<B> Hyatt Ruling Stuns</B>
By Chris Davis
In a surprising ruling in a closely watched court case spotlighting attrition issues, a federal magistrate ruled an association did not have to reimburse a hotel for lost revenue after failing to fill its large room block, despite the lack of any attrition clause.
While the ruling likely will have less of an impact on the corporate market than the association market, corporate buyers can expect hotels to seek more specificity in attrition and cancellation clauses and cutoff dates for both, experts said.
In the case, federal magistrate Leslie Foschio approved the request of the Women's International Bowling Congress to dismiss in summary judgment a lawsuit brought by the Hyatt Regency Buffalo over a 1996 convention. The Hyatt held a total of 4,735 rooms over nearly two months under the terms of a contract negotiated in 1993 and amended in 1995, but only 2,265 of the rooms were booked by WIBC attendees.
The contract, though, had no attrition clause, and Hyatt argued that the WIBC was committed to pay more than $170,000 for all rooms held. Foschio, though, decided in the absence of such a clause, the Hyatt was out of luck. Foschio held that "hold" and "reserve," in terms of hotel rooms, are not synonymous, and that the Hyatt could have only expected room revenue when an attendee booked a reservation.
There is "nothing within the (contract) that can be interpreted as implying WIBC intended to pay for the entire block of rooms held by Hyatt," wrote Foschio in his ruling.
"Hyatt could have insisted on a provision limiting its potential loss in the event of low WIBC room occupancy," Foschio wrote. "However, while accepting the benefit of its designation as the convention headquarters, Hyatt failed to do so. The risk of low attendance and occupancy less than the WIBC estimate, therefore, rightfully falls upon Hyatt."
Foschio also noted that a cancellation clause did exist in the contract, requiring the WIBC to pay the equivalent of the peak night's room revenue--$22,750, much less than the damages Hyatt sought, in the event of a cancellation. "It makes no economic sense that WIBC would expose itself to substantially more damages based on the failure of individual participants, over whom the WIBC had no control, to choose the Hyatt Regency Buffalo," than if the entire event were cancelled, Foschio wrote.
"Obviously, we respectfully disagree with the judge's decision, but we'll save our reasoning for later," said Peter Connolly, senior vice president and general counsel of Hyatt Hotels Corp.
Attrition clauses in hotel contracts tend to be more of an issue for association planners than their corporate counterparts, simply because corporations have the power to mandate meeting attendance, while attendance at association events seldom is compulsory.
But industry-watchers said this ruling affects the corporate market inasmuch as hotels will likely pay even closer attention to their contract language, particularly in the area of cutoff dates--specific dates spelled out in the contract when the hotel may resell some of the room block if the planner hasn't met a specific level of bookings.
"You may see more specific language that addresses the issue of cutoff dates," said Anthony Pastor, site and contract specialist for McKinsey & Co. of New York. "There are a lot of contracts out there that are ambiguous, and hotels will be very clear on cutoff dates--one year, six months, 30 days."
Despite Foschio's ruling, Pastor doesn't see a new wave of corporations permitting attrition to any degree in the absence of an attrition clause.
"I feel that in the absence of attrition or cancellation clauses, I'm on the hook for the entire amount," he said.
Pastor, who has followed the case and said he was "astounded" by the ruling in the WIBC's favor, said the ruling will affect associations more than corporations. Without the power of mandating meeting attendance, associations, he said, are facing more onerous attrition clauses with cutoff dates farther in advance.
"I've already sensed it," said Michelle Rubin, director of San Clemente, Calif.-based corporate meetings management firm DRS3. "There's been more of an emphasis on cutoff dates, with hotels even calling a week or so before the date to make sure you know where you stand. I like it. I'm never surprised two days after the date. Not that we would be, but it's nice to see them being proactive."
Rubin said the days of major hotel chains, Hyatt included, negotiating meeting contracts without attrition clauses are gone, but smaller, independent hotels will still do so.
John Foster, Atlanta-based attorney for the WIBC, also said there are still planners and hotels that don't use attrition clauses. "I used to think there weren't, but I've heard from several lawyers and clients that still see it," he said. "So the real effect of this is that both parties need to go through the extra trouble to be specific in their contracts."
Hyatt's attorneys portrayed the case as nothing more than an attempt to collect fees from a meeting negotiated in a bygone era.
"This case will set no precedent for anything but this case," said Jonathan Howe, president and senior partner of Chicago-based law firm Howe & Hutton. Howe served as part of Hyatt's legal team for this case. "It's just between Hyatt and the bowlers," he said.
Hyatt has until Sunday to decide whether to appeal the case. At press time, no decision has been announced.
"We haven't decided in part because we've always considered this a simple collection case," Connolly said. "It's not something we're going to take to the Supreme Court.