SIOUX FALLS, South Dakota—An arbitration panel has settled a dispute between Summit Hotel Properties and Choice Hotels International over 11 terminated franchise agreements.
On 4 April 2012, an arbitration panel determined, among other things, that Choice improperly terminated 11 franchise agreements with Summit, that Choice is not entitled to recover liquidated damages in connection with the 11 hotels, and that Summit did not make any materially false or misleading statements to Choice or omit any material information.
The panel awarded Summit damages in amount of $298,090 as full settlement of all claims submitted in the arbitration.
Choice also was awarded damages related to projects Summit failed to complete for the franchisor, according to a Choice spokesperson. The spokesperson did not disclose the amount of that award.
Neither Summit nor Choice is entitled to recover attorney’s fees in connection with the matter.
History of the dispute
The dispute began in March 2011, after Choice executives were angered over a relationship struck between Summit and InterContinental Hotels Group that gave IHG an exclusive right for five years of first offer to franchise or manage any unbranded hotel bought by Summit that the real-estate investment trust decided it wanted to brand, reported HotelNewsNow.com’s Shawn A. Turner.
During an earnings conference call on 1 May 2011, Choice CEO and President Steve Joyce said Choice felt compelled to terminate the contracts because of contractual breaches “and material misrepresentations and omissions.”
Choice terminated the 11 franchise agreements, which comprised four Cambria Suites hotels, three Comfort Inn hotels, three Comfort Suites hotels and a Comfort Inn & Suites hotel in a region stretching from West Virginia to Idaho.
The properties have since converted to Holiday Inn (1), Holiday Inn Express (1), SpringHill Suites by Marriott (1), Fairfield Inn & Suits by Marriott (2), DoubleTree by Hilton (1), Country Inn and Suites (1) and AmericInn & Suites (5).
While 11 properties lost agreements, there were a total 12 franchises that changed because the company’s two-building, dual-branded, 111-room property in Twin Falls, Idaho, was converted to an AmericInn & Suites and Fairfield Inn & Suites on 15 April 2011.
“We believe we took the steps we needed to take under the terms our contracts with Summit, and we're pleased this matter has been resolved," said a Choice spokesperson.
Summit reacts
“We are now in a much better position to execute our core strategy of owning the best brands in the best markets, as well as the positioning of select assets for the recycling of capital,” said Dan Hansen, Summit’s president and CEO, in a news release.
“With the re-branding process nearly complete for the 11 hotels, we are quite satisfied with the performance of the new brands, and it solidifies our point that the change was not only necessary, but in the best interest of our shareholders. It certainly wasn’t the way we wanted to go about making these changes, but we believe the end result is an upgrade and improvement to our portfolio,” he said.
Hansen was not able to comment by press time.
—Compiled by Patrick Mayock.