A series of recent court cases have given hotel owners the power (although not necessarily the right) to terminate hotel management contracts, with or without cause. The courts have also affirmed the existence of a principal-agent relationship in hotel management contracts. Future court decisions involving hotel management contracts will apply traditional agency law, and will impose a fiduciary duty on the hotel operator as set out in the Restatement (Second) of Agency (1958). In one case recently, a jury awarded $57 million to the hotel owner because the hotel operator did not disclose hidden profits and kickbacks and breached its fiduciary duties.
2660 Woodley Road Associates, Inc., John Hancock Mutual Life Insurance Company and Sumitomo Life Realty, Inc. v. ITT Sheraton Corporation and Sheraton Operating Corporation, U.S. District Court for the District of Delaware, Civil Action No. 97-450 JJF, 1998 U.S. Dist. LEXIS 22825, and 1999 U.S. Dist. LEXIS 21545.
2.
Dent, J. (1998). Hospitality litigation news. Los Angeles: Tuttle and Taylor.
3.
Dent, J. (2000). Hospitality litigation news. Los Angeles: Tuttle and Taylor.
4.
Eyster, J. (1997). Hotel management contracts in the U.S.: Twelve areas of concern. Cornell Hotel and Restaurant Administration Quarterly, 38(3), 21-33.
5.
Government Guarantee Fund of the Republic Finland v. Hyatt, 95 F.3d 291 (3rd cir. 1996).
6.
Government Guarantee Fund of the Republic Finland v. Hyatt, 5 F. Supp. 2d 324 (D. Virgin Islands 1998).
Restatement (Second) of Agency. (1958). St. Paul, MN: The American Law Institute.
9.
Shindler, M. (1997). The principle of the principal. Cornell Hotel and Restaurant Administration Quarterly, 38(4), 22-27.
10.
Shindler, M. (1998). The precedents and the principle: An update on hotel management agreements and the laws of agency. Cornell Hotel and Restaurant Administration Quarterly, 39(3), 9-12.
11.
Wilson, R. (1999). Hotel management contracts: Breach of contract, termination, and damages. Journal of Hospitality Financial Management, 7(1), 43-57.
12.
Wooley v. Embassy Suites, 227 Cal. App. 3d 1520, 278 Cal Rptr. 719 (1991).
