Hilton Suit Raises Contract Issues
<H1> Hilton Suit Raises Contract Issues</H1>By Lauren Bielski
<B>T</B>he Pointe Hilton Resort at Squaw Peak has won a victory in principle in a lawsuit against a health-care company that canceled a five-day meeting. But the hotel's financial award was paltry-$4,696, which the court believed was the sum of the lost business the hotel had sustained.
The ruling by the Maricopa County Superior Court in Phoenix underscores the importance of making contract language specific to protect a corporation's interests, even if that means getting acquainted with the terms, schedules and practices of a typical construction site.
With conditions in the hotel industry ripe for a significant crop of hotel renovations in the years ahead, meetings buyers and suppliers need to make sure their cancellation and contingency clauses are clear.
In this case, Healthdyne Corp., now part of Matria in Marietta, Ga., was to have held the meeting for 500 executives in February 1993. The company reneged after a September 1992 site inspection that led the planner to believe insufficient progress had been made on the hotel's renovation.
When the contract was first signed, corporate planner Margaret Martin was told that the property-which still featured the decor from its 1979 debut-would be renovating the lobby, guest rooms and meeting rooms and updating the alarm system. These renovations, she was informed, would cost about $7.5 million and would be completed well in advance of the February meeting date. If these terms were not met, Martin could bow out gracefully.
In what Martin called a "bait and switch" maneuver, she said the hotel misled her about the scope of the renovation project when the contract was signed in the spring of 1992, and then, during the site inspection, unveiled an expanded project that included the construction of a water park that she alleges "impacted the rate of progress on the meeting facilities." If Hilton had not expanded the project to include actual construction, Martin maintained, time would not have been wasted in seeking construction permits.
Hilton agreed that its decision to spend more than $14 million on the water park would require that the hotel's lobby be moved, but maintained that this phase of the project would not impact Healthdyne's meeting.
The agreement Martin signed with Hilton clearly indicated that she would have the right to cancel without penalty if an inspection failed to show "substantial" progress by September. It turns out that the word "substantial" was the corporate buyer's undoing and was ruled vague enough to allow Hilton to prevail.
Matria's attorney, Brent Burkey, said that the disparity between the amount Hilton was seeking-$250,000 to $700,000-and the actual award ultimately proves the strength of his company's case. "We had to consider what was in our best interests, and we could not feel confident with the facility that we saw during our site inspection," he said.
Burkey also had included a clause stating that the hotel's monetary damages would be decreased by whatever revenue it would be able to generate from replacement business. This was a critical protective clause, and one to which corporate planners should pay attention, according to John Foster, a meetings industry attorney based in Atlanta. The courts have no clear precedent regarding whether it is legal for hotels to win damages for lost business when it finds replacement business.
The hotel corporation asserted that in contrast to Martin's claim that "not much had been done by September," the company had spent the time between April and September 1992 acquiring necessary permits, installing the new alarm system and preparing for the renovations.
Hilton's attorney, Lisa Sommer of
O'Connor, Cavanaugh in Phoenix, contended that the construction schedule presented to Martin stayed more or less intact. "The five months they had remaining-from September 1992 to February 1993-would have been plenty of time to paint, lay carpet and put in new furnishings. Martin simply refused to believe that this schedule could be met," Sommer said.
She said Hilton "never intended to mislead Martin. They wanted to give her a fabulous meeting." Instead, Hilton hosted an IBM user's group-a piece of business that Matria contended lost Hilton only about $5,000. Hilton sued for $700,000 "because the value of the replacement business wasn't of the caliber of the Healthdyne meeting," Sommer said.
In a case where each party's perceptions remain polar opposites, the contract should have had specific construction schedules-a recommendation that expert witness Joan Eisenstodt, a Washington, D.C.-based independent meeting planner, emphasized in her testimony.
It was a lesson that Matria's longtime planner learned the hard way. "It's ironic, because the entire reason I chose Squaw Peak was the fabulous renovations they advertised in a mailing," Martin said ruefully. "When I showed up in September, they expressed that all three of the meeting rooms would not be renovated in time for my meeting. This meeting was very critical for our company. I didn't feel confident that Hilton could come through.