Miller Barondess Files Suit Over Botched $39 Million Hyatt Hotel Deal

PE Firm Sued Over Allegedly Botching $39M Hyatt Hotel Deal

By Natalie Rodriguez

Law360, New York (October 08, 2014, 3:31 PM ET) — Private equity firm Wheelock Street Capital LLC has been hit with a California state court suit that alleges it purposefully concealed the nonrenewal of a hotel’s Hyatt Hotels Corp. management contract in order to squash a pending $39 million sale and seek a higher price for the property.

Triyar Hospitality Management LLC contends that the hotel’s owner WSI (II)-HWP LLC, which is affiliated with Wheelock, withheld information about the breaking off a Hyatt brand and management contract that occurred during a due diligence period, in order to kill the deal with Triyar and get more money from a new buyer, according to a complaint filed on Oct. 6.

“Wheelock, by and through WSI, intentionally concealed such material information so that Triyar would not close the purchase of the hotel and so Wheelock could benefit from resale of the hotel for a higher price,” Triyar said in its complaint.

WSI canceled the deal after allegedly misleading Triyar into believing it had more time for due diligence and is now marketing the hotel with a price expectation of at least $50 million, according to court documents.

Along with breach of contract, Triyar has lobbed claims of fraud by concealment, negligent misrepresentation and unjust enrichment. It is asking the court to force the original deal to move forward or, alternatively, for the defendants to pay up at least $11 million in damages.

On top of Wheelock and WSI, Triyar has also named two agents of the companies, Timothy Hodes and Patrick Campbell, in the suit and has sought leave to add other defendants that may have been involved.

Triyar’s trial counsel, Skip Miller of Miller Barondess LLP, said he is looking forward to questioning the witnesses and to the trial of this case.

While Wheelock has not been served as of press time, the company’s counsel believes the litigation is frivolous.

“We’re quite aware of what the facts are that underline the complaint and believe there’s absolutely no merit to the claims,” Julia B. Strickland of Stroock & Stroock & Lavan LLP, an attorney for the defendants, told Law360, adding that the company plans to vigorously defend itself against the claims.

Triyar and WSI struck a deal over the Hyatt Westlake Plaza Hotel in Thousand Oaks, California, on May 23, giving Triyar a 45-day due diligence period and proposing an August closing on the deal, according to court documents.

In June, however, Hyatt decided to not renew a brand and management contract on the property, which means the current contract will end in December 2015. Triyar alleges that WSI purposefully withheld this information.

When the due diligence period came to an end, Triyar did not make a second deposit that was required under the deal’s terms because it felt it needed more time to gather information on the property, particularly on WSI’s rights and obligations under the management agreement. However, Triyar alleges that WSI led it to believe it would be fine to extend the due diligence period but then canceled the transaction on July 21.

“WSI’s motives have become evident: The non-renewal of the management agreement by Hyatt had a tremendous impact on the value of the hotel. Since the management agreement terminates effective December 31, 2015, Triyar would be free to renegotiate the terms of the management agreement, replace Hyatt with another operator or self manage the hotel,” the complaint said.

Under the existing deal, which was signed nearly 25 years ago, the hotel’s owner must make an annual payment of 4 percent of gross receipts to Hyatt and an incentive fee of 10 percent of annual hotel profits, according to Triyar.

“These fees are high in comparison with current market rates for hotel management services,” Triyar said in the complaint.

Triyar Hospitality is represented by Louis R. “Skip” Miller and Keola R. Whittaker of Miller Barondess LLP.

Wheelock is represented by Julia B. Strickland of Stroock & Stroock & Lavan LLP.

The suit is Triyar Hospitality Management LLC v. WSI (II) – HWP LLC, et al, case number BC559770, in the Superior Court of the State of California for the County of Los Angeles.