The legal battle between New Orleans developer Joe Yeager and San Francisco-based short-term rental platform Sonder Holdings Inc. was settled out of court about a month after Yeager’s death, ending more than two years of litigation between two of the city’s once-powerful hospitality giants.
According to court documents, two lawsuits — one filed by Yeager against Sonder in state court and one filed by Sonder against Yeager in federal court — were settled in late July, about a month after Yeager was killed in a car accident on the North Shore.
Terms of the settlement were not disclosed, but the lawsuit was dismissed in U.S. District Court and Orleans Parish Civil District Court, according to court documents.
Yeager’s Jean Hotel on Canal Street filed suit against Sonder in state court in early 2023. At the time, Sonder had a contract with Yeager to operate 10 floors of the Jean as a separate “hotel within a hotel.” But Sonder damaged the hotel’s reputation and value by failing to address online critiques that described unclean rooms, soiled linens, stained furniture and public safety concerns, including a gunfight on the premises, the lawsuit alleges.
Sonder’s 2022 federal lawsuit against Yeager was over a failed business deal that would have transferred Yeager’s portfolio of local boutique hotels to Sonder. Sonder sued, accusing Yeager of backing out of the deal, which it claims cost the company $30 million. Yeager countersued, arguing that the deal was never finalized and therefore unenforceable.
At the time the legal battle began, Sonder was one of New Orleans’ largest short-term rental operators, owning about 700 properties locally. Yeager was one of the city’s most successful hotel operators, owning 15 hotels, including the century-old Jean Hotel. But both companies, like the entire New Orleans hospitality industry, had been hit hard by the coronavirus pandemic, which canceled most major events in 2020 and curbed travel to the city.
Two years later, Sonder has struggled financially, shuttered vacation properties across the U.S. and terminated contracts with owners of properties that remained open. Nasdaq has threatened to delist the company, and the company hasn’t filed financial reports with securities regulators since last fall. The company recently signed a licensing deal with hotel giant Marriott that allows Marriott to manage 9,000 of Sonder’s short-term rental properties in the U.S., including 220 in New Orleans.
Meanwhile, Yeager’s estate has begun the process of selling his vast real estate holdings. Sonder’s lawyers did not respond to requests for comment. Yeager’s lawyers declined to comment.
Is it a different time?
Mr. Yeager spent $155 million renovating the 1920s Jung Hotel, which opened in 2018. The deal with Sonder was meant to boost sales of the luxury units and ensure a return on his huge investment in the project.
At the time, short-term rentals were just starting to take off across New Orleans, and Sonder, which billed itself as a luxury Airbnb, was quickly building a presence in the city’s historic buildings.
But that changed over the years, court documents show. Yeager’s lawsuit cites numerous online reviews of the hotel, including complaints about dirty floors, bedsheets that hadn’t been changed and had fingernails in them, and dirty bathtubs and sinks. It also alleges that Sonder’s lack of security led to criminal activity, prostitution, and drug use.
The lawsuit does not seek a specific settlement amount but notes that the building was most recently appraised at $40 million, far less than what Yeager spent to renovate the building.
Sonder denied the allegations and argued that if John suffered any damage, it was the fault of the hotel or others through no fault of Sonder.
Pointing
The Jung Hotels lawsuit was filed a week after Yeager filed a counterclaim to a breach of contract lawsuit filed by Sonder in August 2022. In the original lawsuit, Sonder alleged that Yeager agreed to lease 12 hotels in the French Quarter and Garden District to Sonder for five years, beginning in January 2021.
The deal was meant to net Sonder $30 million in profits, according to the lawsuit. But a month after it was signed, Yeager allegedly tried to back out of the lease and breached the contract by selling the two hotels without telling Sonder, the lawsuit said.
Yeager denied those allegations in his counterclaim, alleging that no lease was ever signed and that Sonder was pressured to sign one by a deadline so it could use the lease to raise capital.