Ark Services Co. v. Foster Hotels International Inc.
Published: Dec. 16, 2000 | Result Date: Aug. 11, 2000 | Filing Date: Jan. 1, 1900 |Case number: SCV23867 Verdict – $5,146,000
Court
San Bernardino Superior
Attorneys
Plaintiff
Defendant
Experts
Plaintiff
Brian P. Brinig
(technical)
Defendant
Richard Swig
(technical)
Facts
According to the plaintiff: Ark Services, a subsidiary of Seattle based Northwest Lodging Inc., sued Rabweh for
breach of a 30-year lease agreement entered into on Oct. 13, 1994. Rabweh is a California group owned by his
Highness Sheikh Mohamed Bin Salman Al Khalifa, a member of the Royal family of Bahrein. The Royal
family wanted to buy the San Bernardino Convention Center Hotel from its bankrupt owner, Maruko of Japan,
but they needed approval of the city council. While they owned numerous hotels in the Middle East and
England, the Royal family had no experience operating a hotel in the United States.
When the lease agreement was executed in October 1994, it was represented to the San Bernardino City
Council that Rabweh would own the hotel. The city approved the sale to Rabweh and the lease with Ark
Service based upon an experienced hotel management company, Ark Services, running the property. The hotel
was then transferred to Foster Hotels, a California corporation, owned by Sheikh MohamedÆs son, Sheikh
Hamad Bin Mohamed Bin Salman Al Khalifa. Rabweh was then a shell corporation with no assets. Sheikh
Hamad informed Ark Services that the contract was between Ark and Rabweh, not enforceable against Foster
Hotels, which elected to self manage. After a two-month trial, the jury returned a $5,145,000 verdict against
Rabweh as the party to the contract.
On Feb. 2, 2000, there was a hearing on the equitable issues before Judge Edwards, who ordered Foster Hotels
to transfer the property to Rabweh free of all liens and found that Foster Hotels, Sheikh Mohamed and Sheikh
Hamad were the alter egos of Rabweh and thus jointly liable for the judgment. On Feb. 2, 2000, Judge
Edwards reduced the jury verdict to $1.5 million based upon a $1 million termination clause contained in the
lease plus $500,000 in prejudgment interest.
Ark argued that the termination clause did not apply because the defendants never acknowledged the lease or
exercised the clause.
According to the defendant: Ark Services sued Rabweh for breach of a 30-year lease agreement signed on Oct.
13, 1994 by a purported agent of Rabweh. When the lease agreement was executed in October 1994, it was
represented to the San Bernardino City Council that Rabweh would own the San Bernardino Convention
Center Hotel after the initial sale to Foster Hotels. After the city approved the sale, the hotel was transferred to
Foster Hotels. Rabweh never acquired title to the hotel and contended that the lease was signed by an
unauthorized agent.
Judge Edwards ordered Foster Hotels to transfer the hotel to Rabweh and found that Foster Hotels, its
shareholders and Mohamed were the alter egos of Rabweh and thus jointly liable for the judgment. On Feb. 2,
2000, Judge Edwards reduced the jury verdict to $1 million based upon a $1 million termination clause
contained in the lease.
Settlement Discussions
The plaintiff demanded $1 million before trial. The defendants offered $100,000 before trial.
Damages
The plaintiff claimed $5.6 million to $9 million in lost profits.
Other Information
According to the plaintiff: The case settled for $1,547,672, on the day post-trial motions were to be heard, and judgment was satisfied on Oct. 19, 2000. Brian Brinig testified that if Ark had run the hotel, Ark would have realized profits of approximately $5.6 to $9 million. Richard Swig testified that the hotel never made a profit in the past and would not in the future. According to the defendant: The court awarded prejudgment interest of $500,000 in post-trial proceedings. The plaintiff tried the issue of punitive damages to the jury in a separate proceedings, in which the jury awarded $1.
Deliberation
six days
Poll
10-2
Length
two months
For reprint rights or to order a copy of your photo:
Email
jeremy@reprintpros.com
for prices.
Direct dial: 949-702-5390