Miami Lawyer Blog

The following is an analysis of three high-profile lawsuits involving members of the hospitality industry from Jason Freed at HotelNewsNow.com.

Case: M Waikiki v. Marriott Hotel Services and Ian Schrager
Filed: May 26, 2011
Status: Open; deposition deadline 18 October 2013
Summary: The owner of Edition Waikiki claims in a lawsuit that Marriott International and partner Ian Schrager haven't put enough resources toward the launch of the Edition brand and backed out of promises to help the hotel succeed.

Commentary: With the lawsuit, M Waikiki, the owner of the 353-room oceanfront hotel, is seeking to remove Marriott from management. Disputes between a hotel owner and a brand are fairly common, said Jim Butler, attorney with Jeffer, Mangels, Butler & Mitchell, but usually disagreements enter arbitration out of the public eye. The fact that a suit was filed "represents a real rupture in the agreement," Butler said.

"In this case, the owner says he was pursued aggressively and that Marriott made personal promises about the success of the hotel and the brand," Butler said, while cautioning that the public has only heard M Waikiki's side of the story. "Marriott gave them some rosy projections."

M Waikiki claims in the lawsuit that Edition Waikiki is performing at 37% of its competitive set, a staggeringly low number for a new hotel that has been completely renovated. Poor performance could be attributed to the economic downturn, but with relation to the hotel's comp set, new hotels tend to outperform.

Butler said scale of a brand is "extremely important" because travelers become familiar with brands they see more often. Brands also imply a quality control program and a points program, he said. With only two Edition properties open since the brand was launched four years ago, the size of the brand lends no assistance to the marketing.

Also, M Waikiki claims in its initial lawsuit that two high-profile hotel names--Marriott and Ian Schrager--were to provide personal involvement and guidance to the hotel but failed to do so. The onus will be on the plaintiff to prove Schrager's initial promise of involvement.

"We believe that promises made in connection with the launch of Edition were broken, leaving our client with significant damages which have been further compounded by Marriott's inability to effectively manage this property," William A. Brewer III, partner at Bickel & Brewer and lead counsel for M Waikiki, said in a statement to HotelNewsNow.com.

Butler said M Waikiki can't simply point to the slow pipeline growth as proof the brand is responsible for poor performance at this single hotel.

"There were a lot of people who thought they had projects virtually done or committed," he said. "But when Lehman Brothers filed bankruptcy nothing gone done and we've been in a gridlock on new development ever since ... No one can guarantee hotels in a pipeline will open."

Butler said in the past he has negotiated and written franchising contracts with termination agreements that declare if there is material change in the strength of brand, usually based on a percentage of decline in performance, the franchisee has the right to terminate the contract.

"Certainly (the franchisor) can resist that. But, especially in a new brand, I would want all kinds of provisions and would be very specific about all kinds of support," he said.

Case: Host Hotels & Resorts v. Molinaro Koger, Scioto Partners and Dearborn Hotel
Filed: June 3, 2011
Status: Open; pretrial hearing set for 15 June, 2012
Summary: Host Hotels & Resorts filed a lawsuit against brokerage firm Molinaro Koger, accusing president Rob Koger and the firm of fraud in misrepresenting sales it handled for Host. Host alleges that Molinaro Koger set up companies led by internal employees to buy three hotels from Host and resell them for a profit. In one case, the initial buyer of one Host hotel was actually dead, the lawsuit states.

Commentary: Molinaro Koger, a hospitality brokerage firm that has brokered more than US$1.1 billion in hotel transactions in the past two years, has served as exclusive broker for Host Hotels & Resorts, the largest hotel real-estate investment trust in the U.S., since 2001.

Lawsuits involving real-estate sellers and brokers are common in the residential industry, Butler said, but the high profiles of the two organizations involved make this an unusual case.

Although the statements in the initial lawsuit must be taken with the consideration that they are only allegations, Butler said they must be taken seriously. Oftentimes, he said, lawsuits will be an initial step into depositions and investigations. But, in this case, it appears the plaintiffs have done their homework.

"These are serious allegations," Butler said. "A lot of facts were put into the complaint, such as who called who and who did what. You have very specific, detailed, factual allegations--it's not fishing."

For example, in two separate incidents, the lawsuit claims Molinaro Koger set up companies led by internal employees to purchase hotels at prices lower than what was being offered on the market. In turn, Molinaro Koger is accused of flipping those hotels on the same day, through affiliated third-parties, at profits in the millions. Host paid brokerage fees to Molinaro Koger in both instances.

In a separate incident, Host claims that Molinaro Koger, acting as a brokerage firm on the sale of tranches of subordinate debt notes, flipped the debt notes through an unnecessary third party before selling them to Host in order to collect brokerage fees.

Days after the lawsuit was filed, Molinaro Koger released a statement saying they were "taken aback" by the lawsuit and said Host had knowledge of the transactions and the parties involved.

"This whole event seems like the plot of a John Grisham novel, where we are the victims. I am puzzled and disappointed by Host's baseless accusations," president Rob Koger said. "Among the various false accusations is the suggestion that Host had no knowledge of the transactions of which they now complain because it is belied by the fact that senior management at Host had complete knowledge of the transactions. That their suit professes ignorance of Scioto Partners and falsely alleges some affiliation between Scioto and Molinaro Koger is inexplicable."

In addition, Molinaro Koger claimed a series of crimes had been committed against the company, including pretexting the company's accounts to illegally obtain financial records from the firm's banks, breaking and entering Molinaro Koger's office and stealing files and sending false and malicious correspondence to MK's clients.

Butler said it is uncommon for a pretrial hearing to be set before the defendant has filed an answer to the initial compliant.

Case: Family Suites Resorts v. Viacom International d/b/a MTV Networks
Filed: June 1, 2010
Status: Open; answer filed and deposition deadline 2 September, 2012
Summary: Family Suites, which operates a Nickelodeon-themed hotel in Orlando, Florida, is suing Nickelodeon's parent company Viacom claiming licensing rights were breached when Viacom entered into an agreement with Marriott to franchise the Nickelodeon brand.

Commentary: A motion to dismiss filed by defendant Viacom was denied in early June, meaning the Family Suites Resorts v. Viacom International case will proceed. The agreement between Nickelodeon and Marriott to partner on a Nickelodeon-themed venture was announced in May 2007, and Family Suites, by way of Bickel & Brewer law firm, claim Viacom breached its contract by licensing the Nickelodeon cable brand to a rival hotel chain. At the time of the filing, a Nickelodeon spokesperson said, "Their claims are without merit."

"Plaintiffs would not have invested over US$168 million to purchase, remodel, retheme and operate the hotel as a Nickelodeon hotel if they had known that Viacom would frustrate the purpose of the license agreement by offering, promoting and producing similar Nickelodeon-themed experiences at other hotels nationwide," the complaint stated.

Family Suites initially entered into the license agreement in 2003, under which Viacom granted the hotel operator the exclusive right to operate a Holiday Inn hotel in Orlando as the Nickelodeon-themed resort, the company claims. The hotel was renovated and opened in May 2005.

Butler said cases involving intellectual property aren't common in the hotel industry but are important. He pointed to the high-profile Starwood Hotels & Resorts Worldwide v. Hilton Worldwide case--accusing Hilton and at least two of its employees of pilfering massive amounts of electronic files after being recruited--that was settled earlier this year.

"This is an industry that relies on intellectual property--that's what brands are," Butler said. Butler said the license agreement between Viacom and Family Suites will most likely spell out in black and white the preciseness of the exclusivity.

In an answer filed last week, Viacom admits factual claims about the license agreement between itself and Family Suites, and also admits the partnership with Marriott, but denies any breach in contract. Viacom asked that the court dismiss all claims against them.

It goes without saying that for many hotel owners the past few years have been tough financially. The general economic downturn, or recession as some economists have suggested, has caused hotel vacancy rates to skyrocket. Unfortunately for many hotel owners surrounding the Gulf of Mexico, the BP Oil Spill has exacerbated the vacancy rates which, in turn, have drastically hastened the financial downturn. At the end of the day, most hotel owners affected by the BP Oil Spill have experienced a substantial loss in revenues which, in turn, has caused the owners to default on their mortgage loans. If the hotel owners have personally guaranteed the mortgage loans, financial disaster for the hotel owners could be looming on the horizon.

Whether or not affected by the BP Oil Spill, it is critical for hotel owners to consider some form of personal wealth preservation planning (also known as asset protection planning). The planning is designed to protect the accumulated, personal assets of the hotel owner, including, in some cases, the hotel owner's ownership of the hotel. Without proper planning, the assets of the hotel owner are exposed to creditor judgments including in many cases a deficiency judgment from the lender of the hotel mortgage loan. With proper planning, the assets of the hotel owner would be insulated from creditor judgments. Of course, every hotel owner's situation is different, so the foregoing is subject to the facts and circumstances of the hotel owner's specific situation. Additionally, the effectiveness of proper planning is, in part, dictated by the timing of the establishment of the planning and the jurisdiction of the hotel owner. It is important the hotel owners act now. At some point, it will simply be too late to protect the hotel owner's assets.

The Law Offices of Aaron Resnick, P.A. offers all hotel owners a complimentary initial analysis of the hotel owner's specific situation and to determine whether wealth preservation planning is something to consider. If you are interested in such an analysis, please contact the Law Offices of Aaron Resnick, P.A. From this analysis, we will be in a position to suggest whether you should engage our legal services to educate you on your planning options and to devise a plan to protect your assets. If you decide to engage our services, we will then establish and implement the planning.

Derek A. Schwartz leads the Firm's Wealth Preservation practice group. He concentrates his practice in areas of wealth preservation, estate planning, wills and trusts, asset protection, probate and the tax and business legal needs of professionals, business owners and current and former professional athletes. Mr. Schwartz earned his bachelor degree in accounting from Emory University and his law degree from the University of Florida Levin College of Law. At the University of Florida, he served as a tax editor to the Florida Tax Review and was a member of the Florida Law Review. Formerly associated with the law firms of Holland & Knight, LLP and Greenberg Traurig, Mr. Schwartz has now provided Wealth Preservation planning to over 1000 clients nationally.

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The tax implications of a short sale, more specifically the deficiency in the short sale, are a very common question; especially this time of year. Here, specified by a highly placed tax and financial professional, is the definitive answer. Combined with the imminent effect of the Home Affordable Foreclosure Assistance act by Congress, will enable all distressed short sale property owners to breathe a huge sigh of relief.

One more time, a short sale occurs when the mortgage lender allows the property to be sold for less than the balance owed on the mortgage. This can be negotiated with the lender as part of a financial hardship account by the borrower. Short sales are notorious for taking months to complete because the mortgage servicer stalls and ignores the application. A mortgage loan deficiency is the difference between the actual selling price of the distressed property and the mortgage loan balance at closing.

It's important to get the mortgage deficiency negotiated before closing when the distressed homeowner has control. After foreclosure, the homeowner gives up all control and the mortgage servicer is free to come after the deficiency amount for years.

It has been demonstrated inumerable times that mortgage loan servicers benefit more from a foreclosure than a short sale or mortgage modification. Engaging an experienced short sale negotiator and investor like the ones I represent assures that the lender will not be allowed to stall the process. The one mistake in the expert article is the statement that a short sale decision is clearly up to the lender. By getting the REST Report and an unbiased short sale amount, the homeowner will be supported by their local foreclosure court and the mortgage servicer will not be able to foreclose without good faith negotiations. The REST Report has been sanctioned by every judge who has seen it.

Typically, the lender will issue a form 1099C (cancellation of debt), and the amount canceled would be taxable as income to the borrower (seller). Current law allows short sales of a principal residence completed during 2007 through 2012 to exclude the forgiven balance from taxable income, up to $1 million for a single filer and up to $2 million for a joint return. For more detailed information, consult IRS Publication 4681 or your tax adviser.

While the Home Affordable Foreclosure Assistance law states that the lender will no longer be allowed to come back to the former homeowner for that deficiency, no one who has completed the HAFA process is happy with it. Everyone will tell you that they would have been better off using an independent short sale investor and negotiator.

Fashion Attorney and Designer, Brittany Rawlings, was featured on Miami Fashion Blog.

In the feature, Rawlings was queried on how did she fall into fashion and entertainment law. Rawlings in response stated:

"I wanted to practice corporate and contract law because of my business background. The fashion and entertainment aspect came about because of the jewelry I was creating in law school. Like many new designers, with no credible legal resources in fashion and limited funds, I became a "one-man-band-stand," from drafting a business plan, to forming the legal entity, to forming and copyrighting the website, to intellectual property registrations and appeals, to manufacturing by hand, to researching and contracting an international manufacturer, to graphic designing look books and line sheets, to pitching the brand to celebrities and magazines, to requesting and attending desk side appointments with buyers, and to drafting all legal contracts. The opportunities, risks, incidents, trials and tribulations I have encountered as a designer have created a myriad of fashion law documents and agreements that, unless, I was not both a lawyer and a designer, I would not have had the insight and wherewithal to create.

I realized my friends and others in this industry also needed help in the business side of fashion, legal documents and with the same issues, so it kind of just parlayed into fashion law. Fashion law isn't a known niche of law right now, but I'm trying to develop and spread awareness of it because there's a music industry, there's a film industry but there's not something that's 'for fashion.'"

Rawlings heads the firm's Fashion law department and is an active member of the Entertainment and Sports law division of the firm. Rawlings founded and successfully grew her high fashion accessories company, B.RAWLINGS, while graduating cum laude from law school. Honored as Gen Art's Fresh Face in Fashion Accessory Designer of 2010, B.RAWLINGS has since been acclaimed by international Vogue publications, Allure Magazine and People Magazine, is carried in Bloomingdales-Santa Monica, and has jeweled celebrities Lindsay Lohan, Tyra Banks, and E! TV's News host, Giuliana Rancic.

The Law Offices of Aaron Resnick, P.A. is one of the few Florida firms that has a practice group dedicated to Fashion Law. Fashion law is a specialized area of law that deals with intellectual property (copyright and trademark law, including brand licensing), domestic and international business transactions, textiles, merchandising, employment and labor concerns, and customs (import/export issues). Traditionally, most fashion lawyers work for established fashion and luxury goods companies in major urban commercial centers such as New York City, Paris, London and Milan. Some fashion lawyers work within the company, and others work outside the company for law firms.

Fashion attorneys participate in a variety of legal activities and negotiate deals for their clients. The clients may be large retail chains, haute couture labels, high-fashion models, or an unknown designers just starting out. If and when the situation arises, a fashion attorney will litigate for his or her clients in court.

The Law Offices of Aaron Resnick, P.A.'s group of attorneys are able to assist clients in every facet of Fashion Law.

The Law Offices of Aaron Resnick, P.A. is the first Florida law firm to have a practice group dedicated to Fashion Law. Fashion law is a specialized area of law that deals with intellectual property (copyright and trademark law, including brand licensing), domestic and international business transactions, textiles, merchandising, employment and labor concerns, and customs (import/export issues). Traditionally, most fashion lawyers work for established fashion and luxury goods companies in major urban commercial centers such as New York City, Paris, London and Milan. Some fashion lawyers work within the company, and others work outside the company for law firms. Fashion Law is a quickly growing legal specialty, and several American law and design schools have dedicated clinics and courses to its study. In a 2008 article, Susan Scafidi, the first U.S. law professor ever to offer a course in Fashion Law and later Director of the Fashion Law Institute at Fordham Law, wrote that Fashion Law was only then starting to be recognized as a distinct field. Since then, Deborah McNamara at Parsons The New School for Design, and Guillermo Jimenez at the Fashion Institute of Technology at the State University of New York, have also offered courses in Fashion Law. However, such courses remain rare.

The still-emerging nature of the discipline is evident from the fact that the New York City Bar Association, located in America's fashion capital, did not have a dedicated Fashion Law Committee until June 2011.

Fashion attorneys participate in a variety of legal activities and negotiate deals for their clients. The clients may be large retail chains, haute couture labels, high-fashion models, or an unknown designers just starting out. If and when the situation arises, a fashion attorney will litigate for his or her clients in court.

Fashion houses and accessory designers both face unique challenges specific to their industry. They require attorneys who understand the nature of short seasons and ever-changing product cycles, pressures surrounding counterfeit goods, and the issues of unfair competition. Valuable assets in the fashion business consist of not only intellectual property rights, but also trade arrangements, contracts, and information technology systems. A fashion attorney's career success may depend on being able to effectively protect these assets by delivering industry-specific legal advice tailored to the clients' needs.

The Law Offices of Aaron Resnick, P.A.'s group of attorneys are able to assist clients in every facet of Fashion Law. Brittany Rawlings heads the firm's Fashion law department. Rawlings founded and successfully grew her high fashion accessories company, B.RAWLINGS, while graduating cum laude from law school. Honored as Gen Art's Fresh Face in Fashion Accessory Designer of 2010, B.RAWLINGS has since been acclaimed by international Vogue publications, Allure Magazine and People Magazine, is carried in Bloomingdales-Santa Monica, and has jeweled celebrities Lindsay Lohan, Tyra Banks, and E! TV's News host, Giuliana Rancic. Rawlings practice focuses in the field of entertainment, corporate and fashion law. Rawlings was recently awarded Miami's Power 30 Under 30 and Business Leader Magazine's Women Extraordinaire in 2011.

The Firm's fashion law practice offers its clients assistance with:

• Copyright registration and litigation
• Trademark & trade dress registration and litigation
• Formation of business entities and business model
• Registration of domain name, Web Hosting advice and agreements;
• Website creator agreements, E-Commerce and End User website terms
• Copyrighting website design
• Monitoring and litigation of and regarding defamatory or infringing information on social media networks
• Forms for pitching to media, buyers, stylists, celebrities and tracking of fashion samples and progress
• Researching credible, authentic, eco-friendly and/or ethical manufacturers
• Merchant transactions domestically and internationally, negotiations of purchase/sale agreements, and draft of UCC/CISG terms.
• International financial and manufacturing negotiations and agreements, import and export issues, compliance with labor and product laws
• Noncompete, nondisclosure, noncircumvention and confidentiality agreements
• Commercial Agreements and Purchase order agreements
• Consignment agreements, letters of responsibility and insurance
• Wholesale and retail costs and pricing formulas.
• Public Relations Agreements
• Employment contracts, commission agreements, independent contractor agreements
• Commercial real estate lease agreements and real property purchase and sale agreements
• Publication credit agreements
• Retail placement and visual merchandising agreements
• Charity and event sponsorship, endorsement or auction agreements
• Trunk show and trade show agreements
• Ethics of gifting to celebrities, price of wrangling celebrities, promotion through celebrities, and marketing issues
• Joint Venture and/or Consolidation of fashion companies
• Factions, venture capitalists, profit sharing agreements, and financing
• Licensing and distribution agreements
• Anti-counterfeiting and piracy
• Trade practices and ethics
• Alternative approaches to business model & evaluating existing business structure
• Counseling and assistance with capital funding

Miami attorney, Aaron Resnick, managing partner of the boutique law firm, the Law Offices of Aaron Resnick, P.A. attended the Leuva Patidar Samaj of USA National Convention in New Orleans, Louisiana July 29th and 30th, 2011. Resnick attended the event with attorneys from Farrell & Patel, Attorneys at Law.

The Leuva Patidar community of Surat, Navsari, and Valsad districts of southern part of Gujarat, India has a history, which goes back to several centuries are are leaders in various enterprises in the United States including hospitality, engineering and medicine.

Resnick's firm and Farrell & Patel have formed a strategic partnership in which Resnick's firm is assisting Farrell & Patel's significant client base in the hospitality industry with lender issues, wealth preservation and ADA related cases.

Currently, Farrell & Patel represent hotel owners throughout the country in one of the nation's largest class action lawsuits against Wyndham and Choice Hotels. Farrell & Patel also formed a special litigation team to ensure their clients throughout the Gulf Coast in the hospitality industry receive just compensation for their losses associated with the BP oil spill. The firm is currently seeking over $1 billion dollar in damages relating to the spill and represents nearly 600 hotels and tourism-related businesses in in their claims against BP.

According to Resnick, "It is an honor to work with Ricky Patel and Wesley Farrell. They are two of the best attorneys I have met and it was an honor to be invited to attend this incredible convention with them."

About the Law Offices of Aaron Resnick, P.A.

The Law Offices of Aaron Resnick, P.A. is a full service boutique law firm with offices in Miami, Boca Raton, Gainesville/Ocala, Jacksonville and New York City. For additional information, please go to www.thefirmmiami.com, or call 305.672.7495.

About Farrell & Patel, Attorneys at Law

Farrell & Patel, Attorneys at Law, is a full-service law firm serving the legal needs of clients throughout the State of Florida and the United States. Located in the heart of Miami, on Brickell Avenue in the Four Seasons Office Tower, the firm focuses a large portion of its practice on clients in the hospitality industry. In its efforts to service clients within the hospitality industry, the firm has formed strong relationships with organizations such as, the Asian American Hotel Owners Association (AAHOA), which is the largest organization of hotel and motel owners in the country and signifies the voice of 60% of the hospitality industry. In addition, Farrell & Patell represent clients in civil litigation, immigration and criminal law.

Miami attorney, Aaron Resnick, managing partner of the boutique law firm, the Law Offices of Aaron Resnick, P.A. and founder of Faction Capital, www.factioncapital.com, was honored at a luncheon on Thursday, July 28 at Hyatt Regency Pier Sixty-Six, as one of the South Florida Business Journal's high-achieving group of 40 Under 40 honorees. South Florida Business Journal's "40 under 40" is the annual listing of South Florida's best and brightest leaders under the age of 40 based on professional success and community involvement. The 40 Under 40 honorees for 2011 posed for a group picture for the event that was attended by over 500 people.

Attending the event with Mr. Resnick were Attorneys Brittany Rawlings and Derek Schwartz, Scott Frohman, CEO of Options Media Group, Logan Breen, Managing Partner of Faction Capital, Jamie Zambrana, director of acquisitions and analytics for US Debt Ventures, Angela Santamaria, a luxury condominium specialist at Fortune International, Dana Kaplan, Holly Resnick and Gina Masi.

Emmy winner Calvin Hughes, WPLG Local 10 anchor, brought a deft touch and a dose of humor as the emcee for the event, which was sponsored by Nova Southeastern University. NSU President and CEO Dr. George L. Hanbury II said his university cherishes the type of community service given by the honorees.

"I am incredibly flattered to have been recognized and included among such an impressive list of South Florida leaders," said Resnick. Other honorees included Patrick Murphy of Coastal Construction, Michael Saks of the Orange Bowl Committee, and Acott Shiller from the Adrienne Arscht Center for the Performing Arts.

Resnick's law practice concentrates on business and commercial matters, and sports and entertainment law. He has successfully represented a number of clients in commercial foreclosure matters and has a company that specializes in working with lenders on distressed assets. His current practice also includes the personal representation of a number of current and former professional athletes in the National Football League, the National Basketball League and Major League Baseball, as well as members of the arts, fashion and entertainment world.

About the Law Offices of Aaron Resnick, P.A.

The Law Offices of Aaron Resnick, P.A. is a full service boutique law firm with offices in Miami, Boca Raton, Gainesville/Ocala, Jacksonville and New York City. For additional information, please go to www.thefirmmiami.com, or call 305.672.7495.