Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 1 of 45
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`Case No. 4:21-cv-1803
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`JURY TRIAL DEMANDED
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE SOUTHERN DISTRICT OF TEXAS
`HOUSTON DIVISION
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`PH LODGING TOMBALL, LLC, a Texas Limited
`Liability Company, on behalf of itself and a class of
`similarly situated entities,
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` PLAINTIFFS,
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`v.
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`HOLIDAY HOSPITALITY FRANCHISING, LLC,
`SIX CONTINENTS HOTELS, INC. d/b/a
`INTERCONTINENTAL HOTELS GROUP and
`IHG OWNERS ASSOCIATION, INC.
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`DEFENDANTS.
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`CLASS ACTION COMPLAINT
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`Plaintiff PH Lodging Tomball, LLC (“Plaintiff” or “PH Tomball”), individually and on
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`behalf of a class of similarly situated individuals and entities, by and through undersigned counsel,
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`hereby demands judgment against defendants Holiday Hospitality Franchising, LLC, Six
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`Continents Hotels, Inc. d/b/a Intercontinental Hotels Group and IHG Owners Association, Inc. In
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`support thereof, Plaintiff states as follows:
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`INTRODUCTION
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`1.
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`Defendant Six Continents Hotels, Inc. (“SCH”) is the world’s largest hotel company
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`by room count, and does business under the name InterContinental Hotels Group (“IHG”) (SCH
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`and IHG may hereinafter be collectively referred to as “IHG”).
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`2.
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`IHG operates approximately some 5,600 hotels across more than 15 brands. IHG
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`takes an asset-light approach, owning, franchising and/or managing hotels for third parties, with
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`Holiday Inn as its mainstay chain, under such brands as Holiday Inn, Holiday Inn Express and
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`Holiday Inn Resorts, each bearing the identification as “an IHG Hotel.”
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`3.
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`IHG also owns, manages and/or franchises other hotel brands such as Crowne
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`Plaza, InterContinental, Staybridge Suites, Candlewood Suites, Hotel Indigo, Regent and Kimpton.
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`4.
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`5.
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`IHG’s Holiday Inn brands account for approximately 70% of its total hotel count.
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`IHG owns Defendant Holiday Hospitality Franchising, LLC (“HHF”), its affiliate
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`which offers and sells Holiday Inn brand franchises including, but not limited to, Holiday Inn,
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`Holiday Inn Express and Holiday Inn Resort.
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`6.
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`Defendant IHG owns and acts through its franchising affiliate, HHF and its agent
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`and representative IHG Owners Association (“IHGOA”).
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`7.
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`HHF enters into franchise agreements titled “Holiday Hospitality Franchising, LLC
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`License Agreement(s)” with its franchisees.
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`8.
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`Plaintiff PH LODGING TOMBALL, LLC (“PH Tomball”) is a franchisee that
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`owns and operates one or more hotels that bear a HHF brand mark pursuant to an HHF license
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`agreement.
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`9.
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`Many HHF Franchisees are individuals, single member limited liability companies
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`or closely held corporations who are either immigrants or second-generation Americans of Indian
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`or other South Asian origin. Plaintiff is one such HHF franchisee.
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`10.
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`The hotel franchise industry holds particular appeal and attraction to these HHF
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`Franchisees by providing investment and traditional family business ownership opportunities
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`which they can build through diligence, dedication and hard work.
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`11.
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`This class action lawsuit seeks to put an end to IHG/HHF’s unlawful, abusive,
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`fraudulent, anticompetitive and unconscionable practices designed solely to benefit and to enrich
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`IHG/HHF’s shareholders and to do so at the expense and to the detriment of Plaintiff and the class
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`members, namely, similarly situated franchisees.
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`12.
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`As detailed below, Defendants have and continue to engage in unconscionable,
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 3 of 45
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`fraudulent, unlawful, anticompetitive and discriminatory business practices in connection with the
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`IHG Hotel franchise system.
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`13.
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`At the heart of IHG/HHF’s unlawful scheme is its requirement that its franchisees
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`use certain mandated vendors and suppliers for the purchase of goods and services necessary to run
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`a hotel.
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`14.
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`IHG/HHF’s forced exclusive use of certain chosen vendors and suppliers imposes
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`well above-market procurement costs on franchisees which include, but are not limited to, those
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`associated with its onerous and exorbitant Property Improvement Plan (“PIP”).
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`15.
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`Under the guise of improving the franchisees’ hotels to maintain “brand standards,”
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`IHG/HHF forces its franchisees to frequently undertake expensive renovations, remodeling and
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`construction as part of the PIP, and in so doing manipulates and shortens the warranty periods on
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`mandated products the franchisees must purchase, then disingenuously uses this to justify PIP
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`requirements as purportedly necessary to meet “brand standards” when, in reality, IHG/HHF’s sole
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`purpose is to maximize its kickbacks and unjustifiably run up costs on their franchisees in bad
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`faith.
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`16.
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`IHG/HHF deceitfully represent to their franchisees that they select vendors with the
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`laudable goal of using the franchisees’ collective bargaining power to secure a group discount and
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`to ensure adequate quality and supply of products and services, and refer to these procurement
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`programs as the “IHG Marketplace.”
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`17.
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`In fact, however, IHG/HHF’s primary goal in negotiating with vendors has little to
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`nothing to do with the best interests of franchisees but rather is to secure the largest possible
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`kickback for itself, which vendors finance through the above-market rates charged to franchisees
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`in collusion with IHG/HHF.
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`18.
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`Furthermore, the above-market priced products which IHG/HHF forces franchisees
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`to purchase through the IHG Marketplace and related programs is overwhelmingly of inferior
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`quality.
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`19.
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`These low-quality “IHG Approved” purchases are forced upon franchisees and
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`disingenuously characterized as meeting supposed brand standards of quality, when in truth the
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`sole purpose is to maximize kickbacks for IHG/HHF and unjustifiably increase costs on their
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`franchisees in bad faith.
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`20.
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`Upon information and good faith belief, IHG/HHF have each netted tens of millions
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`of ill-gotten dollars from this fraudulent kickback scheme.
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`21.
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`Additionally, IHG/HHF engages in other oppressive, bad-faith, fraudulent and
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`unconscionable conduct. For instance, IHG holds itself out to the public as offering discounts,
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`travel benefits and other perks to repeat guests through its IHG Rewards Club loyalty program.
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`IHG has a mobile booking app as well as cloud-based hotel solutions which it represents as driving
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`demand for its hotel owners and which ostensibly allow hotel owners to reach potential guests at a
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`lower cost. Hotel guests can accumulate points per dollars spent which can be redeemed at IHG
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`hotels.
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`22. When those points are then redeemed at a hotel, however, only a small fraction of
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`the value is reimbursed to franchisees while (beginning in 2018) IHG/HHF has required that
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`Plaintiff and franchisees (and not IHG/HHF) also pay sales tax on the full value of the product or
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`service obtained by hotel guests.
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`23.
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`Furthermore, in instances where hotel guests’ accumulated reward points from stays
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`at Plaintiff’s (or other franchisees’) hotel expire, the points never return to Plaintiff or to any
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`source-of-origin franchisees.
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`24.
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`IHG/HHF also routinely introduces new marketing programs under the guise of
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`providing franchisees with a “choice” as to whether they should participate or not. In reality,
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`however, all such marketing programs are forced upon the franchisees insofar as any and all
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`decisions to “opt out” are met with vindictive, punitive and retaliatory action by IHG/HHF.
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`25.
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`These programs are in addition to all marketing fees contracted and paid for by the
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`franchisees, and serve as an abusive way to impose additional fees and fines for the sole profit and
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`benefit of IHG/HHF, and to do so without disclosure or agreement by deceit, implied threat and
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`actual retribution rendering franchisees’ supposed “opt-out” choice completely illusory.
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`26.
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`Furthermore, although the facts set forth herein predominantly existed before
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`March, 2020 and continuously thereafter, IHG/HHF has ceased all of its marketing since the
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`imposition of Covid-19 related restrictions in early 2020. Despite the fact that IHG/HHF has not
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`been engaged in any marketing activities or efforts for approximately a year, it continues to require
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`franchisees to pay significant marketing related fees for which they receive absolutely nothing in
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`return.
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`27. Moreover, IHG/HHF routinely assesses additional fees and penalties against
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`franchisees which are not authorized by the applicable License Agreement, and are fundamentally
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`excessive and unfair. These fees and penalties are disingenuously assessed as a means to
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`intimidate franchisees, including to serve as bad faith bases for default notices and threatened
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`termination, as well as to harm the economic viability, profitability and creditworthiness of
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`franchisees.
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`28.
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`For instance, IHG/HHF routinely requires its franchisees to pay multiple fees for
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`the same product or service. And, IHG/HHF routinely asseses additional fees against franchisees
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`for services and products that IHG/HHF either does not, in fact, provide or provides at an inferior
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`quality.
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`29.
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`IHG/HHF imposes requirements on its franchisees to undergo hotel inspections any
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`time there are conversions, construction, changes in ownership, brand changes or re-licensing. In
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`conjunction with IHG/HHF’s unilaterally imposed mandates for any such hotel changes, IHG/HHF
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`requires its franchisees to pay for the inspections, IHG/HHF’s written reports and any re-
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`evaluations and re-inspections that IHG/HHF alone deems necessary. In practice, IHG/HHF stages
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`these inspections to maximize criticism of franchisee Hotels as a pretext for imposing additional
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`inspections, reports and fines, all deliberately interposed for IHG/HHF’s own financial benefit and
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`to the detriment of franchisees.
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`30.
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`IHG/HHF arbitrarily imposes rules and regulations and/or unreasonably interprets
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`rules and regulations in order to justify assessing monetary penalties against franchisees.
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`31.
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`Quite egregiously, IHG/HHF routinely discriminates, demeans, and is both
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`explicitly and implicitly hostile and bigoted towards Plaintiff, and towards Indian-American and
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`South Asian-American franchisees.
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`32.
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`IHG/HHF corrupts its Owners Association, the IHGOA, the function of which
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`IHG/HHF represents in the License Agreement “to function in a manner consistent with the best
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`interests of all persons using the System” but instead is staffed almost exclusively with IHG/HHF
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`representatives to the exclusion of franchisees and operates to undermine and to harm the very
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`hotel owners and franchisees it purports to represent.
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`33.
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`HHF’s actions are unconscionable and outrageous, and have pushed franchisees to
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`the financial breaking point.
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`34.
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`This class action lawsuit seeks monetary damages, injunctive and other relief for:
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`(a) Count I – breach of contract; (b) Count II – breach of fiduciary duty; (c) Count III – declaratory
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`judgment; (d) Count IV – recovery for violations of the Sherman Act, 15 U.S.C. § 1 and (e) Count
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`V – an accounting.
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`JURISDICTION AND VENUE
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`This Court has subject matter jurisdiction over the federal law claims raised in this
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`35.
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`class action lawsuit pursuant to pursuant to 28 U.S.C. § 1331 as Plaintiff alleges violations of a
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`federal statute, the Sherman Act, 15 U.S.C. § 1 (Count V).
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`36.
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`This Court has subject matter jurisdiction over this action pursuant to the Class
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`Action Fairness Act of 2005, Pub. L. No. 109-2 Stat. 4 (“CAFA”), which, inter alia, amends 28
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`U.S.C. § 1332, at new subsection (d), conferring federal jurisdiction over class actions where, as
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`here: (a) there are 100 or more members in the proposed class; (b) some members of the proposed
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`Class have a different citizenship from Defendants and (c) the claims of the proposed class
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`members exceed the sum or value of five million dollars ($5,000,000) in aggregate. See 28 U.S.C.
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`§ 1332(d)(2) & (6).
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`37.
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`This Court has subject matter jurisdiction over the state law claims raised in this
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`action pursuant to 28 U.S.C. § 1367, because they arise from the same set of operative facts as the
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`federal law claims.
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`38.
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`This Court has personal jurisdiction over Defendants IHG, HHF and IHGOA
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`because all Defendants regularly transact business within the geographic boundaries of this District
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`by, inter alia, entering into franchising agreements with franchisees and engaging in routine,
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`systematic and continuous contacts with persons in this District.
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`39.
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`Venue is proper in this judicial district pursuant to 18 U.S.C. §§ 1965(a), 1965(b),
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`because Defendants HHF, IHG and IHGOA have agent(s) in, and regularly transact their business
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`affairs in, this District by, inter alia, entering into franchising agreements with franchisees,
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`because said Defendants regularly transact business within the geographic boundaries of this
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`District by, inter alia¸ collecting membership fees from franchisees, and, in the alternative,
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`because the ends of justice require said Defendants to be summoned to this District.
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`40.
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`The business conducted by Plaintiff PH LODGING TOMBALL, LLC is pursuant
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`to a license agreement with HHF, and Plaintiff’s business location is at 14055 Park Drive in
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 8 of 45
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`Tomball, Texas 77377.
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`PARTIES
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`41.
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`Plaintiff PH LODGING TOMBALL, LLC, a Texas Limited Liability Company,
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`operates a HHF franchise hotel, specifically a Holiday Inn Express & Suites hotel in Tomball, Texas.
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`42.
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`Defendant HHF is a Delaware-registered limited liability company with its
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`principal place of business located at Three Ravinia Drive, Suite 100, Atlanta, Georgia 30346.
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`43.
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`Defendant IHG is a Delaware-registered corporation with its principal place of
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`business is Three Ravinia Drive, Suite 100 Atlanta, Georgia 30346.
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`44.
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`Defendant IHGOA is a Georgia non-profit corporation with its principal place of
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`business is Three Ravinia Drive, Suite 100 Atlanta, Georgia 30346.
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`COMMON FACTUAL ALLEGATIONS
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`The Parties’ Relationship
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`45.
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`46.
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`IHG has been in operation since 2003.
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`Throughout its history, IHG has created and acquired hotel brands, including, but
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`not limited to, Holiday Inn, Holiday Inn Express and Holiday Inn Resort.
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`47.
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`IHG’s franchising affiliate, HHF, licenses the right to use these hotel brand marks
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`to franchisees, including Plaintiff, by entering into franchise agreements with them, which in many
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`cases are referred to as “License Agreements.”
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`48.
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`IHG owns HHF and has developed relationships with various vendors and
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`suppliers to IHG/HHF franchisees.
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`49.
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`By virtue of its ownership of HHF and control over the IHG Marketplace, IHG is
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`an intended third-party beneficiary of the License Agreements.
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`50.
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`In connection with the License Agreements, HHF uses its superior bargaining
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`power to coerce the franchisees into accepting onerous, unequal and unconscionable terms in its
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`License Agreements.
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`51.
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`These onerous terms put immense financial stress on franchisees, threatening their
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`economic viability.
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`52.
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`HHF’s abuse of its position and unfair practices result in the imposition of
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`needless and costly fees, above-market costs for necessary supplies and other goods and results in
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`substantial impacts on HHF franchisees’ ability, who manage and operate their properties
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`commensurate with the highest standards, to operate their properties profitably.
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`53.
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`Plaintiff PH LODGING TOMBALL, LLC is an HHF Franchisee pursuant to a
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`franchise agreement with HHF dated December 7, 2016 entitled “CHANGE OF OWNERSHIP
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`LICENSE AGREEMENT” (the “License Agreement,” a copy of which is attached hereto as
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`Exhibit A) for a Holiday Inn Express Hotel #16619, located at 14055 Park Drive in Tomball,
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`Texas 77377.
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`54.
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`Pursuant to the subject License Agreement, Defendant HHF granted Plaintiff a
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`non-exclusive license to use Defendant’s System (as defined therein) only at the Hotel and in
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`accordance with the License Agreement. See License Agreement, §§1(b), 2.
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`Vendor Mandates and Kickbacks – the IHG Marketplace Programs
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`55.
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`A particular manner by which IHG/HHF undermines the viability and profitability
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`of its franchisees is by mandating Plaintiff and HHF franchisees utilize only HHF approved third-
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`party vendors, the purpose of which is for Defendants to derive a significant financial benefit at the
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`direct expense and to the financial detriment of the HHF franchisees.
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`56.
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`IHG/HHF’s fraudulent and unconscionable scheme cannot operate without
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`franchisees paying excessive, above-market rates for the goods and services necessary to run a
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`hotel, including, but not limited to:
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`(a) its computerized credit card processing system, Secure Payment Solution
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`(“SPS”) which all Hotels are required to use;
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`(b) high speed guest internet services, designated workstations and multi-function
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`printers in Hotel business centers (“Public Access Computers”), and a designed
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`communication service referred to as “SCH Merlin”;
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`(c) HHF’s approved Keycard System;
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`(d) televisions and in-room entertainment compatible with SCH Studio;
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`(e) an alert system that enables employees to notify hotel management of an
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`emergency (“Employee Safety Devices”);
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`(f) equipment, software, and services
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`for property-level
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`technology and
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`telecommunications systems;
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`(g) equipment associated with the Defendants’ gift card program;
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`(h) mandated food and beverage programs;
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`(i) furniture, furnishing, linens, food products, utensils, and goods for guests’
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`consumption and
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`(j) additional advertising materials, products, services, equipment or supplies, from
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`which IHG/HHF profits.
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`57.
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`The above-market rate pricing charged by vendors and paid by Plaintiff and the
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`franchisees provides the money necessary for those vendors to pay IHG/HHF’s unreasonable and
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`unconscionable kickbacks.
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`58.
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`IHG/HHF knowingly and willfully engage in conduct that ensures franchisees pay
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`above-market prices for goods and services necessary in conjunction with operation of the hotels.
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`59.
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`IHG/HHF requires that Plaintiff and HHF Franchisees strictly comply with its
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`requirements for the types of services and products that may be used, promoted or offered at the
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`hotel, and comply with all of HHF’s “standards and specifications for goods and services used in
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`the operation of the Hotel and other reasonable requirements to protect the System and the hotel
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`from unreliable sources of supply.” See License Agreement, § 3.A.(6).
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`60.
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`If IHG/HHF requires HHF franchisees to purchase equipment, furnishings,
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`supplies or other products for the hotel from a designated or approved supplier or service provider,
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`whether pursuant to the License Agreement, Standards, or any communication from HHF, then
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`HHF franchisees must purchase the mandated product(s) from mandated vendors and cannot under
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`any circumstances deviate from those vendor mandates without prior approval from HHF.
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`61.
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`Defendants IHG and HHF run a program under the guise of being voluntary and
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`which they falsely represent as delivering value and lower cost purchasing opportunities to HHF
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`franchisees.
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`62.
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`63.
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`Defendants refer to these procurement programs as the “IHG Marketplace.”
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`Defendant IHG describes the IHG Marketplace as:
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`an easy-to-use ordering platform that allows owners to take
`advantage of the buying power of IHG for operational and service
`needs. This not-for-profit platform is available to all IHG-branded
`hotels and gives access to globally negotiated contracts and optimal
`pricing from more than 200 suppliers and services, resulting in
`significant savings and value.1
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`64.
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`Defendant IHG further represents that the IHG Marketplace is “[d]esigned to cut
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`costs and streamline the hotel procurement process, the program provides owners with solutions to
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`achieve unparalleled cost savings and efficiency…Rebates and discounts are passed directly to
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`you, you earned them, you keep them!”2
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`65.
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`Nothing could be further from the truth.
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`66.
`In reality, IHG Marketplace operates on a cost recovery basis with fees for both
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`1 https://development.ihg.com/en/americas/home/develop-a-hotel/support-for-owners (last visited
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` https://www.ihgmarketplace.net/marketplace/home.php (last visited May 24, 2021).
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`procurement and technical ordering transaction services included in the supplier invoiced price.
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`67.
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`HHF franchisees purchase goods and services directly from suppliers at prices
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`negotiated by HHF and/or IHG.
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`68.
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`These prices are frequently above-market prices which do not permit the HHF
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`franchisees to seek competitive pricing for their own benefit.
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`69.
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`Rather, these inflated prices allow for rebates that go to IHG and HHF directly by
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`suppliers which generally range from approximately 1-5% of the amount of the invoice price for
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`the goods and services purchased by franchisees.
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`70.
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`These kickbacks to IHG and HHF are the primary—if not the sole—reason HHF
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`franchisees are forced to use expensive vendors and suppliers not of their own choosing at supra-
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`competitive pricing.
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`71.
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`Some primary examples of the IHG Marketplace sourced vendor mandates involve
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`credit card processing and high speed internet agreements, with Defendants requiring franchisees
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`to execute these infrastructure related agreements.
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`72.
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`Although IHG/HHF represent that franchisees have a choice between vendors, it is
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`usually only between no more than three vendors hand-picked by Defendants from whom they
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`obtain significant rebates.
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`73.
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`Although franchisees are able to secure far more reasonable rates for, for example,
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`credit card processing from alternate sources, IHG/HHF do not permit franchisees to do so on the
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`open market and instead require franchisees to pay the higher rates of Defendants’ selected
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`vendors.
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`74.
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`This is similarly true in the case of hotel internet services which IHG/HHF does
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`not permit franchisees to purchase on the open market and instead requires franchisees, in most
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`instances, to pay more than double the price for lower speeds than what franchisees could purchase
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 13 of 45
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`independently from the same or alternate sources.
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`75.
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`This mandated lack of choice invariably increases franchisees’ costs and expenses,
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`and benefits only IHG/HHF in the form of kickbacks.
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`76.
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`The costs charged to franchisees in the IHG/HHF procurement programs such as
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`the IHG Marketplace are almost always higher than if the same product or service were purchased
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`by an independent hotel outside of the HHF System.
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`77.
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`Defendants frequently use the pretext that the vendor requirements imposed on
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`franchisees are necessary for standardization or—more curiously—for security. In the case of
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`security, however, IHG has recently been the victim of a significant data hack. This is but one
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`factor illuminating that Defendants’ assertion of security, for example, is merely a pretext to
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`charge franchisees higher vendor rates in order for IHG and HHF to profit from kickbacks.
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`78.
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`In fact, many products and services that HHF franchisees are required to obtain
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`based on Defendants’ vendor mandates are at an excessive cost but inferior quality.
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`Franchisee Fees & the Property Improvement Plan
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`79.
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`As a prerequisite to becoming an HHF Franchisee, IHG/HHF charges (and
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`Plaintiff actually paid) an initial application fee of $500 per guest room (sometimes referred to as a
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`“key”) and up to $50,000 simply for the privilege of submitting an application for an HHF
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`franchise or license. This application fee applies for new development, conversion, change of
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`ownership or re-licensing.
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`80.
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`Only then does IHG/HHF determine whether it will approve the application for a
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`license, and in the case of unapproved applications, IHG/HHF retains $15,000 which is forfeited
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`by franchise/license applicants for absolutely no return benefit.
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`81.
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`If IHG/HHF does approve an application, IHG/HHF still has the sole discretion to
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`revoke its approval thereafter and to retain an applicant’s entire application fee and to deem it
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 14 of 45
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`“non-refundable,” again providing applicants with no benefit in return for IHG/HHF taking an
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`amount up to $50,000 and leaving applicants without recourse.
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`82.
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`83.
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`IHG/HHF also maintains what it calls its “Property Improvement Plan” (PIP).
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`Before any HHF franchisee submits an application for conversion, change of
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`ownership, brand change or re-licensing, franchisees must arrange for HHF to conduct an
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`inspection of the Hotel so that IHG/HHF can prepare written specifications for the upgrading,
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`construction and furnishing of the Hotel in accordance with its HHF’s defined “Standards.”
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`84.
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`Under the PIP, HHF franchisees must pay a non-refundable $6,500 fee to have
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`their Hotel inspected and for preparation of a PIP report. In the case of conversion hotels,
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`IHG/HHF will not authorize reopening unless and until it has determined that all PIP requirements
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`have been completed, including the submission of plans before the start of construction in
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`accordance with the dates specific in the License Agreement.
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`85.
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`As part of PIP, IHG/HHF charges up to an additional $5,000 for each re-
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`evaluation and re-inspection it may deem necessary in the event any hotel fails its opening
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`inspection. IHG/HHF frequently uses this, and imposes further fines, as a means to enrich
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`themselves to the detriment of the franchisees.
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`86.
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`IHG/HHF neither requires nor imposes its inspections, re-inspections, re-
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`evaluations and/or written reports in good faith. To the contrary, IHG/HHF uses these inspections
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`as a pretext to generate the aforesaid fees and fines, and prepares disingenuously negative reports
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`in order to generate revenue for itself in the form of fines and required re-inspections, reports and
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`impact studies, all intended to harm the economic viability and creditworthiness of its franchisees.
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`87.
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`Franchisee objections to this bad faith process are disregarded and dismissed, and
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`met with derision, threats, intimidation and retaliation.
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`88.
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`The license that IHG/HHF grants to Plaintiff and HHF franchisees to “use the
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 15 of 45
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`System only at the Hotel, but only in accordance with this License” (and during the License Term)
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`defines the System broadly and with significant open-ended discretion for HHF.
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`89.
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`This discretion allows IHG/HHF to put a stranglehold on franchisees and broadly
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`impose onerous costs and obligations on franchisees:
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`The System is composed of all elements which are designed to
`identify Holiday Inn, Holiday Inn Express and Holiday Inn Resort
`branded hotels to the consuming public or are designed to be
`associated with those hotels or to contribute to such identification
`or association and all elements which identify or reflect the
`quality standards and business practices of such hotels, all as
`specified in this License or as designated from time to time by
`Licensor. The System at present includes, but is not limited to, the
`service marks Holiday Inn®, Holiday Inn Express®, Holiday Inn
`Express® & Suites, Holiday Inn® & Suites and Holiday Inn®
`Resort, (as appropriate to the specific hotel operation to which
`it pertains), Holidex® and the other Marks (as defined in
`paragraph 7.B below), and intellectual property rights made
`available to licensees of the System by reason of a license;
`all rights to domain names and other identifications or
`elements used in electronic commerce as may be designated
`from time to time by Licensor in accordance with Licensor's
`specifications to be part of the System; access to a reservation
`service operated in accordance with specifications established by
`Licensor from time to time; distribution of advertising, publicity
`and other marketing programs and materials; architectural
`drawings and architectural works; the furnishing of training
`programs and materials; confidential or proprietary information
`standards, specifications and policies for construction, furnishing,
`operation, appearance and service of the Hotel, and other
`requirements as stated or referred to in this License and from time
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 16 of 45
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`to time in Licensor's brand standards for System hotels (the
`"Standards") or in other communications to Licensee; and
`programs for inspecting the Hotel, measuring and assessing
`service, quality and consumer opinion and consulting with
`Licensee. Licensor may add elements to the System or
`modify, alter or delete elements of the System in its sole judgment
`from time to time.
`License Agreement, §1(B) (emphasis added).
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`90.
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`There is no limitation on the extent to which HHF can alter, modify or revise its
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`“Standards” or impose costs and obligations on HHF franchisees, which it does not disclose and
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`have never been the subject of any arms’ length agreement. See id., §§1(B), 4(E), 5.
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`91.
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`The IHG/HHF PIPs are designed with substandard products and designs,
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`purposefully limit vendor choices for HHF franchisees and impose above-market procurement
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`costs.
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`92.
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`For example, most furniture items that IHG/HHF mandates its franchisees
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`purchase from required vendors is of such inferior quality that they break, disassemble, and
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`damage upon initial delivery and/or assembly and are rendered unusable.
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`93.
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`IHG/HHF then forces additional costs upon its franchisees to replace the mandated
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`but damaged products, and also the costs to clean the resultant broken parts strewn and littered in
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`the franchisees’ hotels.
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`94.
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`Although the IHG Owners Association (IHGOA, defined below) purports to
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`“consider and discuss, and make recommendations relating to the operation” of franchisees’ hotels,
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`and “function in a manner consistent with the best interests of all persons using the System”,
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`IHG/HHF, and the IHGOA routinely dismiss, ridicule, and disregard franchisee concerns about its
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`inferior mandated products and exorbitant costs. (See License Agreement, §6(A)-(B))
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`95.
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`IHG/HHF forces its franchisees to repeat these PIP multimillion dollar projects
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`Case 1:21-cv-05702-SDG Document 1 Filed 06/03/21 Page 17 of 45
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`every 6-8 years irrespective of the actual condition of hotels purely to generate fees and vendor
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`kickbacks for themselves to the detriment of Plaintiff and HHF franchisees.
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`96.
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`As part of PIP, IHG/HHF deliberately scale back and manipulate standard
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`manufacturer furniture warranties as another means purely to fit their PIP cycles, cause harm to the
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`franchisees and, ultimately, raise prices for hotel customers.
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`97.
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`As such, HHF has imposed and continues to impose onerous PIP terms on Plaintiff
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`and HHF franchisees which, in the sole discretion of HHF, force HHF franchisees to spend
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`approximately $10,000 – $30,000 per guest room, which amounts to millions of dollars in forced
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`renovation costs being foisted upon HHF franchisees.
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`98.
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`HHF further does so under the threat of retaliation against its franchisees in the
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`event of noncompliance as de