Indignant at hotel operator, unit owners at North Beach’s Carillon sued. They just got $16M

When a wealthy asset manager plucked the iconic Carillon complex out of bankruptcy in 2015 and soon after sent acclaimed spa operator Canyon Ranch packing, unit owners at the North Beach luxury resort/condo were aghast. They said it was the start of a slow erosion of amenities that they treasured — and paid dearly for — at the three-tower high-rise overlooking the surf and sand.

So they sued.

The relationship went downhill from there, perhaps reaching rock bottom when management at the hotel operated by Z Capital inside the complex tried to assess the unit owners millions of dollars to cover the cost of fighting the owners’ own lawsuit.

This week those owners got a measure of payback: $16.3 million worth.

A Miami-Dade circuit judge awarded the unit owners that amount in damages after ruling that the hotel owner — which unit owners refer to as the “the hedge fund” — over-charged the property’s three associations for years in spa, electricity and hotel fees.

Miami-Dade Circuit Court Judge Michael Hanzman, the same judge who handled the litigation over the collapse of Champlain Towers South, said Z Capital and the Carillon Hotel owe that amount.

“Let’s all take a big, deep breath and appreciate that the judicial system worked to address a serious wrong,” read an email sent by the associations of all three Carillon buildings to their unit owners.

But the legal battle has not been fully resolved. The legality of parts of the contract between the hotel and resort owner and the buildings’ associations is still in question.

“We feel vindicated by the jury’s decision to award us these funds,” said unit owner Sue Goldmark in a text message to the Herald after the verdict was read. Goldmark has lived in one of the building’s units with her husband since 2012. “After years of pursuing this case and pushing pushing pushing Z Capital to get the financial documents we needed, we hope finally to have closure.”

Unit owners interviewed by the Herald said they had bought in the complex because of the services offered by Canyon Ranch, known for its comprehensive health, fitness and wellness programs.

In an emailed response to the Herald, a spokesperson for the Carillon Hotel, which operates in the Central Tower, said the $16 million amounts to a fraction of the initial claims, “which may be further reduced on the final verdict.” The spokesperson did not want to be named.

Z Capital, which says it is a private equity fund, is expected to appeal the verdict.

The Carillon, on Collins Avenue between 68th and 69th streets, has three towers — Central, North and South. Each has its own governing board. A fourth governing body, known as the Hotel Lot Owner, functions as such for the hotel, the spa and the restaurant within the complex. It also governs the hallways, elevators, pools and other shared spaces. Through the Hotel Lot Owner association, it charges owners from all three towers fees to cover the cost of maintaining those amenities.

According to the unit owners who filed the suit in 2016 and spoke to the Miami Herald earlier this year, the quality of those amenities has deteriorated for years, after Z Capital Group bought the property for $21.6 million while the hotel and resort were tangled up in a bankruptcy.

This meant Z Capital and Carillon Hotel LLC, both led by Z Capital CEO James Zenni Jr., now controlled what the fourth HOA governs, including the resort and spa.

Initially called the Carillon, the complex changed its name to Canyon Ranch, for the revered health-and-wellness company that was brought in to run the resort after a massive rehab. Owners told the Herald earlier this year that those were the golden days.

When the hotel and resort changed ownership in 2015, unit owners asked that the spa continue to be run by Canyon Ranch. But that did not happen. The name of the complex reverted to Carillon.

Unit owners say since then the amenities have not met previous standards, even though the Carillon Miami remains one of the top 15 domestic spas as ranked by Travel + Leisure Magazine as well as one of the top 10 destination spa resorts in the US by Condé Nast, magnet for the wealthy and popular with celebrities. Meanwhile, owners of the units wondered where the money paid into the fourth association was going and whether it was being properly accounted for. They asked to examine the books and audit the numbers, but said they were denied access.

In the lawsuit, which was filed in March 2016, the unit owners alleged that Z Capital claimed the prior owner left the books and records “in a state of disarray,” which resulted in a delay in getting the owners a look at the books. The owners also said that Z Capital insisted only board members could see the numbers.

Six years after the owners filed suit, the unit owners received a letter from Z Capital saying that due to millions of dollars in legal fees as a result of the unit owners’ lawsuit, the owners would have to pay an assessment, which essentially meant they were being billed to defend against their own lawsuit.

The bills, itemized unit by unit, were as high as $4,200 per month for a period of six months, depending on the value of each owner’s unit. That was apart from the substantial, regular HOA fees they were already paying plus their own lawyers’ fees.

Judge Hanzman stopped Z Capital from collecting those fees. He also, conversely, stopped the unit owners, through the Central Tower association, from seeking to foreclose on units owned by Z Capital, which the company integrated into its hotel operation, over legal fees rung up by the association while suing Z Capital.

In the verdict read this week, the jury also concluded that the Carillon Hotel breached its contract with the three buildings’ associations by denying them fair access to the shared facilities records and awarded the three associations $1 in nominal damages for the breach.

In a letter sent to unit owners after the verdict was reached, the Carillon Hotel said: “Despite our continued belief that this lawsuit is without merit and our best efforts to fully resolve this case, we will keep working tirelessly to maintain a world-class property for the benefit of the homeowners and our hotel guests.”

The letter also called attention to a new restaurant that opened in the complex the previous week.

In an emailed response to the Herald, a spokesperson for the Carillon Hotel said that the associations had initially sought around $460 million, which was then reduced to $33 million by the Court at the start of trial. “The jury’s decision further lowered the damages to approximately $16 million, a fraction of the initial claims which may be further reduced on the final verdict.”

Eugene Stearns of the Stearns Weaver Miller law firm representing the associations, said that the initial claim of $460 million was before the court said that the valuation cases had to be brought by the unit owners and not the associations. He also noted that the associations sought $22 million and were awarded $16 million.

“If they think that’s a victory, then I’m sure they’re going to get out their checkbooks and pay us the $16 million dollars tomorrow… but they’re not going to do that, they’re going to fight tooth and nail ‘til the cows come home,” Stearns said.

More legal trouble for Z Capital and CEO

Last month, the national law firm Akerman filed a lawsuit in Miami-Dade against Z Capital for unpaid invoices that included work with the Miami Beach hotel and two lawsuits involving the hotel, including the one whose verdict was reached Tuesday.

According to that lawsuit, Z Capital owes the firm almost $2.3 million in unpaid invoices for work done since the middle of the last decade.

A firm spokesperson for Z Capital declined to comment on the Akerman lawsuit and its allegations.

Fight not yet over

The associations have also alleged that parts of the “Master Declaration” — that’s the contract put in place by the hotel even before Z Capital took over, which governs the relationship between the hotel lot owners and the associations’ presidents — is in violation of Florida condominium laws.The claims question the legality of the ownership structure of what unit owners consider essential assets: hallways, elevators, air conditioning, lobbies in all three buildings.

Although they were in place before Z Capital took over, unit owners say the significant escalation of assessments, along with the deterioration of the upkeep of the Carillon, got them to see the injustices.

That separate question of legality will be answered early next year.

Unit owner Kai Bird told the Herald in an email that the association believes the Master Declaration has been used by Z Corp to run the Carillon “wholly in the interest of the hotel business without regard to the interests of the 500 condo owners.”

“We want him [CEO James Zenni Jr.] out of Miami Beach and hope this lawsuit persuades him to sell the Carillon,” Bird said.