The article posted Wednesday, Nov. 1, was updated Nov. 3.
By Cassandra Reinhart and Andrea Adelson, LB Indy
The local family that has operated the iconic Hotel Laguna for more then three decades intends to close its doors next month and has filed a lawsuit alleging they are being illegally forced out by the property’s owners.
With its lease ending Dec. 31, operators filed a notice with state regulators of the permanent closure of the hotel and termination of 141 hotel employees, effective Dec. 15, a document dated Oct. 12 and filed with the Employment Development Department shows.
Andersen Hotels, Inc., the group that has operated Hotel Laguna for 32 years, the same day sued the hotel property’s owners, E.W. Merritt Farms, for breach of contract and fraud.
The lawsuit, filed in U.S. District Court in Santa Ana, alleges that Merritt Farms, of Porterville, Calif., illegally “sold” the hotel under the guise of a 99-year lease to a group of prominent local business owners. The lawsuit names the new operators as Kimbark Group LLC, a Delaware company, real estate developers Joe Hanauer and James “Walkie” Ray and local IMAX filmmaker Greg MacGillivray. It alleges the local group self-described themselves as Hotel Laguna’s new “owners” and asks the court to bar the group from using the trademarked name, among 12 allegations altogether.
“Had they handled this civilly we could have negotiated a peaceful turning over of the hotel, but at this point my client feels very wronged by the entire situation,” said attorney Proud Usahacharoenporn, representing Andersen Hotels and its president, Georgia Andersen.
Under the current lease agreement, Andersen Hotels has the first right of refusal should Merritt Farms decide to sell the 63-room hotel operation, according to the lease terms outlined in the lawsuit. The lawsuit alleges that Andersen Hotels learned of the 99-year lease to the above named new “owners” in January of 2017, and that Merritt Farms has failed to disclose the terms of the agreement to the hotel operators despite repeated requests.
“My client feels she has been treated very poorly,” Usahacharoenporn said. “She negotiated a lease that gave her first right of first refusal if the landlord was going to sell the hotel.”
Andersen Hotels also alleges loss of business due to cancelled reservations because of the uncertainty of the hotel’s operating future.
“They are refusing to give us any information about the agreement so that we can determine what to do with the hotel, the employees, the tenants, the guests,” Usahacharoenporn said. “This has caused a lot of business interruptions to my client because of the uncertainty.”
Hanauer and Ray declined comment on the suit and the group’s intentions for the property. “So, while our plan for guiding this iconic hotel property’s future will prove beneficial for all of Laguna—our primary interest being the preseveration of Laguna’s historical buildings and charm—it is premature to discuss the specifics at this point,” MacGillivray said in a statement.
The city’s development director, Greg Pfost, said he had met with Hanauer and MacGillivray and advised them about downtown development regulations and standards, but no application has yet been submitted.
In recent days, Hotel Laguna Beach Club members also received notices of the club’s closing effective Dec. 15, said longtime member and local resident Susan Pons. Memberships began at $1,500 a year and entitled guests food service on the sand.
The hotel’s website shows no rooms to be available after Dec. 1. Efforts to reach hotel retail tenants were unsuccessful.
Jake Shepard, a partner in E.W. Merritt Farms, had little comment, but did acknowledge that Merritt Farms had been served with the lawsuit.
“Many of the disputes and facts stated in the complaint are false,” Shepard said. “The lawsuit has been given to our attorney who will file an appropriate response as required.”
Merritt Farms, a melon grower, acquired the hotel in 1973, and Shepard said the hotel had “been in the family for decades.” Besides the prominent hotel corner at Coast Highway and Laguna Avenue, the Merritt family controls the entire block of waterfront properties south of the hotel, with the exception of the adjacent Wyland Gallery, city property records show.
Hotel Laguna, anchoring the south crescent of the town’s Main Beach, has deep roots in downtown, dating back to 1888. The current building, with Spanish-style arches and a bell tower, was rebuilt in 1930 and lured a prestige clientele, such as Errol Flynn. It has since remained an operating hotel, restaurant, and destination wedding spot, but has lost some of its status as newer properties outfitted with modern amenities have opened in recent years.
Andersen’s husband, Claes, who leased the hotel beginning in 1981, aimed to infuse the historic property with European flair, but relatively short lease terms discouraged capital improvements, says a confidential report prepared for another potential bidder. The most recent lease renewal in 2000 extended the contract until 2017, court records show.
The suit seeks unspecified actual and punitive damages to be determined at trial. Usahacharoenporn says jurors will decide for themselves. “It’s difficult to quantify what a 99-year lease is worth,” she said.
Restoration of other historic California hotel properties can require up to $1 million per room, said hotel broker Alan Reay of Atlas Hospitality Group in Irvine. “No one’s going to lease it based on its hotel revenue,” he said, but on its post-renovation potential. The development hurdles are significant, including the city’s height limits, view restrictions and sea level rise.
“I can’t think of a better opportunity that exists in California,” said Reay, noting the risk in such deals as the years-long renovation of the historic Miramar Hotel in Montecito. “It’s a prime example that has chewed up a lot of very wealthy people.”