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Case Number: 5:20-cv-02823
Judge: Joseph F. Leeson, Jr.
Court: United States District Court for the Eastern District of Pennsylvania (Lehigh County)
Defendant's Attorney: Victoria Joseph
Description: Allentown, Pennsylvania personal injury lawyer represented Plaintiffs who sued Defendants on Racketeering (RICO) Act violation theories.
The above-captioned action involves claims by hotel franchisees against the hotel franchisor and the association of franchisees for violations of federal and state laws. Each Plaintiff signed a Franchise Agreement containing an Arbitration Provision. Defendants have filed a Motion to Compel Arbitration and Stay Proceedings. The parties agree that the Arbitration Provisions apply to the claims in this action, but Plaintiffs assert that they should not be enforced.
Plaintiffs are ninety franchisees that each own and operate one or more hotels that bear a brand mark of Defendant Choice Hotels International, Inc. ("Choice"). Am. Compl. ¶ 5, ECF No. 6. Choice is a hotel franchisor that owns several well-known national hotel brands, including Comfort Inn, Comfort Suites, Quality Inn, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotels, EconoLodge, Rodeway Inn, and Ascend Hotel Collection. Id. ¶ 3. Defendant Choice Hotels Owners' Council ("CHOC") is an association of franchisees. Id. ¶ 19.
In a 591-paragraph amended complaint, Plaintiffs bring twenty-one counts for violations of the Racketeer Influenced and Corrupt Practices Act ("RICO"), 18 U.S.C. § 1962(c)-(d); the Sherman Act, 15 U.S.C. § 1; the Civil Rights Act, 42 U.S.C. § 1981; breach of contract and fiduciary duty; common law fraud; and various state franchise acts. Plaintiffs assert Defendants are liable for requiring them to pay inflated prices to third-party vendors for products necessary to the operation of their hotels, requiring Plaintiffs to abide by a variety of unconscionable franchise terms and practices, discriminating against franchises owned by hoteliers of Indian-American and South Asian American background, and attempting to obstruct Plaintiffs from leaving the franchise system by imposing onerous liquidated damages provisions and assessing excessive penalties against departing franchises. Plaintiffs allege, inter alia, Choice "has and continues to engage in unconscionable, fraudulent, unlawful, and anticompetitive business practices in connection with the operation of its hotel franchise system." Am. Compl. ¶ 1. They allege Choice, which has an ongoing relationship with CHOC, corrupts CHOC "by providing various benefits to members of its board in order to secure their support of Choice's oppressive agenda." Id. ¶¶ 19, 289. Plaintiffs allege "Choice dictates to CHOC board members what proposed measures they will approve, and in exchange offers substantial kickbacks to those board members, including preferential treatment in CHOC's reservation system." Id. ¶ 291. The Amended Complaint states "Defendants intentionally and willfully deprived [Plaintiffs] of the same rights enjoyed by white citizens to the creation, performance, enjoyment, and all benefits of their contractual relationships with Defendants." Id. ¶ 438.
Plaintiffs further allege "Choice was in individual contractual relationships with each Franchisee through the Franchise Agreements." Id. ¶ 375. Plaintiffs acknowledge that the Agreements "require Franchisees to submit to binding arbitration . . . in Choice's Maryland headquarters, regardless of where their franchise is located." Id. ¶¶ 244-245. Plaintiffs allege, however, that "Choice and CHOC conspired to fraudulently represent to Franchisees that CHOC was a good faith representative of their interests in order to induce them into entering the Agreements and acquire from them a monthly association fee." Id. ¶ 316; See also ¶ 306. The Amended Complaint states that "Choice uses its superior bargaining power to coerce the Franchisees into accepting onerous, unequal, and unconscionable terms in its Franchise Agreements." Id. ¶ 140. It alleges:
the terms of the Franchise Agreements and Choice's "Rules and Regulations" (which Choice routinely updates and uses an extension of the Franchise Agreements in order to expand the terms of the original agreement, including but not limited to through the imposition of additional fees not specifically disclosed at the time of contracting) are in combination so burdensome to Franchisees and so one-sided in favor of Choice that they must be regarded as unconscionable and unenforceable.
Id. ¶ 281.
Defendants have filed a Motion to Compel Arbitration and Stay Proceedings, arguing that all of Plaintiffs' claims are subject to valid and binding mandatory arbitration clauses contained within each Plaintiff's Franchise Agreement. Mot., ECF No. 8. In response, Plaintiffs acknowledge the presence of Arbitration Provisions, but contend that the Provisions should not be enforced. Resp., ECF No. 9. Plaintiffs further assert that the Arbitration Provisions are not enforceable by CHOC and that if arbitration is compelled, all claims should not proceed on an individual basis. Id. 26-28. Defendants filed a reply opposing Plaintiffs' arguments and highlighting that Plaintiffs do not challenge whether their claims are covered by the binding Arbitration Provision. Reply, ECF No. 10.
Upon review of the Motion and responses, as well as the Amended Complaint and the Franchise Agreements that are integral to the claims, the Court notes as follows:
The parties agree that the Arbitration Clauses in all of the Agreements are identical in substance with regards to the issues in the instant Motion. See Mot. 3-4; Resp. 2. The Arbitration Clauses read:
See Jai Sai BabaLLC Agreement ¶ 21, Ex. A, ECF No. 8-3. The parties also agree that a majority of the Franchise Agreements contain a class action waiver provision. See Mot. 28; Resp. 1. When included, the Class Action Provision states:
22. NO CLASS ACTIONS. Neither you nor we shall seek to litigate or arbitrate against the other party to this Agreement or such party's affiliates, either as a representative of, or on behalf of, any other person, class, or entity, any dispute, controversy, or claim of any kind arising out of, or relating to, this Agreement, the rights and obligations of the parties, the sale of the franchise, or other claims or causes of action relating to the performance of either party to this Agreement. No arbitration or other action or proceeding under this Agreement shall add as a party, by consolidation, joinder, or in any other manner, any person or party other than us and you and any person in privity with, or claiming through, in the right of, or on behalf of, us or you, unless both we and you consent in writing. We have the absolute right to refuse such consent. You agree and acknowledge that any proceeding directly or indirectly arising from or relating to this Agreement, the relationship between the parties, or any Agreement or relationship between you and us or any affiliate of ours will be considered unique on its facts and may not be brought as a class or group action.
See Jai Sai BabaLLC Agreement ¶ 22.
The Franchise Agreements also contain varying provisions regarding the franchise association. Many of the Agreements state that it is the Franchisee's duty to "join and maintain membership in" a franchise association designated by Choice. See, e.g. Jai Sai BabaLLC Agreement ¶ 6(n). See also Agreements ¶ 6(n), ECF No. 8-4 to 8-10. Other Franchise Agreements contain provisions, in addition to or instead of the duty provision above, stating that the Franchisees "acknowledge and agree that [Choice] will consult with the Franchise Association" on the use of certain fees and/or before making changes to certain policies. See, e.g. Q Hotels LLC Agreement ¶ 19(g), ECF No. 8-4; Elite Hospitality LLC Agreement ¶ 19(g), ECF No. 8-8.
Outcome: ORDER THAT 1. THE CLERK OF COURT SHALL TRANSFER THE ABOVE-CAPTIONED ACTION TO THE CIVIL SUSPENSE DOCKET, AND MARK THE CASE CLOSED FOR STATISTICAL PURPOSES. 2. THE COURT SHALL RETAIN JURISDICTION OVER THE CASE AND SHALL RETURN IT TO THE COURT'S ACTIVE DOCKET ONCE THE CASE IS READY TO PROCEED TO DISPOSITION. 3. THE ENTRY OF THIS ORDER IS WITHOUT PREJUDICE TO THE RIGHTS OF THE PARTIES. 4. NO BRIEFING OR MOTIONS DEADLINES ARE STAYED AS A RESULT OF THIS ORDER. 5. DEFENDANTS ARE TO CONTINUE SUBMITTING MONTHLY STATUS REPORTS CONSISTENT WITH THE ORDER DATED MARCH 19, 2021. SIGNED BY HONORABLE JOSEPH F. LEESON, JR ON 8/22/23. 8/22/23 ENTERED AND COPIES E-MAILED.(er) (Entered: 08/22/2023)