|By Carolyn Shapiro, The
Virginian-PilotMcClatchy-Tribune Regional News
Sept. 29, 2012--Curtis Dixon Colgate grew up at The Cavalier Hotel in Virginia Beach.
When he was a baby, his family lived in the apartment building behind the Oceanfront landmark while his father managed it. He ate most of his meals there through grade school and spent summer days playing in the hotel's hallways and on the beach in front of it.
His sister worked for The Cavalier. His mother spent the final weeks of her life in a Cavalier room, where staff attended her before her death.
Colgate's family has owned The Cavalier since his grandfather bought it more than 50 years ago. Now his future with the hotel and the future of the hotel itself are uncertain.
The 85-year-old Cavalier, which helped establish the Oceanfront as a top tourist destination, is caught in the cross hairs of a family dispute that has played out in state courts since 2005. A lawsuit that Colgate and his sister filed against the company run by their uncle and cousin led a state judge recently to order the liquidation of its assets, including The Cavalier and its more modern sister hotel across Atlantic Avenue at 42nd Street.
A court-appointed receiver has taken over the hotel, with a charge to sell it eventually. Colgate's uncle and cousin, Gene Dixon Jr. and Guy Dixon, have filed their intention to appeal the decision to the state Supreme Court. On Tuesday, the Supreme Court denied the Dixons' motion to stop the breakup and sale of the company while the appeal is pending.
"It means business as usual right now," said John Craddock, a Richmond attorney representing Colgate, a Virginia Beach resident. "The hotel is still going to be running."
Along with The Cavalier, the family's profitable mineral mining operation faces potential sale under receivership, along with other assets of the parent company, The Disthene Group Inc.
Colgate, his sister and his father joined in a lawsuit filed against Disthene in July 2011 in Circuit Court in Buckingham County, where company headquarters and the mine are located. The siblings own 42 percent of Disthene's stock, according to court papers. Colgate's father, Marion J. "Boyd" Colgate Sr., is custodian of some of his son's shares.
In their suit, Colgate and his sister allege that their uncle and cousin tried to deny them the full value of their shares. They argue in the suit that Gene and Guy Dixon, who own all the voting shares in Disthene, have hidden the true value of the company from other family members and a few former company employees or children of employees who also own shares.
The Dixons wanted to keep the company's profits for themselves, "as if they owned the company in its entirety," and cut dividends paid to the minority shareholders while giving themselves large pay raises and bonuses, the suit claims. It also alleges that the Dixons used Disthene assets for their own benefit -- including a beach house owned by The Cavalier and "thousands of dollars worth of meals" at the hotel -- without properly compensating the company, and failed to run The Cavalier as a profitable business.
Disthene denied the allegations and argued that its owners had the right to use their business judgment to make decisions for the company, according to the decision by
Judge Jane Marum Roush, who heard the case in Fairfax County after Buckingham County judges recused themselves.
In her decision dated Aug. 30, she wrote: "Gene and Guy did not exercise their good faith business judgments in their dealings with the plaintiffs and other minority shareholders. They were motivated not by the best interests of the corporation but by their personal best interests."
In an email sent Thursday from Alan Wingfield, the Richmond attorney representing them, Gene Dixon Jr. and Guy Dixon wrote that the company's successful history and dividend payments of about two-thirds of its profits belie the notion that they have oppressed shareholders or mismanaged Disthene.
A related lawsuit filed in 2005 by Colgate and his sister alleged that their uncle mishandled their grandmother's trust, which held company shares that were to be divided evenly among her five grandchildren, by denying them their portion of the stock.
That suit was heard in Virginia Beach Circuit Court, also because Buckingham County judges recused themselves, and was settled. The judge in that case has ordered Gene and Guy Dixon to appear in court next month, however, to answer Colgate and his sister's charges that their uncle has failed to meet the terms of the agreement.
The lawsuits, Colgate said, have ripped apart his relationship with his uncle and cousins, including Gene Dixon's youngest children, with whom Colgate spent many summers in Virginia Beach.
"That's the worst thing about all this, is because it was family," said Colgate, 33.
"It's a shame we've had to fight -- between the two of us -- for seven years now to be treated fairly."
Colgate's grandfather, Gene Dixon Sr., made his fortune mining kyanite, an exceptionally hard, heat-resistant mineral used in high-temperature manufacturing of porcelain and automotive products such as brake shoes. The mineral was once called disthene.
As family legend tells it, Gene Dixon Sr. visited The Cavalier for dinner and was told he needed a tie to enter the dining room. With his open collar, he left the hotel but vowed to buy the place one day. He did, in 1960.
The original hotel, now called Cavalier on the Hill, opened in 1927. It's a grand brick Colonial structure trimmed in bright white and overlooking the Atlantic Ocean. Guests have included President Richard Nixon, actress Judy Garland and writer F. Scott Fitzgerald.
Dixon ran the hotel with a local management group for 14 years. They opened the 11-story sister hotel, Cavalier Oceanfront, across Atlantic Avenue in 1973.
At that time, the original Cavalier closed, and its contents were auctioned. After his father died, Gene Dixon Jr. bought out the local management group and reopened the first hotel in 1976.
Today, Cavalier on the Hill closes between Labor Day and Memorial Day weekends.
A Disthene Group subsidiary, Cavalier Hotel Corp., owns the two hotels among multiple parcels that encompass 14 acres in Virginia Beach.
"In fact, the Cavalier Hotel loses money each year," though the Dixons consider it to "break even," Roush wrote in her decision.
An appraiser who testified in the case "found the hotel to be in only fair to good condition," according to court papers. "He opined that renovation is needed. He found that The Cavalier Hotel performs poorly compared to other hotels in Virginia Beach. It has a 27 percent occupancy rate, while other hotels in the area enjoy a 50 percent occupancy rate."
Neither the court-appointed receiver, Charles Goldstein, nor the hotel's general manager responded to requests for interviews.
In the email sent through their attorney, the Dixons called it "a privilege" for the company to have owned The Cavalier.
"It is Disthene's... fervent hope -- whatever the ultimate outcome of this litigation and receivership -- that the grand old property at 42nd Street and Atlantic will stay intact," the Dixons wrote.
Gene Dixon Sr. and his wife, Mallie, had two children, Gene and Jeanne, Colgate's mother. Gene Dixon Jr. took over Kyanite Mining Corp., which later became Disthene, and his son Guy later joined him as a director.
Colgate's sister, Sharon Newcomb, is the child of Jeanne and her first husband. She lives in Florida now and is 15 years older than her brother, whose father is Jeanne's second husband. Colgate's father served as a manager and then CEO of The Cavalier for about a decade, until 1989.
The family tension began after Colgate's mother died in 1988, when he was 9. Colgate said Gene Dixon Jr. made a "death-bed promise to my mother," who asked her brother to treat her two children fairly, he said.
"Yet, shortly after Jeanne died, and without explanation, Sharon was fired from her minimum-wage, non-management job at The Cavalier Hotel and evicted from company-provided housing," Judge Roush wrote in her decision.
Colgate attended Hampden-Sydney College, his uncle's alma mater, and studied economics. After graduation, he asked his uncle whether he could start working for The Cavalier at the entry level. Dixon declined, Colgate said.
"I really wanted to learn the family business," he said. "He suggested I go work for the Hilton."
For years, Curtis Colgate had little involvement in any part of Disthene, he said. When he learned of a company reorganization plan in 2005, he attended a shareholders meeting and began to ask questions.
Soon after, he discovered that the stock that was designated for him and his sister in his grandmother's trust had been moved into a separate company, called Peaceful Valley, with the intention of keeping them from acquiring their stake in the company, according to the court papers. That's when Colgate and his sister filed the first lawsuit, which resulted in their taking ownership of Peaceful Valley.
In the more recent suit, Roush concluded that Gene Dixon acted "to retaliate" against his niece and nephew for their 2005 lawsuit.
"The plaintiffs have not been treated fairly by Disthene and its management," the judge wrote in her decision. "They have instead been treated as irksome interlopers, problems to be dealt with, preferably by squeezing them out at a below-market price, or slashing their dividends in the hope of depriving them of the financial wherewithal to seek legal recourse."
Colgate owned a security-staffing company and sold it in 2006. Today, he serves on the Virginia Board of Game and Inland Fisheries and does some consulting for business startups.
To pursue the suit, Colgate said, he and his sister have spent nearly the value of the company shares that they sought to restore to themselves. "The lawsuit has taken over my life," he said.
He has not ruled out the possibility of purchasing The Cavalier himself, he said. One of his goals with the lawsuit, he said, was to find new owners who would bring the venerable institution to its full potential.
"The hotel will be run better as a result," he said. "That's all I want."
Pilot news researcher Maureen Watts contributed to this report.
Carolyn Shapiro, 757-446-2270, firstname.lastname@example.org
(c)2012 The Virginian-Pilot (Norfolk, Va.)
Visit The Virginian-Pilot (Norfolk, Va.) at pilotonline.com
Distributed by MCT Information Services London:DXNS,