Compagnie des Grands Hotels d'Afrique SA v Starman Hotel Holdings LLC - United States District Court District of Delaware Case No 1-18-cv-00654-SB-SRF - Complaint - 30 April 2018
Country
Year
2018
Summary
I. OVERVIEW OF THE COMPLAINT
A. Background
B. The Arbitration Before the ICC International Court of Arbitration
II. THE PARTIES
III. RELEVANT NON-PARTIES
IV. JURISDICTION AND VENUE
V. FACTUAL BACKGROUND
VI. CHANGE IN OWNERSHIP OF THE MANAGER AND THE GUARANTOR
VII. EVENTS AFTER DEFENDANT STARMAN'S ACQUISITION OF THE MANAGER
A. The Operating Agreement Between the Manager and Starwood Hotels
B. Defendant Starman's Express Assumption of the Manager's Obligations
C. Changes at Defendant Starman and Judgment-Debtor Woodman After Plaintiff CGHA Alleged Default Under the Management Agreement
VIII. PLAINTIFF CGHA'S COMMENCEMENT OF THE ARBITRATION AGAINST JUDGMENT-DEBTOR WOODMAN, AND DEFENDANT STARMAN'S SALE OF WOODMAN
A. Commencement of the Arbitration
B. Plaintiff CGHA'S Emergency Motion to the Arbitrators and the Issuance of the Interim Order
IX. THE ARBITRATION HEARING AND THE ARBITRATION AWARD
X. DEFENDANT STARMAN CONTROLLED AND DOMINATED JUDGMENT-DEBTOR WOODMAN, AND DEFENDANT STARWOOD CAPITAL GROUP CONTROLLED AND DOMINATED STARMAN AND WOODMAN
A. Defendant Starwood Capital Group Publicly Acknowledged its Control of Defendant Starman
B. Defendant Starwood Capital Group Controlled and Dominated the Entities Upstream from Defendant Starman in the Ownership Structure
C. The Entities Upstream from Defendant Starman in the Ownership Structure Were Undercapitalized by Defendant Starwood Capital Group
D. The Entities Upstream from Defendant Starman in the Ownership Structure Lacked Infrastructure
FIRST CAUSE OF ACTION
SECOND CAUSE OF ACTION
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I. OVERVIEW OF THE COMPLAINT
1. Plaintiff Compagnie des Grands Hôtels d'Afrique S.A. ("CGHA") brings this action under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 ("New York Convention") to enforce against Defendant Starwood Capital Group Global I LLC ("Starwood Capital Group") and Starman Hotel Holdings LLC ("Starman") an arbitral award dated May 6, 2015, by the ICC International Court of Arbitration in London, United Kingdom in favor of CGHA against Woodman Maroc S.à.r.l. ("Woodman" or "Judgment-Debtor Woodman").
A. Background
2. Plaintiff CGHA is the owner of a luxury hotel in Casablanca, Morocco called the Royal Mansour Hotel ("Hotel"). In 1989, CGHA entered into a management agreement with an international hotel group, pursuant to which that group was to be the manager of the Hotel for a term of 35 years. The manager was given total authority over management decisions, but was responsible for the maintenance of the Hotel and was required to maintain the Hotel to certain standards. In particular, the management agreement provided that the manager would always maintain the Hotel at its historical level as an international five-star hotel. The management agreement also provided that the manager would make quarterly fee payments to CGHA as owner of the Hotel.
3. By 2005, Le Meridien Group ("Meridien" or the "Meridien Group") had become the owner of the manager of the Hotel. In 2005, Defendant Starwood Capital Group and the investment bank known as Lehman Brothers purchased the owned and leased properties of the Meridien Group, including the manager of the Hotel. Specifically, Starwood Capital Group and Lehman Brothers formed Defendant Starman to purchase those assets from Meridien, with respective affiliates of Starwood Capital Group and Lehman Brothers each holding a 50% interest in Starman.
4. Through the acquisition of those assets from Meridien, Defendant Starman became the owner of the manager of the Hotel. In 2006, the name of the manager was changed to Woodman.
5. Defendant Starwood Capital Group and Lehman Brothers required as a condition of the Meridien transaction that the owned and leased properties acquired by Defendant Starman be managed by Starwood Hotels & Resorts Worldwide, Inc., including one or more of its affiliates (collectively, "Starwood Hotels"). Starwood Capital Group and Starwood Hotels were closely affiliated: during the planning and negotiation of the acquisition from Meridien, Starwood Capital Group and Starwood Hotels shared the same Chief Executive Officer and Chairman, Barry S. Sternlicht ("Sternlicht"); and up through at least 2004, Sternlicht was the largest non-institutional shareholder of Starwood Hotels, holding over 4% of its publicly-traded shares. Sternlicht founded Starwood Capital Group in 1991, and he also created Starwood Hotels in the mid-1990s and managed it for nearly a decade after its formation.
6. In 2005, consistent with the requirement that all of the properties purchased from Meridien be managed by Starwood Hotels, Defendant Starwood Capital Group and Lehman Brothers caused the manager of the Hotel, which was then owned by Defendant Starman, to enter into a separate operating agreement with Starwood Hotels. Pursuant to that agreement, the manager delegated management and operating authority over the Hotel to Starwood Hotels, as the manager's contractual agent. Plaintiff CGHA was not a party to the operating agreement, nor was it given notice of it.
7. No later than May 2008, Lehman Brothers had ceded operating authority of Defendant Starman to Defendant Starwood Capital Group and certain of its affiliates, and hereafter Starwood Capital Group and certain of its affiliates had sole control of Starman and Woodman. In the years following Defendant Starman's purchase of the manager of the Hotel,
8. Plaintiff CGHA repeatedly called on Starman and Woodman to comply with the terms of the management agreement and, in particular, to restore the Hotel to the required international five- star level. But they did not comply.
9. In 2011, Plaintiff CGHA formally accused Woodman of default under the management agreement, and promptly thereafter, Thierry Drinka ("Drinka"), an individual in whom Defendant Starwood Capital Group placed great trust and confidence to act on its behalf, and on behalf of its affiliates, acted as a manager of Woodman and took charge of its dealings with CGHA with regard to the allegation of default.
10. In 2011 and subsequent years, Drinka simultaneously served as a manager of Woodman and of Defendant Starman, as well as a manager of Starman's direct owner, and as a manager of other entities upstream from Starman in the ownership structure created by Defendant Starwood Capital Group. Other senior executives of Starwood Capital Group served alongside Drinka as managers of Starman's direct parent, and as managers of the other entities upstream from Starman. Even though there were many limited liability entities, including foreign entities, in the ownership structure between Starman and Starwood Capital Group, Starwood Capital Group controlled and dominated all of those entities.
11. Between March 2011 and January 2013, Drinka, acting as a manager of Woodman and Defendant Starman, simultaneously (a) deflected Plaintiff CGHA's accusations of default with false statements that Woodman was in full compliance with the management agreement, and (b) on behalf of Defendant Starwood Capital Group, took steps to make Woodman readily disposable so that CGHA would never be able to hold Woodman accountable for the serious injury it was inflicting. Among other things, on one day in February 2012, Drinka, acting as Starman's manager, caused Woodman's shares, and ownership of Woodman, to be transferred to three separate entities in rapid succession, with the shares eventually coming to rest in the hands of a newly-formed entity directly owned by Starman; at a later time this parent entity of Woodman would be sold by Starman to a third party for a pittance.
B. The Arbitration Before the ICC International Court of Arbitration
12. Beginning at the end of 2012, Woodman failed to make required quarterly fee payments to Plaintiff CGHA as owner of the Hotel. At that time, Drinka, acting as a manager of Woodman, informed CGHA that Woodman would not make any required payments to CGHA in the future.
13. In August 2013, Plaintiff CGHA commenced an arbitration proceeding against Woodman before the ICC International Court of Arbitration in London alleging breach of the management agreement ("Arbitration"). Woodman appeared in the Arbitration and participated in it for approximately 12 months. But in June 2014, Defendant Starman engaged in a transaction with a newly-incorporated third party to which Woodman's then-parent company was sold for 100, taking ownership of Woodman with it. It later emerged that, at the time of this transaction, Starman and the third party were both shareholders in a closely held entity called Eigg Bermuda Ltd., of which Drinka was Director and President. On August 11, 2014, following Starman's sale of Woodman's parent, including Woodman, to the third party, Woodman's counsel in the Arbitration gave notice that it was no longer authorized to represent Woodman, and Woodman ceased to appear in the Arbitration.
14. Plaintiff CGHA received notice of Defendant Starman's sale of Woodman and its parent shortly after it occurred, and, after learning that Woodman would no longer participate in the Arbitration, CGHA promptly sought interim relief on an emergency basis in the Arbitration in order to protect its interest in the Hotel and preserve any financial assets Woodman may have had.
15. In September 2014, the three arbitrators appointed to hear the case ("Arbitrators") issued an interim order ("Interim Order") granting interim relief to CGHA. Based on the suspicious, post-Arbitration sale of Woodman's parent, the Arbitrators concluded that there was a "serious threat" that Woodman's assets could somehow be diverted to the profit of Defendant Starman, and accordingly the Interim Order directed Woodman to, among other things, (a) immediately turn over possession and operation of the Hotel to CGHA, and effect an orderly handover of the Hotel's business, including the transition of Hotel guest and reservation data, (b) cease making payments to any third parties, and (c) account for all payments made by it to anyone since the end of 2012, when it had ceased making required fee payments to CGHA.
16. The Arbitration hearing proceeded in Woodman's self-imposed absence on January 28 and 29, 2015. On May 6, 2015, the Arbitrators issued an 82-page Final Award in favor of Plaintiff CGHA on its claims against Woodman ("Arbitration Award"). In the Arbitration Award, the Arbitrators focused on the requirement in the management agreement that Woodman must ensure "that the Hotel shall remain an international five star Hotel" and concluded "that the current condition of the Hotel is far short of an international five-star standard." The Arbitrators added, in summary, that they had before them "clear evidence of the lack of maintenance by [Woodman] and poor level of services in the operation of the Hotel at least since 2005, in breach of [Woodman's] obligations under the Management Agreement."
The Arbitrators also discussed in great detail the egregious failure of Woodman over many years to provide even rudimentary maintenance to the Hotel, and the related damage that it had caused to the Hotel.
17. In an extended analysis of the damages suffered by Plaintiff CGHA, the
Arbitrators found that Woodman owed CGHA an amount that, converted from the Moroccan
currency in which the damages were awarded, totaled approximately $57.1 million at then-
prevailing exchange rates, plus attorneys' fees and costs in the approximate amount of $2
million, together with 6% simple interest per annum for as long as the amount awarded remained
unpaid. Woodman has paid no part of the amount awarded, and significant interest has accrued
and continues to accrue on that amount.
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