Holiday Inn Unfair Franchising Requirements New Mexico Class Action

This class action brings suit against two hotel-related entities, Six Continents Hotels, Inc., which does business as Intercontinental Hotels Group (IHG) and Holiday Hospitality Franchising, LLC (HHF), concerning unfair franchising requirements. The complaint alleges that the franchising arrangements impose onerous and unnecessary requirements on franchisees that are designed not to improve the business but to provide kickbacks for the franchisors.

The class for this action is all US residents, including business entities, who operate or have operated a hotel in New Mexico according to a license agreement with HHF between January 1. 2014 and the date the class is certified in this case.

IHG owns or franchises hotels under many different brands, including Crowne Plaza, InterContinental, and Staybridge Suites, but about 70% of its hotels are Holiday Inn brands, including Holiday Inn, Holiday Inn Express, and Holiday Inn Resorts. HHF is its franchising affiliate.

The franchisees are often individuals, single-member limited-liability companies, or closely-held corporations, the complaint claims, as well as immigrants or second-generation Americans from India or other South Asian countries who are attracted to family-owned businesses that they can build up through their hard work. The plaintiff in this case is one such franchisee, 110 Sunport, LLC, which operates a hotel in Albuquerque, New Mexico.

However, the complaint alleges that the franchising arrangements involve “unlawful, abusive, fraudulent, anticompetitive and unconscionable practices designed solely to benefit and to enrich IHG/HHF’s shareholders and to do so at the expense and to the detriment of” the franchisees.

One of the things IHG/HHF does, the complaint alleges, is to require that its franchisees use only certain vendors and suppliers for the goods and services needed to operate the hotels. This might not be a bad thing if the franchisees got lower prices from them, but the complaint claims that it works the opposite way, “impos[ing] well above-market procurement costs” on them. According to the complaint, the expensive products bought through the approved vendors are “overwhelmingly of inferior quality.”

Particularly onerous and costly, the complaint claims, is the Property Improvement Plan (PIP). This involves requiring franchisees to do frequent renovations, remodeling, and construction. For 110 Sunport, it included a recent Formula Blue renovation.

But with the PIP, the complaint alleges, IHG/HHF “manipulates and shortens the warranty periods on mandated products the franchisees must purchase, then disingenuously uses this to justify PIP requirements as purportedly necessary to meet ‘brand standards’ when, in reality, IHG/HHF’s sole purpose is to maximize its kickbacks and unjustifiably run up costs on their franchisees in bad faith.”

The complaint makes other allegations about “oppressive, bad-faith, fraudulent and unconscionable conduct” involving fees and penalties. These include marketing fees and programs, bigotry towards Indian-American and South Asian-American franchisees, and penalties assessed for customer complaints, among other things.

The counts include breach of contract, accounting, and anticompetitive actions, among other things.

Article Type: Lawsuit
Topic: Contract
Tags: Accounting, Anticompetitive Actions, Breach of Contract