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Maritz, Wolff & Co and the Ritz-Carlton Chain in a Management Contract
 Dispute Over Minimum Profit Levels at the Ritz-Carlton St Louis

By Lisa Brown, St. Louis Post-DispatchMcClatchy-Tribune Regional News

October 07, 2010 --CLAYTON -- The Ritz-Carlton Hotel, known for its genteel atmosphere, has become caught in a legal fight between the hotel owner and the Ritz-Carlton chain that manages the property.

A contract dispute over millions of dollars led the owner, Maritz, Wolff & Co., to threaten to cancel a management agreement with Ritz-Carlton Hotel Co., which in turn spurred Maryland-based Ritz-Carlton to file a lawsuit to stop this from happening. .

Though the dispute is heating up, the hotel is not in danger of ending its affiliation with Ritz-Carlton, Maritz, Wolff & Co. co-founder Lew Wolff said Wednesday.

"My sense is that it will get worked out," he said.

Maritz, Wolff, which has offices in Clayton and Los Angeles, owns 18 hotels in North America, including the Ritz-Carlton at 100 Carondelet Plaza. It has an agreement with the Ritz-Carlton chain to run the luxury hotel.

As part of the operating agreement, Ritz-Carlton promised that the hotel would make a minimum annual operating profit of $4 million "for any two consecutive fiscal years," according to the lawsuit filed by the hotel chain last week in St. Louis County Circuit Court.

If that doesn't happen, Ritz-Carlton could make up the shortfall or face the prospect of Maritz, Wolff ending the agreement.

For years this wasn't a problem, but the recession then took a toll on demand for the four-star hotel's swanky rooms, which can cost $400 a night.

In both fiscal 2008 and 2009, the hotel failed to make that minimum profit, according to the lawsuit, and in February, the Ritz-Carlton paid Maritz, Wolff $2.05 million to make up the difference.

After that payment was made, according to the suit, Maritz, Wolff informed the Ritz-Carlton that a minimum profit was also not going to be reached in the 2009-10 period, and it sought another payment.

Ritz-Carlton contends the target only applies to a new two-year period. Thus, the next period for consideration should be 2010 and 2011, the lawsuit said.

"Based upon a flawed reading of the performance standard, (Maritz, Wolff) recently has announced its intention to cancel the parties' long-term operating agreement unless Ritz-Carlton agrees to make multi-million dollar payments that are not required by the operating agreement," Ritz-Carlton argues in its suit.

The chain says it sought arbitration this year, but Maritz, Wolff declined.

Ritz-Carlton asked the court to bar Maritz, Wolff from ending the operating agreement before the payment dispute is resolved by the court.

"Such a termination would eliminate the Ritz-Carlton luxury hospitality brand in the St. Louis market and would cause Ritz-Carlton to suffer the significant loss of goodwill it has established and built in this market over the past two decades."

A spokesman for Marriott International, which owns Ritz-Carlton, said the company does not comment on pending litigation.

Wolff doesn't blame the Ritz-Carlton for the hotel's lagging profits. He said the hotel's revenue declines in the last two years are similar to declines at high-end hotels elsewhere.

"Most hotels have dropped down in revenue because of the recession," Wolff said.

Gary Andreas, an analyst at Chesterfield-based hospitality consulting firm H&H Consulting, said operation agreements that include minimum profit levels are common. "Marriott has the same type of agreements on other hotels they manage," he said.

The hotel industry has seen some improvements in occupancy and room rates this year after a dismal 2009.

"At the end of last year, things really bottomed out, and we're starting to see at least a start of a recovery," Andreas said. "The high-end hotels, however, have the biggest challenge in getting back rates back on track to pre-recession levels."

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To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

Copyright (c) 2010, St. Louis Post-Dispatch

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