The Chancellor Hotel sold for $31 million in December to a Chicago real estate group that announced plans to convert the 207-unit Fayetteville landmark into a boutique Graduate Hotel this fall.
But that mighty deal — in which Darryl Schulte Jr., CEO of Schulte Hospitality Group in Louisville, Kentucky, sold to A.J. Capital Partners of Chicago — comes with a backstory that is now the subject of breach-of-contract litigation in Washington County Circuit Court.
The tale starts in 2011, when Sam Alley of Little Rock and Ike Thrash of Hattiesburg, Mississippi, paid $3.8 million for what was then called the Cosmopolitan Hotel. In 2017, Thrash and his sons, Ike W. Thrash Jr. and Joseph Thrash, decided to sell their 60% interest and were negotiating with A.J. Capital.
Schulte, whose management company ran the Chancellor, told Ike Thrash he wanted to purchase the hotel instead, and, the lawsuit says, Thrash agreed — provided Schulte would not sell the Chancellor to A.J. Capital in “the immediate future.”
That deal that was finalized in January 2018. Six months later, Schulte made a deal to sell the hotel to A.J. Capital in violation of the parties’ agreement, according to the Thrashes’ lawsuit, filed by attorney Don McKinney of Adams & Reeves LLP in New Orleans.
Alley is a not a party to the lawsuit.
The Thrashes’ lawsuit says Schulte received $2.5 million more for the sale than he had paid; the Thrashes want their 60% of that — $1.5 million.
The lawsuit alleges that Schulte’s deal also included management agreements with other Graduate hotels in A.J. Capital Partners’ portfolio.
Flipping The Chancellor isn’t the Thrashes’ only gripe.
Other plaintiffs include six hotel ownership groups led by Ike Thrash that had management agreements with Schulte, including Arkansas Hospitality Group, which owns the DoubleTree by Hilton in Fort Smith. The lawsuit said the Thrashes’ hotel groups terminated their management agreements with Schulte in March because Schulte’s “mismanagement” resulted in declining revenue.
The hotel groups allege that Schulte made numerous transactions to “mask” the deteriorating financial condition of the hotels. They also allege that he improperly transferred hotel employees to Graduate hotels in what the lawsuit calls “theft of employees.”
The lawsuit alleges numerous violations such as breach of contract, bad faith and breach of good faith and fair dealing. It is asking for compensatory and punitive damages as well as attorney fees and legal costs.