Hotels

Property owner scores early wins against Virgin Hotels, as lawsuit proceeds to trial

A juicy court case between Virgin Group’s hospitality arm and a disgruntled hotel owner has seen the latter chalk up a couple of early wins.

The legal dispute began back in May when Virgin Hotels filed a lawsuit alleging that the termination of its hotel management agreement in April with 250 Fourth Development LP – an entity connected to Paradigm Hotels Group, owned by Jay Singh – was a violation.

The San Francisco property at the centre of the lawsuit was managed by Virgin Hotels, which the company temporarily closed in March due to the COVID-19 pandemic.

Virgin Hotels CEO Raul Leal claims the Sing notified the company of his intention to “prematurely and unlawfully” terminate the agreement shortly after the hotel’s closure, and less than a year after fully opening.

After hitting back at the lawsuit by describing it as a “misguided” attempt by Virgin Hotels to deflect scrutiny by Richard Branson’s Virgin Group from its own failures, Singh’s legal team filed an original cross-complaint in July, before filing an amended cross-complaint a month later.

The cross-complaint by 250 Fourth Development LP alleges that Virgin Hotels made numerous misrepresentations by, among other things, knowingly overstating hotel gross revenues to inflate its management fee and misrepresenting bonus amounts due to hotel employees.

As a result of the alleged fraud and mismanagement, 250 Fourth Development LP claims the loss of tens of millions of dollars in unrealised hotel profits and the lost value of the property.

In total, 250 Fourth Development LP is asserting five causes of action against Virgin Hotels, including breach of contract and fraud, which Virgin Hotels has demurred or moved to dismiss.

Last month, the court entered an order overruling Virgin Hotels in its entirety, vindicating each and every one of 250 Fourth Development LP’s claims. In so doing, the court noted that the hotel owner’s first amended cross-complaint “adequately pleads constructive fraud”.

And just week, the court denied Virgin Hotels’ efforts to freeze more than $2 million of 250 Fourth Development LP’s property to secure what it claimed was outstanding expenses that had either been paid or was owed to third parties.

The case now proceeds toward trial.

William Brewer III, partner at Brewer, Attorneys & Counselors and counsel to 250 Fourth Development LP, said: “Our client is grateful that this case is moving forward and is eager to proceed to trial.

“For years, our client put faith in Virgin and its assurances that it was creating a first-class brand.

“Our client believes that not only has Virgin failed to create the ‘promised brand’, it grossly mismanaged the San Francisco property in an effort to boost Virgin Hotels’ own bottom line.”

Singh said: “We look forward to this property becoming a leading West Coast travel destination.

“Free from the burden of a non-existent brand, we look forward to creating a world-class experience for hotel guests, our employees, and the local community.”

Travel Weekly has contacted Virgin Hotels for comment.


Featured image source: Virgin Hotels



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