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Lawsuit Puts Denize Brand on HoldApril 24, 2009 By: Jason Freed
HotelWorldNewtork.com, a sister site to TravelAgentCentral.com, has been following the legal battle between Hilton and Starwood currently taking place over the Denizen Hotels brand. Here is Jason Q. Freed's latest report.
Hilton Hotels Corp. has placed top executives on paid administrative leave and delayed development of the Denizen Hotels brand after becoming the target of a lawsuit filed by Starwood Hotels & Resorts alleging corporate espionage and theft of trade secrets.
Hilton had initially released a statement saying it intended to move forward with the development of the brand, but rescinded after receiving a federal grand jury subpoena from the U.S. Attorney’s Office requesting documents relating to the employment of former Starwood employees.
Details of the 49-page lawsuit could be detrimental to the future of the lifestyle brand. In the complaint, Starwood claims Ross Klein, former president of Starwood’s luxury brands group and current head of Hilton’s luxury and lifestyle brands, took with him highly confidential and sensitive information regarding brand development and “used it at and for Hilton.”
Erin Shaffer, senior director of communications for Hilton, who is named in the lawsuit as part of a team of employees who left Starwood and joined Hilton, initially issued a statement saying Hilton “believes this lawsuit is without merit and will vigorously defend itself.”
In its complaint against Hilton, Starwood asks the court to force Hilton, Klein and Amar Lalvani, who also left Starwood to join Hilton’s luxury and lifestyle team, to “immediately destroy all documents and information relating to the promotion and roll-out of Hilton’s Denizen brand—thus requiring Hilton to start over without the benefit of its theft of Starwood confidential information.” In stating its case, Starwood outlines several documents including forward-looking statements, Property Improvement Plans, site-specific project approval requests and W brand marketing studies taken by Klein and Lalvani.
“The materials taken to Hilton by Klein and Lalvani are among Starwood’s most competitively sensitive information,” the lawsuit says.
In fact, in a letter to Starwood’s chief administrative officer and general counsel Ken Seigel dated February 5, 2009, an attorney for Hilton acknowledges discovering Klein possessed certain materials that “might be the type that [Klein’s] separation agreement with Starwood requires him to return to Starwood.”
The letter was presented to the court as an exhibit. It implies that after Klein signed a separation agreement with Starwood and received $600,000 in severance, Starwood boxed and shipped materials—some that could have been confidential—to him at Hilton. Later, when Starwood sent a letter requesting Hilton attorneys preserve all potentially responsive documents, the materials were discovered, boxed and shipped back to Starwood.
Also in the letter, Hilton’s corporate secretary Richard Lucas writes: “After learning about the materials Ross had, Hilton’s legal department took possession of the materials and restricted access to them. Hilton’s legal department also inquired whether other Hilton employees who formerly worked for Starwood had similar materials, and we determined that some of them also brought to Hilton documents or materials that they developed or acquired while they worked for Starwood.
“We are also taking steps to ensure that no such materials remain at Hilton.”
Throughout the lawsuit, Starwood claims the large volume of confidential information taken allowed Hilton, with Klein and Lalvani at the helm, to lay the groundwork for, promote and begin developing the Denizen brand in an unprecedented amount of time. “Hilton has been able to exploit the time and tens of millions of dollars that was invested by Starwood to create those materials,” the lawsuit reads.
The timeline of events will no doubt be a main focal point of the case. In fact, Starwood claims in the lawsuit that even when the Blackstone Group purchased Hilton in 2007 the company was under intense pressure to deliver results. Then, in February 2008, Nassetta began recruiting Klein to join Hilton.
“Klein immediately misused his position ... to request large volumes of confidential information from Starwood employees, which he took home, had loaded on a personal laptop computer and/or forwarded to a personal e-mail account,” the lawsuit reads.
And a month later Steven Goldman, Hilton’s president of global development and real estate, began recruiting Klein’s former partner, Lalvani. Starwood claims in the lawsuit that Lalvani responded saying, “other idea is to bring over the core W team, which has created an enormous amount of value and is very loyal to me to build a new brand for you guys,” although it is unclear how Starwood obtained a transcript of that conversation.
In June 2008, Klein and Lalvani began working for Hilton. Immediately rumors began circulating about Hilton launching a lifestyle brand, and in March 2009, those rumors were confirmed at a launch party for Denizen held in conjunction with the International Hotel Investment Forum in Berlin.
In the lawsuit, Starwood reports legal executives sent a letter in November 2008 to Hilton requesting the preservation of all information relevant to the arbitration with Klein. In response to the letter, Starwood reports it received from Hilton in February the aforementioned response letter, along with eight large boxes of computer hard drives, zip drives, thumb drives and paper records containing massive quantities of highly confidential and proprietary Starwood files.
“The unauthorized accessing of Starwood’s computer systems and files and the theft of Starwood’s highly confidential and competitively sensitive business plans ... was unknown to Starwood until February 2009,” the lawsuit reads.
In court, Starwood will have to prove that Klein and Lalvani violated their non-solicitation, confidentiality and intellectual property agreements, as well as their separation agreements, and that Hilton has wrongfully used the Starwood confidential information to its own competitive advantage. Damages would be determined at trial.
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