Hotel Online
News for the Hospitality Executive


How to Terminate a Hotel Management Agreement:
A Tale of Two Hotels - Marriott's Edition Waikiki and Fairmont's Turnberry Isle Resort

Two owners terminate long-term hotel management agreements, seize control of their hotels
 from branded operators, and then settle their litigation

By Jim Butler and the Global Hospitality Group®
Authors of
July 9, 2012

Hotel Lawyer with an interesting comparison of two significant hotel takeovers -- Marriott Edition Waikiki becomes The Modern Honolulu and Fairmont Turnberry Isle & Resort drops Fairmont

Two significant hotel takeovers that started at virtually the same moment last August both settled last week. One is the widely-publicized takeover of the Edition Waikiki in Honolulu and the other is a little-publicized takeover of the Turnberry Isle Resort & Spa in the Miami where the owner terminated a "no-cut" hotel management contract with more than 50 years left to run and expelled Fairmont from the property.

JMBM's Global Hospitality Group®, together with local counsel Dennis Richard of Richard and Richard, P.A., represented the owner of the Turnberry Isle Resort & Spa in a major victory over Fairmont Hotels & Resorts, in Miami, Florida, by preventing Fairmont from re-taking the hotel. For reasons discussed below, that result is noteworthy when compared to the result in the case between Marriott and the owners of the Edition Waikiki in Honolulu, Hawaii.

The comparison between the Fairmont case and the Edition Waikiki case is particularly interesting, given that two unrelated hotel owners seized control of their hotels from their operators at virtually the same moment on Sunday morning, August 28, 2011.

Turnberry Isle Hotel & Resort, Aventura, Florida. JMBM's Global Hospitality Group® represented the owner of this iconic resort -- in designing and executing a successful strategy to terminate Fairmont's management contract and to oust Fairmont from the property. The Federal Court's decision upheld our interpretation of the applicable legal principles, superseding various express contractual terms. Fairmont's suit to regain control of the hotel was soundly defeated on all grounds.

The owner's takeover was validated in the Fairmont case, while the owner's takeover in the Edition Waikiki case was not. Independently commenced at the same time, both cases have now independently settled -- within a week of each other by the end of the first week of July 2012. In both cases the owners terminated long-term, "no-cut" hotel management agreements with major hotel brands.

Important legal decision issued on terminating hotel management agreements

Last October, a Miami Federal District Court dashed Fairmont Hotel's hopes of regaining management control over the Turnberry Isle Resort & Spa, in Aventura, Florida (near Miami). The Court's order denied Fairmont's request for a preliminary injunction to be reinstated as the operator of the hotel. Fairmont's management agreement would have allowed it to operate the hotel for up to 50 years.

Turnberry v. Fairmont decision is likely to become a frequently cited case

We believe that this 71-page opinion written by Magistrate Judge Goodman and adopted and reaffirmed by Judge Donald L. Graham is destined to become one of the most cited cases in the area of hotel management agreements. Although infallibly grounded on legal precedent -- going back hundreds of years in English common law, a landmark U.S. Supreme Court case by Chief Justice John Marshall, and a well-known line of hotel cases -- this is one of the best-written, most thoroughly researched and comprehensive decisions in the area.

The Fairmont court had a clear grasp on extremely complex and difficult legal issues. Both federal judges in the case -- Judge Graham and Judge Goodman -- independently came to the same conclusion: Turnberry had the power to terminate the some 50 year agreement, despite its express provisions to the contrary.

Factual background of the Fairmont case

The Turnberry-Fairmont relationship at Turnberry Isle Resort failed, but they were stuck in a purportedly 50-year contract. That was when Turnberry came to JMBM's hotel lawyers to help evaluate options, devise a plan, and execute it. The plan worked.

Paraphrasing the Fairmont opinion: In the early morning of Sunday, August 28, 2011, Turnberry engaged in a bold, surprise takeover ousting Fairmont as the operator of the resort and terminating the management agreement without any advance notice. Turnberry demanded that senior hotel management immediately appear at the hotel on short notice on that Sunday morning, informed them once they arrived that Turnberry was de-branding the hotel and resort, and directed them to immediately leave the hotel property under the escort of an outside security team. Turnberry then changed the branding of the hotel, from napkins to marquees, retained employees loyal to Turnberry, switched to a different room reservation system and website, and removed all references to the Fairmont name.

The former Edition Waikiki now operates without Marriott as The Modern Honolulu. On July 6, 2012, settlement with Marriott was publicly announced. Unbeknownst to each other and separated by 6,000 miles and a 6 hour time difference, the owners of the Edition Waikiki and the Turnberry Isle Resort both took both control of their hotels at virtually the same moment on Sunday morning, August 28, 2011 -- 2 am Honolulu time which is 8:00 am Miami time.

Two days after the takeover, Fairmont sought emergency relief in federal court to get back into the hotel. The Court summarily denied Fairmont's request. Fairmont followed that with a request for a preliminary injunction seeking the same relief. After a trial on the matter, complete with testimony from top executives of Fairmont and the hotel owner, as well as industry experts, Magistrate Judge Jonathan Goodman, issued his Report and Recommendation that Fairmont's motion be denied.

Then Judge Donald L. Graham, having himself conducted an independent review of the record, found that Fairmont failed to meet its burden of persuasion on each of the four requirements for a preliminary injunction.

On October 14, 2011, Judge Graham issued his decision which "AFFIRMED, ADOPTED AND RATIFIED" Magistrate Judge Goodman's Report and Recommendation. As a result, Turnberry maintained control of the operations of the hotel and Fairmont was not reinstated.

Some interesting comparisons of Turnberry v. Fairmont and Edition Waikiki v. Marriott

The victory for Turnberry in the Fairmont case is particularly noteworthy when compared to the highly publicized litigation involving Marriott and the Edition Waikiki Hotel.
  • Both long-term, no-cut hotel management agreements are governed by New York law.
  • Unbeknownst to each other, both takeovers occurred on Sunday morning, August 28, 2011. While Turnberry took control of its hotel at 8:00 am Miami time, some 6,000 miles away, the owner of the Edition Waikiki seized control of its hotel "in the middle of the night" at 2 am Honolulu time. Given the six hour time difference, the takeovers occurred at virtually the same moment!
  • In contrast to Turnberry's successful takeover from Fairmont, however, the owner of the Edition Waikiki was ordered, within days of the takeover, to return the control to Marriott. To forestall Marriott retaking control of the hotel, the Edition Waikiki owner then filed bankruptcy in January 2012. Last week (the first week of July 2012), Marriott agreed to settle the case. The amount of the payment was not disclosed; however, the bankruptcy court judge had 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. With the settlement announced on July 6, 2012, Marriott has withdrawn its competing plan in the bankruptcy and its objection to M Waikiki's plan. Marriott also has agreed to drop the New York litigation.
  • Turnberry moved on from Fairmont, without a bankruptcy, and on June 28, 2012, the Court dismissed Fairmont's pending lawsuit for damages based upon a confidential settlement reached by the parties.
Court order and opinion in Fairmont v. Turnberry

There are many important parts to this opinion, but one major theme is summed up in this statement by the Court:

"The notion of requiring a property owner to be forcibly partnered with an operator it does not want to manage its property is inherently problematic and provides support for the general rule that a principal usually has the unrestricted power to revoke an agency."

The Court's full decision can be downloaded by clicking Fairmont v. Turnberry.

JMBM's Global Hospitality Group®, together with local counsel Dennis Richard of Richard and Richard, P.A., represented the owner of the Turnberry Isle Resort & Spa.

Do you need help with a hotel management agreement?

The hotel lawyers of JMBM's Global Hospitality Group® have negotiated, re-negotiated, litigated, arbitrated and advised on more than 1,000 hotel management and franchise agreements. We have current state-of-the-art experience in dealing with every major branded hotel operator, most of the independent managers, and all the significant franchisors.

Our business and legal experience from all these deals provides the largest virtual database of hotel management and franchise agreement terms in the world. JMBM can help you confidently establish reasonable "market" terms for your deal. With our HMA PRO™ process, we can help you recruit the right brand and get a management agreement you can live with.

It is always best to start out with the right brand and operator for your hotel ... and an agreement with fair terms you can live with. But when you don't have that advantage and the situation becomes unbearable, what can you do as an owner to renegotiate or terminate a long-term, "no-cut" management agreement?

We have developed some very effective tools for dealing with long-term hotel management agreement problems. Clients really value our more than 20 years of business and legal experience to help them evaluate the situation, identify alternatives, develop successful strategies and execute them.

The right outcome can unlock millions of dollars of value.

Articles about terminating hotel management agreements

This is Jim Butler, author of and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?

Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at [email protected] or +1 (310) 201-3526.
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.

Jim Butler

[email protected]


Receive Your Hospitality Industry Headlines via Email for Free! Subscribe Here  

To Learn More About Your News Being Published on Hotel-Online Inquire Here
Also See: EB-5 Lawyer Alert #3: Update on California TEA designation procedure. What's the problem in California! / Jim Butler, Catherine DeBono Holmes and Victor T. Shum / June 2012

How to Finance Hotel Development in 2012....Alternate financing for new hotel construction in a brave new world / Jim Butler / June 2012

'Cyber Accessibility' is the New Frontier for ADA Lawsuits. Your Next DOJ Investigation or ADA Class Action Could be Just a Mouse Click Away! / Jim Butler / June 2012

ADA Compliance and Defense Lawyer: ADA Experts Discuss Hottest Issues Facing the Hotel Industry Today / Jim Butler / May 2012 Launches; Portal to Knowledge for the Hospitality Industry; JMBM's Global Hospitality Group® of Hotel Lawyers Provide Comprehensive Hospitality Resource / May 2012

Update on California's EB-5 Policy Regarding Designation of Targeted Employment Areas or TEAs / Jim Butler / May 2012

Successful Joint Ventures for Hotel Development, Acquisition and Financing / Jim Butler / May 2012

Hotel Lawyer: Clarification on the DOJ's Amendment to the Pool Lift Extension / Jim Butler / May 2012

Hotel Lawyer from Meet the Money® - Lodging Industry Investment Council (LIIC) Announces its Top 10 Challenges for Hotel Industry in 2012 / Jim Butler / May 2012

Meet the Money® Conference Talks about Hotel Loans and Equity Investment, Creating Value with Hotel Value-add and Repositioning, Hotel Opportunistic Investment, Deal Making and Much More / Jim Butler / May 2012

ADA Compliance and Defense Lawyer Alert: Charles Schwab settles claim over website accessibility / Jim Butler / May 2012

EB-5 ALERT: California's New TEA Approach will Discourage EB-5 Investment in California / Jim Butler / May 2012

JMBM is One of 20 Hottest Law Firms in the U.S. Per the National Law Journal's Latest List / April 2012

Hotel Labor Lawyer: California Supreme Court Finally Gives Employers Some Good News in Brinker Restaurant Corporation v. Superior Court / Jim Butler & Travis Gemoets / April 2012

How to Negotiate a Hotel Management Agreement. 10 Tips for a Smoother Process / Jim Butler / March 2012

ADA Defense Lawyer: What does the ADA pool lift compliance extension mean to you? / Jim Butler / March 2012

DOJ Turnabout: Pool lift compliance deadline extended to May 15 / Jim Butler / March 2012

5 Things to Remember when Buying Hotel Notes / Jim Butler / March 2012

ADA Defense and Compliance Lawyer: More clarification or confusion on March 15 ADA standards? / Jim Butler / March 2012

ADA ALERT - A Call to Action Before the March 15, 2012 ADA Deadline / Jim Butler / February 2012 Interviews JMBM's ADA Defense and Compliance Lawyers: Hotels Handle Pool Lift Regulations / Jim Butler / February 2012

FBI Tips for Hotels; How to spot terrorists and what to do. / Jim Butler / February 2012

ADA Defense and Compliance Lawyer Advisory: DOJ Clarifies March 15, 2012 Mandatory Pool Lift Requirement! (Uh-oh!) / Jim Butler & Martin Orlick / February 2012

Quick! Can You Pass This 3-Question ADA Pop Quiz? / Jim Butler / January 2012

Hotel Lawyer in Los Angeles: ALIS - What's the commotion all about? Closing the conference hotel to outsiders. / Jim Butler / January 2012

Hotel Management Contract Disputes: Importance of 'Fiduciary' Duties in Owner-Operator Lawsuits / Jim Butler / January 2012

Litigation and Disputes Between Hotel Owners and Operators are on the Rise? Why? / Jim Butler / January 2012

ADA Defense Lawyer: New ADA Regulations Kick in Soon. Say goodbye to 'grandfathering' under the ADA / Jim Butler / November 2011

Hotel Lawyer in Washington D.C. - Why the Lodging Industry Will Continue to Do Well Despite Bumpy Markets and More / Jim Butler / November 2011

Chinese Investment in U.S. Hotels: What the Real Estate Professionals Want to Know / Jim Butler / October 2011

Hotel Lawyer in Dallas Listening to the Special Servicers / Jim Butler / October 2011

Hotel Lawyer with Optimism for the Hotel Industry from the Dallas Lenders Conference, Fishing for Solutions 2011 / Jim Butler / October 2011

Updating Service Animal Policies of Your Hotel or Other 'Place of Lodging' / Jim Butler, Martin Orlick and David Sudeck / October 2011

Hotel Industry Alert: Some things to feel (very) good about! / Jim Butler / September 2011

Hotel Lawyers in Phoenix: It's not just me. The market has changed in just the last 60 days! / Jim Butler / September 2011

Hotel Labor and Employment Lawyer Update: Controversial Union Rights Notice Subject to Legal Challenge - Employers Should Not Rush To Post It / Jim Butler & Scott Brink / September 2011

Hotel Franchise Lawyer: Hotel Franchise Agreements and the 5 Biggest Mistakes a Hotel Owner Can Make / Jim Butler & Robert Braun / September 2011

Hotel Labor and Employment Lawyer Alert: The NLRB is making it harder to stay union free / Jim Butler & Scott Brink / September 2011

Tips from Hotel Franchise and Management Lawyers: Beware the Trap of Changing Brand Standards / Jim Butler & Robert Braun / September 2011

Labor and Employment Alert: New Law Requires Employers to Post Employee Rights Notice by November 14, 2011; NLRB Publishes Final Rule for Notification of Employee Rights / Scott Brink , JMBM / September 2011

Hotel Lending Lawyer: What every hotel lender needs to know about hotel due diligence / Jim Butler & Guy Maisnik / September 2011

Hotel Lending Lawyer: What every hotel lender needs to know about Cash Controls / Jim Butler & Guy Maisnik / August 2011

Hotel Lawyers on Terminating Hotel Operators: M Edition Lawsuit Against Marriott Has a New Twist Marriott is Replaced Overnight / Jim Butler / August 2011

Hotel Lawyers on Terminating Hotel Operators: Turnberry Resort Drops Fairmont Flag / Jim Butler / August 2011

Hotel Lending Lawyer: What every hotel lender needs to know about SNDA's / Jim Butler & Guy Maisnik / August 2011

Hotel Lending Lawyer: What every hotel lender needs to know about HMAs and hotel franchise agreements / Jim Butler & Guy Maisnik / August 2011

Hotel Lawyer on the Importance of Brands - Intellectual Property Rights and What They Mean: Family Suites Resorts v. Viacom International d/b/a MTV Networks - a Suit Over Branding / Jim Butler / August 2011

Hotel Lawyer on the Fiduciary, Contractual and Agency Duties of Hotel Brokers - Host Hotels & Resorts LP v. Molinaro Koger Litigation / Jim Butler / August 2011

M Waikiki's Edition Lawsuit Against Marriott International and Ian Schrager - an Owner's HMA Dispute with Marriott and What it All Means / Jim Butler / August 2011

Hotel Investment: Why Asian investors are targeting U.S. hotels for purchase and investment, and what could it mean for you? / Jim Butler / August 2011

Hotel Developers: Why a "regional center" may be the key to financing your next hotel development or expansion. And what you need to know... / Jim Butler / July 2011

How to use the EB-5 Immigrant Investor Visa Program for financing / Jim Butler / July 2011

JMBM Announces Formation of the Chinese Investment Group™ - Hotels, Real Estate, EB-5 Immigrant Investor Visas / July 2011

Hotel Lawyer: How do you know when you should set up a captive insurance company for your hotel? Take our "litmus test". / Jim Butler & Gordon Schaller / July 2011

Hotel Lawyer: What you need to know about the "ancillary benefits" of setting up a captive insurance company / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer: Are you thinking about setting up a captive insurance company? Maybe you should be. . . / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer in New York with pre-NYU industry forecast: Sunny with occasional clouds and NO storms on the horizon / Jim Butler / June 2011

Hotel Lawyer with the Executive Roundtable Results; Debt is returning, equity is out looking, and we've passed the bottom of the trough. Why now is the time to purchase a hotel. / Jim Butler / June 2011

ADA Defense Lawyer: How to Quickly Lose Business. (No ADA-Compliant Reservation System) / Jim Butler & David Sudeck / May 2011

Hotel Lawyer with Fresh Perspectives on the Hotel Industry from Smith Travel / Jim Butler / May 2011

Hospitality Lawyers with PKF and Mark Woodworth's Lodging Overview / Jim Butler / May 2011

Hotel Lawyers' Updates on Capital and Debt Markets for Hotels, Transaction Sales Data and Financings / Jim Butler / May 2011

Hotel Lawyer with Updates on Hotel Cap Rates, Values and Transactions / Jim Butler / May 2011

Hotel Lawyer with nuggets from JMBM's Meet the Money® 2011 / Jim Butler / May 2011

Hotel Lawyer: The hotel transaction market is heating up! / Jim Butler / April 2011

Hotel Lawyer with good news! A new federal court decision upholds condo hotel structure. No "securities" involved as structured. Disgruntled condo hotel unit purchaser lawsuit dismissed. / Jim Butler / April 2011

Meet the Money®: Hotel Financing Renaissance is Underway! / Jim Butler / April 2011

JMBM’s Global Hospitality Group® announces publication of The HMA Handbook, a FREE practical guide for negotiating Hotel Management Agreements for Hotel Owners, Developers, Investors and Lenders / March 2011

Buying a Hotel? Don't Buy an ADA Lawsuit or DOJ Investigation / Jim Butler / March 2011

Hotel Lawyer on Hotel Management Agreements: Exculpation Clauses for Protecting the Owner's Assets / Jim Butler / February 2011

ADA Defense Lawyer: How to handle an ADA lawsuit....and How not to do it / Jim Butler / February 2011

Hotel Lawyer: 5 Key Elements for Good Hotel Management Agreement Budget Provisions / Jim Butler / February 2011

How improving fundamentals make 2011 the year of "Great Expectations" for the Hotel Industry / Jim Butler / February 2011

Ask the Hotel Lawyer: 2011 is starting as the year of "Great Expectations" for the hotel industry! / Jim Butler / January 2011

Hotel ADA Defense Lawyer: How a recent ADA case affects all hotels but particularly conference centers and meeting hotels / Jim Butler / January 2011

Hotel Lawyer: So, You Think You Want to Buy a Hotel? For savvy investors, the time could be right / Jim Butler / January 2011

Sheraton Universal Hotel Sale Facilitated by JMBM's Global Hospitality Group® / Jim Butler / January 2011

To search Hotel Online data base of News and Trends Go to Hotel.OnlineSearch

Home | Welcome| Hospitality News
| Industry Resources

Please contact Hotel.Online with your comments and suggestions.