Z Capital Hit With $16M Verdict in Carillon Miami Beach Suit

Z Capital Group was hit with a $16.3 million verdict for overcharging assessments to condo owners at the Carillon Miami Wellness Resort.

A jury on Tuesday determined that for the past seven years James Zenni Jr.’s Z Capital levied inflated dues to unit owners at the oceanfront Miami Beach condo-hotel for the spa, hotel and electricity, according to the verdict form and other court records.

The Carillon, at 6801 Collins Avenue, consists of the North, Central and South towers plus a spa, pool and restaurant space. Central Tower unit owners can rent their units through the property’s hotel operator. New York-based merchant bank Z Capital, through an affiliate, owns and oversees the spa and roughly 70 condo-hotel units at the Central Tower.

The litigation centers around the extent Z Capital has power over the complex, including to levy assessments on unit owners for the spa and other shared facilities such as hallways and elevators in the three buildings. An attorney for the associations, which sued Z Capital’s affiliates in 2016, has equated Z Capital to a “dictator” with broad control at the complex. But in countersuits against the associations, Z Capital has said that it has stayed well within its rights under the complex’s master declaration. The associations’ lawsuit is a ploy to take control of the entire property without having to pay, according to court filings.

But the jury focused solely on the issue of alleged over-assessments by Z Capital’s affiliate Carillon Hotel since 2015.

“They can’t unfairly assess for electricity, for the spa, and they can’t pass on their hotel costs to the unit owners, which they did,” said Gene Stearns, the associations’ attorney.

The associations took issue with paying two dues for the spa, one a fixed charge and the other a “use” fee for maintenance. Carillon Hotel has argued it’s entitled to collect both assessments under the complex’s governing declaration, court records show.

While the jury upheld the right to collect the pair of assessments, it did deem that the “use” charge was unfairly high, Stearns said. Unit owners were overcharged almost $7.4 million, the verdict says.

Carillon Hotel also incorrectly calculated the electricity assessment, ultimately including each condo unit in its formula even though owners already pay the bills for their units on their own, Stearns said.

The jury determined condo owners were overcharged almost $4.8 million for electricity assessments and almost $4.2 million for hotel overcharges, the verdict form shows. Stearns argued that condo owners were unfairly assessed for 40 percent of the cost of senior employees who run the hotel.

During opening arguments at the trial, an attorney for Carillon Hotel stuck by its methods of doing business and attacked the associations’ claims of overcharges. “This operation bends over backwards to ensure these assessments are accurate,” Brian Dervishi said. “The numbers are coming out of the blue, out of thin air.”

In a letter sent to condo owners shortly after the verdict, Carillon Hotel said it disagreed with the outcome. “We believe the unit owners will not receive any recovery that will be greater than the exorbitant legal fees already incurred,” Carillon Hotel said.

The $16.3 million award is significantly less than the $460 million the associations originally sought, which the court later dropped to $33 million, Carillon Hotel told The Real Deal through a spokesperson.

Carillon Hotel is expected to file a motion to set aside the verdict, meaning it doesn’t have to pay the verdict amount until the court decides on that motion.

The verdict is the second piece of bad news for Z Capital this year. In August, it lost its push to levy a $7.7 million assessment on unit owners to cover its legal expenses. Z Capital is appealing the order.

Z Capital bought the Carillon, which at the time was called Canyon Ranch Miami Beach, through bankruptcy court in 2015.

In court filings, the associations have also claimed that Z Capital’s level of control allows it to assess unit owners for portions of the complex that earn a profit for the company. A trial on such issues is expected next year before Judge Michael Hanzman.

“This same structure [as in Carillon] was used all across Florida,” Stearns said. “I believe a lot of people are watching this case to see what Judge Hanzman is going to do.”