More Prurient Spectating in the Parker Meridien/Starwood Lawsuits

The lawsuit between Starwood and the Parker Meridien Hotels is fascinating not just because it’s a window into agreements between loyalty programs and hotels that we don’t often get to see the details of but also because it reveals a ton about how the programs work.

In this case it’s alleged that because Starwood pays its hotels a ton more cash for award nights when hotels are nearly fully booked, the Parker Meridien hotels in Palm Springs and New York fudged their books to appear to be fully booked much more often — extracting more than an extra million dollars in reimbursements from SPG.

Reader Seth T. emails,

I did a little docket-surfing on Pacer and got the full set of filings; they were uploaded via the RECAP project into the Internet Archive for
posterity

You can read the current documents in the case here.

I thought that the most recent filing was interesting, a motion to dismiss on the part of the hotels.

Starwood is suing to terminate its agreements with the properties. The hotels, though, claim that since they returned the money (that they fraudulently received) then no harm was done, and if anything they violated only the Starwood Preferred Guest agreement — and that terminating that doesn’t terminate the separate agreement which affiliates the hotels with the Starwood chain (as well as other defects of law in the suit, of course).

The framing here is fascinating:

This action is nothing more than a wrongful attempt by hotel chain Starwood to use alleged overpayments by Starwood to its licensee hotel operator Parker, under Starwood’s customer loyalty program, as a pretext for terminating two longstanding license agreements between the parties. However, not only does Starwood fail to disclose in its complaint that those alleged overpayments were returned to Starwood, but also that they relate solely to the customer loyalty program and have nothing to do with the license Starwood seeks to terminate.

In particular,

• ‘Alleged overpayments’ as though they were accidents on the part of Starwood as opposed to — as Starwood claims in the suit — the result of fraudulent bookkeeping by the hotels.

• The payments were returning… by wire, which didn’t require ‘acceptance of funds’ by Starwood. Starwood might not have cashed a check. (And returning the funds might not be sufficient to cure a breach of the sort of business relationship that relies on parties not to defraud each other.)

Fascinating…

Update: in some sense it does seem odd for the hotel to especially care whether or not they remain with Starwood, and especially as a Starwood property that doesn’t participate in SPG (having learned that SPG puts heads in beds, remember the hotel didn’t used to participate but chose to enter the program).

Put another way, it makes no sense to stay with Starwood and not participate in SPG, when they could negotiate a deal with another chain and possible even do better than the agreement that was put in place at a hotel that the hotel market was weaker.

I have to think that there’s got to be additional potential liability for the hotel properties or individuals associated with it.

To me the alleged behavior sounds potentially like criminal fraud. Opposing the motion could just be a bargaining chip to get principals out from under a heap of liability.

Put a different way, Parker Meridien could be opposing the severing of ties with Starwood not because they don’t want to sever ties but because they want to be able to get something (release of liability) from Starwood in exchange for severing ties.