All parties sign settlement in city’s lawsuit against Oread hotel

photo by: Nick Krug

Lawrence developer Thomas Fritzel watches a video presentation of a Rock Chalk Park proposal during the city commission meeting on Tuesday, Feb. 19, 2013, at City Hall.

All parties have signed a settlement in the city’s lawsuit against The Oread hotel, queuing the case up for dismissal by a federal judge in coming weeks.

Attorneys representing both sides informed the judge of the agreement in a status conference Friday. Brad Russell, the attorney representing the city, told the judge both sides had signed the settlement.

“I’m pleased to report that as a result of the ongoing mediation, the case has resolved by way of settlement,” Russell said.

The lawsuit accuses hotel developer Thomas Fritzel of fraud and racketeering. The settlement provides $650,000 in damages to the city and includes an amendment to the hotel’s incentives agreement that will cut millions of dollars from its value. Fritzel must also resign his management position for the remainder of the hotel’s incentives agreement.

The city has not been distributing the rebates from the hotel’s taxing and development district since questions regarding the hotel’s actions arose in 2015. The finalization of the settlement means the city will collect the $650,000 in damages from those funds, and release the remainder to the hotel.

The only back-and-forth between the parties at Friday’s status conference pertained to the time frame for the rebates remaining in the city’s possession to be distributed to the hotel. Steve Six, an attorney representing the hotel, requested that the funds be released before a payment on the hotel’s property taxes on May 10. The judge ultimately decided that the city would disburse the funds via the court on May 5.

Russell later said that once the city deducts the $650,000 in damages, about $400,000 will remain in the fund. He said that now that the settlement is final, the hotel’s incentives agreement will resume under the new parameters from the amendment, which reduces the agreement’s total value by about $3 million.

“That was suspended when the controversy occurred,” Russell said. “And so the parties will now go forward with the prior understandings, subject to the changes to the redevelopment agreement.”

The settlement was reached after what Russell has described as a contentious mediation. The judge ordered the mediation, and the representatives of the city and hotel underwent two mediation sessions that totaled more than 18 hours.

Six did not immediately return a request for further comment regarding the resolution of the case.

In November, the city filed the civil lawsuit alleging that Fritzel had engaged in a fraudulent scheme to generate undue tax rebates from the city. The lawsuit alleges that Fritzel used other companies he controlled to improperly attribute retail sales at the hotel to collect inflated tax rebates. A city-commissioned audit report indicates that hundreds of personal purchases and construction materials for unrelated projects were all improperly reported as retail sales that occurred at the hotel.

The parties in the case must file the dismissal documents by May 9, and the judge is expected to dismiss the case by the following day. The dismissal of the civil lawsuit does not preclude a criminal investigation. Thus far, no criminal charges have been filed against Fritzel in Douglas County District Court or federal court.

Terms of the settlement agreement include:

Monetary damages: The city will collect $650,000 in damages from the hotel. The hotel will also pay the case’s mediation fee and reimburse the city for the filing fees of the lawsuit.

Amendment to incentives agreement: The threshold for when the city will begin receiving a share of tax proceeds from the hotel’s taxing district will be reduced from $7.1 million to $5.75 million. In addition, the amount the city is required to reimburse the developer for infrastructure will be reduced from $11 million to $8.5 million.

Management of Oread Inn L.C.: Thomas Fritzel will resign as co-manager of Oread Inn and shall not serve as the developer’s representative during the remaining term of the incentives agreement. Oread Inn and the city manager must mutually agree on two people to manage the hotel.

Oread Wholesale: Oread Wholesale will cease all operations within the tax district and will relocate outside of it.

Prohibited incentives requests: For a period of five years, Thomas Fritzel or any entity that Fritzel or his wife are affiliated with agree not to seek any incentives from the city that involve sales tax reimbursements.

Mandatory training: Managers with the Oread hotel must participate in training on sales tax sourcing laws, rules and regulations.

Annual audits: The city has the right to annually audit all sales tax records of all commercial entities in the taxing district. The developer must pay the cost of the audits.

Statements from Thomas Fritzel: Fritzel must agree that he will not make any public statement about the lawsuit or the settlement except for statements that he is pleased that the lawsuit has been resolved and that “city commissioners have exhibited a strong desire to project the public interest and…forcefully made their case in connection with the redevelopment agreement.”