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Owner of the Shore Club Hotel in Miami Beach, Florida, Files Multi-million dollar
Suit Against Morgans Hotel Group Management, LLC,  Formerly Known
as Ian Schrager Hotel Management
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NEW YORK - Jan. 17, 2006 -- Philips South Beach, LLC ("Philips"), owner of the Shore Club Hotel in Miami Beach, Florida, filed a multi-million dollar suit today against Morgans Hotel Group Management, LLC ("Morgans"), formerly known as Ian Schrager Hotel Management, and against Ian Schrager, former CEO of Morgans; W. Edward Scheetz, the chief executive officer of Morgans Hotel who directed the management of Morgans; and David T. Hamamoto, who served as chairman of Morgans Hotel and also directed the management of Morgans. 

The complaint alleges fraudulent and other improper actions by Morgans to siphon income, resources and celebrity cachet from the Shore Club for the benefit of the nearby Delano hotel, wholly owned by Morgans' affiliate, Morgans Hotel Group. The suit was filed in the Supreme Court of the State of New York, County of New York, by Shore Club attorneys Ben Brafman of Brafman & Associates and co-counsel Kenneth A. Zitter. 

Over more than a three-year period, according to the complaint, Morgans engaged in a deliberate, fraudulent scheme to transfer Shore Club income to the Delano and Delano expenses to the Shore Club. Among other actions, Philips asserts that Morgans redirected guests from the Shore Club to the Delano, falsely advised guests that rooms were not available at the Shore Club in order to book them at the Delano, and directed Morgans' employees to change the venue of high-profile special events from the Shore Club to the Delano. In facilitating this, Philips claims that Morgans covered up its actions by destroying documents that proved the shifting of revenues and expenses, specifically altering information in monthly management reports. 
 

Morgans Hotel Group Comments on Lawsuit 

NEW YORK - Jan. 17, 2006 -- Morgans Hotel Group today issued the following statement relating to a lawsuit filed against several defendants including the Group and its principals by Philips South Beach LLC, majority owner of The Shore Club in Miami: 

"Morgans Hotel Group believes that it has abided by the terms of its management contract with The Shore Club and denies committing any improper acts. We will respond in detail to the lawsuit shortly in court. 

"While we cannot predict the outcome of the litigation, we believe that this lawsuit is part of a strategy by Philips South Beach to renegotiate our management agreement with The Shore Club, which runs to 2022. 

"When the contract went into effect in mid 2002, The Shore Club had an operating loss and its owner was in dispute with its investors and lenders. At that time, The Shore Club had an average daily room occupancy rate of about 35 percent. Through September of 2005, the occupancy rate of The Shore Club was about 67 percent year-to-date. 

"In that same period of time, The Shore Club went from an operating loss plus depreciation of $3.7 million in 2002 to generating operating income plus depreciation of $11.5 million for the 12 months ended September 30, 2005, a turnaround we believe that was largely achieved by Morgans' repositioning and operation of the hotel."

Since its opening in August 2001, the Shore Club has become a highly coveted destination in South Beach with such restaurant and club assets as Nobu, Ago and Skybar Miami Beach, as well as a singular elegance and sophistication. In July 2002, Philips hired Ian Schrager Hotel Management, LLC (subsequently known as Morgans Hotel Group Management, LLC) to manage the Shore Club. 

Philips South Beach is principally owned by Philips SB Associates, LLC and Clark SB II, LLC.

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Contact:

For Shore Club
Larry Winokur, 310-550-7776
lwinokur@bwr-la.com

For Morgans
Rubenstein Associates, Inc.
Gerald McKelvey, 212-843-8013

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Also See: Hip South Beach Hotel, The Shore Club, Abandons Plans to Convert to a Condo-hotel, Project Falls Apart After Ian Schrager Quit as CEO of Morgans Hotel Group, the Operator / August 2005
Ian Schrager and Partner Aby Rosen Acquire Three Riande Continental Hotels in Florida / December 2005


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