NATIONAL REPORT— The contractual relationship between hotel companies and property owners has become much more contentious and litigious as evidenced by recent lawsuits. At presstime, the latest lawsuit roiling the waters was that filed by Strategic Hotel Capital (SHC), charging Marriott International with fraudulently concealing profits derived through its handling of a trio of the Chicago-based company’s lodging properties. Specifically, it was claimed Marriott has repeatedly failed to disclose relevant financial data about three SHC-owned hotels in Southern California, particularly relating to charges for hotel programs and service fees said to be designed to enhance the Marriott brand without (providing) any benefit to the owner. It was further contended that Marriott used confidential information about hotel guests and operations to develop a competing hotel in Laguna Beach; Marriott sold its hotel guest lists— owned by SHC— to third parties without sharing any profit; and Marriott accepted “suspect rebates” from vendors selling goods to Avendra (Marriott’s partly owned purchasing service). SHC CEO Laurence Geller was not available for direct comment on the suit and its substance; however, a spokesperson for him continued to redirect inquiries to that section of the complaint alleging Marriott imposes “corporate charges at the expense of SHC and purposefully [obscures]the amount, nature and benefit of these corporate charges.” According to Roger Conner, Marriott vp/corporate communications for North America, the SHC suit is “unfounded, absolutely baseless, and totally without merit.” On the contrary, Conner maintained SHC’s actions might actually be “something of a ploy to better position its [own]portfolio for sale.” On the other hand, in conversation with HOTEL BUSINESS® about his company’s dealings with participating hotel owners, the Marriott spokesman did concede: “There are obviously issues that need to be addressed and discussed as times and conditions change.” To this end, several notable sources within and outside the mainstream of the industry contacted by HOTEL BUSINESS® maintain the hotel arena going forward promises to be a battlefield of sorts marked by continued skirmishes waged by property owners over fees, fiduciary duties and responsibilities, and fuller disclosure. What’s more, it has been suggested that ownership enjoys something of a courts-mandated upper hand in the course of these on-going engagements. In line with the proliferation of such litigation, Bear Stearns Senior Managing Director Jason Ader viewed these developments as part of an understandable, on-going process rather than stand-alone aberrations in the owner/manager relationship. In point of fact, Ader told HOTEL BUSINESS® he expects owners will continue to try to negotiate better terms with hotel companies and, as a result, hotel companies need to prepare for such actions over the course of the coming three to five years. Even more vociferous in his views was Jim Butler, chairman of the Global Hospitality Group for Jeffer, Mangels, Butler & Marmaro LLP, who envisioned “operators continuing to fight these suits as vigorously as a land war in China… doing everything they can to delay the inevitable.” In this case, Butler defined that inevitable as being a host of judicial edicts governing operators’ responsibilities in accordance with the performance of their fiduciary duties. According to Butler, court rulings in matters along these lines have almost routinely been going against franchisors, managers and operators for nearly a decade now, with one of the primary sticking points being disclosure (or rather, the absence thereof) within the spelled out terms and conditions of the contract. Picking up on this note, Paul Whetsell, chairman/CEO for Interstate Hotels & Resorts as well as MeriStar Hospitality, explained that proper disclosure (by the franchisor or manager) within the body of a contract could circumvent a host
