Brewer, ATtorneys & Counselors
Successes
The Defense of Starwood in a Landmark Hospitality Litigation Case
A Bet-the-Company Dispute in the Hospitality Industry
Complex hotel litigation rarely concerns a single contractual provision. It may involve management authority, fiduciary obligations, purchasing programs, ownership structures, brand standards and substantial claims for lost profits or damages.
The litigation involving Starwood Hotels & Resorts Worldwide, Inc. demonstrated the scale and complexity of these disputes.
The firm defended Starwood against claims connected with the ownership and management of two Westin hotels—one in Chicago and one in San Francisco.
Approximately $200 million was reportedly at stake, but the potential consequences extended beyond the immediate damages demand. An adverse result could have encouraged similar claims from other hotel owners across Starwood’s portfolio.
The Broader Starwood and Blue Tree Dispute
Related litigation involved owners of seven Westin hotels in the United States and Canada. Those owners alleged that Starwood had improperly received and retained vendor rebates, discounts and other payments generated through purchasing activities.
The owners attempted to characterize the payments as unlawful kickbacks and asserted claims that included commercial bribery, fraud, conversion, breach of contract and breach of fiduciary duty.
The allegations placed a central feature of large-scale hotel management under scrutiny: the use of a manager’s purchasing power across multiple owned and managed properties.
Hotel companies commonly negotiate volume pricing, rebates, allowances and purchasing incentives. Disputes may arise over how those benefits are disclosed, allocated and treated under individual hotel management agreements.
In 2004, the United States Court of Appeals for the Second Circuit affirmed the dismissal of the hotel owners’ federal commercial-bribery claim.
The appellate court found that describing vendor payments as “kickbacks” was not enough to establish commercial bribery. The owners had not sufficiently alleged that vendors made the payments with an improper intent to influence or corrupt Starwood’s decisions.
The court distinguished a disagreement over the ownership or allocation of rebates from an actual bribery scheme. Although the court did not decide whether the conduct could support a separate fiduciary-duty claim, it concluded that the allegations did not establish commercial bribery under the applicable federal law.
This distinction was important. Commercial arrangements involving rebates or purchasing incentives do not automatically become bribery merely because the parties disagree about who is entitled to receive the resulting economic benefit.
Arbitration and Trial
The broader dispute continued through an intensive arbitration process.
According to the firm’s account, the matter required approximately 17 months of arbitration proceedings, followed by a two-week trial. In 2006, Starwood prevailed on every claim presented by its opponent.
The victory protected Starwood not only from the immediate monetary exposure but also from the risk that an adverse ruling could become a foundation for similar claims involving other managed hotels.
The Importance of an Integrated Litigation Strategy
A dispute of this magnitude requires more than a narrow response to individual allegations. The defense must understand the complete operating relationship among the hotel owner, manager, brand, vendors and affiliated companies.
Important areas of analysis may include:
The language of the hotel management agreements;
Ownership and allocation of purchasing rebates;
Disclosure and accounting practices;
Fiduciary and agency obligations;
Vendor negotiations and procurement programs;
Brand-wide purchasing benefits;
Causation and damages calculations;
Arbitration provisions and procedural strategy.
The Starwood defense required the legal team to convert a complicated body of contractual, financial and operational evidence into a clear explanation of how the hospitality business actually functioned.
Beyond the Immediate Financial Exposure
The case illustrates why high-stakes hospitality disputes can have consequences far beyond one property.
A ruling about procurement, fiduciary duties or management practices may affect hundreds of contracts containing similar language. It can also influence relationships with investors, owners, vendors and lenders.
For a global hotel manager, settling an unsupported claim may create a precedent that exposes the entire management platform to additional litigation. Successfully defending the claim can therefore protect both the company’s immediate financial interests and its broader operating model.
A Significant Hospitality-Litigation Result
The Starwood matter stands as an example of strategic litigation management in a dispute where hundreds of millions of dollars and significant industry consequences were at issue.
Through sustained preparation, detailed examination of the contractual relationships and focused advocacy, the defense secured a complete victory and protected Starwood from potentially far-reaching exposure.