Morgans is based in New York City, and PSB is an entity of Philips Hotel Group, also based there. Lawyers Kenneth Zitter and Benjamin Brafman of Brafman & Associates filed the 33-page complaint on behalf of PSB with the Supreme Court of the State of New York in New York County.

It alleges that Morgans "systematically transferred to the Delano income which properly belonged to the Shore Club and transferred expenses to the Shore Club which properly belonged to the Delano." Furthermore, the document charges that Morgans "redirected guests from the Shore Club to the Delano, falsely advised guests that rooms were not available at the Shore Club, improperly provided free or deeply discounted rooms at the Shore Club to Delano personnel, friends, and others, improperly directed Morgans' employees to change the venue of high profile special events from the Shore Club to the Delano, double-billed the Shore Club for expenses and misused the Shore Club's barter agreements to obtain benefits for employees of Morgans and the Delano who provided no services to the Shore Club."

In carrying out the alleged "unlawful schemes," the complaint says Morgans "caused to be destroyed documents demonstrating the shifting of revenues and expenses," and also "altered the information in the monthly management reports submitted to PSB." The acts, "neither isolated nor accidental," according to the complaint, "were directed by Morgans' senior management," which the PSB complaint accuses of "outright theft and intentional misconduct."

The attraction of celebrities "to generate vital publicity…and add to its cachet," was "central to the Shore Club marketing," a factor stressed in discussion with Morgans, according to PSB's complaint. Yet PSB cites incidents in which Morgans allegedly diverted celebrity business from the Shore Club to the Delano. In one example "a well-known actor" who had stayed at the Shore Club's penthouse, booked four nights for about $10,000 a night, and "Morgans ordered its employees to…advise him falsely that the penthouse…was unavailable and to direct him instead to the Delano."

On the heels of a PSB release on the lawsuit, Morgans Hotel Group issued a statement denying any improper acts. It states, "We believe that this lawsuit is part of a strategy by Philips South Beach to renegotiate our management agreement with the Shore Club, which runs to 2022." According to the statement, the Shore Club's average daily room occupancy rate rose from about 35% to about 67% since Morgans took over its management, and the facility went from "an operating loss plus depreciation of $3.7 million in 2002 to generating operating income plus depreciation of $11.5 million for the 12 months ended Sept. 30, 2005." PSB could not be reached by deadline to comment on this data.

The suit also alleges that part of the Delano manager's compensation package was a free room at the Shore Club. Of 392 nights over 22 months, the complaint says, "almost all" were spent in one of the Shore Club's eight poolside duplex bungalows, "which are frequented by celebrities and high-end travelers and which greatly contribute to the hotel's cachet [and] retail for as much as $4,000 a night." The executive chef of Blue Door, a restaurant in the Delano, is also alleged to have received free room and expenses at the Shore Club.

The complaint also charges that Morgans provided at least 30 free rooms at the Shore Club to the pilot and crew of Schrager's private jet. In all of these cases and others, the suit charges, expenses, including food, beverages, laundry and telephone, were also comp'd to the Shore Club.

The complaint calls for termination of the management agreement and recovered damages of an amount to be determined at trial but believed to total at least approximately $40 million plus punitive damages, interest, attorneys' fees and costs.

"We will respond to the lawsuit shortly in court," adds the Morgans' statement. PSB's attorney Brafman tells GlobeSt.com the defendants have 30 days to respond to the complaint. The response will be followed by a deposition, discovery, then the litigation begins, Brafman says.