IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA
CASE NO.: 1021-00006
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'S STATEMENT OF UNDISPUTED MATERIAL FACTS IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNTS I AND II
Plaintiff Verimark Hospitality Group Inc. ("Verimark") respectfully submits this Statement of Undisputed Material Facts in support of its Motion for Partial Summary Judgment on Count I (Breach of Contract — Royalties) and Count II (Breach of Contract — Marketing Fund Contributions), filed contemporaneously herewith. Each numbered paragraph below sets forth a material fact that is not genuinely in dispute, supported by citations to the evidentiary record, including deposition transcripts, documents produced in discovery, expert reports, declarations, and admissions obtained through the discovery process. Verimark submits this statement in compliance with Florida Rule of Civil Procedure 1.510(c) and the applicable Local Rules of the Seventeenth Judicial Circuit.
The following abbreviations are used throughout this Statement:
• "FLA" refers to the Franchise License Agreement(s) between Verimark and Coastal Palms.
• "GRR" refers to Gross Room Revenue as defined in the FLAs.
• "Brecker Dep." refers to the Deposition of Randall Brecker, taken on March 6–7, 2023.
• "Kerrigan Dep." refers to the Deposition of Janet Kerrigan, taken on February 22, 2023.
• "Prescott Dep." refers to the Deposition of Nolan Prescott, taken on March 14, 2023.
• "Hargrove Dep." refers to the Deposition of Professor Grant Hargrove, taken on July 18, 2023.
• "Kettlewell Rep." refers to the Expert Report of Dr. Sharon Kettlewell, CPA/CFF, CFE (Ridgeline Forensic Advisory LLC), dated April 14, 2023.
• "Kettlewell Rebuttal" refers to the Rebuttal Expert Report of Dr. Sharon Kettlewell, dated June 9, 2023.
• "Pl. Ex." refers to Plaintiff's Exhibit.
• "Def. Ex." refers to Defendant's Exhibit.
• "RFA Resp." refers to Coastal Palms Franchise Holdings LLC's Responses to Plaintiff's First Set of Requests for Admission.
I. THE PARTIES
1. Verimark Hospitality Group Inc. ("Verimark") is a corporation duly organized and existing under the laws of the State of Delaware, with its principal place of business located at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. Verimark is a publicly traded company, and its common stock is listed on the Nasdaq Stock Market under the ticker symbol "VHMK." Complaint ¶ 1; Answer ¶ 1 (admitted).
2. Verimark operates and franchises approximately 340 branded hotels across the southeastern United States under three distinct flags: "Verimark Suites," "Verimark Select," and "Verimark Grand." In fiscal year 2021, Verimark reported consolidated revenue of approximately $1.42 billion, with franchise segment revenue of approximately $218 million. Pl. Ex. 1 (Verimark Hospitality Group Inc., Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission); Brecker Dep. Day 1, 34:8–15 (acknowledging Verimark's size and market presence).
3. Renata Solis-Vega serves as Senior Vice President and General Counsel of Verimark Hospitality Group Inc. Complaint ¶ 5; Answer ¶ 5 (admitted).
4. Deidre Langston serves as Senior Vice President of Franchise Operations for Verimark and is responsible for franchise compliance, quality assurance, and auditing across Verimark's franchise portfolio. Pl. Ex. 2 (Declaration of Deidre Langston, dated August 14, 2023, ¶ 2).
5. Coastal Palms Franchise Holdings LLC ("Coastal Palms") is a limited liability company organized and existing under the laws of the State of Florida, with its principal office located at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. Its registered agent is Garrison Registered Agents LLC, located at 100 S. Ashley Drive, Suite 600, Tampa, Florida 33602. Complaint ¶ 6; Answer ¶ 6 (admitted); Pl. Ex. 3 (Florida Secretary of State, Division of Corporations, business entity records for Coastal Palms Franchise Holdings LLC).
6. Randall "Randy" Brecker is the Managing Member and holds a 60% equity interest in Coastal Palms. Brecker also serves as the President of Suncoast Room Management Inc. Brecker Dep. Day 1, 18:3–12, 22:7–14; RFA Resp. No. 1 (admitted).
7. Theresa Brecker is a Member of Coastal Palms holding a 15% equity interest. She is the spouse of Randall Brecker and manages payroll and human resources for the Coastal Palms hotel portfolio. Brecker Dep. Day 1, 24:1–10; Answer ¶ 8 (admitted).
8. Nolan Prescott is a Member of Coastal Palms holding a 25% equity interest. Prescott is a retired commercial real estate developer and has characterized himself as a passive investor in the Coastal Palms enterprise. Prescott Dep. 12:4–18; RFA Resp. No. 2 (admitted).
9. Gulf Breeze Hospitality LLC is a limited liability company organized and existing under the laws of the State of Florida. Gulf Breeze Hospitality LLC owns and operates six Verimark Suites hotel properties in Southwest Florida. Randall Brecker serves as its Managing Member and exercises operational control over its affairs. Brecker Dep. Day 1, 28:2–11; Pl. Ex. 4 (Operating Agreement of Gulf Breeze Hospitality LLC, dated March 9, 2008).
10. Savannah Lodging Partners LLC is a limited liability company organized and existing under the laws of the State of Georgia. Savannah Lodging Partners LLC owns and operates four Verimark Suites hotel properties in coastal Georgia. Randall Brecker serves as its Managing Member and exercises operational control over its affairs. Brecker Dep. Day 1, 29:5–14; Pl. Ex. 5 (Operating Agreement of Savannah Lodging Partners LLC, dated January 22, 2011).
11. Suncoast Room Management Inc. ("Suncoast") is a corporation organized and existing under the laws of the State of Florida, with Randall Brecker as its President and sole director. Suncoast was established as an affiliated management company that, among other functions, collected revenues from certain booking channels on behalf of the Coastal Palms hotel portfolio, including walk-in bookings, corporate-direct contracts, and bookings made through an unbranded website operated by Suncoast. Brecker Dep. Day 1, 42:6–43:18; Pl. Ex. 6 (Articles of Incorporation of Suncoast Room Management Inc., filed with the Florida Department of State on December 14, 2012); Pl. Ex. 7 (Suncoast Room Management Inc. corporate annual reports filed with the Florida Department of State, 2013–2022).
12. At all times relevant to this action, Randall Brecker exercised operational control over Coastal Palms Franchise Holdings LLC, Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and Suncoast Room Management Inc. Brecker directed the financial reporting, revenue-collection practices, and franchise-compliance activities of each of these entities. Brecker Dep. Day 1, 30:12–31:5; Kerrigan Dep. 44:8–22; Prescott Dep. 28:3–16.
II. THE FRANCHISE LICENSE AGREEMENTS
13. On June 15, 2007, Coastal Palms entered into its first Franchise License Agreement ("FLA") with Verimark for a single Verimark Suites hotel property located in Naples, Florida. This FLA was duly executed by Randall Brecker on behalf of Coastal Palms as its Managing Member and by an authorized representative of Verimark. Pl. Ex. 8 (Franchise License Agreement No. 1, executed June 15, 2007); Brecker Dep. Day 1, 36:2–10.
14. Over the next twelve years, between 2007 and 2019, Coastal Palms executed a total of 22 individual FLAs with Verimark for hotel properties located in Florida and Georgia. The most recent FLA in the portfolio was executed on September 3, 2019. Pl. Exs. 8–29 (all 22 FLAs); Brecker Dep. Day 1, 38:4–39:2; RFA Resp. Nos. 3–4 (admitted).
15. The 22 franchised properties comprise 18 hotels operating under the "Verimark Suites" brand and 4 hotels operating under the "Verimark Select" brand, encompassing a total of approximately 3,740 guest rooms across the portfolio. Pl. Ex. 30 (Verimark franchise portfolio summary for Coastal Palms Franchise Holdings LLC, compiled from franchise records); Brecker Dep. Day 1, 40:1–8.
16. Each of the 22 FLAs provides for a 20-year initial term, is governed by the laws of the State of Florida, and contains a mandatory venue provision designating Broward County, Florida, as the exclusive venue for any disputes arising under or relating to the FLA. FLA § 17.4 (representative: Pl. Ex. 8); RFA Resp. No. 5 (admitted).
17. Section 4.1 of each FLA requires the franchisee to pay a royalty to Verimark equal to 5% of "Gross Room Revenue," as defined therein, for each applicable franchised property. FLA § 4.1 (Pl. Ex. 8); RFA Resp. No. 6 (admitted).
18. Section 4.1 of each FLA defines "Gross Room Revenue" or "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 § 4.1 (Pl. Ex. 8); identical language appears in each of the 22 FLAs (Pl. Exs. 8–29).
19. The GRR definition contained in Section 4.1 of each FLA expressly encompasses revenues "regardless of the entity collecting such revenue." This language applies without limitation to revenues collected by the franchisee, any affiliate of the franchisee, or any third party acting on behalf of the franchisee. FLA § 4.1 (Pl. Ex. 8).
20. Section 4.2 of each FLA requires the franchisee to pay a marketing-fund contribution to Verimark equal to 2.5% of GRR, calculated using the same GRR definition set forth in Section 4.1. FLA § 4.2 (Pl. Ex. 8); RFA Resp. No. 7 (admitted).
21. Section 4.3 of each FLA requires the franchisee to pay a technology fee of $12.50 per available room per month. The technology fee is subject to annual adjustment based on the Consumer Price Index ("CPI") but is capped at an increase of no more than 3% per year. FLA § 4.3 (Pl. Ex. 8).
22. Section 4.6 of each FLA provides that any late payments by the franchisee shall accrue interest at a rate of 1.5% per month, compounded monthly, from the date due until the date paid in full. FLA § 4.6 (Pl. Ex. 8); RFA Resp. No. 8 (admitted).
23. Under each FLA, the franchisee is required to report GRR to Verimark on a monthly basis, on or before the fifteenth day of the month following the reporting period. The monthly GRR report must set forth total GRR by booking channel and must be certified as accurate by an authorized representative of the franchisee. FLA § 4.4 (Pl. Ex. 8); Brecker Dep. Day 1, 52:11–19.
24. Section 8.2 of each FLA grants Verimark the right to audit the franchisee's books and records upon 10 business days' written notice. The FLA further provides that if an audit reveals an underpayment exceeding 2% of reported GRR for the audited period, the franchisee shall bear all reasonable costs of the audit, in addition to the obligation to promptly remit any underpaid amounts with interest. FLA § 8.2 (Pl. Ex. 8); RFA Resp. No. 9 (admitted).
25. Section 14.1 of each FLA provides the franchisee with a cure period of 30 days from receipt of written notice from Verimark of a material breach, during which the franchisee may cure the breach and avoid termination of the FLA. FLA § 14.1 (Pl. Ex. 8).
26. Section 14.2(c) of each FLA provides that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." This provision overrides the general 30-day cure period set forth in Section 14.1 with respect to the specific category of systematic GRR underreporting. FLA § 14.2(c) (Pl. Ex. 8); identical language appears in all 22 FLAs (Pl. Exs. 8–29); RFA Resp. No. 10 (admitted that the quoted language exists in the FLAs; denied that it is applicable to the facts of this case).
27. Section 15.3 of each FLA provides for liquidated damages upon termination of the FLA for cause, calculated as three times the trailing-twelve-month royalties paid or payable for each terminated property. The FLA provides that such liquidated damages represent a reasonable estimate of the damages Verimark would suffer from premature termination and are not a penalty. FLA § 15.3 (Pl. Ex. 8).
28. Randall Brecker personally signed each of the 22 FLAs on behalf of Coastal Palms in his capacity as its Managing Member. Each signature page identifies Brecker by name and title and bears his original or electronic signature. Pl. Exs. 8–29 (signature pages of all 22 FLAs); Brecker Dep. Day 1, 50:8–14; RFA Resp. No. 11 (admitted).
29. At his deposition, Brecker testified that he read and understood the terms of each FLA, including specifically the definition of Gross Room Revenue in Section 4.1, prior to executing each agreement. Brecker further confirmed that he had access to legal counsel during the negotiation and execution of each FLA. Brecker Dep. Day 1, 51:3–52:4.
30. At his deposition, Brecker specifically acknowledged that the GRR definition in Section 4.1 states that revenues are included "regardless of the entity collecting such revenue." When asked whether he understood that language at the time of execution, Brecker testified: "I understood what it said, but I didn't think it covered a separate management company." Brecker Dep. Day 1, 55:18–56:9.
31. The language of Section 4.1, including the definition of GRR, did not change in any material respect across any of the 22 FLAs executed between 2007 and 2019. A comparison chart prepared by Verimark's counsel confirms the uniformity of the relevant contractual provisions. Pl. Exs. 8–29 (the 22 FLAs); Pl. Ex. 31 (comparison chart of FLA § 4.1 language across all 22 agreements); Brecker Dep. Day 1, 53:2–8.
32. Each of the 22 FLAs contains an integration clause, set forth in Section 17.1, which provides that the FLA "constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, representations, and understandings." FLA § 17.1 (Pl. Ex. 8).
33. Each of the 22 FLAs contains a non-waiver clause, set forth in Section 17.3, providing that "no waiver of any breach or default hereunder shall be deemed a waiver of any subsequent breach or default, whether of the same or a different provision." FLA § 17.3 (Pl. Ex. 8).
34. Coastal Palms did not at any time seek a written modification or amendment to any FLA to alter the definition of GRR or to exclude revenues collected by affiliated entities from the GRR calculation. Nor did Coastal Palms request any side letter, addendum, or supplemental agreement addressing the treatment of revenues collected through Suncoast or any other affiliated entity. Brecker Dep. Day 1, 58:14–22; RFA Resp. No. 12 (admitted).
III. ESTABLISHMENT AND OPERATION OF SUNCOAST ROOM MANAGEMENT INC.
35. Suncoast Room Management Inc. was incorporated under the laws of the State of Florida on or about December 14, 2012. Randall Brecker served as its sole incorporator, and upon incorporation, Brecker was appointed as President and sole director of Suncoast. Brecker remains the President and sole director of Suncoast to the present day. Pl. Ex. 6 (Suncoast Articles of Incorporation, filed December 14, 2012); Brecker Dep. Day 1, 42:6–43:2.
36. Beginning no later than January 2013, Suncoast commenced operations as an affiliated management entity that collected revenues from direct bookings at Coastal Palms hotel properties. The booking channels handled by Suncoast included walk-in guests who arrived at the front desk without a prior reservation, corporate-direct contracts negotiated by Brecker with local and regional businesses, and bookings made through an unbranded website, gulfcoastrooms.com, which Suncoast registered and operated for the purpose of generating direct-booking revenue. Brecker Dep. Day 1, 60:3–61:15; Kerrigan Dep. 52:8–53:14; Pl. Ex. 32 (WHOIS domain registration records for gulfcoastrooms.com, showing Suncoast Room Management Inc. as registrant).
37. The website gulfcoastrooms.com was registered by Suncoast and operated under Brecker's direction to generate direct-booking revenue for Coastal Palms hotel properties. The website did not identify the listed properties as Verimark-branded hotels. Instead, the website listed properties by location and amenities without reference to any Verimark brand, flag, or trademark. Archived screenshots of the website confirm the absence of Verimark branding. Brecker Dep. Day 1, 63:4–64:12; Pl. Ex. 32; Pl. Ex. 33 (archived screenshots of gulfcoastrooms.com, captured via the Wayback Machine, Internet Archive, for dates in 2015, 2017, and 2020).
38. Suncoast entered into written "Management Services Agreements" with each of the property-level entities in the Coastal Palms portfolio, including Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and other property-level limited liability companies. Under these agreements, Suncoast was authorized to collect revenues from direct bookings made through Suncoast's booking channels (walk-ins, corporate-direct contracts, and gulfcoastrooms.com). Suncoast retained a 12% "management fee" from the gross direct-booking revenue it collected before forwarding the remaining 88% to the respective property-level entity. Pl. Exs. 34–37 (representative Management Services Agreements between Suncoast and property-level entities); Brecker Dep. Day 1, 66:2–67:10; Kerrigan Dep. 58:4–59:18.
39. The 12% management fee retained by Suncoast was not reported to Verimark as part of GRR. Because Suncoast retained the fee before remitting the balance to the property-level entities, and because the property-level entities reported only the amounts they received (rather than the gross amount collected from guests), the management fee was effectively excluded from the GRR calculation in its entirety. Brecker Dep. Day 1, 70:8–15; Kerrigan Dep. 62:1–11; Kettlewell Rep. ¶¶ 42–45.
40. The revenues collected by Suncoast from direct bookings, in their entirety — that is, prior to deduction of the 12% management fee — were not included in the monthly GRR reports submitted by Coastal Palms to Verimark. The property-level entities reported only revenues received through Verimark's central reservation system and through OTA channels (and even OTA revenues were improperly netted, as discussed below). Suncoast-collected revenues were entirely absent from the GRR reports. Brecker Dep. Day 1, 71:3–72:14; Kerrigan Dep. 64:6–65:12; Pl. Ex. 38 (side-by-side comparison of Suncoast general ledger revenue entries and Coastal Palms GRR reports submitted to Verimark, 2013–2021, prepared by Ridgeline Forensic Advisory LLC).
41. At his deposition, Brecker admitted that he personally directed property-level controllers, including Janet Kerrigan, to exclude revenues collected through Suncoast from the monthly GRR reports submitted to Verimark. Brecker testified that he believed this exclusion was justified because Suncoast was a "separate entity" from Coastal Palms and the property-level LLCs. Brecker Dep. Day 1, 74:8–75:16; Brecker Dep. Day 2, 112:3–113:7.
42. Janet Kerrigan, who served as Regional Controller for Coastal Palms from approximately March 2015 until her termination in October 2021, testified at her deposition that Brecker instructed her and other property-level controllers that "Suncoast revenue is separate" and should not be included in the GRR reports submitted to Verimark. Kerrigan testified that these instructions were communicated orally during conference calls and in-person meetings, as well as in writing via email. Kerrigan Dep. 66:12–67:20.
43. Kerrigan further testified that Brecker told her on multiple occasions that the Suncoast booking channel was "none of Verimark's business" and that the management company's revenue was "our money, not theirs." Kerrigan recounted that Brecker expressed frustration with the royalty and marketing-fund obligations under the FLAs and viewed the Suncoast structure as a legitimate way to reduce those obligations. Kerrigan Dep. 68:3–69:2.
44. Multiple property-level managers and accountants employed at various Coastal Palms hotel properties confirmed in their depositions that they received instructions from "corporate" — meaning Brecker and his central management team — to route walk-in and corporate-direct bookings through the Suncoast channel and to exclude those revenues from the GRR reports submitted to Verimark. These witnesses included front-desk managers, night auditors, and property-level bookkeepers who confirmed that they were directed to process certain reservations through Suncoast's booking system rather than through Verimark's central reservation system. Pl. Exs. 39–48 (composite deposition excerpts from property-level witnesses, including depositions of Maria Castillo, Gregory Odom, Latoya Jefferson, Phillip Underhill, Adrienne Chen, Samuel Ritt, Candice Moravec, Deepak Subramanian, Felicia Drummond, and Anthony Russo); see also Pl. Ex. 49 (internal Coastal Palms email from Randall Brecker to Janet Kerrigan and other controllers, dated April 12, 2016, directing controllers to "keep Suncoast bookings out of the Verimark reports" and to "make sure the Verimark numbers only reflect CRS and OTA channels").
45. In addition to excluding direct-booking revenues collected by Suncoast, Coastal Palms also underreported revenue from third-party online travel agency ("OTA") channels by classifying net-rate OTA payments as "commissions receivable" and netting those commissions against GRR, rather than reporting the gross OTA revenue. This netting practice reduced the reported GRR by the amount of the OTA commissions and booking fees, which typically ranged from 15% to 25% of the gross booking amount. Kettlewell Rep. ¶¶ 48–53; Pl. Ex. 50 (Coastal Palms OTA reconciliation spreadsheets for selected properties, 2017–2021); Brecker Dep. Day 2, 128:5–129:18.
46. The GRR definition in FLA § 4.1 encompasses "all revenues derived from or attributable to the rental of guest rooms" and does not authorize or permit the netting of commissions, booking fees, or any other deductions before reporting GRR. The definition contains no exclusion for commissions paid to OTAs or any other intermediary. FLA § 4.1 (Pl. Ex. 8).
47. At his deposition, Brecker acknowledged that the revenues collected by Suncoast derived from the rental of guest rooms at Verimark-branded hotel properties operated by entities within the Coastal Palms portfolio. Brecker did not contend that the Suncoast revenues came from any source other than guest-room rentals at the franchised properties. Brecker Dep. Day 2, 115:4–116:2.
48. Brecker further acknowledged that the guest rooms booked through gulfcoastrooms.com and through walk-in channels at Coastal Palms properties were the same physical rooms covered by the FLAs — that is, rooms at Verimark-branded hotels subject to the franchise royalty and marketing-fund obligations. There were no separate, non-franchised rooms at these properties. Brecker Dep. Day 2, 117:8–118:3.
49. Suncoast maintained bank accounts separate from those of the property-level entities. Revenues from direct bookings processed through Suncoast's channels were deposited into Suncoast's accounts at Ironclad National Bank before the net-of-fee balance (88% of gross collections) was transferred to the respective property-level LLCs. This two-step process — deposit into Suncoast's account followed by transfer to the property entity — created a paper trail that facilitated the exclusion of Suncoast revenues from GRR reports. Pl. Exs. 51–54 (Suncoast bank statements, Ironclad National Bank, January 2013 through December 2021); Brecker Dep. Day 2, 120:6–121:14.
50. Coastal Palms did not disclose the existence of Suncoast's revenue-collection role or the gulfcoastrooms.com booking channel in any of the monthly GRR reports submitted to Verimark during the 2013–2021 period. The GRR reports submitted to Verimark identified revenue by booking channel (e.g., "CRS," "Aldermere Technologies," "Bramwell Holdings"), but no line item for "Suncoast," "direct bookings," "walk-ins," "corporate-direct," or "gulfcoastrooms.com" appeared in any report. Pl. Ex. 55 (sample monthly GRR reports submitted by Coastal Palms to Verimark, 2013–2021); Kerrigan Dep. 72:3–14; Brecker Dep. Day 2, 123:8–18.
51. Coastal Palms did not notify Verimark at any time that it had established a separate management entity — Suncoast — to collect guest-room revenues from booking channels other than Verimark's central reservation system, notwithstanding the FLA's requirement that GRR reports encompass "all revenues … regardless of the entity collecting such revenue." No written or oral notification to Verimark regarding Suncoast's revenue-collection role has been identified in the record. Brecker Dep. Day 2, 125:3–12; Pl. Ex. 55.
52. Verimark was not aware of Suncoast's role in collecting guest-room revenues until the whistleblower complaint filed by Janet Kerrigan on November 8, 2021. Prior to that date, Verimark's franchise operations team had no knowledge that a significant portion of guest-room revenues at Coastal Palms properties was being collected through a separate entity and excluded from GRR reports. Pl. Ex. 56 (Kerrigan whistleblower report, submitted via Verimark's confidential compliance hotline on November 8, 2021); Langston Declaration ¶¶ 8–12; Solis-Vega Declaration ¶¶ 5–7 (Declaration of Renata Solis-Vega, dated August 14, 2023).
53. Although certain property-management agreements submitted during the franchise-application process for some of the later FLAs referenced Suncoast Room Management Inc., those documents identified Suncoast only as providing "back-office support services," including payroll processing, accounts payable, and vendor-contract management. The franchise-application materials did not disclose that Suncoast would collect guest-room revenues or that revenues collected by Suncoast would be excluded from the GRR reports submitted to Verimark. Pl. Exs. 57–58 (franchise application materials for FLA Nos. 18 and 22, referencing Suncoast); Langston Declaration ¶ 14; Brecker Dep. Day 2, 130:3–131:10.
IV. THE REVENUE UNDERREPORTING SCHEME — SCOPE AND DURATION
54. The practice of excluding Suncoast-collected revenues from GRR reports submitted to Verimark began no later than January 2013, coinciding with the commencement of Suncoast's revenue-collection operations, and continued through at least December 2021, encompassing a period of no less than nine years. Kettlewell Rep. ¶¶ 28–32; Brecker Dep. Day 1, 76:8–77:2; Kerrigan Dep. 74:6–75:3.
55. The underreporting practice was applied systematically across all 22 franchised hotel properties in the Coastal Palms portfolio. No property was excluded from the scheme. Every property in the portfolio had a portion of its guest-room revenue collected through Suncoast's booking channels, and in every case, those revenues were excluded from the monthly GRR reports submitted to Verimark. Kettlewell Rep. ¶¶ 33–36; Kerrigan Dep. 76:12–77:8.
56. For fiscal year 2021, Coastal Palms reported aggregate GRR of $112.4 million across all 22 franchised properties. This figure was reflected in Coastal Palms' 2021 annual GRR summary report submitted to Verimark. Pl. Ex. 59 (2021 annual GRR summary report submitted by Coastal Palms to Verimark); RFA Resp. No. 15 (admitted).
57. Dr. Sharon Kettlewell, CPA/CFF, CFE, Verimark's forensic accounting expert retained through Ridgeline Forensic Advisory LLC, performed a comprehensive reconstruction of true GRR for all 22 Coastal Palms franchised properties for the nine-year period from January 2013 through December 2021. Dr. Kettlewell holds a Ph.D. in Accounting from the University of Florida, is a Certified Public Accountant licensed in Florida, is Certified in Financial Forensics, and is a Certified Fraud Examiner. She has over 25 years of experience in forensic accounting and has been qualified as an expert witness in federal and state courts on more than 40 occasions. Kettlewell Rep. ¶¶ 1–8.
58. Dr. Kettlewell's forensic reconstruction analysis was based on a comprehensive review of Suncoast's general ledgers, bank statements from Ironclad National Bank (covering the full 2013–2021 period), property management system ("PMS") data exported from each of the 22 franchised properties, OTA channel reports from Aldermere Technologies, Bramwell Holdings, and other OTA platforms, federal and state tax returns filed by Suncoast and each of the property-level entities, and occupancy data from Penmark Enterprises ("STR") reports. The data sources were cross-referenced to identify and quantify the discrepancies between reported GRR and true GRR. Kettlewell Rep. ¶¶ 9–18, App. A (Data Sources and Methodology).
59. Dr. Kettlewell determined that Coastal Palms' estimated true GRR for fiscal year 2021 was approximately $145.6 million, compared to the reported GRR of $112.4 million. The difference of $33.2 million represents the underreported GRR for fiscal year 2021 alone. Kettlewell Rep. ¶ 58, Table 3.
60. Across the full nine-year period from January 2013 through December 2021, Dr. Kettlewell estimated that Coastal Palms underreported aggregate GRR by approximately $197.8 million. This figure represents the cumulative difference between reconstructed true GRR and reported GRR across all 22 properties for all nine years. Kettlewell Rep. ¶ 62, Table 5.
61. The underreporting percentage varied by property and by year, ranging from approximately 22% to approximately 31% of true GRR, with an overall weighted average of approximately 26%. Properties with higher proportions of walk-in and corporate-direct bookings tended to have higher underreporting percentages, as a greater share of their revenues was routed through Suncoast's channels. Kettlewell Rep. ¶¶ 63–65, Table 6.
62. Thornbury & Associates CPAs LLP, a regional accounting firm retained by Verimark in November 2021 to conduct a preliminary franchise-compliance audit, independently confirmed underreporting of approximately 26% across the top 10 Coastal Palms properties (ranked by reported GRR) for the three-year period from 2019 through 2021. Thornbury's independent audit findings were consistent with and corroborated the results subsequently obtained by Dr. Kettlewell in her more comprehensive analysis. Pl. Ex. 60 (Thornbury & Associates CPAs LLP, Preliminary Franchise Compliance Audit Report — Coastal Palms Franchise Holdings LLC, dated January 18, 2022); Malcolm Thornbury Declaration ¶¶ 6–12 (Declaration of Malcolm A. Thornbury, CPA, Partner, Thornbury & Associates CPAs LLP, dated August 18, 2023).
63. Dr. Kettlewell's findings were consistent with and corroborated by the Thornbury preliminary audit findings. In her expert report, Dr. Kettlewell noted that her full-portfolio, full-period analysis yielded an overall underreporting percentage (approximately 26%) materially consistent with Thornbury's preliminary finding for the subset of properties and time period that Thornbury examined. Kettlewell Rep. ¶ 67.
64. The underreported GRR derived from two principal sources: (a) direct-booking revenues collected by Suncoast (including walk-in guests, corporate-direct contracts, and gulfcoastrooms.com bookings) that were entirely excluded from GRR reports; and (b) OTA revenues that were improperly netted of commissions and booking fees before being reported as GRR. Of the total $197.8 million in underreported GRR, the majority — approximately $156.3 million — was attributable to the first category (Suncoast-collected direct-booking revenues), with the remainder attributable to the second category (OTA commission netting). Kettlewell Rep. ¶¶ 38–55.
65. Suncoast's own financial records — including its general ledgers, bank statements, and tax returns — show that Suncoast collected aggregate direct-booking revenues of approximately $156.3 million between January 2013 and December 2021. After deducting its 12% management fee (approximately $18.8 million), Suncoast remitted approximately $137.5 million to the property-level LLCs. Neither the gross amount collected by Suncoast nor the net amount remitted to the property-level entities was included in the GRR reports submitted by Coastal Palms to Verimark. Kettlewell Rep. ¶¶ 42–47, Table 4; Pl. Exs. 51–54 (Suncoast bank records, Ironclad National Bank).
66. The remaining approximately $41.5 million of the $197.8 million in underreported GRR ($197.8 million minus $156.3 million) is attributable to the improper netting of OTA commissions and booking fees. Rather than reporting the gross room revenue received from OTA bookings, Coastal Palms netted the commissions and fees retained by OTA platforms, effectively reducing reported GRR by the commission amounts. Kettlewell Rep. ¶¶ 48–55.
67. In addition to the GRR underreporting, Coastal Palms added a total of 214 guest rooms across four properties between 2015 and 2019 through renovations and expansions, without notifying Verimark of the room-count increases. The failure to report the additional rooms resulted in underpayment of the per-room-per-month technology fee required under FLA § 4.3, as the technology fee was calculated based on the number of "available rooms" at each property. Kettlewell Rep. ¶¶ 72–75; Pl. Ex. 61 (building-permit records and certificates of occupancy from Collier County, Lee County, and Chatham County for the four properties with room additions); Brecker Dep. Day 2, 140:3–141:8.
68. At his deposition, Brecker did not dispute that Suncoast-collected revenues were excluded from the GRR reports submitted to Verimark. Instead, Brecker contended that revenues collected by a "separate entity" were not covered by the FLA's GRR definition. Brecker testified: "Suncoast is its own company. It has its own EIN. It collects its own revenue. I never thought that fell under the franchise agreement." Brecker Dep. Day 1, 80:3–81:12.
69. This contention is contradicted by the plain language of FLA § 4.1, which defines GRR as revenues derived from or attributable to the rental of guest rooms at the Hotel "regardless of the entity collecting such revenue." The contractual language contains no exception for affiliated entities, related management companies, or entities with separate taxpayer identification numbers. FLA § 4.1 (Pl. Ex. 8).
70. Nolan Prescott, the 25% equity holder in Coastal Palms, testified at his deposition that he was unaware of how GRR was reported to Verimark and claimed not to know the details of Suncoast's revenue-collection operations. Prescott characterized himself as a passive investor who relied on Brecker to manage the day-to-day operations of the franchise portfolio. Prescott Dep. 34:6–35:14.
71. However, documents produced in discovery demonstrate that Prescott received quarterly financial summaries from Brecker via email that included separate line items for "Suncoast Revenue" and "Management Fee Income." These summaries were sent to Prescott's personal email address on a regular quarterly basis from at least 2017 through 2021. At his deposition, Prescott acknowledged receiving the summaries but testified that he "didn't focus on the details" and "just looked at the bottom line." Pl. Exs. 62–65 (quarterly financial summaries emailed from Brecker to Prescott, Q1 2017 through Q4 2021); Prescott Dep. 42:8–43:20.
72. Coastal Palms has not identified any written communication, email, letter, memorandum, or other document in which Verimark authorized or consented to the exclusion of Suncoast-collected revenues from GRR reports. Nor has Coastal Palms identified any oral statement by a Verimark representative granting such authorization or consent. RFA Resp. No. 20 (admitted); Brecker Dep. Day 2, 134:3–12.
V. VERIMARK'S DISCOVERY OF THE UNDERREPORTING AND PRE-SUIT ACTIONS
73. On November 8, 2021, Janet Kerrigan, a former Regional Controller for Coastal Palms who had been terminated from her position in October 2021, contacted Verimark's confidential compliance hotline and reported the systematic exclusion of Suncoast-collected revenues from GRR reports. Kerrigan's whistleblower report described the Suncoast revenue-diversion structure in detail, including the use of gulfcoastrooms.com, the routing of walk-in and corporate-direct bookings through Suncoast, the 12% management fee, and the directive from Brecker to exclude Suncoast revenues from Verimark reports. Pl. Ex. 56 (Kerrigan whistleblower report, submitted via Verimark's confidential compliance hotline on November 8, 2021); Kerrigan Dep. 22:4–23:8.
74. Prior to Kerrigan's whistleblower report on November 8, 2021, Verimark had no knowledge of the revenue diversion through Suncoast. Verimark's franchise operations personnel, including Deidre Langston, had no reason to suspect that a significant portion of guest-room revenues was being collected through a separate entity and excluded from GRR reports, because the GRR reports submitted by Coastal Palms appeared facially consistent with occupancy and revenue benchmarks for properties of similar size and market position. Langston Declaration ¶¶ 8–12; Solis-Vega Declaration ¶¶ 5–7.
75. On November 22, 2021, Verimark retained Thornbury & Associates CPAs LLP, a regional accounting firm based in Jacksonville, Florida, to conduct a franchise-compliance audit of the top 10 Coastal Palms properties (by reported GRR) for the 2019–2021 period. Thornbury was engaged to perform an independent examination of the franchisee's books and records, including bank statements, PMS data, and OTA channel reports. Pl. Ex. 66 (Thornbury & Associates engagement letter, dated November 22, 2021); Thornbury Declaration ¶ 3.
76. On January 18, 2022, Thornbury delivered its preliminary findings to Verimark. The Thornbury preliminary audit report concluded that the 10 audited properties had underreported GRR by approximately 26% for the 2019–2021 period, consistent with the allegations in Kerrigan's whistleblower report. Pl. Ex. 60 (Thornbury preliminary audit report, dated January 18, 2022); Thornbury Declaration ¶¶ 6–12.
77. Extrapolating the audit findings across all 22 properties and the full nine-year period from 2013 through 2021, Thornbury estimated total underreported GRR of approximately $197.8 million. This extrapolation was based on the assumption, supported by Kerrigan's testimony and documentary evidence, that the underreporting practice was uniform across the entire Coastal Palms portfolio and had been in place since the inception of Suncoast's operations in January 2013. Pl. Ex. 60 at 14–16; Thornbury Declaration ¶ 13.
78. On February 4, 2022, Verimark issued a formal Notice of Material Breach to Coastal Palms pursuant to FLA § 14.1, demanding cure within 30 days. The Notice of Material Breach specifically identified the systematic underreporting of GRR through the exclusion of Suncoast-collected revenues as a material breach of the FLAs. The notice further referenced FLA § 14.2(c), which provides that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure," and reserved all rights under the FLAs, including the right to terminate and to seek liquidated damages under § 15.3. Pl. Ex. 67 (Notice of Material Breach, dated February 4, 2022).
79. The Notice of Material Breach was sent via certified mail, return receipt requested, to Coastal Palms at its principal office address of 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108. A copy was simultaneously sent via email to Coastal Palms' counsel, Nathan Whitfield III, Esq., at Whitfield, Barrow & Crane LLP, 1221 Brickell Avenue, Suite 3000, Miami, Florida 33131. Certified mail receipts confirm delivery of the notice on February 7, 2022. Pl. Ex. 67; Pl. Ex. 68 (certified mail receipts, United States Postal Service).
80. On February 4, 2022, Calderwood & Harkness LLP, as counsel for Verimark, also sent a pre-suit demand letter to Nathan Whitfield III at Whitfield, Barrow & Crane LLP, demanding that Coastal Palms cure the identified breaches, remit all underpaid royalties and marketing-fund contributions with interest, and provide a full accounting of Suncoast's revenue-collection activities. The letter expressly reserved all of Verimark's rights and remedies under the FLAs, at law, and in equity, including liquidated damages under § 15.3 and termination under § 14.2(c). Pl. Ex. 69 (pre-suit demand letter from Calderwood & Harkness LLP to Whitfield, Barrow & Crane LLP, dated February 4, 2022).
81. On February 28, 2022, Coastal Palms' counsel, Whitfield, Barrow & Crane LLP, responded to the Notice of Material Breach by letter. The response denied that any material breach had occurred, asserted that Suncoast's revenues were properly excluded from GRR under what counsel described as a "reasonable interpretation" of the FLA's GRR definition, and contended that Suncoast was a "separate and independent entity" whose revenues did not fall within the scope of the franchise agreements. The response did not offer any payment, partial cure, or compromise. Pl. Ex. 70 (Whitfield, Barrow & Crane LLP response letter, dated February 28, 2022).
82. The 30-day cure period specified in Verimark's Notice of Material Breach expired on March 6, 2022. No cure was tendered by Coastal Palms during the cure period. Pl. Ex. 67 (Notice of Material Breach, specifying 30-day cure period from date of receipt); Brecker Dep. Day 2, 136:4–10 (acknowledging that no cure payment was made during the 30-day period or at any time thereafter).
83. Coastal Palms did not make any additional royalty or marketing-fund payments in response to the Notice of Material Breach, either during or after the cure period. Brecker Dep. Day 2, 137:2–8; RFA Resp. No. 25 (admitted).
84. Coastal Palms did not make any offer of partial cure, did not request an extension of the cure period, and did not propose any alternative arrangement for addressing the identified underpayments. Brecker Dep. Day 2, 138:1–6; RFA Resp. No. 26 (admitted).
85. On March 7, 2022, the day following the expiration of the cure period, Verimark filed its Complaint in this action, asserting ten counts against Coastal Palms Franchise Holdings LLC, Randall Brecker (individually), and Suncoast Room Management Inc. The counts include breach of contract (royalties), breach of contract (marketing-fund contributions), breach of the implied covenant of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, civil conspiracy, violation of the Florida Deceptive and Unfair Trade Practices Act, constructive trust, and accounting. Complaint (Dkt. 1).
86. On April 18, 2022, Coastal Palms filed its Answer, Affirmative Defenses, and Counterclaim, in which Coastal Palms denied material breach and asserted 12 affirmative defenses, including waiver, estoppel, laches, and the statute of limitations. Coastal Palms also asserted a counterclaim seeking approximately $12 million in damages, alleging brand-standard violations by Verimark that purportedly diminished the value of Coastal Palms' hotel properties, as well as claims of over-billing for technology fees and reservation-system charges. Answer & Counterclaim (Dkt. 12).
VI. QUANTIFICATION OF UNDERPAID ROYALTIES (COUNT I)
87. Under FLA § 4.1, Coastal Palms was contractually obligated to pay Verimark a royalty equal to 5% of GRR for each franchised property, calculated on a monthly basis. This royalty obligation applied to all 22 FLAs and was operative throughout the relevant period. FLA § 4.1 (Pl. Ex. 8); RFA Resp. No. 6 (admitted).
88. Coastal Palms paid royalties to Verimark calculated on the basis of its reported GRR — which excluded Suncoast-collected revenues and reflected the improper netting of OTA commissions — rather than on the basis of true GRR as required by the FLAs. The royalties actually paid by Coastal Palms were therefore less than the amounts contractually owed. Pl. Ex. 71 (royalty payment records for all 22 Coastal Palms properties, 2013–2021, compiled from Verimark's franchise accounting system); Kettlewell Rep. ¶¶ 76–78.
89. Based on Dr. Kettlewell's forensic reconstruction, as set forth in detail in her expert report, the total underreported GRR for the nine-year period from January 2013 through December 2021 was $197.8 million. Kettlewell Rep. ¶ 62, Table 5.
90. Applying the contractual royalty rate of 5% to the underreported GRR of $197.8 million yields underpaid royalties of $9.89 million (5% × $197.8 million = $9,890,000). Kettlewell Rep. ¶ 80, Table 7.
91. Dr. Kettlewell calculated the underpaid royalties on a property-by-property, month-by-month basis, cross-referencing Suncoast general ledger entries, Ironclad National Bank deposits and transfers, OTA channel reports, and PMS occupancy data to reconstruct true GRR for each property in each month and to compute the corresponding royalty underpayment. Her detailed calculations are set forth in Appendix C to her expert report. Kettlewell Rep. ¶¶ 76–82, App. C (Property-Level Royalty Underpayment Detail).
92. Dr. Kettlewell's GRR reconstruction calculations were independently verified against Suncoast's federal and state income tax returns for the 2013–2021 period. Suncoast's tax returns reported revenues consistent with Dr. Kettlewell's reconstruction, providing an independent external check on the accuracy of her analysis. Kettlewell Rep. ¶ 83; Pl. Exs. 72–73 (Suncoast Room Management Inc. federal income tax returns (Form 1120) and Florida corporate income tax returns, 2013–2021).
93. Defendants' expert, Professor Grant Hargrove of Hargrove Economic Consulting Inc., opined in his expert report that the maximum underpayment across all categories (royalties and marketing-fund contributions combined) was $6.2 million. Professor Hargrove did not dispute that underpayment had occurred; he disputed only the magnitude of the underpayment. Def. Ex. A (Expert Report of Professor Grant Hargrove, Hargrove Economic Consulting Inc., dated May 15, 2023) at 38.
94. Professor Hargrove's lower estimate was based on a narrowed GRR definition that excluded walk-in cash payments from the GRR calculation and attributed only net (rather than gross) OTA revenue. Professor Hargrove's narrowed definition is not derived from the text of the FLA but is instead based on his interpretation of industry customs and practices regarding revenue reporting. Def. Ex. A at 22–28.
95. Professor Hargrove's narrowed GRR definition is inconsistent with the plain language of FLA § 4.1, which 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 FLA contains no exception for walk-in cash payments or other payment methods, and does not authorize the netting of OTA commissions. FLA § 4.1 (Pl. Ex. 8); Kettlewell Rebuttal ¶¶ 12–18.
96. In her rebuttal expert report dated June 9, 2023, Dr. Kettlewell identified specific methodological errors in Professor Hargrove's analysis. These errors include Professor Hargrove's improper exclusion of walk-in cash payments that were documented in PMS records and corroborated by Suncoast bank deposits at Ironclad National Bank; his reliance on industry custom rather than the plain language of the FLA to justify netting of OTA commissions; and his failure to account for corporate-direct contract revenues booked through Suncoast that were fully documented in Suncoast's general ledger. Kettlewell Rebuttal ¶¶ 19–28.
97. At his deposition, Professor Hargrove conceded that if the FLA's GRR definition is read to include all revenues from guest-room rentals regardless of the entity collecting them — as the contractual text plainly states — then his $6.2 million underpayment estimate would need to be "adjusted upward significantly." When pressed on the magnitude of the adjustment, Professor Hargrove acknowledged that the difference between his estimate and Dr. Kettlewell's estimate was "primarily a function of how you read the contract." Hargrove Dep. 84:6–85:14.
98. Coastal Palms does not dispute that it paid royalties based on its reported GRR (which excluded Suncoast-collected revenues) rather than on true GRR (which would include those revenues). The factual predicate for the royalty underpayment — the exclusion of Suncoast revenues from reported GRR — is undisputed. Brecker Dep. Day 2, 142:3–8; RFA Resp. No. 28 (admitted that royalties were calculated based on reported GRR as reflected in monthly reports submitted to Verimark).
99. Coastal Palms does not dispute the mathematical calculation that applying the 5% royalty rate to the underreported GRR amount yields the claimed underpayment figure. In its Answer, Coastal Palms disputed only the amount of underreported GRR — not the royalty rate, the contractual formula, or the arithmetic of the calculation. Answer ¶ 42.
100. There is no genuine dispute of material fact that Coastal Palms failed to include Suncoast-collected revenues in its GRR reports and, as a direct consequence, failed to pay royalties on those revenues. Brecker admitted the exclusion of Suncoast revenues at his deposition, offering only a legal justification (that Suncoast was a "separate entity") rather than disputing the underlying facts. Kerrigan's testimony and the documentary evidence independently confirm the exclusion. Brecker Dep. Day 1, 80:3–81:12; Kerrigan Dep. 64:6–65:12; Pl. Exs. 38, 51–55.
101. Coastal Palms' sole defense to the royalty-underpayment claim is the legal contention that revenues collected by Suncoast, as a "separate entity," fall outside the scope of the GRR definition in FLA § 4.1. This is a contention of contract interpretation — a question of law — and not a dispute of material fact. The underlying facts (the exclusion of Suncoast revenues, the Suncoast-collected amounts, the GRR definition, and the royalty calculation) are undisputed. Answer ¶¶ 38–45; Brecker Dep. Day 1, 80:3–81:12; Defendants' Memorandum in Opposition to Plaintiff's Motion to Compel (Dkt. 34) at 8–12.
VII. QUANTIFICATION OF UNDERPAID MARKETING-FUND CONTRIBUTIONS (COUNT II)
102. Under FLA § 4.2, Coastal Palms was contractually obligated to pay Verimark a marketing-fund contribution equal to 2.5% of GRR for each franchised property, calculated on a monthly basis. This obligation applied to all 22 FLAs and was operative throughout the relevant period. FLA § 4.2 (Pl. Ex. 8); RFA Resp. No. 7 (admitted).
103. The GRR definition applicable to the marketing-fund contribution under FLA § 4.2 is the identical GRR definition set forth in FLA § 4.1, which 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." There is no separate or modified GRR definition applicable to marketing-fund contributions. FLA §§ 4.1, 4.2 (Pl. Ex. 8).
104. Coastal Palms paid marketing-fund contributions to Verimark calculated on the basis of its reported (understated) GRR, not on the basis of true GRR as required by the FLAs. Because Coastal Palms' reported GRR excluded Suncoast-collected revenues and reflected the improper netting of OTA commissions, the marketing-fund contributions actually paid by Coastal Palms were correspondingly less than the amounts contractually owed. Pl. Ex. 74 (marketing-fund payment records for all 22 Coastal Palms properties, 2013–2021, compiled from Verimark's franchise accounting system); Kettlewell Rep. ¶¶ 84–86.
105. Applying the contractual marketing-fund contribution rate of 2.5% to the underreported GRR of $197.8 million yields underpaid marketing-fund contributions of $4.945 million (2.5% × $197.8 million = $4,945,000). Kettlewell Rep. ¶ 87, Table 8.
106. Dr. Kettlewell calculated the underpaid marketing-fund contributions on a property-by-property, month-by-month basis, using the same methodology and the same data sources applied in her royalty-underpayment analysis. Because the marketing-fund contribution obligation is calculated on the same GRR base as the royalty obligation, the underreported GRR amounts are identical, and the only difference is the applicable percentage rate (2.5% rather than 5%). Dr. Kettlewell's detailed calculations for marketing-fund underpayments are set forth in Appendix D to her expert report. Kettlewell Rep. ¶¶ 84–88, App. D (Property-Level Marketing Fund Underpayment Detail).
107. The combined underpaid royalties and marketing-fund contributions for the 2013–2021 period total $14.835 million ($9.89 million in underpaid royalties + $4.945 million in underpaid marketing-fund contributions = $14,835,000). This figure does not include contractual interest under FLA § 4.6, technology-fee underpayments, audit costs, or liquidated damages, all of which Verimark reserves the right to seek at trial or through subsequent motions. Kettlewell Rep. ¶ 89.
108. Coastal Palms does not dispute the 2.5% marketing-fund contribution rate or the mathematical formula for calculating the marketing-fund contribution. In its Answer and in its responses to Plaintiff's Requests for Admission, Coastal Palms admitted the existence and rate of the marketing-fund contribution obligation. Answer ¶ 48; RFA Resp. No. 7 (admitted).
109. Coastal Palms' defense to the marketing-fund underpayment claim is identical to its defense to the royalty-underpayment claim: Coastal Palms contends that revenues collected by Suncoast, as a "separate entity," are excluded from the GRR definition and therefore do not form part of the base upon which marketing-fund contributions are calculated. Answer ¶¶ 46–50.
110. There is no genuine dispute of material fact that Coastal Palms excluded from its marketing-fund contribution calculations the same Suncoast-collected revenues that it excluded from its royalty calculations. The identical GRR underreporting that affected the royalty calculations equally affected the marketing-fund contribution calculations. Brecker Dep. Day 2, 144:3–10; Kerrigan Dep. 78:2–11; Kettlewell Rep. ¶ 85.
111. Coastal Palms did not make any separate or supplemental marketing-fund contribution payments to account for Suncoast-collected revenues at any time during the 2013–2021 period. At no point did Coastal Palms attempt to "true up" its marketing-fund contributions by reporting or paying on Suncoast-collected revenues, even after becoming aware of Verimark's investigation. RFA Resp. No. 30 (admitted); Pl. Ex. 74.
112. Professor Hargrove's expert report did not separately analyze marketing-fund underpayments. His report addressed the combined royalty and marketing-fund underpayment as a single figure ($6.2 million), applying the same narrowed GRR definition to both categories of underpayment. Because his narrowed GRR definition is subject to the same infirmities identified by Dr. Kettlewell with respect to the royalty analysis, the same criticisms apply with equal force to the marketing-fund portion of his estimate. Def. Ex. A at 36–37.
113. The marketing-fund contributions paid by franchisees, including Coastal Palms, are pooled into a centralized marketing fund administered by Verimark. The marketing fund is used to promote the Verimark brand through national and regional advertising campaigns, maintenance and enhancement of Verimark's central reservation system, support for the Verimark Rewards loyalty program, and other brand-promotion activities that benefit the entire franchise system. Underpayment of marketing-fund contributions by any franchisee directly reduces the resources available for brand promotion and thereby harms all franchisees in the Verimark system. FLA § 4.2 (Pl. Ex. 8); Langston Declaration ¶¶ 18–22.
114. Coastal Palms has offered no factual basis — as distinguished from its legal interpretation of the GRR definition — to dispute that marketing-fund contributions were underpaid for the 2013–2021 period. Coastal Palms' defense rests entirely on its legal contention that Suncoast-collected revenues are excluded from GRR. The underlying factual predicates — that Suncoast revenues were excluded from marketing-fund calculations, that the exclusion was systematic, and that the exclusion resulted in underpayments — are not in dispute. Answer ¶¶ 46–50; Brecker Dep. Day 2, 144:3–145:2.
VIII. THE UNDERREPORTING CONSTITUTES MATERIAL BREACH
115. The FLAs expressly provide, in Section 14.2(c), that "systematic underreporting of Gross Room Revenue shall constitute a material breach that is incapable of cure." This provision is identical across all 22 FLAs executed between Verimark and Coastal Palms. FLA § 14.2(c) (Pl. Ex. 8); identical language in all 22 FLAs (Pl. Exs. 8–29).
116. The undisputed evidence establishes that Coastal Palms systematically excluded Suncoast-collected revenues from the GRR reports it submitted to Verimark for each of the 22 franchised properties over a nine-year period from January 2013 through December 2021. The exclusion was not limited to a single property, a single time period, or a single booking channel; it was applied uniformly across the entire portfolio and across all booking channels routed through Suncoast. ¶¶ 40–42, 44, 54–55, supra.
117. The underreporting was not isolated, accidental, or inadvertent. It was the direct result of deliberate instructions issued by Randall Brecker to property-level controllers and staff to exclude Suncoast revenues from the GRR reports submitted to Verimark. Brecker personally directed the exclusion through oral and written communications, including a written email directive on April 12, 2016. Multiple witnesses confirmed receiving and following these instructions over a period of years. ¶¶ 41–44, supra; Brecker Dep. Day 1, 74:8–75:16; Kerrigan Dep. 66:12–69:2; Pl. Ex. 49.
118. The underreporting resulted in cumulative underpayment of royalties in the amount of $9.89 million and marketing-fund contributions in the amount of $4.945 million over the nine-year period, for a combined total of $14.835 million in direct underpayments to Verimark. ¶¶ 90, 105, 107, supra.
119. The magnitude of the underreporting — ranging from 22% to 31% of true GRR depending on the property and year, with an overall weighted average of approximately 26% — far exceeds the 2% audit-threshold trigger set forth in FLA § 8.2. The underreporting percentage is more than ten times the threshold at which the FLA imposes audit-cost responsibility on the franchisee, underscoring the systematic and material nature of the underreporting. ¶ 61, supra; Kettlewell Rep. ¶¶ 63–65.
120. Verimark issued its formal Notice of Material Breach on February 4, 2022, specifically identifying the systematic underreporting of GRR — through the exclusion of Suncoast-collected revenues and the improper netting of OTA commissions — as a material breach of the FLAs under Section 14.2(c). The notice was properly delivered to Coastal Palms and its counsel. ¶ 78, supra; Pl. Ex. 67.
121. The 30-day cure period afforded under FLA § 14.1 expired on March 6, 2022. Coastal Palms did not tender any cure, make any payment, or take any corrective action during the cure period. ¶¶ 82–84, supra.
122. Coastal Palms' response to the Notice of Material Breach, delivered through its counsel at Whitfield, Barrow & Crane LLP on February 28, 2022, denied that any breach had occurred. The response did not offer or attempt cure. Instead, Coastal Palms took the position that its reporting practices were proper and that no corrective action was required. ¶ 81, supra; Pl. Ex. 70.
123. Section 14.2(c) of the FLAs designates systematic underreporting of GRR as a material breach that is "incap