July 06, 2012--The owner of The Modern Honolulu hotel in Waikiki has settled a bitter and costly dispute with the luxury hotel's former operator, Marriott International, in a move that clears the way for the property to exit bankruptcy.

Modern owner M Waikiki LLC will pay Marriott an undisclosed sum in return for the hotel management firm dropping a lawsuit and withdrawing its opposition to a Chapter 11 reorganization plan for the 353-room hotel that Marriott helped design and open two years ago.

The amount of the payment wasn't disclosed in U.S. Bankruptcy Court filings.

However, Bankruptcy Judge Robert Faris ruled in early June that a reasonable estimate of how much Marriott should be paid for lost management fees and expenses was $20.7 million. Marriott had sought $72 million for what it contended was an unjust breaking of a 30-year management contract.

M Waikiki is to make the settlement payment by July 30 and satisfy all other debts as part of an amended reorganization plan filed Monday.

Chuck Choi, a local attorney representing roughly 200 unsecured creditors collectively owed between $1.5 million and $2 million, said the Modern Honolulu's bankruptcy case should wrap up this month.

"Unsecured creditors are pleased and relieved that the litigation has settled," he said, adding that unsecured creditors will be paid in full and promptly.

Exiting bankruptcy will end a troubled chapter for a hotel that was envisioned to kick off a new chain of luxury "lifestyle" hotels featuring chic design and amenities.

M Waikiki, a company set up by San Diego-based real estate investment firm Erealty Cos. and majority-owned by the Davidson Family Trust of Incline Village, Nev., bought the former Yacht Harbor Tower of the Ilikai Hotel for $112 million in 2006, and transformed the property into the Waikiki Edition with Marriott and noted boutique hotel and nightclub designer Ian Schrager.

The hotel opened in September 2010 and was the first in a global line of Edition hotels planned by Marriott and Schrager, the man behind famed New York disco Studio 54. The hotel is home to Morimoto Waikiki restaurant established by celebrity chef Masaharu Morimoto, and Addiction Nightclub, formerly known as Crazybox.

But in its first year, the hotel suffered an $8.4 million operating loss, according to bankruptcy filings.

M Waikiki representatives said Marriott was unwilling to make cuts, so the owner took over the hotel one day last August at 2 a.m. by removing Marriott managers and replacing them with personnel from an affiliate of local hotel management firm Aqua Hotels & Resorts.

M Waikiki and Marriott jousted over the replacement in a New York court, but after a judge ordered management returned to Marriott, M Waikiki blocked the move by filing for bankruptcy in January.

The dispute continued in Bankruptcy Court and involved close to two weeks of trial hearings attended by dozens of lawyers and consultants. Marriott had proposed its own reorganization plan and had objected to a plan advanced by M Waikiki.

With the settlement, Marriott has withdrawn its competing plan and its objection to M Waikiki's plan. Marriott also has agreed to drop the New York litigation.

Representatives of Marriott and M Waikiki could not be reached for comment on the resolution Thursday.

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