When a Texas judge herded two teams of lawyers into his courtroom a few weeks back for a quickie dress rehearsal trial, he hoped to provoke a settlement in the long and cantankerous legal feud between the Marriott hoteling conglomerate and the unhappy investors who own 70 Courtyard Hotels.
The idea was that lawyers for both sides would get a day apiece to make their case; then a jury would take a straw vote that wasn't binding.
Once the lawyers saw which way the wind was blowing, they'd sit down and cut a deal to end the legal fight over whether Marriott cheated investors by inflating the price of the properties and the fees it earns for running them.
The outcome of the mini-trial is still secret, but there's no doubt that it failed to accomplish its goal.
There's not even a hint of settlement talks. Instead of cooling off, the feud is heating up.
Last week lawyers for the investors launched a personal attack on J.W. Marriott Jr., patriarch of the Marriott family and its corporate empire, accusing him of making false statements in an affidavit filed in the case more than three years ago.
The charge, made as part of a motion to cite Bill Marriott for contempt of court, added an undertone of acrimony to a routine hearing in the case last week and infuriated Marriott lawyers.
"It was an unfortunate attempt to try to embarrass the chairman of the company," said attorney Richard Hoffman of Washington's Williams & Connolly, who represents the Marriott chairman.
The lawsuits were filed by investors who invested in Courtyard by Marriott II Limited Partnership, which owns 70 properties operated under the Marriott brand that caters to cost-conscious business travelers. The partnerships own the buildings and lease them to Marriott International Inc., which manages them.
The partnerships have not produced anything close to the income projected in 1987 when they were sold, so the partners have sued Marriott International Inc., Host Marriott Corp. and several of their subsidiaries.
For largely symbolic reasons, they want to sue Bill Marriott as well. For equally symbolic reasons, he'd just as soon not be a defendant. Last week the lawyers for the investors made another bid to pull Marriott back into the case by citing inaccuracies in a routine affidavit he signed about his role in the partnerships.
Washington lawyer Hoffman, who was brought into the three-year-old case a few months ago, is stuck with the awkward job of explaining how Bill Marriott's name got on the document. The court filing said he was not an officer of two corporate subsidiaries involved in the partnerships -- when records show he clearly was.
The answer, Hoffman said, is that Marriott has lots of subsidiaries. Company lawyers checked on these two and got it wrong. That mistake helped keep Marriott out of the lawsuits. Since he wasn't an officer, according to the filing, he couldn't be sued individually.
Whether the omission was simply a screw-up or a deliberate attempt to avoid liability will have to be decided by the judge in San Antonio who is handling the lawsuit.
The case was filed in Texas -- where state courts have a reputation for handing down big verdicts against big corporations -- and has been creeping through the judicial process for more than three years. There are also a batch of other, similar lawsuits filed in other courts around the country by investors in other Marriott hotel properties.
The Courtyard case is scheduled to go to trial in San Antonio in February, but Marriott recently asked that the trial be delayed until a special committee can review the whole dispute.
That issue could prove crucial to the outcome of the case, but the nasty fighting now is over the peripheral question of whether Bill Marriott himself should be a defendant in the lawsuits.
In the end, it will make no difference. If the partners win, any money they get will be paid by the various corporate entities. But the Marriott chief executive personifies the dispute for many of the partners.
"This goes all the way up to Big Bill," said Don Burklew, of King George, Va., who is one of two partners who are the plaintiffs of record in the case. The other, Art Milkes, lives in Gaithersburg.
The Marriott partners are at the high end of what could be considered small investors. The partnership interests came in $100,000 units and were supposed to be sold only to investors who certified that they had a net worth of at least $1 million and annual income of at least $200,000.
By investing in the hotels, partners expected to get a steady stream of income, but the properties have never met the projections. That's because Marriott sold the hotels to the partnerships for $252 million more than they were actually worth, the lawsuits contend. They say Marriott has been collecting 6 percent of the revenue for managing the hotels -- twice what they say is the industry average -- and has also overcharged for other expenses. The lawsuits contend the partners have been shortchanged by about $450 million. Add interest and expected future profit to Marriott and the lawsuits want $1.25 billion in damages. Marriott International and Host Marriott together had more than $10 billion in revenue in 1998.
Marriott counters that the partnerships put $147 million cash into the hotels, have gotten back $94 million since 1987 and still own 70 hotels whose value is appreciating. The vast majority of real estate partnerships sold in the late 1980s have gone bankrupt, note lawyers for the company. For the past three years, the investors have earned between 8 percent and 9 percent on their investment. Neither the prices paid for the buildings nor the fees charged for running them are out of line, Marriott says.
All those issues will be argued if the case ever comes to trial. That might never happen because of Marriott's latest legal maneuver, the partners contend.
Using a provision of Delaware law, Marriott this summer appointed a special litigation committee (SLC) to review the lawsuit. Legally charged with representing the interests of the partnership, the committee is headed by former FBI director William Webster and Charles Renfrew. In Delaware, where the partnership is incorporated, SLCs have the power to kill lawsuits such as this one or to require the company to settle.
The partners have asked the Texas court to throw out the SLC, which they say is illegal and is stacked against them. Two of the three Marriott executives who appointed the committee were involved in creating the original partnership transactions that are at the heart of the case, they complain.
A pair of professors not involved in the dispute agreed that the committee is not likely to help the investors' case.
"Well over 90 percent of the time" the committees come down on behalf of the company, said Marc Steinberg, a professor at SMU Law School in Dallas.
"If you had a truly independent SLC, you'd get something worthwhile," added Roman Weil, head of the University of Chicago's Directors College, which helps train corporate board members. "The bottom line for me is there's nothing wrong with an SLC except that in practice it's always a waste of time and a whitewash."
Marriott attorney Hoffman responds that Webster and Renfrew "are highly regarded and completely independent" and will do what's in the best interests of the investors.
The committee will bring only "duplication and unnecessary expense," complained officials with Equity Resource Group, a Massachusetts company that is the largest investor in the Courtyard partnership. We've already got one set of lawyers probing the transactions, they said, and don't need any more.
It's pretty hard to argue with the idea that the Courtyard-Marriott mess is creating jobs for lawyers. There are 17 law firms listed on documents filed in the case last week. It'll take a couple of hotels to house them all if the case comes to trial. And you can bet they won't be staying at any place as cheap as the Courtyard.