Marriott International is facing a string of lawsuits filed by owners who charge the management company with a wide range of allegations from breach of fiduciary duty to violation of the RICO Act in four pending suits.
“This is a common bone of contention between hotel owners and managers,” said Phillip Gordon, Partner and Head of Hospitality Group for the law firm Altheimer and Gray. “This sort of thing is endemic to all hotel companies, but Marriott is probably the most resistant to revelation of the fact.”
Altheimer and Gray are long term lawyers for Strategic Hotels Capital, one of the companies that has filed suit against Marriott. Altheimer and Gray are not representing Strategic in the Marriott lawsuit because the firm does not have an office in California, which is where the lawsuit is pending.
The four owners who have filed suit against Marriott this year, include CTF Holdings, with respect to a portfolio of 20 hotels; In Town Limited Partnerships with respect to the Charleston Marriott Town Center Hotel; the Flately Family Trust, with respect to the Boston Marriott Quincy Hotel; and Strategic Hotel Capital with respect to The Ritz-Carlton Laguna Niguel, Marriott’s Rancho Las Palmas and the Renaissance Beverly Hills.
Marriott claims that the lawsuits are just a means for owners to renegotiate their management agreements.
“No owners came up to us and said we’re really not happy with the rebates,” said Rick Hoffman, Senior Vice President of Finance for Marriott. “What they said is that is we have different needs now and we want to change the agreement.”
The lawsuits filed in the spring and summer of 2002, claim similar allegations. Each of the plaintiffs claims that Marriott took kickbacks or rebates from vendors and did not disclose or account for such amounts as required by the management agreements.
“Rebates revolve around the argument of who has the advantages of large-scale buying power that comes with having hundreds of hotels – the management company or the owner,” said Gordon.
Marriott calls the claims “false,” saying that the amounts of the rebates are released annually.
“We annually disclose rebates uniform franchise offering circulars,” said James Akers, Senior Vice President and Associate General Council at Marriott.
Each claims that Marriott improperly allocated chain services or corporate overhead costs, and imposed charges and fees not permitted in the management agreements. They claim that Marriott did this by channeling goods and services for hotels through Avendra, of which Marriott owns half – the other 50% is owned by Hyatt, Clubcorp, Six Continents and Fairmont Hotels and Resorts, according to Altheimer and Gray.
The lawsuits maintain that Marriott refuses to provide invoices detailing what it or Avendra pays for goods and services bought on behalf of its client hotels, and whether those hotels could have procured them elsewhere, the New York Times reported on Sunday.
“Because all management companies feel sensitive about this issue, they don’t disclose amounts,” said Gordon. “Marriott has denied that they are obligated to share or reveal rebates.”
Strategic and In Town also allege that Marriott was involved in self-dealing by using proprietary information belonging to the owners to promote competition with the owner’s hotels that Marriott was managing. Strategic accuses Marriott of using proprietary guest information to develop the Laguna Colony Hotel, a property situated in the same market, and which competes with the Ritz-Carlton Laguna Niguel.
Marriott denies the allegations and dismisses the suit as harassment by a tiny fraction of the 500 independent business owners who have hired the company to manage almost 2,500 hotels.
“This notion of a storm at Marriott is simply not true,” said Hoffman. “And we continue to have what we consider a good relationship with most of our owners.”
The lawsuits seek unspecified damages, according to the New York Times.
Some owners have already re-negotiated their contracts, like Host Marriott, the largest owner of Marriott-managed hotels. Host Marriott won new terms in its management agreement last July, in a lawsuit that made comparable claims to the current four.
CTF also reached a similar agreement in 1999, but its present lawsuit claims that Marriott has violated the terms of that deal.
“The brunt of the lawsuit is that Marriott has been stuffing more and more charges into the general categories and is resistant to telling owners what the charges are for,” said Gordon.
Marriott said it would fight the lawsuits.
“We will contest the lawsuits vigorously, and we will continue to communicate with our other owners and franchisees,” said Akers.
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