In lawsuit, Host Marriott accused of mismanagement Group of investors files class action


August 04, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

A group of investors has filed a federal class-action lawsuit against Host Marriott Corp., charging the Bethesda-based lodging owner with breach of contract, violations of the federal Securities Exchange Act of 1934 and breach of fiduciary duty.

The lawsuit, filed in U.S. District Court in Baltimore by a Texas physician who is a member of Potomac Hotel Ltd. Partnership, contends that the company has been "continuously managing the partnership's financial affairs in a way that served its own interests and those of its affiliates."

Host Marriott also "did knowingly, willfully, or recklessly make false and misleading statements of material facts" in connection with a 1995 loan refinancing, the lawsuit alleges.

Host Marriott officials did not return telephone calls for comment.

Potomac Hotel bought 11 hotels in 1982 for $348.3 million, raising money for the transaction through sale of stock to more than 1,000 individuals. Despite Host Marriott's promising to pay investors dividends, the group has received no money, said Frederick C. Leiner, an attorney with Tydings & Rosenberg LLP, which is representing the investors.

The lawsuit, filed last month, also claims that Host Marriott "deliberately" entered into an "unreasonable" management contract with sister company Marriott International Inc. that has generated tens of millions of dollars in fees but cost investors $8,000 and generated "substantial adverse tax consequences" for them.

The group contends that Host Marriott took $45 million from Potomac Hotel; allowed three of its projects to fall into foreclosure for defaulting on a loan and then repurchased one of the properties from its lender; and misled investors about the transaction.

The lawsuit marks the latest in a series of legal entanglements for Host Marriott involving about 30 partnerships that raised more than $3.5 billion from investors to buy hotels that have failed to generate promised returns.

Nationwide, investors have filed more than a half-dozen lawsuits against the hotel owner. The company settled several of the lawsuits after buying investors' stock in the hotels, however.

Most recently, Tydings & Rosenberg represented Host Marriott partnership investors who won $22.3 million in a settlement against the company.

In the case of Potomac Hotel, the projects are in Houston; Tampa, Fla.; Raleigh, N.C.; Dallas; Miami; Albuquerque, N.M.; Seattle; and Scottsdale, Ariz.

Pub Date: 8/04/98

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