The International Network of Hospitality Consulting Professionals

Litigation Support Services

Cayuga Consultants know that avoiding litigation is almost always the best route to preventing unexpected outcomes which include:

  • Reducing costs of disputes
  • Avoiding potential proprietary information being exposed to the public
  • Limiting the time and disruption of lengthy court proceedings
  • And when possible retaining valuable relationships between the parties.

Our Consulting members include professional attorneys with hotel industry expertise, arbitrators and certified mediation experts. We also have among our consulting membership persons who are well-suited to make expert determination for parties who simply need to submit a technical matter for the third party for a determination that will avert litigation.

How Litigation Works

Litigation (civil, as opposed to criminal) commences with the ‘plaintiff’ filing in court, and then serving on (presenting to) the other party, the ‘defendant’, a summons and complaint summoning the other party to respond within a period of time established in the local law (20 or 30 days), and then ultimately to appear before a judge or a judge and jury who will decide the matter. But there is a lot of activity between serving the summons and complaint and the rendering of a decision (by the judge) or verdict (by the jury) – the pretrial discovery phase, about which more is said below.

The threshold question in litigation is the jurisdiction of the court. ‘Jurisdiction’ essentially means that the court has legal power over the defendant and the subject matter to decide the matter in question. In the case of a dispute involving a hotel, the obvious place for the lawsuit is a court in the same location as the hotel.

But even then, there are choices of courts in any one location – typically a municipal court, a county court, a state court and a federal district court – so the appropriate court must be chosen.

Where there is more than one court with jurisdiction, then the venue (the physical location of the court) must be chosen. This may be decided by considerations such as convenience of the location, availability of a judge perceived as friendly to your case or a faster calendar.

In addition to the jurisdiction and venue questions, the choice of governing law must be decided. While a court will, as a rule, apply the law of the state where the court is located (even a federal court will apply the state law, unless the matter in dispute is specifically a matter of federal law), the parties may provide that the agreement and disputes arising thereunder are governed by the law of another state.

When it has been served with the summons and complaint, the defendant has several opportunities available to get out of the lawsuit before becoming entangled deeply in the process. In its answer, the defendant will assert defenses and even counterclaims. It may also make a motion to dismiss the case before a trial because the plaintiff has failed to state a ‘cause of action’ in its complaint or the court lacks jurisdiction over the defendant. Or, lastly, the defendant may argue that the matter has been previously decided in a prior lawsuit (i.e., ‘res adjudicata’).

If these fail and the case goes forward, the pretrial discovery process that involves the production of documents, depositions of witnesses and exchange of legal briefs will commence in earnest. And when concluded, a trial date will be set. The trial will be conducted before a judge (decides questions of law) and jury (decides questions of fact) unless both parties waive a trial by jury. The trial may last just hours or months (or years as in the fictional, but not entirely so, case of Jarndyce v. Jarndyce in Charles Dickins’s “Bleak House”).

Advantages of Litigation

  • The court system is state or federally funded and, unlike arbitration, the parties do not have to pay the judge, jury or recorder; court costs assessed against the parties are relatively modest.
  • The case will be managed and heard by a professional judge.
  • The court can provide for the enforcement of its own decision that becomes an order, by various means.
  • The court has ‘equitable’ as well as ‘legal’ powers whereby it can impose mandatory orders (injunctions) to do or refrain from doing certain acts, such as ordering an owner to refrain from interfering with a management company’s exclusive right to supervise hotel employees.
  • The formality of the proceeding enhances the deliberateness and articulation of the legal arguments.
  • The threat of litigation induces the parties to seek a compromise solution before heading to the courthouse.
  • Jury trial may be waived (by agreement of both parties), leaving the judge to decide all matters – that is, questions of law and factual matters.
  • The decision has precedential value to other potential litigants; it becomes part of the common law of the jurisdiction where the court is located, which is good from the perspective of the winning party.

Disadvantages of Litigation

  • The expense for legal counsel to comply with judicial formality of the pleadings and other court procedures may outweigh the benefit of having a judge and jury that is paid for by the tax payers.
  • The professional judge and the jurors may lack any expertise about the hotel industry and industry standards.
  • Quality of the judges, particularly in the lower state courts, may vary and ‘luck of the draw’ plays a part.
  • Cases get limited attention in short intervals while the courts manage a heavy workload, and this may affect quality and prolong the process.
  • Each party must pay its own legal expenses (except in very rare cases) so the party with deeper pockets may outlast the other party that eventually is forced into submission – that is, a settlement.
  • A judgment-proof party may lose, but the winning party never collects a judgment.
  • The decision is not final but is subject to appeal to the same or a higher court.
  • The decision has precedential value to other potential litigants; it becomes part of the common law of the jurisdiction where the court is located, which is bad from the perspective of the losing party.
  • The process of litigation, particularly the pretrial discovery, can cause major disruption to a business that must meet the requirements for document production and witness depositions.
  • The public nature of a trial may mean that sensitive information is revealed, such as trade secrets, and a company’s reputation, inner workings or even ‘dirty laundry’, may be put under a bright light for public scrutiny.
  • There is likely to be very little hope of salvaging the business relationship between adverse parties in litigation.
  • The entire proceeding can cause emotional distress on the persons involved in litigation where the formality, strict rules, and potential for perjury is ever present.

Given the very onerous disadvantage of litigation, the party commencing a lawsuit must carefully weigh the merits of the case without letting emotion color the evaluation and the costs involved, financial or otherwise, before embarking down the litigation path from which it may be difficult to extricate oneself later. Many litigants who initiate lawsuits, after months of pretrial discovery and mounting legal costs, then seek a settlement on terms that might well have been available without the lawsuit.

Types of Hotel Industry Disputes Suitable for Litigation

As with arbitration, litigation can involve many different types of disputes in the hotel industry, but the following are typical of disputes involving a degree of ‘severity’ for which litigation (or arbitration) is suitable as an alternative to expert determination.

  • The scope and validity of a significant agreement
  • Claims of wrongful termination of a significant agreement
  • Owner claims of mismanagement by the management company
  • Owner-contractor disputes regarding the construction of a new hotel
  • Interpretation of collective bargaining agreements
  • Franchisor claims that the hotel fails to comply with mandated standards

Sample Litigation Clause for Inclusion in a Contract

Resolution by Judicial Proceeding. Except as provided in Section __ wherein certain matters are to be resolved by Expert determination, all disagreements and disputes arising under this Agreement may be resolved by judicial proceedings, for which purpose each party hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court of competent jurisdiction sitting in the County of New York, and each party hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court, or to the extent permitted by law, in such Federal court. Each party hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding in such court and such court may order the remedy of specific performance for anticipatory or actual breach or attempted or actual termination of this Agreement.

Case Illustration

Owner claims that Management Company has mismanaged the hotel for the past X years resulting in losses to Owner of $Y. Moreover, the Management Company has failed the performance test. Owner has terminated the management agreement based on the alleged mismanagement and the performance test failure, and seeks $Y from Management Company as damages.

Manager claims that Owner has refused to make required capital expenditures to comply with brand standards and has repeatedly interfered with Management Company’s right to exclusive operational control by issuing its orders to hotel personnel. It seeks $Z for damages resulting from wrongful termination, recognizing that under the ‘agency theory’ overlaying management contracts, Management Company cannot be reinstated, so the court is not likely to issue an injunction ordering that the Management Company be reinstated pending determination.

This matter is well-suited for a judicial determination (or arbitration).

Need to Speak to Someone?

Expert Witness & Legal Advisory

Cayuga consultant’s knowledge of industry standards and trends, make them uniquely qualified to provide litigation support, and provide expert testimony in a variety of situations.

Contract Review & Negotiations

Cayuga’s consultants have experience as owners, operators and legal advisors and are uniquely qualified to guide in the complexities of contractual processes.

Dispute Resolution & Mediation

Cayuga’s consultants, with their keen understanding of the industry are expert in helping to find successful resolution to hospitality related controversies.

Expert Determination

Cayuga’s consultants are knowledgeable of a vast number of very narrow areas of expertise allowing them to be ideal Expert Determiners when required in dispute resolution.

Risk Management & Insurance

Cayuga Hospitality Consultants include attorneys with specific experience in the hospitality industry, dispute resolution experts, engineering and facilities management professionals, and insurance specialists to ensure developers, owners and operators have the necessary support through the development process.

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