What is the relationship between the litigation described in Item 3 and the franchisee's obligations under the franchise agreement as outlined in Item 9 for Embassy Suites?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 9: FRANCHISEE'S OBLIGATIONS]
This table lists your principal obligations under the Franchise Agreement and other agreements for an Embassy Suites hotel. It will help you find more detailed information about your obligations in these agreements and in other Items of this Disclosure Document.
[Item 3: LITIGATION]
ITEM 3 LITIGATION
Other than the actions described below, there is no litigation that must be disclosed in this Item.
A. PENDING ACTIONS
AAAA Property Partners LLC v. Hilton Franchise Holding LLC (M.D. Fla. Case No. 6:25-cv-00132- CEM-RMN).
On January 24, 2025, the plaintiff filed suit against our Hilton Franchise Holding, LLC in Orange County, Florida (Filing No. 215324302) alleging breach of contract arising in connection with our termination of plaintiff's franchise for the Hilton Garden Inn Orlando I-4 Millenia Blvd. Mall. We terminated the franchise for material breaches of the Franchise Agreement including but not limited to payment defaults. On January 28, 2025, the matter was removed to federal court. Plaintiff has not served this suit on us. If plaintiff serves this suit, we intend to vigorously defend our interests in this matter.
In re Extended Stay Hotel Antitrust Litigation (N.D. Cal.), Civil Case No. 4:24-civil-09060 (Class Action).
On July 24, 2024, a putative class action complaint captioned Au v. Integrated Decisions and Systems, Inc., Civil Case No. 1:24-civil-06324, was filed in the United States District Court for the Northern District of Illinois against IDeaS, and several hotel defendants, including Hilton Worldwide, asserting alleged violations of Section 1 of the Sherman Act. The complaint alleges that the hotel defendants improperly shared information with competing hotels through IDeaS and used IDeaS's revenue management software to improperly set room rates in extended stay hotel markets throughout the United States.
On September 10, 2024, a substantially similar lawsuit captioned Gonzalez v. Integrated Decisions and Systems, Inc., Civil Case No. 1:24-civil-06324, was filed in the Northern District of Illinois. The Gonzalez and Au matters were consolidated on September 19, 2024, and the case caption was amended to In re Extended Stay Hotel Antitrust Litigation. On November 15, 2024, a consolidated amended complaint was filed and the matter transferred to the Northern District of California on December 13, 2024. Hilton Worldwide intends to vigorously defend its interests in this matter.
| Obligation | Section in Franchise Agreement | Section in HITS Agreement | Disclosure Document Item |
|---|---|---|---|
| f. Fees | 1, 4.1, 4.3, 4.5, 5.1.20, 5.1.21, 5.1.28, 6.3.3, 6.4.2, 6.6.3, 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 12.2.1.2, 12.2.2.1, 12.2.2.3, and 12.3.2; Addendum 7 of Spa Amendment | 1.1, 2.2, 4.3; Order Doc 1.4, 1.10, 2.5, 3.1, 4.1 and 4.2; Schedule B-2 | 5, 6, 7 and 16 |
| g. Compliance with Standards / Manual | 1, 4.5, 4.8, 5, 6.1.4, 6.2, 6.6.1 and 7.0; 2(b), 2(c), 6(a) and 6(c) of Spa Amendment | 1.1, 2.1; Order Doc 1.2 and 7 | 8, 11, 13, 14, 15 and 16 |
| h. Trademarks and Proprietary Information | 1, 5.1.14 and 9; Addendum; 3 and 5 of Eforea Spa Amendment | 1.1, 2.1, 2.3; Order Doc 7; Schedule A, B-2 | 13 and 14 |
| i. Restrictions on products/ services offered | 5.1.17, 5.1.18, 5.1.23, 5.1.24 and 5.1.26; 8 of Spa Amendment | 1.1 | 8 and 16 |
| j. Warranty and customer | 5.1.8, 5.1.20, and 5.1.28 | 1.1 | 6, 8 and 16 |
| service requirements | |||
| k. Territorial development | Not applicable | Not applicable | 12 |
| and sales quotas | |||
| l. Ongoing product/service | 1, 5.1.3 and 5.1.6; 3 of | 2.1 | 6 and 8 |
| purchases | Spa Amendment | ||
| m. Maintenance, appearance and remodeling requirements | 5.1.4 and 6.6; 3 of Spa Amendment | 2.1; Order Doc 2, 4.2; Schedule A, B-2 | 8 and 11 |
| n. Insurance | 5.1.22 | 1.1; Schedule B-1 | 6 and 7 |
| o. Advertising | 5.1.7, 5.1.13, 5.1.19 and 5.1.20; Addendum; 6(c) of Spa Amendment | 1.1 | 6 and 11 |
| p. Indemnification | 1 and 14; Guaranty | 1.1, 5.4 | 6 |
| q. Owner's participation / | 1, 4.3, 5.1.25, 5.1.27, 7.1 | Not applicable | 15 |
| management / staffing | and 15.1; Addendum | ||
| r. Records and reports | 10.1 and 10.2; Addendum; Guaranty | 1.1; Article 3 | Not applicable |
| s. Inspections and audits | 4.5 and 10.3; Addendum | 1.1; Article 3 | 6 and 8 |
| t. Transfer | 1 and 12; 8 of Spa Amendment | 2.1 | 17 |
| u. Renewal | Not applicable | Not applicable | 17 |
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, Item 3 discusses litigation, and Item 9 outlines the franchisee's obligations. Specifically, Item 3 includes details of legal actions involving Hilton Franchise Holding LLC, such as breach of contract claims and antitrust litigation. These actions can relate to a franchisee's obligations because one lawsuit, AAAA Property Partners LLC v. Hilton Franchise Holding LLC, arose from the termination of a franchise agreement due to the franchisee's alleged material breaches, including payment defaults. This highlights the importance of fulfilling the obligations detailed in Item 9 to avoid similar legal issues.
Item 9 provides a table that summarizes the franchisee's principal obligations under the Franchise Agreement, referencing specific sections within the agreement and other relevant items in the disclosure document. These obligations range from payment of fees and compliance with standards to adherence to trademark regulations and maintenance requirements. The table cross-references the sections of the franchise agreement that detail these obligations, as well as corresponding sections in the HITS (Hilton Inventory Tracking System) Agreement and relevant items in the disclosure document.
Several lawsuits mentioned in Item 3 relate directly to a franchisee's failure to meet their contractual obligations, as defined in the franchise agreement and detailed in Item 9. For example, the case Hilton Franchise Holding LLC v. Portland Hotel Ownership, et al., involved a breach of contract claim due to the early termination of a franchise agreement. Similarly, San Pedro Inn, LP v. Hilton Franchise Holding LLC arose from the termination of a Hampton hotel franchise for failure to cure a material breach of the franchise agreement. These cases underscore the potential legal ramifications for Embassy Suites franchisees who do not adhere to the obligations outlined in Item 9, which include maintaining standards, making required payments, and complying with brand requirements.
Therefore, a prospective Embassy Suites franchisee should carefully review both Item 3 and Item 9 to understand the types of legal disputes that can arise from breaches of the franchise agreement and to fully grasp their obligations under the agreement. Understanding these obligations and ensuring compliance is crucial for avoiding potential litigation and maintaining a successful franchise operation.