INTERNAL DRAFT — ATTORNEY WORK PRODUCT / PRIVILEGED & CONFIDENTIAL
Prepared by Y. Nakamura, 9/15/2023 — For P. Anand review prior to filing
IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA
GENERAL CIVIL DIVISION
CASE NO.: 1021-00006
PLAINTIFF'S STATEMENT OF UNDISPUTED MATERIAL FACTS IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNTS I AND II
NOTE TO REVIEWING PARTNER: Priya — 127 proposed facts below. All record cites verified against deposition transcripts, Bates-stamped productions, and expert reports. Please flag any facts you want to restructure or remove before we finalize for filing on 9/29. — YN
Plaintiff Verimark Hospitality Group Inc. ("Verimark"), by and through its undersigned counsel, Calderwood & Harkness LLP, 110 SE 6th Street, Suite 2800, Fort Lauderdale, Florida 33301, respectfully submits this Statement of Undisputed Material Facts in Support of its Motion for Partial Summary Judgment on Count I (Breach of Contract — Royalties) and Count II (Breach of Contract — Marketing Fund Contributions) pursuant to Florida Rule of Civil Procedure 1.510.
Each of the following 127 facts is supported by admissible evidence in the record, including but not limited to: deposition testimony transcribed by certified court reporters; documents produced by the parties and third parties during discovery, identified by Bates-stamp number; expert reports and rebuttal reports timely disclosed pursuant to this Court's scheduling order; declarations executed under penalty of perjury; and responses to Verimark's Requests for Admission. Where a fact is supported by deposition testimony, the citation references the deponent's name, the day of testimony (where applicable), and the page and line numbers of the relevant transcript. Where a fact is supported by documentary evidence, the citation references the producing party's Bates-stamp prefix and number range. Where a fact is supported by an expert report, the citation references the expert's name and the page or table number within the report.
I. THE PARTIES (FACTS 1–12)
Fact 1. Verimark Hospitality Group Inc. ("Verimark") is a corporation duly organized and existing under the laws of the State of Delaware, with its principal place of business located at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. Verimark is authorized to transact business in the State of Florida.
Cite: Complaint ¶ 1; Answer ¶ 1 (admitted).
Fact 2. Verimark is a publicly traded hospitality and real estate company whose common stock is listed on the Nasdaq Stock Market under the ticker symbol "VHMK." Verimark operates and franchises approximately 340 branded hotels across the southeastern United States under three proprietary flags: "Verimark Suites," "Verimark Select," and "Verimark Grand."
Cite: Complaint ¶ 2; VHG-00000012 (Verimark's Annual Report on Form 10-K for fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission) at pp. 5–7; Answer ¶ 2 (admitted).
Fact 3. In fiscal year 2021, Verimark reported consolidated revenue of approximately $1.42 billion. Of that total, Verimark's franchise segment — encompassing initial franchise fees, ongoing royalties, marketing-fund contributions, technology fees, and related franchise income — generated revenue of approximately $218 million.
Cite: VHG-00000012 (2021 Form 10-K) at p. 34 (Consolidated Statements of Operations, "Franchise Segment Revenue" line item).
Fact 4. At all times relevant to this action, Deidre Langston served as Verimark's Senior Vice President of Franchise Operations. In that capacity, Ms. Langston was responsible for overseeing franchise compliance, quality assurance, and auditing across Verimark's entire franchise portfolio. Ms. Langston reported directly to Verimark's Chief Operating Officer.
Cite: Declaration of Deidre Langston in Support of Plaintiff's Motion for Partial Summary Judgment ("Langston Decl.") ¶ 2; Complaint ¶ 5; Answer ¶ 5 (admitted).
Fact 5. Defendant Coastal Palms Franchise Holdings LLC ("Coastal Palms") is a limited liability company duly organized and existing under the laws of the State of Florida. Coastal Palms maintains its principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. Coastal Palms' designated registered agent is Garrison Registered Agents LLC, 100 S. Ashley Drive, Suite 600, Tampa, Florida 33602.
Cite: Complaint ¶ 6; Answer ¶ 6 (admitted); Florida Department of State, Division of Corporations records, CPFH-00000001.
Fact 6. Defendant Randall "Randy" Brecker is the Managing Member and holds a 60% equity interest in Coastal Palms. Theresa Brecker, Randall Brecker's spouse, holds a 15% equity interest in Coastal Palms. Nolan Prescott holds the remaining 25% equity interest in Coastal Palms as a passive investor who does not participate in management decisions.
Cite: CPFH-00000045 (Coastal Palms Operating Agreement, dated March 12, 2007, as amended) at §§ 2.1, 3.1; Deposition of Randall Brecker, Day 1 ("Brecker Dep. Day 1"), 14:8–15:3; Deposition of Nolan Prescott ("Prescott Dep."), 22:11–23:5 (confirming passive investor status and 25% equity interest).
Fact 7. Defendant Randall Brecker serves as Managing Member of Coastal Palms and its property-level affiliates, including Gulf Breeze Hospitality LLC, a Florida limited liability company that owns and operates six (6) Verimark Suites properties in Southwest Florida, and Savannah Lodging Partners LLC, a Georgia limited liability company that owns and operates four (4) Verimark Suites properties in coastal Georgia. In addition, Randall Brecker serves as President of Defendant Suncoast Room Management Inc.
Cite: Brecker Dep. Day 1, 16:4–18:12; CPFH-00000045 (Coastal Palms Operating Agreement); CPFH-00000092 (Suncoast Room Management Inc. Articles of Incorporation, filed with the Florida Department of State).
Fact 8. Defendant Suncoast Room Management Inc. ("Suncoast") is a corporation organized and existing under the laws of the State of Florida. Suncoast is controlled by Randall Brecker, who serves as its sole officer and director, holding the office of President.
Cite: CPFH-00000092 (Suncoast Articles of Incorporation); Brecker Dep. Day 1, 42:17–43:9 (confirming sole officer and director status).
Fact 9. Suncoast Room Management Inc. was established for the purpose of collecting revenues from direct bookings at Coastal Palms' hotel properties. Suncoast's direct-booking activities encompassed three categories of guest-room revenue: (a) walk-in guests who booked rooms at the front desk; (b) corporate-direct contracts negotiated by Suncoast with corporate clients for room blocks at Coastal Palms properties; and (c) bookings placed through an unbranded website, gulfcoastrooms.com, which was owned and operated by Suncoast.
Cite: Brecker Dep. Day 1, 44:1–46:22; CPFH-00000098 (Management Agreement between Suncoast Room Management Inc. and Gulf Breeze Hospitality LLC, effective January 1, 2013); Deposition of Janet Kerrigan ("Kerrigan Dep."), 31:5–33:18.
Fact 10. At all times relevant to this action, Coastal Palms, through its property-level affiliates, operated a total of twenty-two (22) franchised hotel properties under the Verimark brand. Of these 22 properties, eighteen (18) were branded "Verimark Suites" and four (4) were branded "Verimark Select." The 22 properties are located across the States of Florida and Georgia and collectively comprise approximately 3,740 total guest rooms.
Cite: Complaint ¶ 8; Answer ¶ 8 (admitted); CPFH-00000110 (Coastal Palms property list and room counts, produced in discovery).
Fact 11. Gulf Breeze Hospitality LLC is a limited liability company organized and existing under the laws of the State of Florida. Gulf Breeze Hospitality LLC owns and operates six (6) Verimark Suites properties located in Southwest Florida. Randall Brecker is the Managing Member of Gulf Breeze Hospitality LLC and exercises sole management authority over the entity.
Cite: CPFH-00000120 (Gulf Breeze Hospitality LLC Operating Agreement); Brecker Dep. Day 1, 18:14–19:7.
Fact 12. Savannah Lodging Partners LLC is a limited liability company organized and existing under the laws of the State of Georgia. Savannah Lodging Partners LLC owns and operates four (4) Verimark Suites properties located in coastal Georgia. Randall Brecker is the Managing Member of Savannah Lodging Partners LLC and exercises sole management authority over the entity.
Cite: CPFH-00000135 (Savannah Lodging Partners LLC Operating Agreement); Brecker Dep. Day 1, 19:8–20:2.
II. THE FRANCHISE LICENSE AGREEMENTS (FACTS 13–32)
Fact 13. Coastal Palms entered into its first Franchise License Agreement ("FLA") with Verimark on June 15, 2007. That initial FLA covered a single Verimark Suites property located in Naples, Florida.
Cite: VHG-00001001 (executed Franchise License Agreement dated June 15, 2007); Brecker Dep. Day 1, 24:3–25:1 (confirming execution of first FLA in June 2007).
Fact 14. Between June 15, 2007 and September 3, 2019, Coastal Palms executed a total of twenty-two (22) individual Franchise License Agreements with Verimark, one for each of its twenty-two (22) hotel properties. Each FLA is a separate, standalone contract governing a specific property.
Cite: VHG-00001001 through VHG-00001022 (the 22 executed Franchise License Agreements, produced in discovery); Complaint ¶ 10; Answer ¶ 10 (admitted).
Fact 15. The most recent Franchise License Agreement between the parties was executed on September 3, 2019, covering a Verimark Select property that Coastal Palms added to its portfolio in that year.
Cite: VHG-00001022 (executed Franchise License Agreement dated September 3, 2019).
Fact 16. Each of the twenty-two (22) FLAs provides for an initial term of twenty (20) years, subject to earlier termination as provided in the agreement.
Cite: FLA § 3.1; VHG-00001001 at § 3.1 (representative); VHG-00001022 at § 3.1 (most recent FLA, same provision).
Fact 17. Each of the twenty-two (22) FLAs is governed by the laws of the State of Florida. Each FLA also contains a mandatory venue provision designating Broward County, Florida as the exclusive venue for any litigation arising out of or related to the FLA. Defendants have not contested jurisdiction or venue in this action.
Cite: FLA § 20.1 (governing law: "This Agreement shall be governed by and construed in accordance with the laws of the State of Florida"); FLA § 20.4 (venue: "Any litigation arising out of or related to this Agreement shall be brought exclusively in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida"); Answer ¶ 11 (admitted jurisdiction and venue).
Fact 18. Section 4.1 of each FLA defines "Gross Room Revenue" ("GRR") as follows:
"Gross Room Revenue" means all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue.
This definition is identical in all twenty-two (22) FLAs.
Cite: FLA § 4.1 (identical language in all 22 FLAs); VHG-00001001 at § 4.1 (representative, first FLA executed June 15, 2007); VHG-00001022 at § 4.1 (most recent FLA executed September 3, 2019).
Fact 19. Under Section 4.1 of each FLA, the franchisee is obligated to pay Verimark a royalty equal to five percent (5%) of Gross Room Revenue, calculated and payable on a monthly basis, due no later than the fifteenth (15th) day of the calendar month following the month in which the GRR was earned.
Cite: FLA § 4.1; Plaintiff's Requests for Admission No. 3 (admitted by Coastal Palms that the applicable royalty rate is 5% of GRR).
Fact 20. Under Section 4.2 of each FLA, the franchisee is obligated to pay Verimark a marketing-fund contribution equal to two and one-half percent (2.5%) of Gross Room Revenue, calculated and payable on a monthly basis, due on the same schedule as the royalty payment.
Cite: FLA § 4.2; Plaintiff's Requests for Admission No. 4 (admitted by Coastal Palms that the applicable marketing-fund contribution rate is 2.5% of GRR).
Fact 21. Under Section 4.3 of each FLA, the franchisee is obligated to pay a technology fee of $12.50 per available room per month. The technology fee is subject to annual adjustment based on the Consumer Price Index, capped at a maximum increase of three percent (3%) per year.
Cite: FLA § 4.3.
Fact 22. Section 4.6 of each FLA provides that any amounts not paid when due shall accrue interest at the rate of one and one-half percent (1.5%) per month, compounded monthly, from the date due until the date paid.
Cite: FLA § 4.6.
Fact 23. Under Section 8.2 of each FLA, Verimark is entitled to audit the franchisee's books and records relating to the franchised hotel property upon ten (10) business days' written notice. Section 8.2 further provides that if an audit reveals that the franchisee has underpaid amounts due to Verimark by more than two percent (2%) of reported GRR for any period, the franchisee shall bear all costs of the audit, including reasonable fees and expenses of accountants and auditors retained by Verimark.
Cite: FLA § 8.2; Plaintiff's Requests for Admission No. 7 (admitted by Coastal Palms that § 8.2 contains these provisions).
Fact 24. Each FLA requires the franchisee to report Gross Room Revenue to Verimark on a monthly basis, using a standardized reporting form prescribed by Verimark, and to certify the accuracy of each monthly report. The certification language on each monthly report form states: "The undersigned hereby certifies that the Gross Room Revenue reported herein is true, complete, and accurate, and includes all revenues as defined in Section 4.1 of the Franchise License Agreement."
Cite: FLA § 4.4; VHG-00002001 through VHG-00002108 (sample monthly GRR reports, including certification language).
Fact 25. Section 14.1 of each FLA provides that, upon receipt of written notice of material breach from Verimark specifying the nature of the breach, the franchisee shall have thirty (30) days to cure the breach. If the franchisee fails to cure the breach within the 30-day period, Verimark may exercise its remedies under the agreement, including termination.
Cite: FLA § 14.1.
Fact 26. Section 14.2(c) of each FLA provides that certain categories of breach are deemed incapable of cure. Specifically, Section 14.2(c) states:
"[S]ystematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure."
Cite: FLA § 14.2(c); Plaintiff's Requests for Admission No. 10 (admitted by Coastal Palms that § 14.2(c) contains this language).
Fact 27. Section 15.3 of each FLA provides that, upon termination for cause, the franchisee shall pay to Verimark liquidated damages equal to three times (3×) the trailing-twelve-month royalties for each terminated property. This provision applies on a per-property basis, such that each FLA's liquidated-damages obligation is independently calculated.
Cite: FLA § 15.3.
Fact 28. The phrase "regardless of the entity collecting such revenue" has been present in the Gross Room Revenue definition at Section 4.1 of every FLA between the parties since the first FLA was executed on June 15, 2007. The same language appears, without modification, in the most recent FLA executed on September 3, 2019.
Cite: VHG-00001001 at § 4.1 (first FLA, dated June 15, 2007); VHG-00001022 at § 4.1 (most recent FLA, dated September 3, 2019); Brecker Dep. Day 1, 56:3–57:14 (acknowledged reading and signing each FLA).
Fact 29. The GRR definition in Section 4.1 expressly encompasses revenues from "any booking channel, direct or indirect." This language is not qualified, limited, or otherwise conditioned. It applies to all booking methods, including but not limited to bookings made through Verimark's central reservation system, third-party online travel agency ("OTA") channels, corporate-direct contracts, walk-in guests, and bookings through any website.
Cite: FLA § 4.1.
Fact 30. Randall Brecker testified during his deposition that he personally read and signed each of the twenty-two (22) Franchise License Agreements on behalf of Coastal Palms. He further testified that he did not delegate the execution of any FLA to another individual.
Cite: Brecker Dep. Day 1, 56:3–57:14.
Fact 31. Randall Brecker testified during his deposition that he understood that Coastal Palms was obligated to pay Verimark a royalty of five percent (5%) of Gross Room Revenue under each FLA. He testified that this understanding existed at the time each FLA was executed and persisted throughout the franchise relationship.
Cite: Brecker Dep. Day 1, 58:2–59:8.
Fact 32. The parties never amended the Gross Room Revenue definition contained in Section 4.1 of any of the twenty-two (22) Franchise License Agreements. No written amendment, supplement, modification, or side letter affecting the GRR definition was executed at any time during the franchise relationship.
Cite: Brecker Dep. Day 1, 61:11–62:3 (testified that no amendments to the GRR definition were made); Plaintiff's Requests for Admission No. 12 (admitted by Coastal Palms that the GRR definition was never amended); VHG-00001001 through VHG-00001022 (no amendments attached to or filed in connection with any FLA).
III. COASTAL PALMS' REVENUE REPORTING PRACTICES (FACTS 33–50)
Fact 33. From 2007 through 2021, Coastal Palms submitted monthly Gross Room Revenue reports to Verimark for each of its franchised properties, as required by FLA § 4.4. Each monthly report was accompanied by a certification that the reported revenue figures were "true, complete, and accurate."
Cite: VHG-00002001 through VHG-00002108 (sample monthly GRR reports bearing certification signatures); Brecker Dep. Day 1, 68:5–69:12 (confirming monthly submission of GRR reports).
Fact 34. For fiscal year 2021, Coastal Palms reported aggregate Gross Room Revenue of $112.4 million across all twenty-two (22) of its franchised hotel properties.
Cite: VHG-00002095 through VHG-00002108 (monthly GRR reports for January through December 2021); Kettlewell Expert Report at 12, Table 2 (summarizing 2021 reported GRR by property).
Fact 35. Suncoast Room Management Inc. began collecting revenues from direct bookings at Coastal Palms hotel properties no later than January 2013, the effective date of the management agreement between Suncoast and Gulf Breeze Hospitality LLC.
Cite: CPFH-00000098 (Suncoast management agreement, effective January 1, 2013); Brecker Dep. Day 1, 44:1–46:22 (confirming Suncoast commenced revenue collection no later than January 2013); Kerrigan Dep. 34:7–35:11.
Fact 36. Suncoast collected revenues from three categories of direct bookings at Coastal Palms hotel properties: (a) walk-in bookings, in which guests arrived at a Coastal Palms property without a prior reservation and booked a room at the front desk; (b) corporate-direct contracts, in which Suncoast negotiated room-block agreements with corporate clients for stays at Coastal Palms properties; and (c) online bookings placed through the unbranded website gulfcoastrooms.com, which Suncoast owned and operated.
Cite: Brecker Dep. Day 1, 44:1–46:22; CPFH-00000098 (management agreement describing scope of direct-booking services); CPFH-00005500 through CPFH-00005612 (gulfcoastrooms.com booking records); Kerrigan Dep. 31:5–33:18.
Fact 37. Under its management agreement with the property-level entities (Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC), Suncoast retained a twelve percent (12%) "management fee" on all direct-booking revenues it collected. The remaining eighty-eight percent (88%) was remitted to the applicable property-level LLC.
Cite: CPFH-00000098 at § 3 (management fee provision: "Manager shall retain twelve percent (12%) of all Direct Booking Revenue as a management fee"); Brecker Dep. Day 1, 47:14–48:22 (confirming 12% management fee); Kerrigan Dep. 36:2–37:9.
Fact 38. Neither the revenues collected by Suncoast nor the twelve percent (12%) management fee retained by Suncoast were included in the Gross Room Revenue reports submitted by Coastal Palms to Verimark. The entirety of Suncoast-collected revenue — both the gross amount and the net amount — was excluded from all GRR reports for the entire period from January 2013 through December 2021.
Cite: Brecker Dep. Day 1, 72:1–74:18 (admitted that Suncoast collections were not included in GRR reports); Kerrigan Dep. 38:4–40:12 (confirmed that Suncoast revenue was tracked in separate ledgers and never included in Verimark reports); Kettlewell Expert Report at 15–18 (forensic analysis confirming exclusion of Suncoast revenue from GRR reports).
Fact 39. Randall Brecker personally directed Coastal Palms' property-level controllers and accounting staff to exclude revenues collected by Suncoast from the monthly GRR reports submitted to Verimark. Brecker's instruction was communicated to accounting personnel at multiple properties and was carried out consistently from January 2013 through December 2021.
Cite: Brecker Dep. Day 2, 112:5–114:22 (admitted giving this instruction to property-level personnel); Kerrigan Dep. 41:3–43:17 (testified that Brecker instructed her to "keep the Suncoast numbers separate"); Property Manager Dep. Composite (consolidated deposition summaries of ten property-level witnesses deposed between January and March 2023, each of whom confirmed receiving "corporate" direction from Brecker to exclude Suncoast revenue from Verimark reports).
Fact 40. In addition to excluding Suncoast-collected revenues from GRR reports, Coastal Palms also underreported revenue from third-party online travel agency ("OTA") channels. Specifically, Coastal Palms classified net-rate OTA payments as "commissions receivable" and netted those amounts against Gross Room Revenue, rather than reporting the gross amount of OTA revenue. This practice resulted in underreporting of OTA-channel revenue for all 22 properties.
Cite: Brecker Dep. Day 2, 118:1–120:14; CPFH-00007200 through CPFH-00007345 (OTA reconciliation spreadsheets reflecting netting of commission amounts); Kettlewell Expert Report at 19–22 (analysis of OTA revenue underreporting).
Fact 41. The GRR definition in Section 4.1 of the FLAs requires the reporting of "all revenues derived from or attributable to the rental of guest rooms." The definition does not authorize or permit any deduction for commissions, fees, costs of sale, or other amounts. Accordingly, the practice of netting OTA commissions against GRR violated the plain terms of Section 4.1.
Cite: FLA § 4.1; Kettlewell Expert Report at 20–21 (explaining that no deduction provision exists in the GRR definition).
Fact 42. The website gulfcoastrooms.com was owned and operated by Suncoast Room Management Inc. The website permitted prospective guests to search for available rooms at Coastal Palms hotel properties, view photographs and descriptions of the properties, and complete a room reservation and payment — all without being directed through Verimark's central reservation system. The website did not display Verimark branding.
Cite: CPFH-00005500 through CPFH-00005612 (booking records from gulfcoastrooms.com, reflecting reservations at Verimark-branded properties); Brecker Dep. Day 1, 50:8–52:3 (confirming that gulfcoastrooms.com was operated by Suncoast and did not route bookings through Verimark's CRS).
Fact 43. Suncoast entered into corporate-direct booking contracts with at least forty-seven (47) corporate clients for room blocks at Coastal Palms properties. These corporate-direct contracts were negotiated and executed by Suncoast — not by Coastal Palms or its property-level affiliates — and the revenues generated from these contracts were not included in the GRR reports submitted to Verimark.
Cite: CPFH-00006100 through CPFH-00006247 (corporate-direct contracts produced in discovery, reflecting agreements with 47 corporate clients); Brecker Dep. Day 2, 122:4–124:11 (confirming that corporate-direct revenue was collected by Suncoast and not reported to Verimark); Kettlewell Expert Report at 23–25 (analysis of corporate-direct revenue excluded from GRR).
Fact 44. Walk-in guest revenues at multiple Coastal Palms properties were routed through Suncoast's separate point-of-sale ("POS") system rather than through Verimark's property management system ("PMS"). Because walk-in revenues processed through Suncoast's POS system were not captured in Verimark's PMS, those revenues were excluded from the GRR reports that Coastal Palms submitted to Verimark.
Cite: Kerrigan Dep. 44:9–46:18 (describing the use of Suncoast's separate POS system for walk-in guests); Property Manager Dep. (Naples #2), 28:3–30:14 (confirming dual POS/PMS system and instruction to process walk-ins through Suncoast's system); CPFH-00008001 through CPFH-00008234 (Suncoast POS records reflecting walk-in guest transactions at Verimark-branded properties).
Fact 45. The practice of excluding Suncoast-collected revenues from GRR reports persisted continuously from January 2013 through December 2021, a period of nine (9) years, encompassing one hundred and eight (108) consecutive monthly reporting periods. During this entire period, Coastal Palms submitted GRR reports that omitted Suncoast-collected revenues without any disclosure to Verimark.
Cite: Kettlewell Expert Report at 26–28 (year-by-year analysis confirming continuous underreporting from 2013 through 2021); CPFH-00000098 (management agreement effective date of January 1, 2013); Brecker Dep. Day 2, 126:1–127:8 (acknowledging that the exclusion of Suncoast revenue from GRR reports continued for the entirety of the Suncoast management agreement).
Fact 46. Coastal Palms added a total of 214 guest rooms across four (4) properties — through renovations that converted non-revenue space into guest rooms — without notifying Verimark of the additional rooms. These unreported rooms resulted in underpayment of per-room technology fees owed under FLA § 4.3.
Cite: Kettlewell Expert Report at 29–30 (identification of unreported rooms based on property-inspection data); VHG-00003001 (Verimark property-inspection records showing additional rooms not reflected in Coastal Palms' reporting); Langston Decl. ¶¶ 8–10 (confirming that Verimark was not notified of the room additions).
Fact 47. Coastal Palms has not disputed that Suncoast Room Management Inc. began collecting hotel-guest revenues at Coastal Palms properties no later than January 2013. In its Answer, Coastal Palms admitted the date of the Suncoast management agreement, and Randall Brecker confirmed the January 2013 commencement date during his deposition.
Cite: Answer ¶ 22 (admitting date of Suncoast management agreement); Brecker Dep. Day 1, 44:1–46:22.
Fact 48. Financial statements submitted by Coastal Palms to Ironclad National Bank in connection with Coastal Palms' mortgage loan obligations included Suncoast-collected revenues in the reported revenue totals for each property. In other words, for purposes of obtaining and maintaining mortgage financing, Coastal Palms represented to its lender that its properties generated revenue inclusive of Suncoast-collected amounts — the same revenues that Coastal Palms simultaneously excluded from its GRR reports to Verimark.
Cite: IRON-00000201 through IRON-00000345 (loan-application financial statements produced by Ironclad National Bank pursuant to subpoena duces tecum); Brecker Dep. Day 2, 130:4–133:18 (acknowledged the discrepancy between revenue figures reported to Ironclad and revenue figures reported to Verimark, and admitted that the Ironclad submissions included Suncoast revenue); Kettlewell Expert Report at 31–33 (comparative analysis of revenue reported to Ironclad versus revenue reported to Verimark).
Fact 49. Verimark's franchise-operations team was not informed that Suncoast Room Management Inc. was collecting guest-room revenues at Coastal Palms hotel properties. Neither Randall Brecker nor any other representative of Coastal Palms disclosed to Verimark that a separate entity was collecting guest-room revenues or that such revenues were being excluded from GRR reports.
Cite: Langston Decl. ¶¶ 4–6 (testifying that she was not aware of Suncoast's revenue-collection activities); Declaration of Marco Solis-Vega in Support of Plaintiff's Motion for Partial Summary Judgment ("Solis-Vega Decl.") ¶ 3 (Verimark's Regional Director of Franchise Operations, testifying that no disclosure was made).
Fact 50. Coastal Palms contends that Verimark was aware of Suncoast's role because Suncoast was identified in certain property-management agreements submitted during the franchise-application process. However, Randall Brecker testified that those property-management agreements described Suncoast as performing "back-office management services" — including payroll processing, vendor management, and general administrative support — and did not disclose that Suncoast would collect guest-room revenues. Brecker acknowledged that the property-management agreements did not describe revenue-collection activities.
Cite: Brecker Dep. Day 2, 136:1–139:12 (admitting that property-management agreements described "back-office" services and did not disclose revenue collection); CPFH-00000150 (representative property-management agreement identifying Suncoast for "back-office management services"); Langston Decl. ¶ 5 (testifying that she had no knowledge that Suncoast collected guest-room revenue based on the property-management agreements).
IV. THE WHISTLEBLOWER REPORT AND PRE-LITIGATION INVESTIGATION (FACTS 51–62)
Fact 51. Janet Kerrigan served as Regional Controller for Coastal Palms from approximately January 2015 until her termination in October 2021. In that capacity, she was responsible for financial reporting, budgeting, and accounting functions for eight (8) Coastal Palms properties located in Southwest Florida.
Cite: Kerrigan Dep. 10:3–12:18.
Fact 52. On November 8, 2021, approximately three weeks after her termination, Janet Kerrigan contacted Verimark's anonymous compliance hotline. During that call, Ms. Kerrigan reported that Coastal Palms had been systematically diverting guest-room revenue through Suncoast Room Management Inc. and the gulfcoastrooms.com website, and that these diverted revenues were excluded from the GRR reports submitted to Verimark. Ms. Kerrigan's report was logged by the hotline operator and escalated to Verimark's General Counsel's office.
Cite: VHG-00004001 (compliance-hotline intake record dated November 8, 2021); Kerrigan Dep. 52:14–54:8 (confirming the substance of her compliance-hotline report).
Fact 53. Janet Kerrigan was terminated by Coastal Palms effective October 15, 2021, approximately one month before she contacted Verimark's compliance hotline. Kerrigan testified that she was terminated shortly after she raised internal concerns about the exclusion of Suncoast revenue from GRR reports.
Cite: Kerrigan Dep. 48:1–50:6 (describing circumstances of her termination); CPFH-00009001 (termination letter dated October 15, 2021, signed by Randall Brecker).
Fact 54. During her deposition, Janet Kerrigan testified that Randall Brecker instructed her to "keep the Suncoast numbers separate" from the GRR reports submitted to Verimark. Kerrigan testified that she understood this instruction to mean that Suncoast-collected revenues should not be included in the GRR calculations reported to Verimark, and that she followed this instruction throughout her tenure as Regional Controller.
Cite: Kerrigan Dep. 41:3–43:17.
Fact 55. On November 22, 2021, following receipt of the whistleblower report, Verimark engaged Thornbury & Associates CPAs LLP, an independent public accounting firm, to conduct a franchise-compliance audit of Coastal Palms' top ten (10) properties by reported GRR. The audit was led by Malcolm Thornbury, CPA, the firm's lead audit partner.
Cite: VHG-00004050 (Thornbury & Associates engagement letter dated November 22, 2021); Declaration of Malcolm Thornbury in Support of Plaintiff's Motion for Partial Summary Judgment ("Thornbury Decl.") ¶ 2.
Fact 56. Thornbury & Associates delivered its preliminary findings to Verimark on January 18, 2022. The preliminary findings indicated that the ten (10) audited properties had underreported GRR by approximately twenty-six percent (26%) for the three-year period from 2019 through 2021.
Cite: VHG-00004100 (Thornbury & Associates preliminary report dated January 18, 2022); Thornbury Decl. ¶¶ 4–6 (summarizing preliminary findings and methodology).
Fact 57. Extrapolating across all twenty-two (22) Coastal Palms properties and the full nine-year period from 2013 through 2021 — using the 26% underreporting rate observed in the audited sample and adjusting for property-level variation — Thornbury & Associates estimated that Coastal Palms had underreported total GRR by approximately $197.8 million.
Cite: VHG-00004100 at p. 18 (extrapolation methodology and assumptions); Thornbury Decl. ¶ 7.
Fact 58. On February 4, 2022, Verimark issued a formal Notice of Material Breach to Coastal Palms pursuant to FLA § 14.1. The Notice identified the systematic underreporting of Gross Room Revenue through Suncoast Room Management Inc. as a material breach of FLA §§ 4.1, 4.4, and 14.2(c). The Notice demanded that Coastal Palms cure the identified breach within thirty (30) days, as provided in FLA § 14.1.
Cite: VHG-00004200 (Notice of Material Breach dated February 4, 2022, from Priya Anand, Calderwood & Harkness LLP, to Coastal Palms Franchise Holdings LLC, attention Randall Brecker).
Fact 59. On February 28, 2022, defense counsel at Whitfield, Barrow & Crane LLP responded to Verimark's Notice of Material Breach on behalf of Coastal Palms. The response, signed by Nathan Whitfield III, denied that Coastal Palms had committed any material breach of the FLAs and asserted that Suncoast's revenues were properly excluded from GRR under what counsel characterized as a "reasonable interpretation" of the FLA's GRR definition.
Cite: CPFH-00010001 (letter from Nathan Whitfield III, Whitfield, Barrow & Crane LLP, to Priya Anand, Calderwood & Harkness LLP, dated February 28, 2022).
Fact 60. Coastal Palms did not tender any cure of the identified breach within the thirty (30)-day period specified in FLA § 14.1. The cure period expired on March 6, 2022. Coastal Palms did not make any payment of underpaid royalties, marketing-fund contributions, or other amounts. Coastal Palms did not submit any corrected GRR reports. No cure was tendered at any time, either before or after the expiration of the 30-day period.
Cite: Solis-Vega Decl. ¶ 7 (confirming that no cure was received by Verimark); Brecker Dep. Day 2, 142:3–143:5 (acknowledged that no payment or corrected report was submitted within 30 days of the Notice of Material Breach).
Fact 61. As set forth in Fact 26 above, Section 14.2(c) of each FLA provides that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." This provision operates independently of the 30-day cure period in Section 14.1, rendering the cure provision inapplicable to breaches involving systematic underreporting of GRR.
Cite: FLA § 14.2(c); Plaintiff's Requests for Admission No. 10 (admitted by Coastal Palms that § 14.2(c) contains this language).
Fact 62. On March 7, 2022 — the day after the thirty (30)-day cure period expired without cure — Verimark filed its Complaint in this action, initiating the present lawsuit in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida.
Cite: Complaint (filed March 7, 2022); Docket Entry No. 1.
V. THE REVENUE-DIVERSION SCHEME — DETAILED MECHANICS (FACTS 63–82)
Fact 63. Coastal Palms diverted guest-room revenue from the GRR reports submitted to Verimark through three primary channels: (a) walk-in bookings routed through Suncoast's separate point-of-sale system; (b) corporate-direct contracts entered into by Suncoast with at least 47 corporate clients; and (c) online bookings placed through the unbranded website gulfcoastrooms.com, which Suncoast owned and operated.
Cite: Kettlewell Expert Report at 14–25 (identifying and quantifying each of the three revenue-diversion channels); Brecker Dep. Day 1, 44:1–52:3 (describing Suncoast's booking channels).
Fact 64. Suncoast maintained separate bank accounts at Ironclad National Bank into which all direct-booking revenues collected by Suncoast were deposited. These accounts were entirely separate from the operating accounts used by Coastal Palms and its property-level affiliates for revenues reported to Verimark.
Cite: CPFH-00011001 through CPFH-00011450 (Suncoast bank statements from Ironclad National Bank, covering the period from January 2013 through December 2021); Brecker Dep. Day 2, 108:4–110:17 (confirming that Suncoast maintained separate bank accounts and that revenues were not commingled with the accounts used for Verimark reporting).
Fact 65. Under the terms of the management agreement between Suncoast and the property-level LLCs, Suncoast retained twelve percent (12%) of all direct-booking revenue as a "management fee." The remaining eighty-eight percent (88%) was remitted to the property-level LLCs — Gulf Breeze Hospitality LLC or Savannah Lodging Partners LLC, as applicable — through periodic transfers from Suncoast's bank accounts.
Cite: CPFH-00000098 at § 3 (management fee provision); CPFH-00012001 through CPFH-00012089 (management-fee invoices issued by Suncoast to property-level LLCs, 2013–2021).
Fact 66. Neither the gross amount of Suncoast-collected revenue (before deduction of the 12% management fee) nor the net amount (after deduction of the 12% management fee) was included in the Gross Room Revenue reports that Coastal Palms submitted to Verimark. The entire stream of Suncoast-collected revenue — in both its gross and net forms — was excluded from all GRR calculations for all 22 properties for the entire nine-year period.
Cite: Brecker Dep. Day 1, 72:1–74:18 (admitted that neither gross nor net Suncoast revenue was reported to Verimark); Kettlewell Expert Report at 15–18 (forensic analysis confirming complete exclusion).
Fact 67. Multiple property-level controllers and accountants employed at Coastal Palms properties testified during depositions that they were instructed — either directly by Randall Brecker or through communications from Coastal Palms' "corporate" office — to exclude Suncoast-collected revenues from the GRR calculations submitted to Verimark. These witnesses consistently described receiving the same instruction: that Suncoast revenues were to be tracked in separate accounting ledgers and were not to be included in the monthly Verimark reports.
Cite: Property Manager Dep. Composite (consolidated deposition summaries of ten property-level witnesses deposed between January and March 2023, including front-desk managers, controllers, and general managers at properties in Naples, Fort Myers, Sarasota, Savannah, and Brunswick).
Fact 68. Janet Kerrigan testified that during a meeting in approximately March 2016 at Coastal Palms' Naples corporate office, Randall Brecker told her: "the Suncoast revenue is ours — it doesn't go on the Verimark reports." Kerrigan testified that she understood this statement to be a direct instruction that Suncoast-collected revenues should not be included in GRR calculations reported to Verimark.
Cite: Kerrigan Dep. 42:8–43:17.
Fact 69. For OTA bookings processed through Verimark's reservation system, Coastal Palms received gross room revenue from OTA partners (such as Aldermere Technologies, Bramwell Holdings, and Drayton Software). However, rather than reporting the gross amount of OTA revenue as GRR, Coastal Palms reported only the net amount — deducting OTA commission fees and classifying them as "commissions receivable." This netting practice reduced the GRR reported to Verimark, thereby reducing the royalties and marketing-fund contributions owed.
Cite: CPFH-00007200 through CPFH-00007345 (OTA reconciliation spreadsheets reflecting the netting methodology); Brecker Dep. Day 2, 118:1–120:14 (describing the OTA netting practice).
Fact 70. Section 4.1 of each FLA defines GRR as "all revenues derived from or attributable to the rental of guest rooms." The definition does not contain any provision authorizing the deduction of commissions, fees, costs of sale, or other amounts from the revenue base. Accordingly, GRR is a gross revenue figure — not a net figure — and must be reported without reduction for OTA commissions or any other costs.
Cite: FLA § 4.1.
Fact 71. During his deposition, Randall Brecker was asked to identify any provision in the FLAs that authorized the deduction of OTA commissions from Gross Room Revenue. Brecker testified that he could not identify any such provision.
Cite: Brecker Dep. Day 2, 121:14–122:3 (Q: "Can you point me to any language in the Franchise License Agreement that permits deduction of OTA commissions from Gross Room Revenue?" A: "I can't point to a specific section, no.").
Fact 72. For each year from 2013 through 2021, the total room revenue reported by Coastal Palms to Ironclad National Bank in connection with its mortgage loan obligations exceeded the Gross Room Revenue reported to Verimark for the same properties and the same time periods. This pattern was consistent across all nine years and all properties.
Cite: IRON-00000201 through IRON-00000345 (Ironclad National Bank financial statements, produced pursuant to subpoena); Kettlewell Expert Report at 31–33, Table 5 (year-by-year comparison of revenue reported to Ironclad versus revenue reported to Verimark).
Fact 73. For fiscal year 2021, the magnitude of the discrepancy between the revenue reported to the lender and the revenue reported to the franchisor is particularly illustrative. Coastal Palms reported GRR of $112.4 million to Verimark for its 22 properties, while simultaneously reporting total room revenue of approximately $145.6 million to Ironclad National Bank for the same 22 properties and the same fiscal year.
Cite: VHG-00002095 through VHG-00002108 (2021 monthly GRR reports to Verimark, totaling $112.4 million); IRON-00000340 (2021 annual financial statement submitted to Ironclad National Bank, reporting $145.6 million in total room revenue); Kettlewell Expert Report at 12, Table 2.
Fact 74. The difference between the $145.6 million reported to Ironclad National Bank and the $112.4 million reported to Verimark for fiscal year 2021 is $33.2 million. This $33.2 million represents a 29.5% underreporting rate for that year — meaning that nearly three out of every ten dollars of actual guest-room revenue were excluded from the GRR reported to Verimark.
Cite: Kettlewell Expert Report at 12–13; mathematical computation ($145.6M − $112.4M = $33.2M; $33.2M ÷ $112.4M = 29.5%).
Fact 75. Across the full nine-year period from 2013 through 2021, the underreporting percentage varied by property and year. The lowest annual underreporting rate for any property in any year was approximately 22%, and the highest was approximately 31%. The overall average underreporting rate across all properties and all years was approximately 26%.
Cite: Kettlewell Expert Report at 26–28, Table 4 (year-by-year, property-by-property analysis of underreporting rates).
Fact 76. Dr. Sharon Kettlewell's forensic analysis, which examined the full spectrum of available financial records, concluded that Coastal Palms underreported Gross Room Revenue by a total of $197.8 million over the period from January 2013 through December 2021. This conclusion is consistent with — and corroborated by — the preliminary findings of Thornbury & Associates' franchise-compliance audit.
Cite: Kettlewell Expert Report at 28, Table 4 (summary total); Thornbury Decl. ¶ 7 (consistent extrapolation estimate).
Fact 77. All revenue collected by Suncoast Room Management Inc. was derived from the rental of guest rooms at Coastal Palms' franchised hotel properties — the same guest rooms branded and operated under the Verimark franchise. Suncoast did not collect revenue from any other source, and the revenue it collected was indistinguishable in nature from the guest-room revenue reported through Verimark's property management system.
Cite: Brecker Dep. Day 1, 46:15–47:13 (admitted that all Suncoast revenue was from guest-room rentals at Coastal Palms properties); Kerrigan Dep. 35:3–36:1 (confirmed that Suncoast revenue was solely from guest-room rentals).
Fact 78. Suncoast Room Management Inc. did not provide any services to third parties unrelated to Coastal Palms' hotel properties. All of Suncoast's revenue was attributable to guest-room rentals at the twenty-two (22) Verimark-branded Coastal Palms properties. Suncoast had no independent business operations, no third-party clients, and no revenue streams unrelated to the Coastal Palms franchise.
Cite: Brecker Dep. Day 2, 106:3–107:11 (confirming that Suncoast had no third-party clients or revenue sources other than Coastal Palms properties); CPFH-00000098 (management agreement scope expressly limited to Coastal Palms properties).
Fact 79. Guests who booked rooms through gulfcoastrooms.com stayed at Verimark-branded hotel properties and received the same room accommodations, amenities, and services as guests who booked through Verimark's central reservation system or through OTA channels. The booking records from gulfcoastrooms.com identify each property by its Verimark-branded name.
Cite: CPFH-00005500 through CPFH-00005612 (gulfcoastrooms.com booking records, identifying properties by their Verimark-branded names, such as "Verimark Suites — Naples Bayshore" and "Verimark Select — Savannah Historic District"); Brecker Dep. Day 1, 51:8–52:3 (acknowledging that gulfcoastrooms.com guests stayed in the same rooms as other guests at Verimark-branded properties).
Fact 80. On Day 2 of his deposition, Randall Brecker was asked whether the Suncoast-collected revenues should have been included in the GRR reports submitted to Verimark. Brecker acknowledged that "looking at it now," the Suncoast-collected revenues "probably should have been included" in GRR reports. Brecker stated, however, that he had relied on unspecified "advice" that Suncoast was a "separate entity" and therefore its collections did not need to be reported.
Cite: Brecker Dep. Day 2, 140:1–141:14.
Fact 81. When asked to identify the source and nature of the "advice" upon which he claimed to have relied, Randall Brecker was unable to identify any written legal opinion, memorandum, letter, email, or other professional advice supporting the position that Suncoast revenues should be excluded from GRR. Brecker could not identify the name of any attorney or other professional who provided such advice.
Cite: Brecker Dep. Day 2, 141:15–142:2; Plaintiff's Requests for Admission No. 15 (admitted by Coastal Palms that no written advice or legal opinion supporting the exclusion of Suncoast revenues from GRR exists).
Fact 82. Throughout the relevant period, Randall Brecker served simultaneously as: (a) Managing Member of Coastal Palms Franchise Holdings LLC; (b) Managing Member of Gulf Breeze Hospitality LLC; (c) Managing Member of Savannah Lodging Partners LLC; and (d) President (sole officer and director) of Suncoast Room Management Inc. Brecker was the sole decision-maker for all four entities and exercised plenary management authority over each.
Cite: Brecker Dep. Day 1, 16:4–18:12, 42:17–43:9; CPFH-00000045 (Coastal Palms Operating Agreement); CPFH-00000092 (Suncoast Articles of Incorporation); CPFH-00000120 (Gulf Breeze Operating Agreement); CPFH-00000135 (Savannah Lodging Operating Agreement).
VI. EXPERT ANALYSIS AND DAMAGES QUANTIFICATION (FACTS 83–103)
Fact 83. Verimark retained Ridgeline Forensic Advisory LLC, an independent forensic accounting and litigation consulting firm, to conduct a forensic accounting analysis and damages quantification in this action. The engagement was conducted through Ridgeline's principal, Dr. Sharon Kettlewell, CPA/CFF, CFE.
Cite: VHG-00005001 (Ridgeline Forensic Advisory LLC retention letter dated December 12, 2022).
Fact 84. Dr. Sharon Kettlewell possesses twenty-eight (28) years of forensic accounting experience. She holds the following professional certifications: Certified Public Accountant (CPA), Certified in Financial Forensics (CFF), and Certified Fraud Examiner (CFE). Dr. Kettlewell has been qualified as an expert witness in more than sixty (60) state and federal court proceedings and has published numerous peer-reviewed articles on forensic accounting methodologies.
Cite: Kettlewell Expert Report, Appendix A (curriculum vitae).
Fact 85. Dr. Kettlewell's forensic analysis employed a comprehensive revenue-reconstruction methodology. She analyzed the following categories of source data: (a) Suncoast bank statements from Ironclad National Bank (CPFH-00011001 through CPFH-00011450); (b) OTA reconciliation reports (CPFH-00007200 through CPFH-00007345); (c) property-management-system data maintained by Verimark; (d) financial statements submitted by Coastal Palms to Ironclad National Bank (IRON-00000201 through IRON-00000345); and (e) Coastal Palms' internal accounting records produced in discovery. She cross-referenced these data sources to reconstruct the true Gross Room Revenue for each of the 22 properties for each year from 2013 through 2021.
Cite: Kettlewell Expert Report at 8–11 (methodology section describing data sources, analytical techniques, and reconciliation procedures).
Fact 86. Based on her forensic analysis, Dr. Kettlewell concluded that Coastal Palms underreported Gross Room Revenue by a total of $197.8 million over the nine-year period from January 2013 through December 2021. This total represents the aggregate of Suncoast-collected revenues excluded from GRR reports and OTA revenues underreported through the netting practice described above.
Cite: Kettlewell Expert Report at 28, Table 4 (summary of underreported GRR by year and property, totaling $197.8 million).
Fact 87. Based on the $197.8 million in underreported GRR, Coastal Palms underpaid royalties owed to Verimark in the amount of $9.89 million. This figure represents five percent (5%) of $197.8 million — the contractual royalty rate applied to the underreported revenue base.
Cite: Kettlewell Expert Report at 34, Table 6 (damages calculation: 5% × $197.8M = $9.89M underpaid royalties).
Fact 88. Based on the same $197.8 million in underreported GRR, Coastal Palms underpaid marketing-fund contributions owed to Verimark in the amount of $4.945 million. This figure represents two and one-half percent (2.5%) of $197.8 million — the contractual marketing-fund contribution rate applied to the underreported revenue base.
Cite: Kettlewell Expert Report at 34, Table 6 (damages calculation: 2.5% × $197.8M = $4.945M underpaid marketing-fund contributions).
Fact 89. Due to the addition of 214 guest rooms across four (4) properties without notification to Verimark, Coastal Palms also underpaid technology fees owed under FLA § 4.3 in the amount of approximately $1.26 million. This figure was calculated based on 214 rooms at a rate of $12.50 per room per month over an average period of approximately 47 months during which the unreported rooms were in service.
Cite: Kettlewell Expert Report at 35–36 (technology-fee underpayment calculation); VHG-00003001 (property-inspection records documenting additional rooms).
Fact 90. The subtotal of direct underpayments — encompassing underpaid royalties, underpaid marketing-fund contributions, and underpaid technology fees — is $16.095 million ($9.89 million + $4.945 million + $1.26 million = $16.095 million).
Cite: Kettlewell Expert Report at 37, Table 7 (subtotal of direct underpayments).
Fact 91. Applying the contractual late-payment interest rate of one and one-half percent (1.5%) per month, compounded monthly, as provided in FLA § 4.6, Dr. Kettlewell calculated total accrued interest on the underpayments of $28.4 million through the projected judgment date. The interest calculation was performed on a month-by-month basis, applying the 1.5% monthly rate to the outstanding balance as it grew over the nine-year period.
Cite: Kettlewell Expert Report at 38–40, Table 8 (monthly interest accrual schedule); FLA § 4.6.