MeriStar Involved In Management Dispute With Dallas Hotel

DALLAS— MeriStar Management Company has filed a counterclaim against Park Cities Hotel LP (PCH) seeking nearly $1 million in damages, after PCH filed a $10 million lawsuit against MeriStar claiming breach of fiduciary duty. The moves are part of a management dispute over a Dallas hotel owned by PCH and formerly managed by MeriStar. PCH’s lawsuit, filed on Sept. 28, claims the management company instructed the sales staff of the 224-room Dallas/Park Cities Hilton Hotel to divert business to other MeriStar-owned Dallas properties, and that the management company failed to meet its marketing and advertising obligations. According to MeriStar’s counterclaim, the company “generally denies the allegations” made by PCH and alleges it was the owner who breached the management contract by failing to the pay pre-opening and operational costs agreed upon in the contract. The original petition filed by PCH, alleges that since the hotel’s opening in January 2001, MeriStar “began an egregious pattern of self-dealing,” in which MeriStar “diverted business away from the hotel and to the Renaissance Hotel North Dallas,” a property owned and managed by MeriStar. According to Bill Brewer, partner/Bickel & Brewer and lead attorney for PCH, in July 2001, hotel sales staff began “complaining” to the owner about having received instruction from MeriStar to “steer business away from the hotel to other MeriStar hotels in the area.” MeriStar states in its counterclaim the allegations of self-dealing are “unfounded,” and that the only diverted business resulted from numerous delays in the hotel’s opening date, which left MeriStar “to deal with the customers whose business, although already accepted, had to be turned away.” MeriStar added that the delayed opening caused “public relations issues” and in order to avoid “potential disasters,” MeriStar called upon properties “that it operates, or that are owned by its affiliates, for assistance, including taking the displaced reservations at substantially reduced rates.” Of the hotel’s six sales people, Brewer claims that “virtually all… could list situations where they were specifically told to deflect business to other hotels,” specifically the Dallas Renaissance, Embassy Suites, and Radisson hotels— all owned by MeriStar. Many of the sales members have since left the hotel and no longer work for MeriStar, according to Brewer. However, MeriStar was quick to note that it terminated the management contract between the two parties, not PCH. In its counterclaim, MeriStar alleges the hotel’s owner failed to pay $60,000 in pre-opening fees pursuant to the agreement; did not reimburse MeriStar for over $200,000 in expenses incurred on the hotel’s behalf; failed to pay MeriStar more than $111,000 in management fees; and did not provide working capital for the operation of the hotel. The original 13-page petition from the plaintiff claims MeriStar also “ignored its obligations” to market and advertise the hotel and its restaurant. Though these allegations were not specifically addressed in MeriStar’s counterclaim, the management company did state the hotel’s loss of revenue was a result of construction delays that caused the property “to miss the lucrative convention (September- October) season,” in addition to missing the Thanksgiving and Christmas holidays. “The hotel’s revenue forecasts for subsequent months, which PCH now complains have not been met, relied heavily on promotion and bookings that would have occurred during the busy season in order to ‘ramp up,’ or build, future business,” MeriStar’s counterclaim said. In addition, PCH claims that MeriStar “did not properly monitor the hotel’s room rates,” which often resulted in “excessively high rates that should have been lowered in light of then-prevailing demand factors,” according to the petition. However, MeriStar states in its counterclaim that it was PCH’s responsibility to hire a revenue manager and that the owner’s underestimated pre-