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Hotel sues owner over termination of contract

After a legal battle, the tony Ritz-Carlton Palm Beach will have a new name and management. As of July 1, the new owners will take over of the hotel from Marriott International. As a result, the new owners have decided to rename the hotel the Eau Palm Beach Resort & Spa.

The legal troubles began two years ago when the owner of the Ritz-Carlton claimed that it and other parties were siphoning off its profits through fees and kickbacks. As a result, the owners brought a lawsuit seeking termination of the management agreement it had with the Ritz-Carlton and damages.

A judge recently ruled that the owner may terminate the management contract and take over the hotel. However, in doing so, the judge opened the owner to being countersued by Ritz-Carlton for breach of contract. In essence, by taking over the hotel, the owner breached his contract with Ritz-Carlton. The hotel chain recently announced that it had filed such a countersuit seeking multi-million dollars worth of damages. Additionally, the hotel claims that there were no financial irregularities and it always passed the contractual performance test.

Although the owner does in fact own the property, he signed a management contract with Ritz-Carlton that carries certain obligation. If the hotel chain is successful in its countersuit, the owner may be obligated to fulfill his end of the deal. It is very unlikely that the owner would be forced to perform his obligations, but would likely have to pay the hotel compensation for the profits that were lost when the contract was terminated by the prior lawsuit.

Source: South Florida Business Journal, "Ritz-Carlton Palm Beach owners take over, change hotel name," Shaun Brevan, June 11, 2013

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