Lavish Hotel Hounded by Unpaid Contractors : Ritz-Carlton’s Owner Sued by 12 Builders in Billing Disputes
Five months after its gala opening, the $80-million Ritz-Carlton luxury resort hotel in Laguna Niguel faces troubles that its lavish decor, sweeping ocean views and growing clientele can’t cure.
The touted success and opulence of the hotel, which elicits “oohs” and “ahs” from first-time visitors, rankle many who helped to build the sprawling Mediterranean-style edifice, from the lagoon-shaped swimming pools to the marble-finished bathrooms in its 393 guest rooms.
“I’m sick of reading about the (hotel’s) chandeliers and teas at two,” said John Stephens, executive vice president of Stolte Inc., a Los Angeles-based firm that served as general contractor on the Ritz-Carlton. Stephens said he refuses to step inside the hotel until he gets paid.
Stolte, along with 11 subcontractors and a representative of seven union trust funds, has sued the owner of the hotel, Monarch at Laguna Beach, claiming bills totaling $8.9 million have not been paid. Monarch is a limited partnership controlled by Atlanta-based W. B. Johnson Properties. Stolte, in turn, has been named in suits against Monarch filed by subcontractors that Stolte hired for the jobs.
As negotiations over the unpaid fees continue between Stolte and the hotel’s owners, the Ritz-Carlton’s management has had to contend with a tarnished image and to fend off constant rumors of pending bankruptcy or a forced sell-off. The hotel claims, however, that business has remained good. Hollywood celebrities, nationally known politicians and chairmen of major corporations have been among its pampered guests.
Earlier this week, representatives of Prudential Insurance Co. were sizing up the hotel and its business prospects. The New Jersey company is in negotiations of its own with Johnson Properties --but the talks center on Prudential’s interest in acquiring an equity interest in the Ritz-Carlton and providing long-term financing for the project, according to Johnson attorney Jim Selna. Long-term financing could retire Johnson Properties’ $95-million debt for existing loans.
In its lawsuit, Stolte claims that of the total unpaid on the $41-million hotel construction project, Monarch still owes it $2.5 million. The remaining $6.4 million, Stolte contends, belongs to 55 subcontractors and union trusts for construction workers’ benefits. In addition to the 12 suits filed so far against Monarch and Stolte, unpaid contractors have filed an estimated 30 to 40 liens against the hotel property to collect their bills.
Johnson Properties, however, is delaying payment to Stolte because it disputes some of the claims. Of the unpaid fees, only about $1 million is in dispute, according to Stolte and Johnson Properties representatives.
Stolte and Johnson Properties, which have repeatedly failed to come to terms, embarked Wednesday on a new round of negotiations. Both sides said they hoped to find a way to pay at least some of the smaller contractors whose claims are not disputed and for whom the payment delay is causing the most hardship.
‘Little Guys Crucified’
But by late afternoon Wednesday, Stephens was pessimistic about the chances for even a partial compromise.
“The little guys are getting crucified in this,” said Stolte’s Stephens. He said that although Stolte, as a subsidiary of Los Angeles-based National Medical Enterprises, a $3-billion-a-year conglomerate, can survive the payment delay, some of the subcontractors are struggling to stay in business.
Johnson Properties’ attorney Selna blamed the problems in part on the rush to finish the hotel, which opened Aug. 27, two months late. Although construction continued into late September, no payments were made after July, said Stephens.
According to the subcontractors, there were an unusually large number of changes ordered during construction because Johnson Properties, after it acquired the right to the Ritz-Carlton name, decided to build a more elaborate hotel than originally planned.
“The paper work basically didn’t keep up with the project,” said Selna, who maintained that Johnson Properties didn’t have time to process all the “change orders” from Stolte to the subcontractors.
Douglas Wallace, an attorney for Hoffman & Son, a Long Beach electrical contractor on the project, said: “All the contractors agree that this started as a Holiday Inn sort of thing and somewhere between first base and home plate it grew into a Ritz-Carlton hotel.” Hoffman claims it is still owed $1.4 million for its work on the Laguna Niguel resort.
John Beswick, the painting subcontractor on the hotel, claims he is owed $700,000. “It is not fair at all,” said Beswick, who declared that after the hotel plans were upgraded his $425,000 job expanded into a $1.3-million contract. At the request of the general contractor, he said, he doubled his work force and employed them overtime, paying them out of his own pocket until he could be reimbursed.
Bill Going Unpaid
Beswick said his bills are going unpaid while waiting for Monarch to pay him. He is unable to pay federal payroll taxes, paint suppliers and union workers’ benefits, he said. His unpaid bills have led to difficulty in hiring workers or ordering supplies needed for other jobs. “I am going to have to borrow against my house and everything I can salvage” to pay creditors, he said. “It will wipe me out.”
Stolte’s lawyer, Bruce Herold, said Wednesday that the company was being pressured by one of the angry subcontractors, E. F. Brady Co. Inc., which contends it is owed more than $1 million. Herold said Brady is trying to get a court order to impound Stolte’s funds in the amount of the unpaid bills.
Stolte, in turn, may exert its own pressure on Monarch. Herold said the company is “seriously considering” seeking a court order that would install a marshal in the Ritz-Carlton lobby to impound funds when guests pay their bills.
