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Law360 (June 8, 2020, 5:20 PM EDT) -- An HVAC trade group has hit Hilton's franchisor arm with a lawsuit in Delaware federal court claiming it owes just under $1.41 million in security deposits it collected for an annual convention at a Waldorf Astoria resort in Hawaii that was canceled due to the COVID-19 pandemic.
Heating, ventilation and air conditioning nonprofit corporation Mechanical Contractors Association of America Inc. alleges in its suit against Hilton Franchise Holding LLC that the Grand Wailea Resort Hotel & Spa in Wailea, Hawaii, which is owned and operated by franchisee BRE Iconic Holdings LLC, has advertised that it will refund all cancellations during the pandemic but has no intention of holding to that promise.
"Hilton has not complied with its own COVID-19 refund policy as MCAA individual members are eligible to have their reservations 'cancelled at no charge,'" the trade group said Friday.
The suit stems from a January 2014 letter of agreement that the association signed with the Grand Wailea Resort's previous owner, GWR Wailea Property LLC. When BRE took over the resort in 2019, it inked an amended agreement with the association for the convention scheduled for March 11 to 20, according to the suit. At that point, the group's individual members paid just under $1.41 million to BRE as a deposit for their reservations, according to the complaint.
The suit alleges that the amended agreement contains a force majeure provision stating that either party can cancel the deal "due to the acts of God, war, terrorism ... government regulation, disaster, fire, hurricanes, strikes, civil disorder, curtailment of transportation facilities preventing or unreasonably delaying at least 25% of meeting attendees and guests from appearing at MCAA's meeting, or other similar causes beyond the control of the parties making it inadvisable, illegal or impossible to hold the meeting as planned."
On March 12, the association invoked the force majeure provision due to the virus and canceled its 2020 convention, noting that the resort's website promises to allow cancellations of all reservations without charge due to COVID-19, according to the suit.
But BRE refused to honor the right to cancel, telling the association that same day that it didn't have enough money to refund the individual member deposits, the suit claims. The association, seeking to ensure that individual members' deposits were refunded right away, agreed to give BRE $1 million temporarily to let the resort franchisee refund the deposits, according to the suit.
But after it received the money, BRE decided to keep the $1 million for itself and then issued an invoice to the association demanding an additional $679,295 in cancellation fees, the suit claims.
The association said it filed a separate breach of contract suit May 12 in Maryland state court against BRE to enforce its right to terminate its obligations under the agreement, saying the cancellation invoice shows that the group has already paid BRE $2.18 million, which the franchisee is now wrongfully withholding. The $1 million owed to individual members is included in that $2.18 million, and BRE has kept all the money, according to the federal court suit.
The federal court suit asserts counts of fraud, breach of contract and negligent supervision. It seeks damages of at least $1.4 million, to be paid directly back to the individual members who have not yet received refunds from BRE.
A lawyer for the association, Edward T. Kang of Kang Haggerty & Fetbroyt LLC, told Law360 in an email Monday that Hilton and its franchisees benefit from the Waldorf Astoria Resorts brand's prestigious reputation and should honor the brand's commitments.
"According to its website, Hilton promises that, due to COVID-19, 'All individual reservations — even those described as 'non-cancellable' ('advanced purchase') — that are scheduled for arrival on or before June 30, 2020 can be changed or cancelled at no charge, up to 24 hours before your scheduled arrival day,'" Kang said. "Hilton should honor its promise. Hilton should make sure its franchisees honor the promise. Otherwise, the promise is just lip service, which we did not expect from Hilton."
Representatives for Hilton declined to comment Monday.
Mechanical Contractors Association of America is represented by Edward T. Kang of Kang Haggerty & Fetbroyt LLC and Timothy M. Holly of Connolly Gallagher LLP.
Counsel information for Hilton wasn't available.
The case is Mechanical Contractors Association of America Inc. v. Hilton Franchise Holding LLC, case number unavailable, in the U.S. District Court for the District of Delaware.
--Editing by Orlando Lorenzo.
For a reprint of this article, please contact reprints@law360.com.
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