HOTELS

Adam Kirby

Industry Sees Landmark Rulings
February 20, 2008

Hoteliers doing business in America or with American hotel companies should take note of some fairly significant precedent-setting court cases.

The first case, out of Maryland, involves the question of a management company essentially competing against itself with different brands. Ritz-Carlton Hotel Co. last month was ordered to pay US$10.4 million to Karang Mas Sejahtera, owner of The Ritz-Carlton, Bali Resort & Spa, after KMS successfully argued that the opening of Bulgari Bali Hotel some three miles away constituted unfair competition. Bulgari Hotels & Resorts and Ritz-Carlton are both divisions of Marriott International Inc., and the management contract for Ritz-Carlton Bali requires KMS’ approval before Ritz-Carlton could open any competing property. Along with the monetary damages, the U.S. District Court awarded KMS the right to terminate its contract with Ritz-Carlton, although it has not yet decided if it will do so.

The case puts pressure on those companies operating multiple similar luxury brands to clearly differentiate their properties within competitive markets. Robert LaFleur, a lodging analyst with Susquehanna Financial Group, shared his take on the verdict with The Wall Street Journal:

“(The verdict) could potentially cause significant troubles for the hotel-brand companies if plaintiffs can prove these new hotel brands are substantially the same as other hotel brands […]

One of the ways hotel companies have continued to expand is through brand extensions. They’d either modify an existing brand or come up with a new brand, and that would be seen as a way to get around territorial restrictions that franchisees or hotel owners have.”

Two other cases of note come from U.S. District Court in Illinois and Minnesota and involve Hyatt International Corp. and Radisson Hotels International Inc., respectively. (These cases are a couple years old, but a succinct and helpful summary of both was just recently published by the New York lawfirm Stroock & Stroock & Lavan LLP.) 

Both cases are class action lawsuits involving branded hotels in Russia charging guests more than the rate quoted on the brands’ Web sites. In short, rates were quoted online in U.S. dollars but converted to Russian rubles when a guest arrived on property; variable exchange rates resulted in guests being overcharged by an average of 15%. Both cases were dismissed.

In the Hyatt case, the court found that the incidents were not closely connected enough to Illinois for the state’s consumer protection clauses to apply. Even if a state connection were not tenuous, the court said, “unjust enrichment” could not be proven since the hotel and guests had agreed on contracts; that the details of said contracts were disputed did not matter in the court’s eyes.

The judge in the Radisson case dismissed the lawsuit by ruling that the chief plaintiff in the case could not have been deceived about the room rate because he had not actually looked at the brand’s Web site prior to booking. Perhaps more importantly, the site included a disclaimer: “The room rate is quoted in USD and shall be converted to RUR [Russian rubles] at the hotel internal exchange rate.”

Posted by Adam Kirby on February 20, 2008 | Comments (0)