Starwood Claims Hilton CEO Nassetta Knew Of Espionage
New court filing accuses Hilton executives of knowing about trade secrets theft and failing to act.
Adam Kirby, Associate Editor -- Hotels, 1/15/2010 9:30:00 AM
Hilton Worldwide CEO Chris Nassetta
Starwood Hotels & Resorts Worldwide Inc. is now claiming that at least five of the 10 members of Hilton Worldwide's executive committee—in addition to Hilton CEO Chris Nassetta and Global Development President Steven Goldman—knew about the alleged corporate espionage involving Ross Klein and Amar Lalvani but did not act on that knowledge.
Starwood made the new bombshell allegations in a court filing on Thursday. (Read Starwood's updated 86-page complaint here.)
Starwood's new complaint includes claims that an unidentified "executive whistle-blower within Hilton" notified Nassetta about "Hilton's rampant wrongdoing" a full five months before Starwood filed its initial lawsuit back in April.
"Since filing the initial complaint, Starwood has learned that Hilton's misconduct was far more pervasive in terms of the staggering volume and commercial sensitivity of the information stolen, the widespread participation and personal involvement of Hilton's senior management, and the dissemination and use of Starwood confidential information across all of Hilton's luxury and lifestyle brands," says Kenneth Siegel, Starwood's chief administrative officer and general counsel. "This case is about restoring a level playing field for fair competition, not just substantial monetary damages. We will do whatever it takes to protect our brands and intellectual property for the benefit of our investors, associates, owners and customers."
Despite the new claims, neither Nassetta nor Goldman are named as defendants in the case.
According to the complaint, Nassetta personally recruited Klein and Lalvani to Hilton from Starwood in June 2008. Once at the company, Klein reported to Nassetta directly, while Lalvani reported to Goldman.
Starwood's accusations, if true, are fairly damning. Starwood claims Goldman "used Lalvani as a corporate spy for Hilton inside Starwood." The complaint cites one particular incident from May 28, 2008, in which Lalvani allegedly forwarded to Goldman correspondence between a Starwood executive and a developer interested in opening a W hotel in Thailand. In his e-mail to Goldman, according to the complaint, Lalvani wrote: "Here's an interesting one. . . . I have good connections with the owner. Lets discuss protocol during my transition on deals like this so we don't miss them but also dealing with the fact we don't have a lifestyle offering yet. This is going to be fun!!"
In October, reports surfaced that a U.S. grand jury is investigating whether Hilton and several executives should face criminal charges related to the case. The Wall Street Journal reported then that Goldman was among the executives under scrutiny. Goldman is currently on paid leave.
Former Starwood executives Klein and Lalvani, both of whom Starwood claims stole extensive documentation about the W Hotels brand in an effort to speed Hilton's development of the apparently mothballed Denizen Hotels lifestyle brand, were also believed to be subjects of the criminal inquiry. The current status of the criminal inquiry is not publicly known.
USA Today's Barbara De Lollis reports that Nassetta e-mailed Hilton employees today regarding Starwood's new filing. The note is meant to "calm nerves inside the company," De Lollis writes. The exact contents of the note have not yet been made public.
Although it has maintained throughout that Starwood's espionage allegations are without merit, Hilton in April placed Klein and Lalvani on paid administrative leave. In Thursday's filing, Starwood calls the paid suspensions a "half-measured response" and notes that Hilton has been silent as to Klein's and Lalvani's current employment status. Additionally, Starwood is calling for the Denizen brand to be formally "euthanized."
In September, Hilton quietly hired John Vanderslice to fill Klein's role as head of Hilton's global lifestyle and luxury brands.
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