's uniform directives to all property-level controllers to exclude Suncoast-collected revenues from GRR reports submitted to Verimark. The systematic nature of the scheme was corroborated by the depositions of 10 property-level managers and accountants taken between January 9 and March 17, 2023, transcripts of which are enclosed (see Section IV.D below).

(c) Direct calculation using Suncoast records: Perform direct, property-by-property and year-by-year calculations of underreported GRR for all 22 properties using the full Suncoast financial records now available. These records — including Suncoast general ledgers, bank statements, gulfcoastrooms.com booking logs, and management-fee invoices — were produced on November 18, 2022 as part of the 312,000-document supplemental production compelled by the Court's October 28, 2022 order. The direct calculations should supplement and, where the data are sufficiently complete, supersede the extrapolation, thereby rendering Prof. Hargrove's extrapolation critique moot.

Note: Thornbury's preliminary findings indicated an average underreporting rate of approximately 26% for the 10 audited properties for fiscal years 2019–2021. Dr. Kettlewell's initial report estimated an underreporting range of 22% to 31% across all properties and years. The supplemental Suncoast data transmitted herewith should allow Dr. Kettlewell to determine the actual underreporting rate for each property and each year across the full 2013–2021 period.

Topic 5: Late-Payment Interest — Compounding Under § 4.6

We request that Dr. Kettlewell defend her compounding methodology as mandated by the express terms of FLA § 4.6, which unambiguously provides for interest at the rate of "1.5% per month, compounded monthly." In addressing this topic, Dr. Kettlewell should:

(a) Restate the contractual language of § 4.6 and explain why her compounding methodology is a faithful application of that language.

(b) Provide a detailed table or appendix showing the calculation of the $28.4 million in compounded late-payment interest through the projected judgment date. This table should be broken down by year and by property so that the calculation is fully transparent and verifiable.

(c) Address Prof. Hargrove's unconscionability argument by noting that the question of whether the contractual interest provision is unconscionable or unenforceable as a matter of Florida law is a legal question outside the scope of Dr. Kettlewell's expert engagement. Dr. Kettlewell's role, as a forensic accountant and damages expert, is to calculate damages as contractually defined. The legal enforceability question will be addressed separately in our briefing to the Court, and Dr. Kettlewell should calculate damages under the contractual terms as written.

(d) Present a comparison between compounded and simple interest calculations, so that the Court can readily ascertain the quantitative difference between the two approaches should it be necessary to address the legal enforceability issue.

Note: We will be filing a motion in limine and/or a response to any defense motion addressing the enforceability of the compounding provision. Dr. Kettlewell should not opine on legal questions of enforceability but should ensure that her damages calculation reflects the contract as drafted.

Topic 6: Suncoast Management Fee Treatment

We request that Dr. Kettlewell analyze and address the treatment of the 12% "management fee" retained by Suncoast Room Management Inc. before remitting remaining revenue to the property-level LLCs within the Coastal Palms organizational structure. Prof. Hargrove's report appears to treat this management fee as a legitimate deduction from GRR, reducing the revenue base against which franchise fees are calculated. Dr. Kettlewell should:

(a) Explain why the Suncoast management fee is not a proper deduction from GRR under § 4.1. GRR is a gross-revenue concept: it captures the total revenue derived from guest-room rentals before any deductions for operating costs, management fees, commissions, or other expenses. The Suncoast management fee is an intercompany operational charge — essentially a cost of doing business — and does not reduce the revenue "derived from or attributable to the rental of guest rooms."

(b) Quantify the aggregate management-fee component across the full nine-year period (2013–2021) and across all 22 properties, showing the total dollar amount of management fees deducted by Suncoast and the resulting impact on GRR as reported to Verimark.

(c) Reference the management-fee invoices transmitted herewith (Bates-stamped CPFH-SUP-071559 through CPFH-SUP-078214) as the documentary basis for this analysis.

Topic 7: Reconciliation with Ironclad National Bank Financial Statements

We request that Dr. Kettlewell cross-reference her GRR calculations with the financial statements that Coastal Palms submitted to Ironclad National Bank in connection with Coastal Palms' approximately $94 million in outstanding mortgage loans. These financial statements were produced pursuant to the August 8, 2022 subpoena duces tecum served on Devon Schultz, SVP, Commercial Real Estate Lending, at Ironclad National Bank, and are enclosed herewith (see Section IV.C below).

We expect these financial statements to show revenue figures that are higher than the GRR that Coastal Palms reported to Verimark during the same periods. If so, the differential between the Ironclad-submitted revenue figures and the Verimark-reported GRR would provide an independent, third-party-verified corroboration of the underreporting that Dr. Kettlewell has identified.

(a) Dr. Kettlewell should compare the revenue figures reported to Ironclad with (i) the GRR reported to Verimark, and (ii) her own corrected GRR calculations, on a year-by-year and, where the data permit, property-by-property basis.

(b) To the extent the Ironclad financial statements reveal revenue figures that are consistent with or exceed Dr. Kettlewell's corrected GRR calculations, this should be noted as an independent verification of the reliability of her analysis.

(c) To the extent there are any discrepancies between the Ironclad figures and Dr. Kettlewell's calculations, those discrepancies should be identified and explained.

Topic 8: Response to Hargrove's Alternative Damages Calculation

Finally, we request that Dr. Kettlewell provide a systematic, point-by-point critique of Prof. Hargrove's $6.2 million maximum damages figure. This critique should disassemble Hargrove's figure into its component parts and demonstrate how each of his methodological choices reduces the damages calculation below the level that the contractual terms and the evidence support.

Specifically, Dr. Kettlewell should:

(a) Demonstrate that Hargrove's $6.2 million figure is the cumulative product of four principal methodological choices: (i) the narrowed GRR definition that excludes Suncoast-collected revenues; (ii) the exclusion of walk-in cash payments; (iii) the use of net rather than gross OTA revenue; and (iv) the application of simple rather than compounded interest.

(b) Quantify the individual impact of each of these four methodological choices on the total damages figure, so that the Court can see exactly how much each choice reduces the damages calculation.

(c) Include a reconciliation table that displays, for each component of the damages analysis: Dr. Kettlewell's figure, Prof. Hargrove's figure, and the dollar difference attributable to the methodological disagreement. This table should clearly illustrate that the gap between $6.2 million and Dr. Kettlewell's total damages figure (including interest) is fully explained by identifiable methodological choices, each of which is inconsistent with the contractual language, the documentary evidence, or both.

IV. Supplemental Data Being Transmitted

In connection with the preparation of the rebuttal report, we are transmitting the following categories of supplemental data and documents to Dr. Kettlewell. These materials are being delivered via secure file transfer to Ridgeline Forensic Advisory LLC at its offices at 200 S. Biscayne Boulevard, Suite 1400, Miami, FL 33131. Secure file transfer credentials will be provided separately by our e-discovery vendor, Nexagen Document Solutions LLC (see Section VII below).

A. Additional Suncoast Financial Records

The following Suncoast Room Management Inc. financial records are enclosed:

1. Suncoast general ledgers for fiscal years 2013 through 2021, covering all 22 Coastal Palms properties, Bates-stamped CPFH-SUP-000001 through CPFH-SUP-047832 (47,832 pages). These ledgers include revenue accounts, expense accounts, intercompany transfer entries, and management-fee entries for each property and each fiscal year.

2. Suncoast bank statements for all Suncoast bank accounts for the period 2013 through 2021, Bates-stamped CPFH-SUP-047833 through CPFH-SUP-062419 (14,587 pages). These statements include transaction-level detail for deposits, withdrawals, and intercompany transfers.

3. gulfcoastrooms.com booking logs consisting of a server data export covering the period 2015 through 2021 (gulfcoastrooms.com was launched in 2015), Bates-stamped CPFH-SUP-062420 through CPFH-SUP-071558 (9,139 pages). These logs include reservation-level data including guest name, check-in and check-out dates, room type, room rate, and payment method.

4. Management-fee invoices from Suncoast to the property-level LLCs (including Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and the other property-owning entities within the Coastal Palms structure) for the period 2013 through 2021, Bates-stamped CPFH-SUP-071559 through CPFH-SUP-078214 (6,656 pages). These invoices document the 12% management fee retained by Suncoast from gross room revenues before remittance to the property entities.

All of the foregoing documents were part of the approximately 312,000-document supplemental production made by Coastal Palms on November 18, 2022, which was compelled by the Court's October 28, 2022 order granting Verimark's motion to compel the production of Suncoast financial records.

B. OTA Contracts and Reconciliation Reports

Enclosed are the OTA master services agreements and rate schedules for all third-party online booking platforms used by Coastal Palms properties during the 2013–2021 period, together with the monthly OTA reconciliation reports that Coastal Palms maintained internally. These documents are critical for the gross-versus-net OTA revenue analysis addressed in Topic 3 above, as they establish the contractual commission rates applicable to each OTA platform and provide the transactional data necessary to calculate the difference between gross room charges and net remittances for each property and each year.

C. Ironclad National Bank Financial Statements

Enclosed are the financial statements that Coastal Palms submitted to Ironclad National Bank in connection with loan applications and annual loan-covenant-compliance certifications for the period 2013 through 2021. These financial statements were obtained pursuant to the August 8, 2022 subpoena duces tecum served on Devon Schultz, Senior Vice President, Commercial Real Estate Lending, at Ironclad National Bank. As noted in Topic 7 above, these statements are expected to reflect revenue figures higher than the GRR reported to Verimark, providing an independent corroboration of the underreporting identified by Dr. Kettlewell.

D. Deposition Testimony Excerpts

Enclosed are relevant excerpts from the following depositions, all of which were taken between January 9 and March 17, 2023:

1. Randall Brecker (Days 1 & 2): Key excerpts include Mr. Brecker's admissions regarding his personal direction to property-level controllers to exclude Suncoast-collected revenues from GRR reports submitted to Verimark; his testimony concerning his knowledge of FLA § 4.1 and the GRR definition; and his testimony regarding his establishment, ownership, and operational control of Suncoast Room Management Inc. and the gulfcoastrooms.com website.

2. Janet Kerrigan: Excerpts include Ms. Kerrigan's testimony regarding instructions she received from Brecker to exclude direct-booking revenues from GRR reports, her understanding of the 12% Suncoast management fee, and the OTA netting practice followed at the direction of Coastal Palms corporate management.

3. Nolan Prescott: Excerpts include Mr. Prescott's testimony regarding his receipt of quarterly financial summaries from Suncoast that included Suncoast revenue lines, which contradicts his claimed ignorance of Suncoast's revenue-collection activities and the exclusion of those revenues from Verimark GRR reports.

4. Property-level managers and accountants (composite excerpts): Recurring testimony from 10 property-level witnesses that "corporate" — meaning Brecker and Coastal Palms' central management — directed the routing of walk-in and corporate-direct bookings through Suncoast and the exclusion of those bookings from Verimark GRR reports. This testimony corroborates the systematic, centralized nature of the underreporting scheme and supports both the original extrapolation methodology and the direct calculations now possible with the full Suncoast records.

These deposition excerpts are provided for contextual reference in Dr. Kettlewell's rebuttal report. To the extent Dr. Kettlewell wishes to cite record evidence supporting the factual premises of her methodology — particularly the systematic and centralized nature of the underreporting — she may reference this testimony in her report.

V. Formatting and Procedural Requirements

Dr. Kettlewell's rebuttal report must comply with the following procedural requirements:

1. Florida Rule of Civil Procedure 1.390: The rebuttal report must conform to the requirements of Rule 1.390, including a complete statement of the opinions to be expressed and the basis and reasons for each opinion; the facts or data considered in forming the opinions; any exhibits to be used in support of or as a summary of the opinions; the expert's qualifications (which may be incorporated by reference to Dr. Kettlewell's initial report); a listing of all publications authored by Dr. Kettlewell in the preceding ten years; a list of all cases in which Dr. Kettlewell has testified as an expert at trial or by deposition during the preceding four years; and a statement of the compensation to be paid for the study and testimony in this case.

2. Case management order: The rebuttal report must also conform to the Court's case management order, which limits the rebuttal report to matters raised in Prof. Hargrove's May 15, 2023 expert report. Dr. Kettlewell should not offer new opinions beyond the scope of rebuttal. To the extent the direct calculations using the Suncoast financial records yield updated damages figures, those calculations should be framed as a response to Hargrove's criticism of the extrapolation methodology — not as new affirmative opinions.

3. Service deadline: The rebuttal report must be finalized and served no later than June 9, 2023.

4. Draft review: Please provide a complete draft of the rebuttal report to Calderwood & Harkness no later than June 2, 2023, to allow time for our review and any necessary clarifications before the service deadline.

5. Deposition preparation: Expert depositions of Dr. Kettlewell and Prof. Hargrove are currently scheduled for June 26–27, 2023. Dr. Kettlewell's deposition preparation session will be coordinated by Priya Anand following service of the rebuttal report. A separate memorandum regarding deposition preparation, dated June 19, 2023, will follow.

VI. Billing and Administrative Matters

All work performed by Dr. Kettlewell and her staff in connection with the preparation of the rebuttal report should be billed under the existing retention arrangement set forth in the December 12, 2022 retention letter between Calderwood & Harkness LLP and Ridgeline Forensic Advisory LLC. The applicable billing rates are:

• Dr. Sharon Kettlewell, CPA/CFF, CFE: $475 per hour

• Staff analysts and support personnel: $325 per hour

Please submit all invoices to:

Calderwood & Harkness LLP Fort Lauderdale Office 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301

Attention: Douglas Carmichael, Billing Partner

Total engagement fees for Ridgeline Forensic Advisory LLC to date are being tracked against the $1.85 million engagement budget (inclusive of testimony preparation and deposition attendance). Please contact Douglas Carmichael with any questions regarding the budget or invoicing procedures.

VII. Closing and Contact Information

We appreciate Dr. Kettlewell's continued diligence in this engagement and look forward to reviewing her rebuttal analysis. Given the compressed timeline, prompt attention to this memorandum and the enclosed supplemental data is critical.

For questions regarding data access, document identification, Bates-number references, or the contents of the supplemental production, please direct inquiries to:

Carlos Espinoza, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0128903 Tel: (954) 761-2200

Email: c.espinoza@calderwoodharkness.com

For questions regarding legal strategy, the scope of the rebuttal report, privilege issues, or coordination with the broader litigation team, please direct inquiries to:

Yuki Nakamura, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0119644 Tel: (954) 761-2200

Email: y.nakamura@calderwoodharkness.com

Priya Anand, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0087451 Tel: (954) 761-2200

Email: p.anand@calderwoodharkness.com

Secure file transfer credentials for the supplemental data package described in Section IV will be provided separately by our e-discovery vendor:

Nexagen Document Solutions LLC 400 Northpark Town Center, Suite 500 Atlanta, GA 30328

Dr. Kettlewell should expect to receive the credentials and access instructions directly from Nexagen within 24 hours of the date of this memorandum.

Respectfully,

CALDERWOOD & HARKNESS LLP

By: ________

Yuki Nakamura Lead Associate Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0119644 Tel: (954) 761-2200

Email: y.nakamura@calderwoodharkness.com

Enclosures (via secure file transfer):

1. Suncoast Room Management Inc. general ledgers, FY 2013–2021 (CPFH-SUP-000001 through CPFH-SUP-047832)

2. Suncoast bank statements, 2013–2021 (CPFH-SUP-047833 through CPFH-SUP-062419)

3. gulfcoastrooms.com booking logs, 2015–2021 (CPFH-SUP-062420 through CPFH-SUP-071558)

4. Suncoast management-fee invoices, 2013–2021 (CPFH-SUP-071559 through CPFH-SUP-078214)

5. OTA master services agreements, rate schedules, and monthly reconciliation reports, 2013–2021

6. Ironclad National Bank financial statements and covenant-compliance certifications, 2013–2021

7. Deposition transcript excerpts (Brecker, Kerrigan, Prescott, and property-level witnesses), January 9–March 17, 2023

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure under the work-product doctrine, Florida Rule of Civil Procedure 1.280(b)(4), and all other applicable state and federal privileges. Transmittal of this memorandum to Dr. Sharon Kettlewell is made solely in furtherance of her engagement as a testifying expert witness under the December 12, 2022 retention letter executed between Calderwood & Harkness LLP and Ridgeline Forensic Advisory LLC, and does not constitute a waiver of any applicable privilege or protection. Any unauthorized review, use, disclosure, or distribution of this memorandum or any information contained herein is strictly prohibited.
May 30, 2023
MEMORANDUM
FROM: Yuki Nakamura, Calderwood & Harkness LLP (FL Bar No. 0119644)
TO: Dr. Sharon Kettlewell, CPA/CFF, CFE, Ridgeline Forensic Advisory LLC
RE: Rebuttal Report Topics and Additional Data — 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)
CC: Priya Anand, Esq., Responsible Partner (FL Bar No. 0087451) Carlos Espinoza, Esq., Working Associate (FL Bar No. 0128903)
DEADLINE: Rebuttal expert report must be finalized and served no later than June 9, 2023.
I. Purpose of This Memorandum
This memorandum serves three interrelated purposes. First, it transmits to Dr. Kettlewell the specific rebuttal topics, supplemental data, and requested analyses that should be addressed in her rebuttal expert report. The rebuttal report is being prepared in response to the expert report of Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., which was served on behalf of Defendant Coastal Palms Franchise Holdings LLC ("Coastal Palms") on May 15, 2023 (the "Hargrove Report"). Prof. Hargrove was retained by Coastal Palms to opine on the calculation of Gross Room Revenue ("GRR") under the Franchise License Agreement ("FLA"), the quantification of franchise-fee underpayments, and the computation of late-payment interest, and his opinions differ materially from those expressed in Dr. Kettlewell's initial expert report served on April 17, 2023.
Second, this memorandum cross-references and builds upon the internal analysis memorandum prepared by Carlos Espinoza on May 22, 2023, which identified the principal methodological errors and analytical deficiencies in the Hargrove Report and recommended specific rebuttal topics for Dr. Kettlewell's consideration. This memorandum formalizes those recommendations into discrete requests and transmits the supporting documents and data that Dr. Kettlewell will need to complete her rebuttal analysis.
Third, this memorandum addresses procedural and logistical matters bearing on the preparation and service of the rebuttal report. As noted above, the Court's scheduling order requires that the rebuttal report be served by June 9, 2023. Expert depositions of both Dr. Kettlewell and Prof. Hargrove are currently set for June 26–27, 2023, and adequate time must be reserved between service of the rebuttal report and those depositions for preparation. We therefore request that Dr. Kettlewell provide a draft of the rebuttal report to Calderwood & Harkness no later than June 2, 2023, to allow for review and any clarifications before the service deadline.
II. Summary of Prof. Hargrove's Key Opinions to Be Rebutted
Before turning to the specific rebuttal topics requested, it is useful to summarize the principal opinions set forth in the Hargrove Report that require a response. What follows is a condensed overview of those opinions, together with our preliminary observations on the vulnerabilities of each. Dr. Kettlewell should use this summary as a roadmap for structuring her rebuttal report, though she is of course free to organize her analysis in whatever manner she deems most effective.
A. Hargrove's Conclusion on Total Damages
Prof. Hargrove opines that, even assuming some degree of GRR underreporting by Coastal Palms, the total underpayment of franchise fees amounts to no more than $6.2 million over the nine-year period from 2013 through 2021. This figure represents a small fraction of the damages calculated in Dr. Kettlewell's initial expert report. As Dr. Kettlewell documented in that report, cumulative underreported GRR across the 22-property Coastal Palms portfolio totaled approximately $197.8 million, resulting in direct franchise-fee underpayments of approximately $16.095 million (exclusive of interest). Prof. Hargrove's dramatically lower figure is the product of several compounding methodological choices, each of which narrows the damages calculation in a manner favorable to Coastal Palms. These include: (1) a narrowed definition of GRR that excludes revenues collected by Suncoast Room Management Inc.; (2) the exclusion of walk-in cash payments for alleged lack of documentation; (3) the treatment of OTA revenues on a net rather than gross basis; (4) the rejection of Dr. Kettlewell's extrapolation methodology; and (5) the application of simple interest rather than the compounded interest expressly required by FLA § 4.6. Each of these methodological choices is addressed in greater detail below.
B. Hargrove's Narrowed GRR Definition
A central pillar of the Hargrove Report is the contention that FLA § 4.1's definition of "Gross Room Revenue" is ambiguous as applied to revenues collected by Suncoast Room Management Inc. ("Suncoast"), a separate entity incorporated in Florida by Randall Brecker, the President and controlling principal of Coastal Palms. Prof. Hargrove excludes from his GRR calculation all revenues collected through Suncoast on the theory that Suncoast is a "separate legal entity" from Coastal Palms and that revenues collected by Suncoast are not, in his view, "derived from or attributable to the rental of guest rooms at the Hotel" within the meaning of § 4.1.
This interpretation is untenable on the face of the contract. Section 4.1 of the FLA defines GRR as follows:
"'Gross Room Revenue' means all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue."
The phrase "regardless of the entity collecting such revenue" directly and unambiguously forecloses the separate-entity interpretation advanced by Prof. Hargrove. That language was plainly designed to prevent precisely the kind of revenue-diversion structure that Coastal Palms implemented through Suncoast. Moreover, the undisputed evidence demonstrates that Suncoast was incorporated by Brecker, controlled by him as President, operated out of the same offices as Coastal Palms at 1700 Palm Beach Lakes Boulevard, West Palm Beach, Florida, and its sole function was collecting guest-room revenues for the very hotel properties subject to the FLA. Under these circumstances, Suncoast revenues are inescapably "derived from or attributable to the rental of guest rooms at the Hotel."
Dr. Kettlewell's rebuttal report should address this definitional issue squarely.
C. Exclusion of Walk-In Cash Payments
Prof. Hargrove excludes walk-in cash payments entirely from his GRR calculation, asserting that there is "insufficient documentation" to verify the amounts of such payments. This exclusion is both factually and methodologically unsound.
Dr. Kettlewell's initial expert report quantified walk-in cash payments using three independent data sources: (1) Suncoast bank deposit records reflecting cash deposits attributable to the hotel properties; (2) property-management-system ("PMS") data from the Opera and RoomKey platforms used at the Coastal Palms properties, which log check-in and check-out events along with payment method and amount; and (3) daily cash-drawer reconciliation reports maintained at the property level and produced as part of the November 18, 2022 supplemental production (which encompassed approximately 312,000 documents, including the Suncoast records, compelled by the Court's October 28, 2022 order granting Verimark's motion to compel). The cross-referencing of these three independent sources provided a reliable basis for quantifying walk-in cash payments, and Dr. Kettlewell's rebuttal report should demonstrate this reliability in detail.
D. Net vs. Gross OTA Revenue Treatment
Prof. Hargrove attributes only net-rate OTA payments to GRR, excluding the commission component retained by the online travel agencies. His rationale is that Coastal Palms "never received" the commission portion and therefore it cannot constitute GRR. This argument confuses cash receipts with revenue derivation.
Section 4.1 defines GRR as "all revenues derived from or attributable to the rental of guest rooms," not "all revenues received." The gross amount charged to the guest is the revenue "derived from" the room rental; the OTA commission is a cost of distribution — analogous to a credit-card processing fee or travel-agent commission — not a reduction in the revenue generated by the room rental. Notably, Coastal Palms' own internal accounting practices confirm this interpretation: Coastal Palms classified net-rate OTA payments as "commissions receivable" in its general ledger and netted them against GRR in its reports to Verimark, which itself constituted a violation of § 4.1's gross-revenue construct.
The rebuttal report should address this distinction with reference to the specific OTA contracts produced in discovery and should quantify the aggregate impact of the net-versus-gross treatment across the full portfolio and time period.
E. Rejection of Extrapolation Methodology
Prof. Hargrove devotes a significant portion of his report to criticizing the extrapolation methodology employed by Dr. Kettlewell in her initial report. Specifically, Dr. Kettlewell's initial report relied in part on the preliminary audit findings of Thornbury & Associates CPAs LLP ("Thornbury"), which audited 10 of the 22 Coastal Palms properties and delivered preliminary findings on January 18, 2022. Those findings indicated an average GRR underreporting rate of approximately 26% for the fiscal years 2019 through 2021. Dr. Kettlewell used the Thornbury findings, supplemented by additional data analysis, to extrapolate an estimated underreporting range of 22% to 31% across all 22 properties and across the full 2013–2021 period.
Prof. Hargrove asserts that this extrapolation is unreliable because the 10 audited properties "may not be representative" of the remaining 12 properties. He argues that property-level differences in size, location, booking mix, and management could produce materially different underreporting rates at non-audited properties.
This criticism can be addressed on multiple fronts. First, the 10 audited properties were selected by Thornbury using a stratified random sample across geographic regions, property sizes, and revenue tiers, providing a statistically sound basis for extrapolation. Second, and more fundamentally, the underreporting was not driven by property-level idiosyncrasies but by a centralized, uniform scheme directed by Brecker — all 22 properties used the same Suncoast booking channel and gulfcoastrooms.com website, and Brecker issued uniform directives to all property-level controllers to exclude Suncoast-collected revenues from GRR reports. This uniformity was established through the depositions of 10 property-level managers and accountants taken between January 9 and March 17, 2023. Third, and most importantly, the full Suncoast financial records for all 22 properties are now available, having been produced on November 18, 2022. These records allow Dr. Kettlewell to perform direct, property-by-property calculations for the entire portfolio, effectively superseding the extrapolation methodology and rendering Hargrove's representativeness critique moot.
F. Challenge to Late-Payment Interest Compounding
Finally, Prof. Hargrove challenges Dr. Kettlewell's calculation of late-payment interest under FLA § 4.6. Dr. Kettlewell's initial report calculated accrued late-payment interest of $28.4 million through the projected judgment date, applying the 1.5% per month compounded-monthly methodology prescribed by the contract. Prof. Hargrove asserts that § 4.6's interest provision should be applied as simple interest, not compounded, arguing that the compounding interpretation is "unconscionable" and unenforceable under Florida law.
The contractual language, however, is unambiguous. Section 4.6 provides:
"Any amounts due and payable under this Agreement that remain unpaid after the applicable due date shall accrue interest at the rate of one and one-half percent (1.5%) per month, compounded monthly, from the date such payment was due until the date of actual payment."
The phrase "compounded monthly" leaves no room for the interpretation that Prof. Hargrove advances. Dr. Kettlewell's rebuttal report should defend the compounding methodology as a straightforward application of the express contractual terms. To the extent Prof. Hargrove's unconscionability argument raises a legal question regarding enforceability, that issue will be addressed separately in our motion briefing; Dr. Kettlewell's role is to calculate damages as the contract defines them.
III. Rebuttal Topics — Specific Requests
The following sets forth the specific rebuttal topics that we request Dr. Kettlewell address in her rebuttal report. These topics track the principal areas of disagreement between Dr. Kettlewell's initial opinions and those expressed in the Hargrove Report. We have organized them as discrete numbered topics to facilitate Dr. Kettlewell's workflow, though the final report may be organized differently at her discretion.
Topic 1: Reaffirmation of GRR Definition Under FLA § 4.1
We request that Dr. Kettlewell restate and defend her interpretation of the § 4.1 GRR definition as encompassing all revenues generated from guest-room rentals at the Coastal Palms hotel properties, regardless of the booking channel through which the reservation was made (whether direct bookings, OTA bookings, walk-in reservations, corporate-direct bookings, or bookings through gulfcoastrooms.com) and regardless of the legal entity that collected the revenue (whether Suncoast Room Management Inc., Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, or any property-level entity within the Coastal Palms organizational structure).
In addressing this topic, Dr. Kettlewell should:
(a) Cite the contractual language of § 4.1 verbatim, with particular emphasis on the phrase "regardless of the entity collecting such revenue."
(b) Address Prof. Hargrove's separate-entity argument directly, explaining why it is inconsistent with the plain language of § 4.1 and noting the undisputed facts regarding the relationship between Suncoast and Coastal Palms — specifically, that Suncoast was incorporated by Randall Brecker, controlled by him as President, operated out of the same offices as Coastal Palms at 1700 Palm Beach Lakes Boulevard, West Palm Beach, Florida, and that its sole function was collecting guest-room revenues for the same hotel properties that are the subject of the FLA.
(c) Explain how the inclusion of Suncoast-collected revenues in GRR affects the overall damages calculation, quantifying the dollar impact of Hargrove's exclusion of Suncoast revenues.
Topic 2: Walk-In Cash Payment Quantification — Reliability of Data Sources
We request that Dr. Kettlewell provide a detailed explanation and defense of the three-source cross-referencing methodology she employed to quantify walk-in cash payments in her initial report. Specifically, Dr. Kettlewell should:
(a) Describe in detail the three independent data sources used for quantification: (i) Suncoast bank deposit records, (ii) PMS check-in/check-out logs from the Opera and RoomKey property-management systems, and (iii) daily cash-drawer reconciliation reports maintained at the property level.
(b) Explain the reconciliation process used to cross-reference these three sources, including the matching criteria, the tolerance thresholds applied, and the results of the reconciliation.
(c) Address Prof. Hargrove's "insufficient documentation" criticism by demonstrating that the reconciliation between these sources yields a high degree of confidence in the quantified amounts and by identifying the margin of error associated with the walk-in cash payment figures.
(d) Reference specific Bates-numbered documents from the Suncoast financial records produced on November 18, 2022, to provide an evidentiary foundation for the analysis. To the extent that representative examples would be illustrative, Dr. Kettlewell may include selected documents as exhibits to the rebuttal report.
Topic 3: Gross vs. Net OTA Revenue Analysis
We request that Dr. Kettlewell prepare a detailed analysis demonstrating that GRR properly includes gross OTA revenue — i.e., the full room rate charged to the guest — rather than the net amount remitted to Coastal Palms after deduction of OTA commissions. In conducting this analysis, Dr. Kettlewell should:
(a) Articulate the distinction between "revenue derived from the rental of guest rooms" (which is the contractual measure under § 4.1) and "cash collected by the franchisee" (which is not the contractual measure), and explain why OTA commissions represent a cost of distribution rather than a reduction in room revenue.
(b) Include illustrative calculations using actual OTA contracts produced in discovery — specifically, the master services agreements and rate schedules with the principal OTA platforms used by Coastal Palms during the 2013–2021 period — showing the difference between the gross room charge to the guest and the net remittance to Coastal Palms, and demonstrating the commission percentages applicable under each contract.
(c) Address Prof. Hargrove's argument that Coastal Palms "never received" the commission portion, explaining that the relevant inquiry under § 4.1 is whether the revenue was "derived from" the room rental (which it indisputably was), not whether Coastal Palms physically received the funds.
(d) Quantify the aggregate impact of the gross-versus-net OTA revenue treatment across the full 22-property portfolio for the 2013–2021 period, broken down by year and, if practicable, by OTA platform.
Topic 4: Extrapolation Methodology — Defense and Enhancement
This topic is of particular importance because the availability of the full Suncoast financial records (transmitted herewith; see Section IV below) now enables Dr. Kettlewell to perform direct calculations for all 22 properties, effectively superseding the extrapolation methodology that was a necessary feature of her initial report. We request that Dr. Kettlewell address Prof. Hargrove's representativeness criticism by undertaking the following steps:
(a) Explanation of original extrapolation: Explain the statistical basis for the original extrapolation from the 10-property Thornbury audit sample, including the stratified random sampling methodology employed by Thornbury, the confidence interval and margin of error associated with the extrapolation, and the reasonableness of extending the Thornbury findings to the broader portfolio.
(b) Systematic and uniform underreporting: Demonstrate that the underreporting pattern identified by Thornbury was not the product of property-level idiosyncrasies but was systematic and uniform across the portfolio, driven by: (i) the centralized Suncoast booking channel used by all 22 properties; (ii) the gulfcoastrooms.com website, which served as a single booking portal for all Coastal Palms hotels; and (iii) Randall Brecker's uniform directives to all property-level controllers to exclude Suncoast-collected revenues from GRR reports submitted to Verimark. The systematic nature of the scheme was corroborated by the depositions of 10 property-level managers and accountants taken between January 9 and March 17, 2023, transcripts of which are enclosed (see Section IV.D below).
(c) Direct calculation using Suncoast records: Perform direct, property-by-property and year-by-year calculations of underreported GRR for all 22 properties using the full Suncoast financial records now available. These records — including Suncoast general ledgers, bank statements, gulfcoastrooms.com booking logs, and management-fee invoices — were produced on November 18, 2022 as part of the 312,000-document supplemental production compelled by the Court's October 28, 2022 order. The direct calculations should supplement and, where the data are sufficiently complete, supersede the extrapolation, thereby rendering Prof. Hargrove's extrapolation critique moot.
Note: Thornbury's preliminary findings indicated an average underreporting rate of approximately 26% for the 10 audited properties for fiscal years 2019–2021. Dr. Kettlewell's initial report estimated an underreporting range of 22% to 31% across all properties and years. The supplemental Suncoast data transmitted herewith should allow Dr. Kettlewell to determine the actual underreporting rate for each property and each year across the full 2013–2021 period.
Topic 5: Late-Payment Interest — Compounding Under § 4.6
We request that Dr. Kettlewell defend her compounding methodology as mandated by the express terms of FLA § 4.6, which unambiguously provides for interest at the rate of "1.5% per month, compounded monthly." In addressing this topic, Dr. Kettlewell should:
(a) Restate the contractual language of § 4.6 and explain why her compounding methodology is a faithful application of that language.
(b) Provide a detailed table or appendix showing the calculation of the $28.4 million in compounded late-payment interest through the projected judgment date. This table should be broken down by year and by property so that the calculation is fully transparent and verifiable.
(c) Address Prof. Hargrove's unconscionability argument by noting that the question of whether the contractual interest provision is unconscionable or unenforceable as a matter of Florida law is a legal question outside the scope of Dr. Kettlewell's expert engagement. Dr. Kettlewell's role, as a forensic accountant and damages expert, is to calculate damages as contractually defined. The legal enforceability question will be addressed separately in our briefing to the Court, and Dr. Kettlewell should calculate damages under the contractual terms as written.
(d) Present a comparison between compounded and simple interest calculations, so that the Court can readily ascertain the quantitative difference between the two approaches should it be necessary to address the legal enforceability issue.
Note: We will be filing a motion in limine and/or a response to any defense motion addressing the enforceability of the compounding provision. Dr. Kettlewell should not opine on legal questions of enforceability but should ensure that her damages calculation reflects the contract as drafted.
Topic 6: Suncoast Management Fee Treatment
We request that Dr. Kettlewell analyze and address the treatment of the 12% "management fee" retained by Suncoast Room Management Inc. before remitting remaining revenue to the property-level LLCs within the Coastal Palms organizational structure. Prof. Hargrove's report appears to treat this management fee as a legitimate deduction from GRR, reducing the revenue base against which franchise fees are calculated. Dr. Kettlewell should:
(a) Explain why the Suncoast management fee is not a proper deduction from GRR under § 4.1. GRR is a gross-revenue concept: it captures the total revenue derived from guest-room rentals before any deductions for operating costs, management fees, commissions, or other expenses. The Suncoast management fee is an intercompany operational charge — essentially a cost of doing business — and does not reduce the revenue "derived from or attributable to the rental of guest rooms."
(b) Quantify the aggregate management-fee component across the full nine-year period (2013–2021) and across all 22 properties, showing the total dollar amount of management fees deducted by Suncoast and the resulting impact on GRR as reported to Verimark.
(c) Reference the management-fee invoices transmitted herewith (Bates-stamped CPFH-SUP-071559 through CPFH-SUP-078214) as the documentary basis for this analysis.
Topic 7: Reconciliation with Ironclad National Bank Financial Statements
We request that Dr. Kettlewell cross-reference her GRR calculations with the financial statements that Coastal Palms submitted to Ironclad National Bank in connection with Coastal Palms' approximately $94 million in outstanding mortgage loans. These financial statements were produced pursuant to the August 8, 2022 subpoena duces tecum served on Devon Schultz, SVP, Commercial Real Estate Lending, at Ironclad National Bank, and are enclosed herewith (see Section IV.C below).
We expect these financial statements to show revenue figures that are higher than the GRR that Coastal Palms reported to Verimark during the same periods. If so, the differential between the Ironclad-submitted revenue figures and the Verimark-reported GRR would provide an independent, third-party-verified corroboration of the underreporting that Dr. Kettlewell has identified.
(a) Dr. Kettlewell should compare the revenue figures reported to Ironclad with (i) the GRR reported to Verimark, and (ii) her own corrected GRR calculations, on a year-by-year and, where the data permit, property-by-property basis.
(b) To the extent the Ironclad financial statements reveal revenue figures that are consistent with or exceed Dr. Kettlewell's corrected GRR calculations, this should be noted as an independent verification of the reliability of her analysis.
(c) To the extent there are any discrepancies between the Ironclad figures and Dr. Kettlewell's calculations, those discrepancies should be identified and explained.
Topic 8: Response to Hargrove's Alternative Damages Calculation
Finally, we request that Dr. Kettlewell provide a systematic, point-by-point critique of Prof. Hargrove's $6.2 million maximum damages figure. This critique should disassemble Hargrove's figure into its component parts and demonstrate how each of his methodological choices reduces the damages calculation below the level that the contractual terms and the evidence support.
Specifically, Dr. Kettlewell should:
(a) Demonstrate that Hargrove's $6.2 million figure is the cumulative product of four principal methodological choices: (i) the narrowed GRR definition that excludes Suncoast-collected revenues; (ii) the exclusion of walk-in cash payments; (iii) the use of net rather than gross OTA revenue; and (iv) the application of simple rather than compounded interest.
(b) Quantify the individual impact of each of these four methodological choices on the total damages figure, so that the Court can see exactly how much each choice reduces the damages calculation.
(c) Include a reconciliation table that displays, for each component of the damages analysis: Dr. Kettlewell's figure, Prof. Hargrove's figure, and the dollar difference attributable to the methodological disagreement. This table should clearly illustrate that the gap between $6.2 million and Dr. Kettlewell's total damages figure (including interest) is fully explained by identifiable methodological choices, each of which is inconsistent with the contractual language, the documentary evidence, or both.
IV. Supplemental Data Being Transmitted
In connection with the preparation of the rebuttal report, we are transmitting the following categories of supplemental data and documents to Dr. Kettlewell. These materials are being delivered via secure file transfer to Ridgeline Forensic Advisory LLC at its offices at 200 S. Biscayne Boulevard, Suite 1400, Miami, FL 33131. Secure file transfer credentials will be provided separately by our e-discovery vendor, Nexagen Document Solutions LLC (see Section VII below).
A. Additional Suncoast Financial Records
The following Suncoast Room Management Inc. financial records are enclosed:
1. Suncoast general ledgers for fiscal years 2013 through 2021, covering all 22 Coastal Palms properties, Bates-stamped CPFH-SUP-000001 through CPFH-SUP-047832 (47,832 pages). These ledgers include revenue accounts, expense accounts, intercompany transfer entries, and management-fee entries for each property and each fiscal year.
2. Suncoast bank statements for all Suncoast bank accounts for the period 2013 through 2021, Bates-stamped CPFH-SUP-047833 through CPFH-SUP-062419 (14,587 pages). These statements include transaction-level detail for deposits, withdrawals, and intercompany transfers.
3. gulfcoastrooms.com booking logs consisting of a server data export covering the period 2015 through 2021 (gulfcoastrooms.com was launched in 2015), Bates-stamped CPFH-SUP-062420 through CPFH-SUP-071558 (9,139 pages). These logs include reservation-level data including guest name, check-in and check-out dates, room type, room rate, and payment method.
4. Management-fee invoices from Suncoast to the property-level LLCs (including Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and the other property-owning entities within the Coastal Palms structure) for the period 2013 through 2021, Bates-stamped CPFH-SUP-071559 through CPFH-SUP-078214 (6,656 pages). These invoices document the 12% management fee retained by Suncoast from gross room revenues before remittance to the property entities.
All of the foregoing documents were part of the approximately 312,000-document supplemental production made by Coastal Palms on November 18, 2022, which was compelled by the Court's October 28, 2022 order granting Verimark's motion to compel the production of Suncoast financial records.
B. OTA Contracts and Reconciliation Reports
Enclosed are the OTA master services agreements and rate schedules for all third-party online booking platforms used by Coastal Palms properties during the 2013–2021 period, together with the monthly OTA reconciliation reports that Coastal Palms maintained internally. These documents are critical for the gross-versus-net OTA revenue analysis addressed in Topic 3 above, as they establish the contractual commission rates applicable to each OTA platform and provide the transactional data necessary to calculate the difference between gross room charges and net remittances for each property and each year.
C. Ironclad National Bank Financial Statements
Enclosed are the financial statements that Coastal Palms submitted to Ironclad National Bank in connection with loan applications and annual loan-covenant-compliance certifications for the period 2013 through 2021. These financial statements were obtained pursuant to the August 8, 2022 subpoena duces tecum served on Devon Schultz, Senior Vice President, Commercial Real Estate Lending, at Ironclad National Bank. As noted in Topic 7 above, these statements are expected to reflect revenue figures higher than the GRR reported to Verimark, providing an independent corroboration of the underreporting identified by Dr. Kettlewell.
D. Deposition Testimony Excerpts
Enclosed are relevant excerpts from the following depositions, all of which were taken between January 9 and March 17, 2023:
1. Randall Brecker (Days 1 & 2): Key excerpts include Mr. Brecker's admissions regarding his personal direction to property-level controllers to exclude Suncoast-collected revenues from GRR reports submitted to Verimark; his testimony concerning his knowledge of FLA § 4.1 and the GRR definition; and his testimony regarding his establishment, ownership, and operational control of Suncoast Room Management Inc. and the gulfcoastrooms.com website.
2. Janet Kerrigan: Excerpts include Ms. Kerrigan's testimony regarding instructions she received from Brecker to exclude direct-booking revenues from GRR reports, her understanding of the 12% Suncoast management fee, and the OTA netting practice followed at the direction of Coastal Palms corporate management.
3. Nolan Prescott: Excerpts include Mr. Prescott's testimony regarding his receipt of quarterly financial summaries from Suncoast that included Suncoast revenue lines, which contradicts his claimed ignorance of Suncoast's revenue-collection activities and the exclusion of those revenues from Verimark GRR reports.
4. Property-level managers and accountants (composite excerpts): Recurring testimony from 10 property-level witnesses that "corporate" — meaning Brecker and Coastal Palms' central management — directed the routing of walk-in and corporate-direct bookings through Suncoast and the exclusion of those bookings from Verimark GRR reports. This testimony corroborates the systematic, centralized nature of the underreporting scheme and supports both the original extrapolation methodology and the direct calculations now possible with the full Suncoast records.
These deposition excerpts are provided for contextual reference in Dr. Kettlewell's rebuttal report. To the extent Dr. Kettlewell wishes to cite record evidence supporting the factual premises of her methodology — particularly the systematic and centralized nature of the underreporting — she may reference this testimony in her report.
V. Formatting and Procedural Requirements
Dr. Kettlewell's rebuttal report must comply with the following procedural requirements:
1. Florida Rule of Civil Procedure 1.390: The rebuttal report must conform to the requirements of Rule 1.390, including a complete statement of the opinions to be expressed and the basis and reasons for each opinion; the facts or data considered in forming the opinions; any exhibits to be used in support of or as a summary of the opinions; the expert's qualifications (which may be incorporated by reference to Dr. Kettlewell's initial report); a listing of all publications authored by Dr. Kettlewell in the preceding ten years; a list of all cases in which Dr. Kettlewell has testified as an expert at trial or by deposition during the preceding four years; and a statement of the compensation to be paid for the study and testimony in this case.
2. Case management order: The rebuttal report must also conform to the Court's case management order, which limits the rebuttal report to matters raised in Prof. Hargrove's May 15, 2023 expert report. Dr. Kettlewell should not offer new opinions beyond the scope of rebuttal. To the extent the direct calculations using the Suncoast financial records yield updated damages figures, those calculations should be framed as a response to Hargrove's criticism of the extrapolation methodology — not as new affirmative opinions.
3. Service deadline: The rebuttal report must be finalized and served no later than June 9, 2023.
4. Draft review: Please provide a complete draft of the rebuttal report to Calderwood & Harkness no later than June 2, 2023, to allow time for our review and any necessary clarifications before the service deadline.
5. Deposition preparation: Expert depositions of Dr. Kettlewell and Prof. Hargrove are currently scheduled for June 26–27, 2023. Dr. Kettlewell's deposition preparation session will be coordinated by Priya Anand following service of the rebuttal report. A separate memorandum regarding deposition preparation, dated June 19, 2023, will follow.
VI. Billing and Administrative Matters
All work performed by Dr. Kettlewell and her staff in connection with the preparation of the rebuttal report should be billed under the existing retention arrangement set forth in the December 12, 2022 retention letter between Calderwood & Harkness LLP and Ridgeline Forensic Advisory LLC. The applicable billing rates are:
• Dr. Sharon Kettlewell, CPA/CFF, CFE: $475 per hour
• Staff analysts and support personnel: $325 per hour
Please submit all invoices to:
Calderwood & Harkness LLP Fort Lauderdale Office 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301
Attention: Douglas Carmichael, Billing Partner
Total engagement fees for Ridgeline Forensic Advisory LLC to date are being tracked against the $1.85 million engagement budget (inclusive of testimony preparation and deposition attendance). Please contact Douglas Carmichael with any questions regarding the budget or invoicing procedures.
VII. Closing and Contact Information
We appreciate Dr. Kettlewell's continued diligence in this engagement and look forward to reviewing her rebuttal analysis. Given the compressed timeline, prompt attention to this memorandum and the enclosed supplemental data is critical.
For questions regarding data access, document identification, Bates-number references, or the contents of the supplemental production, please direct inquiries to:
Carlos Espinoza, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0128903 Tel: (954) 761-2200
Email: c.espinoza@calderwoodharkness.com
For questions regarding legal strategy, the scope of the rebuttal report, privilege issues, or coordination with the broader litigation team, please direct inquiries to:
Yuki Nakamura, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0119644 Tel: (954) 761-2200
Email: y.nakamura@calderwoodharkness.com
Priya Anand, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0087451 Tel: (954) 761-2200
Email: p.anand@calderwoodharkness.com
Secure file transfer credentials for the supplemental data package described in Section IV will be provided separately by our e-discovery vendor:
Nexagen Document Solutions LLC 400 Northpark Town Center, Suite 500 Atlanta, GA 30328
Dr. Kettlewell should expect to receive the credentials and access instructions directly from Nexagen within 24 hours of the date of this memorandum.
Respectfully,
CALDERWOOD & HARKNESS LLP
By: ________
Yuki Nakamura Lead Associate Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 FL Bar No. 0119644 Tel: (954) 761-2200
Email: y.nakamura@calderwoodharkness.com
Enclosures (via secure file transfer):
1. Suncoast Room Management Inc. general ledgers, FY 2013–2021 (CPFH-SUP-000001 through CPFH-SUP-047832)
2. Suncoast bank statements, 2013–2021 (CPFH-SUP-047833 through CPFH-SUP-062419)
3. gulfcoastrooms.com booking logs, 2015–2021 (CPFH-SUP-062420 through CPFH-SUP-071558)
4. Suncoast management-fee invoices, 2013–2021 (CPFH-SUP-071559 through CPFH-SUP-078214)
5. OTA master services agreements, rate schedules, and monthly reconciliation reports, 2013–2021
6. Ironclad National Bank financial statements and covenant-compliance certifications, 2013–2021
7. Deposition transcript excerpts (Brecker, Kerrigan, Prescott, and property-level witnesses), January 9–March 17, 2023

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

CALDERWOOD & HARKNESS LLP

Record

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Dates

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