Babcock Partners Wins Multi-Million Dollar Commercial Arbitration Case

On January 1, 2008, Ashby Hospitality, LLC (“A LLC owned solely by Camm Morton”), assumed management of the Hilton Baton Rouge Capitol Center, a historic first-class hotel located in downtown Baton Rouge. Ashby’s management responsibilities are articulated in a Management Agreement  between Ashby and the owner of the Hotel, Capitol House Hotel Operating Company, L.L.C. (a subsidiary of the Baton Rouge Area Foundation). In exchange for managing the Hotel, CHH was to pay Ashby a management fee equal to 4% of the Hotel’s gross revenue.

For more than two years, Ashby did an exemplary job of running the Hotel. Ashby was instrumental in securing a Four Diamond rating from the American Automobile Association, the first Louisiana hotel outside New Orleans to receive such a distinction. During Ashby’s tenure as manager, the Hotel consistently ranked among the top 10% of Hilton-branded hotels in terms of customer service and was ranked as high as number three in the world. Ashby achieved those results while delivering approximately $1 million more per year to the bottom line of the Hotel than did its predecessor manager. 

Apparently that was not enough. In March 2010, at a time when the business travel and lodging industry was experiencing lower revenues across the board, CHH decided it needed to reduce or eliminate the monthly payment to Ashby. Since the Agreement contained no early-termination provision, CHH decided to fabricate a basis to claim Ashby was in default of the Agreement. CHH then sought to leverage the so-called default to compel Ashby to accept a reduced fee. When Ashby and CHH were unable to reach a compromise over a discounted fee, CHH demanded arbitration of its manufactured dispute claiming it was a dispute valued at $2,000,000.  Babcock Partners filed a counter claim, and recently won the litigation on all points.  Not a single demand made by Capitol House was granted.

The Baton Rouge Area Foundation Subsidiary was represented by Breazeale, Sachse & Wilson, L.L.P.

The Baton Rouge Business Report ran the following article on the case:

An arbitration panel has ordered an affiliate of the Baton Rouge Area Foundation to pay Camm Morton (right), the ousted manager of the Hilton Baton Rouge Capitol Center, for his company's management of the hotel. The Capitol House Hotel Operating Company dismissed Morton's company, Ashby Hospitality, from its management duties of the downtown hotel in June 2010.

Ashby was ousted in a dispute over who would pay for the accounting services at the hotel: the owners of the property or the management company. CHH says Ashby agreed to pay for accounting; Ashby says CHH paid the fees for two years and that the battle over accounting services was a ploy to force the management company to take lower fees.

The case went to arbitration, and earlier this month the panel issued an award in favor of Ashby, turning down every claim filed by CHH. The value of the award, which covers unpaid fees and the six months left on the Ashby contract, is estimated at up to $2 million.

Stephen Babcock, Morton's attorney, says the panel's findings will go to 19th Judicial District Judge Wilson Fields. "We expect Judge Fields to confirm the arbitration award in the next couple of weeks," Babcock says. Morton developed the Capitol Center in 2006 and 2007, when he was president of Commercial Properties, the Baton Rouge Area Foundation's for-profit real estate company. He resigned from that position in December 2007 to form Ashby, which assumed management of the hotel the fol lowing month.

Jude Bursavich, an attorney representing CHH, says the dispute is still pending and would not comment further. In court filings, attorneys for CHH say they are weighing their options and that Morton should have nothing to do with operations of the hotel or its employees LIntil further notice.

- Timothy Boone

www.businessreport.com