ALLENTOWN – Franchisees of the Choice Hotels group are suing the company, claiming they have been overcharged inflated fees to increase the group’s revenue and been subjected to discriminatory treatment based on race.
The group of 46 franchisees of various locales around the United States filed suit in the U.S. District Court for the Eastern District of Pennsylvania on June 12 versus Choice Hotels International, Inc. of Rockville, Md., and Choice Hotels Owners Council, of Fayetteville, N.C.
The franchisees operates hotels nationwide under brands like Sleep Inn and Comfort Suites and allege the defendants have established a qualified-vendor program, which provides necessary hotel items, in order to extract payments from its suppliers.
According to the lawsuit, vendors cannot be considered for inclusion in the program unless they pay an up-front fee of $25,000. Subsequently, the vendors then pass that cost onto the hotel operators.
For example, the suit states that Choice Hotel operators pay $34,50 for 10 pounds of frozen sausage links, while non-Choice Hotel operators pay $22.37 for the same amount of meat.
“Choice Hotels knows that qualified vendors cannot sell goods and services to its franchisees at competitive prices,” per the lawsuit.
The plaintiffs further allege that Choice Hotels devises methods of imposing additional fees on them in order to increase its share of the revenue created through the lodging properties they operate.
To this end, franchisees are mandated to pay Choice Hotels royalties and a “system fee”, totaling at least seven percent of their monthly earnings, with the additional fees and penalties, this amount can total on average more than 20 percent of monthly revenue to the company.
Furthermore, the suit states Choice Hotels have discriminated against Indian-Americans and other individuals of South Asian background, in being more strict to enforce these rules against them versus white hotel operators.
As an example of this allegation, Choice Hotels stated it would no longer permit two-story properties to use the Comfort Inn brand and were aggressive in its enforcement of that policy with Indian-American and South Asian hoteliers, though not with white franchisees.
Choice Hotels owns and operates about 6,000 hotels in the U.S., and a spokesperson for the group said the company “will address the unfounded allegations at the appropriate time.”
For counts of violation of the RICO Statute, breach of contract and the implied covenant of good faith and fair dealing, common law fraud, declaratory judgment, violation of the Sherman Act, breach of fiduciary duty, civil rights violations, accounting and violation several state statutes relating to franchises, the plaintiffs are seeking various compensatory damages, punitive damages, treble damages, attorney’s fees, costs, orders that the defendants’ conduct violates those state statutes and others, plus a trial by jury.
The plaintiffs are represented by Justin E. Proper and William Hollender Fedullo of White & Williams, in Philadelphia.
The defendants have not yet secured legal counsel.
U.S. District Court for the Eastern District of Pennsylvania case 5:20-cv-02823
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com