JS 44 (Rev. 10/20)
`
`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 1 of 50
`CIVIL COVER SHEET
`The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as
`provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the
`purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THE FORM.)
`I. (a) PLAINTIFFS
`DEFENDANTS
`Aaron Hotel Group, LLC
`Holiday Hospitality Franchising, LLC, Six Continents Hotels, Inc. d/b/a
`Intercontinental Hotels Group and IHG Owners Association, Inc.
`
`(b) County of Residence of First Listed Plaintiff
`(EXCEPT IN U.S. PLAINTIFF CASES)
`
`Hartford
`
`County of Residence of First Listed Defendant
`(IN U.S. PLAINTIFF CASES ONLY)
`IN LAND CONDEMNATION CASES, USE THE LOCATION OF
`THE TRACT OF LAND INVOLVED.
`Attorneys (If Known)
`
`NOTE:
`
`(c) Attorney’s (Firm Name, Address, and Telephone Number)
`White and Williams LLP
`1650 Market St., One Liberty Place, Suite 1800, Philadelphia, PA 19103
`(215) 864-7000
`II. BASIS OF JURISDICTION (Place an “X” in One Box Only)
`III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff
`(For Diversity Cases Only)
`and One Box for Defendant)
`1. U.S. Government
`3
`Federal Question
`PTF
`DEF
`PTF
`DEF
`Plaintiff
`(U.S. Government Not a Party)
` 1
` 1
` 4
` 4
`
`Citizen of This State
`
`Incorporated or Principal Place
` of Business In This State
`
` 2. U.S. Government
`Defendant
`
` 4 Diversity
`(Indicate Citizenship of Parties in Item III)
`
`Citizen of Another State
`
`IV. NATURE OF SUIT (Place an “X” in One Box Only)
`CONTRACT
`TORTS
`110 Insurance
`120 Marine
`130 Miller Act
`140 Negotiable Instrument
`150 Recovery of Overpayment
`& Enforcement of Judgment
`151 Medicare Act
`152 Recovery of Defaulted
`Student Loans
`(Excludes Veterans)
`153 Recovery of Overpayment
`of Veteran’s Benefits
`160 Stockholders’ Suits
`190 Other Contract
`195 Contract Product Liability
`196 Franchise
`
`PERSONAL INJURY
`310 Airplane
`315 Airplane Product
`Liability
`320 Assault, Libel &
`Slander
`330 Federal Employers’
`Liability
`340 Marine
`345 Marine Product
`Liability
`350 Motor Vehicle
`355 Motor Vehicle
`Product Liability
`360 Other Personal
`Injury
`362 Personal Injury -
`Medical Malpractice
`CIVIL RIGHTS
`440 Other Civil Rights
`441 Voting
`442 Employment
`443 Housing/
`Accommodations
`445 Amer. w/Disabilities -
`Employment
`446 Amer. w/Disabilities -
`Other
`448 Education
`
`PERSONAL INJURY
`365 Personal Injury -
`Product Liability
`367 Health Care/
`Pharmaceutical
`Personal Injury
`Product Liability
`368 Asbestos Personal
`Injury Product
`Liability
`PERSONAL PROPERTY
`370 Other Fraud
`371 Truth in Lending
`380 Other Personal
`Property Damage
`385 Property Damage
`Product Liability
`
`PRISONER PETITIONS
`Habeas Corpus:
`463 Alien Detainee
`510 Motions to Vacate
`Sentence
`530 General
`535 Death Penalty
`Other:
`540 Mandamus & Other
`550 Civil Rights
`555 Prison Condition
`560 Civil Detainee -
`Conditions of
`Confinement
`
`REAL PROPERTY
`210 Land Condemnation
`220 Foreclosure
`230 Rent Lease & Ejectment
`240 Torts to Land
`245 Tort Product Liability
`290 All Other Real Property
`
`VI. CAUSE OF ACTION
`
`VII. REQUESTED IN
`COMPLAINT:
`VIII. RELATED CASE(S)
`IF ANY
`
`DATE
`May 27, 2021
`
`FOR OFFICE USE ONLY
`RECEIPT #
`
`Citizen or Subject of a
`Foreign Country
`
`FORFEITURE/PENALTY
`625 Drug Related Seizure
`of Property 21 USC 881
`690 Other
`
`LABOR
`710 Fair Labor Standards
`Act
`720 Labor/Management
`Relations
`740 Railway
`751 Family and Medical
`Leave Act
`790 Other Labor Litigation
`791 Employee Retirement
`Income Security Act
`
`IMMIGRATION
`462 Naturalization Application
`465 Other Immigration
`Actions
`
` 2
`
` 3
`
` 2
`
` 3
`
`Incorporated and Principal Place
` of Business In Another State
`
`Foreign Nation
`
` 5
`
` 6
`
` 5
`
` 6
`
`PROPERTY RIGHTS
`820 Copyrights
`830 Patent
`835 Patent - Abbreviated
`New Drug Application
`840 Trademark
`880 Defend Trade Secrets
`Act of 2016
`
`Click here for: Nature of Suit Code Descriptions.
`BANKRUPTCY
`OTHER STATUTES
`422 Appeal 28 USC 158
`375 False Claims Act
`423 Withdrawal
`376 Qui Tam (31 USC
`28 USC 157
`3729(a))
`400 State Reapportionment
`410 Antitrust
`430 Banks and Banking
`450 Commerce
`460 Deportation
`470 Racketeer Influenced and
`Corrupt Organizations
`480 Consumer Credit
`(15 USC 1681 or 1692)
`485 Telephone Consumer
`Production Act
`490 Cable/Sat TV
`850 Securities/Commodities/
`Exchange
`890 Other Statutory Actions
`891 Agricultural Acts
`893 Environmental Matters
`895 Freedom of Information
`Act
`896 Arbitration
`899 Administrative Procedure
`Act/Review or Appeal of
`Agency Decision
`950 Constitutionality of
`State Statutes
`
`SOCIAL SECURITY
`861 HIA (1395ff)
`862 Black Lung (923)
`863 DIWC/DIWW (405(g))
`864 SSID Title XVI
`865 RSI (405(g))
`
`FEDERAL TAX SUITS
`870 Taxes (U.S. Plaintiff
`or Defendant)
`871 IRS-Third Party
`26 USC 7609
`
`V. ORIGIN (Place an “X” in One Box Only)
` 1 Original
` 2 Removed from
`Proceeding
`State Court
`
` 3 Remanded from
`Appellate Court
`
` 4 Reinstated or
`Reopened
`
` 6 Multidistrict
`Litigation
`Transfer
`
` 8 Multidistrict
`Litigation -
`Direct File
`
` 5 Transferred from
`Another District
`(specify)
`Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdiction statutes unless diversity):
`15 U.S.C. § 1 et seq.
`Brief description of cause:
`Violation of Sherman Act, Violation of CUTPA, Breach of Contract, Breach of Fiduciary Duty
`DEMAND $ 100,000,000
`CHECK YES only if demanded in complaint:
`CHECK IF THIS IS A CLASS ACTION
`JURY DEMAND:
` Yes
` No
`UNDER RULE 23, F.R.Cv.P.
`JUDGE
`DOCKET NUMBER
`
`(See instructions):
`
`SIGNATURE OF ATTORNEY OF RECORD
`
`AMOUNT
`
`APPLYING IFP
`
`JUDGE
`
`MAG. JUDGE
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 2 of 50
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF CONNECTICUT
`
`AARON HOTEL GROUP, LLC, a Connecticut limited
`liability company, individually, and on behalf of a class of
`similarly situated individuals and entities,
`
`Plaintiff,
`
`v.
`
`HOLIDAY HOSPITALITY FRANCHISING,
`LLC, SIX CONTINENTS HOTELS, INC. d/b/a
`INTERCONTINENTAL HOTELS GROUP and
`IHG OWNERS ASSOCIATION, INC.,
`
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`
` Case No.
`
`COMPLAINT
`
`Defendants.
`
`CLASS ACTION COMPLAINT
`
`Plaintiff Aaron Hotel Group, LLC (“AHG”), individually, and on behalf of a class of
`
`similarly situated individuals and entities, by and through the undersigned counsel, hereby demands
`
`judgment against Defendants Holiday Hospitality Franchising, LLC, Six Continents Hotels, Inc.
`
`d/b/a Intercontinental Hotels Group and IHG Owners Association, Inc. In support thereof, Plaintiff
`
`avers as follows:
`
`INTRODUCTION
`
`1.
`
`Defendant Six Continents Hotels, Inc. (“SCH”) is the world’s largest hotel company
`
`by room count and does business under the name InterContinental Hotels Group (“IHG”).1
`
`2.
`
`IHG operates approximately some 5,600 hotels across more than 15 brands. IHG
`
`takes an asset-light approach, owning, franchising and/or managing hotels for third parties, with
`
`Holiday Inn as its mainstay chain, under such brands as Holiday Inn, Holiday Inn Express and
`
`Holiday Inn Resorts, each bearing the identification as “an IHG Hotel.”
`
`1 SCH and IHG may hereinafter be collectively referred to as “IHG”.
`1
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 3 of 50
`
`3.
`
`IHG also owns, manages and/or franchises other hotel brands such as Crowne Plaza,
`
`InterContinental, Staybridge Suites, Candlewood Suites, Hotel Indigo, Regent and Kempton.
`
`4.
`
`5.
`
`IHG’s Holiday Inn brands account for approximately 70% of its total hotel count.
`
`IHG owns Defendant Holiday Hospitality Franchising, LLC (“HHF”), its affiliate
`
`which offers and sells Holiday Inn brand franchises including, but not limited to, Holiday Inn,
`
`Holiday Inn Express and Holiday Inn Resort.
`
`6.
`
`Defendant IHG owns and acts through its franchising affiliate, HHF and its agent and
`
`representative IHG Owners Association (“IHGOA”).
`
`7.
`
`HHF enters into franchise agreements titled “Holiday Hospitality Franchising, LLC
`
`License Agreement(s)” with HHF franchisees.
`
`8.
`
`AHG is a franchisee that owns and operates one or more hotels that bear an HHF
`
`brand mark pursuant to a License Agreement. (AHG also may be referred to herein as “Plaintiff” or
`
`“Franchisee”).
`
`9.
`
`Many HHF Franchisees are individuals, single member limited liability companies
`
`or closely held corporations who are either immigrants or second-generation Americans of Indian or
`
`other South Asian origin. Plaintiff is one such HHF franchisee.
`
`10.
`
`The hotel franchise industry holds particular appeal and attraction to these HHF
`
`Franchisees by providing investment and traditional family business ownership opportunities which
`
`they can build through diligence, dedication and hard work.
`
`11.
`
`This class action lawsuit seeks to put an end to IHG/HHF’s unlawful, abusive,
`
`fraudulent, anticompetitive and unconscionable practices designed solely to benefit and enrich
`
`IHG/HHF’s shareholders and to do so at the expense and to the detriment of Plaintiff and the class
`
`members, namely, similarly situated franchisees.
`
`12.
`
`As detailed below, Defendants have and continue to engage in unconscionable,
`
`2
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 4 of 50
`
`fraudulent, unlawful, anticompetitive and discriminatory business practices in connection with the
`
`IHG Hotel franchise system.
`
`13.
`
`At the heart of IHG/HHF’s unlawful scheme is its requirement that its franchisees
`
`use certain mandated vendors and suppliers for the purchase of goods and services necessary to run
`
`a hotel.
`
`14.
`
`IHG/HHF’s forced exclusive use of certain chosen vendors and suppliers imposes
`
`well above-market procurement costs on franchisees which include, but are not limited to, those
`
`associated with its onerous and exorbitant Property Improvement Plan (“PIP”).
`
`15.
`
`Under the guise of improving the franchisees’ hotels to maintain “brand standards,”
`
`IHG/HHF forces its franchisees to frequently undertake expensive renovations, remodeling and
`
`construction as part of a PIP, and in so doing 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.
`
`16.
`
`IHG/HHF deceitfully represents to their franchisees that they select vendors with the
`
`laudable goal of using the franchisees’ collective bargaining power to secure a group discount and
`
`to ensure adequate quality and supply of products and services, and refer to these procurement
`
`programs as the “IHG Marketplace.”
`
`17.
`
`In fact, however, IHG/HHF’s primary goal in negotiating with vendors has little to
`
`nothing to do with the best interests of franchisees but rather is to secure the largest possible kickback
`
`for itself, which vendors finance through the above-market rates charged to franchisees in collusion
`
`with IHG/HHF.
`
`18.
`
`Furthermore, the above-market priced products which IHG/HHF forces franchisees
`
`to purchase through the IHG Marketplace and related programs is frequently of inferior quality, and
`
`3
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 5 of 50
`
`certainly so when the “quality” of these cost-inflated goods and services are considered.
`
`19.
`
`These low-quality “IHG Approved” purchases are forced upon franchisees and are
`
`disingenuously characterized as meeting supposed brand standards of quality, when in truth the sole
`
`purpose is to maximize kickbacks for IHG/HHF and unjustifiably run up costs on their franchisees
`
`in bad-faith.
`
`20.
`
`Upon information and good faith belief, IHG/HHF have each netted tens of millions
`
`of ill-gotten dollars from this fraudulent kickback scheme.
`
`21.
`
`Additionally, IHG/HHF engages in other oppressive, bad-faith, fraudulent and
`
`unconscionable conduct as more fully described herein. For instance, IHG holds itself out to the
`
`public as offering discounts, travel benefits and other perks to repeat guests through its IHG Rewards
`
`Club loyalty program. IHG has a mobile booking app as well as cloud-based hotel solutions which
`
`it represents as driving demand for its hotel owners and which ostensibly allow hotel owners to reach
`
`potential guests at a lower cost. Hotel guests can accumulate points per dollars spent which can be
`
`redeemed at IHG hotels.
`
`22. When those points are then redeemed at a hotel, however, only a small fraction of the
`
`value is reimbursed to franchisees. In addition, beginning in 2018, IHG/HHF has required that
`
`Plaintiff and franchisees (and not IHG/HHF) pay sales tax on the full value of the product or service
`
`obtained by hotel guests.
`
`23.
`
`Furthermore, in instances where hotel guests’ accumulated reward points from stays
`
`at Plaintiff’s (or other franchisees’) hotel expire, the points never return to Plaintiff or to any source-
`
`of-origin franchisees.
`
`24.
`
`IHG/HHF also routinely introduces new marketing programs under the guise of
`
`providing franchisees with a “choice” as to whether they should participate or not. In reality,
`
`however, all such marketing programs are forced upon the franchisees insofar as any and all
`
`4
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 6 of 50
`
`decisions to “opt out” are met with vindictive, punitive and retaliatory action by IHG/HHF.
`
`25.
`
`These programs are in addition to all marketing fees contracted and paid for by the
`
`franchisees, and serve as an abusive way to impose additional fees and fines for the sole profit and
`
`benefit of IHG/HHF, and to do so without disclosure or agreement by deceit, implied threat and
`
`actual retribution rendering franchisees’ supposed “opt-out” choice completely illusory.
`
`26.
`
`Furthermore, although the facts set forth herein predominantly existed before March,
`
`2020 and continuously thereafter, IHG/HHF has ceased all of its marketing since the imposition of
`
`Covid-19 related restrictions in early 2020. Yet for over a year IHG/HHF has been requiring
`
`franchisees to pay significant marketing related fees for which they receive nothing in return.
`
`27. Moreover, IHG/HHF routinely assesses additional fees and penalties against
`
`franchisees which are not authorized by the applicable License Agreement and which are
`
`fundamentally excessive and unfair. These fees and penalties are disingenuously assessed as a
`
`means to intimidate franchisees, including to serve as bad-faith bases for default notices and
`
`threatened termination, as well as to harm the economic viability, profitability and creditworthiness
`
`of franchisees.
`
`28.
`
`For instance, IHG/HHF routinely requires its franchisees to pay multiple fees for the
`
`same product or service. And, IHG/HHF routinely assesses additional fees against franchisees for
`
`services and products that IHG/HHF either does not, in fact, provide or provides at an inferior
`
`quality.
`
`29.
`
`IHG/HHF imposes requirements on its franchisees to undergo hotel inspections any
`
`time there are conversions, construction, changes in ownership, brand changes or re-licensing. In
`
`conjunction with IHG/HHF’s unilaterally imposed mandates for any such hotel changes, IHG/HHF
`
`requires its franchisees to pay for the inspections, IHG/HHF’s written reports and any re-evaluations
`
`and re-inspections that IHG/HHF alone deems necessary. In practice, IHG/HHF stages these
`
`5
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 7 of 50
`
`inspections to maximize criticism of franchisee Hotels as a pretext for imposing additional
`
`inspections, reports and fines, all deliberately interposed for IHG/HHF’s own financial benefit and
`
`to the detriment of franchisees.
`
`30.
`
`IHG/HHF arbitrarily imposes rules and regulations and/or unreasonably interprets
`
`rules and regulations in order to justify assessing monetary penalties against franchisees.
`
`31.
`
`Quite egregiously, IHG/HHF routinely discriminates, demeans, and is both explicitly
`
`and implicitly hostile and bigoted towards Plaintiff, and towards Indian-American and South Asian-
`
`American franchisees.
`
`32.
`
`IHG/HHF corrupts its Owners Association, the IHGOA, the purpose of which
`
`IHG/HHF represents in the License Agreement is “to function in a manner consistent with the best
`
`interests of all persons using the System” but instead is staffed almost exclusively with IHG/HHF
`
`representatives to the exclusion of franchisees and operates to undermine and to harm the very hotel
`
`owners and franchisees it purports to represent.
`
`33.
`
`HHF’s actions are unconscionable and outrageous, and have pushed franchisees to
`
`the financial breaking point.
`
`34.
`
`This class action lawsuit seeks monetary damages, injunctive and other relief for: (a)
`
`Count I – Violations of the Connecticut Unfair Trade Practices Act; (b) Count II – breach of contract
`
`(express and implied); (c) Count III - breach of fiduciary duty; (d) Count IV – declaratory judgment;
`
`(e) Count V – violations of the Sherman Act, 15 U.S.C. § 1 and (f) Count VI – an accounting.
`
`JURISDICTION AND VENUE
`
`35.
`
`This Court has subject matter jurisdiction over the federal law claims raised in this
`
`class action lawsuit pursuant to pursuant to 28 U.S.C. § 1331 as Plaintiff alleges violations of a
`
`federal statute, the Sherman Act, 15 U.S.C. § 1.
`
`36.
`
`This Court also has subject matter jurisdiction over this action pursuant to the Class
`
`6
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 8 of 50
`
`Action Fairness Act of 2005, Pub. L. No. 109-2 Stat. 4 (“CAFE”), which, inter alia, amends 28
`
`U.S.C. § 1332, at new subsection (d), conferring federal jurisdiction over class actions where, as
`
`here: (a) some members of the proposed Class have a different citizenship from Defendants and (b)
`
`the claims of the proposed class members exceed the sum or value of five million dollars
`
`($5,000,000) in aggregate. See 28 U.S.C. § 1332(d)(2) & (6).
`
`37.
`
`This Court has subject matter jurisdiction over the state law claims raised in this
`
`action pursuant to 28 U.S.C. § 1367, because they arise from the same set of operative facts as the
`
`federal law claims.
`
`38.
`
`This Court has personal jurisdiction over Defendants IHG, HHF and IHGOA because
`
`all Defendants regularly transact business within the geographic boundaries of this District by, inter
`
`alia, entering into franchising agreements with franchisees and engaging in routine, systematic and
`
`continuous contacts with persons in this District.
`
`39.
`
`Pursuant to 28 U.S.C. § 1391, venue is proper within the United States District Court
`
`for the District of Connecticut in that a substantial part of the events or omissions giving rise to
`
`Plaintiff’s claim occurred in this District.
`
`40.
`
`The business conducted by Plaintiff AHG is pursuant to a franchise agreement with
`
`HHF, and the business to be conducted pursuant to said agreement and the business location of AHG
`
`are both exclusively in Connecticut.
`
`PARTIES
`
`41.
`
`Plaintiff AHG operates a HHF franchise hotel, specifically a Holiday Inn Express
`
`& Suites located at 600 Spring Street in Windsor Locks, Connecticut 06096.
`
`42.
`
`Defendant HHF is a Delaware-registered limited liability company with its principal
`
`place of business located at Three Ravinia Drive, Suite 100, Atlanta, Georgia 30346.
`
`43.
`
`Defendant IHG is a Delaware-registered corporation with its principal place of
`7
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 9 of 50
`
`business is Three Ravinia Drive, Suite 100 Atlanta, Georgia 30346.
`
`44.
`
`Defendant IHGOA is a Georgia non-profit corporation with its principal place of
`
`business is Three Ravinia Drive, Suite 100 Atlanta, Georgia 30346.
`
`COMMON FACTUAL ALLEGATIONS
`
`The Parties’ Relationship
`
`45.
`
`46.
`
`IHG has been in operation since 2003.
`
`Throughout its history, IHG has created and acquired hotel brands, including, but
`
`not limited to, Holiday Inn, Holiday Inn Express and Holiday Inn Resort.
`
`47.
`
`IHG’s franchising affiliate, HHF, licenses the right to use these hotel brand marks
`
`to franchisees, including Plaintiff, by entering into franchise agreements with them, which in many
`
`cases are referred to as “License Agreements.”
`
`48.
`
`IHG owns HHF and has developed relationships with various vendors and suppliers
`
`to IHG/HHF franchisees.
`
`49.
`
`By virtue of its ownership of HHF and control over the IHG Marketplace, IHG is
`
`an intended third-party beneficiary of the License Agreements.
`
`50.
`
`In connection with the License Agreements, HHF uses its superior bargaining power
`
`to coerce the franchisees into accepting onerous, unequal and unconscionable terms in its License
`
`Agreements.
`
`51.
`
`These onerous terms put immense financial stress on franchisees, threatening their
`
`economic viability.
`
`52.
`
`HHF’s abuse of its position and unfair practices result in the imposition of needless
`
`and costly fees, above-market costs for necessary supplies and other goods and results in substantial
`
`impacts on HHF franchisees’ ability, who manage and operate their properties commensurate with
`
`the highest standards, to operate their properties profitably.
`
`8
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 10 of 50
`
`53.
`
`Plaintiff AHG is an HHF Franchisee pursuant to a franchise agreement with HHF
`
`having a commencement date of December 15, 2017 and entitled: “HOLIDAY HOSPITALITY
`
`FRANCHISING, LLC HOLIDAY INN EXPRESS & SUITES HOTEL RELICENSING
`
`AGREEMENT WITH AARON HOTEL GROUP, LLC LICENSEE” (the “License Agreement,” a
`
`copy of which is attached hereto as Exhibit A) for a Holiday Inn Express & Suites Hotel #14003
`
`(the “Holiday Inn Express & Suites Hotel”).
`
`54.
`
`The License Agreement has a fifteen (15) year and six (6) month term running from
`
`the commencement date.
`
`55.
`
`Pursuant to the subject License Agreement, Defendant HHF granted Plaintiff a non-
`
`exclusive license to use Defendant’s System (as defined therein) only at the Hotel and in accordance
`
`with the License Agreement. See License Agreement, §§1(b), 2.
`
`Vendor Mandates and Kickbacks – the IHG Marketplace Programs
`
`56.
`
`A particular manner by which IHG/HHF undermines the viability and profitability
`
`of its franchisees is by mandating Plaintiff and HHF franchisees utilize only HHF approved third-
`
`party vendors, the purpose of which is for Defendants to derive a significant financial benefit at the
`
`direct expense and to the financial detriment of the HHF franchisees.
`
`57.
`
`IHG/HHF’s fraudulent and unconscionable scheme cannot operate without
`
`franchisees paying excessive, above-market rates for the goods and services necessary to run a hotel,
`
`including, but not limited to:
`
`(a)
`
`its computerized credit card processing system, Secure Payment
`
`Solution (“SPS”) which all Hotels are required to use;
`
`(b)
`
`high speed guest internet services, designated workstations and
`
`multi-function printers in Hotel business centers (“Public Access
`
`Computers”), and a designed communication service referred to as
`
`9
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 11 of 50
`
`(c)
`
`(d)
`
`(e)
`
`“SCH Merlin”;
`
`HHF’s approved Keycard System;
`
`televisions and in-room entertainment compatible with SCH Studio;
`
`an alert system that enables employees to notify hotel management
`
`of an emergency (“Employee Safety Devices”);
`
`(f)
`
`equipment, software, and services for property-level technology and
`
`telecommunications systems;
`
`(g)
`
`(h)
`
`(i)
`
`equipment associated with the Defendants’ gift card program;
`
`mandated food and beverage programs;
`
`furniture, furnishings, linens, food products, utensils, and goods for
`
`guests’ consumption and
`
`(j)
`
`additional advertising materials, products, services, equipment or
`
`supplies, from which IHG/HHF profits.
`
`58.
`
`The above-market rate pricing charged by vendors and paid by Plaintiff and the
`
`franchisees provides the money necessary for those vendors to pay IHG/HHF’s unreasonable and
`
`unconscionable kickbacks.
`
`59.
`
`IHG/HHF knowingly and willfully engage in conduct that ensures franchisees pay
`
`above-market prices for goods and services necessary in conjunction with operation of the hotels.
`
`60.
`
`IHG/HHF requires that Plaintiff and HHF Franchisees strictly comply with its
`
`requirements for the types of services and products that may be used, promoted or offered at the
`
`hotel, and comply with all of HHF’s “standards and specifications for goods and services used in the
`
`operation of the Hotel and other reasonable requirements to protect the System and the hotel from
`
`unreliable sources of supply.” See License Agreement generally.
`
`61.
`
`If IHG/HHF requires HHF franchisees to purchase equipment, furnishings, supplies
`
`10
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 12 of 50
`
`or other products for the hotel from a designated or approved supplier or service provider, whether
`
`pursuant to the License Agreement, Standards, or any communication from HHF, then HHF
`
`franchisees must purchase the mandated product(s) from mandated vendors and cannot under any
`
`circumstances deviate from those vendor mandates without prior approval from HHF.
`
`62.
`
`Defendants IHG and HHF run a program under the guise of being voluntary and
`
`which they falsely represent as delivering value and lower cost purchasing opportunities to HHF
`
`franchisees.
`
`63.
`
`64.
`
`Defendants refer to these procurement programs as the “IHG Marketplace.”
`
`Defendant IHG describes the IHG Marketplace as:
`
`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.2
`
`65.
`
`Defendant IHG further represents that the IHG Marketplace is “[d]esigned to cut
`
`costs and streamline the hotel procurement process, the program provides owners with solutions to
`
`achieve unparalleled cost savings and efficiency…Rebates and discounts are passed directly to you,
`
`you earned them, you keep them!”3
`
`66.
`
`67.
`
`Nothing could be further from the truth.
`
`In reality, IHG Marketplace operates on a cost recovery basis with fees for both
`
`procurement and technical ordering transaction services included in the supplier invoiced price.
`
`68.
`
`HHF franchisees purchase goods and services directly from suppliers at prices
`
`2 https://development.ihg.com/en/americas/home/develop-a-hotel/support-for-owners (last visited
`May 24, 2021).
`
`3 https://www.ihgmarketplace.net/marketplace/home.php (last visited May 24, 2021).
`
`11
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 13 of 50
`
`negotiated by HHF and/or IHG.
`
`69.
`
`These prices are invariably above-market prices which do not permit the HHF
`
`franchisees to seek competitive pricing for their own benefit.
`
`70.
`
`Rather, these inflated prices allow for rebates that go to IHG and HHF directly by
`
`suppliers which generally range from approximately 1-5% of the amount of the invoice price for the
`
`goods and services purchased by franchisees.
`
`71.
`
`These kickbacks to IHG and HHF are the primary—if not the sole—reason HHF
`
`franchisees are forced to use expensive vendors and suppliers not of their own choosing at supra-
`
`competitive pricing.
`
`72.
`
`Some primary examples of the IHG Marketplace sourced vendor mandates involve
`
`credit card processing and high speed internet agreements, with Defendants requiring franchisees to
`
`execute these infrastructure related agreements.
`
`73.
`
`Although IHG/HHF represent that franchisees have a choice between vendors, it is
`
`usually only between no more than three vendors hand-picked by Defendants from whom they obtain
`
`significant rebates.
`
`74.
`
`Although franchisees are able to secure far more reasonable rates for, for example,
`
`credit card processing from alternate sources, IHG/HHF do not permit franchisees to do so on the
`
`open market and instead require franchisees to pay the higher rates of Defendants’ selected vendors.
`
`75.
`
`This is similarly true in the case of hotel internet services which IHG/HHF does not
`
`permit franchisees to purchase on the open market and instead requires franchisees, in most
`
`instances, to pay more than double the price for lower speeds than what franchisees could purchase
`
`independently from the same or alternate sources.
`
`76.
`
`This mandated lack of choice invariably increases franchisees’ costs and expenses,
`
`and benefits only IHG/HHF in the form of kickbacks.
`
`12
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 14 of 50
`
`77.
`
`The costs charged to franchisees in the IHG/HHF procurement programs such as the
`
`IHG Marketplace are almost always higher than if the same product or service were purchased by
`
`an independent hotel outside of the HHF System.
`
`78.
`
`Defendants frequently use the pretext that the vendor requirements imposed on
`
`franchisees are necessary for standardization or—more curiously—for security. In the case of
`
`security, however, IHG has recently been the victim of a significant data hack. This is but one factor
`
`illuminating that Defendants’ assertion of security, for example, is merely a pretext to charge
`
`franchisees higher vendor rates in order for IHG and HHF to profit from kickbacks.
`
`79.
`
`In fact, many products and services that HHF franchisees are required to obtain
`
`based on Defendants’ vendor mandates are at an excessive cost but inferior quality.
`
`Franchisee Fees & the Property Improvement Plan
`
`80.
`
`As a prerequisite to becoming an HHF Franchisee, IHG/HHF charges (and Plaintiff
`
`actually paid) an initial application fee of $500 per guest room (sometimes referred to as a “key”)
`
`and up to $50,000 simply for the privilege of submitting an application for an HHF franchise or
`
`license. This application fee applies for new development, conversion, change of ownership or re-
`
`licensing.
`
`81.
`
`Only then does IHG/HHF determine whether it will approve the application for a
`
`license, and in the case of unapproved applications, IHG/HHF retains $15,000 which is forfeited by
`
`franchise/license applicants for absolutely no return benefit.
`
`82.
`
`If IHG/HHF does approve an application, IHG/HHF still has the sole discretion to
`
`revoke its approval thereafter and to retain an applicant’s entire application fee and to deem it “non-
`
`refundable,” again providing applicants with no benefit in return for IHG/HHF taking an amount up
`
`to $50,000 and leaving applicants without recourse.
`
`83.
`
`IHG/HHF also maintains what it calls its “Property Improvement Plan” (PIP).
`
`13
`
`

`

`Case 1:22-cv-00838-ELR Document 1 Filed 05/27/21 Page 15 of 50
`
`84.
`
`Before any HHF franchisee submits an application for conversion, change of
`
`ownership, brand change or re-licensing, franchisees must arrange for HHF to conduct an inspection
`
`of the Hotel so that IHG/HHF can prepare written specifications for the upgrading, construction and
`
`furnishing of the Hotel in accordance with its HHF’s defined “Standards.”
`
`85.
`
`Under the PIP, HHF franchisees must pay a non-refundable $6,500 fee to have their
`
`Hotel inspected and for preparation of a PIP report. In the case of conversion hotels, IHG/HHF will
`
`not authorize reopening unless and until it has determined that all PIP requirements have been
`
`completed, including the submission of plans before the start of construction in accordance with the
`
`dates specific in the License Agreement.
`
`86.
`
`As part of PIP, IHG/HHF charges up to an additional $5,000 for each re-evaluation
`
`and re-inspection it may deem necessary in the event any hotel fails its opening inspection.
`
`IHG/HHF frequently uses this, and imposes further fines, as a means to enrich themselves to the
`
`detriment of the franchisees.
`
`87.
`
`IHG/HHF neither requires nor imposes its inspections, re-inspections, re-
`
`evaluations and/or written reports in good faith. To the contrary, IHG/HHF uses these inspections
`
`as a pretext to generate the aforesaid fees and fines, and prepares disingenuously negative reports in
`
`order to generate revenue for itself in the form of fines and required re-inspections, reports and
`
`impact studies, all intended to harm the economic viability and creditworthiness of its franchisees.
`
`88.
`
`Franchisee objections to this ba