Investors in a Host Marriott Corp. partnership have filed a lawsuit claiming the company committed fraud and has consistently failed to act in good faith, a move that could release a flood of litigation by other similar groups.
The lawsuit filed by Courtyard By Marriott II Ltd. Partnership also contends that the Bethesda-based hotel owner and the related Marriott International Inc. misled investors and has failed to maximize investor value.
Additionally, the lawsuit accuses Host Marriott of "engaging in a continual plan and scheme at the expense of the partnership."
Host Marriott officials could not be reached for comment on the lawsuit yesterday.
The Courtyard lawsuit, filed June 7 in Texas state court, represents the latest legal entanglement involving one of 30 Host Marriott-controlled partnerships comprising thousands of investors who provided $3 billion in capital to the company to expand in the late 1980s.
The Courtyard lawsuit, for instance, involves nearly 150 investors in 32 states and Britain, including former New York Yankees pitching great Whitey Ford, according to lawsuit documents.
In all, the investors provided $147 million to purchase 70 Courtyard hotels in 1987.
At the time, Marriott pledged Courtyard investors would receive: An after-tax return of 300 percent over 15 years.
Annual dividends of 10 percent starting in 1988 and increasing to 27 percent this year.
And, a return of half their investment after a debt refinancing in 1992 and another in 1996, the suit said.
At issue now, however, is whether the company has backed away from various guarantees -- including dividend payments.
In the Courtyard case, investors have failed to receive dividends because the hotels failed to generate projected income levels; Marriott terminated a pledge to guarantee $60 million worth of debt until December 1997; and Marriott refinanced debt with high-interest junk bonds, the lawsuit stated.
In another partnership case, a Delaware judge on Wednesday dismissed investors' request to block the company's potential $112 million purchase of shares in Marriott Hotel Properties II Ltd. Partnership. Despite the setback, the lawsuit over shareholder value is expected to continue. Investors claim the shares are worth at least $167 million.
Like the Courtyard partnership, various other partnerships also are considering suing Host Marriott for breach of fiduciary duty, negligence and misrepresentation.
"Similar arguments seem to be developing in many of these partnerships," said David Berg, a Houston attorney representing the Courtyard investors.
Pub Date: 6/15/96