Morgans Hotel Group Management moved to terminate its hotel management agreement with Baha Mar and has sought a temporary restraining order over an alleged “retaliatory” attempt by the resort to gain access to $10 million that it claims Baha Mar was not entitled to.
In court documents filed in the New York State Supreme Court obtained by Guardian Business, which list Morgans Hotel Group Management as the petitioner in the matter and Baha Mar and Deutsche Bank Trust Company Americas as respondents, it is said that Morgans Management notified Baha Mar on March 26, 2014 that its 20-year hotel management agreement (HMA) with Baha Mar “would terminate effective 30 days later”.
This came after Baha Mar was allegedly unable to fulfill what was required of it under the agreement.
These requirements of Baha Mar included obtaining a “non-disturbance agreement”, which would have ensured that in the event of a default or foreclosure under the Baha Mar loan, the lenders would not take certain actions to interfere with the operation of the hotel by Morgans Hotel Group Management. On March 20, 2014, Baha Mar allegedly advised Morgans it had been unable to obtain the non-disturbance agreement after being given almost three additional years to do so, according to the court documents.
The HMA entered into between Baha Mar and Morgans Hotel Group Management on July 31, 2011, for Morgans to develop and operate the 300-room Mondrian at Baha Mar hotel, had called on the hotel management company to put aside $10 million in Baha Mar’s name in the form of a letter of credit with Deutsche Bank.
According to filings by Morgans Hotel Group Management’s attorneys, this money, termed “key money”, was to be released in three installments to Baha Mar beginning 180 days prior to the opening of the hotel, but would “automatically be released” to Morgans on the effective date of any termination of the contract – April 25, 2014 in this case – should such a termination occur.
In April 23, 2014 court filings in support of an emergency restraining order stopping the transfer of the $10 million letter of credit from Deutsche Bank to Baha Mar until an arbitration panel could determine the merits of Morgans Hotel Group Management’s underlying dispute, Christina Hassan, senior vice president and associate general counsel of the company, stated that Thomas Dunlap, president of Baha Mar, sent a letter to Deutsche Bank “attempting to draw down the entire $10 million letter of credit”. Morgans was of the view that this move was contrary to the terms of the HMA.
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