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John Q. Hammons' 2005 agreement outlines a timeline for the sale of certain properties.
John Q. Hammons' 2005 agreement outlines a timeline for the sale of certain properties.

Judge: Over 30 Hammons' properties to be sold

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Over 30 hotels and other properties owned by the trust of late hotelier John Q. Hammons may have to be sold to his persistent rival, Jonathan Eilian, according to an October judgment in Delaware.

The decision served as a victory for Eilian, a frequent legal foe of Hammons, and could spur property sales by November 2017, based on the terms of the 2005 privatization agreement for John Q. Hammons Hotels Inc.

The court ruled J.D. Holdings LLC – Eilian’s holding company that nine years ago helped privatize Hammons’ publicly traded company – has the first right of refusal regarding properties Hammons developed outside of the scope of the public company.

According to the decision, which is based on previous pleadings and summary judgments in litigation that began before Hammons’ death in May 2013, Eilian had a 90-day window after the hotelier died to exclusively negotiate with Hammons’ representatives. After negotiations, the parties could not agree to terms or just what properties Eilian’s companies should get a crack at buying.

Following an analysis for Springfield Business Journal, Springfield attorney Michael Textor said Hammons’ attorneys could appeal the memorandum decision, but he wasn’t sure of specific rules or timelines under Delaware law.

“They suffered a setback and didn’t get what they were wanting, which was to continue to operate his hotels without having to liquidate them,” said Textor, an attorney with Polsinelli PC.  

J.D. Holdings’ attorneys argued that under the 2005 agreement – which gave Eilian’s holding company indirect ownership of 43 Hammons’ hotels and management of 15 others – properties owned by a JQH entity must be sold 54 months after Hammons’ death. They said Hammons’ representatives could sell the subject properties to anyone, but J.D. Holdings’ first right of refusal allows Eilian and parties to match any offer another buyer would make.

Attorneys for the defendants, which included John Q. Hammons Hotels’ CEO Jacquie Dowdy, The Revocable Trust of John Q. Hammons and affiliates, argued definitions in the agreement were unclear and the first right of refusal was invalid.

While the judge agreed with Eilian’s side, he declined to decide which properties need to be sold, saying there wasn’t enough information in the pleadings. However, Chateau on the Lake in Branson was identified in the case as a property not subject to sale.

Part of the issue is that Hammons’ trust not only owns properties Hammons developed after 2005, but it also holds interest in W&H Realty Inc., which owns a dozen hotels, Winegartner & Hammons, which owns two hotel properties, and a 20 percent stake in Des Plaines Development LP.  

According to details outlined in the factual basis for the decision, Hammons avoided capital gains taxes associated with selling off the public company and secured $300 million in credit to develop other hotels. Hammons’ management company also was allowed to continue to manage the hotels he developed but no longer owned.

Textor said it could be challenging for Hammons’ affiliates to find suitable buyers not affiliated with Eilian because other potential buyers aren’t likely to spend the thousands or tens of thousands of dollars necessary to perform due diligence and secure financing for a bid, knowing Eilian could simply match their bids.

The decision is the latest in a sordid legal history between Eilian and Hammons’ company leading up to the Springfield hotelier’s death.

In July 2011, Atrium TRS LLC, led by Eilian, and its affiliates claimed 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. A lawsuit filed last year in Cook County, Ill., by Eilian’s SFI Belmont LLC – which seeks to recover $140 million on a $275 million line of credit backed by the Hammons’ estate – is ongoing.

Sheri Smith, a Dallas-based spokeswoman for Hammons Hotels, declined an interview request on behalf of the company, but provided a statement by email.

“The John Q. Hammons companies will continue to aggressively defend our interests during this ongoing litigation while actively pursuing our claims,” the statement reads.[[In-content Ad]]

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