IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA
CIVIL DIVISION
Case No.: 1021-00006
Division: 07
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.
PLAINTIFF VERIMARK HOSPITALITY GROUP INC.'S RESPONSE IN OPPOSITION TO DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT
Filed: November 17, 2023
Prepared by:
CALDERWOOD & HARKNESS LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 555-7200 Facsimile: (954) 555-7201
Counsel for Plaintiff Verimark Hospitality Group Inc.
Priya Anand, Esq. (FL Bar No. 0087451) — panand@calderwoodharkness.com Douglas Carmichael, Esq. (FL Bar No. 0093217) — dcarmichael@calderwoodharkness.com Yuki Nakamura, Esq. (FL Bar No. 0119644) — ynakamura@calderwoodharkness.com Carlos Espinoza, Esq. (FL Bar No. 0128903) — cespinoza@calderwoodharkness.com
TABLE OF CONTENTS
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I. INTRODUCTION
Plaintiff Verimark Hospitality Group Inc. ("Verimark") respectfully submits this Response in Opposition to Defendants' Cross-Motion for Summary Judgment (the "Cross-Motion") filed on October 13, 2023, by Defendants Coastal Palms Franchise Holdings LLC ("Coastal Palms"), Randall Brecker ("Brecker"), and Suncoast Room Management Inc. ("Suncoast") (collectively, "Defendants"). For the reasons set forth below, the Cross-Motion should be denied in its entirety.
Defendants' Cross-Motion seeks nothing less than the wholesale dismissal of all ten counts of Verimark's Complaint, together with the entry of summary judgment in favor of Coastal Palms on its $12 million Counterclaim alleging brand-standard violations and over-billing. The Cross-Motion fails on every front. It misconstrues the plain language of the controlling Franchise License Agreements ("FLAs"), ignores the overwhelming weight of deposition testimony and documentary evidence, and asks this Court to resolve genuinely disputed issues of fact in Defendants' favor—precisely the opposite of what the summary judgment standard demands.
The core facts of this case are straightforward and largely undisputed. Beginning no later than January 2013 and continuing through at least December 2021, Defendants systematically excluded revenues collected through Suncoast Room Management Inc.—a Florida corporation wholly controlled by Brecker—and through the unbranded website gulfcoastrooms.com from the Gross Room Revenue ("GRR") reports that Coastal Palms was contractually obligated to submit to Verimark each month. The effect of this scheme was staggering: over the nine-year period from 2013 through 2021, Defendants underreported GRR by approximately $197.8 million across all 22 franchised hotel properties, resulting in approximately $16.095 million in underpaid royalties, marketing-fund contributions, and technology fees.
These are not approximations plucked from thin air. They are the product of a comprehensive forensic analysis conducted by Dr. Sharon Kettlewell, CPA/CFF, CFE, a principal at Ridgeline Forensic Advisory LLC, who reviewed over 396,000 documents, analyzed property-level financial records, reconciled bank statements, and cross-referenced Suncoast's own internal accounting records—records that Defendants fought to withhold until this Court granted Verimark's Motion to Compel on October 28, 2022. Dr. Kettlewell's conclusions are corroborated by the sworn testimony of Defendants' own former Regional Controller, Janet Kerrigan, who contacted Verimark's compliance hotline in November 2021 to report the revenue-diversion scheme, and by the deposition admissions of Brecker himself, who acknowledged on the record that he personally directed controllers to exclude Suncoast-collected revenues from GRR reports.
The Cross-Motion rests almost entirely on a single argument: that the GRR definition in FLA § 4.1 is "ambiguous" and should be construed to exclude revenues collected by any entity other than the franchisee itself. This argument is foreclosed by the plain text of the FLAs. Section 4.1 defines GRR as "all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue." The italicized phrase was specifically included to prevent the very maneuver Defendants undertook: routing revenues through a separate corporate entity and then claiming those revenues fall outside the GRR definition. Defendants cannot manufacture ambiguity where none exists.
To the extent the Cross-Motion ventures beyond the GRR-definition argument, it fares no better. Defendants' assertions regarding Verimark's supposed knowledge of and acquiescence to the Suncoast arrangement, their claim that the economic-loss rule bars Verimark's tort claims, and their contention that the Counterclaim is supported by sufficient evidence are each contradicted by the record and by governing Florida law.
This Court's own forthcoming analysis on Verimark's Motion for Partial Summary Judgment on Counts I and II will address liability on the breach-of-contract claims. But even setting that motion aside entirely, Defendants' Cross-Motion must be denied because: (1) the GRR definition in the FLAs is unambiguous and encompasses all revenues from guest-room rentals regardless of the entity collecting them; (2) genuine disputes of material fact preclude summary judgment for Defendants on every remaining count; and (3) the Counterclaim is wholly unsupported by competent evidence.
The total damages at stake in this case are substantial. Verimark seeks approximately $150 million, comprising $16.095 million in direct underpayments (including $9.89 million in unpaid royalties, $4.945 million in unpaid marketing-fund contributions, and $1.26 million in unpaid technology fees), $28.4 million in contractual late-payment interest calculated at the rate of 1.5% per month compounded monthly as provided in FLA § 4.6, and $105.5 million in liquidated damages pursuant to FLA § 15.3, which provides for liquidated damages of three times the trailing-twelve-month royalties per property upon termination for cause. The Cross-Motion should be denied, and this case should proceed to trial.
II. STATEMENT OF FACTS
The following facts are drawn from the record evidence, including the FLAs, deposition transcripts, discovery responses, expert reports, and documents produced in discovery. Consistent with the summary judgment standard, all facts and reasonable inferences are stated in the light most favorable to Verimark as the non-movant on the Cross-Motion.
A. The Franchise Relationship
Verimark Hospitality Group Inc. is one of the nation's largest hotel franchisor companies, with more than 2,800 franchised properties operating under various Verimark brands in the United States and internationally. (Compl. ¶ 1; Langston Dep. 14:8–15:3.) Two of Verimark's brands relevant to this litigation are "Verimark Suites," a select-service, extended-stay brand, and "Verimark Select," a mid-scale select-service brand. (Langston Dep. 15:4–16:12.)
Coastal Palms Franchise Holdings LLC is a Florida limited liability company controlled by Randall Brecker. (Compl. ¶ 3; Brecker Dep. Day 1, 22:5–23:14.) Brecker is the sole managing member of Coastal Palms and has been since the entity's formation in 2006. (Id. at 23:15–24:2.) Brecker is also the president, sole director, and majority shareholder of Suncoast Room Management Inc., a Florida corporation formed in December 2012. (Id. at 87:11–88:19; Ex. 14 (Suncoast Articles of Incorporation).)
Coastal Palms entered into its first Franchise License Agreement with Verimark on June 15, 2007, for a single Verimark Suites property located in Naples, Florida (the "Naples Property"). (Ex. 1 (FLA-001).) Over the following twelve years, Coastal Palms executed a total of 22 individual FLAs with Verimark, the most recent of which is dated September 3, 2019, for a Verimark Select property in Savannah, Georgia. (Exs. 1–22 (FLA-001 through FLA-022); Statement of Undisputed Material Facts ("SUMF") ¶¶ 1–22.) The 22 FLAs cover hotel properties located across Florida and Georgia—18 properties operating under the Verimark Suites brand and 4 properties operating under the Verimark Select brand—comprising approximately 3,740 total guest rooms. (SUMF ¶ 23; Langston Dep. 42:8–43:19.)
Each FLA has a 20-year initial term, is governed by Florida law, and contains a mandatory venue provision designating Broward County, Florida as the exclusive forum for any litigation arising under the agreement. (FLA-001, § 20.1; FLA-022, § 20.1; see generally SUMF ¶¶ 24–26.) The FLAs are substantially identical in their material terms, differing primarily in property-specific information such as the hotel's address, room count, and effective date. (Langston Dep. 44:2–45:6.)
The FLA provisions most relevant to this litigation are as follows:
Gross Room Revenue Definition (§ 4.1). Section 4.1 of each FLA defines Gross Room Revenue as:
"all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue. Gross Room Revenue shall not include applicable state and local room taxes collected by the franchisee on behalf of taxing authorities."
(FLA-001, § 4.1 (emphasis added).) This definition is identical in all 22 FLAs. (SUMF ¶ 27.)
Royalty Payments (§ 4.1). Coastal Palms is obligated to pay Verimark a continuing monthly royalty equal to 5% of GRR, due and payable on the fifteenth day of each calendar month for the immediately preceding calendar month. (FLA-001, § 4.1.)
Marketing-Fund Contributions (§ 4.2). Coastal Palms is obligated to contribute 2.5% of GRR to the Verimark National Marketing Fund each month, calculated and payable on the same schedule as the royalty. (FLA-001, § 4.2.)
Technology Fees (§ 4.3). Coastal Palms is obligated to pay a monthly technology fee of $12.50 per available room per month, subject to annual CPI adjustment not to exceed 3% per year. (FLA-001, § 4.3.) The technology fee covers Verimark's provision and maintenance of the centralized reservation system, property-management-system interface, and revenue-management tools. (Id.; Langston Dep. 67:3–68:14.)
Late-Payment Interest (§ 4.6). Any amounts not paid when due accrue interest at the rate of 1.5% per month, compounded monthly, from the date payment was due until the date payment is received. (FLA-001, § 4.6.) This rate is consistent across all 22 FLAs. (SUMF ¶ 30.)
Audit Rights (§ 8.2). Verimark is entitled to audit the franchisee's books, records, and accounts at any time upon 10 business days' written notice. If an audit reveals that the franchisee has underreported GRR by more than 2% of the actual GRR for any reporting period, the franchisee bears all costs of the audit, including fees of any outside auditors or forensic accountants retained by Verimark. (FLA-001, § 8.2.)
Material Breach and Cure (§ 14.1, § 14.2). Section 14.1 provides that upon the occurrence of a material breach by the franchisee, Verimark shall provide written notice specifying the nature of the breach, and the franchisee shall have 30 calendar days from receipt of such notice to cure the breach to Verimark's reasonable satisfaction. (FLA-001, § 14.1.) However, Section 14.2 identifies certain breaches that are deemed incapable of cure. Section 14.2(c) provides:
"Notwithstanding Section 14.1, the following shall constitute material breaches that are incapable of cure: . . . (c) systematic underreporting of Gross Room Revenue."
(FLA-001, § 14.2(c).) This provision does not contain a scienter element; it applies to "systematic underreporting" without qualification as to intent. (Id.; see § IV.G, infra.)
Liquidated Damages Upon Termination for Cause (§ 15.3). If Verimark terminates an FLA for cause, the franchisee shall pay liquidated damages equal to three times the trailing-twelve-month royalties for the affected property, calculated using corrected GRR figures if an audit has revealed underreporting. (FLA-001, § 15.3.) The parties agreed that this amount represents a reasonable estimate of Verimark's damages from premature termination, including lost future royalties, marketing-fund contributions, and damage to brand goodwill. (Id.)
B. The Revenue Diversion Scheme
The evidence in the record, drawn from deposition testimony, internal documents, forensic accounting analysis, and financial records, establishes that beginning no later than January 2013, Defendants devised and operated a systematic scheme to divert hotel guest-room revenues away from the GRR calculations reported to Verimark.
Formation and Purpose of Suncoast Room Management Inc. In December 2012, Brecker formed Suncoast Room Management Inc. as a Florida corporation. (Ex. 14 (Suncoast Articles of Incorporation); Brecker Dep. Day 1, 87:11–88:19.) Brecker serves as the president, sole director, and majority shareholder of Suncoast. (Id. at 88:20–89:5.) While Brecker testified that Suncoast was formed as a "property management services" company to "streamline direct booking operations" (Brecker Dep. Day 1, 89:6–90:3), the record demonstrates that Suncoast's actual function was to serve as a conduit for revenues that Defendants wished to exclude from GRR reports submitted to Verimark.
Beginning in January 2013, Suncoast was designated as the entity responsible for collecting revenues from three categories of guest-room bookings across all 22 franchised properties: (1) walk-in guests paying at the front desk; (2) corporate-direct bookings made pursuant to negotiated rate agreements between Suncoast and corporate travel departments; and (3) bookings made through gulfcoastrooms.com, an unbranded website owned and operated by Suncoast. (Kerrigan Dep. 34:7–36:22; Prescott Dep. 112:4–115:18; Exs. 47–49 (Suncoast internal memoranda).)
The Gulfcoastrooms.com Website. The website gulfcoastrooms.com was registered by Suncoast in November 2012 and went live in January 2013. (Ex. 50 (domain registration records); Brecker Dep. Day 1, 96:14–97:8.) The website did not display any Verimark branding, logos, or trademarks. (Id. at 97:9–98:2.) It listed properties by location and amenity features without identifying them as Verimark Suites or Verimark Select hotels. (Ex. 51 (archived screenshots of gulfcoastrooms.com, dated March 2017, June 2019, and September 2021).) Guests who booked through gulfcoastrooms.com were, in fact, staying at Verimark-branded hotels and receiving all Verimark brand amenities, including the Verimark loyalty-program benefits to which they were entitled. (Kerrigan Dep. 48:3–49:11.) Revenues generated through gulfcoastrooms.com were collected by Suncoast and were not reported to Verimark as part of GRR. (Id. at 49:12–50:8.)
Suncoast's "Management Fee." Suncoast retained a 12% "management fee" on all revenues it collected before remitting the balance to property-level entities, including Gulf Breeze Hospitality LLC (which held certain Florida properties) and Savannah Lodging Partners LLC (which held the Georgia properties). (Ex. 52 (Suncoast Management Services Agreement, dated January 1, 2013); Brecker Dep. Day 1, 102:8–104:16.) Neither the gross revenues collected by Suncoast nor the 12% management fee retained by Suncoast were included in the GRR reports submitted to Verimark. (Kerrigan Dep. 50:9–51:14; SUMF ¶ 41.)
Direction to Exclude Suncoast Revenues from GRR Reports. Janet Kerrigan served as Regional Controller for Coastal Palms from March 2010 until her termination in October 2021. (Kerrigan Dep. 10:3–11:8.) Ms. Kerrigan testified at length regarding the instructions she received from Brecker concerning the treatment of Suncoast-collected revenues:
Q: Did Mr. Brecker give you instructions regarding how to report revenues collected by Suncoast to Verimark?
A: Yes. When Suncoast was set up in early 2013, Mr. Brecker told me and the other controllers that Suncoast revenues were not to be included in the monthly GRR reports we sent to Verimark. He said that Suncoast was a separate company and that Verimark's royalties were based on what Coastal Palms collected, not what Suncoast collected.
Q: Did you understand that to be correct?
A: I had concerns about it. I raised the issue with Mr. Brecker more than once. He told me it was none of my concern and that his lawyers had approved it.
(Kerrigan Dep. 52:7–53:5.) Ms. Kerrigan's testimony is corroborated by ten property-level managers and accountants who testified in depositions taken between January and March 2023. Each confirmed receiving direction from "corporate"—understood to be Brecker—to route walk-in and corporate-direct bookings through Suncoast and to exclude those revenues from GRR reports submitted to Verimark. (See, e.g., Alvarez Dep. 28:14–30:6 (front-desk manager, Naples Property); Chen Dep. 44:8–46:2 (property accountant, Tampa Property); Rodriguez Dep. 19:22–21:15 (general manager, Jacksonville Property); Thompson Dep. 33:7–35:19 (property accountant, Savannah Property).)
Brecker himself admitted in deposition that he directed controllers to exclude Suncoast revenues from GRR reports:
Q: Did you instruct your controllers to exclude revenues collected by Suncoast Room Management from the Gross Room Revenue figures reported to Verimark?
A: I told them that Suncoast was a separate entity and that our reporting obligation to Verimark was based on our revenue—Coastal Palms' revenue.
Q: So the answer is yes?
A: I suppose so, if you want to characterize it that way.
(Brecker Dep. Day 1, 108:3–108:16.)
OTA Revenue Netting. In addition to the Suncoast diversion, the evidence establishes that Coastal Palms systematically underreported revenues received through online travel agencies ("OTAs") such as Aldermere Technologies, Bramwell Holdings, and Drayton Software. Coastal Palms classified net-rate OTA payments—i.e., the amount received from the OTA after the OTA's commission—as "commissions receivable" and netted them against GRR, rather than reporting the gross room rate paid by the guest. (Kerrigan Dep. 62:3–64:18; Kettlewell Report, § 5.3.) This practice violated the GRR definition in § 4.1, which requires reporting of "all revenues derived from or attributable to the rental of guest rooms," not net-of-commission amounts. (Id.; FLA-001, § 4.1.)
discovery of the Scheme. On November 8, 2021, approximately three weeks after her termination from Coastal Palms, Janet Kerrigan contacted Verimark's compliance hotline and reported the revenue diversion scheme. (Kerrigan Dep. 72:14–73:22; Ex. 53 (Verimark compliance hotline log, entry dated Nov. 8, 2021).) Ms. Kerrigan provided Verimark with an overview of the Suncoast arrangement, the existence and purpose of gulfcoastrooms.com, and the OTA revenue-netting practice. (Id.)
Upon receiving Ms. Kerrigan's report, Verimark retained Thornbury & Associates CPAs LLP ("Thornbury") on November 22, 2021, to conduct a franchise-compliance audit of the Coastal Palms portfolio pursuant to FLA § 8.2. (Ex. 54 (Thornbury engagement letter, dated Nov. 22, 2021).) Verimark provided the requisite 10 business days' written notice to Coastal Palms on November 23, 2021. (Ex. 55 (audit notice letter, dated Nov. 23, 2021).) Coastal Palms initially cooperated with the audit but withheld all Suncoast financial records, stating that Suncoast was a "separate entity" not subject to the FLA's audit provisions. (Ex. 56 (Whitfield, Barrow & Crane LLP letter to Thornbury, dated Dec. 14, 2021).)
Thornbury delivered its preliminary findings to Verimark on January 18, 2022. (Ex. 57 (Thornbury Preliminary Audit Report).) Based on available records (excluding Suncoast records, which had been withheld), Thornbury concluded that the audited properties had underreported GRR by approximately 26% for the three-year period 2019 through 2021. (Id. at 12–14.)
Ridgeline Forensic Advisory LLC's Analysis. To conduct a comprehensive forensic analysis, Verimark retained Ridgeline Forensic Advisory LLC and its lead expert, Dr. Sharon Kettlewell, CPA/CFF, CFE. (Ex. 58 (Ridgeline engagement letter, dated Feb. 15, 2022).) Dr. Kettlewell reviewed over 396,000 documents produced in this litigation—including the Suncoast records produced after this Court's October 28, 2022 order granting Verimark's Motion to Compel—along with bank statements, credit-card processing records, property-management-system data, OTA settlement reports, tax returns, and loan applications. (Kettlewell Report, §§ 2.1–2.3.)
Dr. Kettlewell's expert report, served April 14, 2023, established total underreported GRR of $197.8 million across all 22 properties from 2013 through 2021. (Kettlewell Report, § 6.1, Table 6-A.) The underreporting percentage ranged from 22% to 31% across properties and fiscal years. (Id., § 6.2, Table 6-B.) For fiscal year 2021 alone, Coastal Palms reported GRR of $112.4 million, while the estimated true GRR was $145.6 million—a shortfall of $33.2 million, or approximately 29.5%. (Id., § 6.1.)
Dr. Kettlewell calculated the resulting underpayments as follows:
(Kettlewell Report, § 7, Table 7-A.)
Ironclad National Bank Loan Applications. Through a subpoena duces tecum served on Ironclad National Bank on August 8, 2022, Verimark obtained copies of loan applications and financial statements submitted by Coastal Palms and its affiliated entities in connection with acquisition and refinancing loans for several of the franchised properties. (Ex. 59 (Ironclad subpoena); Exs. 60–67 (loan applications and financial statements, various dates 2015–2021).) These documents reveal that Coastal Palms reported significantly higher GRR figures to Ironclad than it simultaneously reported to Verimark. For example, for fiscal year 2019, Coastal Palms reported GRR of $98.7 million to Verimark but reported GRR of $131.2 million to Ironclad—a difference of $32.5 million. (Ex. 63 (Ironclad loan application, dated March 2020); SUMF ¶ 55.) This discrepancy is consistent with Dr. Kettlewell's findings and conclusively undermines any claim by Defendants that they adopted a good-faith "reasonable interpretation" of the GRR definition. A party that reports one set of revenue numbers to its lender and a materially different set of revenue numbers to its franchisor is not acting under any reasonable interpretation—it is deliberately manipulating its reporting to minimize royalty obligations.
C. Pre-Suit Demand and Failure to Cure
On February 4, 2022, Verimark issued a formal Notice of Material Breach to Coastal Palms pursuant to FLA § 14.1. (Ex. 68 (Notice of Material Breach, dated Feb. 4, 2022).) The Notice identified the systematic underreporting of GRR through the Suncoast arrangement and the OTA revenue-netting practice, cited the Thornbury preliminary audit findings, demanded immediate cure (including full payment of all underpaid amounts with interest), and reserved Verimark's right to terminate all 22 FLAs pursuant to § 14.2(c) in the event of failure to cure. (Id.)
On February 28, 2022, Whitfield, Barrow & Crane LLP responded on behalf of Coastal Palms, denying that any material breach had occurred. (Ex. 69 (Whitfield response letter, dated Feb. 28, 2022).) The letter asserted that Suncoast revenues were "properly excluded" from GRR under a "reasonable interpretation" of the FLA, arguing that the GRR definition applied only to revenues collected by the franchisee itself and that Suncoast was a separate corporate entity. (Id. at 2–3.) The letter did not address the OTA revenue-netting issue. (Id.) No cure was tendered with the letter, and no payment of any kind was made. (Id.; SUMF ¶ 58.)
The 30-day cure period provided under FLA § 14.1 expired on March 6, 2022, with no cure tendered and no further communication from Defendants. (SUMF ¶ 59.)
D. Procedural History
Verimark filed its ten-count Complaint in this Court on March 7, 2022, the day after the expiration of the cure period. (Dkt. 1.) The Complaint asserts the following claims: Count I — Breach of Contract (Royalties); Count II — Breach of Contract (Marketing Fund Contributions); Count III — Breach of Contract (Technology Fees); Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing; Count V — Fraudulent Concealment; Count VI — Negligent Misrepresentation; Count VII — Unjust Enrichment (Alternative); Count VIII — Declaratory Judgment (FLA Termination); Count IX — Accounting; and Count X — Civil Conspiracy (Brecker & Suncoast). (Id.)
On April 18, 2022, Coastal Palms filed its Answer, Affirmative Defenses, and Counterclaim. (Dkt. 18.) The Counterclaim asserts a single count seeking $12 million in damages for Verimark's alleged failure to maintain brand standards and alleged over-billing of certain centralized-services charges. (Id.) Verimark answered the Counterclaim on May 2, 2022, denying all allegations and asserting affirmative defenses. (Dkt. 22.)
An initial Case Management Conference was held before the Honorable Judge Patricia A. Calloway on June 14, 2022. (Dkt. 31.) The Court entered a Case Management Order setting discovery deadlines and originally scheduling trial for February 2024. (Id.)
The parties engaged in extensive fact discovery over the following thirteen months. Verimark served its first set of discovery on July 11, 2022, consisting of 25 interrogatories and 147 requests for production directed to all three Defendants. (Dkt. 35.) Defendants produced an initial set of approximately 84,000 documents on August 22, 2022. (Dkt. 42.) The initial production, however, did not include any financial records of Suncoast Room Management Inc., notwithstanding that Suncoast was a named defendant and that the requests for production expressly sought Suncoast's financial records.
On September 15, 2022, Verimark filed a Motion to Compel production of Suncoast's financial records, arguing that the records were directly relevant to the core claims and that Suncoast had waived any objections by failing to assert a timely privilege log. (Dkt. 48.) Following briefing and a hearing, the Court granted the Motion to Compel on October 28, 2022, ordering production of all Suncoast financial records, bank statements, and booking records within 14 days. (Dkt. 56.) Defendants produced a supplemental set of approximately 312,000 documents—primarily Suncoast records—on November 18, 2022. (Dkt. 61.)
Fourteen fact depositions were taken between January 9 and March 17, 2023. These included two full days of deposition testimony from Randall Brecker (January 9 and January 11, 2023), one day each from Theresa Brecker (Brecker's spouse and Coastal Palms employee) (January 18, 2023) and Nolan Prescott (Coastal Palms' CFO) (January 25, 2023), one day from Janet Kerrigan (February 3, 2023), and depositions of ten property-level managers and accountants across the 22 properties (various dates in February and March 2023). (Dkt. 74–87.)
Expert reports were served in accordance with the Case Management Order. Verimark served Dr. Kettlewell's expert report on April 14, 2023. (Dkt. 92.) Defendants served the expert report of Prof. Grant Hargrove, PhD, CPA, of Hargrove Economic Consulting Inc., on May 15, 2023. (Dkt. 98.) Verimark served Dr. Kettlewell's rebuttal report on June 9, 2023. (Dkt. 103.) Expert depositions of Dr. Kettlewell and Prof. Hargrove were conducted on June 26 and 27, 2023, respectively. (Dkt. 107, 108.)
Discovery closed on August 4, 2023. (Dkt. 31 (Case Management Order).) Verimark filed its Motion for Partial Summary Judgment on Counts I and II on September 29, 2023. (Dkt. 118.) Defendants filed the present Cross-Motion for Summary Judgment on October 13, 2023. (Dkt. 122.)
III. LEGAL STANDARD
Under Florida Rule of Civil Procedure 1.510, as amended effective May 1, 2021, a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fla. R. Civ. P. 1.510(a). The 2021 amendment adopted the federal summary judgment standard set forth in Celotex Corp. v. Catrett, 477 U.S. 317 (1986), and Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). See In re Amendments to Florida Rule of Civil Procedure 1.510, 317 So. 3d 1040 (Fla. 2021).
The party moving for summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323; Volusia Cnty. v. Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000). A "genuine" dispute exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. A "material" fact is one that "might affect the outcome of the suit under the governing law." Id.
In evaluating a motion for summary judgment, the court must view all facts and draw all reasonable inferences in the light most favorable to the non-moving party. Id. at 255; Duval Motors Co. v. Rogers, 73 So. 3d 261, 264 (Fla. 1st DCA 2011). The court may not weigh evidence, assess credibility, or resolve conflicting inferences. Anderson, 477 U.S. at 249, 255. "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id. at 255.
Summary judgment has long been recognized as "a drastic remedy" that "should be cautiously granted." Moore v. Morris, 475 So. 2d 666, 668 (Fla. 1985); Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equip. Co., 374 So. 2d 487, 490 (Fla. 1979). This principle is especially applicable in complex commercial disputes that involve issues of intent, knowledge, motive, and credibility—all of which are present here. See Volusia Cnty., 760 So. 2d at 131 ("The more complex the underlying facts and the more sharply the parties disagree, the less likely it is that a court can resolve the matter on summary judgment.").
Where, as here, the non-movant opposes summary judgment by presenting affirmative evidence creating genuine disputes of material fact, the motion must be denied and the case must proceed to trial. See Anderson, 477 U.S. at 250–51. The non-movant need not prove its case at the summary judgment stage; it need only demonstrate that there is a genuine issue for trial. Id. at 248–49.
IV. ARGUMENT
A. Defendants Are Not Entitled to Summary Judgment on Count I (Breach of Contract — Royalties) or Count II (Breach of Contract — Marketing Fund)
Counts I and II allege that Coastal Palms breached its obligations under FLA §§ 4.1 and 4.2 by systematically underreporting GRR and thereby underpaying royalties and marketing-fund contributions over a nine-year period. The Cross-Motion seeks summary judgment on these counts on the theory that the GRR definition is "ambiguous" and that Defendants adopted a "reasonable interpretation" of the contract in good faith. This argument is meritless. The GRR definition is unambiguous, the record establishes systematic underreporting as a matter of undisputed fact, and Defendants' purported "reasonable interpretation" defense is contradicted by their own conduct.
1. The GRR Definition in FLA § 4.1 Is Unambiguous. The threshold question on Counts I and II is whether the GRR definition in FLA § 4.1 is ambiguous. It is not. Under Florida law, a contract term is ambiguous only if it is "susceptible to more than one reasonable interpretation." Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So. 2d 1216, 1223 (Fla. 2006). The court must first examine the plain language of the contract and determine whether it is clear on its face. See id. "When a contract is clear and unambiguous, the court must interpret it according to its plain terms, without resort to rules of construction or extrinsic evidence." Id.; see also Lake Gateway Motor Inn, Inc. v. Matt's Sunshine Gift Shops, Inc., 361 So. 2d 769, 771 (Fla. 4th DCA 1978).
Section 4.1 defines GRR as:
"all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any booking channel, direct or indirect, and regardless of the entity collecting such revenue."
(FLA-001, § 4.1 (emphasis added).)
Every operative phrase in this definition reinforces the breadth of the GRR concept. The word "all" is the broadest term of inclusion in the English language. The phrase "derived from or attributable to" captures revenues that may not be directly derived from guest-room rentals but are nevertheless attributable to such rentals—such as revenues collected by an intermediary entity. The phrase "any booking channel, direct or indirect" ensures that the definition encompasses revenues from every conceivable reservation source, including walk-ins, corporate-direct bookings, OTA bookings, and third-party website bookings. And the phrase "regardless of the entity collecting such revenue" is a belt-and-suspenders provision that eliminates any argument that revenues are excluded from GRR merely because they are collected by a corporate entity other than the franchisee itself.
It is this final clause—"regardless of the entity collecting such revenue"—that is dispositive. Defendants' entire theory rests on the proposition that revenues collected by Suncoast, a separate corporate entity, are not encompassed by the GRR definition because Suncoast, not Coastal Palms, collected them. But § 4.1 expressly forecloses this argument. The phrase "regardless of the entity collecting such revenue" was specifically drafted to prevent the maneuver Defendants undertook. To hold otherwise would be to read this phrase out of the contract entirely, in violation of the cardinal rule of contract interpretation that courts must give effect to every provision and render none superfluous. See Angrand v. Key, 657 So. 2d 1146, 1148 (Fla. 1995) ("[A]ll parts of a contract should be given meaning, so that none of its provisions is rendered meaningless.").
Florida courts have consistently applied these principles in the franchise context. In Burger King Corp. v. Ashland Equities, Inc., 181 F. Supp. 2d 1366, 1372 (S.D. Fla. 2002), the court enforced a gross-revenue definition in a franchise agreement that included "all receipts from operations at the Restaurant," rejecting the franchisee's attempt to exclude revenues from catering operations that were nominally conducted through a separate subsidiary. The court held that the franchise agreement's "all receipts" language was unambiguous and that the franchisee could not "circumvent its royalty obligations by channeling revenues through a corporate alter ego." Id. The reasoning in Ashland Equities applies with even greater force here, where the GRR definition goes beyond "all receipts" to include the explicit "regardless of the entity collecting such revenue" clause—a provision that was plainly designed to prevent the very kind of entity-based revenue diversion at issue in this case.
Similarly, the leading treatise on franchise law recognizes that gross-revenue definitions in franchise agreements are to be broadly construed. See 2 Harold Brown, Franchising: Realities & Remedies § 13.05 (rev. ed. 2023) ("Where a franchise agreement defines 'gross revenue' to include all revenue from the franchised operations, courts have consistently rejected attempts by franchisees to narrow the definition through the use of intermediate entities or non-standard booking channels."). Professor Brown specifically identifies the practice of routing revenues through a management company to avoid royalty obligations as a form of franchise-fee evasion. Id. § 13.05[3].
Defendants' assertion of ambiguity rests on a single, untenable premise: that the GRR definition should be read to encompass only revenues collected directly by the franchisee entity, i.e., Coastal Palms itself. This reading requires the Court to ignore the words "regardless of the entity collecting such revenue." It also requires the Court to ignore the phrase "any booking channel, direct or indirect," which unmistakably encompasses bookings made through gulfcoastrooms.com, a website that directed guests to Verimark-branded hotel rooms. Defendants' proposed reading is not a "reasonable interpretation"—it is a rewriting of the contract.
Defendants also point to the fact that Suncoast was identified in certain property-management agreements submitted to Verimark during the franchise-application process as evidence that Verimark was aware of Suncoast's existence and implicitly consented to the exclusion of Suncoast-collected revenues from GRR. This argument conflates two distinct concepts. Verimark's awareness that Suncoast existed as a management company does not equate to Verimark's consent to exclude Suncoast-collected revenues from GRR reporting. The FLA's GRR definition controls the reporting obligations, not the franchise-application documents. Nothing in the franchise-application materials purports to modify, limit, or waive any provision of the FLAs. And the FLAs themselves contain a standard integration clause providing that the FLA "constitutes the entire agreement between the parties and supersedes all prior agreements, representations, and understandings, whether oral or written." (FLA-001, § 21.4.) Defendants cannot use franchise-application materials to contradict or vary the clear terms of the integrated FLAs. See Cives Corp. v. Callier Steel Pipe & Tube, Inc., 482 So. 2d 1369, 1371 (Fla. 4th DCA 1986) (parol evidence inadmissible to vary terms of integrated contract).
In sum, the GRR definition in FLA § 4.1 is clear and unambiguous. It encompasses all revenues from guest-room rentals, regardless of the entity collecting them. Defendants' attempt to manufacture ambiguity in order to justify their revenue-diversion scheme is foreclosed by the plain language of the contract and by governing Florida law.
2. The Record Establishes Systematic Underreporting as a Matter of Undisputed Fact. Even if the Court were to move beyond the threshold question of contract interpretation and examine the factual record, the evidence of systematic underreporting is overwhelming and largely undisputed. The Cross-Motion does not—and cannot—contest the core facts that underpin Counts I and II.
Brecker's Deposition Admissions. Randall Brecker sat for two full days of deposition on January 9 and January 11, 2023. Over the course of those two days, Brecker made the following admissions:
• He personally directed controllers to exclude Suncoast-collected revenues from the monthly GRR reports submitted to Verimark. (Brecker Dep. Day 1, 108:3–108:16.)
• He formed Suncoast Room Management Inc. in December 2012 and served as its president, sole director, and majority shareholder at all relevant times. (Brecker Dep. Day 1, 87:11–89:5.)
• He was aware that Suncoast collected revenues from walk-in guests, corporate-direct bookings, and gulfcoastrooms.com bookings across all 22 franchised properties. (Brecker Dep. Day 1, 96:14–104:16.)
• He approved the 12% management fee retained by Suncoast on revenues collected. (Brecker Dep. Day 1, 104:17–105:8.)
• He never disclosed to Verimark that Suncoast was collecting guest-room revenues or that those revenues were being excluded from GRR reports. (Brecker Dep. Day 2, 47:3–48:12.)
These admissions, standing alone, are sufficient to establish breach of the GRR reporting obligations under FLA §§ 4.1 and 4.2.
Kerrigan's Testimony. Janet Kerrigan, Coastal Palms' former Regional Controller, testified in detail regarding the mechanics of the revenue diversion and the instructions she received from Brecker. Ms. Kerrigan confirmed that she and other controllers were directed to route walk-in and corporate-direct bookings through Suncoast and to exclude the resulting revenues from GRR reports. (Kerrigan Dep. 34:7–36:22, 52:7–53:5.) She further testified that she raised concerns about this practice with Brecker on multiple occasions and was told that "it was none of my concern" and that Brecker's lawyers had approved it. (Kerrigan Dep. 53:1–5.)
Property-Level Testimony. Ten property-level managers and accountants, deposed between February and March 2023, corroborated the pattern of underreporting. Each testified to receiving instructions from "corporate" (understood to be Brecker or his designees) to process walk-in and corporate-direct bookings through Suncoast and to exclude those bookings from the revenue reports used to calculate GRR for Verimark. (See § II.B, supra, citing depositions of Alvarez, Chen, Rodriguez, Thompson, and others.)
Dr. Kettlewell's Expert Analysis. Dr. Kettlewell's forensic analysis quantifies the underreporting with precision. Based on her review of Suncoast's financial records, bank statements, credit-card processing records, property-management-system data, and OTA settlement reports, Dr. Kettlewell determined that Defendants underreported GRR by $197.8 million across all 22 properties from 2013 through 2021. (Kettlewell Report, § 6.1, Table 6-A.) The resulting underpayments include $9.89 million in unpaid royalties (5% × $197.8 million) and $4.945 million in unpaid marketing-fund contributions (2.5% × $197.8 million). (Id., § 7, Table 7-A.)
Defendants have not disputed the underlying data on which Dr. Kettlewell relied. Their expert, Prof. Hargrove, disputes only the scope of the GRR definition—i.e., whether certain categories of revenue (such as walk-in cash payments) are properly included in GRR—not the existence of the underreporting or the accuracy of the revenue data. (Hargrove Report, § 4.1.) Prof. Hargrove's disagreement with Dr. Kettlewell on the scope of GRR is a question of contract interpretation that, as set forth above, is resolved by the plain language of § 4.1. It is not a factual dispute that creates a genuine issue for trial on behalf of Defendants seeking summary judgment.
In short, the evidence establishes—indeed, Defendants' own witnesses confirm—that Coastal Palms systematically excluded Suncoast-collected revenues from GRR reports over a nine-year period, resulting in massive underpayments of royalties and marketing-fund contributions. Defendants' Cross-Motion on Counts I and II must be denied.
3. Defendants' "Reasonable Interpretation" Defense Is Meritless. Defendants devote the bulk of their Cross-Motion memorandum to the argument that even if their interpretation of the GRR definition ultimately proves incorrect, they adopted a "reasonable interpretation" of the contract in good faith and therefore cannot be held liable for breach. This argument fails for multiple independent reasons.
First, the "reasonable interpretation" defense presupposes ambiguity. As demonstrated above, the GRR definition in § 4.1 is unambiguous. Where a contract provision is unambiguous, there is no room for competing "reasonable interpretations." The contract means what it says, and a party's unilateral decision to disregard the contract's plain terms is a breach, not a good-faith interpretation. See Ryder Truck Rental, Inc. v. Central Packing Co., 341 So. 2d 803, 805 (Fla. 3d DCA 1977) ("When the provisions of a contract are clear and unambiguous, the parties are bound by those provisions regardless of their own subjective interpretation."); Huckel v. First Federal Sav. & Loan Ass'n of DeLand, 394 So. 2d 1024, 1026 (Fla. 5th DCA 1981) (same).
Second, even if the GRR definition were somehow ambiguous (which it is not), Defendants cannot demonstrate that they adopted their purported "reasonable interpretation" in good faith. The doctrine of contra proferentem—which Defendants invoke in their Cross-Motion—is a doctrine of last resort that applies only when a contract provision remains genuinely ambiguous after all other rules of construction have been exhausted. See Angrand, 657 So. 2d at 1148; Dadeland Depot, 945 So. 2d at 1224. Here, the plain language of § 4.1 admits of only one reasonable reading, making contra proferentem inapplicable.
Third, the evidence in the record affirmatively negates any claim of good-faith interpretation. The hallmark of a good-faith interpretation is consistency: a party that genuinely believes a contract term has a particular meaning applies that meaning uniformly across all contexts. Here, the record demonstrates the opposite. Coastal Palms reported higher GRR figures to Ironclad National Bank in loan applications than it simultaneously reported to Verimark. (Exs. 60–67; SUMF ¶ 55.) For fiscal year 2019, the discrepancy was $32.5 million—Coastal Palms reported GRR of $98.7 million to Verimark and $131.2 million to Ironclad. (Ex. 63.) If Defendants truly believed that Suncoast-collected revenues were properly excluded from GRR, one would expect them to exclude those revenues from their bank reports as well. Instead, they included those revenues when doing so served their financial interests (obtaining favorable loan terms) and excluded them when doing so served their financial interests (minimizing royalty obligations). This is not the conduct of a party acting under a good-faith interpretation of an ambiguous contract term. It is the conduct of a party deliberately manipulating its reporting to achieve whatever result benefits it in a given context.
Fourth, Defendants' own internal documents undermine the "reasonable interpretation" defense. Ex. 47, a Suncoast internal memorandum dated January 14, 2013, authored by Nolan Prescott (Coastal Palms' CFO) and addressed to "All Property Controllers," states:
"Effective immediately, all walk-in reservations and corporate-direct bookings are to be processed through Suncoast Room Management Inc. These bookings should not be included in the monthly revenue reports submitted to Verimark. If Verimark compliance auditors inquire about booking sources, refer them to corporate."
(Ex. 47 (emphasis added).) This memorandum does not reflect a good-faith interpretation of an ambiguous contract provision. It reflects a deliberate plan to conceal revenues from the franchisor. The instruction to "not include" the bookings in Verimark reports, combined with the instruction to deflect auditor inquiries to "corporate," bespeaks concealment, not interpretation.
Fifth, Brecker's own deposition testimony reveals that the purported "reasonable interpretation" was never developed in good faith or based on legal analysis at the time the Suncoast arrangement was implemented. When asked whether he consulted with counsel before directing controllers to exclude Suncoast revenues from GRR reports, Brecker testified:
Q: Before you instructed your controllers to exclude Suncoast revenues from the GRR reports, did you consult with an attorney about whether that was permitted under the franchise agreements?
A: I don't recall specifically consulting with an attorney about that specific issue.
Q: Did you read the franchise agreement's definition of Gross Room Revenue before directing that Suncoast revenues be excluded?
A: I may have read it at some point, but I don't recall specifically reading it in connection with the Suncoast arrangement.
(Brecker Dep. Day 2, 52:8–53:2.) A party who cannot recall whether he even read the relevant contract provision before adopting his supposed "reasonable interpretation" cannot credibly claim to have acted in good faith.
For all of these reasons, Defendants' "reasonable interpretation" defense is meritless. It cannot support summary judgment in their favor on Counts I or II, and the Cross-Motion should be denied as to these counts.
B. Defendants Are Not Entitled to Summary Judgment on Count III (Breach of Contract — Technology Fees)
Count III alleges that Coastal Palms breached FLA § 4.3 by failing to pay technology fees on 214 rooms that were added to four properties during the franchise term without providing required notice to Verimark. The Cross-Motion seeks summary judgment on the ground that § 4.3 defines "available rooms" as the room count specified at the time of FLA execution and does not encompass subsequently added rooms. This argument fails.
The record establishes that between 2014 and 2019, Coastal Palms added a total of 214 guest rooms across four properties: the Tampa Verimark Suites (62 rooms added, 2014), the Orlando South Verimark Suites (48 rooms added, 2016), the Jacksonville Verimark Select (54 rooms added, 2017), and the Ft. Myers Verimark Suites (50 rooms added, 2019). (Kettlewell Report, § 5.4, Table 5-D; Langston Dep. 82:4–84:16.) Coastal Palms did not notify Verimark of these room additions and did not adjust its technology-fee payments to reflect the increased room counts. (Langston Dep. 84:17–85:22; Kettlewell Report, § 5.4.)
The resulting underpayment of technology fees is approximately $1.26 million, calculated as 214 rooms multiplied by $12.50 per room per month (as adjusted for CPI) multiplied by an average of approximately 47 months per room. (Kettlewell Report, § 7, Table 7-A.)
Defendants do not dispute the number of rooms added or the fact that they did not notify Verimark. (Defs.' Cross-Mot. at 34–35.) Instead, they argue that § 4.3 uses the term "available rooms" and that this term was defined at the time of each FLA's execution by reference to the property's then-existing room count. They contend that subsequently added rooms are not "available rooms" within the meaning of § 4.3 and that no technology fee is owed on those rooms. (Id.)
This interpretation is inconsistent with the text and structure of § 4.3. The technology fee is calculated on a per-room, per-month basis—a formula that inherently contemplates ongoing calculation as room inventories change. Moreover, § 4.3 incorporates an annual CPI-adjustment mechanism, further demonstrating that the parties intended the technology fee to be recalculated on an ongoing basis rather than fixed at the time of execution. A fixed-room-count interpretation would render the CPI-adjustment mechanism partially superfluous, as the purpose of such an adjustment is to keep a recurring charge current.
Furthermore, FLA § 6.2 imposes an independent obligation on the franchisee to "promptly notify Verimark of any material changes to the Hotel, including . . . changes to the number of available rooms." (FLA-001, § 6.2.) The notification obligation would be pointless if changes to the room count had no impact on the franchisee's fee obligations.
At a minimum, a genuine dispute of material fact exists regarding the proper interpretation of § 4.3 and the scope of the technology-fee obligation. This dispute precludes summary judgment in Defendants' favor on Count III.
C. Defendants Are Not Entitled to Summary Judgment on Count IV (Breach of Implied Covenant of Good Faith and Fair Dealing)
Count IV alleges that Defendants breached the implied covenant of good faith and fair dealing by deliberately diverting revenues through Suncoast, concealing the diversion through the unbranded gulfcoastrooms.com website, and netting OTA revenues—all with the purpose of depriving Verimark of the benefit of its bargain under the FLAs.
Under Florida law, every contract includes an implied covenant of good faith and fair dealing. See QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass'n, Inc., 94 So. 3d 541, 548 (Fla. 2012). "The implied covenant of good faith and fair dealing is designed to protect the reasonable expectations of the contracting parties." Cox v. CSX Intermodal, Inc., 732 So. 2d 1092, 1098 (Fla. 1st DCA 1999). "A breach of the implied covenant occurs when a party acts in such a way as to destroy or injure the right of the other party to receive the benefits of the contract." Id. Florida courts have recognized implied-covenant claims in the franchise context. See, e.g., Burger King Corp. v. Ashland Equities, Inc., 181 F. Supp. 2d at 1374 (recognizing implied-covenant claim against franchisee that concealed revenues); Okeechobee Resorts, L.L.C. v. E.Z. Ben Assocs., Inc., 31 So. 3d 834, 839 (Fla. 4th DCA 2010).
Defendants argue that Count IV should be dismissed as duplicative of the breach-of-contract claims in Counts I through III. Under Florida law, however, a breach-of-implied-covenant claim is not duplicative of a breach-of-express-terms claim where the implied-covenant claim rests on distinct conduct beyond the mere failure to perform. See QBE Ins. Corp., 94 So. 3d at 548 n.7; Okeechobee Resorts, 31 So. 3d at 839.
Here, Count IV rests on conduct that goes beyond the mere failure to pay royalties and marketing-fund contributions. It rests on the deliberate creation and use of Suncoast as a vehicle for revenue diversion, the affirmative concealment of the gulfcoastrooms.com website and its function as a booking channel for Verimark-branded rooms, the intentional netting of OTA revenues to reduce reported GRR, and the active deception of Verimark's compliance auditors by directing inquiries to "corporate" rather than disclosing the true scope of booking channels. This conduct goes to the heart of the implied covenant: Defendants affirmatively acted to destroy Verimark's right to receive the benefits of the FLAs. A reasonable factfinder could conclude that Defendants' conduct constituted bad faith independent of, and in addition to, the contractual breaches alleged in Counts I through III.
The evidence supporting Count IV—including Brecker's deposition admissions, the Prescott memorandum (Ex. 47), Kerrigan's testimony regarding instructions to conceal information from auditors, and the dual-reporting scheme revealed by the Ironclad bank records—creates genuine issues of material fact that preclude summary judgment for Defendants.
D. Defendants Are Not Entitled to Summary Judgment on Count V (Fraudulent Concealment)
Count V alleges that Defendants fraudulently concealed the Suncoast revenue-diversion scheme and the true scope of GRR from Verimark. Under Florida law, the elements of fraudulent concealment are: (1) the defendant had a duty to disclose a material fact; (2) the defendant concealed or failed to disclose the fact; (3) the defendant intended to induce reliance on the non-disclosure; (4) the plaintiff actually and justifiably relied on the non-disclosure; and (5) the plaintiff suffered damages as a result. See Greenfield v. Manor Care Inc., 705 So. 2d 926, 930 (Fla. 4th DCA 1997); Restatement (Second) of Torts § 551 (Am. L. Inst. 1977).
Duty to Disclose. The FLA's reporting obligations created a clear duty to disclose. Section 4.1 required Coastal Palms to report accurate GRR to Verimark each month. Section 8.2 required Coastal Palms to maintain books and records sufficient to permit a full and complete audit. These contractual obligations gave rise to a duty of disclosure that extends beyond mere contractual compliance to encompass the duty not to affirmatively conceal information. See Diplomat Props. Ltd. P'ship v. Tecnoglass, LLC, 114 So. 3d 357, 363 (Fla. 4th DCA 2013) (contractual reporting obligations can give rise to a duty to disclose supporting a fraudulent-concealment claim).
Concealment. The evidence establishes that Defendants did not merely fail to report Suncoast-collected revenues; they affirmatively concealed the existence of the Suncoast revenue-collection arrangement and the gulfcoastrooms.com website. The Prescott memorandum (Ex. 47) instructed controllers not to include Suncoast bookings in Verimark reports and to refer auditor inquiries to "corporate." The gulfcoastrooms.com website was deliberately unbranded to avoid detection by Verimark's brand-compliance monitoring systems. Brecker never disclosed to Verimark that Suncoast was collecting guest-room revenues. (Brecker Dep. Day 2, 47:3–48:12.)
Intent. Brecker's direction to exclude Suncoast revenues, combined with the concealment of the gulfcoastrooms.com website and the instruction to deflect auditor inquiries, creates a strong inference of intent to induce Verimark's continued reliance on the false GRR reports. See Diplomat Props., 114 So. 3d at 363–64 (intent to deceive may be inferred from the totality of circumstances). Kerrigan's testimony that Brecker told her concerns were "none of [her] concern" further supports the inference that Brecker knew the arrangement was improper and intended to maintain the deception.
Reliance and Damages. Whether Verimark reasonably relied on the false GRR reports and the extent of damages attributable to the fraudulent concealment are quintessential questions of fact for the jury. Verimark relied on the monthly GRR reports to calculate royalty payments, to evaluate franchise performance, and to make business decisions regarding the franchise relationship. (Langston Dep. 95:8–97:14.) The fact that Verimark did discover the scheme until Kerrigan's November 2021 whistleblower report—nine years after the scheme began—is itself evidence of the effectiveness of the concealment and the reasonableness of Verimark's reliance.
The Economic-Loss Rule Does Not Bar Count V. Defendants argue that the economic-loss rule bars Verimark's fraudulent-concealment claim because it arises from the same conduct as the breach-of-contract claims. This argument misapprehends the scope of the economic-loss rule as interpreted by the Florida Supreme Court.
In Tiara Condominium Ass'n v. Granite Harbor Benefit Group., 110 So. 3d 399, 407 (Fla. 2013), the Florida Supreme Court narrowed the economic-loss rule to its original scope, holding that the rule applies only in the products-liability context. The Court stated: "We hold that the economic loss rule applies only in the products liability context." Id. After Tiara, the economic-loss rule does not bar tort claims arising from a contractual relationship outside the products-liability context. See id.; see also HTP Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238, 1239 (Fla. 1996) (recognizing exception to economic-loss rule for fraudulent inducement and fraudulent concealment independent of the contract, decided pre-Tiara).
Even before Tiara, Florida courts recognized an exception to the economic-loss rule for claims of fraudulent concealment that are "independent" of the contract. See Indemnity Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 543 (Fla. 2004); HTP Ltd., 685 So. 2d at 1239. Here, the fraudulent-concealment claim is based on Defendants' affirmative acts of deception—creating the unbranded gulfcoastrooms.com website, directing controllers to conceal the Suncoast arrangement, and instructing them to deflect auditor inquiries—that go beyond the mere failure to perform contractual obligations. These are independent torts giving rise to independent liability. The economic-loss rule does not apply.
At a minimum, whether the fraudulent-concealment claim is cognizable as an independent tort presents a genuine issue of fact and law that cannot be resolved on summary judgment. The Cross-Motion should be denied as to Count V.
E. Defendants Are Not Entitled to Summary Judgment on Count VI (Negligent Misrepresentation)
Count VI alleges that Defendants negligently misrepresented the GRR of the franchised properties by submitting monthly reports that understated GRR by 22% to 31%. Under Florida law, negligent misrepresentation requires: (1) a misrepresentation of material fact; (2) the maker knew or should have known the statement was false; (3) the maker intended to induce the plaintiff to act in reliance on the misrepresentation; and (4) the plaintiff suffered injury in justifiable reliance on the misrepresentation. See Harris v. Nordyne, LLC, 14 So. 3d 1189, 1191 (Fla. 4th DCA 2009); Restatement (Second) of Torts § 552 (Am. L. Inst. 1977).
Florida recognizes negligent misrepresentation as a cause of action separate from both breach of contract and fraud. See Snow v. Ruden, McClosky, Smith, Quelwick & Russell, P.A., 896 So. 2d