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New York, NY (Profitable.com) Pryor Cashman LLP is pleased to announce that its client, Castillo Grand LLC, has obtained a $44 million award against Starwood Hotels’ subsidiary Sheraton Operating Corp. The substantial ruling was a result of Sheraton’s multiple breaches of its management contract with the owners and developers of the former St. Regis Hotel and Resorts. The parties had entered into a contract to bring New York’s famed St. Regis Hotel brand to Ft. Lauderdale’s Gold Coast, making it one of the first high-end, luxury hotel and condominium resorts in the beachside community at the time.
At the crux of the dispute was the absence of “St. Regis-style” brand standards in the design and construction of the hotel, caused in large part by the revolving door of senior leadership within the Starwood organization. There were four St. Regis regime changes during the design and construction of the hotel and with each change Starwood leadership imposed a new direction in the design for almost every facet of the hotel. The disorganization created ever-evolving interior building specs for the St. Regis brand and a moving design and construction standard that led directly to extensive construction delays and vast cost overruns for Castillo Grand. By the time the hotel opened in 2007, it was millions of dollars over budget, two years behind schedule, and the Florida real estate market was cratering to historic lows.
“This case is a cautionary tale for the hospitality industry. Without clear and precise plans, design guidance and corporate infrastructure and coordination in bringing a brand to life, hotel companies risk sustained delays and difficulties in rolling out their new brands. Poor planning can be devastating to a brand launch, can cause delays to particularized projects and result in multimillion-dollar problems. This process must be carefully managed as massive profits are at risk. Sheraton learned the hard way,” said Todd E. Soloway, lead trial counsel and chairman of Pryor Cashman’s Real Estate Litigation Group. “This fair and just award also sets a new precedent for developers who may feel victimized by large and influential hotel chains who may impose unrealistic demands-they can win in the David vs. Goliath battle.”
In the case, Castillo Grand LLC v Sheraton Operating Corp., decided in New York State Supreme Court, Justice Alan Scheinkman found that Sheraton committed multiple breaches of its contract with the owners (Castillo) and engaged in a series of actions that depicted Sheraton’s leadership as acting in bad faith. Most notably, the absence of brand standards for the design and construction of the hotel at the time Starwood was rolling out its St. Regis brand, as well as changes in senior leadership within the St. Regis organization were central to the failure of the project. The Court also found that, in a contrived attempt to coerce Castillo into paying a $3 million license fee, Sheraton plotted a surprise attack by sending a notice terminating the management contract unless the fee was paid within five days. Sheraton walked off of the property, Castillo brought in Ritz Carlton, and the Court found Sheraton’s termination to be wrongful and held them liable as such.
Castillo Grand is optimistic that it will also prevail on its application for attorneys’ fees, which matter is now before the court.
The Castillo Grand LLC v Sheraton Operating Corp. decision is available at: http://www.pryorcashman.com/news-829.html