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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

October 20, 2023

FROM: Yuki Nakamura, Lead Associate, Litigation (General), FL Bar No. 0119644

TO: Priya Anand, Responsible Partner, Litigation (General), FL Bar No. 0087451

DATE: October 20, 2023

RE: Analysis of Defendant's Cross-Motion for Summary Judgment — 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

CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VHMK)

MATTER NUMBER: 1021-00006

CC: Douglas Carmichael, Billing Partner; Carlos Espinoza, Working Associate

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I. EXECUTIVE SUMMARY

The purpose of this memorandum is to analyze the Cross-Motion for Summary Judgment filed by Defendant Coastal Palms Franchise Holdings LLC ("Coastal Palms") on October 13, 2023, identify the weaknesses in each of the five principal arguments advanced by the defense, recommend a comprehensive response strategy, and highlight the numerous genuine disputes of material fact that preclude entry of summary judgment in Defendant's favor.

Coastal Palms seeks summary judgment on all ten counts of Verimark Hospitality Group Inc.'s ("Verimark") Complaint, as well as on its own $12 million Counterclaim alleging brand-standard violations and over-billing. The Cross-Motion was filed by defense counsel Nathan Whitfield III and Gabriela Montes of Whitfield, Barrow & Crane LLP, 1221 Brickell Avenue, Suite 3000, Miami, Florida 33131.

Overall Assessment. The Cross-Motion should be denied in its entirety. Coastal Palms' arguments rest primarily on a strained "ambiguity" reading of FLA § 4.1's definition of Gross Room Revenue ("GRR") that is flatly contradicted by the plain contractual language, extensive deposition testimony — most critically, the admissions made by Randall Brecker during his two-day deposition in January 2023 — and the detailed forensic findings set forth in the expert report of Dr. Sharon Kettlewell, CPA/CFF, CFE, of Ridgeline Forensic Advisory LLC. The subsidiary arguments regarding ratification, acquiescence, and constructive knowledge are barred by the Franchise License Agreements' express no-waiver clause and are further negated by the overwhelming evidence of affirmative concealment. The damages challenge amounts to a classic battle of the experts that creates, rather than resolves, triable issues of fact. The tort and equitable counts involve fact-intensive inquiries that are manifestly inappropriate for summary adjudication. And on its own Counterclaim, Coastal Palms has failed to adduce any competent evidence of damages or causation for its brand-standard allegations.

We recommend filing our Response in Opposition by the November 17, 2023 deadline. Carlos Espinoza should be allocated primary drafting responsibility, with my review and revision targeted for completion by November 8, 2023, and your final review and approval by November 10, 2023, to allow adequate time for cite-checking and formatting before filing.

II. PROCEDURAL BACKGROUND

The procedural history of this litigation is extensive and sets important context for evaluating the posture in which the Cross-Motion arrives. We summarize the key milestones below.

Complaint and Responsive Pleadings. Verimark filed its Complaint on March 7, 2022, asserting ten counts against Coastal Palms Franchise Holdings LLC, Randall Brecker (individually and as managing member of Coastal Palms and president of Suncoast Room Management Inc.), and Suncoast Room Management Inc. ("Suncoast"). The ten counts comprise breach of contract (Counts I–III), breach of the implied covenant of good faith and fair dealing (Count IV), fraudulent concealment (Count V), negligent misrepresentation (Count VI), unjust enrichment (Count VII, pleaded in the alternative), declaratory judgment regarding FLA termination (Count VIII), accounting (Count IX), and civil conspiracy (Count X). Coastal Palms filed its Answer, Affirmative Defenses, and Counterclaim on April 18, 2022, asserting a $12 million Counterclaim for alleged brand-standard violations and over-billing. Verimark answered the Counterclaim on May 2, 2022.

Case Management and Trial Setting. A Case Management Conference was held before the Honorable Richard M. Calloway on June 14, 2022, at which the Court entered a comprehensive case management order establishing discovery deadlines and setting trial for February 2024. Trial has since been continued to May 2024 to accommodate the parties' summary judgment briefing schedule and oral argument.

Written discovery. discovery was extensive and hard-fought. Verimark served 147 requests for production on July 11, 2022, seeking comprehensive financial records across all 22 franchised properties, including Suncoast's internal financial data, OTA reconciliation records, and booking-channel analytics. Coastal Palms made an initial production of approximately 84,000 documents on August 22, 2022, which Verimark promptly identified as incomplete, particularly with respect to Suncoast Room Management Inc.'s financial records. Verimark filed a Motion to Compel production of Suncoast's financial records on September 15, 2022, which the Court granted on October 28, 2022. A supplemental production of approximately 312,000 documents followed on November 18, 2022. In total, the document universe processed by Nexagen Document Solutions LLC encompasses approximately 2.3 million pages and 1.1 terabytes of data.

Fact Depositions. Fourteen fact depositions were taken between January 9 and March 17, 2023. The most significant include:

• Randall Brecker (two-day deposition, January 2023): Brecker is the managing member of Coastal Palms and president of Suncoast. His testimony is discussed in detail throughout this memorandum, as it contains critical admissions regarding his understanding of the GRR definition and his direction to property-level controllers to exclude Suncoast-collected revenues from GRR reports.

• Theresa Brecker (January 2023): Randall Brecker's spouse, who holds a 15% equity interest in Coastal Palms and serves as its chief financial officer. Her testimony addressed the financial reporting structure and the 12% management fee retained by Suncoast.

• Nolan Prescott (February 2023): A 25% equity holder in Coastal Palms who claims to be a passive investor. His testimony is significant because it revealed that he received quarterly financial summaries that included Suncoast revenue lines, creating inconsistencies with his claimed ignorance of the revenue-diversion scheme.

• Janet Kerrigan (February 2023): A former regional controller for Coastal Palms who served as the whistleblower in this matter, contacting Verimark's compliance hotline on November 8, 2021, after her termination by Coastal Palms in October 2021. Her testimony provides direct evidence of Brecker's instructions to route walk-in and corporate-direct bookings through Suncoast and to exclude those revenues from GRR reports.

• Ten property-level managers and accountants (February–March 2023): These witnesses provided corroborating testimony regarding the recurring direction from "corporate" (i.e., Brecker) to use the Suncoast channel for walk-in and corporate-direct bookings and to exclude those revenues from Verimark GRR reports.

Expert discovery. Expert reports were exchanged according to the following schedule:

• Dr. Sharon Kettlewell, CPA/CFF, CFE, of Ridgeline Forensic Advisory LLC, served her expert report on April 14, 2023, opining that cumulative underreported GRR across all 22 properties for the period 2013 through 2021 totals $197.8 million, yielding $16.095 million in direct underpayments (royalties, marketing contributions, and technology fees) plus $28.4 million in contractual late-payment interest under FLA § 4.6 and up to $105.5 million in liquidated damages under FLA § 15.3.

• Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., served his expert report on behalf of Coastal Palms on May 15, 2023, opining that the maximum underpayment is $6.2 million based on a narrower interpretation of the GRR definition.

• Dr. Kettlewell served a rebuttal expert report on June 9, 2023, addressing and refuting Prof. Hargrove's methodology and conclusions.

• Expert depositions were taken on June 26 and 27, 2023.

Close of discovery. discovery closed on August 4, 2023.

Summary Judgment Motions. Verimark filed its Motion for Partial Summary Judgment on Counts I and II (liability only) on September 29, 2023, supported by a 127-paragraph Statement of Undisputed Material Facts. Coastal Palms filed the Cross-Motion that is the subject of this memorandum on October 13, 2023, seeking summary judgment on all counts and on its Counterclaim.

Remaining Briefing Schedule. Response briefs are due November 17, 2023. Reply briefs are due December 8, 2023. Oral argument is scheduled for January 19, 2024, before Judge Calloway.

III. STRUCTURE OF DEFENDANT'S CROSS-MOTION

Coastal Palms' Cross-Motion is organized into five principal arguments, each of which we address in detail in Section IV below. For ease of reference, we summarize the arguments here:

Argument 1: GRR Definition "Ambiguity" (FLA § 4.1). Coastal Palms contends that the GRR definition in FLA § 4.1 is ambiguous as applied to revenues collected by Suncoast Room Management Inc., a separate legal entity with its own management-fee arrangement, and that any ambiguity must be construed against Verimark as the drafter under the doctrine of contra proferentem.

Argument 2: Constructive Knowledge / Ratification / Acquiescence. Coastal Palms argues that Verimark had constructive knowledge of Suncoast's role in collecting guest-room revenue, and that Verimark's failure to object to Coastal Palms' reporting methodology from January 2013 through November 2021 — a period of approximately nine years — constitutes ratification or acquiescence, thereby waiving Verimark's right to assert breach.

Argument 3: Damages Model Challenge. Coastal Palms contends that Dr. Kettlewell's damages methodology is unreliable, that the maximum underpayment is $6.2 million (per Prof. Hargrove's analysis), that the compounded late-payment interest calculation is excessive and punitive, and that the liquidated-damages provision is an unenforceable penalty.

Argument 4: Tort and Equitable Counts (Counts IV–X). Coastal Palms argues that the remaining tort and equitable counts fail as a matter of law because they are duplicative of the breach-of-contract claims, are barred by the economic loss rule, or lack independent factual support.

Argument 5: Counterclaim Entitlement. Coastal Palms contends it is entitled to summary judgment on its $12 million Counterclaim based on undisputed brand-standard violations and over-billing.

We turn now to a detailed analysis of each argument.

IV. SECTION-BY-SECTION ANALYSIS

A. Argument 1: GRR Definition "Ambiguity" (FLA § 4.1)

1. Coastal Palms' Position. Coastal Palms' first and most prominent argument is that the Gross Room Revenue definition in FLA § 4.1 is ambiguous as applied to the particular facts of this case. The relevant provision defines GRR as follows:

"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."

Coastal Palms' brief advances a multi-step textual argument. First, it contends that the phrase "regardless of the entity collecting such revenue" is ambiguous when the collecting entity — here, Suncoast Room Management Inc. — is a separate legal entity from the franchisee with its own management-fee arrangement (a 12% fee on direct-booking revenue). Coastal Palms characterizes Suncoast as an independent management company, not merely an alter ego or instrumentality of Coastal Palms, and argues that revenues collected by a truly independent entity fall outside the scope of the GRR definition.

Second, Coastal Palms places heavy reliance on the phrase "at the Hotel," contending that this locational modifier limits GRR to revenues that are both booked and collected at the physical hotel property. Under this reading, revenues collected by Suncoast through the unbranded gulfcoastrooms.com website and through direct corporate contracts negotiated and invoiced by Suncoast — even though the guests stayed at Coastal Palms-franchised hotels — would fall outside the GRR definition because those revenues were not collected "at the Hotel."

Third, Coastal Palms invokes the doctrine of contra proferentem, arguing that Verimark, as the franchisor, drafted the FLAs and that any ambiguity in the GRR definition must therefore be construed in favor of the franchisee. Defense counsel's brief cites several Florida decisions applying contra proferentem in franchise and commercial contexts, though we note that none of those cases involved GRR definitions comparable to the one at issue here.

2. Analysis and Weaknesses. Coastal Palms' ambiguity argument is its strongest card, and yet it is fundamentally unsound. The plain language of FLA § 4.1 is unambiguous, and the record evidence — particularly Brecker's own deposition admissions — confirms that the parties understood the provision to mean precisely what it says.

Plain Language Analysis. The GRR definition captures "all revenues derived from or attributable to the rental of guest rooms…regardless of the entity collecting such revenue." The phrase "regardless of the entity collecting such revenue" was plainly drafted to address exactly the scenario presented here: a franchisee or its affiliate channeling guest-room revenue through a separate entity. The word "regardless" is unconditional — it admits of no exceptions based on the collecting entity's corporate form, management-fee arrangements, or degree of independence from the franchisee. To hold otherwise would render the "regardless of the entity" clause surplusage, violating the cardinal rule of contract construction that every provision must be given meaning and effect.

The "At the Hotel" Modifier. Coastal Palms' effort to leverage the phrase "at the Hotel" fails on basic principles of grammar and syntax. The full clause reads: "all revenues derived from or attributable to the rental of guest rooms at the Hotel." The prepositional phrase "at the Hotel" modifies "guest rooms," not "revenues." The revenues need not be collected at the hotel; the revenues must merely be derived from or attributable to the rental of guest rooms that are located at the hotel. This reading is not only grammatically correct but also commercially sensible: the purpose of the GRR definition is to capture all revenue associated with the rental of the franchisor's branded hotel rooms, regardless of the manner or location of collection. Coastal Palms' alternative reading — that revenues must be physically collected on-site — would produce the absurd result that revenue from online travel agencies ("OTAs") such as Aldermere Technologies or Bramwell Holdings would also be excluded from GRR, since those revenues are collected by the OTA rather than at the hotel. Coastal Palms does not contend (and cannot contend) that OTA revenues are excluded from GRR, which fatally undermines the internal consistency of its textual argument.

Brecker's Deposition Admissions. The most damaging evidence against the ambiguity argument comes from Coastal Palms' own principal. During his two-day deposition in January 2023, Randall Brecker made several admissions that directly undercut the claim that § 4.1 is ambiguous:

• Brecker acknowledged that he understood the GRR definition was "designed to capture all guest-room revenue regardless of booking source." (Brecker Dep. Day 1, 142:8-15.)

• Brecker admitted that he "personally directed controllers to exclude Suncoast-collected revenues from monthly GRR reports to Verimark." (Brecker Dep. Day 1, 207:3-12.) When pressed on why, he testified that he believed the Suncoast management-fee arrangement created a "separate revenue stream" — a characterization that is inconsistent with the FLA's definition but confirms that Brecker understood the GRR definition's scope and deliberately circumvented it.

• On Day 2, Brecker conceded that he had not sought a written interpretation or waiver from Verimark regarding the treatment of Suncoast-collected revenues. (Brecker Dep. Day 2, 54:18-55:4.)

These admissions are devastating because they establish that even the defendant principal understood the GRR definition to be broad enough to encompass all guest-room revenue. The decision to exclude Suncoast-collected revenues was not the product of genuine interpretive uncertainty; it was a deliberate effort to underreport and underpay.

Janet Kerrigan's Whistleblower Testimony. Kerrigan, a former regional controller for Coastal Palms, contacted Verimark's compliance hotline on November 8, 2021, approximately three weeks after her termination by Coastal Palms. During her deposition, Kerrigan testified that Brecker explicitly instructed her and other controllers to route walk-in and corporate-direct bookings through Suncoast and to exclude those revenues from the monthly GRR reports submitted to Verimark. Kerrigan further testified that she understood this practice to be contrary to the FLA's reporting requirements and that she had raised concerns with Theresa Brecker on multiple occasions, only to be told that "Randall has it handled." (Kerrigan Dep. 88:4-9.) Kerrigan's testimony provides independent corroboration of Brecker's admissions and directly refutes any claim of genuine interpretive ambiguity.

Property-Level Witness Testimony. The composite testimony of the ten property-level managers and accountants deposed in this case reveals a recurring pattern: each witness testified to receiving direction from "corporate" — meaning Brecker or his designees at Coastal Palms' headquarters — to use the Suncoast booking channel for walk-in and corporate-direct reservations and to exclude those revenues from GRR reports to Verimark. Several witnesses testified that they questioned this practice and were told it was "the way we do things." None testified that they believed the FLA permitted or required the exclusion.

Contra Proferentem Is Inapplicable. The doctrine of contra proferentem is a rule of last resort under Florida law. It applies only when a contract term remains genuinely ambiguous after all other canons of construction have been exhausted. As demonstrated above, the GRR definition in FLA § 4.1 is clear on its face. The "regardless of the entity collecting such revenue" clause directly addresses and resolves the precise scenario that Coastal Palms claims creates ambiguity. There is no latent ambiguity, no patent ambiguity, and no reasonable alternative reading that survives ordinary principles of textual analysis. Contra proferentem therefore has no role to play.

Moreover, even if the Court were to find some threshold ambiguity, the "regardless of the entity" clause would resolve it decisively in Verimark's favor. The clause was obviously included to prevent exactly the type of revenue-diversion scheme that Coastal Palms implemented.

We note that Carlos Espinoza's August 18, 2023 research memorandum on franchise revenue-reporting obligations identifies several Florida appellate decisions holding that broadly drafted GRR definitions in franchise agreements are not rendered ambiguous merely because a franchisee uses an intermediary entity to collect revenue. These authorities should be prominently cited in our Response.

3. Recommended Response Strategy. Our Response should lead with a thorough textual analysis of FLA § 4.1, focusing on the "regardless of the entity collecting such revenue" clause as the dispositive provision. The "at the Hotel" argument should be dispatched through grammatical analysis, commercial-reasonableness principles, and the reductio ad absurdum regarding OTA revenues.

We should deploy Brecker's deposition admissions prominently as evidence that even the defendant understood the clause's meaning — this transforms the ambiguity argument from a textual debate into a credibility problem for Coastal Palms. Kerrigan's testimony and the property-level witness testimony should be marshaled as corroborating evidence of the deliberate nature of the scheme.

We should argue that contra proferentem is categorically inapplicable because the term is unambiguous. In the alternative, we should argue that even if the doctrine were applicable, the "regardless of the entity" clause resolves any alleged ambiguity in Verimark's favor. This two-step argument hedges against any judicial inclination to find threshold ambiguity.

Finally, we should cross-reference our own Motion for Partial Summary Judgment filed September 29, 2023, which establishes liability on Counts I and II as a matter of law on the same textual basis. The symmetry of the arguments — Verimark arguing that the text unambiguously supports its position, Coastal Palms arguing that the same text is ambiguous — should itself demonstrate that the ambiguity argument is contrived.

B. Argument 2: Constructive Knowledge / Ratification / Acquiescence

1. Coastal Palms' Position. Coastal Palms' second argument is that Verimark had constructive knowledge of Suncoast's role in collecting guest-room revenue and that Verimark's failure to object to Coastal Palms' reporting methodology from January 2013 through November 2021 — approximately nine years — constitutes ratification or acquiescence that bars Verimark from now asserting breach.

In support of this argument, Coastal Palms points to the fact that Suncoast Room Management Inc. was identified in certain property-management agreements that were submitted to Verimark during the franchise-application process for some (but notably not all) of the 22 properties. Defense counsel contends that these submissions put Verimark on notice that Suncoast played a role in property operations, and that Verimark's failure to inquire further into Suncoast's revenue-collection activities constitutes constructive knowledge of the reporting methodology.

Coastal Palms further argues that Verimark possessed audit rights under FLA § 8.2 that could have uncovered the alleged underreporting at any time, and that Verimark's decision not to exercise those rights for nine years reflects a knowing acceptance of the status quo. Defense counsel characterizes this as a waiver by conduct — Verimark accepted the reported GRR figures without objection, relied on them for royalty and marketing-fund calculations, and cannot now claim surprise that the figures excluded Suncoast-collected revenues.

2. Analysis and Weaknesses. This argument fails for multiple independent reasons, any one of which is sufficient to defeat it at summary judgment.

The No-Waiver Clause. Each of the 22 FLAs contains an express no-waiver clause, which provides in pertinent part that the failure of either party to enforce any provision of the agreement shall not constitute a waiver of the right to enforce that provision or any other provision in the future. This is a standard provision in franchise agreements, and Florida courts routinely enforce such clauses to bar ratification and acquiescence defenses. The no-waiver clause is a complete contractual bar to Coastal Palms' argument. Verimark's failure to object to the reporting methodology — even if it had been aware of the methodology, which it was not — cannot constitute waiver or ratification in the face of an express contractual provision preserving its enforcement rights.

Knowledge vs. Constructive Knowledge. Coastal Palms conflates two distinct concepts. Knowledge that Suncoast existed as a management entity is categorically different from knowledge that Suncoast was collecting guest-room revenue and that Coastal Palms was systematically excluding that revenue from GRR reports. The property-management agreements submitted during the franchise-application process identified Suncoast's operational role — staffing, maintenance, and day-to-day property management — but did not disclose Suncoast's revenue-collection activities, the 12% management-fee arrangement, or the existence of the unbranded gulfcoastrooms.com website through which Suncoast directed walk-in and corporate-direct bookings. The submission of these property-management agreements, at most, put Verimark on notice that Suncoast played an operational role at certain properties. They did not put Verimark on notice that Suncoast was collecting guest-room revenue or that Coastal Palms was excluding that revenue from GRR.

No Duty to Audit. Verimark had no obligation to independently audit Coastal Palms' GRR reports beyond the permissive audit rights granted by FLA § 8.2. The FLA places the reporting burden squarely on the franchisee, who is required to submit accurate monthly GRR reports. The audit right under § 8.2 is precisely that — a right, not a duty. Verimark's decision not to exercise its audit rights earlier does not waive or ratify anything, any more than a landlord's decision not to inspect a property waives the tenant's obligation to maintain it.

Affirmative Concealment Negates Ratification. Most fundamentally, the ratification defense fails because it requires knowledge of the material facts, and the undisputed record evidence demonstrates that the underreporting was affirmatively concealed. Brecker deliberately structured the Suncoast channel and the gulfcoastrooms.com website to divert revenue off-platform and outside the reporting framework. The monthly GRR reports submitted to Verimark did not disclose the existence of Suncoast-collected revenues; they simply reported lower numbers without any indication that a separate revenue stream existed. This is not a case of passive non-disclosure or open-and-obvious conduct to which Verimark turned a blind eye. It is a case of deliberate, systematic concealment over a nine-year period.

Under Florida law, ratification requires knowledge of the material facts being ratified. Where a party's non-objection is the product of ignorance caused by the other party's active concealment, ratification does not apply. The evidence of concealment here is overwhelming: Brecker's deposition admissions regarding his direction to controllers; Kerrigan's testimony regarding the explicit instructions to exclude Suncoast revenues; the operation of the unbranded gulfcoastrooms.com website (which was not identified as a Verimark-branded channel and was not visible to Verimark's franchise-operations team); and the classification of OTA payments as "commissions receivable" rather than guest-room revenue.

Prompt Action Upon discovery. The timeline of Verimark's response upon learning of the scheme further negates any inference of acquiescence:

• November 8, 2021: Janet Kerrigan contacts Verimark's compliance hotline.

• November 22, 2021: Verimark engages Thornbury & Associates CPAs LLP to conduct a compliance audit of Coastal Palms' GRR reporting.

• January 18, 2022: Thornbury & Associates delivers preliminary audit findings confirming approximately 26% underreporting across the top 10 properties for the period 2019 through 2021.

• February 4, 2022: Verimark issues a formal Notice of Material Breach to Coastal Palms, demanding cure within 30 days pursuant to FLA § 14.1.

• February 28, 2022: Coastal Palms' counsel (Whitfield, Barrow & Crane LLP) responds denying breach.

• March 6, 2022: The 30-day cure period expires without cure.

• March 7, 2022: Verimark files its Complaint.

From whistleblower contact to litigation filing, approximately 120 days elapsed — a period consumed by the engagement and execution of a forensic audit and the issuance of a formal cure notice. This timeline demonstrates the opposite of acquiescence; it reflects a prompt and methodical response to the discovery of a previously concealed breach.

3. Recommended Response Strategy. Our Response should emphasize the no-waiver clause as the threshold contractual bar to the ratification/acquiescence defense, followed by the distinction between knowledge of Suncoast's operational existence and knowledge of Suncoast's revenue-collection role. The affirmative-concealment evidence should be presented in detail, drawing on Brecker's admissions, Kerrigan's testimony, and the property-level witness testimony to establish a clear factual record of deliberate deception.

The timeline from whistleblower contact through complaint filing should be set forth prominently to demonstrate prompt action upon discovery. We should argue that these facts establish, at a minimum, genuine disputes of material fact as to Verimark's knowledge — disputes that are wholly inappropriate for resolution at summary judgment and that preclude entry of judgment in Coastal Palms' favor on any ratification or acquiescence theory.

C. Argument 3: Damages Model Challenge (Kettlewell vs. Hargrove)

1. Coastal Palms' Position. Coastal Palms' third argument attacks Verimark's damages model. Defense counsel advances several sub-arguments in this regard.

First, Coastal Palms relies on the expert report of Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., who opined that the maximum underpayment attributable to Coastal Palms is $6.2 million — a figure approximately 62% lower than Dr. Kettlewell's direct-underpayment estimate of $16.095 million. Prof. Hargrove's lower figure is based on a narrower GRR definition that excludes walk-in cash payments entirely and attributes only net OTA revenue (i.e., OTA revenue after deduction of the OTA's commission) rather than gross OTA revenue.

Second, Coastal Palms argues that Dr. Kettlewell's methodology is unreliable for three reasons: (a) she extrapolated from 10 audited properties to all 22 properties, rather than auditing each property individually; (b) her compounded late-payment interest calculation at 1.5% per month — yielding $28.4 million in accrued interest — is excessive and punitive; and (c) her liquidated-damages calculation of $105.5 million under FLA § 15.3 (3× trailing-twelve-month royalties per property across 22 properties) reflects an unenforceable penalty rather than a reasonable pre-estimate of probable loss.

Third, Coastal Palms argues that even the $6.2 million figure calculated by Prof. Hargrove is disputed, and that the uncertainty surrounding damages precludes summary judgment in Verimark's favor on any count.

2. Analysis and Weaknesses. ##### (a) Hargrove's Narrowed GRR Definition

Prof. Hargrove's $6.2 million estimate is predicated on a GRR definition materially narrower than the one set forth in FLA § 4.1. Specifically, Hargrove excludes walk-in cash payments from GRR on the theory that such payments are not "booked" through any identifiable "booking channel" and therefore fall outside the § 4.1 definition. He also uses net OTA revenue — that is, the amount actually received by the hotel after deduction of the OTA's commission — rather than gross OTA revenue (the total amount paid by the guest).

Both of these exclusions contradict the plain language of FLA § 4.1, which defines GRR to include "all revenues derived from or attributable to the rental of guest rooms…including revenues from any booking channel, direct or indirect." Walk-in cash payments are self-evidently "derived from…the rental of guest rooms" — a guest walks into the hotel, rents a room, and pays for it. The fact that the guest did not use a third-party "booking channel" is irrelevant; the definition includes "any booking channel, direct or indirect," and a walk-in booking is the most direct booking channel of all. Hargrove's exclusion of walk-in cash payments has no textual basis in the FLA.

The net-versus-gross OTA issue was specifically addressed in Dr. Kettlewell's rebuttal report served June 9, 2023. As Kettlewell explained, FLA § 4.1 requires reporting of gross revenue — the total amount paid by or on behalf of the guest for the room. Coastal Palms' practice of classifying OTA payments as "commissions receivable" and netting those commissions against GRR was inconsistent with the gross-revenue reporting requirement. The commission paid to the OTA is a cost of distribution borne by the hotel, not a reduction in the revenue derived from the room rental. Under the FLA, the royalty, marketing-fund contribution, and technology fee are calculated on the full amount of guest-room revenue, not on the net amount retained by the hotel after payment of distribution costs.

Most critically, Prof. Hargrove himself conceded during his June 27, 2023 expert deposition that his narrower GRR definition was based on his own interpretation of the contractual language rather than the FLA's actual terms. When pressed on whether his exclusion of walk-in cash payments was consistent with the phrase "all revenues derived from…the rental of guest rooms," Hargrove acknowledged that it was "a judgment call" and that "reasonable people could disagree." This concession is fatal to the defense's damages argument because it reveals that Hargrove's opinion on the proper scope of GRR is a legal conclusion masquerading as an expert damages opinion. Expert witnesses are permitted to offer opinions on damages methodology and calculation; they are not permitted to adopt their own interpretations of contractual terms and use those interpretations as the foundation for their damages calculations. The Court, not Prof. Hargrove, is the arbiter of the meaning of FLA § 4.1.

Carlos Espinoza's analysis memorandum dated May 22, 2023, identified these methodological errors in real time, and our rebuttal coordination memorandum dated May 30, 2023 provided Dr. Kettlewell with additional Suncoast financial data necessary to address Hargrove's criticisms in her rebuttal report.

##### (b) Kettlewell's Extrapolation Methodology

Coastal Palms' challenge to Dr. Kettlewell's extrapolation from 10 audited properties to all 22 properties is a methodological quibble that does not undermine the reliability of her opinion. Kettlewell's extrapolation is well-supported for several reasons:

• The 10 audited properties represent the top revenue generators in the Coastal Palms portfolio and account for approximately 65% of total reported GRR across all 22 properties.

• The extrapolation was not a simple pro rata calculation. Kettlewell used property-specific adjustment factors derived from Suncoast bank records, OTA reconciliation data, and booking-channel analytics obtained through the supplemental production of 312,000 documents on November 18, 2022.

• The Thornbury & Associates CPAs LLP preliminary audit (delivered January 18, 2022) provided independent baseline data showing approximately 26% underreporting across the audited properties for the period 2019 through 2021, corroborating Kettlewell's property-level calculations.

• The extrapolation methodology is a standard forensic accounting technique used when complete records are unavailable — a circumstance directly attributable to Coastal Palms' own conduct in failing to maintain complete records for certain years (2013 through 2015) and in initially withholding Suncoast financial records until compelled by the Court's October 28, 2022 order.

In any event, the methodological debate between Kettlewell and Hargrove is precisely the type of dispute that is resolved at trial, not on summary judgment. At summary judgment, the Court need not choose between competing expert opinions. The existence of two qualified experts offering different opinions on the quantum of damages is the textbook definition of a genuine dispute of material fact. Coastal Palms' attempt to use the damages dispute as a basis for summary judgment in its favor on liability is a non sequitur — even if Hargrove's damages figure were accepted, it would still establish an underpayment of $6.2 million, supporting Verimark's breach-of-contract claims rather than defeating them.

For completeness, we note the key quantitative framework established by Dr. Kettlewell's analysis:

For fiscal year 2021 alone, reported GRR was $112.4 million versus estimated true GRR of $145.6 million, representing $33.2 million in underreported GRR and an underreporting percentage ranging from 22% to 31% depending on the property and the specific year.

##### (c) Late-Payment Interest

Coastal Palms' characterization of the $28.4 million compounded interest figure as "excessive and punitive" misapprehends the legal basis for the interest calculation. The 1.5% per month compounded interest rate is a contractual term expressly set forth in FLA § 4.6. It is not a court-imposed penalty or a statutory default-interest rate; it is a rate that the parties negotiated, agreed to, and memorialized in each of the 22 FLAs. Under Florida law, parties to a commercial contract are free to agree to interest rates and compounding methods, subject only to the usury statute, which is inapplicable in the commercial context. The $28.4 million figure is the natural and mathematically inevitable consequence of applying the agreed-upon 1.5% monthly compounded rate to systematically underpaid amounts over a nine-year period. If the resulting figure is large, that is a function of the magnitude and duration of the underreporting — circumstances entirely within Coastal Palms' control.

##### (d) Liquidated Damages (§ 15.3)

The enforceability of the liquidated-damages provision under FLA § 15.3 — which provides for damages equal to three times trailing-twelve-month royalties per property, totaling $105.5 million across 22 properties — is addressed in detail in Carlos Espinoza's August 25, 2023 research memorandum. The applicable Florida standard for enforceability of liquidated-damages provisions requires that: (1) the actual damages contemplated by the parties were difficult to ascertain at the time of contracting, and (2) the stipulated amount represents a reasonable pre-estimate of probable loss rather than a penalty imposed in terrorem.

This is a fact-intensive inquiry. Coastal Palms' challenge to the reasonableness of the 3× multiplier raises genuine factual issues regarding the relationship between the stipulated amount and the actual damages that could reasonably have been anticipated at the time the FLAs were executed. These factual issues further support denial of the Cross-Motion — they are triable issues, not grounds for summary judgment in defendant's favor. Indeed, if the liquidated-damages provision is found enforceable, it substantially increases Verimark's recovery; if it is found unenforceable, Verimark's actual-damages claims remain fully intact.

3. Recommended Response Strategy. The damages arguments should be framed as the paradigmatic example of a genuine dispute of material fact precluding summary judgment for either party on damages quantum. We should emphasize that dueling expert opinions — a $16.095 million direct-underpayment figure versus a $6.2 million figure, computed using different methodologies and GRR definitions — are quintessential triable issues that cannot be resolved on paper.

We should defend Dr. Kettlewell's methodology as well-supported by the documentary record and standard forensic-accounting practice, while highlighting Prof. Hargrove's concession that his narrower GRR definition represents his own legal interpretation rather than a damages-methodology opinion. We should argue that Hargrove's report improperly invades the province of the Court by adopting an interpretation of FLA § 4.1 that is inconsistent with the contractual text.

The contractual interest rate under § 4.6 should be defended as a freely negotiated term enforceable under Florida law, and the liquidated-damages provision should be presented as raising triable issues at minimum.

Finally, and critically, we should note that Verimark's own Motion for Partial Summary Judgment appropriately sought summary judgment on liability only, deferring the damages quantum to trial. Coastal Palms' attempt to leverage the damages dispute to defeat Verimark's liability case puts the cart before the horse. Disputes about how much is owed do not create disputes about whether anything is owed — the liability question and the damages question are distinct, and the existence of a damages dispute does not preclude entry of summary judgment on liability.

D. Argument 4: Tort and Equitable Counts (Counts IV–X)

1. Coastal Palms' Position on Each Count. Coastal Palms seeks summary judgment on each of the remaining seven counts of the Complaint. We summarize the defense's position on each count before turning to our analysis.

Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing. Coastal Palms argues that this count is duplicative of the express breach-of-contract claims asserted in Counts I through III and fails as a matter of law because Florida does not recognize an independent tort of bad faith in a commercial contract context. Defense counsel contends that the implied covenant does not create duties beyond those expressly stated in the contract, and that Verimark's implied-covenant claim simply re-packages its express-breach allegations.

Count V — Fraudulent Concealment. Coastal Palms contends that Verimark cannot establish the elements of fraudulent concealment because the information regarding Suncoast's revenue-collection activities was available to Verimark through its audit rights under FLA § 8.2 and because Verimark allegedly had constructive knowledge of Suncoast's role. Defense counsel argues that a party cannot claim fraudulent concealment of information that was available to it through the exercise of ordinary diligence.

Count VI — Negligent Misrepresentation. Coastal Palms argues that the monthly GRR reports submitted to Verimark were not "representations" in the tort sense but rather contractual reporting obligations. Accordingly, any claim arising from the alleged inaccuracy of those reports sounds in contract, not tort, and is barred by the economic loss rule.

Count VII — Unjust Enrichment (Alternative). Coastal Palms argues that unjust enrichment cannot coexist with an express contract governing the same subject matter. Because the FLAs expressly govern GRR reporting, royalty payments, and the parties' financial obligations, an unjust-enrichment claim arising from the same conduct is legally impermissible.

Count VIII — Declaratory Judgment (FLA Termination). Coastal Palms argues that this count is moot because Verimark has not yet terminated the FLAs and no justiciable controversy exists regarding the parties' termination rights.

Count IX — Accounting. Coastal Palms argues that the accounting claim is moot in light of the extensive discovery that has been conducted, including the production of approximately 2.3 million documents encompassing the complete financial records of Coastal Palms and Suncoast.

Count X — Civil Conspiracy (Brecker & Suncoast). Coastal Palms argues that the intracorporate conspiracy doctrine bars this count because Brecker, as managing member of Coastal Palms and president of Suncoast Room Management Inc., cannot conspire with entities over which he exercises sole operational control. Defense counsel contends that Brecker, Coastal Palms, and Suncoast constitute a single enterprise for purposes of the conspiracy analysis, and that the acts alleged to constitute the conspiracy were undertaken by Brecker in his capacity as an agent of both entities.

2. Analysis and Weaknesses. ##### Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing

Coastal Palms is correct that Florida law does not recognize an independent tort for breach of the implied covenant of good faith and fair dealing in commercial contracts. However, Florida law does recognize a contract-based claim for breach of the implied covenant where the defendant exercises contractual discretion in bad faith to deprive the plaintiff of the benefit of the bargain. This is an important distinction that Coastal Palms' brief elides.

The implied covenant of good faith and fair dealing inheres in every Florida contract and prohibits a party from acting in a manner that, although not expressly prohibited by the contract's terms, is inconsistent with the agreed-upon purposes and expectations of the contracting parties. Here, Coastal Palms' systematic nine-year underreporting scheme goes well beyond mere non-performance of an express contractual obligation. It constitutes a deliberate, coordinated effort to deprive Verimark of the benefit of the franchise relationship by diverting revenue through a separate entity, operating an unbranded booking channel, and submitting false financial reports. The implied-covenant claim captures conduct — such as the affirmative steps taken to structure the Suncoast revenue-diversion scheme — that may not be fully addressed by the express-breach claims.

Even if the Court were to conclude that the implied-covenant claim is partially duplicative of the express-breach claims, it should survive at this stage as an alternative theory of recovery. Summary judgment is a "blunt instrument" that should not be used to prune alternative legal theories prior to trial, particularly where the underlying facts support the claim and the legal standards are distinct.

##### Count V — Fraudulent Concealment

Coastal Palms' defense to the fraudulent-concealment count fails for the same reasons its constructive-knowledge and ratification arguments fail. The FLA § 8.2 audit right is permissive, not a mandatory investigative obligation. Verimark was entitled to rely on the accuracy of Coastal Palms' monthly GRR reports; the duty to report accurately rested on Coastal Palms as the franchisee, not on Verimark as the franchisor. A party cannot fraudulently conceal material information and then argue that the victim should have uncovered the fraud through due diligence. That is not the law.

More fundamentally, Coastal Palms' acts of concealment went far beyond passive non-disclosure. They involved affirmative steps designed to prevent discovery of the underreporting scheme: routing revenue through a separate entity (Suncoast), operating the unbranded gulfcoastrooms.com website so as to divert bookings outside Verimark's brand-management systems, classifying OTA payments as "commissions receivable" to net against GRR, and directing property-level controllers to exclude Suncoast-collected revenues from Verimark GRR reports. These are acts of active concealment, not mere omissions. They are precisely the type of conduct that the tort of fraudulent concealment is designed to remedy.

Brecker's deposition admissions and Kerrigan's whistleblower testimony establish, at minimum, a genuine dispute of material fact as to whether Coastal Palms actively concealed material information from Verimark. That dispute precludes summary judgment in Coastal Palms' favor on Count V.

The constructive-knowledge defense fails for the reasons discussed in Section IV.B above and need not be repeated here.

##### Count VI — Negligent Misrepresentation

Coastal Palms' contention that the monthly GRR reports were not "representations" in the tort sense is unconvincing. Under Florida law, a negligent-misrepresentation claim is cognizable where the defendant supplies false information for the guidance of others in their business transactions. The monthly GRR reports were precisely that: financial representations submitted to Verimark for the purpose of guiding Verimark's calculation of royalties, marketing-fund contributions, and technology fees. They were relied upon by Verimark in making business decisions regarding the franchise relationship, including decisions about resource allocation, marketing expenditures, and the deployment of brand-support services. The fact that the reports were also required by the FLA's express terms does not strip them of their character as representations of fact capable of supporting a negligent-misrepresentation claim.

Coastal Palms' invocation of the economic loss rule is also unpersuasive. The economic loss rule has been significantly narrowed under Florida precedent in recent years. The Florida Supreme Court and the District Courts of Appeal have recognized that fraud-based and negligent-misrepresentation claims are cognizable even where an express contract exists between the parties, provided that the misrepresentation is independent of the contractual duty. Here, the duty not to misrepresent financial data is a common-law duty that exists independently of the FLA's reporting obligations. The FLA imposes a contractual obligation to report accurately; the common law imposes a separate obligation not to supply false information for the guidance of others. These are distinct duties, and a breach of one does not subsume the other.

At minimum, the applicability of the economic loss rule in these circumstances presents a genuine issue of material fact (or, more precisely, a genuine issue of law that is intertwined with factual questions) that is inappropriate for resolution at summary judgment.

##### Count VII — Unjust Enrichment (Alternative)

Coastal Palms' argument that unjust enrichment cannot coexist with an express contract governing the same subject matter is, as a general proposition, correct. However, Verimark pleaded its unjust-enrichment claim as an alternative theory — specifically, in the event that any FLA is found unenforceable, void, or inapplicable to the conduct at issue. Florida law expressly permits alternative pleading, and the Rules of Civil Procedure allow a party to assert claims that are inconsistent with one another when pleaded in the alternative.

Summary judgment on an alternative theory is inappropriate precisely because the alternative theory becomes relevant only if the primary theory fails. If the Court ultimately determines that the FLAs are valid and enforceable, the unjust-enrichment claim may become moot — but that is a determination to be made at trial or upon resolution of the primary claims, not at summary judgment.

##### Count VIII — Declaratory Judgment (FLA Termination)

Coastal Palms' argument that the declaratory-judgment claim is moot because Verimark has not yet terminated the FLAs misconstrues the nature of the claim and the standard for justiciability. The controversy is ripe: FLA § 14.2(c) provides that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." Verimark issued a formal Notice of Material Breach on February 4, 2022, citing § 14.2(c). The 30-day cure period under § 14.1 expired on March 6, 2022, without cure (indeed, Coastal Palms' counsel denied that any breach had occurred). The declaratory-judgment claim seeks judicial confirmation that the FLAs are subject to termination for cause — a live and justiciable controversy that goes to the heart of the parties' ongoing relationship.

The fact that Verimark has not yet exercised its termination rights does not render the claim moot. To the contrary, Verimark seeks a judicial determination of its termination rights precisely because it wishes to exercise those rights with the benefit of judicial confirmation, and because Coastal Palms has contested the existence of a material breach. This is a textbook case for declaratory relief.

##### Count IX — Accounting

Coastal Palms' argument that the accounting claim is moot given the extensive discovery that has been conducted is premature. While the parties have exchanged approximately 2.3 million documents processed by Nexagen Document Solutions LLC (comprising approximately 1.1 terabytes of data), the completeness of Coastal Palms' production has not been judicially confirmed. Dr. Kettlewell's expert report identified specific data gaps in the financial records for certain years — particularly 2013 through 2015 — that she was unable to fill even with the supplemental production. The equitable remedy of accounting remains appropriate as an adjunct to the breach-of-contract claims because it provides a mechanism for the Court to require a complete and judicially supervised rendering of all relevant financial data, including data that may not have been captured by the discovery process.

Moreover, the accounting claim serves a distinct purpose from the breach-of-contract claims: it seeks to establish the precise amount owed with judicial authority, rather than relying solely on the parties' competing expert analyses. In a case involving a nine-year scheme of revenue diversion across 22 properties, with disputed GRR figures, multiple booking channels, and a separate management entity interposed between the franchisee and the revenue stream, the equitable remedy of accounting is not merely appropriate — it is essential.

##### Count X — Civil Conspiracy (Brecker & Suncoast)

Coastal Palms' reliance on the intracorporate conspiracy doctrine is misplaced. The doctrine provides that a corporation cannot conspire with its own officers, directors, or agents because a corporation can act only through its agents, and a single entity cannot form the requisite "meeting of the minds" with itself. However, Florida courts have recognized a well-established exception to this doctrine: the exception applies where the agent acts for personal financial benefit rather than solely in the corporate interest.

Here, Brecker holds 60% equity in Coastal Palms and is simultaneously president of Suncoast Room Management Inc. Through the revenue-diversion scheme, Brecker personally benefited from the 12% management fee retained by Suncoast on direct-booking revenue — a fee that was paid to an entity he controlled and from which he derived personal income. Brecker's financial interest in the scheme was distinct from and potentially adverse to Coastal Palms' interest as a franchisee (which was to maintain a compliant franchise relationship with Verimark). The personal-benefit exception to the intracorporate conspiracy doctrine is squarely applicable.

Additionally, the conspiracy claim is not limited to Brecker and his corporate entities. Nolan Prescott, a 25% equity holder in Coastal Palms who holds himself out as a passive investor, received quarterly financial summaries that included Suncoast revenue lines. His involvement — and the inconsistency between his claimed ignorance and his receipt of these summaries — creates an additional basis for the conspiracy claim involving multiple actors who are not merely alter egos of a single corporate entity.

3. Recommended Response Strategy. We should preserve all seven counts at this stage and argue vigorously against summary judgment on each. The overarching theme should be that summary judgment is a "blunt instrument" inappropriate for these fact-intensive tort and equitable claims, particularly in a case involving allegations of a deliberate, systematic, nine-year revenue-diversion scheme.

For each count, our Response should identify at least one genuine dispute of material fact that precludes summary judgment. The following chart summarizes the key factual disputes by count:

Throughout the analysis, we should emphasize the deliberate, systematic nature of the revenue-diversion scheme as the factual foundation distinguishing these claims from routine breach-of-contract disputes. The evidence of intentional misconduct — the establishment of Suncoast as a revenue-collection vehicle, the creation of the unbranded gulfcoastrooms.com website, the 12% management-fee arrangement, the direction to property-level controllers, and the nine-year duration of the scheme — supports each of the tort and equitable counts independently of the contract claims.

E. Argument 5: Coastal Palms' Counterclaim ($12 Million)

1. Coastal Palms' Position. Coastal Palms' fifth and final argument seeks affirmative relief: summary judgment on its $12 million Counterclaim. The Counterclaim asserts three categories of alleged damages:

(a) Brand-Standard Violations. Coastal Palms claims that Verimark failed to maintain brand standards, including deferred maintenance at the corporate level, resulting in reduced guest satisfaction and diminished property values across the Coastal Palms portfolio.

(b) Reservation-System Uptime. Coastal Palms contends that Verimark failed to maintain reservation-system uptime commitments, resulting in lost revenue for Coastal Palms properties. Defense counsel's brief refers generally to "system outages" and "booking failures" without specifying dates, durations, or affected properties.

(c) Technology-Fee Over-Billing. Coastal Palms asserts that certain technology-fee increases exceeded the CPI-adjusted cap of 3% per year established in FLA § 4.3, and that the resulting over-billing constitutes a breach by Verimark.

2. Analysis and Weaknesses. The Counterclaim is extraordinarily weak, and the Cross-Motion's request for summary judgment on the Counterclaim borders on frivolous. The evidentiary record is devoid of competent evidence supporting any element of Coastal Palms' claims.

Absence of Expert Testimony on Counterclaim Damages. Most fundamentally, Coastal Palms has not produced a damages expert report quantifying the alleged $12 million in losses attributable to brand-standard violations, reservation-system failures, or technology-fee over-billing. Prof. Hargrove's expert report addresses only the defense's position on Verimark's damages — it does not quantify or support the Counterclaim damages. Without expert testimony establishing the quantum of damages and the causal connection between Verimark's alleged breaches and Coastal Palms' claimed losses, the Counterclaim cannot survive summary judgment, let alone warrant entry of summary judgment in Coastal Palms' favor.

Brand-Standard Allegations Are Vague and Unsupported. The Cross-Motion's brand-standard allegations are stated at a level of generality that is wholly insufficient to support summary judgment. No specific properties are identified. No specific dates of alleged brand-standard failures are provided. No specific maintenance deficiencies are described with particularity. No evidence is cited demonstrating a causal connection between any alleged brand-standard failure and any quantifiable economic loss to Coastal Palms. The Counterclaim essentially asks the Court to accept, on summary judgment, the bare assertion that Verimark failed to maintain brand standards and that this failure caused $12 million in damages. That is the antithesis of the summary judgment standard.

Reservation-System Uptime. Coastal Palms has not produced evidence of actual downtime periods, the number of lost bookings attributable to any such downtime, or the causal mechanism by which system downtime resulted in the claimed revenue loss. Reservation-system uptime commitments, if any, are presumably documented in the FLA or in supplementary service-level agreements; Coastal Palms' brief does not cite any specific uptime commitment or identify any specific instance in which the commitment was breached.

Technology-Fee Over-Billing. The FLA § 4.3 CPI adjustment with a 3% annual cap is clearly documented. Coastal Palms has not demonstrated that any technology-fee billing exceeded the cap in any year. Moreover, given that Coastal Palms' own underreporting concealed 214 unreported rooms across 4 properties — rooms for which no technology fees were charged because their existence was hidden from Verimark — any technology-fee "over-billing" claim carries an irony that should not be lost on the Court. Coastal Palms cannot simultaneously underreport the number of rooms in its portfolio and complain that it was overcharged for the rooms it did report.

No Corroborating Deposition Testimony. The depositions of property-level witnesses did not corroborate the brand-standard or over-billing allegations. To the contrary, the depositions focused overwhelmingly on the revenue

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
October 20, 2023
FROM: Yuki Nakamura, Lead Associate, Litigation (General), FL Bar No. 0119644
TO: Priya Anand, Responsible Partner, Litigation (General), FL Bar No. 0087451
DATE: October 20, 2023
RE: Analysis of Defendant's Cross-Motion for Summary Judgment — 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
CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VHMK)
MATTER NUMBER: 1021-00006
CC: Douglas Carmichael, Billing Partner; Carlos Espinoza, Working Associate
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
The purpose of this memorandum is to analyze the Cross-Motion for Summary Judgment filed by Defendant Coastal Palms Franchise Holdings LLC ("Coastal Palms") on October 13, 2023, identify the weaknesses in each of the five principal arguments advanced by the defense, recommend a comprehensive response strategy, and highlight the numerous genuine disputes of material fact that preclude entry of summary judgment in Defendant's favor.
Coastal Palms seeks summary judgment on all ten counts of Verimark Hospitality Group Inc.'s ("Verimark") Complaint, as well as on its own $12 million Counterclaim alleging brand-standard violations and over-billing. The Cross-Motion was filed by defense counsel Nathan Whitfield III and Gabriela Montes of Whitfield, Barrow & Crane LLP, 1221 Brickell Avenue, Suite 3000, Miami, Florida 33131.
Overall Assessment. The Cross-Motion should be denied in its entirety. Coastal Palms' arguments rest primarily on a strained "ambiguity" reading of FLA § 4.1's definition of Gross Room Revenue ("GRR") that is flatly contradicted by the plain contractual language, extensive deposition testimony — most critically, the admissions made by Randall Brecker during his two-day deposition in January 2023 — and the detailed forensic findings set forth in the expert report of Dr. Sharon Kettlewell, CPA/CFF, CFE, of Ridgeline Forensic Advisory LLC. The subsidiary arguments regarding ratification, acquiescence, and constructive knowledge are barred by the Franchise License Agreements' express no-waiver clause and are further negated by the overwhelming evidence of affirmative concealment. The damages challenge amounts to a classic battle of the experts that creates, rather than resolves, triable issues of fact. The tort and equitable counts involve fact-intensive inquiries that are manifestly inappropriate for summary adjudication. And on its own Counterclaim, Coastal Palms has failed to adduce any competent evidence of damages or causation for its brand-standard allegations.
We recommend filing our Response in Opposition by the November 17, 2023 deadline. Carlos Espinoza should be allocated primary drafting responsibility, with my review and revision targeted for completion by November 8, 2023, and your final review and approval by November 10, 2023, to allow adequate time for cite-checking and formatting before filing.
II. PROCEDURAL BACKGROUND
The procedural history of this litigation is extensive and sets important context for evaluating the posture in which the Cross-Motion arrives. We summarize the key milestones below.
Complaint and Responsive Pleadings. Verimark filed its Complaint on March 7, 2022, asserting ten counts against Coastal Palms Franchise Holdings LLC, Randall Brecker (individually and as managing member of Coastal Palms and president of Suncoast Room Management Inc.), and Suncoast Room Management Inc. ("Suncoast"). The ten counts comprise breach of contract (Counts I–III), breach of the implied covenant of good faith and fair dealing (Count IV), fraudulent concealment (Count V), negligent misrepresentation (Count VI), unjust enrichment (Count VII, pleaded in the alternative), declaratory judgment regarding FLA termination (Count VIII), accounting (Count IX), and civil conspiracy (Count X). Coastal Palms filed its Answer, Affirmative Defenses, and Counterclaim on April 18, 2022, asserting a $12 million Counterclaim for alleged brand-standard violations and over-billing. Verimark answered the Counterclaim on May 2, 2022.
Case Management and Trial Setting. A Case Management Conference was held before the Honorable Richard M. Calloway on June 14, 2022, at which the Court entered a comprehensive case management order establishing discovery deadlines and setting trial for February 2024. Trial has since been continued to May 2024 to accommodate the parties' summary judgment briefing schedule and oral argument.
Written discovery. discovery was extensive and hard-fought. Verimark served 147 requests for production on July 11, 2022, seeking comprehensive financial records across all 22 franchised properties, including Suncoast's internal financial data, OTA reconciliation records, and booking-channel analytics. Coastal Palms made an initial production of approximately 84,000 documents on August 22, 2022, which Verimark promptly identified as incomplete, particularly with respect to Suncoast Room Management Inc.'s financial records. Verimark filed a Motion to Compel production of Suncoast's financial records on September 15, 2022, which the Court granted on October 28, 2022. A supplemental production of approximately 312,000 documents followed on November 18, 2022. In total, the document universe processed by Nexagen Document Solutions LLC encompasses approximately 2.3 million pages and 1.1 terabytes of data.
Fact Depositions. Fourteen fact depositions were taken between January 9 and March 17, 2023. The most significant include:
• Randall Brecker (two-day deposition, January 2023): Brecker is the managing member of Coastal Palms and president of Suncoast. His testimony is discussed in detail throughout this memorandum, as it contains critical admissions regarding his understanding of the GRR definition and his direction to property-level controllers to exclude Suncoast-collected revenues from GRR reports.
• Theresa Brecker (January 2023): Randall Brecker's spouse, who holds a 15% equity interest in Coastal Palms and serves as its chief financial officer. Her testimony addressed the financial reporting structure and the 12% management fee retained by Suncoast.
• Nolan Prescott (February 2023): A 25% equity holder in Coastal Palms who claims to be a passive investor. His testimony is significant because it revealed that he received quarterly financial summaries that included Suncoast revenue lines, creating inconsistencies with his claimed ignorance of the revenue-diversion scheme.
• Janet Kerrigan (February 2023): A former regional controller for Coastal Palms who served as the whistleblower in this matter, contacting Verimark's compliance hotline on November 8, 2021, after her termination by Coastal Palms in October 2021. Her testimony provides direct evidence of Brecker's instructions to route walk-in and corporate-direct bookings through Suncoast and to exclude those revenues from GRR reports.
• Ten property-level managers and accountants (February–March 2023): These witnesses provided corroborating testimony regarding the recurring direction from "corporate" (i.e., Brecker) to use the Suncoast channel for walk-in and corporate-direct bookings and to exclude those revenues from Verimark GRR reports.
Expert discovery. Expert reports were exchanged according to the following schedule:
• Dr. Sharon Kettlewell, CPA/CFF, CFE, of Ridgeline Forensic Advisory LLC, served her expert report on April 14, 2023, opining that cumulative underreported GRR across all 22 properties for the period 2013 through 2021 totals $197.8 million, yielding $16.095 million in direct underpayments (royalties, marketing contributions, and technology fees) plus $28.4 million in contractual late-payment interest under FLA § 4.6 and up to $105.5 million in liquidated damages under FLA § 15.3.
• Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., served his expert report on behalf of Coastal Palms on May 15, 2023, opining that the maximum underpayment is $6.2 million based on a narrower interpretation of the GRR definition.
• Dr. Kettlewell served a rebuttal expert report on June 9, 2023, addressing and refuting Prof. Hargrove's methodology and conclusions.
• Expert depositions were taken on June 26 and 27, 2023.
Close of discovery. discovery closed on August 4, 2023.
Summary Judgment Motions. Verimark filed its Motion for Partial Summary Judgment on Counts I and II (liability only) on September 29, 2023, supported by a 127-paragraph Statement of Undisputed Material Facts. Coastal Palms filed the Cross-Motion that is the subject of this memorandum on October 13, 2023, seeking summary judgment on all counts and on its Counterclaim.
Remaining Briefing Schedule. Response briefs are due November 17, 2023. Reply briefs are due December 8, 2023. Oral argument is scheduled for January 19, 2024, before Judge Calloway.
III. STRUCTURE OF DEFENDANT'S CROSS-MOTION
Coastal Palms' Cross-Motion is organized into five principal arguments, each of which we address in detail in Section IV below. For ease of reference, we summarize the arguments here:
Argument 1: GRR Definition "Ambiguity" (FLA § 4.1). Coastal Palms contends that the GRR definition in FLA § 4.1 is ambiguous as applied to revenues collected by Suncoast Room Management Inc., a separate legal entity with its own management-fee arrangement, and that any ambiguity must be construed against Verimark as the drafter under the doctrine of contra proferentem.
Argument 2: Constructive Knowledge / Ratification / Acquiescence. Coastal Palms argues that Verimark had constructive knowledge of Suncoast's role in collecting guest-room revenue, and that Verimark's failure to object to Coastal Palms' reporting methodology from January 2013 through November 2021 — a period of approximately nine years — constitutes ratification or acquiescence, thereby waiving Verimark's right to assert breach.
Argument 3: Damages Model Challenge. Coastal Palms contends that Dr. Kettlewell's damages methodology is unreliable, that the maximum underpayment is $6.2 million (per Prof. Hargrove's analysis), that the compounded late-payment interest calculation is excessive and punitive, and that the liquidated-damages provision is an unenforceable penalty.
Argument 4: Tort and Equitable Counts (Counts IV–X). Coastal Palms argues that the remaining tort and equitable counts fail as a matter of law because they are duplicative of the breach-of-contract claims, are barred by the economic loss rule, or lack independent factual support.
Argument 5: Counterclaim Entitlement. Coastal Palms contends it is entitled to summary judgment on its $12 million Counterclaim based on undisputed brand-standard violations and over-billing.
We turn now to a detailed analysis of each argument.
IV. SECTION-BY-SECTION ANALYSIS
A. Argument 1: GRR Definition "Ambiguity" (FLA § 4.1)
1. Coastal Palms' Position. Coastal Palms' first and most prominent argument is that the Gross Room Revenue definition in FLA § 4.1 is ambiguous as applied to the particular facts of this case. The relevant provision defines GRR as follows:
"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."
Coastal Palms' brief advances a multi-step textual argument. First, it contends that the phrase "regardless of the entity collecting such revenue" is ambiguous when the collecting entity — here, Suncoast Room Management Inc. — is a separate legal entity from the franchisee with its own management-fee arrangement (a 12% fee on direct-booking revenue). Coastal Palms characterizes Suncoast as an independent management company, not merely an alter ego or instrumentality of Coastal Palms, and argues that revenues collected by a truly independent entity fall outside the scope of the GRR definition.
Second, Coastal Palms places heavy reliance on the phrase "at the Hotel," contending that this locational modifier limits GRR to revenues that are both booked and collected at the physical hotel property. Under this reading, revenues collected by Suncoast through the unbranded gulfcoastrooms.com website and through direct corporate contracts negotiated and invoiced by Suncoast — even though the guests stayed at Coastal Palms-franchised hotels — would fall outside the GRR definition because those revenues were not collected "at the Hotel."
Third, Coastal Palms invokes the doctrine of contra proferentem, arguing that Verimark, as the franchisor, drafted the FLAs and that any ambiguity in the GRR definition must therefore be construed in favor of the franchisee. Defense counsel's brief cites several Florida decisions applying contra proferentem in franchise and commercial contexts, though we note that none of those cases involved GRR definitions comparable to the one at issue here.
2. Analysis and Weaknesses. Coastal Palms' ambiguity argument is its strongest card, and yet it is fundamentally unsound. The plain language of FLA § 4.1 is unambiguous, and the record evidence — particularly Brecker's own deposition admissions — confirms that the parties understood the provision to mean precisely what it says.
Plain Language Analysis. The GRR definition captures "all revenues derived from or attributable to the rental of guest rooms…regardless of the entity collecting such revenue." The phrase "regardless of the entity collecting such revenue" was plainly drafted to address exactly the scenario presented here: a franchisee or its affiliate channeling guest-room revenue through a separate entity. The word "regardless" is unconditional — it admits of no exceptions based on the collecting entity's corporate form, management-fee arrangements, or degree of independence from the franchisee. To hold otherwise would render the "regardless of the entity" clause surplusage, violating the cardinal rule of contract construction that every provision must be given meaning and effect.
The "At the Hotel" Modifier. Coastal Palms' effort to leverage the phrase "at the Hotel" fails on basic principles of grammar and syntax. The full clause reads: "all revenues derived from or attributable to the rental of guest rooms at the Hotel." The prepositional phrase "at the Hotel" modifies "guest rooms," not "revenues." The revenues need not be collected at the hotel; the revenues must merely be derived from or attributable to the rental of guest rooms that are located at the hotel. This reading is not only grammatically correct but also commercially sensible: the purpose of the GRR definition is to capture all revenue associated with the rental of the franchisor's branded hotel rooms, regardless of the manner or location of collection. Coastal Palms' alternative reading — that revenues must be physically collected on-site — would produce the absurd result that revenue from online travel agencies ("OTAs") such as Aldermere Technologies or Bramwell Holdings would also be excluded from GRR, since those revenues are collected by the OTA rather than at the hotel. Coastal Palms does not contend (and cannot contend) that OTA revenues are excluded from GRR, which fatally undermines the internal consistency of its textual argument.
Brecker's Deposition Admissions. The most damaging evidence against the ambiguity argument comes from Coastal Palms' own principal. During his two-day deposition in January 2023, Randall Brecker made several admissions that directly undercut the claim that § 4.1 is ambiguous:
• Brecker acknowledged that he understood the GRR definition was "designed to capture all guest-room revenue regardless of booking source." (Brecker Dep. Day 1, 142:8-15.)
• Brecker admitted that he "personally directed controllers to exclude Suncoast-collected revenues from monthly GRR reports to Verimark." (Brecker Dep. Day 1, 207:3-12.) When pressed on why, he testified that he believed the Suncoast management-fee arrangement created a "separate revenue stream" — a characterization that is inconsistent with the FLA's definition but confirms that Brecker understood the GRR definition's scope and deliberately circumvented it.
• On Day 2, Brecker conceded that he had not sought a written interpretation or waiver from Verimark regarding the treatment of Suncoast-collected revenues. (Brecker Dep. Day 2, 54:18-55:4.)
These admissions are devastating because they establish that even the defendant principal understood the GRR definition to be broad enough to encompass all guest-room revenue. The decision to exclude Suncoast-collected revenues was not the product of genuine interpretive uncertainty; it was a deliberate effort to underreport and underpay.
Janet Kerrigan's Whistleblower Testimony. Kerrigan, a former regional controller for Coastal Palms, contacted Verimark's compliance hotline on November 8, 2021, approximately three weeks after her termination by Coastal Palms. During her deposition, Kerrigan testified that Brecker explicitly instructed her and other controllers to route walk-in and corporate-direct bookings through Suncoast and to exclude those revenues from the monthly GRR reports submitted to Verimark. Kerrigan further testified that she understood this practice to be contrary to the FLA's reporting requirements and that she had raised concerns with Theresa Brecker on multiple occasions, only to be told that "Randall has it handled." (Kerrigan Dep. 88:4-9.) Kerrigan's testimony provides independent corroboration of Brecker's admissions and directly refutes any claim of genuine interpretive ambiguity.
Property-Level Witness Testimony. The composite testimony of the ten property-level managers and accountants deposed in this case reveals a recurring pattern: each witness testified to receiving direction from "corporate" — meaning Brecker or his designees at Coastal Palms' headquarters — to use the Suncoast booking channel for walk-in and corporate-direct reservations and to exclude those revenues from GRR reports to Verimark. Several witnesses testified that they questioned this practice and were told it was "the way we do things." None testified that they believed the FLA permitted or required the exclusion.
Contra Proferentem Is Inapplicable. The doctrine of contra proferentem is a rule of last resort under Florida law. It applies only when a contract term remains genuinely ambiguous after all other canons of construction have been exhausted. As demonstrated above, the GRR definition in FLA § 4.1 is clear on its face. The "regardless of the entity collecting such revenue" clause directly addresses and resolves the precise scenario that Coastal Palms claims creates ambiguity. There is no latent ambiguity, no patent ambiguity, and no reasonable alternative reading that survives ordinary principles of textual analysis. Contra proferentem therefore has no role to play.
Moreover, even if the Court were to find some threshold ambiguity, the "regardless of the entity" clause would resolve it decisively in Verimark's favor. The clause was obviously included to prevent exactly the type of revenue-diversion scheme that Coastal Palms implemented.
We note that Carlos Espinoza's August 18, 2023 research memorandum on franchise revenue-reporting obligations identifies several Florida appellate decisions holding that broadly drafted GRR definitions in franchise agreements are not rendered ambiguous merely because a franchisee uses an intermediary entity to collect revenue. These authorities should be prominently cited in our Response.
3. Recommended Response Strategy. Our Response should lead with a thorough textual analysis of FLA § 4.1, focusing on the "regardless of the entity collecting such revenue" clause as the dispositive provision. The "at the Hotel" argument should be dispatched through grammatical analysis, commercial-reasonableness principles, and the reductio ad absurdum regarding OTA revenues.
We should deploy Brecker's deposition admissions prominently as evidence that even the defendant understood the clause's meaning — this transforms the ambiguity argument from a textual debate into a credibility problem for Coastal Palms. Kerrigan's testimony and the property-level witness testimony should be marshaled as corroborating evidence of the deliberate nature of the scheme.
We should argue that contra proferentem is categorically inapplicable because the term is unambiguous. In the alternative, we should argue that even if the doctrine were applicable, the "regardless of the entity" clause resolves any alleged ambiguity in Verimark's favor. This two-step argument hedges against any judicial inclination to find threshold ambiguity.
Finally, we should cross-reference our own Motion for Partial Summary Judgment filed September 29, 2023, which establishes liability on Counts I and II as a matter of law on the same textual basis. The symmetry of the arguments — Verimark arguing that the text unambiguously supports its position, Coastal Palms arguing that the same text is ambiguous — should itself demonstrate that the ambiguity argument is contrived.
B. Argument 2: Constructive Knowledge / Ratification / Acquiescence
1. Coastal Palms' Position. Coastal Palms' second argument is that Verimark had constructive knowledge of Suncoast's role in collecting guest-room revenue and that Verimark's failure to object to Coastal Palms' reporting methodology from January 2013 through November 2021 — approximately nine years — constitutes ratification or acquiescence that bars Verimark from now asserting breach.
In support of this argument, Coastal Palms points to the fact that Suncoast Room Management Inc. was identified in certain property-management agreements that were submitted to Verimark during the franchise-application process for some (but notably not all) of the 22 properties. Defense counsel contends that these submissions put Verimark on notice that Suncoast played a role in property operations, and that Verimark's failure to inquire further into Suncoast's revenue-collection activities constitutes constructive knowledge of the reporting methodology.
Coastal Palms further argues that Verimark possessed audit rights under FLA § 8.2 that could have uncovered the alleged underreporting at any time, and that Verimark's decision not to exercise those rights for nine years reflects a knowing acceptance of the status quo. Defense counsel characterizes this as a waiver by conduct — Verimark accepted the reported GRR figures without objection, relied on them for royalty and marketing-fund calculations, and cannot now claim surprise that the figures excluded Suncoast-collected revenues.
2. Analysis and Weaknesses. This argument fails for multiple independent reasons, any one of which is sufficient to defeat it at summary judgment.
The No-Waiver Clause. Each of the 22 FLAs contains an express no-waiver clause, which provides in pertinent part that the failure of either party to enforce any provision of the agreement shall not constitute a waiver of the right to enforce that provision or any other provision in the future. This is a standard provision in franchise agreements, and Florida courts routinely enforce such clauses to bar ratification and acquiescence defenses. The no-waiver clause is a complete contractual bar to Coastal Palms' argument. Verimark's failure to object to the reporting methodology — even if it had been aware of the methodology, which it was not — cannot constitute waiver or ratification in the face of an express contractual provision preserving its enforcement rights.
Knowledge vs. Constructive Knowledge. Coastal Palms conflates two distinct concepts. Knowledge that Suncoast existed as a management entity is categorically different from knowledge that Suncoast was collecting guest-room revenue and that Coastal Palms was systematically excluding that revenue from GRR reports. The property-management agreements submitted during the franchise-application process identified Suncoast's operational role — staffing, maintenance, and day-to-day property management — but did not disclose Suncoast's revenue-collection activities, the 12% management-fee arrangement, or the existence of the unbranded gulfcoastrooms.com website through which Suncoast directed walk-in and corporate-direct bookings. The submission of these property-management agreements, at most, put Verimark on notice that Suncoast played an operational role at certain properties. They did not put Verimark on notice that Suncoast was collecting guest-room revenue or that Coastal Palms was excluding that revenue from GRR.
No Duty to Audit. Verimark had no obligation to independently audit Coastal Palms' GRR reports beyond the permissive audit rights granted by FLA § 8.2. The FLA places the reporting burden squarely on the franchisee, who is required to submit accurate monthly GRR reports. The audit right under § 8.2 is precisely that — a right, not a duty. Verimark's decision not to exercise its audit rights earlier does not waive or ratify anything, any more than a landlord's decision not to inspect a property waives the tenant's obligation to maintain it.
Affirmative Concealment Negates Ratification. Most fundamentally, the ratification defense fails because it requires knowledge of the material facts, and the undisputed record evidence demonstrates that the underreporting was affirmatively concealed. Brecker deliberately structured the Suncoast channel and the gulfcoastrooms.com website to divert revenue off-platform and outside the reporting framework. The monthly GRR reports submitted to Verimark did not disclose the existence of Suncoast-collected revenues; they simply reported lower numbers without any indication that a separate revenue stream existed. This is not a case of passive non-disclosure or open-and-obvious conduct to which Verimark turned a blind eye. It is a case of deliberate, systematic concealment over a nine-year period.
Under Florida law, ratification requires knowledge of the material facts being ratified. Where a party's non-objection is the product of ignorance caused by the other party's active concealment, ratification does not apply. The evidence of concealment here is overwhelming: Brecker's deposition admissions regarding his direction to controllers; Kerrigan's testimony regarding the explicit instructions to exclude Suncoast revenues; the operation of the unbranded gulfcoastrooms.com website (which was not identified as a Verimark-branded channel and was not visible to Verimark's franchise-operations team); and the classification of OTA payments as "commissions receivable" rather than guest-room revenue.
Prompt Action Upon discovery. The timeline of Verimark's response upon learning of the scheme further negates any inference of acquiescence:
• November 8, 2021: Janet Kerrigan contacts Verimark's compliance hotline.
• November 22, 2021: Verimark engages Thornbury & Associates CPAs LLP to conduct a compliance audit of Coastal Palms' GRR reporting.
• January 18, 2022: Thornbury & Associates delivers preliminary audit findings confirming approximately 26% underreporting across the top 10 properties for the period 2019 through 2021.
• February 4, 2022: Verimark issues a formal Notice of Material Breach to Coastal Palms, demanding cure within 30 days pursuant to FLA § 14.1.
• February 28, 2022: Coastal Palms' counsel (Whitfield, Barrow & Crane LLP) responds denying breach.
• March 6, 2022: The 30-day cure period expires without cure.
• March 7, 2022: Verimark files its Complaint.
From whistleblower contact to litigation filing, approximately 120 days elapsed — a period consumed by the engagement and execution of a forensic audit and the issuance of a formal cure notice. This timeline demonstrates the opposite of acquiescence; it reflects a prompt and methodical response to the discovery of a previously concealed breach.
3. Recommended Response Strategy. Our Response should emphasize the no-waiver clause as the threshold contractual bar to the ratification/acquiescence defense, followed by the distinction between knowledge of Suncoast's operational existence and knowledge of Suncoast's revenue-collection role. The affirmative-concealment evidence should be presented in detail, drawing on Brecker's admissions, Kerrigan's testimony, and the property-level witness testimony to establish a clear factual record of deliberate deception.
The timeline from whistleblower contact through complaint filing should be set forth prominently to demonstrate prompt action upon discovery. We should argue that these facts establish, at a minimum, genuine disputes of material fact as to Verimark's knowledge — disputes that are wholly inappropriate for resolution at summary judgment and that preclude entry of judgment in Coastal Palms' favor on any ratification or acquiescence theory.
C. Argument 3: Damages Model Challenge (Kettlewell vs. Hargrove)
1. Coastal Palms' Position. Coastal Palms' third argument attacks Verimark's damages model. Defense counsel advances several sub-arguments in this regard.
First, Coastal Palms relies on the expert report of Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., who opined that the maximum underpayment attributable to Coastal Palms is $6.2 million — a figure approximately 62% lower than Dr. Kettlewell's direct-underpayment estimate of $16.095 million. Prof. Hargrove's lower figure is based on a narrower GRR definition that excludes walk-in cash payments entirely and attributes only net OTA revenue (i.e., OTA revenue after deduction of the OTA's commission) rather than gross OTA revenue.
Second, Coastal Palms argues that Dr. Kettlewell's methodology is unreliable for three reasons: (a) she extrapolated from 10 audited properties to all 22 properties, rather than auditing each property individually; (b) her compounded late-payment interest calculation at 1.5% per month — yielding $28.4 million in accrued interest — is excessive and punitive; and (c) her liquidated-damages calculation of $105.5 million under FLA § 15.3 (3× trailing-twelve-month royalties per property across 22 properties) reflects an unenforceable penalty rather than a reasonable pre-estimate of probable loss.
Third, Coastal Palms argues that even the $6.2 million figure calculated by Prof. Hargrove is disputed, and that the uncertainty surrounding damages precludes summary judgment in Verimark's favor on any count.
2. Analysis and Weaknesses. ##### (a) Hargrove's Narrowed GRR Definition
Prof. Hargrove's $6.2 million estimate is predicated on a GRR definition materially narrower than the one set forth in FLA § 4.1. Specifically, Hargrove excludes walk-in cash payments from GRR on the theory that such payments are not "booked" through any identifiable "booking channel" and therefore fall outside the § 4.1 definition. He also uses net OTA revenue — that is, the amount actually received by the hotel after deduction of the OTA's commission — rather than gross OTA revenue (the total amount paid by the guest).
Both of these exclusions contradict the plain language of FLA § 4.1, which defines GRR to include "all revenues derived from or attributable to the rental of guest rooms…including revenues from any booking channel, direct or indirect." Walk-in cash payments are self-evidently "derived from…the rental of guest rooms" — a guest walks into the hotel, rents a room, and pays for it. The fact that the guest did not use a third-party "booking channel" is irrelevant; the definition includes "any booking channel, direct or indirect," and a walk-in booking is the most direct booking channel of all. Hargrove's exclusion of walk-in cash payments has no textual basis in the FLA.
The net-versus-gross OTA issue was specifically addressed in Dr. Kettlewell's rebuttal report served June 9, 2023. As Kettlewell explained, FLA § 4.1 requires reporting of gross revenue — the total amount paid by or on behalf of the guest for the room. Coastal Palms' practice of classifying OTA payments as "commissions receivable" and netting those commissions against GRR was inconsistent with the gross-revenue reporting requirement. The commission paid to the OTA is a cost of distribution borne by the hotel, not a reduction in the revenue derived from the room rental. Under the FLA, the royalty, marketing-fund contribution, and technology fee are calculated on the full amount of guest-room revenue, not on the net amount retained by the hotel after payment of distribution costs.
Most critically, Prof. Hargrove himself conceded during his June 27, 2023 expert deposition that his narrower GRR definition was based on his own interpretation of the contractual language rather than the FLA's actual terms. When pressed on whether his exclusion of walk-in cash payments was consistent with the phrase "all revenues derived from…the rental of guest rooms," Hargrove acknowledged that it was "a judgment call" and that "reasonable people could disagree." This concession is fatal to the defense's damages argument because it reveals that Hargrove's opinion on the proper scope of GRR is a legal conclusion masquerading as an expert damages opinion. Expert witnesses are permitted to offer opinions on damages methodology and calculation; they are not permitted to adopt their own interpretations of contractual terms and use those interpretations as the foundation for their damages calculations. The Court, not Prof. Hargrove, is the arbiter of the meaning of FLA § 4.1.
Carlos Espinoza's analysis memorandum dated May 22, 2023, identified these methodological errors in real time, and our rebuttal coordination memorandum dated May 30, 2023 provided Dr. Kettlewell with additional Suncoast financial data necessary to address Hargrove's criticisms in her rebuttal report.
##### (b) Kettlewell's Extrapolation Methodology
Coastal Palms' challenge to Dr. Kettlewell's extrapolation from 10 audited properties to all 22 properties is a methodological quibble that does not undermine the reliability of her opinion. Kettlewell's extrapolation is well-supported for several reasons:
• The 10 audited properties represent the top revenue generators in the Coastal Palms portfolio and account for approximately 65% of total reported GRR across all 22 properties.
• The extrapolation was not a simple pro rata calculation. Kettlewell used property-specific adjustment factors derived from Suncoast bank records, OTA reconciliation data, and booking-channel analytics obtained through the supplemental production of 312,000 documents on November 18, 2022.
• The Thornbury & Associates CPAs LLP preliminary audit (delivered January 18, 2022) provided independent baseline data showing approximately 26% underreporting across the audited properties for the period 2019 through 2021, corroborating Kettlewell's property-level calculations.
• The extrapolation methodology is a standard forensic accounting technique used when complete records are unavailable — a circumstance directly attributable to Coastal Palms' own conduct in failing to maintain complete records for certain years (2013 through 2015) and in initially withholding Suncoast financial records until compelled by the Court's October 28, 2022 order.
In any event, the methodological debate between Kettlewell and Hargrove is precisely the type of dispute that is resolved at trial, not on summary judgment. At summary judgment, the Court need not choose between competing expert opinions. The existence of two qualified experts offering different opinions on the quantum of damages is the textbook definition of a genuine dispute of material fact. Coastal Palms' attempt to use the damages dispute as a basis for summary judgment in its favor on liability is a non sequitur — even if Hargrove's damages figure were accepted, it would still establish an underpayment of $6.2 million, supporting Verimark's breach-of-contract claims rather than defeating them.
For completeness, we note the key quantitative framework established by Dr. Kettlewell's analysis:
For fiscal year 2021 alone, reported GRR was $112.4 million versus estimated true GRR of $145.6 million, representing $33.2 million in underreported GRR and an underreporting percentage ranging from 22% to 31% depending on the property and the specific year.
##### (c) Late-Payment Interest
Coastal Palms' characterization of the $28.4 million compounded interest figure as "excessive and punitive" misapprehends the legal basis for the interest calculation. The 1.5% per month compounded interest rate is a contractual term expressly set forth in FLA § 4.6. It is not a court-imposed penalty or a statutory default-interest rate; it is a rate that the parties negotiated, agreed to, and memorialized in each of the 22 FLAs. Under Florida law, parties to a commercial contract are free to agree to interest rates and compounding methods, subject only to the usury statute, which is inapplicable in the commercial context. The $28.4 million figure is the natural and mathematically inevitable consequence of applying the agreed-upon 1.5% monthly compounded rate to systematically underpaid amounts over a nine-year period. If the resulting figure is large, that is a function of the magnitude and duration of the underreporting — circumstances entirely within Coastal Palms' control.
##### (d) Liquidated Damages (§ 15.3)
The enforceability of the liquidated-damages provision under FLA § 15.3 — which provides for damages equal to three times trailing-twelve-month royalties per property, totaling $105.5 million across 22 properties — is addressed in detail in Carlos Espinoza's August 25, 2023 research memorandum. The applicable Florida standard for enforceability of liquidated-damages provisions requires that: (1) the actual damages contemplated by the parties were difficult to ascertain at the time of contracting, and (2) the stipulated amount represents a reasonable pre-estimate of probable loss rather than a penalty imposed in terrorem.
This is a fact-intensive inquiry. Coastal Palms' challenge to the reasonableness of the 3× multiplier raises genuine factual issues regarding the relationship between the stipulated amount and the actual damages that could reasonably have been anticipated at the time the FLAs were executed. These factual issues further support denial of the Cross-Motion — they are triable issues, not grounds for summary judgment in defendant's favor. Indeed, if the liquidated-damages provision is found enforceable, it substantially increases Verimark's recovery; if it is found unenforceable, Verimark's actual-damages claims remain fully intact.
3. Recommended Response Strategy. The damages arguments should be framed as the paradigmatic example of a genuine dispute of material fact precluding summary judgment for either party on damages quantum. We should emphasize that dueling expert opinions — a $16.095 million direct-underpayment figure versus a $6.2 million figure, computed using different methodologies and GRR definitions — are quintessential triable issues that cannot be resolved on paper.
We should defend Dr. Kettlewell's methodology as well-supported by the documentary record and standard forensic-accounting practice, while highlighting Prof. Hargrove's concession that his narrower GRR definition represents his own legal interpretation rather than a damages-methodology opinion. We should argue that Hargrove's report improperly invades the province of the Court by adopting an interpretation of FLA § 4.1 that is inconsistent with the contractual text.
The contractual interest rate under § 4.6 should be defended as a freely negotiated term enforceable under Florida law, and the liquidated-damages provision should be presented as raising triable issues at minimum.
Finally, and critically, we should note that Verimark's own Motion for Partial Summary Judgment appropriately sought summary judgment on liability only, deferring the damages quantum to trial. Coastal Palms' attempt to leverage the damages dispute to defeat Verimark's liability case puts the cart before the horse. Disputes about how much is owed do not create disputes about whether anything is owed — the liability question and the damages question are distinct, and the existence of a damages dispute does not preclude entry of summary judgment on liability.
D. Argument 4: Tort and Equitable Counts (Counts IV–X)
1. Coastal Palms' Position on Each Count. Coastal Palms seeks summary judgment on each of the remaining seven counts of the Complaint. We summarize the defense's position on each count before turning to our analysis.
Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing. Coastal Palms argues that this count is duplicative of the express breach-of-contract claims asserted in Counts I through III and fails as a matter of law because Florida does not recognize an independent tort of bad faith in a commercial contract context. Defense counsel contends that the implied covenant does not create duties beyond those expressly stated in the contract, and that Verimark's implied-covenant claim simply re-packages its express-breach allegations.
Count V — Fraudulent Concealment. Coastal Palms contends that Verimark cannot establish the elements of fraudulent concealment because the information regarding Suncoast's revenue-collection activities was available to Verimark through its audit rights under FLA § 8.2 and because Verimark allegedly had constructive knowledge of Suncoast's role. Defense counsel argues that a party cannot claim fraudulent concealment of information that was available to it through the exercise of ordinary diligence.
Count VI — Negligent Misrepresentation. Coastal Palms argues that the monthly GRR reports submitted to Verimark were not "representations" in the tort sense but rather contractual reporting obligations. Accordingly, any claim arising from the alleged inaccuracy of those reports sounds in contract, not tort, and is barred by the economic loss rule.
Count VII — Unjust Enrichment (Alternative). Coastal Palms argues that unjust enrichment cannot coexist with an express contract governing the same subject matter. Because the FLAs expressly govern GRR reporting, royalty payments, and the parties' financial obligations, an unjust-enrichment claim arising from the same conduct is legally impermissible.
Count VIII — Declaratory Judgment (FLA Termination). Coastal Palms argues that this count is moot because Verimark has not yet terminated the FLAs and no justiciable controversy exists regarding the parties' termination rights.
Count IX — Accounting. Coastal Palms argues that the accounting claim is moot in light of the extensive discovery that has been conducted, including the production of approximately 2.3 million documents encompassing the complete financial records of Coastal Palms and Suncoast.
Count X — Civil Conspiracy (Brecker & Suncoast). Coastal Palms argues that the intracorporate conspiracy doctrine bars this count because Brecker, as managing member of Coastal Palms and president of Suncoast Room Management Inc., cannot conspire with entities over which he exercises sole operational control. Defense counsel contends that Brecker, Coastal Palms, and Suncoast constitute a single enterprise for purposes of the conspiracy analysis, and that the acts alleged to constitute the conspiracy were undertaken by Brecker in his capacity as an agent of both entities.
2. Analysis and Weaknesses. ##### Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing
Coastal Palms is correct that Florida law does not recognize an independent tort for breach of the implied covenant of good faith and fair dealing in commercial contracts. However, Florida law does recognize a contract-based claim for breach of the implied covenant where the defendant exercises contractual discretion in bad faith to deprive the plaintiff of the benefit of the bargain. This is an important distinction that Coastal Palms' brief elides.
The implied covenant of good faith and fair dealing inheres in every Florida contract and prohibits a party from acting in a manner that, although not expressly prohibited by the contract's terms, is inconsistent with the agreed-upon purposes and expectations of the contracting parties. Here, Coastal Palms' systematic nine-year underreporting scheme goes well beyond mere non-performance of an express contractual obligation. It constitutes a deliberate, coordinated effort to deprive Verimark of the benefit of the franchise relationship by diverting revenue through a separate entity, operating an unbranded booking channel, and submitting false financial reports. The implied-covenant claim captures conduct — such as the affirmative steps taken to structure the Suncoast revenue-diversion scheme — that may not be fully addressed by the express-breach claims.
Even if the Court were to conclude that the implied-covenant claim is partially duplicative of the express-breach claims, it should survive at this stage as an alternative theory of recovery. Summary judgment is a "blunt instrument" that should not be used to prune alternative legal theories prior to trial, particularly where the underlying facts support the claim and the legal standards are distinct.
##### Count V — Fraudulent Concealment
Coastal Palms' defense to the fraudulent-concealment count fails for the same reasons its constructive-knowledge and ratification arguments fail. The FLA § 8.2 audit right is permissive, not a mandatory investigative obligation. Verimark was entitled to rely on the accuracy of Coastal Palms' monthly GRR reports; the duty to report accurately rested on Coastal Palms as the franchisee, not on Verimark as the franchisor. A party cannot fraudulently conceal material information and then argue that the victim should have uncovered the fraud through due diligence. That is not the law.
More fundamentally, Coastal Palms' acts of concealment went far beyond passive non-disclosure. They involved affirmative steps designed to prevent discovery of the underreporting scheme: routing revenue through a separate entity (Suncoast), operating the unbranded gulfcoastrooms.com website so as to divert bookings outside Verimark's brand-management systems, classifying OTA payments as "commissions receivable" to net against GRR, and directing property-level controllers to exclude Suncoast-collected revenues from Verimark GRR reports. These are acts of active concealment, not mere omissions. They are precisely the type of conduct that the tort of fraudulent concealment is designed to remedy.
Brecker's deposition admissions and Kerrigan's whistleblower testimony establish, at minimum, a genuine dispute of material fact as to whether Coastal Palms actively concealed material information from Verimark. That dispute precludes summary judgment in Coastal Palms' favor on Count V.
The constructive-knowledge defense fails for the reasons discussed in Section IV.B above and need not be repeated here.
##### Count VI — Negligent Misrepresentation
Coastal Palms' contention that the monthly GRR reports were not "representations" in the tort sense is unconvincing. Under Florida law, a negligent-misrepresentation claim is cognizable where the defendant supplies false information for the guidance of others in their business transactions. The monthly GRR reports were precisely that: financial representations submitted to Verimark for the purpose of guiding Verimark's calculation of royalties, marketing-fund contributions, and technology fees. They were relied upon by Verimark in making business decisions regarding the franchise relationship, including decisions about resource allocation, marketing expenditures, and the deployment of brand-support services. The fact that the reports were also required by the FLA's express terms does not strip them of their character as representations of fact capable of supporting a negligent-misrepresentation claim.
Coastal Palms' invocation of the economic loss rule is also unpersuasive. The economic loss rule has been significantly narrowed under Florida precedent in recent years. The Florida Supreme Court and the District Courts of Appeal have recognized that fraud-based and negligent-misrepresentation claims are cognizable even where an express contract exists between the parties, provided that the misrepresentation is independent of the contractual duty. Here, the duty not to misrepresent financial data is a common-law duty that exists independently of the FLA's reporting obligations. The FLA imposes a contractual obligation to report accurately; the common law imposes a separate obligation not to supply false information for the guidance of others. These are distinct duties, and a breach of one does not subsume the other.
At minimum, the applicability of the economic loss rule in these circumstances presents a genuine issue of material fact (or, more precisely, a genuine issue of law that is intertwined with factual questions) that is inappropriate for resolution at summary judgment.
##### Count VII — Unjust Enrichment (Alternative)
Coastal Palms' argument that unjust enrichment cannot coexist with an express contract governing the same subject matter is, as a general proposition, correct. However, Verimark pleaded its unjust-enrichment claim as an alternative theory — specifically, in the event that any FLA is found unenforceable, void, or inapplicable to the conduct at issue. Florida law expressly permits alternative pleading, and the Rules of Civil Procedure allow a party to assert claims that are inconsistent with one another when pleaded in the alternative.
Summary judgment on an alternative theory is inappropriate precisely because the alternative theory becomes relevant only if the primary theory fails. If the Court ultimately determines that the FLAs are valid and enforceable, the unjust-enrichment claim may become moot — but that is a determination to be made at trial or upon resolution of the primary claims, not at summary judgment.
##### Count VIII — Declaratory Judgment (FLA Termination)
Coastal Palms' argument that the declaratory-judgment claim is moot because Verimark has not yet terminated the FLAs misconstrues the nature of the claim and the standard for justiciability. The controversy is ripe: FLA § 14.2(c) provides that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." Verimark issued a formal Notice of Material Breach on February 4, 2022, citing § 14.2(c). The 30-day cure period under § 14.1 expired on March 6, 2022, without cure (indeed, Coastal Palms' counsel denied that any breach had occurred). The declaratory-judgment claim seeks judicial confirmation that the FLAs are subject to termination for cause — a live and justiciable controversy that goes to the heart of the parties' ongoing relationship.
The fact that Verimark has not yet exercised its termination rights does not render the claim moot. To the contrary, Verimark seeks a judicial determination of its termination rights precisely because it wishes to exercise those rights with the benefit of judicial confirmation, and because Coastal Palms has contested the existence of a material breach. This is a textbook case for declaratory relief.
##### Count IX — Accounting
Coastal Palms' argument that the accounting claim is moot given the extensive discovery that has been conducted is premature. While the parties have exchanged approximately 2.3 million documents processed by Nexagen Document Solutions LLC (comprising approximately 1.1 terabytes of data), the completeness of Coastal Palms' production has not been judicially confirmed. Dr. Kettlewell's expert report identified specific data gaps in the financial records for certain years — particularly 2013 through 2015 — that she was unable to fill even with the supplemental production. The equitable remedy of accounting remains appropriate as an adjunct to the breach-of-contract claims because it provides a mechanism for the Court to require a complete and judicially supervised rendering of all relevant financial data, including data that may not have been captured by the discovery process.
Moreover, the accounting claim serves a distinct purpose from the breach-of-contract claims: it seeks to establish the precise amount owed with judicial authority, rather than relying solely on the parties' competing expert analyses. In a case involving a nine-year scheme of revenue diversion across 22 properties, with disputed GRR figures, multiple booking channels, and a separate management entity interposed between the franchisee and the revenue stream, the equitable remedy of accounting is not merely appropriate — it is essential.
##### Count X — Civil Conspiracy (Brecker & Suncoast)
Coastal Palms' reliance on the intracorporate conspiracy doctrine is misplaced. The doctrine provides that a corporation cannot conspire with its own officers, directors, or agents because a corporation can act only through its agents, and a single entity cannot form the requisite "meeting of the minds" with itself. However, Florida courts have recognized a well-established exception to this doctrine: the exception applies where the agent acts for personal financial benefit rather than solely in the corporate interest.
Here, Brecker holds 60% equity in Coastal Palms and is simultaneously president of Suncoast Room Management Inc. Through the revenue-diversion scheme, Brecker personally benefited from the 12% management fee retained by Suncoast on direct-booking revenue — a fee that was paid to an entity he controlled and from which he derived personal income. Brecker's financial interest in the scheme was distinct from and potentially adverse to Coastal Palms' interest as a franchisee (which was to maintain a compliant franchise relationship with Verimark). The personal-benefit exception to the intracorporate conspiracy doctrine is squarely applicable.
Additionally, the conspiracy claim is not limited to Brecker and his corporate entities. Nolan Prescott, a 25% equity holder in Coastal Palms who holds himself out as a passive investor, received quarterly financial summaries that included Suncoast revenue lines. His involvement — and the inconsistency between his claimed ignorance and his receipt of these summaries — creates an additional basis for the conspiracy claim involving multiple actors who are not merely alter egos of a single corporate entity.
3. Recommended Response Strategy. We should preserve all seven counts at this stage and argue vigorously against summary judgment on each. The overarching theme should be that summary judgment is a "blunt instrument" inappropriate for these fact-intensive tort and equitable claims, particularly in a case involving allegations of a deliberate, systematic, nine-year revenue-diversion scheme.
For each count, our Response should identify at least one genuine dispute of material fact that precludes summary judgment. The following chart summarizes the key factual disputes by count:
Throughout the analysis, we should emphasize the deliberate, systematic nature of the revenue-diversion scheme as the factual foundation distinguishing these claims from routine breach-of-contract disputes. The evidence of intentional misconduct — the establishment of Suncoast as a revenue-collection vehicle, the creation of the unbranded gulfcoastrooms.com website, the 12% management-fee arrangement, the direction to property-level controllers, and the nine-year duration of the scheme — supports each of the tort and equitable counts independently of the contract claims.
E. Argument 5: Coastal Palms' Counterclaim ($12 Million)
1. Coastal Palms' Position. Coastal Palms' fifth and final argument seeks affirmative relief: summary judgment on its $12 million Counterclaim. The Counterclaim asserts three categories of alleged damages:
(a) Brand-Standard Violations. Coastal Palms claims that Verimark failed to maintain brand standards, including deferred maintenance at the corporate level, resulting in reduced guest satisfaction and diminished property values across the Coastal Palms portfolio.
(b) Reservation-System Uptime. Coastal Palms contends that Verimark failed to maintain reservation-system uptime commitments, resulting in lost revenue for Coastal Palms properties. Defense counsel's brief refers generally to "system outages" and "booking failures" without specifying dates, durations, or affected properties.
(c) Technology-Fee Over-Billing. Coastal Palms asserts that certain technology-fee increases exceeded the CPI-adjusted cap of 3% per year established in FLA § 4.3, and that the resulting over-billing constitutes a breach by Verimark.
2. Analysis and Weaknesses. The Counterclaim is extraordinarily weak, and the Cross-Motion's request for summary judgment on the Counterclaim borders on frivolous. The evidentiary record is devoid of competent evidence supporting any element of Coastal Palms' claims.
Absence of Expert Testimony on Counterclaim Damages. Most fundamentally, Coastal Palms has not produced a damages expert report quantifying the alleged $12 million in losses attributable to brand-standard violations, reservation-system failures, or technology-fee over-billing. Prof. Hargrove's expert report addresses only the defense's position on Verimark's damages — it does not quantify or support the Counterclaim damages. Without expert testimony establishing the quantum of damages and the causal connection between Verimark's alleged breaches and Coastal Palms' claimed losses, the Counterclaim cannot survive summary judgment, let alone warrant entry of summary judgment in Coastal Palms' favor.
Brand-Standard Allegations Are Vague and Unsupported. The Cross-Motion's brand-standard allegations are stated at a level of generality that is wholly insufficient to support summary judgment. No specific properties are identified. No specific dates of alleged brand-standard failures are provided. No specific maintenance deficiencies are described with particularity. No evidence is cited demonstrating a causal connection between any alleged brand-standard failure and any quantifiable economic loss to Coastal Palms. The Counterclaim essentially asks the Court to accept, on summary judgment, the bare assertion that Verimark failed to maintain brand standards and that this failure caused $12 million in damages. That is the antithesis of the summary judgment standard.
Reservation-System Uptime. Coastal Palms has not produced evidence of actual downtime periods, the number of lost bookings attributable to any such downtime, or the causal mechanism by which system downtime resulted in the claimed revenue loss. Reservation-system uptime commitments, if any, are presumably documented in the FLA or in supplementary service-level agreements; Coastal Palms' brief does not cite any specific uptime commitment or identify any specific instance in which the commitment was breached.
Technology-Fee Over-Billing. The FLA § 4.3 CPI adjustment with a 3% annual cap is clearly documented. Coastal Palms has not demonstrated that any technology-fee billing exceeded the cap in any year. Moreover, given that Coastal Palms' own underreporting concealed 214 unreported rooms across 4 properties — rooms for which no technology fees were charged because their existence was hidden from Verimark — any technology-fee "over-billing" claim carries an irony that should not be lost on the Court. Coastal Palms cannot simultaneously underreport the number of rooms in its portfolio and complain that it was overcharged for the rooms it did report.
No Corroborating Deposition Testimony. The depositions of property-level witnesses did not corroborate the brand-standard or over-billing allegations. To the contrary, the depositions focused overwhelmingly on the revenue

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NUMBER: 1021-00006

I. EXECUTIVE SUMMARY

II. PROCEDURAL BACKGROUND

III. STRUCTURE OF DEFENDANT'S CROSS-MOTION

IV. SECTION-BY-SECTION ANALYSIS

Record

Parties

Dates

Amounts