Sheraton Operating Corp. v. Castillo Grand, LLC, 17443/09
| Decision Date | 18 November 2011 |
| Docket Number | 17443/09 |
| Citation | 2011 NY Slip Op 52438 |
| Parties | Sheraton Operating Corporation, Plaintiff, v. Castillo Grand, LLC, Defendant. |
| Court | New York Supreme Court |
BICKEL & BREWER Attorneys for Plaintiff Sheraton Operating Corp. By: William A. Brewer III, Esq. James S. Renard, Esq. Alexander D. Widell, Esq. Eric P. Haas, Esq.
PRYOR CASHMAN LLP Attorneys for Defendant Castillo Grand, LLC By: Todd E. Soloway, Esq. Lisa M. Buckley, Esq. James S. O'Brien, Jr., Esq. Joshua D. Bernstein, Eq. Bryan T. Mohler, Esq.
This action was commenced in this Court on August 5, 2009 by Plaintiff Sheraton Operating Corporation ("Sheraton" or "Plaintiff") against Defendant Castillo Grand, LLC ("Castillo" or "Defendant"). The caption of the action is the mirror image of a prior federal court action between the same parties which was dismissed for lack of subject matter jurisdiction virtually on the eve of trial.1
The underlying dispute arises out of efforts to construct and manage a luxury hotel (the "Hotel"), to be known as the St. Regis Hotel & Residences, in Fort Lauderdale, Florida. The Hotel was to be owned and constructed by Castillo subject to Sheraton's approval rights and Sheraton was to manage it. By all accounts, the construction of the Hotel was protracted; it is undisputed that the notice to proceed with construction was issued on July 23, 2003 and the Hotel was finally regarded as substantially completed on May 1, 2007 — nearly four years later. During that time, the Hotel project went through four principal interior design firms. The initial interior design firm was DiLeonardo International, Inc. ("DiLeonardo"), which was in place from roughly September 2000 to November 2003. DiLeonardo was succeeded by Vision Design, Inc. ("Vision"), which was on the scene through April 2005. Vision was replaced by internal Sheraton designers and then by Hirsch Bedner Associates ("HBA").
In broad terms, Castillo blames Sheraton for the shifting interior designers and the resulting inability to develop a final approved interior design, with the absence of an interior design plan being, according to Castillo, the root cause of all of the delays. Sheraton claims, essentially, that: (a) the DiLeonardo and Vision interior designs were not of the quality to be expected in a St. Regis and Castillo went along willingly with the changes in interior designers because Castillo also realized that DiLeonardo and Vision had not produced appropriate designs; (b) Castillo's use of an improvident fast track construction technique, lack of project management, and attempts to use inferior furnishings caused delays; and (c) delays were caused by Castillo, by Castillo's general contractor and its subcontractors, by the City of Fort Lauderdale, and even by hurricanes.
After Sheraton and Castillo labored through an unquestionably painful hotel birthing process and produced what is unquestionably a first-rate facility, their relationship splintered utterly and completely. Shortly after the Hotel opened, Castillo engaged in a financing transaction which, to Sheraton's understanding, triggered Castillo's obligation to pay Sheraton a $3 million project license fee. When Castillo did not pay, Sheraton terminated the management contract for the Hotel.
The trial of this action took some nine weeks, starting on July 19, 2010 and ending on September 21, 2010. Over 20 witnesses testified in person; the deposition testimony of other witnesses was received into evidence. The trial transcriptruns some 5300 pages. The exhibits are numerous, to say the least, with the physical documents being in binders which take up an entire bookcase. On December 16, 2010, the Court received post-trial submissions from each party, each submission consisting of a post-trial brief and proposed findings of fact. Counsel provided these materials in both traditional hard copy and electronic form, with the electronic versions containing hyperlinks to the cited trial and deposition testimony, exhibits, and legal authorities. The submission of the electronic versions has unquestionably facilitated the Court's review of the extensive transcript and voluminous exhibits.
Despite the extreme differences that exist between the parties, the attorneys have been most professional. The courtesy and cooperation that counsel displayed towards each other and towards the Court is commendable, particularly in an era in which too often zealous advocacy is diminished by petty bickering and lack of appropriate communication between counsel. The case presents interesting and involved issues of fact and law. The post-trial submissions of both sides are of high quality, most enlightening and of great assistance to the Court.
Sheraton's complaint presented eight causes of action. Following the Court's determination of Castillo's motion to dismiss at the close of Sheraton's direct case (Tr. at 830-836), Sheraton's affirmative case was distilled to: (a) the Fourth Cause of Action based upon Castillo's failure to defend and indemnify Sheraton from a claim presented in arbitration which involved the cancellation of an event being sponsored by former football player and present television sports commentator, Tony Siragusa; (b) the Fifth Cause of Action for breach of the Management Contract based upon Castillo's failure to pay the project license fee, seeking to recover both the project license fee and lost future management fees; and (c) a reply counterclaim seeking unpaid Condominium License Fees. Sheraton also seeks attorneys' fees based upon a contractual fee-shifting provision.
As limited by this Court's determination of Sheraton's motion to dismiss at the close of Castillo's direct case (Tr. at 3530-3537), Castillo's affirmative case consists of: (a) the First and Second Counterclaims predicated upon unreasonable and untimely interior design changes made by Sheraton; (b) the Fifth Counterclaim for indemnification of amounts paid out by Castillo to third parties for increased costs of construction in excess of the approved budget; (c) the Sixth Counterclaim for attorneys' fees based upon contract; (d) the Seventh Counterclaim for wrongful termination of the management contract; (e) the Eighth Counterclaim for breach of fiduciary duty in relation to termination of the management contract; and (f) the Ninth Counterclaim based upon Sheraton's failure to defend and indemnify Sheraton from the arbitration claim. Castillo also seeks attorneys' fees based upon a contractual fee-shifting provision.
Sheraton's principal surviving claim is, in essence, that Castillo failed to pay the project licensing fee when due and payable and, therefore, Castillo owes it the amount of the fee, the profits that Sheraton lost when it terminated its managementcontract with Castillo upon Castillo's default, and the attorneys' fees for enforcing Sheraton's rights. Castillo denies that it breached the parties' contract by not paying the project license fee and asserts: (a) Sheraton caused substantial delays to the opening of the Hotel by repeatedly forcing major changes in interior design, thereby causing Castillo millions of dollars in damages; and (b) Sheraton improperly terminated the management contract, compelling Castillo to take the St. Regis "flag" off the building, leading Castillo to hastily turn the Hotel into a Ritz Carlton under disadvantageous terms and causing Castillo to sustain millions of dollars more in damages.
All of the issues were tried, as to both liability and damages, except that the claims of the parties for attorneys' fees were severed pending a determination as to which, if either, of the parties is to be considered the prevailing party (Tr. at 3401-3402).
Having deliberated upon the evidence adduced at trial, and having considered the parties' post-trial submissions, the Court now renders its findings of fact and conclusions of law:
FINDINGS OF FACT AS TO LIABILITY ON CONSTRUCTION/DELAY ISSUES
Castillo is a Florida limited liability company with its principal place of business in Clearwater, Florida. Castillo was formed to develop, on a site in Fort Lauderdale, Florida, a high-end hotel which would also feature condominiums. The property, which is located just to the west of the Atlantic Ocean, was acquired in 1999. Castillo intended to pay for the construction of the facility with a construction loan and thereafter sell condominiums and use the proceeds to pay off the construction loan. The principals of Castillo were John McDonald, Fred Bullard, and Van McNeel. McDonald handled the day-to-day management issues until his death in December 2004.2
Sheraton is a Delaware corporation which has its principal place of business in White Plains, New York. Sheraton is a wholly-owned subsidiary of Starwood Hotels & Resorts ("Starwood"). Starwood owns and controls a number of prominent hotel brand names, including St. Regis, W, Westin, Sheraton and Four Points by Sheraton. The St. Regis brand is Starwood's premier brand, which competes for luxury business with such hotel brands as the Ritz Carlton, Four Seasons, andMandarin.3 As will be seen, Sheraton's relationship with Castillo was handled by a large and ever-shifting cast of characters and, as the corporate shifts occurred, each new wind blew in new views as to how the Hotel should be designed and constructed.
At the beginning, Castillo, in internal discussions, considered seeking affiliation with the Four Seasons and the Ritz Carlton. But Bullard insisted on St. Regis because, while St. Regis was an established high-end hotel in New York, the St. Regis brand was only beginning to expand outside of New York. Bullard was aware of only two St. Regis' expansion projects — one in California and one in Washington, D.C. Bullard wanted to be in on the ground floor of the extension of the St. Regis brand. There is higher economic value associated with a more exclusive, limited brand in the first-class hotel market, a point...
To continue reading
Request your trial