JQH faces management contract suit

A hotel ownership group that led a 2005 minority shareholder buyout of national hotel management firm John Q. Hammons Hotels Management Co. LLC has moved to end the two-year reign of JQH Hotels CEO Jacquie Dowdy.

The successor of John Q. Hammons is a 30-year company veteran and Hammons’ former assistant. But Dowdy may have to step down as the management company’s top executive if Atrium TRS LLC and affiliates win a lawsuit filed July 20 in Delaware Chancery Court.

Atrium, led by principal Jonathan Eilian, and affiliates claim Dowdy violated a management contract by appointing herself CEO in 2010 and attorney Greggory Groves as general counsel earlier this year, according to the court record.

The suit also claims Dowdy assumed Hammons’ $200,000 salary and directed the company to pay more than $1 million in bonuses to workers after waiving performance requirements, which violated the contract agreement, the filing states.

Phill Burgess, vice president of sales and revenue management, said the company is fighting the claims in the suit.

“We’re going to establish in court that our company has not violated the terms of the management services agreement,” Burgess said. “Under the leadership of Jacquie, the company has effectively managed the hotels in our entire portfolio. This lawsuit is not going to have any impact on the operations of the company.”

Groves said JQH Hotels, which manages 78 properties, was limited in what it would say about the ongoing suit.

“This is just one of those things we can’t try in the media,” Groves said.

Scott Edelman, one of five attorneys from two East Coast firms representing the plaintiffs, declined to comment, and other legal representatives of Atrium did not reply to Springfield Business Journal’s requests by press time.

In 2005, Atrium led a buyout of $132 million of JQH Hotels’ stock, effectively privatizing the formerly public company.

According to the court record, founder Hammons gave Dowdy power of attorney over his business and personal affairs in 2008. When he stepped down from his post in October 2010 due to health reasons, Dowdy appointed herself CEO, ignoring the contract that grants the hotel ownership group approval rights for senior management, the plaintiffs claim.

The plaintiffs state Dowdy provided notice that she was filling the CEO position on a temporary basis, and then it wasn’t until April 5, 2011, that the group was notified that Dowdy was appointed to fill the role. Atrium claims it was not allowed to weigh in on the move. On April 8, 2011, Atrium notified the company that it did not approve of the appointment.

“Notwithstanding that disapproval, Ms. Dowdy continues to purport to act as CEO,” Atrium said in the filing, claiming Dowdy is unqualified to hold the position. “Prior to Ms. Dowdy’s self-appointment as CEO, she managed fewer than five employees and was not considered to be part of the management company’s senior management.”

The suit seeks an injunction prohibiting Dowdy from acting as CEO and calls for Daniel Abernathy, a former JQH Hotels sales and marketing vice president, or Ronald Brown, who has worked in various positions with Starwood Hotels & Resorts Worldwide Inc., to take her place on an interim basis.

In May, Groves succeeded longtime JQH attorney Justin Harris. Groves and Harris previously worked as partners in Lowther Johnson Attorneys at Law LLC, which operates out of Hammons Tower.

Harris was at least the fourth JQH Hotels executive to leave the company following Hammons’ retirement. Scott Tarwater, who had served as JQH’s vice president of development, left abruptly, and corporate architects Steve Minton and David Horst were part of the seven-member design team let go once Dowdy was in place. Tarwater, Minton and Horst all currently work for Springfield-based O’Reilly Hospitality Management LLC, while Harris left to pursue unrelated family-owned and startup business ventures.

The breach of contract suit is not the first time JQH has squared off in court with Atrium and its leader, Eilian, a private investor who helped start Starwood Hotel & Resorts Worldwide.

Last year, a Delaware court ruled in favor of JQH Hotels when a group of minority stockholders challenged the $24 per share price received through Atrium’s purchase of JQH stock in 2005.

An ongoing suit, filed in April by Scottsdale, Ariz.-based Rogers Funding LLC – also led by Eilian – claimed Dowdy exaggerated Hammons’ and his trust’s net worth by $1 billion when refinancing a loan for a Rogers, Ark., hotel and convention center. The Rogers Funding suit claims the net worth and assets are actually less than $400 million. Rogers Funding – which purchased the loan for the development – said the financial misrepresentation could lead to a loan default with Barclays Capital Real Estate Inc.

Burgess said the company is fighting the suit and expects the court to issue a judgment in its favor.

“As a borrower, we have made all the payments due under the loan documents on a timely basis, including those due after the loan was acquired,” Burgess said. “Again, this lawsuit will not impact our operations, and we will continue to make our payments in a timely manner.”

JQH Hotels was founded in 1958 when Hammons partnered with Roy Winegardner to purchase 10 Holiday Inn franchises and selected Cincinnati, Ohio, as its first location. In 1994, Hammons’ company went public, selling 6 million shares for more than $100 million. In 2005, the company returned to private ownership when shareholders agreed to Eilian’s acquisition through Atrium and its affiliates.

Today, JQH Hotels employs roughly 9,000 workers in 27 states, and operates on a 2012 budget exceeding $800 million. Known as a prolific hotel developer prior to the recession, the company has failed since 2008 to secure financing for major projects planned in Colorado Springs, Colo., and in Springfield, adjacent to Hammons’ University Plaza Hotel, according to SBJ archives.

Web Editor Geoff Pickle contributed to this story.