<B> Arbitration Gains Ground</B>
<I>Sheraton, Hilton Settle Dispute Out Of Court</I>
By Chris Davis
A $400,000 settlement awarded to Hilton Hotels has spotlighted the chain's preference for arbitration in disputes with the meetings industry--and raised questions about the repercussions for meeting buyers of signing contracts designed to keep them from taking their suits to a court of law.
Still, even while industry insiders say the arbitration process can be tangled and inconsistent--and that it does not always work in favor of the planner--it also can be a speedier and cheaper alternative to a full-blown trial. The discovery process is more limited and decisions cannot be appealed. The up-front cost of an arbitration hearing can be higher than what it typically would cost to file a lawsuit, but the cost of the hearing itself often is much lower than full legal fees.
The recent case involved a dispute among Hilton, the Sheraton Washington and the Fairfax, Va.-based National Postal Forum. When the Sheraton, scheduled to be the headquarters hotel for NPF's annual meeting last summer, announced major renovations, the group shifted to the Washington Convention Center and downtown hotels. The Hilton Washington, which had expected to receive the overflow room block, sought cancellation damages from the association, which in turn argued that the onus should be on the Sheraton, the use of whose meeting space was "the lynchpin of the whole meeting." If the events needed to move to the convention center, the group argued, then the room block needed to be nearby.
An arbitration panel of three attorneys agreed that "an attendee assigned to the Hilton could understandably be upset at having to stay at this out-of-the-way location," and awarded Hilton $395,850, to be paid by Sheraton.
Hilton vice president of industry relations David Scypinski said the chain mandates arbitration clauses in all its meetings contracts "because it's cheaper, faster and easier. We don't do it because we want a leg up on the corporation, because there's no inherent advantage to either party. Nobody believes the full litigation process in court, which can be two to five years before it even begins, is worth the time and money."
Scypinski said Hilton receives "very little" resistance from planners to the arbitration clause--and resolves "upwards of 95 percent" of its disputes without resorting to arbitration at all. "There's no reason not to arbitrate instead of litigate," he said. "When there's hesitancy on the part of the planner, it gives us the opportunity to dispel myths and rumors about arbitration, because not everybody understands the process."
But industry attorney Jonathan Howe of Chicago-based Howe & Hutton cautioned that arbitration clauses' unfortunate tendency to not spell out details can come back to haunt corporate meeting buyers.
"The theoretical concept of arbitration is that it's expedited by arbitrators who understand the industry and can be done with a modicum of expense," Howe said. "But it's difficult to find arbitrators who are knowledgeable about the industry, and clauses often don't include how arbitrators are to be selected, where a hearing will be held and what the procedure will be for exchange of information."
Still, Howe agreed that arbitration may be the way to go for small meetings, where the sums in dispute may not warrant the time and effort of full litigation.
Jerry Schmidt, director of communications for Lake Forest, Ill.-based insurance corporation Trustmark Co., said the disadvantage of arbitration is that decisions are left up to the arbitrator, who is not bound by precedents as in a court of law. In fact, he added, a hotel's insistence on arbitration instead of litigation would probably cause him to find another meeting site.
"In my mind and the mind of our counsel, arbitration elongates the process," Schmidt said. "Litigation is lengthy, but it's a more defined process."
Washington, D.C.-based meetings consultant Joan Eisenstodt--who noted she is "seeing litigation clauses more and more" in meeting contracts--also cautioned about the risks involved.
"Anything that's binding but heard by a group of people who probably don't know our industry is not a good thing," she said. "It hurts if one doesn't understand the implications. We have some clients who like it, others who don't, and still others who don't understand it. Like many salespeople who sign contracts, some meeting planners don't know enough to ask questions about arbitration or other forms of dispute resolution, including litigation."
The Convention Liaison Council until recently offered a free alternative dispute resolution program to provide a forum in which disputes could be resolved by people familiar with the intricacies of the meetings industry, said Eisenstodt, who was trained by CLC to hear such disputes. But nobody used it.
"It was in place for five years, but it was never engaged," said Steven Hacker, president of the CLC's board of directors and the International Association of Exposition Managers. "We never had an explanation why it wasn't utilized, but it seems disputes went through the American Arbitration Association instead."
As a result, the CLC deactivated the program last November, Hacker said.
Eisenstodt said it is possible to negotiate arbitration clauses out of a meetings contract, but it's becoming more difficult to do so. "The corporate policy of some of the hotels with whom I've recently dealt is to include the clause, and there was no way to negotiate it out or even modify it," she said.
Corporate buyers seem to consider arbitration clauses as yet another necessary evil. "Since arbitration doesn't provide means of discovery, it's not something I particularly like," said Michelle Rubin, the former Champion International Corp. meetings manager who is now director of Boulder, Colo.-based travel and meeting firm DRS3. "But I can understand why the hotels want it in there.