Daniel F. Benavides, Detra Shaw-Wilder, Ken Hartmann, and Doug Wolfe (J. Albert Diaz)
A hotel management firm ousted in a “midnight raid” won more than $10 million in damages from a company linked to the defunct Lehman Brothers Holdings Inc., which owned Miami Beach’s plush Setai Resort & Residences.
Attorneys for Singapore-based General Hotel Management Ltd. and its affiliate GHM (South Beach) LLC say the managers of the oceanfront resort got a rude awakening in March 2012 when “a cadre of armed security forces” took over the Setai without warning in a pre-dawn tactical move one Saturday.
Lehman’s restructuring officer filed a request for arbitration on behalf of Setai Owners LLC after taking control of the property from GHM. What followed was two years of legal wrangling, with Lehman spending more than $12 million on legal expenses and both sides calling a total of 80 witnesses, according to court documents.
“Lehman spent more than $12 million to lose this case,” said GHM attorney Daniel F. Benavides of Kozyak, Tropin & Throckmorton in Coral Gables.
Arbitrators ruled against the liquidating trust representing the bankrupt investment firm. Instead, they awarded the ousted property manager millions of dollars in damages for breach of contract and loss of profits.
“GHM was thrown out in the middle of the night, and everybody was speculating what they could have done wrong,” Benavides said. “The media and the public were asking whether it was mismanagement, whether GHM had stolen money.”
At the time of its ouster, GHM had three years left on a 15-year contract with Lehman Brothers affiliate Dempsey Vanderbilt Owners LLC, which later changed its name to Setai Owners. The companies signed the agreement in March 2000 with an option for a five-year extension.
But Lehman said GHM failed to perform two critical management functions, including operating the Setai resort according to world-class, five-star standards in line with the Mandarin, Four Seasons and Ritz-Carlton brands. The trust suggested the marketing was subpar and GHM spent irresponsibly and failed to bolster occupancy rates.
New York-based restructuring firm Alvarez & Marsal Holdings LLC is the restructuring officer handling Lehman’s unwinding following its spectacular Chapter 11 bankruptcy filing in 2008.
Alvarez & Marsal’s attorneys—William Brewer III, James Renard, Jack Ternan and Jeremy Camp of Bickel & Brewer in Dallas—declined comment, but the company’s legal filing suggested it tried to replace GHM years before the surprise takeover.
“So bad was GHM’s management of the hotel that owner delivered a formal notice of default in June 2006,” according to a summary of Lehman’s claim in Thursday’s final award by the ICC International Court of Arbitration. Lehman “identified a host of operations and financial-related acts and omissions that constituted breaches of a number of specified provisions of the HMA. Owner made clear that any cure of such breaches would not only necessitate the implementation of contract-compliant policies and procedures going forward but also require the payment of compensation for the injuries that GHM’s conduct had already caused owner. Despite that notice, nothing changed.”
In 2012, Lehman took over the Setai and filed a request for arbitration. But the case shifted in the defendants’ favor.
A three-member arbitration panel found Lehman liable for breach of contract and “improper termination” of the property manager. It gave Lehman 30 days to pay $7.49 million to GHM for the balance of the contract. It also tacked on 4.75 percent interest backdated to April 1, 2012, and accrued daily until Lehman completes the payment. Lehman also must cover GHM’s arbitration costs of about $4.21 million.
“If they had just paid us $12 million, even $10 million, we would have walked away,” Benavides said. “But they threw us out in the middle of the night.”
Benavides, Kenneth Hartmann, Detra Shaw-Wilder and Douglas Wolfe of Kozyak Tropin represented GHM.
Lawrence Schaner, Julie Carpenter and David Handzo of Jenner & Block’s Chicago and Washington offices also represented the defense.
Needless to say, we are very pleased with the tribunal’s conclusion, along with the complete and total legal victory,” said GHM president Hans R. Jenni. “More importantly, it vindicates GHM of the wrongful accusations and upholds our reputation as a hotel management company of the highest repute and caliber.”
Setai is a luxury development at 100 21st St. Asian influences pervade the 40-story high-rise set amid lush landscaping.
The property includes an 88-unit condo hotel and a 163-unit residential tower with prices ranging from $1.4 million to upward of $7 million.
As part of the wind down, the current property manager, Trevi Luxury Hospitality Group, is gearing to put the Setai on the market. The group wrote homeowners advising them of the plan and listed the property for sale with Eastdil Secured LLC, Wells Fargo’s real estate investment arm, as broker.
Samantha Joseph can be reached at (954) 468-2614.