Starwood-Marriott Merger Update: Court Denies Injunction Seeking to Halt the $13.6-Billion Starwood-Marriott Merger
Two hotel owners, Cityfront Hotel Associates LP and Dream Team Hotel Associates LLC (two Tishman Hotel Corporation affiliates), owners of hotels in Chicago and New York City, filed suit seeking to enjoin the merger between Starwood Hotels & Resorts Inc (“Starwood”) and Marriott International, Inc. (“Marriott”), which would create the world’s largest hotel operator by room count.
The plaintiffs, in the action filed with the Supreme Court, New York County, Index No. 652521/2016, made an application for injunctive relief before Justice Shirley Kornreich, which was heard, on an expedited basis, and decided on argument before the court on June 1, 2016.
The plaintiffs argued that closing the merger would violate their operating contracts with Starwood with regard to safeguarding their confidential hotel-specific information and with regard to restrictive covenants limiting the numbers and types of hotels that could be operated by Starwood and its affiliates in certain geographic areas. The court denied the plaintiffs’ motion to preliminarily enjoin the merger, finding that the plaintiffs had known of the merger, which had been highly publicized over the past six months and that the delay in seeking injunctive relief constituted laches.
The court also found that a balancing of the equities and the public and private interest favored Starwood and Marriott and that if there was any injury as a result of the closing of the merger, the plaintiffs would have an adequate remedy at law in monetary damages.
The Starwood-Marriott transaction was initiated in November 2015 and is anticipated to close in mid-2016, according to the complaint. Combining the brands would join two of the world’s largest hotel companies, to provide more than 1.1 million rooms worldwide. Marriott has more than 4,000 properties across 19 brands while Starwood operates Sheraton and Westin properties, among others.
The lawsuit alleges that the merger would violate the plaintiffs’ existing contracts. According to an existing agreement from 1989 regarding the Sheraton Grand Chicago, Cityfront is the owner and Sheraton is the operator, according to the complaint. The Westin New York at Times Square has a similar agreement from 1998 that specifies Dream Team as the owner and Westin as the operator.
Both agreements state that the Westin or Sheraton or their affiliates “are prohibited from owning, operating or managing other hotels” in specific geographic zones. According to the lawsuit, in the case of the Sheraton Grand Chicago, the hotel is the only Starwood property in Chicago that can cater to large group meetings or conventions, which comprises 65% of its business. Marriott has two convention-style hotels, one existing and one under construction, with the area of protection (“AOP”) spelled out in the contract.
Commentary
In argument before the court, Justice Kornreich asked the plaintiffs’ counsel, “Aren’t we talking about money here?” The plaintiffs’ counsel responded that if the merger went through that their agent, Starwood, would give to Marriott all of the plaintiffs’ business records, and that because Starwood had been their exclusive agent, they have all of the plaintiffs’ sales strategies and other confidential information. “This would be somewhat akin to a renegade agent of Pepsico saying I’m going to give Coke all of your business records. That’s crazy.”
The court, in denying the application for an injunction, stated, “You can’t replicate the exclusivity which may mean there’s some money damages for you, but you can certainly take care of the issue of the loyalty because you can hire someone else to do it [to manage]. You don’t have to stick with Marriott.”
The hearing concluded by the court denying injunctive relief while recognizing that the plaintiffs could still seek court protection of confidential information and could pursue money damages for breach of contract.
About the Author
John E. Osborn is the Managing Partner of the 10 lawyer firm, John E. Osborn, P.C., concentrating in construction law, environmental law and commercial litigation, which he founded in 1992. Mr. Osborn and the firm are focused on legal issues relating to the development, construction and operation of hotel properties. The firm has played a role in renovation of the Plaza Hotel, and the New York Palace, and the in the construction of the Setai Hotel and the Standard Hotel. Mr. Osborn serves on the faculty of the NYU Tisch Center for Hospitality and Tourism where he has taught Hospitality Law since 1997. He is the General Counsel of the Hotel Engineers Association of New York, a member of the NYC Hotel Association, and served as the court appointed counsel to the Barbizon Hotel in receivership.
Our Practice
John E. Osborn P.C. is a 10 lawyer firm founded in 1992. The Firm’s practice concentrates in complex construction, environmental, real estate and commercial litigation and focuses on representing large property owners, construction managers, contractors and design professionals. The types of owner-clients that the Firm represents include school districts, charter schools, colleges and universities, hotels, office buildings, apartment complexes, restaurants, nightclubs, healthcare facilities, nursing homes, arenas, museums, industrial properties, airports, auto dealers and commercial and residential developers. A thorough, long-term knowledge of the real estate, construction and environmental industries and design profession—together with comprehensive experience dealing with government entities—is critical to the Firm’s success.
The plaintiffs, in the action filed with the Supreme Court, New York County, Index No. 652521/2016, made an application for injunctive relief before Justice Shirley Kornreich, which was heard, on an expedited basis, and decided on argument before the court on June 1, 2016.
The plaintiffs argued that closing the merger would violate their operating contracts with Starwood with regard to safeguarding their confidential hotel-specific information and with regard to restrictive covenants limiting the numbers and types of hotels that could be operated by Starwood and its affiliates in certain geographic areas. The court denied the plaintiffs’ motion to preliminarily enjoin the merger, finding that the plaintiffs had known of the merger, which had been highly publicized over the past six months and that the delay in seeking injunctive relief constituted laches.
The court also found that a balancing of the equities and the public and private interest favored Starwood and Marriott and that if there was any injury as a result of the closing of the merger, the plaintiffs would have an adequate remedy at law in monetary damages.
The Starwood-Marriott transaction was initiated in November 2015 and is anticipated to close in mid-2016, according to the complaint. Combining the brands would join two of the world’s largest hotel companies, to provide more than 1.1 million rooms worldwide. Marriott has more than 4,000 properties across 19 brands while Starwood operates Sheraton and Westin properties, among others.
The lawsuit alleges that the merger would violate the plaintiffs’ existing contracts. According to an existing agreement from 1989 regarding the Sheraton Grand Chicago, Cityfront is the owner and Sheraton is the operator, according to the complaint. The Westin New York at Times Square has a similar agreement from 1998 that specifies Dream Team as the owner and Westin as the operator.
Both agreements state that the Westin or Sheraton or their affiliates “are prohibited from owning, operating or managing other hotels” in specific geographic zones. According to the lawsuit, in the case of the Sheraton Grand Chicago, the hotel is the only Starwood property in Chicago that can cater to large group meetings or conventions, which comprises 65% of its business. Marriott has two convention-style hotels, one existing and one under construction, with the area of protection (“AOP”) spelled out in the contract.
Commentary
In argument before the court, Justice Kornreich asked the plaintiffs’ counsel, “Aren’t we talking about money here?” The plaintiffs’ counsel responded that if the merger went through that their agent, Starwood, would give to Marriott all of the plaintiffs’ business records, and that because Starwood had been their exclusive agent, they have all of the plaintiffs’ sales strategies and other confidential information. “This would be somewhat akin to a renegade agent of Pepsico saying I’m going to give Coke all of your business records. That’s crazy.”
The court, in denying the application for an injunction, stated, “You can’t replicate the exclusivity which may mean there’s some money damages for you, but you can certainly take care of the issue of the loyalty because you can hire someone else to do it [to manage]. You don’t have to stick with Marriott.”
The hearing concluded by the court denying injunctive relief while recognizing that the plaintiffs could still seek court protection of confidential information and could pursue money damages for breach of contract.
About the Author
John E. Osborn is the Managing Partner of the 10 lawyer firm, John E. Osborn, P.C., concentrating in construction law, environmental law and commercial litigation, which he founded in 1992. Mr. Osborn and the firm are focused on legal issues relating to the development, construction and operation of hotel properties. The firm has played a role in renovation of the Plaza Hotel, and the New York Palace, and the in the construction of the Setai Hotel and the Standard Hotel. Mr. Osborn serves on the faculty of the NYU Tisch Center for Hospitality and Tourism where he has taught Hospitality Law since 1997. He is the General Counsel of the Hotel Engineers Association of New York, a member of the NYC Hotel Association, and served as the court appointed counsel to the Barbizon Hotel in receivership.
Our Practice
John E. Osborn P.C. is a 10 lawyer firm founded in 1992. The Firm’s practice concentrates in complex construction, environmental, real estate and commercial litigation and focuses on representing large property owners, construction managers, contractors and design professionals. The types of owner-clients that the Firm represents include school districts, charter schools, colleges and universities, hotels, office buildings, apartment complexes, restaurants, nightclubs, healthcare facilities, nursing homes, arenas, museums, industrial properties, airports, auto dealers and commercial and residential developers. A thorough, long-term knowledge of the real estate, construction and environmental industries and design profession—together with comprehensive experience dealing with government entities—is critical to the Firm’s success.