A legal battle between New Orleans developer Joe Jaeger and San Francisco-based short-term rental platform Sonder Holdings Inc. has been settled out of court roughly a month after Jaeger’s death, ending more than two years of litigation between two of the city’s once-formidable hospitality heavyweights.
Two lawsuits — one filed by Jaeger against Sonder in state court, the other filed by Sonder against Jaeger in federal court — were both settled in late July, according to court documents, roughly a month after Jaeger died following a car accident on the northshore.
Terms of the settlements were not disclosed, but the suits were dismissed in U.S. District Court and Orleans Parish Civil District Court, according to legal filings.
Joe Jaeger, president and CEO of MCC Real Estate Group, talks with Bywater residents about the redevelopment of the naval base on Poland Ave. during a meeting at the Bywater Brew Pub on Royal Street in New Orleans, Tuesday, July 12, 2022. (Staff Photo by David Grunfeld, NOLA.com | The Times-Picayune | The New Orleans Advocate)
Jaeger’s Jung Hotel on Canal Street filed the state court case against Sonder in early 2023. At the time, Sonder had a deal with Jaeger to run 10 floors of the Jung as a separate “hotel within a hotel.” Instead, the suit claimed, Sonder damaged the hotel’s reputation and value by failing to address online critiques that described dirty guest rooms, soiled linens, stained furniture and public safety concerns, including gun battles on the property.
The federal court case filed by Sonder against Jaeger in 2022 was over a failed business deal that would have turned Jaeger’s local portfolio of boutique hotels over to Sonder. Sonder sued Jaeger for backing out of the deal, which the company said cost it $30 million. Jaeger countersued, alleging the deal was never finalized and was therefore unenforceable.
At the time the legal battles began, Sonder was one of the largest-short-term rental operators in New Orleans, with an estimated 700 local units. Jaeger was one of the most successful hotel operators in the city with 15 hotels, including the century-old Jung Hotel. But both outfits, along with the rest of the city’s hospitality industry at the time, had been rocked by the COVID pandemic that curtailed most major events in 2020 and stifled travel to the city.
The Jung Hotel closed after Hurricane Katrina in 2005 and reopened in 2018.
Two years later, Sonder is showing financial strains and has shuttered vacation properties across the country, terminating agreements with building owners where it operated. The NASDAQ has threatened to delist its stock and it is delinquent filing its financial reports with securities regulators since last fall. It recently finalized a licensing deal with Marriott giving the hotel giant control over Sonder’s 9,000 short-term rentals units in the U.S., 220 of which are in New Orleans.
Jaeger’s estate, meanwhile, has begun the process of trying to sell off his vast real estate holdings. Attorneys for Sonder did not respond to a request seeking comment. Attorneys for Jaeger declined to comment.
A different era?
Jaeger spent $155 million renovating the 1920s-era Jung Hotel, which opened in 2018. His deal with Sonder was a way to help market the luxury units and ensure he would be able to recoup his massive investment in the project.
At the time, short-term rentals were spreading across New Orleans. Sonder, which billed itself as an upscale Airbnb, was rapidly growing its footprint in the city’s historic buildings.
The Jung Hotel opened in late 1925, and sat fallow after Hurricane Katrina in 2005, until hotelier Joe Jaeger Jr. reopened it in 2018.
Within a few years, though, things had changed, court documents show. Jaeger’s suit cited numerous online reviews of the hotel describing filth on the floor, a toenail in a bedsheet that had not been changed, and dirty bathtubs and sinks. The suit also alleged that Sonder failed to provide security, leading to criminal activity, prostitution and drug use.
The suit did not seek a specific settlement amount but noted that the building had recently appraised for $40 million, far less than Jaeger had spent renovating the property.
Sonder denied the allegations and said if the Jung had suffered any damage, it was the hotel’s fault or the fault of others for whom Sonder was not responsible.
Finger pointing
The Jung Hotel suit was filed one week after Jaeger filed the countersuit in response to Sonder’s August 2022 breach-of-contract suit. In the original suit, Sonder claimed that Jaeger agreed to lease 12 of his hotels in the French Quarter and Garden District to Sonder for five years, beginning in January 2021
The agreement, the suit claimed, would have netted Sonder $30 million in profits. But one month after the deals were inked, Jaeger allegedly tried to terminate the leases. He went on to sell two of the hotels without telling Sonder, which violated the agreement, the suit claims.
In his countersuit, Jaeger denied the claims. He went on to allege that the lease agreement was never finalized, arguing that Sonder was under pressure to finalize the lease deal by a certain deadline so it could use the agreement to raise money.