Hammons Hotels chief under fire in net worth suit

The man who orchestrated a 2005 minority shareholder buyout of $132 million of John Q. Hammons Hotels Inc. stock has the hotel company CEO Jacquie Dowdy in his crosshairs.

For the third time in three years, Jonathan Eilian, a private investor who helped start Starwood Hotel and Resorts Worldwide, is behind a lawsuit filed against Dowdy and Hammons Hotels. The suits each take issue with Dowdy’s management of Hammons Hotels since John Q. Hammons stepped down from his executive post in October 2010 and call into question the value of Hammons’ estate, for which Dowdy now serves as successor trustee.

Since 2010, longtime Hammons confidant Dowdy has been at the center of a firestorm of accusations and misgivings surrounding her control of Hammons’ company and personal affairs.

Lingering loan issues
In the latest lawsuit, filed Aug. 12, New York lender SFI Belmont LLC seeks to recover $140 million on a $275 million loan backed by the Hammons estate. The suit, filed in Cook County, Ill., names as defendants John Q. Hammons Hotels Development LLC, Hammons Inc., and The Revocable Trust of John Q. Hammons – for which Dowdy is the successor trustee.

The loan was made to Hammons Hotels Development in 2005 through Jonathan Eilian-led Atrium Lendco LLC and its subsidiary, iStar Financial Inc. Eilian is a principal of Atrium Lendco, and iStar Financial Inc. is the sole member of SFI Belmont.

While the loan was secured by pledges of equity interest in certain entities, a key consideration in the suit is the net worth of Hammons, who died on May 26 at the age of 94. The outstanding principal was never to exceed $100 million or 40 percent of a minimum acceptable net worth standard, set at $250 million.

To comply with the terms of the loan, Hammons Hotels was required to submit regular certificates of Hammons’ net worth. Under Dowdy, the suit claims she attempted to disguise a decline in net worth through false certifications and delaying financial information tied to assets used in the evaluation of Hammons’ investments.

In October 2010, Dowdy notified Atrium and iStar Financial that Hammons was no longer able to act on his own behalf or manage his affairs and that Hammons’ impairment constituted a demise under the terms of the loan agreement. From then on, Dowdy prepared documents to satisfy the net worth reporting, according to the suit.

In March 2011, Dowdy submitted information on the 2010 financial condition of the trust, but SFI became concerned, according to the suit, because documentation of financials was not certified by longtime Hammons’ accounting firm BKD LLP and the asset valuations had changed little from previous years.

SFI noted one investment in a casino had not changed in four years, and a hotel development investment was valued at $37 million, though it was known to be in foreclosure. Because SFI did not agree with the valuation of Hammons’ assets, it sought its own independent appraisal.

A recalculation of Hammons’ net worth in September 2011 had it falling to $211 million, prompting SFI and iStar to call for a mandatory partial prepayment of the loan in the amount of $49.3 million. The failure of the hotel company to make the prepayment entitled SFI to ask for the entire loan to be repaid, according to the suit.

Following Springfield Business Journal’s requests for interviews, Sheri Smith, president of Dallas-based public relations firm Publicis PR, released a statement on behalf of John Q. Hammons Hotels Management Co.: “The company has received a copy of the complaint filed in Cook County, Ill., and has engaged counsel to aggressively defend against the baseless allegations brought by SFI Belmont LLC.  The lawsuit will have no impact on the operations of the company.”

Chicago attorneys Timothy Patenode and Jennifer Ryan, who represent SFI, did not respond to calls and emails for comment by press time.

Days in court
For Eilian, going after Dowdy in court is nothing new.

In July 2011, Atrium TRS LLC, led by Eilian, and its affiliates claimed nearly 40-year hotel veteran Dowdy violated a management contract by appointing herself CEO in 2010 and assuming Hammons’ $200,000 salary.

In April 2012, Rogers Funding LLC, also led by Eilian, claimed Dowdy inflated the net worth of Hammons trust by $1 billion when refinancing a loan for a hotel and convention center in Rogers, Ark.

Hammons Hotels has defended the claims in each of the suits.

Following Hammons’ death in May, Dowdy was criticized by members of Hammons’ family and longtime associates when he was buried in a private ceremony in Hammons’ hometown of Fairview.

At the time, JQH Hotels Senior Vice President and General Counsel Gregg Groves said the burial was coordinated by Hammons’ extended family. However, Janet Ballew, niece of Juanita K. Hammons, said there weren’t any family members she knows that were contacted about the funeral arrangements, and Scott Tarwater, a company executive who worked with Hammons for more than 20 years, said Hammons made it clear in the past he wanted to be buried at the Missouri Sports Hall of Fame.

When Dowdy took over operations in 2010, Hammons was moved to the Manor at Elfindale, 1707 W. Elfindale St., which led to a March 2011 petition brought by several of the hotelier’s friends, who were concerned about his private seclusion. The issues appeared to be resolved in May 2011, when a Greene County probate judge appointed Dr. James Coulter as Hammons’ legal guardian. The case was formally discharged on Aug. 19.[[In-content Ad]]