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Elsemore v. Lake Placid Group

December 7, 2007


The opinion of the court was delivered by: William K. Sessions III*fn5 Chief Judge


Plaintiffs, Terry Elsemore and Fractional Strategies, Ltd., entered into an employment contract with Defendant, the Lake Placid Group, LLC ("LPG"). Pursuant to this contract, Elsemore served as a consultant for the development of the Whiteface Lodge ("Lodge") in Lake Placid, New York. Following Elsemore's termination on May 10, 2004, Plaintiffs brought this suit seeking damages arising out of LPG's alleged breach of contract. A bench trial was held on October 3 and 4, 2007; the principal issue presented was whether just cause existed for Elsemore's termination. At trial, Plaintiffs also sought to amend the caption to add Resort Holdings - Lake Placid, LLC ("Resort Holdings") as a Defendant in this matter. For the following reasons, the Court grants Plaintiff's Motion to Amend and enters judgment in favor of the Plaintiffs.


A. The Genesis of the Whiteface Lodge

Joseph Barile is the sole owner and member of LPG. As the principal of various corporate entities, Barile has worked as a real estate developer in the Lake Placid area since 1983. In 1999, LPG purchased the property where the Lodge was subsequently built. LPG continued to own the property through 2003 when construction of the Lodge began. Subsequently the property was acquired by Resort Holdings, another entity of which Barile was the sole owner and member.

Built in the Adirondack revival style, the Lodge is a residential condominium hotel featuring eighty-five luxury suites and housing a number of businesses including restaurants, retail stores, and a full-service spa. In addition to providing traditional hotel accommodations, the Lodge also offers full and partial ownership opportunities. Under the Lodge's offering plan, units are to be sold in one-sixth fractional interests. Fractional ownership is largely akin to timeshare ownership, but is structured somewhat differently and is generally marketed for higher-end properties. The mechanics are as follows: a buyer who purchases a one-sixth fractional at the Lodge obtains a fee simple interest in the unit for every sixth week (approximately eight weeks per year) in perpetuity.

The original plans, however, differed a great deal from the Lodge's present form. Initially, Barile had planned to construct a high-quality extended-stay hotel. Plans for the extended-stay hotel were approved by local authorities in February, 2003, and construction was begun in April, 2003. Barile had secured $8.8 million to finance the project. In the summer of 2003, Barile learned of the fractional resort model and came to believe that this model would be ideally suited to the Lake Placid market and potentially more profitable. As a result, Barile decided to alter the plans for the project and began to work towards development of the Lodge as it now stands. As part and parcel of this shift, Barile also decided to enhance the scale of the project and to add a number of amenities, including indoor/outdoor pools, a year-round skating rink, restaurants, a spa and a fitness center. With these changes came concomitant increases in costs. As of the fall of 2003, Barile projected that the project would cost between twenty to thirty million dollars; however, at trial Barile estimated that the actual costs were in the forty to fifty million dollar range.

B. Elsemore's Background and Experience

Despite Barile's extensive experience as a real estate developer, he had never before undertaken a fractional ownership project. Consequently, at this time he also began to consider hiring a consultant with experience in fractional sales to assist with the project. In November of 2003, Elsemore contacted David Holley, an agent of LPG, to offer his services. Elsemore began negotiations with Holley, subsequently meeting with Barile on at least two occasions to discuss his employment with LPG before they executed a contract.

Elsemore has worked in real estate development for almost twenty years, predominantly concentrating on sales and marketing of fractionals. Elsemore began working on fractional sales at the Sugarloaf Mountain Hotel while he was with the Downes Marketing Group in 1988. For the next ten years, while with the American Skiing Corporation, Elsemore worked on some of the first fractional condominium projects in the Northeast. After leaving the American Skiing Company, Elsemore founded his own consulting enterprise, Fractional Strategies. In recent years he has worked directly with various large fractional developments in the region, including Okemo and Hunter Mountain, heading the sales and marketing efforts.

C. The Employment Contract and Addendum

The parties entered into an employment contract dated December 5, 2003 whereby LPG agreed to engage Elsemore as a consultant for a one-year term. The contract provides that Elsemore is to receive a base salary of $350,000. The contract further stipulates that the salary be paid in monthly increments of $12,000 until the first closing of a unit in the Lodge occurs. At that time, the balance for all the previous months ($17,167 per month) becomes immediately payable. After the first closing, Elsemore is to receive $29,167 per month through to the end of his term.

In addition, the contract provides for a three-tiered performance bonus tied to the total sales volume in the first fiscal year. The fiscal year is defined to run from the date on which the offering plan is approved by the New York State Attorney General; sales volume is defined to include all sales contracts that are executed within the time period provided that title is in fact subsequently transferred. Elsemore is entitled to a bonus of $30,000 if sales volume reaches $10,000,000; $60,000 if sales volume reaches $12,500,000; $100,000 if sales volume reaches $15,000,000.

The contract also provides that LPG is to provide Elsemore with "permanent and mutually acceptable housing and housing expenses" while he is on site. In December and January, Elsemore stayed at a local hotel while in Lake Placid, and either LPG or Resort Holdings reimbursed him for the cost of his accommodations. At this point, Elsemore and Barile discussed obtaining rental housing for the remaining ten months. Because Elsemore desired to rent accommodations that were more expensive than Barile had anticipated, Elsemore and Barile agreed that Resort Holdings would pay sixty percent of Elsemore's rent for a ten-month lease in Lake Placid ($1,500 per month, totaling $15,000)and that Elsemore would be responsible for the balance.

Under the contract, Elsemore is responsible for overseeing the marketing and sales campaign for the Lodge, and is "vested with a wide range of authority and discretion in organizing, promoting, and consummating sales" at the Lodge. Addendum A to the contract specifies Elsemore's duties in greater detail, including the following: development of a fractional share interval scheme, usage matrix and pricing matrix; development and management of the retail sales budget and advertising and marketing programs; recruitment and training of a ...

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