The owner of a Comfort Suites franchise in Texarkana, Texas, is suing Choice Hotels for alleged breach of contract and fraud.
A complaint filed Thursday in Bowie County district court alleges Choice violated its franchise agreement with Onkar Lodging Inc., which operates a Comfort Suites at 215 Richill Drive, when it granted a franchise for a Comfort Suites at 5420 Crossroads Parkway in Texarkana, Ark. Onkar Lodging, Harbhajan Nahal and Maljinder Singh filed the complaint with the help of Irving, Texas, lawyer Jules Slim and Texarkana lawyer David Carter.
Onkar claims the franchise agreement it entered with Choice in 2005 provides for an "area of enhanced protection" in which Choice will not grant a franchise for a same-brand hotel that would compete for business. Should Choice decide to consider granting a same-brand franchise in the area, then it must pay for a study to determine the effect a second same-brand hotel would have on the first, according to the complaint. If the economic impact to the first hotel would be less than 5 percent, Choice would be free to grant the second franchise.
Onkar alleges such a study was never done and objected when notified of plans to erect a second Comfort Suites in the Twin Cities; it was ultimately built and opened for business in 2013 in Texarkana, Ark. Onkar claims the second, same-brand hotel has hurt it financially and is asking for damages in excess of $1 million.
Onkar's franchise agreement requires that disputes be settled through arbitration in Maryland. Onkar alleges a three-day arbitration started June 7 and managed by the American Arbitration Association was a "sham." The complaint alleges "the fix was in" as Choice kept the association "flush with repeat business so long as the rulings were resolved in Choice's favor." The complaint alleges the association consistently and nearly without exception rules in Choice's favor in violation of both state law and the franchise contract.
"Like Onkar, at least 200 other victims lie devastated, confused and financially exhausted by the historic and continuing maleficence of Choice and the AAA," the complaint states.
Onkar claims arbitrations are "extremely expensive and extremely lucrative" for the association and for the individual arbitrators especially, since the proceedings must be held at Choice headquarters.
"That means that any litigant, most likely a franchisee with limited financial means, must travel to Maryland, provide for accommodations for all representatives and witnesses and must pay the arbitrators market hourly fees in addition to its own attorney's fees and experts," the complaint states. "The costs are considerably higher than if the arbitration or trial would occur in the actual state or county where the breach occurred."
Onkar alleges it was fraudulently induced into participating in an arbitration, which it had no chance of winning, that was meant to protect Choice while allowing the association and its arbitrators to enjoy the spoils. The association allegedly demanded payments in excess of $15,000 "before anyone even did any work." Onkar alleges Choice handpicked which arbitrators would preside over conflicts with its franchisees so that it would be guaranteed a favorable ruling.
Onkar accuses Choice of breach of contract and fraud.
"Such fraud was intentional and malicious, thereby justifying an award of punitive damages in the maximum amount allowed by law," the complaint states.
Onkar is seeking damages for lost income and a reduction in the value of its business allegedly caused by the competing same-brand hotel, as well as attorney fees and court costs. It also asks for a trial before a Texas jury.
"It is absolutely impossible for Onkar to get a fair and impartial hearing in arbitration against Choice, especially in Maryland, the mandatory venue, where merely a handful of arbitrators seem to be available to reap the benefits of Choice Hotel's repeat business," the complaint states.
Choice has not filed a response to Onkar's complaint. The corporation grants hotel franchises under the brands Comfort Inn and Suites, Comfort Suites, Sleep Inn, Quality, Clarion, Mainstay Suites, Suburban, Econo Lodge and Roadway Inn and claims to operate over 6,500 hotels globally, according to its website.
The case is assigned to 202nd District Judge John Tidwell.