XpresSpa decided to find another partner, but Cordial managing partner Shelia Edwards cried foul.
The federal program, Cordial says, is designed to prevent prime contractors from winning deals with the city using a minority partnership, then dumping the minority partner afterward without due cause.
Even though XpresSpa found another minority partner, Cordial argues the rules don’t allow such partnerships to be discarded so easily.
Cordial filed a complaint with the Federal Aviation Administration’s Office for Civil Rights against the city, saying it had responsibility for oversight.
Atlanta attorney Kevin Ross, a prominent political operative, represented both companies early in their partnership. But Ross was later accused of malpractice, unjust enrichment and breach of fiduciary duty by XpresSpa, which filed suit.
XpresSpa’s owners said they initially agreed Ross representing both companies because they believed he “could help to get the transaction completed based on his relationship with both parties,” according to the suit.
However, XpresSpa ended its relationship with Ross after learning “the nature of the close personal relationship between Ross and Edwards,” according to the suit.
That lawsuit was recently settled. But other legal challenges are ongoing.
So far, the city of Atlanta has spent more than $850,000 on outside legal counsel, including billings to the city from outside attorney William K. Whitner, a partner at law firm Paul Hastings, according to a complaint filed by Cordial.
XpresSpa's locations on Concourses A and C brought in a total of more than $3.8 million in revenue in 2016, paying $366,181 in rent to the airport, according to a year-end Hartsfield-Jackson concessions revenue report.
More spa locations on Concourses D, E and F have been planned since the opening of the airport's international terminal in 2012.
But, “between a dispute with the contractor and some of the (Disadvantaged Business Enterprises), unfortunately the stores are vacant and not generating any revenue for the city,” city attorney Jeremy Berry said at a city council transportation committee meeting in November. “Here we are, four plus years later, and they have done nothing because of the dispute.”
Still, he said, “We believe development is in the airport’s best interest, obviously, not to have vacant stores at the world’s busiest airport.” On his recommendation the Atlanta City Council approve a three-year extension to the lease.
In the meantime, the FAA investigated and found Hartsfield-Jackson was not in compliance with federal regulations requiring it to monitor and enforce terms of a joint venture between XpresSpa and Cordial, and that Hartsfield-Jackson allowed XpresSpa to terminate its contract with Cordial without giving its consent. The FAA required the city of Atlanta to take corrective actions and hold administrative hearings on the matter.
Edwards believes, if XpresSpa is allowed to permanently jettison her company from the joint venture they struck, “that sets a bad precedent because that means that any [minority firm] out there is now subject to being put out of business if [the prime contractor] decides they don’t want you and they’ve got the right lobbyists and politics.”
Another attorney that represented XpresSpa, Aaron Watson, drew Cordial’s attention because Watson served on the Atlanta City Council from January 2010 until December 2013. Watson says he “had limited involvement in representing them in an effort to resolve a dispute between businesses in late 2013 and early 2014.”
XpresSpa contended that it properly terminated the deal with Cordial.
In January 2017, XpresSpa filed a lawsuit against Cordial alleging breach of contract, unjust enrichment and breach of fiduciary duty. The case was dismissed and XpresSpa has appealed the ruling.
Dissatisfied with the airport and XpresSpa’s response, Cordial in February 2017 filed a Part 16 complaint with the FAA against the City of Atlanta, alleging the city failed to comply with the regulations under the disadvantaged business program and that Cordial has been shut out of the business since 2014. A Part 16 is a formal complaint about an airport’s lack of compliance with its obligations that come with accepting federal funding.
The complaint is pending, with a decision expected Aug. 30. The city denies the allegations.
Hartsfield-Jackson general manager Roosevelt Council said the conflict is between Cordial and XpresSpa, which was acquired by new owners in 2016. In a written statement, XpresSpa Group said: “New ownership is committed to working together responsibly with all of the company’s partners and staff” to provide spa services in its locations across 23 airports.
Cordial is represented by attorney Carl Gebo in the complaints with the FAA and New York litigation.
The dispute has cost Cordial “millions of dollars in revenue and valuable time and experience in learning how to be an airport concessionaire in the spa sector,” Gebo said. “The continuing hope is that with the new administration, that there is a renewed interest in compliance.”
Also at stake, Edwards said, is the $450,000 she and four other partners in Cordial invested in the business and the joint venture with XpresSpa.
“We invested real money,” Edwards said. “That is one of the reasons it’s very difficult to walk away.”