IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA
CIVIL DIVISION
Case No. 1021-00006
Division: 07
Hon. Richard M. Calloway, Circuit Judge
VERIMARK HOSPITALITY GROUP INC., a Delaware corporation,
Plaintiff,
v.
COASTAL PALMS FRANCHISE HOLDINGS LLC, a Florida limited liability company; RANDALL BRECKER, individually; and SUNCOAST ROOM MANAGEMENT INC., a Florida corporation,
Defendants.
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PLAINTIFF'S MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNTS I AND II
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Filed: September 29, 2023
Priya Anand (FL Bar No. 0087451) Yuki Nakamura (FL Bar No. 0119644) Carlos Espinoza (FL Bar No. 0128903) CALDERWOOD & HARKNESS LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 Telephone: (954) 555-7200 Facsimile: (954) 555-7201 panand@calderwoodharkness.com ynakamura@calderwoodharkness.com cespinoza@calderwoodharkness.com
Counsel for Plaintiff Verimark Hospitality Group Inc.
TABLE OF CONTENTS
TABLE OF AUTHORITIES
Cases
Statutes, Rules, and Regulations
Secondary Sources
I. INTRODUCTION
Plaintiff Verimark Hospitality Group Inc. ("Verimark"), a publicly traded hospitality company (Nasdaq: VHMK) headquartered at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301, respectfully moves this Court for partial summary judgment pursuant to Florida Rule of Civil Procedure 1.510 on Count I (Breach of Contract — Royalties) and Count II (Breach of Contract — Marketing Fund) of the First Amended Complaint, as to liability only. Verimark requests that the determination and quantification of damages be reserved for trial.
This case arises from one of the most brazen schemes of franchise revenue diversion ever uncovered in the hospitality industry. Defendant Coastal Palms Franchise Holdings LLC ("Coastal Palms"), Verimark's single largest franchise operator, systematically and deliberately underreported Gross Room Revenue ("GRR") over a nine-year period spanning 2013 through 2021. Through its affiliated entity, Defendant Suncoast Room Management Inc. ("Suncoast"), Coastal Palms diverted an estimated $197.8 million in guest-room revenues away from Verimark's franchise reporting system, depriving Verimark of royalties and marketing-fund contributions to which it is entitled under twenty-two individual Franchise License Agreements ("FLAs").
The mechanics of the scheme were straightforward. Defendant Randall Brecker ("Brecker"), the Managing Member of Coastal Palms holding a 60% equity interest, also served as the sole officer — President — of Suncoast Room Management Inc. Beginning no later than January 2013, Brecker directed property-level controllers at each of the twenty-two franchised hotels to route certain categories of guest-room bookings — walk-in guests, corporate-direct contracts, and bookings captured through an unbranded website, gulfcoastrooms.com — through Suncoast rather than through Verimark's reservation and reporting system. Suncoast would collect the revenues, retain a 12% "management fee," and forward the balance to the property-level entities. Critically, neither Suncoast's collections nor the retained management fee were ever included in the monthly GRR reports that Coastal Palms submitted to Verimark under the FLAs.
The effect was to systematically understate GRR by between 22% and 31%, depending on the property and reporting period. The resulting underpayment of the 5% royalty on GRR required by FLA § 4.1 totals approximately $9.89 million (5% × $197.8 million in diverted GRR). The resulting underpayment of the 2.5% marketing-fund contribution required by FLA § 4.2 totals approximately $4.945 million (2.5% × $197.8 million in diverted GRR). These figures do not include contractual late-payment interest at 1.5% per month compounded (FLA § 4.6), underpaid technology fees, or liquidated damages (FLA § 15.3), all of which will be addressed at trial.
The undisputed record eliminates any genuine issue of material fact on the question of liability for Counts I and II. The GRR definition in FLA § 4.1 is unambiguous: it encompasses "all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue." The italicized language — "regardless of the entity collecting such revenue" — was specifically drafted to prevent the precise type of revenue diversion Coastal Palms engineered through Suncoast. There is no room for interpretive debate.
Moreover, Brecker's own deposition testimony removes any conceivable factual dispute. Over the course of a two-day deposition on January 9 and 10, 2023, Brecker admitted under oath that he personally directed property-level controllers to exclude Suncoast-collected revenues from the monthly GRR reports submitted to Verimark. He admitted that he established Suncoast and served as its sole officer at all relevant times. He admitted that he was aware of the GRR definition in FLA § 4.1, including its express inclusion of revenues from "any booking channel, direct or indirect." And he conceded on cross-examination that the revenues at issue were for the rental of guest rooms at the franchised Hotels, even as he attempted to characterize Suncoast as a "separate entity" whose revenues fell outside the scope of the FLA.
Coastal Palms' defenses — that the GRR definition is "ambiguous," that Verimark was "aware" of Suncoast, and that Suncoast was a "separate entity" — are legally meritless and factually unsupported. The contract language is clear. Awareness of an entity's existence is not consent to exclude that entity's revenue from franchise reporting, particularly where the FLAs contain integration clauses and no-oral-modification provisions. And the "separate entity" argument is foreclosed by the express language of the FLA, which captures revenues "regardless of the entity collecting such revenue."
The systematic underreporting of Gross Room Revenue constitutes a material breach of the FLAs that is, by the express terms of the contract, incapable of cure. 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. Coastal Palms denied any breach and offered no cure within the thirty-day cure period. This action followed on March 7, 2022.
This motion addresses liability only. The precise quantification of damages — including the exact amount of underpaid royalties, underpaid marketing-fund contributions, contractual late-payment interest, and potential liquidated damages — presents factual issues that are properly reserved for trial, particularly in light of the dispute between the parties' experts regarding the magnitude of the underreporting. What is not genuinely disputed, however, is that Coastal Palms breached FLA §§ 4.1 and 4.2 by excluding Suncoast-collected revenues from GRR. Partial summary judgment on liability will streamline the remaining issues for trial, eliminate the need to relitigate the breach question, and focus the trial proceedings on the appropriate measure of damages.
II. STATEMENT OF UNDISPUTED MATERIAL FACTS
Verimark incorporates by reference the separately filed Statement of Undisputed Material Facts, which sets forth 127 numbered paragraphs supported by specific citations to the evidentiary record. For the Court's convenience, the key undisputed facts are summarized below in narrative form, organized by topic.
A. The Parties and Their Franchise Relationship
Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol "VHMK," with its principal executive offices located at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. (Statement of Undisputed Material Facts ("SUMF") ¶ 1.) For fiscal year 2021, Verimark reported consolidated revenue of approximately $1.42 billion, of which approximately $218 million was attributable to its franchise segment. (SUMF ¶ 2; Ex. A (Verimark 2021 Annual Report on Form 10-K at 47).) Verimark operates and franchises approximately 340 branded hotels across the southeastern United States under three distinct brand flags: Verimark Suites, Verimark Select, and Verimark Grand. (SUMF ¶ 3; Ex. A at 12.) Verimark's franchise business model is predicated on the collection of royalties, marketing-fund contributions, and technology fees from franchisees, calculated as a percentage of or amount per available room derived from Gross Room Revenue as defined in the applicable Franchise License Agreements. (SUMF ¶ 4.)
Defendant Coastal Palms Franchise Holdings LLC is a Florida limited liability company organized under the laws of the State of Florida, with its principal office located at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. (SUMF ¶ 5; Ex. B (Coastal Palms Articles of Organization).) Coastal Palms' registered agent is Garrison Registered Agents LLC, located at 100 S. Ashley Drive, Suite 600, Tampa, Florida 33602. (SUMF ¶ 6; Ex. B.) Coastal Palms is, and at all relevant times has been, Verimark's single largest franchise operator in terms of both the number of franchised properties and total room count. (SUMF ¶ 7.)
Coastal Palms operates twenty-two franchised hotel properties — eighteen branded as Verimark Suites and four branded as Verimark Select — located across the states of Florida and Georgia. (SUMF ¶ 8; Ex. C (List of Franchised Properties).) These twenty-two properties comprise a total of approximately 3,740 guest rooms. (SUMF ¶ 9; Ex. C.) The properties are geographically dispersed, with concentrations in Southwest Florida (Naples, Fort Myers, Sarasota, and Marco Island), Southeast Florida (Fort Lauderdale, West Palm Beach, and Boca Raton), Central Florida (Orlando and Tampa), and coastal Georgia (Savannah and St. Simons Island). (SUMF ¶ 10; Ex. C.)
The principals of Coastal Palms are Defendant Randall "Randy" Brecker, who serves as Managing Member and holds a 60% equity interest; Theresa Brecker, who is a Member holding a 15% equity interest; and Nolan Prescott, who is a Member holding a 25% equity interest and is a passive investor with no role in day-to-day operations. (SUMF ¶ 11; Ex. D (Coastal Palms Operating Agreement, as amended, at § 3.1).) Randall Brecker has served as Managing Member continuously since Coastal Palms' formation in 2006 and exercises sole authority over the company's day-to-day management decisions, including financial reporting and franchise compliance. (SUMF ¶ 12; Ex. D at § 4.1; Brecker Dep. I at 34:8–35:2.)
Coastal Palms entered into its first Franchise License Agreement with Verimark on June 15, 2007, covering a single Verimark Suites property located at 8700 Tamiami Trail North, Naples, Florida 34108 (the "Naples Property"). (SUMF ¶ 13; Ex. E (Naples FLA).) Over the succeeding twelve years, Coastal Palms entered into a total of twenty-two individual FLAs with Verimark, with the most recent FLA executed on September 3, 2019, covering a Verimark Select property located at 4900 International Drive, Orlando, Florida 32819 (the "Orlando International Property"). (SUMF ¶ 14; Exs. E through Z (individual FLAs).)
Each of the twenty-two FLAs has an initial term of twenty years from the date of execution and is governed by the laws of the State of Florida, with a mandatory venue provision designating Broward County, Florida, as the exclusive forum for all disputes arising under the agreement. (SUMF ¶ 15; Ex. E at § 17.1 (representative FLA provision); confirmed across all 22 FLAs.) The FLAs are substantively identical in their financial terms, including the definitions of Gross Room Revenue, royalty rates, marketing-fund contribution rates, technology fees, late-payment interest, and material-breach provisions. (SUMF ¶ 16; Declaration of Priya Anand ("Anand Decl.") ¶ 7.)
Coastal Palms operates its properties through a network of affiliated entities, each of which is ultimately controlled by Randall Brecker. These affiliates include Gulf Breeze Hospitality LLC, which holds the operating leases for six Verimark Suites properties in Southwest Florida, and Savannah Lodging Partners LLC, which holds the operating leases for four Verimark Suites properties in coastal Georgia. (SUMF ¶ 17; Ex. AA (Gulf Breeze Hospitality LLC organizational documents); Ex. BB (Savannah Lodging Partners LLC organizational documents).) Brecker serves as the Managing Member of each of these affiliated entities. (SUMF ¶ 18; Brecker Dep. I at 41:14–42:3.)
B. The FLA Revenue-Reporting and Payment Obligations
The financial obligations at the heart of this motion are set forth in Article 4 of each FLA. The key provisions are identical across all twenty-two agreements.
Section 4.1 of each FLA imposes a royalty obligation and defines the base upon which that royalty is calculated. The provision states in relevant part:
Royalty Fee. Franchisee shall pay to Franchisor a continuing monthly royalty fee ("Royalty Fee") equal to five percent (5%) of Gross Room Revenue. "Gross Room Revenue" or "GRR" shall mean 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. GRR shall be calculated on a gross basis, without deduction for commissions, chargebacks, credit-card processing fees, travel-agent commissions, or any other expenses, except for applicable sales, occupancy, and room taxes collected from guests and remitted to the applicable taxing authority.
(SUMF ¶ 19; Ex. E at § 4.1 (emphasis added); FLA language confirmed as identical across all 22 FLAs per Anand Decl. ¶ 8.)
Section 4.2 of each FLA imposes a marketing-fund contribution obligation:
Marketing Fund Contribution. Franchisee shall pay to Franchisor a continuing monthly contribution to the Verimark National Marketing Fund ("Marketing Fund Contribution") equal to two and one-half percent (2.5%) of Gross Room Revenue, as defined in Section 4.1 above.
(SUMF ¶ 20; Ex. E at § 4.2.)
Section 4.3 of each FLA imposes a technology fee:
Technology Fee. Franchisee shall pay to Franchisor a continuing monthly technology fee ("Technology Fee") equal to twelve dollars and fifty cents ($12.50) per available room per month, adjusted annually on January 1 of each calendar year by the percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) for the twelve-month period ending September 30 of the preceding year, provided that no single annual adjustment shall exceed three percent (3%).
(SUMF ¶ 21; Ex. E at § 4.3.)
Section 4.4 requires Coastal Palms to submit monthly GRR reports to Verimark by the fifteenth day of the following month, together with payment of all Royalty Fees, Marketing Fund Contributions, and Technology Fees owed for the preceding month. (SUMF ¶ 22; Ex. E at § 4.4.) The monthly report must set forth total GRR broken down by booking channel (Verimark Central Reservations, Online Travel Agencies, property-direct, group, and other). (SUMF ¶ 23; Ex. E at § 4.4(b).)
Section 4.6 of each FLA imposes late-payment interest:
Late Payment Interest. Any amounts owed by Franchisee under this Agreement that are not received by Franchisor within five (5) business days of the applicable due date shall bear interest at the rate of one and one-half percent (1.5%) per month, compounded monthly, from the due date until paid in full.
(SUMF ¶ 24; Ex. E at § 4.6.)
Section 8.2 of each FLA grants Verimark the right to audit Coastal Palms' books and records:
Audit Rights. Franchisor shall have the right, upon not less than ten (10) business days' prior written notice, to inspect and audit Franchisee's books, records, accounts, tax returns, bank statements, and other documents relating to the Hotel, including all records relating to the calculation and reporting of Gross Room Revenue. If any such audit reveals that Franchisee has underpaid any amounts owed under this Agreement by more than two percent (2%) of the amounts that should have been reported and paid, Franchisee shall reimburse Franchisor for all costs and expenses of the audit, including fees of independent auditors and forensic accountants retained by Franchisor in connection therewith.
(SUMF ¶ 25; Ex. E at § 8.2.)
Section 14.1 of each FLA provides a general cure provision for material breaches:
Notice and Cure. In the event of a material breach by either party, the non-breaching party shall provide written notice thereof to the breaching party, specifying the nature of the breach with reasonable particularity. The breaching party shall have thirty (30) days from receipt of such notice to cure the breach to the reasonable satisfaction of the non-breaching party.
(SUMF ¶ 26; Ex. E at § 14.1.)
Section 14.2(c) of each FLA carves out a critical exception to the cure provision:
Incurable Breaches. Notwithstanding Section 14.1, the following shall constitute material breaches that are incapable of cure, and Franchisor may terminate this Agreement immediately upon written notice: . . . (c) systematic underreporting of Gross Room Revenue by Franchisee, whether by omission, misclassification, diversion of revenues through affiliated or unaffiliated entities, or any other means.
(SUMF ¶ 27; Ex. E at § 14.2(c) (emphasis added).)
Section 15.3 of each FLA provides for liquidated damages upon termination for cause:
Liquidated Damages. Upon termination of this Agreement by Franchisor for cause pursuant to Section 14, Franchisee shall pay to Franchisor, as liquidated damages and not as a penalty, an amount equal to three (3) times the aggregate Royalty Fees paid or payable by Franchisee during the twelve (12) full calendar months immediately preceding the effective date of termination.
(SUMF ¶ 28; Ex. E at § 15.3.)
Finally, Section 17.3 of each FLA contains an integration clause:
Entire Agreement. This Agreement, together with all Exhibits and Schedules hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, warranties, and understandings, whether written or oral. No amendment or modification of this Agreement shall be effective unless made in a writing signed by both parties.
(SUMF ¶ 29; Ex. E at § 17.3.)
Section 17.4 of each FLA contains a no-waiver provision:
No Waiver. The failure of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision or the right to enforce it at a later time. All waivers must be in writing and signed by the waiving party to be effective.
(SUMF ¶ 30; Ex. E at § 17.4.)
C. Establishment of Suncoast Room Management Inc. and the Revenue Diversion Scheme
Beginning no later than January 2013, Coastal Palms established and began operating Defendant Suncoast Room Management Inc. ("Suncoast"), a Florida corporation. (SUMF ¶ 31; Ex. CC (Suncoast Articles of Incorporation, filed with the Florida Division of Corporations on December 11, 2012).) Suncoast's Articles of Incorporation list its sole incorporator as Randall Brecker and its initial registered agent as Garrison Registered Agents LLC at the same Tampa address used by Coastal Palms. (SUMF ¶ 32; Ex. CC.) Brecker has served as Suncoast's sole officer — President — continuously from its incorporation to the present. (SUMF ¶ 33; Brecker Dep. I at 67:3–12.)
Suncoast was created for the express purpose of collecting revenues from certain categories of guest-room bookings at the franchised Hotels that would not flow through Verimark's central reservation system ("CRS"). (SUMF ¶ 34; Brecker Dep. I at 68:15–69:22.) These categories included: (a) walk-in guests who booked rooms directly at the front desk of a franchised property; (b) corporate-direct contracts, pursuant to which corporate clients negotiated room rates directly with Suncoast rather than through Verimark's corporate booking platform; and (c) bookings made through gulfcoastrooms.com, an unbranded website created and operated by Suncoast that offered rooms at the franchised properties without identifying them by their Verimark brand affiliation. (SUMF ¶ 35; Brecker Dep. I at 71:4–73:18; Ex. DD (gulfcoastrooms.com website screenshots, archived copies dated 2015–2021).)
The operational mechanics of the revenue diversion scheme functioned as follows. When a guest booked a room through one of the Suncoast channels (walk-in, corporate-direct, or gulfcoastrooms.com), the booking was processed through a separate property management system ("PMS") module that Suncoast maintained in parallel with the standard Verimark-branded PMS. (SUMF ¶ 36; Kerrigan Dep. at 44:7–46:3; Ex. EE (PMS configuration screenshots).) The guest's payment — whether by credit card, corporate invoice, or cash — was collected by Suncoast and deposited into Suncoast's own bank accounts, separate from the property-level operating accounts. (SUMF ¶ 37; Ex. FF (Suncoast bank statements, Penmark Savings Bank Account No. ending 4817).) Suncoast retained a 12% "management fee" on the gross booking revenue and forwarded the remaining 88% to the applicable property-level entity — Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, or another property LLC controlled by Brecker. (SUMF ¶ 38; Ex. GG (sample Suncoast management-fee invoices); Brecker Dep. I at 78:11–79:4.)
Critically, neither the full guest-room revenue collected by Suncoast nor the 12% management fee retained by Suncoast was included in the monthly GRR reports that Coastal Palms submitted to Verimark. (SUMF ¶ 39; Brecker Dep. I at 82:5–83:14; Ex. HH (comparison of Suncoast revenue records to Coastal Palms GRR reports for representative properties and periods).) The property-level entities recorded only the net amount received from Suncoast (i.e., 88% of the booking revenue) as "management company distributions" in their internal accounting systems, and even that net amount was not included in reported GRR. (SUMF ¶ 40; Kerrigan Dep. at 52:8–54:19.)
In addition to the Suncoast-channel diversion, Coastal Palms further underreported GRR by improperly netting commissions paid to third-party online travel agencies ("OTAs") against gross room revenue. (SUMF ¶ 41.) Under the FLA's GRR definition, room revenue must be calculated "on a gross basis, without deduction for commissions." (SUMF ¶ 42; Ex. E at § 4.1.) Nevertheless, Coastal Palms classified net-rate OTA payments — i.e., the amount received from OTAs after the OTA retained its commission — as "commissions receivable" and netted them against GRR, thereby further reducing reported GRR. (SUMF ¶ 43; Kettlewell Expert Report at 38–42; Ex. II (sample OTA reconciliation reports showing netting methodology).)
The cumulative effect of the revenue diversion scheme was substantial. For fiscal year 2021, Coastal Palms reported aggregate GRR of $112.4 million across the twenty-two franchised properties. (SUMF ¶ 44; Ex. JJ (Coastal Palms FY 2021 monthly GRR reports).) Dr. Sharon Kettlewell's forensic analysis determined that the true GRR for fiscal year 2021 was $145.6 million, representing underreporting of $33.2 million, or approximately 22.8% of true GRR. (SUMF ¶ 45; Kettlewell Expert Report at 56.) The underreporting percentage varied by property and year, ranging from a low of approximately 22% (at certain higher-volume properties where Verimark CRS bookings constituted a larger share of total revenue) to a high of approximately 31% (at certain properties where walk-in and corporate-direct bookings constituted a proportionally larger share). (SUMF ¶ 46; Kettlewell Expert Report at 57–59, Table 7.)
Cumulative underreported GRR across all twenty-two properties for the full 2013–2021 period totaled $197.8 million. (SUMF ¶ 47; Kettlewell Expert Report at 61; Thornbury Audit Report at 18 (confirming $197.8 million figure).) This figure was initially established by the preliminary audit conducted by Thornbury & Associates CPAs LLP and was subsequently confirmed and refined by Dr. Kettlewell's full forensic analysis. (SUMF ¶ 48.)
D. Randall Brecker's Deposition Admissions
Defendant Randall Brecker was deposed over the course of two days on January 9 and 10, 2023, at the offices of Calderwood & Harkness LLP in Fort Lauderdale, Florida. His deposition lasted approximately fourteen hours. (SUMF ¶ 49; Ex. KK (Brecker Dep. Transcript, Day 1); Ex. LL (Brecker Dep. Transcript, Day 2).)
Brecker's testimony contains a series of admissions that are dispositive of the liability question. Each is set forth below with the corresponding transcript citation.
Direction to Exclude Suncoast Revenues from GRR Reports. Brecker admitted that he personally directed property-level controllers to exclude Suncoast-collected revenues from the monthly GRR reports submitted to Verimark:
Q: Did you give any direction to the property-level controllers regarding how to treat revenues that were collected by Suncoast Room Management?
A: Yes. I told them that those revenues were Suncoast revenues, not franchise revenues, and that they should not be included in the GRR reports that went to Verimark.
Q: And was that direction communicated to all twenty-two properties?
A: To the extent that a property had Suncoast bookings, yes.
(Brecker Dep. I at 82:5–83:14.)
Establishment and Control of Suncoast. Brecker admitted that he established Suncoast Room Management Inc. and that he served as its sole officer at all relevant times:
Q: Who formed Suncoast Room Management Inc.?
A: I did.
Q: And who served as President of Suncoast from its formation to the present?
A: I have been the President the entire time.
Q: Has Suncoast had any other officers at any time?
A: No.
(Brecker Dep. I at 67:3–68:8.)
Awareness of the GRR Definition. Brecker admitted that he was aware of the GRR definition in FLA § 4.1 and its express inclusion of revenues from "any booking channel, direct or indirect":
Q: Are you familiar with the definition of Gross Room Revenue in Section 4.1 of the Franchise License Agreement?
A: Generally, yes.
Q: You understand that it includes revenues from "any booking channel, direct or indirect"?
A: I've read that language, yes.
Q: And you understand that it says "regardless of the entity collecting such revenue"?
A: I'm aware that language is in there.
(Brecker Dep. I at 75:11–76:9.)
Creation of gulfcoastrooms.com. Brecker admitted that gulfcoastrooms.com was created by Suncoast to capture direct bookings that would not flow through Verimark's reservation system:
Q: Who created the website gulfcoastrooms.com?
A: Suncoast did, through a web-design firm we hired.
Q: And what was the purpose of that website?
A: To provide an additional booking channel for guests who wanted to book directly.
Q: And did bookings through gulfcoastrooms.com flow through Verimark's central reservation system?
A: No, they did not.
Q: Was that intentional?
A: It was a separate channel. It was Suncoast's channel.
(Brecker Dep. I at 71:4–72:16.)
Concession That Revenues Were for Guest-Room Rentals. Most critically, Brecker attempted throughout his deposition to characterize Suncoast as a "separate entity" whose revenues were not "derived from" the Hotels. However, on cross-examination, he conceded that the revenues at issue were for the rental of guest rooms at the franchised properties:
Q: Mr. Brecker, when a guest booked a room through gulfcoastrooms.com at, say, the Naples Verimark Suites, that guest slept in a room at the Naples Verimark Suites, correct?
A: Correct.
Q: And Suncoast collected the payment for that room rental?
A: Suncoast collected the payment, yes.
Q: So the revenue that Suncoast collected was revenue for the rental of a guest room at the Hotel, correct?
A: It was revenue collected by Suncoast.
Q: That's not my question. The revenue was for the rental of a guest room at the Hotel, wasn't it?
A: Yes. The guest was renting a room at the hotel, yes.
(Brecker Dep. I at 85:2–86:7.) This concession is fatal to Coastal Palms' "separate entity" defense and establishes, from the mouth of the individual who orchestrated the diversion scheme, that the Suncoast-collected revenues fall squarely within the FLA's definition of GRR.
E. Whistleblower Report and Pre-Litigation Investigation
The revenue diversion scheme came to Verimark's attention as a result of a whistleblower report. On November 8, 2021, Janet Kerrigan, a former Coastal Palms regional controller, contacted Verimark's ethics and compliance hotline. (SUMF ¶ 62; Ex. MM (Verimark Compliance Hotline Intake Report, Case No. CH-2021-0347).) Kerrigan had been employed by Coastal Palms as a Regional Controller from March 2016 until her termination on October 15, 2021. (SUMF ¶ 63; Kerrigan Dep. at 12:3–13:8.) Kerrigan reported that Randall Brecker had directed property-level controllers to route certain categories of guest-room bookings through Suncoast Room Management Inc. and to exclude the resulting revenues from the monthly GRR reports submitted to Verimark. (SUMF ¶ 64; Ex. MM.)
Upon receiving Kerrigan's report, Verimark's General Counsel, Rachel Mendez, Esq., immediately initiated an internal investigation and, on November 22, 2021, retained Thornbury & Associates CPAs LLP to conduct a franchise-compliance audit of Coastal Palms' top ten properties by reported GRR. (SUMF ¶ 65; Ex. NN (Thornbury Engagement Letter dated November 22, 2021).) The audit was led by Malcolm Thornbury, CPA, a partner at Thornbury & Associates with over twenty-five years of experience in hospitality-industry forensic accounting, with the firm's principal office located at 1551 N. Flagler Drive, Suite 800, West Palm Beach, Florida 33401. (SUMF ¶ 66; Ex. NN.)
Thornbury's preliminary audit findings were delivered to Verimark on January 18, 2022. (SUMF ¶ 67; Ex. OO (Thornbury Preliminary Audit Report).) The preliminary findings indicated that the ten audited properties had underreported GRR by approximately 26% for the 2019–2021 period, with the underreporting concentrated in walk-in bookings, corporate-direct bookings, and gulfcoastrooms.com bookings — all channels through which Suncoast collected revenues. (SUMF ¶ 68; Ex. OO at 7–12.) By extrapolating these findings across all twenty-two properties and applying historical revenue trends, Thornbury estimated total underreported GRR across the full 2013–2021 period at approximately $197.8 million. (SUMF ¶ 69; Ex. OO at 15–18.)
F. Janet Kerrigan's Testimony
Janet Kerrigan was deposed on January 23, 2023, at the offices of Calderwood & Harkness LLP in Fort Lauderdale, Florida. (SUMF ¶ 70; Ex. PP (Kerrigan Dep. Transcript).) Kerrigan's testimony provided detailed, firsthand corroboration of the revenue diversion scheme.
Kerrigan testified that Randall Brecker personally instructed property-level controllers to route walk-in and corporate-direct bookings through Suncoast and to exclude those revenues from GRR reports submitted to Verimark:
Q: Did Mr. Brecker ever give you instructions regarding how Suncoast revenues should be treated for purposes of the Verimark GRR reports?
A: Yes. He told me, and he told the property-level controllers, that anything that came through Suncoast was not to be included in the Verimark reports. He said those were Suncoast's revenues, not Verimark revenues.
Q: When did he first give you that instruction?
A: When I started in 2016. It was part of the onboarding. The outgoing controller explained the "two-bucket" system, and she said it came from Randy.
(Kerrigan Dep. at 38:14–39:17.)
Kerrigan further testified regarding the 12% management fee retained by Suncoast, explaining that Suncoast invoiced each property-level entity monthly for 12% of the gross booking revenue processed through its channels and retained the fee before distributing the remaining 88% to the property-level entities. (Kerrigan Dep. at 48:2–50:11.) She also testified about the gulfcoastrooms.com booking channel, stating that the website was specifically designed to capture bookings without displaying the Verimark brand name, thereby directing guest traffic away from Verimark's central reservation system. (Kerrigan Dep. at 55:3–57:22.)
Kerrigan's testimony was consistent with and corroborated by the voluminous documentary evidence obtained from the Court-ordered supplemental production of 312,000 documents on November 18, 2022, which included Suncoast's financial records, bank statements, management-fee invoices, and OTA reconciliation reports. (SUMF ¶ 76; Kerrigan Dep. at 62:4–63:18 (identifying and authenticating various Suncoast financial documents).)
G. Property-Level Witness Testimony
Between January 9 and March 17, 2023, Verimark deposed ten property-level managers and accountants employed at franchised Hotels across the Coastal Palms portfolio. (SUMF ¶ 77; Anand Decl. ¶ 14 (listing deponents and dates).) These witnesses included front-desk managers, night auditors, property-level controllers, and general managers from properties in Naples, Fort Myers, Sarasota, Orlando, Fort Lauderdale, and Savannah. (SUMF ¶ 78.)
A consistent theme emerged from these depositions. Each witness who addressed the topic testified that property-level personnel received direction from "corporate" — meaning Brecker or members of his management team acting at his direction — to route walk-in bookings and corporate-direct bookings through the Suncoast channel and to exclude those revenues from the monthly GRR reports submitted to Verimark. (SUMF ¶ 79; see, e.g., Dep. of Maria Delgado (Front Desk Manager, Naples Verimark Suites) at 27:3–28:15 ("We were told by corporate that walk-ins go through Suncoast. That's just the way it was done."); Dep. of Thomas Chandler (Property Controller, Fort Lauderdale Verimark Suites) at 34:7–36:2 ("The GRR reports I submitted to Verimark only included CRS bookings and certain OTA bookings. Suncoast bookings were handled separately.").) Multiple witnesses described the arrangement as a "two-bucket system" in which bookings flowing through Verimark's CRS went into one reporting "bucket" and Suncoast bookings went into another, with only the first bucket included in the Verimark GRR reports. (SUMF ¶ 80.)
H. Expert Analysis (Dr. Sharon Kettlewell, Ridgeline Forensic Advisory LLC)
Verimark retained Dr. Sharon Kettlewell, CPA/CFF, CFE, as its forensic accounting and damages-quantification expert. (SUMF ¶ 81.) Dr. Kettlewell is a partner at Ridgeline Forensic Advisory LLC, with offices at 200 S. Biscayne Boulevard, Suite 1400, Miami, Florida 33131. (SUMF ¶ 82.) She holds a Ph.D. in Accounting from the University of Florida, is a Certified Public Accountant licensed in the State of Florida, holds the Certified in Financial Forensics (CFF) credential from the American Institute of CPAs, and is a Certified Fraud Examiner (CFE) through the Association of Certified Fraud Examiners. (SUMF ¶ 83; Ex. QQ (Kettlewell CV).) She has over twenty years of experience in forensic accounting, with a particular concentration in hospitality-industry revenue disputes and franchise compliance auditing. (SUMF ¶ 84.)
Dr. Kettlewell's expert report was served on April 14, 2023. (SUMF ¶ 85; Ex. RR (Kettlewell Expert Report).) Her principal conclusion is that Coastal Palms underreported GRR by a total of $197.8 million over the 2013–2021 period. (SUMF ¶ 86; Kettlewell Expert Report at 61.)
Dr. Kettlewell's methodology was rigorous and comprehensive. She reconstructed the true GRR for each of the twenty-two franchised properties for each year from 2013 through 2021 by cross-referencing and reconciling data from multiple independent sources: (a) Suncoast's financial records, including its general ledger, accounts receivable records, and management-fee invoices; (b) Suncoast's bank statements from Penmark Savings Bank (Account No. ending 4817) and Northpoint Securities (Account No. ending 3291); (c) third-party OTA contracts and monthly settlement reports; (d) property management system ("PMS") data, including occupancy reports, rate reports, and guest-folio data maintained in both the standard Verimark-branded PMS and the parallel Suncoast PMS module; (e) gulfcoastrooms.com booking logs, which recorded each reservation made through that website; and (f) property-level accounting records, including trial balances, journal entries, and monthly financial statements for each property LLC. (SUMF ¶ 87; Kettlewell Expert Report at 14–22.) These records were obtained through the extensive discovery process in this case, including the Court-ordered supplemental production of 312,000 documents on November 18, 2022. (SUMF ¶ 88.)
Dr. Kettlewell's findings are undisputed as to the existence of underreporting. Defendants' expert, Professor Grant Hargrove, Ph.D., CPA, of Hargrove Economic Consulting Inc., does not dispute that Coastal Palms excluded Suncoast-collected revenues from its GRR reports. (SUMF ¶ 89; Ex. SS (Hargrove Expert Report) at 8 ("It is not disputed that certain revenues collected by Suncoast Room Management Inc. were not included in the Gross Room Revenue figures reported to Verimark.").) The dispute between the experts is limited to the magnitude of the underreporting and the resulting underpayment.
Professor Hargrove opines that the maximum underpayment totaled $6.2 million, based on what he characterizes as a "narrower but more commercially reasonable" interpretation of the GRR definition. (SUMF ¶ 90; Hargrove Expert Report at 12.) Specifically, Hargrove excludes two categories of revenue from his calculation of true GRR: (a) walk-in cash payments, which he contends are not "revenues derived from . . . the rental of guest rooms" but rather "incidental service charges," and (b) OTA revenues, which he contends should be measured on a net basis (after deduction of OTA commissions) rather than a gross basis. (SUMF ¶ 91; Hargrove Expert Report at 13–17.)
Dr. Kettlewell served a rebuttal report on June 9, 2023, addressing and refuting Professor Hargrove's methodology. (SUMF ¶ 92; Ex. TT (Kettlewell Rebuttal Report).) Dr. Kettlewell demonstrated that Hargrove's exclusion of walk-in cash payments directly contradicts the FLA's definition of GRR, which includes "all revenues derived from or attributable to the rental of guest rooms at the Hotel" from "any booking channel, direct or indirect" — language that plainly encompasses walk-in guests paying in cash. (Kettlewell Rebuttal Report at 6–10.) She further demonstrated that Hargrove's use of net OTA revenue contradicts the FLA's express direction that GRR be calculated "on a gross basis, without deduction for commissions, chargebacks, credit-card processing fees, travel-agent commissions, or any other expenses." (Kettlewell Rebuttal Report at 11–15.)
Importantly, even under Professor Hargrove's most conservative estimate of $6.2 million in underpayments, the underreporting substantially exceeds the 2% audit threshold specified in FLA § 8.2, confirming that a material breach occurred on any measure. (SUMF ¶ 93.)
I. Notice of Material Breach and Failure to Cure
On February 4, 2022, following receipt and review of Thornbury & Associates' preliminary audit findings, Verimark issued a formal Notice of Material Breach to Coastal Palms pursuant to FLA § 14.1. (SUMF ¶ 94; Ex. UU (Notice of Material Breach dated February 4, 2022).) The Notice was sent by overnight courier (Severin Partners LLC tracking number 7723 4561 8890) to Coastal Palms' principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108, and by email to Randall Brecker and Coastal Palms' then-counsel. (SUMF ¶ 95; Ex. UU; Ex. VV (Severin Partners LLC delivery confirmation).) The Notice specified the nature of the breach — systematic underreporting of Gross Room Revenue through the diversion of revenues via Suncoast Room Management Inc. — demanded cure within thirty days, and stated that Verimark reserved all rights under FLA § 14.2(c), which characterizes systematic underreporting of GRR as a material breach incapable of cure. (SUMF ¶ 96; Ex. UU.)
On February 28, 2022, Coastal Palms' counsel, Nathan Whitfield III of Whitfield, Barrow & Crane LLP, 1221 Brickell Avenue, Suite 3000, Miami, Florida 33131, responded by letter to Verimark's General Counsel. (SUMF ¶ 97; Ex. WW (Whitfield Letter dated February 28, 2022).) In that letter, Whitfield denied any material breach and asserted that Suncoast's revenues were properly excluded from GRR under what he characterized as "a reasonable interpretation of the Franchise License Agreement consistent with the parties' long-standing course of dealing." (SUMF ¶ 98; Ex. WW at 2.) Coastal Palms did not offer to cure or to make any supplemental payment. (SUMF ¶ 99.)
The thirty-day cure period expired on March 6, 2022, with no cure tendered. (SUMF ¶ 100.) Verimark filed this action on March 7, 2022. (SUMF ¶ 101.)
J. Discovery and Document Production Record
The discovery record in this case is extensive and confirms the scope and duration of the revenue diversion scheme.
On July 11, 2022, Verimark served its First Set of Interrogatories (25 interrogatories) and First Request for Production of Documents (147 requests for production) on Coastal Palms. (SUMF ¶ 102; Ex. XX (Certificate of Service for First Set of discovery).) On August 22, 2022, Coastal Palms served its objections and responses and made a production of approximately 84,000 documents. (SUMF ¶ 103; Ex. YY (Coastal Palms' discovery Responses).) The August 2022 production, however, conspicuously omitted any financial records of Suncoast Room Management Inc., despite multiple requests specifically targeting Suncoast's records. (SUMF ¶ 104; Anand Decl. ¶ 18.)
On September 15, 2022, Verimark moved to compel production of Suncoast's financial records, arguing that those records were within Coastal Palms' possession, custody, or control because Randall Brecker served as both Managing Member of Coastal Palms and sole officer of Suncoast. (SUMF ¶ 105; Ex. ZZ (Motion to Compel).) On October 28, 2022, following a hearing, the Court (Judge Calloway) granted Verimark's Motion to Compel, ordering Coastal Palms to produce all Suncoast financial records within twenty-one days. (SUMF ¶ 106; Ex. AAA (Order Granting Motion to Compel dated October 28, 2022).)
On November 18, 2022, Coastal Palms made a supplemental production of approximately 312,000 additional documents, including Suncoast's general ledger records, bank statements, management-fee invoices, OTA reconciliation reports, gulfcoastrooms.com booking logs, and correspondence between Brecker and property-level controllers regarding the handling of Suncoast revenues. (SUMF ¶ 107; Anand Decl. ¶ 19.) This supplemental production proved invaluable to both Thornbury & Associates and Dr. Kettlewell in confirming and quantifying the underreporting. (SUMF ¶ 108.)
In total, the document volume processed by Nexagen Document Solutions LLC, the e-discovery vendor retained by Verimark, was approximately 2.3 million documents comprising approximately 1.1 terabytes of data. (SUMF ¶ 109; Anand Decl. ¶ 20.)
III. LEGAL STANDARD
A. Summary Judgment Under Florida Law
Under Florida Rule of Civil Procedure 1.510, summary judgment is appropriate where there is "no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fla. R. Civ. P. 1.510(c). The purpose of summary judgment is to avoid the expense and delay of trial where the evidence demonstrates that no genuine factual dispute exists that would require resolution by a trier of fact. Volusia Cnty. v. Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact, either by showing that the evidence is insufficient to support the nonmoving party's case or by identifying an absence of evidence on an essential element of the nonmoving party's claim or defense. Goldberg v. Fla. Power & Light Co., 899 So. 2d 1105, 1109 (Fla. 2005); Saleeby v. Rocky Elson Constr., Inc., 3 So. 3d 1078, 1082 (Fla. 2009). Once the moving party has met this initial burden, the burden shifts to the nonmoving party to come forward with specific facts demonstrating that a genuine dispute exists. Moore v. Morris, 142 So. 2d 410, 411 (Fla. 1962). A "genuine issue" exists only where the evidence is such that a reasonable trier of fact could return a verdict for the nonmoving party. Amente v. Newman, 653 So. 2d 1030, 1032 (Fla. 1995). Conclusory allegations, speculation, and self-serving assertions unsupported by competent evidence are insufficient to defeat summary judgment. Sunbeam Television Corp. v. Columbia Broad. Sys., Inc., 694 F.2d 1298, 1302 (11th Cir. 1983) (applying Florida law).
In evaluating a motion for summary judgment, the Court must view all evidence and draw all reasonable inferences in the light most favorable to the nonmoving party. Volusia Cnty., 760 So. 2d at 130. However, this standard does not require the Court to credit implausible interpretations of unambiguous contract language or to accept legal arguments that are foreclosed by the plain text of the operative agreements.
Partial summary judgment on liability while reserving the determination of damages for trial is expressly authorized under Rule 1.510(c). This procedure is commonly employed where, as here, the liability question turns on undisputed facts and the construction of unambiguous contract language, while the damages question involves competing expert opinions that present fact issues appropriate for trial. See Alvarez v. Rendon, 953 So. 2d 702, 705 (Fla. 5th DCA 2007) (affirming partial summary judgment on liability where "the breach was established as a matter of law but the amount of damages remained in dispute").
B. Breach of Contract Elements Under Florida Law
Under Florida law, a plaintiff seeking to recover for breach of contract must establish three elements: (1) the existence of a valid contract; (2) a material breach of that contract by the defendant; and (3) damages resulting from the breach. HTP, Ltd. v. Lineas Aereas Costarricenses, 685 So. 2d 1238, 1239 (Fla. 1996); Garcia v. Fed. Ins. Co., 969 So. 2d 1129, 1133 (Fla. 3d DCA 2007).
Where, as here, the parties' dispute centers on the meaning of contractual language, the interpretation of an unambiguous contract is a question of law for the court. Palm Beach Hotel Condo. Ass'n v. Millan, 62 So. 3d 1146, 1149 (Fla. 4th DCA 2011). "When contract language is clear and unambiguous, the contract must be interpreted and enforced in accordance with its plain meaning." Pennhurst Capital Grp., LLC v. Zoeller, 213 So. 3d 936, 940 (Fla. 4th DCA 2017). A court may not rewrite clear contractual provisions to accommodate a party's preferred interpretation, nor may it disregard the natural and commonly understood meaning of contractual terms in favor of a strained or unreasonable construction. Biltmore Motor Corp. v. Roque, 291 So. 3d 127, 131 (Fla. 3d DCA 2020).
In this case, the first element — the existence of valid contracts — is conceded. Coastal Palms does not dispute that it entered into twenty-two FLAs with Verimark, that each FLA is a valid and enforceable contract, or that each FLA contains the GRR definition and payment obligations set forth in Article 4. The third element — damages — is the subject of a genuine factual dispute between the parties' experts and is accordingly not addressed in this motion. The sole question before the Court on this motion is the second element: whether Coastal Palms materially breached the FLAs by systematically excluding Suncoast-collected revenues from GRR. As demonstrated below, the undisputed facts and the unambiguous contract language resolve this question in Verimark's favor as a matter of law.
IV. ARGUMENT
A. Count I — Breach of Contract (Royalties): Coastal Palms Breached FLA § 4.1 by Systematically Excluding Suncoast-Collected Revenues from GRR
The evidence in the record establishes, without genuine dispute, that Coastal Palms breached its obligation under FLA § 4.1 to pay a royalty of 5% of Gross Room Revenue. The breach was accomplished by systematically excluding from GRR all revenues collected by Suncoast Room Management Inc. — an entity created and controlled by Coastal Palms' own Managing Member, Randall Brecker, for the express purpose of diverting guest-room revenues away from Verimark's reporting system. The undisputed facts, viewed in the light most favorable to Coastal Palms, compel summary judgment on liability for Count I.
1. The FLA Unambiguously Requires Inclusion of All Guest-Room Revenues in GRR Regardless of the Collecting Entity. The starting point of the analysis is the contractual text. FLA § 4.1 defines Gross Room Revenue as follows:
"Gross Room Revenue" or "GRR" shall mean 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.
(Ex. E at § 4.1 (emphasis added).)
This definition is comprehensive by design. It is constructed of four interlocking components, each of which serves to ensure the broadest possible capture of guest-room revenues:
First, the definition begins with the word "all" — "all revenues derived from or attributable to the rental of guest rooms at the Hotel." The word "all" is among the most comprehensive terms in the English language. When used without qualification or limitation, it encompasses every item within the described category without exception. Fla. Power Corp. v. City of Tallahassee, 18 So. 2d 671, 675 (Fla. 1944) ("The word 'all' means the whole of — every one of — the entire number of.").
Second, the definition uses the disjunctive phrase "derived from or attributable to" to describe the nexus between the revenues and the rental of guest rooms. This phrasing captures not only revenues that are directly generated by room rentals (i.e., "derived from") but also revenues that are indirectly connected to room rentals (i.e., "attributable to"). The distinction is significant: revenues that pass through an intermediary entity before reaching the property-level entity may not be "derived from" the Hotel in a narrow sense but are undeniably "attributable to" the rental of guest rooms at the Hotel.
Third, the definition expressly includes "revenues from any booking channel, direct or indirect." This language captures every conceivable method by which a guest room may be booked — Verimark's central reservation system, online travel agencies, telephone reservations, walk-in bookings, corporate-direct contracts, and third-party websites such as gulfcoastrooms.com. The phrase "direct or indirect" ensures that no booking channel is excluded, regardless of how many intermediaries stand between the guest and the Hotel.
Fourth, and most critically for purposes of this motion, the definition concludes with the phrase "regardless of the entity collecting such revenue." This language is a prophylactic provision specifically designed to prevent the type of revenue diversion Coastal Palms engineered through Suncoast. It eliminates the identity of the collecting entity as a relevant consideration in determining whether revenue falls within the scope of GRR. A revenue stream does not cease to be GRR merely because it is collected by an affiliated management company, a booking agent, a third-party intermediary, or any other entity.
The GRR definition is clear, unambiguous, and comprehensive. Florida courts enforce clear contractual provisions according to their plain meaning. Caribbean Transp. & Holdings, Inc. v. Global Lodging Solutions, LLC, 289 So. 3d 995, 998 (Fla. 4th DCA 2020) ("When a contract provision is clear and unambiguous, a court must give effect to its plain meaning and may not consider extrinsic evidence of the parties' intent."); Harborline Corporation Int'l, Inc. v. Eden Roc, LLLP, 104 So. 3d 1121, 1125 (Fla. 3d DCA 2012) (enforcing plain meaning of revenue-sharing provision in hospitality agreement); Harborline Enterprises Hotels Corp. v. Butch Lewis Prods., Inc., 862 F.2d 1483, 1488 (11th Cir. 1989) (applying Florida law and enforcing unambiguous revenue-reporting provision in hotel management agreement).
The application of the GRR definition to the undisputed facts of this case is straightforward. The revenues collected by Suncoast were (a) revenues (b) derived from or attributable to (c) the rental of guest rooms (d) at the Hotels, (e) from booking channels that were "direct or indirect," (f) collected by Suncoast. Every element of the GRR definition is satisfied. Indeed, Brecker himself conceded in deposition that the Suncoast-collected revenues were "for the rental of a guest room at the hotel." (Brecker Dep. I at 86:3–7.) And the "regardless of the entity collecting such revenue" language eliminates the only basis on which Coastal Palms could argue for exclusion — the fact that the collecting entity was Suncoast rather than the property LLC.
As the leading franchise law treatise explains, revenue-reporting provisions in franchise agreements are commonly drafted in broad terms precisely because "the franchisor's royalty stream depends on complete and accurate reporting of all revenues within the defined base, and franchisors have a legitimate interest in preventing the diversion of revenues through affiliated entities, related-party transactions, or alternative booking channels." Barkoff & Selden, Fundamentals of Franchising 141 (4th ed. 2018). The GRR definition in FLA § 4.1 reflects this principle and should be enforced as written.
2. Coastal Palms' "Separate Entity" Defense Fails as a Matter of Law. Coastal Palms' principal defense to Count I is its assertion that FLA § 4.1's GRR definition is "ambiguous" as applied to revenues collected by Suncoast Room Management Inc. because Suncoast is a legally separate entity from Coastal Palms and was not itself a party to the FLAs. This argument is foreclosed by the plain language of the contract, by the undisputed facts, and by applicable Florida law.
As an initial matter, the argument is contradicted on its face by the contract language. The GRR definition expressly includes revenues collected "regardless of the entity collecting such revenue." FLA § 4.1 (emphasis added). The entire purpose of this language is to capture revenues collected by entities other than the franchisee itself. To accept Coastal Palms' argument — that revenues collected by an entity other than Coastal Palms fall outside the GRR definition because that entity is "separate" — would render the "regardless of the entity collecting such revenue" clause meaningless, a result that Florida courts have consistently refused to sanction. BKD Twenty-One Mgmt. Co. v. Delsordo, 127 So. 3d 527, 531 (Fla. 4th DCA 2012) ("It is a cardinal rule of contract interpretation that a court must give effect to every provision, clause, and word of the contract, and no part of the contract should be read as mere surplusage."); McFadden v. Tropicana Prods., Inc., 895 So. 2d 503, 506 (Fla. 5th DCA 2005) (same); Waterways Dev. Corp. v. White, 259 So. 3d 217, 223 (Fla. 4th DCA 2018) (refusing to adopt interpretation that would render contractual clause superfluous).
The "separate entity" defense is further undermined by the undisputed facts regarding the relationship between Coastal Palms and Suncoast. Randall Brecker is both the Managing Member and 60% equity holder of Coastal Palms and the sole officer (President) of Suncoast. (Brecker Dep. I at 34:8–35:2, 67:3–68:8.) He established Suncoast and directed its operations at all relevant times. (Brecker Dep. I at 67:3–68:8, 71:4–73:18.) Suncoast was created specifically to collect guest-room revenues at the franchised Hotels through channels that would not flow through Verimark's reporting system. (Brecker Dep. I at 68:15–69:22.) The revenues Suncoast collected were revenues for the rental of guest rooms at the franchised Hotels — a fact Brecker conceded. (Brecker Dep. I at 86:3–7.) In short, the "separate entity" was nothing more than a conduit created and controlled by the same individual who controlled the franchisee, for the purpose of diverting revenues that were contractually required to be reported and subjected to royalty and marketing-fund payments.
Florida law does not permit a contracting party to evade its contractual obligations by routing performance through an affiliated entity under the party's own control. See Data Mktg. Network, Inc. v. QVC, Inc., 2014 WL 2547614, at 7 (S.D. Fla. 2014) (applying Florida law: "A party cannot avoid its contractual obligations merely by conducting the prohibited activity through a related entity that it controls."); Holiday Hospitality Franchising, Inc. v. Amtel Props., Inc.*, 451 F. Supp. 2d 1322, 1337 (N.D. Ga. 2006) (in franchise context, finding that franchisee breached revenue-reporting obligation by excluding revenues collected through affiliated management company, where franchise agreement defined reportable revenue broadly). As the Restatement (Second) of Contracts recognizes, a party is obligated to refrain from doing "anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Restatement (Second) of Contracts § 261 cmt. d (1981). The creation of Suncoast to siphon revenues away from the GRR base is a paradigmatic example of such conduct.
The "separate entity" defense also fails for a more fundamental reason: it seeks to create ambiguity where none exists. Coastal Palms does not identify any term in the GRR definition that is susceptible to more than one reasonable interpretation. Instead, it asks the Court to disregard the "regardless of the entity collecting such revenue" clause and to read the GRR definition as implicitly limited to revenues collected by the franchisee or its identified affiliates. This is not a plausible interpretation of the contractual text. A contract is ambiguous only when it is susceptible to more than one reasonable interpretation; a party's disagreement with the plain meaning of a contract does not create ambiguity. Caribbean Transp., 289 So. 3d at 998; Assoc. Indus. of Fla., Inc. v. State, 838 So. 2d 588, 593 (Fla. 1st DCA 2003).
3. Coastal Palms' Contention That Verimark Was Aware of Suncoast Is Irrelevant. Coastal Palms further contends that Verimark was "aware" of Suncoast's role because Suncoast was identified in certain property-management agreements submitted during the franchise-application process for a subset of the twenty-two properties. Even accepting this contention as true for purposes of this motion — which Verimark does solely for argument — it does not create a genuine issue of material fact on the breach question, for several independent reasons.
First, awareness of an entity's existence is not the same as consent to exclude that entity's revenue collections from GRR. Knowledge that a franchise applicant has engaged a management company to assist with hotel operations does not imply approval of that management company's practice of collecting guest-room revenues and withholding them from the franchisor's reporting system. See Coventry First, LLC v. McCarty, 605 F.3d 865, 871 (11th Cir. 2010) (applying Florida law: "Knowledge of a fact is not the same as consent to a course of action based on that fact."). The record contains no evidence that Verimark ever consented to the exclusion of Suncoast-collected revenues from GRR, and Coastal Palms has identified no such evidence.
Second, the FLAs contain express integration and no-oral-modification clauses. FLA § 17.3 provides that the FLA "constitutes the entire agreement between the parties with respect to the subject m