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This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer. Please contact me at Jim Butler at jbutler@jmbm.com or 310.201.3526.

Published on:

  25 October 2017
Click here for the latest articles on Data Technology, Privacy & Security

Cybersecurity breaches and risk management continue to be a concern for businesses of all sizes and types. A recent warning distributed by the U.S. Department of Homeland Security and the FBI regarding targeted hacks in several critical industries is an illustration that anyone can be vulnerable such tactics, including the hospitality industry. My partner Bob Braun, senior member of JMBM’s Global Hospitality Group® and co-chair of JMBM’s Cybersecurity and Privacy Group, summarizes the recent report and its conclusions below.

Homeland Security Warns Against
Threats to US Infrastructure
by
Robert E. Braun



The Department of Homeland Security and Federal Bureau of Investigation distributed an email warning late on Friday, October 20, 2017, that the nuclear, energy, aviation, water and critical manufacturing industries have been targeted along with government entities in attacks dating back to at least May. In particular, the agencies reported that hackers had compromised some targeted networks, but did not identify specific victims or provide other details.

While the report focused on threats to nuclear and conventional power, water, and other infrastructure, the very fact that the DHS and the FBI chose to make a public statement highlights how important the issue is to all industries, and the concern that an attack on infrastructure could have a devastating impact on all aspects of the American economy.

The report noted that, as in many malware attacks, hackers seek to compromise networks with “spear phishing” – emails tailored to reach specific individuals – with malicious attachments and tainted websites with a goal of obtaining credentials that allow the hackers to access computer networks. CONTINUE READING →

Published on:

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 →

Published on:

 
9 October 2017

It is budget season again — that time when operators and owners sit down to agree on the financial blueprint for the next year. My partner Bob Braun has worked on many hundreds of hotel management agreements and issues arising under them. Today, he shares some insights about the how to maximize the budget opportunity for constructive dialog between owners and operators.

It’s Budget Season
What are you doing about it?
by
Robert E. Braun, Hotel Lawyer

Importance of budgets

It’s hard to overstate the importance of a budget in the relationship between a hotel manager and owner. The budget is the way that a manager describes, in black and white, how it plans to operate the owner’s property; it is the document that translates operating standards into action, and how the owner can expect to profit from the manager’s efforts. It is also an important opportunity to be sure that the operator is giving due consideration to the owner’s financial expectations and/or exit strategies.

Many of the larger independent management companies present a budget with little opportunity for dialog. In significant part, they diminish the direct impact of asset and property management teams. This means people sitting in an office 3,000 miles away make key budget decisions for properties that they have not seen or on markets they have not visited, based on STR reports and raw data. Generally, one would think that the property-level asset management team would be the best to guide the budget process because of their hands-on knowledge – not the corporate budgeting team.

Budget challenges owners face

Unless owners have a wealth of operating experience or hire experienced asset managers, they will likely be at a severe disadvantage when they review budgets. Consider typical challenges of the budget timing and process:

  • Managers typically deliver budgets to owners in early- to mid-November, which leaves only 45 to 60 days before the beginning of the new fiscal year. While an owner may be able to analyze and comment on the budget and propose changes, the process itself is lengthy and makes it difficult to complete in a timely manner. Operators have scheduling conflicts during that busy period, and typically take two to three weeks, or more, to prepare a response for the owner’s review. Managers work on budgets almost year-round, and larger management companies have staffs that are dedicated solely to creating budgets. They have developed expertise in creating a budget that owners can only match by expending the necessary time and expertise, which takes a commitment that many owners don’t understand; after all, didn’t they already engage a manager for its expertise?
  • No matter the level of owner approval rights – which range from what might be complete control to very limited influence – managers run the budget process and establish the assumptions underlying the budget, making it difficult to make changes. Leveling the playing field requires owners to engage asset managers to conduct a “shadow” budgeting process.
  • The budget for any single year will impact budgets for years to come. While budgets are generally “zero-based,” a budget for any given year is more realistically derived from the budget for the prior year, and budgets ultimately contain a variety of “legacy” items. While the old budget should, reasonably, provide a setting for the new budget, a variety of factors should (but often don’t) get adequate consideration, including new labor agreements or laws, renovations and their implications, new supply, addition of new product internally (such as restaurants or bars), and outside influences, such as changes in the convention market and other drivers for the hotel market.
  • Operators rarely provide great detail on the most significant cost to owners – labor expenses – and therefore do not give owners the opportunity to identify potential savings. Similarly, operators often give greater weight to occupancy than rate, which may actually reduce the profitability of a hotel.

CONTINUE READING →

Published on:

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 →

Published on:

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 →

Published on:

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 →

Published on:

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 →

Published on:

19 September 2017

As of January 1, 2018 owners of General Partnerships, Limited Partnerships or multi-member Limited Liability Companies may soon find themselves economically liable for the unpaid tax of former partners/members of those entities. JMBM Tax Attorney Jamie Ogden briefly describes the new audit regime, who it affects, and what you need to do to protect yourself from uncertainties.

 
Important tax news for owners of
Partnerships and LLCs
by
Jamie Ogden, Tax Lawyer

On June 13, 2017, the Treasury Department republished Proposed Treasury Regulations regarding the new partnership audit regime enacted as part of the Bipartisan Budget Act of 2015. Generally, the new partnership audit rules will be effective January 1, 2018.

As a result of the new partnership audit regime: (1) individuals and/or entities that were formerly owners of General Partnerships, Limited Partnerships and multi-member Limited Liability Companies (together “Partnerships”) during prior, audited tax years may escape liability for unpaid tax, and correspondingly (2) the existing owners of such Partnership (i.e., the owners of the Partnership at the time of the IRS collection process) will bear the economic burden entirely. Thus, in the absence of properly drafted Partnership and Operating Agreements, any existing owner of a Partnership may be economically liable for the unpaid tax of former partners/members of the Partnership. It is therefore critical that Partnerships and their owners review and modify their existing partnership and operating agreements immediately. CONTINUE READING →

Published on:

17 September 2017

EB-5, Mixed-Use Development and Deal Making: See you at the 2017 Lodging Conference

The Lodging Conference is taking place at the Arizona Biltmore in Phoenix, October 30-November 2, 2017, and hotel lawyers from JMBM’s Global Hospitality Group® will be there to visit our friends in the hospitality industry, share our knowledge, learn from the experts (and do some deals!).

At the conference, I will moderate the panel,  Navigating the EB-5 Landscape taking place at 4:00 pm on October 31st. Funding obtained through the EB-5 Immigrant Investor Visa program continues to play a vital role in the capital stack for new hotel development and we will provide up-to-the-minute information on the status of the program, as well as share some great success stories. To get up to speed on what’s happening with EB-5, check out my recent blogs.

Also from our team, JMBM Global Hospitality Group’s  Vice-Chair Guy Maisnik will speak on the panel Structuring Mixed-Use Development on November 1st at 11:30 am. Guy has represented developers and owners of hotel mixed-use properties for decades, and he will share his experience in financing, management agreements, and other critical issues. CONTINUE READING →

Published on:

07 September 2017
Click here for the latest articles on EB-5 Financing. 

President Trump’s budget deal with Congress includes extension of EB-5 through December 8, 2017

In a message to members of the Public Policy Committee today, the IIUSA confirmed the extension of the EB-5 regional center program as part of the budget deal struck yesterday by President Trump and Congressional leaders.

IIUSA message on EB-5 extension

The IIUSA is one of the leading EB-5 industry trade groups. Here is the text of the message from the IIUSA we received today:

Dear IIUSA Public Policy Committee,

As we are sure you’ve seen in media outlets, there is important news regarding government spending, and in turn, EB-5 reauthorization.

EB-5 Extension thru 12/8 Part of Congress/White House Spending Deal

Yesterday, Congress reached a deal with the White House that, once passed at some point this September, would extend existing funding levels and other program authorizations (such as EB-5) included on the last “continuing resolution” (“CR”) through 12/8/17.

The EB-5 authorization comes in Section 105 text of the deal released yesterday which:

Continues all authorities, requirements, and limitations from 2017 appropriations Acts through the date in section 106. Allows for valid obligations and expenditures during the period of the Continuing Resolution (CR).

Section 106 verifies the date:

Continues appropriations through December 8, 2017, or the enactment of the pertinent appropriations Act.

CONTINUE READING →

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