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Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2017
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Restricted Cash—Under certain management and debt agreements for our hotel properties existing at March 31, 2017, escrow payments are required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 4% to 5% of gross revenues for capital improvements. Management Fees—Under management agreements for our hotel properties existing at March 31, 2017, we pay a) monthly property management fees equal to the greater of $10,000 (CPI adjusted since 2003) or 3% of gross revenues, or in some cases 3% to 7% of gross revenues, as well as annual incentive management fees, if applicable, b) project management fees of up to 4% of project costs, c) market service fees including purchasing, design and construction management not to exceed 16.5% of project management budget cumulatively, including project management fees, and d) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from December 2019 through December 2065, with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term, liquidated damages or, in certain circumstances, we may substitute a new management agreement. Income Taxes—We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2013 through 2016 remain subject to potential examination by certain federal and state taxing authorities. Litigation—On February 3, 2016, Sessa Capital (Master), L.P. (“Sessa”) filed an action (the “Maryland Action”) in the Circuit Court for Baltimore City, Maryland, captioned Sessa Capital (Master) L.P. v. Bennett, et al., Case No. 24-C-16-000557 (Baltimore City Cir. Ct. 2016), against Ashford Prime, the members of the Ashford Prime board of directors, Ashford LLC and Ashford Inc. The Maryland Action generally alleged that the directors of Ashford Prime breached their fiduciary duties in connection with the June 2015 amendments to the Company’s advisory agreement with Ashford LLC. The Maryland Action also alleged that Ashford Inc. aided and abetted those breaches of fiduciary duties. On February 29, 2016, the Company filed a motion to dismiss the Maryland Action. On March 14, 2016, Sessa voluntarily dismissed the Maryland Action. On February 25, 2016, Ashford Prime filed a lawsuit (the “Texas Federal Action”) in the United States District Court for the Northern District of Texas, captioned Ashford Hospitality Prime, Inc. v. Sessa Capital (Master), L.P., et al., No. 16-cv-00527 (N.D. Texas 2016) (DCG), against Sessa, related entities, and Sessa’s proposed director nominees John E. Petry, Philip B. Livingston, Lawrence A. Cunningham, Daniel B. Silvers and Chris D. Wheeler. The Texas Federal Action generally alleges that the defendants violated federal securities laws because Sessa’s proxy materials contain numerous false claims, material misrepresentations and omissions relating to, among other things, the proposed nominees, the financial risks associated with Sessa’s efforts to gain control of the board and Sessa’s plans and strategy for the Company and its assets. Among other remedies, the Texas Federal Action seeks to enjoin Sessa from proceeding with its proxy contest. On March 8, 2016, Ashford Prime filed a lawsuit (the “Texas State Action”) in the District Court of Dallas County, Texas, captioned Ashford Hospital Prime, Inc. v. Sessa Capital (Master) L.P., et al., Cause No. DC-16-02738, against Sessa, related entities, and Sessa’s proposed director nominees John E. Petry, Philip B. Livingston, Lawrence A. Cunningham, Daniel B. Silvers and Chris D. Wheeler. The Texas State Action generally alleges that Sessa’s purported notice of proposed nominees for election to the Ashford Prime board of directors is invalid due to numerous failures by the defendants to comply with material provisions in the Company’s bylaws. Among other things, the Texas State Action seeks a declaratory judgment confirming the inability of Sessa’s proposed director nominees to stand for election at the 2016 annual meeting of stockholders. On March 14, 2016, Sessa removed the Texas State Action from state court to the U.S. District Court for the Northern District of Texas with Cause No. 16-cv-00713. On March 14, 2016, Sessa filed counterclaims and a motion for a preliminary injunction in the Texas Federal Action. These counterclaims include substantially the same claims as previously asserted by Sessa in the Maryland Action, and also allege that the directors of Ashford Prime breached their fiduciary duties in connection with the approval of the Series C Preferred Stock for issuance and the February 2016 amendments to the Amended Partnership Agreement (as defined below). Among other things, Sessa seeks an injunction prohibiting the issuance of shares of Series C Preferred Stock and requiring the board to approve the Sessa candidates, or in the alternative, prohibiting the solicitation of proxies until the board approves the Sessa candidates. On April 2, 2016, Sessa amended its counterclaims alleging that the Company had violated federal proxy solicitation laws by, among other things, stating that Sessa had not complied with the Company’s bylaws and that its purported director nominations are invalid. On April 6, 2016, the Court granted expedited discovery in connection with Sessa’s motion for preliminary injunction and the Company’s anticipated motion for preliminary injunction in the Texas State Action. On April 8, 2016, the Company notified the court that Sessa’s claims relating to the Series C Preferred Stock were moot after the Company unwound the OP Unit enfranchisement preferred equity transaction for the Company’s OP unitholders. On April 13, 2016, the Company filed its motion for preliminary injunction seeking an order declaring that Sessa’s slate of nominees is invalid and enjoining Sessa from submitting the nominees to stockholders for election to the board. On May 20, 2016, the court denied Sessa’s motion for a preliminary injunction and granted the Company’s motion for a preliminary injunction. Sessa appealed the district court’s decision to the United States Court of Appeals for the Fifth Circuit on May 23, 2016. On December 16, 2016, the Fifth Circuit dismissed Sessa’s appeal of the preliminary injunction as moot. On February 17, 2017, the District Court consolidated the Texas State Action into the Texas Federal Action (the “Consolidated Texas Federal Action”). On the same day, the District Court also dismissed all of Sessa’s counterclaims, except for its claim for violation of federal proxy solicitation laws, which the Company did not move to dismiss. The District Court granted Sessa’s motion to dismiss the Company claim for prima facie tort, but denied Sessa’s motion to dismiss the Company’s remaining claims. On February 16, 2017, the Company, Ashford Trust and Ashford Inc., and together with the Company, Ashford Trust and each affiliate of the Company, Ashford Trust and Ashford Inc. (the “Ashford Entities”), entered into a Settlement Agreement (the “Settlement Agreement”) with Sessa, Sessa Capital GP, LLC, Sessa Capital IM, L.P., Sessa Capital IM GP, LLC and John Petry (collectively, the “Sessa Entities”) regarding the composition of the Company’s board of directors (the “Board”), dismissal of pending litigation involving the parties and certain other matters. Under the Settlement Agreement, the Company agreed to appoint to the Company’s board of directors two of the five individuals Sessa previously sought to nominate as directors of the Company (“Independent Designees”). The Company is required to make such appointments within two weeks of the date of the Settlement Agreement. Additionally, the Settlement Agreement provides that the Company and the Sessa Entities will work together in good faith to identify one additional director who will be independent of both the Company and Sessa (“Additional Independent Director”). So long as the Sessa Entities satisfy certain ownership thresholds with respect to the Company’s common stock, the Company agreed to nominate: (i) the Independent Designees; (ii) the Additional Independent Director; and (iii) Montgomery J. Bennett, Stefani D. Carter, Kenneth H. Fearn, Douglas A. Kessler, Curtis B. McWilliams and Matthew D. Rinaldi (or their successors) at each of the 2017 and 2018 annual meetings of Company’s stockholders. In the case of any contested election of directors of the Company, the Sessa Entities have agreed to cause one or both of the Independent Designees to resign from the Board if the preliminary results provided by the inspector of elections at any meeting of stockholders of the Company prior to the closing of the polls indicates with reasonable certainty that any of the incumbent directors or their successors (other than the Independent Designees) will not be elected at such meeting but for the resignation of one or more of the Independent Designees. Under the Settlement Agreement, the Sessa Entities are subject to specified standstill restrictions relating to the Ashford Entities and lasting generally until the earlier of (x) the date that is fifteen business days prior to the deadline for the submission of stockholder nominations for the 2019 annual meeting of the Company’s stockholders pursuant to the Company’s bylaws or (y) the date that is one hundred fifty days prior to the first anniversary of the 2018 annual meeting of the Company’s stockholders. During the standstill period, the Sessa Entities have agreed to cause all of its shares of the Company to be present for quorum purposes at any meeting of the Company’s stockholders and voted in accordance with the board’s recommendations, subject to certain exceptions. The Settlement Agreement contains various other obligations and provisions applicable to the Ashford Entities and Sessa Entities. Additionally, the Company agreed to pay the Sessa Entities $2.5 million, of which the Company was reimbursed $2.0 million by its insurance carrier. The net $500,000 expense was included in the Company’s consolidated statement of operations for the year ended December 31, 2016, and the $2.5 million payable and the $2.0 million receivable were included in the Company’s consolidated balance sheet as of December 31, 2016. The amounts were paid as of March 31, 2017. On February 20, 2017, the parties submitted a Joint Stipulation of Dismissal, which dismissed each of the parties’ remaining claims in the Consolidated Texas Federal Action with prejudice. Jesse Small v. Monty J. Bennett, et al., Case No. 24-C-16006020 (Md. Cir. Ct.) On November 16, 2016, Jesse Small, a purported shareholder of Ashford Prime, commenced a derivative action in Maryland Circuit Court for Baltimore City asserting causes of action for breach of fiduciary duty, corporate waste, and declaratory relief against the members of the Ashford Prime board of directors, David Brooks (collectively, the “Individual Defendants”), Ashford Inc. and Ashford LLC. Ashford Prime is named as a nominal defendant. The complaint alleges that the Individual Defendants breached their fiduciary duties to Ashford Prime by negotiating and approving the termination fee provision set forth in Ashford Prime’s advisory agreement with Ashford LLC, that Ashford Inc. and Ashford LLC aided and abetted the Individual Defendants’ fiduciary duty breaches, and that the Ashford Prime board of directors committed corporate waste in connection with Ashford Prime’s purchase of 175,000 shares of Ashford Inc. common stock. The complaint seeks monetary damages and declaratory and injunctive relief, including a declaration that the termination fee provision is unenforceable. The defendants filed motions to dismiss the complaint on March 24, 2017. The plaintiff’s response is due May 23, 2017. The outcome of this matter cannot be predicted with any certainty. We are engaged in other various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.

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