O8A.ORG
DISCLAIMER: The opinions and comments of individual franchisees expressed herein are solely the opinions of those individual franchisees and do not necessarily state or reflect the opinions of the Owners 8 Association or its attorneys. The information in this website is the sole property of the Owners 8 Association and any duplication or reprint cannot be made without the express written consent of Owners 8 Association.
SOUIX FALLS, SD – Last Wednesday District Judge Lawrence L. Piersol ruled that Wyndham Worldwide, parent to Super 8 Motels, Inc., breached its contract with 160 franchisees when it set an unauthorized mandatory fee of five percent on gross room sales in 2003.The lawsuit was certified as a class action in October 2007 after Bird Hotel Corp., a Super 8 operator out of Winnipeg, Manitoba, challenged the chain’s TripRewards program, claiming the new fee was not part of their contracts. Although Wyndham had filed an appeal of the 2007 decision in the 8th US Circuit Court of Appeals, its was denied.
Regarding last weeks ruling, Scott Abdallah of Johnson, Heidepriem & Abdallah, one of the attorneys representing the franchisee plaintiffs said, “Our clients are obviously very pleased with the judge’s recent decision. We had argued that this was a straightforward breach of contract and the court agreed.” His partner Ronald Parsons, Jr. presented the arguments at the hearing in favor of their motion for summary judgment and against Super 8’s argument. The judge ruled that the amount of damages that Wyndham must pay to the franchise owners will be decided by a 12-person jury. Franchise owners are seeking the money they paid into the customer-incentive program which amounts to approximately $3.5 million plus pre-judgment interest. Although a trial date has been set for April 13, 2010, Judge Piersol has ordered the parties to mediation on March 15.
Wyndham touts its TripRewards lodging loyalty program as the world’s largest with 5.2 million active members which drives 26 percent of room sales. Today Wyndham has more than 7,000 hotels in 66 countries. Super 8, one of the largest chains of budget motels in the world, was started in Aberdeen, South Dakota in 1974, and has over 2,000 motels in North America. Super 8 does not have a CEO or board of directors nor does it have any assets. Its president reports directly to the CEO of Wyndham. Will this decision have any implication on other Wyndham franchisees or other hotel chains franchise owners?
Abdallah explained, “Our class action involves a relatively small class of Super 8 franchisees still governed by an original South Dakota standard franchise agreement that does not allow for some of the changes that are made within the industry today. As a result, it is hard to say what type of wide-ranging impact this decision will have on other franchisees.” According to the franchisees’ brief in support of summary judgment filed last October, Bird Hotel Corp. and other plaintiff franchisees had franchise agreements that were executed between 1984 to 1991 and were for a 20-year term. All were required to pay a four percent royalty fee and two percent advertising fee on gross room sales on a monthly basis. The brief states, “The franchise agreements authorize the imposition of no other recurring fees during their term of twenty years.”
A Souix Falls Business Journal article stated that Judge Piersol told the attorneys at the hearing, “You should be able, I’d think, to mediate it out. If not, I’ll see you the 13th of April.” Wyndham attorneys argued that the company didn’t breach its contract when it instituted the mandatory fee for the customer-rewards program. They stated that franchisees are required to do a number of things, such as provide breakfast, replace carpeting and make improvements. They insist that part of being a franchisee is to pay a fee for a rewards program. They also argued that there should be no award for damages because they have benefited by the TripRewards program through increased numbers of customers. Lead attorney for Wyndham defendants Edward Spalty of Armstrong Teasdale declined to make comment. Wyndham Worldwide’s media relations did not return telephone calls or emails prior to publishing.
October 22, 2009
The case is still being heard and appears to be coming to a conclusion however it has not concluded yet.
Please read the following conclusion paragraph from the
PLANTIFF'S BRIEF IN SUPPORT OF SUMMARY JUDGEMENT:
The sole legal question in this action is: Did Super 8 Motels, Inc. breach the class members’ franchise agreements by unilaterally requiring and extracting an additional, unauthorized recurring monthly fee? Once this Court construes the standard agreement at issue according to
The defendant cannot unilaterally decide to start charging a franchisee more than the contract between them permits, any more than a franchisee could unilaterally decide to start paying less than the contract requires. Rather, any such change to contractual terms must be negotiated and mutually agreed upon. The defendant’s imposition of an additional five percent fee for all gross room sales for customers enrolled with its mandatory TripRewards program, amounting to $3,418,112.34 in unauthorized fees extracted from the class members through the end of June 2009, violates their franchise agreements as construed under South Dakota law.
WHEREFORE, the class members respectfully request that this Honorable Court grant their motion for summary judgment on their breach of contract claim, and enter judgment against the defendant in the amount of $3,418,112.34, plus any additional TripRewards fees paid by the class members between June 2009 and the date that final judgment is entered, as well as prejudgment interest on the entire amount.
Download Plantiff's Brief in Support of Summary Judgement
Other Case/Issue Links:
http://www.wyndsham.com
http://rciclassactionlawsuit.com/
http://sec.edgar-online.com/wyndham-worldwide-corp/10-k-annual-report/2007/03/07/Section5.aspx
10/6/08
Copy of email sent from the firm Johnson, Heidepriem, Janklow, Abdallah & Johnson, LLP that represents Bird Hotel Corporation and the Super 8 franchisees in the Class Action.
This letter follows our telephone conversation last week regarding the recent update in our pending class action against Super 8. I have attached the recent Order that we received from the Court approving our Class Notice. Attachment #1 is the Notice that will be sent to potential class members in the next few weeks. All potential class members will be part of the class action unless they choose to “opt out.” Attachment #2 is the opt out document that allows potential class members to opt out of the class action (if they so desire).
As you know, our class action involves only 226 franchisees who entered into contracts from approximately 1984 to 1991. I have attached two lists which identify the class members by their franchise name, contact person, address, telephone number, etc. We would welcome any updated contact information from your association so that we can be sure to send the Class Notice to the right person at the right address. In the past, we have received a number of calls from franchisees asking to be part of our class action. Unfortunately, if a franchisee is not listed as one of the 226 potential class members, there are not permitted to be part of this South Dakota class action case. Mr. Paul Kostas of Bird Hotel Corporation, a Super 8 Motel owner from Canada has started a class action lawsuit on behalf of Super 8 Motel franchisees with franchise agreements dated before 1993. The case began last year and since that point they have won the first few hurdles. The court ruled in the favor of Bird Hotel allowing him and his attorneys to represent 226 Super 8 franchisees, who had signed the franchise agreements with the old Super 8 corportaion and have not signed any addendum regarding Trip Rewards. The case alleges that Super 8 is illegally charging an additional 5% Royalty to these franchisees and seeks to recover all previous payments. The attorneys representing Bird Hotel Corporation is Johnson, Heidepriem, Janklow, Abdallah & Johnson, L.L.P of Souix Falls, SD. The GP Memorandum Here are some of the most recent legal developments of interest to franchisors: Copied from: Links to files:
If you think that you should have qualified in this case then contact the firm http://www.jhjaj.com/ and they can verify your information against their list of 226 franchisees.
5/1/08
The legal case between Bird Hotel corporation and Wyndham CA continues to push forward.
The firm of Johnson, Heidepriem, Janklow, Abdallah & Johnson, LLP represents the plantiffs in this class action suit against Wyndham. Scott Heidepriem and Ron Parsons will be deposing Super 8 executives (including John Valetta) regarding Trip Rewards on May 29th and 30th in New Jersey . Also, in the near future, they expect that the Court will issue a Notice that will be sent to all 225 class members telling them about their rights in the pending class action. Information from our O8A will be discussed during this deposition and other information will be utilized by the attorneys. Their website is http://www.jhjaj.com/
THE ISSUES AND THE CASE
Mr. Kostas has aggressively taken on Wyndham and their unfair and in some cases illegal practices. He attempted to get help from AAHOA, however Fred Schwarz (President of AAHOA) was NOT SUPPORTIVE. In fact, AAHOA totally ignored Mr. Kostas. This case is very important to us as it is the first class action lawsuit against Super 8. I am confident from my communication with his attorneys that they have a very good chance of winning this case. Mr. Kostas should be commended for taking the lead at his own cost with this case. He is fighting for many Super 8 franchisees and many of them are unaware of this fact. The case is to be held in January 2008.
I AM SURE HIS EFFORTS WILL BRING HIM RESULTS AND WE SHOULD BE SUPPORTIVE OF ONE OF OUR FELLOW OWNERS.
COPY OF THE ARTICLE POSTED BY A FRANCHISOR FRIENDLY ASSOCIATION
TO: Our Franchise Clients and Friends
FROM: GRAY PLANT MOOTY FRANCHISE AND DISTRIBUTION
PRACTICE GROUP, Quentin R. Wittrock, Editor of The GPMemorandum
DATE: November 8, 2007 (Issue No. 100)
RE: Legal Update
Two courts agreed last month to certify class action lawsuits against franchisors. In Bird Hotel
Corp. v. Super 8 Motels, Inc., 2007 WL 3046404 (D.S.D. Oct. 16, 2007), a group of Super 8
franchisees sought class certification on their challenge to the franchisor’s requirement that franchisees
pay an additional mandatory fee on gross room sales for guests enrolled in the franchisor’s
TripRewards program. The court agreed to certify that class, finding that the plaintiffs had satisfied
the showing required by the Federal Rules of Civil Procedure. Specifically, the court found that the
226 franchisees that formed the class were sufficiently numerous to pursue a class action suit.
The court also found that the class presented common claims, as the franchisor had required
each of the class members to pay the additional fee at issue. The court found that if the fee was
invalid, then it was invalid as to each class member. The franchisor argued that commonality did not
exist because some franchisees had signed addenda to their franchise agreements barring opposition to
the franchisor’s marketing initiatives. Still other class members had signed amendments that arguably
released the franchisor from liability. The court rejected those arguments, finding that issues related to
individual franchisees’ contracts did not defeat commonality for purposes of the class analysis. The
court found that it could consider those contractual issues later, while still permitting the class to
proceed. Finally, the court concluded that the class representative’s claims were typical of those of
other class members, and that the representative would adequately represent the class.
GRAY PLANT MOOTY FRANCHISE AND DISTRIBUTION PRACTICE GROUP,
Quentin R. Wittrock, Editor of The GPMemorandum
Souix Falls Business Journal Article
Order Granting Class Certification
Judgement on Pleadings
