|By Douglas Hanks III, The Miami Herald|
Knight Ridder/Tribune Business News
Aug. 4, 2004 - Trustees for the union pension fund that owns Hollywood's Westin Diplomat Resort & Spa have agreed to pay nearly $11 million to settle a federal lawsuit alleging the massive resort was ill-conceived and badly managed, the U.S. Labor Department announced Tuesday.
Four of the five pension trustees named in the 2002 Labor Department suit, including Plumbers and Pipefitters union head Martin Maddaloni, will resign from the fund's board as part of the settlement.
The suit came two years after federal officials intervened in the project on behalf of the fund, accusing fund executives of planning the lavish and towering oceanfront resort without studying whether the venture was worth the price.
When the 1,000-room resort opened more than 18 months late in January 2002, a projected cost of $400 million had ballooned to $800 million, all of it paid for by pension-fund cash. A court-appointed firm continues to monitor the hotel, which Starwood Hotel & Resorts Worldwide manages for the fund, said Labor Department spokeswoman Gloria Della.
Union money-managers named in the suit have rejected the allegations, calling the Diplomat a successful hotel that justified the $800 million investment. In a counter-suit, a union executive claimed the Labor Department had essentially approved the spending plan while monitoring the project on the fund's behalf.
The settlement announced Tuesday would return $9.1 million to the fund, with another $1.8 million in fines paid to the Labor Department.
The government's suit said fund executives dropped plans to enlarge the existing 320-room Diplomat hotel in favor of one of the most ambitious resort developments the region has ever seen: a 39-story twin tower resort with 1,000 rooms, extensive marble work and an expensive glass structure stretching from the hotel to the parking garage across the street.
The suit claimed fund executives launched the plans without requiring feasibility studies, detailed spending plans, economic models or other research that would let them "make an informed decision as to the prudence of putting at risk millions of dollars. . ."
The Labor Department's harsh assessment of the Diplomat's planning contrasts with the generally warm words industry watchers have had for the hotel since its opening.
A massive convention facility facing the Atlantic Ocean, the Diplomat has emerged as a strong draw for business groups needing large amounts of meeting space. In 2003, the resort made Conde Nast Traveler magazine's list of the 75 best North American hotels.
"In terms of measuring it against industry benchmarks and its competition, it's doing very well," said Scott Berman, a hotel analyst with PricewaterhouseCoopers in Miami.
The lawsuit did not address the Diplomat's current financial status, according to a lawyer involved in the case, but Della, of the Labor Department, said that wasn't part of the complaint.
"Essentially what the lawsuit said is. . . that they imprudently managed the project in relation to construction costs and scheduling the project," she said. "But not that it was a bad investment."
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