Hilton Hotels Corp. today said it has "temporarily suspended" development of its Denizen luxury lifestyle hotel brand following last week's lawsuit by Starwood Hotels & Resorts Worldwide alleging that two former executives stole proprietary information and business plans being used in Denizen's development.
Hilton also announced that it has placed the two former Starwood Luxury Brands Group executives named in the lawsuit, Ross Klein and Amar Lalvani, and their luxury and lifestyle team, which includes eight other former Starwood employees, on paid administrative leave pending Hilton's review, according to the company statement.
Hilton also acknowledged receipt of a federal grand jury subpoena from the U.S. Attorney's Office for the Southern District of New York requesting documents relating to Hilton's employment of the former Starwood employees. Hilton spokesperson Ellen Gonda would not provide further comment about the lawsuit when contacted by
BTN.
Hilton
on April 17 had said, "We fully intend to move forward on the development of our newest brand, Denizen Hotels."
According to the original complaint filed on April 16, "The case involves the ransacking and theft of more than 100,000 electronic and hard copy files containing Starwood's most competitively sensitive information, and the improper use by Hilton of that information in the development of Hilton's Denizen hotel brand and in unfair competition with Starwood. The large volume of confidential information taken is extraordinary. This is the clearest imaginable case of corporate espionage, theft of trade secrets, unfair competition and computer fraud."
There are 11 claims for relief against Hilton, Klein and Lalvani and a demand for trial by jury seeking, among other remedies, for the defendants to certify under oath the destruction of all documents and information related to the promotion and rollout of the Denizen brand, which would require Hilton to start from scratch in its luxury lifestyle brand development. Starwood also seeks punitive damages.
The complaint alleges that some of the information taken by former Starwood Luxury Brands Group president Klein prior to his May 2008 departure for Hilton includes terms offered to hotel owners on Starwood deals, detailed information relating to brand performance metrics, details about deals in the Luxury Brands Group pipeline and presentations outlining Starwood's branding strategy.
Before he left the chain, Starwood claims Klein had his staff collect these files, including "updated designer lists, copies of Starwood's Global Architecture and Design Review and The Luxury Collection's Brand Boo, then transferred them to a personal e-mail account. On May 29, Klein shipped three boxes weighing 150 pounds to Hiltons' executive offices in Beverly Hills, California, the lawsuit alleges.
Starwood also accuses Klein of fraud. A separation agreement was reached, which awarded him a severance package. According to the court filing, "Klein lied to Starwood and made knowingly false representations in order to induce Starwood into entering into the separation agreement and paying Klein over $600,000 in severance payments which, as a result of his wrongful conduct, he was not otherwise entitled, as well as to conceal the fact that Klein was already stealing Starwood confidential information to be used for the benefit of Hilton."
The lawsuit also details the recruitment of additional Starwood employees, which Starwood claims violates non-solicitation agreements signed upon their separation from the company. As part of their employment with Starwood, both employees also signed "non-solicitation, confidentiality and intellectual property agreements."
In November 2008, Starwood's legal representation sent Klein and Hilton executive vice president and general counsel Richard Lucas notification of an arbitration proceeding against Klein related to the accusations later detailed in the civil complaint, includiing the pilfering of documents and recruitment of Starwood personnel.
In February, Hilton chief administrative officer and general counsel Kenneth Siegel responded with a letter and eight boxes containing "highly confidential Starwood computer and paper records" as part of Hilton's request to preserve all the documents related to the arbitration case.