Articles Posted in Hospitality Dispute Resolution

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3 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

In the article below, JMBM partner Mark Adams discusses the coronavirus in relation to force majeure provisions in contracts. This legal concept goes back centuries, but has become increasingly relevant as COVID-19 may be advanced by many in the coming days as a defense to breach of contract. This article is one of a series which will discuss the principles of force majeure and the commercial implications of the coronavirus.

We start with a brief explanation of the concept and trace its roots.

COVID-19 coronavirus as a force majeure defense to contractual non-performance

by

Mark S. Adams, Hotel Dispute Lawyer
Partner & Senior Member
JMBM’s Global Hospitality Group® 

One often doesn’t know the extent of one’s insurance coverage until a calamity occurs. So it is with force majeure provisions in contracts.

Typically, force majeure provisions are included in contracts to excuse a party from contractual obligations if some unforeseen event beyond its control prevents performance of its contractual obligations.

As of March 2, 2020, there have been 88,948 confirmed cases of this strain of the coronavirus (COVID-19) in 64 countries with 3,043 confirmed deaths. The first reported case of COVID-19 was just over two months ago on December 31, 2019 from Wuhan, China. The effects of this coronavirus have already prevented or delayed performance in countless agreements in numerous industries causing widespread commercial loss and business interruption. It is likely that travel restrictions, worker shortages, immigration quarantines, supply-chain disruptions, and event cancellations will worsen before they begin to recover. And now, those affected are dusting off their agreements to examine their force majeure provisions and determine whether they might cover a coronavirus event.

The concept of force majeure (meaning superior force) originated in the Napoleonic Code of 1804. The breaching party to an agreement was condemned unless their non-performance or delay in performance resulted from a cause that could not be imputed to them, and by a cause of a superior force or of a fortuitous occurrence. Today, most tribunals, both in common law and civil law systems, recognize that contractual performance that becomes impossible or commercially impracticable under certain contexts may be excused. That said, the words in the parties’ force majeure provision controls, and that provision is deemed to be the parties’ negotiated allocation of who bears the risks of particular catastrophic events as between them. CONTINUE READING →

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31 January 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

On January 31, 2020, the Center for Disease Control (CDC) declared the Wuhan coronavirus a public health emergency of international concern. The numbers of confirmed cases, as well as the death toll continues to climb. (For current statistics, see the Center for Systems Science and Engineering’s online dashboard that pulls data from the World Health Organization.)

Containing the spread of the disease is of global concern. Beyond the serious human health impacts, businesses worldwide expect disruptions in supply chains for manufactured goods, evidenced by the S&P’s sharp decline on January 31st. The U.S. has issued a “Do not travel to China” advisory, major U.S. airlines announced cancellations of flights to China, and President Trump announced a travel ban on foreign nationals who have traveled to China.

Hoteliers have their own causes of concern.

Chinese nationals comprise the largest tourist market in the world with 159 million outbound tourists in 2019, accounting for 12.2% of all outbound travelers globally and US $275 billion spent. If you cater to even a small percentage of these tourists, their absence will affect your bottom line.

  • Do group travel organizers have contractual obligations to your hotel if they cancel trips due to the coronavirus?
  • If travelers in your hotel infect other guests or your workforce, what is your liability?
  • If you have hotels in China, what responsibilities do you have toward foreign guests who cannot easily return to their home countries?
  • What do you do if your employees refuse to come to work for fear of becoming infected?
  • What policies and procedures should you put in place for managing these kinds of crises?
  • What exactly does your insurance cover?
  • How can you find experts who can help?

CONTINUE READING →

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24 July 2019

Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Another state Attorney General joins in the Resort Fee litigation – this time suing Hilton

On July 23, 2019, Attorney General Doug Patterson filed a lawsuit against Hilton, alleging that it has engaged in deceptive and misleading pricing practices and failure to disclose fees in violation of Nebraska’s consumer protection laws. The complaint seeks injunctive relief to force Hilton to advertise the true prices of its hotel rooms, provide damages for Nebraska consumers, statutory civil penalties of $2,000 for each violation, and costs for investigation and legal action. Click here to see the Nebraska complaint against Hilton.

This new lawsuit is particularly significant because it was filed just two weeks after the District of Columbia filed a similar suit against Marriott.

A new template for other Attorneys General and plaintiff’s class action lawyers?

Many industry observers believe that the two recent lawsuits against Marriott and Hilton provide a virtual “template” for other AGs and class action lawyers to mark up and file – potentially against all hotel franchise companies, hotel operators, and hotel owners involved with any hotel that has used Resort Fees or other mandatory fees or charges imposed on all hotel guests which are not included in the initially quoted room rate.

The conduct complained of in the DC and Nebraska lawsuits traces the pattern outlined by the January 2017 FTC Report as deceptive and misleading under the FTC Act and most state consumer protection laws (that are based on the FTC Act). Although these first two suits are against big hotel companies, they are just at the top of the pyramid and provide high-profile examples of targets for plaintiffs. Similar actions would likely exist against every other brand, operator or owner of a hotel using undisclosed Resort Fees in their advertised room rates. CONTINUE READING →

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09 July 2019

Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Hotel Lawyer: We hate to say “we told you so” on Resort Fee litigation

We have been watching the Resort Fee issue for several years. We have advised clients on litigation, compliance and risk mitigation strategies. We have provided counsel on Attorney General investigations. We understand the best defenses to consumer and government agency claims that Resort Fee practices constitute violations of state consumer protection actions, the Federal Trade Commission Act and other cause of action based on misrepresentation, consumer fraud, and unfair business practices.

We have cautioned that consumer frustration over this issue is very high, and government agencies have periodically shown significant interest in jumping on a populist bandwagon. But today, it looks like the situation may have finally reached a turning point.

Hotel Resort Fees litigation back in the news

On July 9, 2019, the Attorney General for the District of Columbia sued Marriott International in Superior Court for the District of Columbia over its policies and practices regarding “Resort Fees” and “drip pricing.” The lawsuit says that Marriott’s use of Resort Fee pricing misrepresents material facts (and tends to mislead consumers), and is an unlawful trade practice that violates the District’s Consumer Protection Act.

Resort Fees is a shorthand expression for all mandatory fees and charges imposed by a hotel on its guests which are not included in the quoted room rate. They may have a variety of names such as resort fees, service fees, amenity fees, destination fees, surcharges or otherwise. But the common feature is that they are non-optional charges to the guest which are not included in the initially quoted room rate.

Copy of the complaint in DC vs. Marriott

Click here to view a copy of the complaint.

Potential importance of this Resort Fee case

Resort Fees have been around since at least 1997, but by 2017 they were estimated to have grown to more than $2.7 billion. They seem to be gaining greater popularity with hoteliers and continue to be a top annoyance for hotel guest. The practices the new lawsuit complains of are widely used throughout the industry by a large number of hotel brands and operators.

While some hotel companies may seek to distinguish their practices from those of Marriott in this case, we believe that most Resort Fee cases will present similar liabilities, challenges and compliance problems that Marriott will face.

CONTINUE READING →

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12 October 2017
Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

What does the FTC say is your potential liability for mandatory hotel charges?

In evaluating what you should do about the new furor over mandatory hotel charges, it would be helpful to have a clearer understanding of what the FTC seems to be saying on the issue. The chart below is our translation into “street English” of the FTC pronouncements discussed earlier. (See How Resort Fees became an explosive $2.7 billion issue which contains links to the original FTC press release of November 29, 2012 and the most recent FTC Economic Analysis of Hotel Resort Fees of January 2017.)

We believe we understand what the FTC is saying. We may not agree with it. We do not know whether the Trump administration will rein in the FTC on its perceived mission regarding resort fees, and we do not know whether the current FTC position will be upheld as a valid interpretation of the law. However, courts normally accord great deference to the interpretation of agencies charged with administering their laws, and it is imprudent to ignore the FTC’s recent actions.

In weighing options, even if they ultimately win on legal issues, hoteliers should also consider the negative effects of litigation — including direct costs in terms of legal fees, senior management time, and good will. And there are a number of worrisome plaintiffs who may pursue the issue, including the FTC, State Attorneys General, other governmental and consumer groups, and class action plaintiffs’ lawyers. Any victories by the hotel industry may be largely offset by the costs to obtain them.

So what are your options on mandatory Resort Fees?

The basic thrust of the actions by the FTC, the investigation by the State Attorneys General and most consumer class action suits is that it is a deceptive and misleading business practice for hotels to advertise their room rate online unless the first and most prominent price given includes all mandatory Resort Fees and other charges. They say that it is not sufficient to give the room rate and then have a less prominent disclosure of additional charges. CONTINUE READING →

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06 October 2017
Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Resort Fees are a $2.7 billion issue — a juicy target for Federal and State governments as well as plaintiffs’ lawyers

It is very likely that the Resort Fee issue will present challenges in the near future to all stakeholders in the hospitality industry. The prior articles in this series talked about what Resort Fees are, and key developments that warn of an eruption of government and private claims over Resort Fees.

This article provides a brief history of how Resort Fees have grown to be a $2.7 billion a year issue in an emotionally charged dispute between antagonists. We think this background is important for the correct analysis of problems and solutions involved with Resort Fees.

Dangerous misconception about drip pricing for Resort Fees

The emergence of Resort Fees and the government’s failure to take action for many years has apparently led to a dangerous misconception, at least in light of fast-unfolding events. This misconception is that it is OK to advertise room rates (without the Resort Fee) on your website, as long as the Resort Fee is disclosed somewhere — in the fine print or otherwise — before the consumer books the purchase. Some would argue that this was never OK, but recent developments make this a perilous position. This is not OK according to the FTC 2017 Report and other consumer groups. (see the previous article regarding the eruption of government and private claims over Resort Fees)

Early rumblings.

Hotels have charged various service fees for decades. We found references to Resort Fees in 1997. In 2001, a class action lawsuit was filed against Hilton, Hyatt, and Starwood for imposing mandatory “energy surcharges” to guest bills. In 2006, Wyndham settled an action by the Florida Attorney General over undisclosed automatic surcharges under investigation since 2001. In 2012, the FTC took a series of actions described below in response to consumer complaints of mandatory fees and drip pricing.

Big tremors.

On November 28, 2012, the FTC published a press release about a formal warning it had issued to 22 hotel operators notifying them that their pricing may violate section 5 of the FTC Act as fraudulent, deceptive and misleading business practices. The warning letter noted that price quotes for room rates without mandatory fees sometimes had footnotes or separate disclosure of the additional fees, but suggested that this treatment might be inadequate. The letter said, “These practices may violate the law by misrepresenting the price consumers can expect to pay for their hotel rooms.” CONTINUE READING →

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03 October 2017
Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Resort Fees: It is not just the FTC. Now there are 47 Attorneys General focused going after perceived abuses of Resort Fees

Consumer complaints have been protesting Resort Fees for almost two decades. In 2012, the FTC took its first major action. The hotel industry took some action, but many consumer groups and regulators apparently don’t think it is enough.

In May 2016, a national investigation was initiated by the Attorneys General of 46 states and the District of Columbia as to whether DC’s Consumer Protection Procedures Act (the “CPPA”) and similar acts of other states have been violated by deceptive price advertising techniques related to drip pricing regarding Resort Fees.

On June 7, 2017, the Attorney General for the District of Columbia (joined by the other 46 states) filed an action against Marriott to enforce subpoenas related to this investigation, and we are now aware that a number of owners, operators, and brands are receiving subpoenas or inquiries from other State Attorneys General relating to this task force’s nationwide investigation.

The rhetoric in the papers filed by the DC Attorney General is predictable: The FTC issued warnings about drip pricing in the hotel industry in 2012. Despite national criticism of the practice and consumer complaints, it appears the practices have continued.

Click here to read the papers in the lawsuit in DC v Marriott filed June 7, 2017.

What is your action plan for compliance and defense of Resort Fee litigation?

If you don’t have an action plan now, you should get started before you are served with a subpoena or complaint. We expect a flurry in the near future and are already assisting clients in dealing with a broad range of Resort Fee strategies and assessments.

Why do something NOW? Here is why. This is serious! CONTINUE READING →

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29 September 2017
Click here for the latest articles on Resort Fee Litigation.

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Impending eruption of government and private litigation over Resort Fees (mandatory service fees). Big shaking again. Is this the big one?

Two significant developments may signal an eruption of government and private claims over Resort Fees — (1) publication of the FTC 2017 Report and (2) commencement of proceedings regarding Resort Fees by a national task force of Attorneys General for 46 states plus the District of Columbia. This article focuses on the FTC Report. The next article will discuss the national task force.

The FTC issues its 2017 Report on Resort Fees

In January 2017, the FTC’s Bureau of Economics published a 44-page report entitled “Economic Analysis of Hotel Resort Fees” (the “FTC 2017 Report” or the “Report”).

The Report sets forth an aggressive regulatory position suggesting that it is a deceptive and misleading practice to advertise hotel rates without including Resort Fees, unless the total price (with Resort Fees) is the first and most prominently displayed price (in position and font characteristics) so consumers can easily comparison shop. It is not enough to disclose Resort Fees after the “room only” price even if this disclosure is made prior to booking a room. However, once the all-inclusive price has been disclosed, it is permissible to give a breakout of the total price into Resort Fee and other components.

The Report finds that “separating mandatory resort fees from posted room rates without first disclosing the total price is likely to harm consumers by increasing the search costs and cognitive costs of finding and choosing hotel accommodations.” The Report also finds that this drip pricing approach is unlikely to result in any benefits to offset the harm to consumers. Apparently, the Report’s authors find that the harm to consumers who may incur greater search costs and/or make incompletely informed decisions (and pay more for a room) justifies damages or enforcement actions under section 5 of the FTC Act.

Some highlights from the FTC 2017 Report

Here are some bullet point highlights extracted from the Report. CONTINUE READING →

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25 September 2017
Click here for the latest articles on Resort Fee Litigation. 

Note: If you are a consumer with a Junk Fee issue, please do NOT contact us! We do not represent consumers. We represent owners, developers, lenders, and management of hotels, restaurants, and other hospitality-related properties. We advise them on litigation, labor, regulatory compliance, contracts, transactions, financing, development, and strategies.

Impending eruption of government and private litigation over Resort Fees (mandatory service fees) 

There were earthquakes and tremblors for at least 17 years before Pompeii was destroyed in the catastrophic eruption of Mount Vesuvius in 79 AD.  The past is prelude.

What are Resort Fees?

We define “Resort Fees” as any mandatory fees or surcharges to hotel guests that are not included in the stated price of the room. These Resort Fees are usually described as covering a bundle of services, facilities or amenities, but the key element is that these charges are not optional and do not depend upon whether a guest actually uses of any of bundle’s benefits.

The FTC has described Resort Fees as part of one subset of a bigger problem involving two pricing practices: partitioned pricing and drip pricing. According to the FTC’s January 2017 Economic Analysis of Hotel Resort Fees, “Partitioned pricing involves dividing the price into multiple components without disclosing the total. Drip pricing is the practice of advertising only part of the product’s price upfront and revealing additional charges later as consumers go through the buying process.”

What is the Resort Fee issue?

The government is on a mission to eliminate the practice of hotels charging their guests undisclosed Resort Fees, and is going after hotels for massive fines and penalties.

The first warning signs of an explosion of litigation over Resort Fees go back some 17 years to about the year 2000, when Resort Fees began to gain popularity with hotels and started a wave of consumer complaints about mandatory surcharges or other fees automatically added to a guest’s hotel bill. Although mandatory service fees may have different names, the most popular name for them is Resort Fees.

We are accustomed to seeing litigation trends take form quickly, and there is reason to believe that a new pressure is gathering critical force on the Resort Fees issue. We will discuss this serious threat of litigation in detail later. CONTINUE READING →

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22 December 2014

Click here for the latest articles on Hotel Management Agreements.

A version of this article first appeared in Hotel Business Review in December 2014, and this article is reprinted with permission from www.hotelexecutive.com.

The shrinking terms of hotel management agreements

Better bargaining position for hotel owners on HMAs

by

Jim Butler and Mark S. Adams | Hotel Lawyers

The relationship between hotel owners and managers continues to evolve. Hotel management agreements historically were long-term. Fifty to sixty year terms were common. However, in the last few years, hotel owners have successfully negotiated shorter contract durations and other more favorable terms, even from the largest and most sought-after major brands. This trend is likely to continue and expand as brands realize that hotel owners have the power to terminate so-called no cut, long-term hotel management agreements, despite contrary provisions in the contract which courts now routinely ignore as a matter of public policy.

The Separation Of Hotel Ownership From Hotel Operations

Trade, pilgrimage, conquest, and adventure have been the driving forces of travel since ancient times. For more than 5,000 years, accommodations for these travelers were provided by inns or monasteries. These lodging facilities were typically owned and operated by the same persons. That ownership pattern still exists today, particularly among mom-and-pop operations or small chains, but more and more, there is a separation of hotel ownership and hotel management.

This trend first gained traction when Kemmons Wilson started the first hotel franchising of Holiday Inns in the 1950s, and picked up momentum in the next couple of decades when hotel operators decided to move hotel real estate off their balance sheets with sale-leaseback transactions, and when hotel investors bought hotels and elected to lease their hotels to professional hotel operators. The separation of ownership and management continued and became the prevalent structure as hotel management agreements were developed in the 1970s and proliferated in the 1980s, 1990s and 2000s, particularly for larger, higher-end hotel properties.

But in the last ten or 15 years the franchise model has become the dominant one, at least by number of branded rooms, and particularly for the rapidly expanded extended stay and select service segments of the industry. Under this model, ownership is separate from branding, and usually a professional (unbranded) hotel management company is a surrogate for the brand.

Ultimately, the separation of ownership and management brought about by this evolution meant that the traditional hotel companies focused more on finding more owners of hotel real estate that they could brand and manage, and the owners of hotel real estate (lacking hotel brand or management capacity) focused on collecting rents or looking to their brand and operator to optimize profits. In other words, the concept of a hotel being owned by one entity and operated by another became a preferred model, whether under a hotel lease, hotel management agreement or a franchise.

Since the 1990s, when some estimate that 60% of the hotel rooms in the U.S. were unbranded, more owners have elected to brand their hotels to access the professional management, finaceability, marketing power and resources of the brands. Today, unbranded hotel rooms probably comprise less than 20% of the hotel rooms in the U.S. This massive shift to the brands further reinforced the separation of hotel ownership from hotel branding and management.

The separation has been facilitated by the fact that hotel guests do not particularly care who owns the title to the hotel real estate as long as the hotel’s physical facilities and service levels meet their expectations and are predictable, satisfactory, clean and safe. Branding was one way to provide assurances of consistency and meeting minimum brand standards. In this evolving dynamic, brands focused on operations, brand standards, and system expansion.  They were less capital-constrained because owners now provide the bulk of capital to build and maintain hotel real estate and related facilities.

The Hotel Management Agreement (“HMA”)

The HMA is one of the clearest separations of ownership and operation. A branded HMA with one of the traditional hotel management companies is typically a long-term agreement between the owner and operator under which the operator is delegated virtual control over the operations of the hotel. The principal provisions in an HMA are, as follows: CONTINUE READING →

Contact Information
Jim Butler, Chairman
Global Hospitality Group®
Jeffer Mangels Butler & Mitchell LLP
(310) 201-3526 • jbutler@jmbm.com
www.HotelLawyer.com

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