DALLAS-A Dallas-based investment group and MeriStar Management Co. LLC of Washington, DC promise to face off in court over management practices at the Dallas/Park Cities Hilton, which opened its doors in January under a now-severed relationship. Both sides are casting out serious allegations with high-ticket ramifications for the losing party.

The lawsuit and countersuit have been filed in the past two weeks in the Texas District Court in Dallas. William A. Brewer III of Dallas-based Bickel & Brewer represents Park Cities Hotel LP, led by prominent local businessman, R. Maurice Crowe. Brewer tells GlobeSt.com that he expects it will be a year before the case comes to trial. But, it will come to trial, he says, dismissing the possibility for an out-of-court settlement at this stage between the hotel owners and their former management company and investment partner in the venture. MeriStar held a 15-year management contract for the 220-room Park Cities Hilton and loaned $500,000 at 12.5% interest to the group.

MeriStar has hired the Dallas firm of Strasburger & Price LLP. MeriStar is withholding comments about the litigation, but did provide a copy of its counterclaim.

The hotel limited partnership is seeking upward of $10 million in compensatory damages and three times the amount of actual damages in punitive payment. The lawsuit accuses MeriStar of diverting large bookings to other Dallas-area managed or owned properties in the MeriStar portfolio. “But more important,” Brewer says, “is what it does to the economic business of the firm.” He says much of the information in the lawsuit is based on information from at least a half dozen MeriStar whistleblowers, now working for the hotel owners who are in the midst of negotiations with a new management operator.

MeriStar is going after $611,457.23 in principal and interest for the $500,000 loan; $204,093 for hotel operations; $111,668 in unpaid management fees; and $60,000 in pre-opening management fees. MeriStar boldly suggests that the hotel owners’ lawsuit is “a thinly veiled attempt to beat MeriStar to the punch or at least to the courthouse.”

One of the diverted corporate bookings, Brewer says, was a multi-year pact for 15,000 nights annually. The main benefactors allegedly were MeriStar’s Renaissance Hotel North Dallas and Embassy Suites Hotel at Dallas’ Love Field. Some trade allegedly was steered to MeriStar’s Holiday Inn Select Central, Radisson Hotel Dallas and Sheraton Dallas Brookhollow. “These were very lucrative contracts and it’s not the way managers are to treat their owners,” Brewer stresses to GlobeSt.com. It was, in fact, MeriStar’s familiarity with the region that was a key selling point in its selection to operate the Park Cities Hilton.

MeriStar doesn’t dispute that it sent trade to other hotels in the region. It was, the countersuit claims, a necessity due to failed opening dates in August and December 2000 that it blames squarely on Crowe and the investment group. “When these delays caused the hotel to postpone its opening multiple times, MeriStar was left to deal with the customers whose business, although already accepted, had to be turned away,” the counter-petition explains. “Many potential disasters were, however, averted because MeriStar was able to call upon properties that it operates or that are owned by its affiliates for assistance, including taking the displaced reservations at substantially reduced rates.”

MeriStar alleges the delayed opening coupled with the public relations disaster over the canceled bookings “and PCH’s failure to pay many of the hotel’s suppliers, created an extremely negative atmosphere surround the hotel’s opening and continued to have an adverse impact on the hotel’s revenues for many months.”

The now-severed contract called for MeriStar to receive $2,000 per month for accounting, 3% of the hotel’s total revenues and reimbursement for certain services and out-of-pocket expenses. Brewer alleges MeriStar defaulted not only on the booking end, but also on marketing side for rolling out a newcomer to the marketplace. In the first six operating months, the hotel brought in revenue that was 33.5% lower than MeriStar’s pre-opening estimates and net income before debt service of 126% under projections, the plaintiff’s lawsuit claims. MeriStar is accused of surpassing the pre-opening budget by $282,000 and spending $94,000 just on computer equipment. “Departmental cost rations are grossly out of whack when compared to budget,” Brewer alleges in the petition.

Brewer’s complaint also says franchisor Hilton categorized MeriStar’s management as having “little intelligence on the rate structure of the direct competitors.” Occupancy and RevPAR suffered as the hotel failed “to achieve an average daily rate only slightly ahead of the hotel’s primary competitors,” even though it was positioned as the lone hotel in the 3.5 million-sf Preston Center district, according to the petition.

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