$44 Million Judgment Against Starwood Beyond Expectation

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I'm not a legal scholar, but I was surprised to see the $44-million judgment against Sheraton Operating Corp., a subsidiary of Starwood Hotel & Resorts Worldwide. In the decision, which can be read here, the New York state Supreme Court judge sided with Castillo Grand LLC, the developer of the St. Regis Ft. Lauderdale and still owner of the rebranded Ritz-Carlton Ft. Lauderdale.

The very brief version of the story, which can be read in full here or here, is Castillo Grand and Starwood bickered through the development and opening of the St. Regis. Four different design teams were involved through the six-year process, and the lack of “a final approved interior design” was the root of the delays and problem, claimed Castillo, according to the judge's decision. Starwood and Sheraton, on the other hand, claimed Castillo's “lack of project management” was the main problem. Eighteen months after opening, Starwood quit as manager in May 2008 and Castillo eventually signed a longer-term deal with Ritz-Carlton.

The judge ultimately ruled in favor of Castillo and awarded damages based on the forced switch and the development delays. It's surprising, to me at least, because far more often you see the developer or owner trying to quit the brand, not the other way around. The brands and managers usually have the airtight contracts making something like this less likely.

It's understandable that a clearly defined design plan is far more challenging to outline and document with luxury brands like St. Regis and Ritz-Carlton. They're far less standardized than chains like Courtyard or Hampton or even Marriott and Westin. Brands like St. Regis and Ritz-Carlton are known for their service, and St. Regis describes its overall brand standard as “Beyond Expectation.” The look of the hotel should also meet that description, but since every property is different, it's much harder to define.

Lessons learned from this? From the manager and brand perspective, it's to make sure those contracts are even more airtight and design quality is more clearly defined. For developers, this is another example of why it's so important to make sure you pick the right dance partner.

It's also interesting to note that we're starting to see more of these legal battles between owner and operator — think back to the Four Seasons Aviara two years ago, and the Waikiki Edition this year, to name two of the highest profile.

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