Indian hoteliers test clout in lawsuits against big chains

·5-min read
Indian Hotel Owners-Franchise Suits (Copyright 2021 The Associated Press. All rights reserved.)
Indian Hotel Owners-Franchise Suits (Copyright 2021 The Associated Press. All rights reserved.)

Hotel owner Vimal Patel has traced a familiar path to success in the U.S. hospitality industry.

Patel is part of the Indian diaspora, which owns a sizeable share of the hotels and motels in the country. Like others in the community, his start in the business was humble. He worked the front desk of a hotel owned by relatives, building his knowledge before eventually investing with them in multiple franchises.

Now he’s spearheading a legal fight that reflects the growing clout and confidence of Indian Americans in the hospitality sector — and the toll of the coronavirus pandemic on their businesses.

Patel and scores of other Indian owners have filed lawsuits in federal court accusing two of the biggest hotel chains in the world of gouging them with fees, penalties and overpriced products. The excesses by Choice Hotels International, the company behind the Comfort Inn brand, and Holiday Inn franchiser Intercontinental Hotels Group reached a tipping point during the pandemic when the hospitality industry experienced a steep drop in business, the franchisees say.

The claims echo those made by franchisees in other industries. But the suits against IHG and Choice also claim the companies discriminate against Indian American owners, and Indian hoteliers have cast them as a racial struggle. Some, unironically, have likened the fight against United Kingdom-based IHG to India’s campaign against British rule.

Indians still have this mentality. We’re still afraid to stand up regardless of how powerful you are, how well off you are,” said Patel, 51. “Why should we be scared of these larger corporations?”

Patel’s lawsuit filed in May in U.S. district court in New Orleans was the first of at least five suits against IHG that are being coordinated by two law firms and seek to represent a larger group of franchisees as a class action.

IHG spokesman Jacob Hawkins said in a statement that the company is committed to treating its hotel owners fairly and does not believe the claims have merit.

Choice “has always had a strong commitment to the success of its franchisees,” the company said in a statement.

Entrepreneurs from the western Indian state of Gujarat — particularly those with the last name Patel — found their niche in the motel business in the 1960s and ’70s. They bought motels in far-flung places and often lived on site. Some moved on to start management firms with stakes in multiple properties, including big city hotels. The 20,000 members of the Asian American Hotel Owners Association — nearly all of whom are of Indian descent — own more than half the hotels in the country, according to AAHOA.

“If there weren’t Patels entering the industry, taking the risk to improve it and expand it, then you wouldn’t have as prolific of an industry as we have today,” said Pawan Dhingra, author of “Life Behind the Lobby: Indian American Motel Owners and the American Dream.”

Patel’s introduction to the hospitality business began immediately after he arrived in the U.S. in 1991. His cousin owned a motel outside New Orleans, and he lived with him there while working at a donut shop and a McDonald’s. Today, he and two relatives have their own company, QHotels Management, which owns nine hotels in Louisiana — four of them IHG properties — and manages two other properties in Texas.

“If we don’t stand up, what are we teaching our next generation?” he asked during a recent phone interview.

His suit and the suit against Choice, which was filed by more than 90 franchisees last year, accuse the companies of receiving kickbacks from required vendors that charge franchisees higher prices for linens, utensils and other products.

That allegation strikes at a “cardinal rule” of franchising, said Joel Libava, a franchise consultant who blogs about the industry at thefranchiseking.com. In exchange for paying royalties and fees for the brand name, franchise owners should expect the franchise company to use its buying power to get them discounts on products and services.

“If that is not true and if you’re paying pretty much what the independent is paying, then why are you in a franchise?” Libava asked.

During the pandemic, Rich Gandhi said Choice made him buy its branded hand sanitizer though he had already secured a cheaper supply for his Quality Inn in Middletown, New Jersey. The company has penalized him for using a different internet provider and piled on fees for services such as credit card processing and cybersecurity that were not in his original agreement, he said — all after his family spent $3.5 million buying and renovating the property.

“It’s extortion, blackmail,” said Gandhi, 39, one of the plaintiffs in the Choice suit. “They are basically cutting up the hen that is laying the golden egg for short-term gain.”

Hawkins said IHG helped franchisees through the pandemic by relaxing standards, discounting fees and improving terms with suppliers. Choice suspended some fees and allowed owners to defer others, according to an April 2020 news release.

The suits also accuse Choice and IHG executives of routinely making racially derogatory comments about Indian American franchisees, though they don’t provide examples of any remarks.

Both companies enforce their standards more strictly against Indian Americans, the suits allege. Choice provides more financing to white owners and has largely spared them from a rule forbidding two-story properties from carrying the Comfort Inn brand, the Choice suit says.

Choice said in its statement it does not tolerate any form of discrimination and is “regularly recognized for its long-standing and deep commitment to diversity, equity and inclusion.” Hawkins said IHG values the diversity of its franchisees and does not make decisions based on their ethnicity or national origin.

In a victory for Choice, a judge in Pennsylvania in March ordered the franchise owners in that suit to arbitrate their claims individually with the company.

Gandhi said he will fight on.

“There’s nothing to lose now,” he said. “With COVID, we’ve been in such bad shape, it kind of emboldened us even more to go after these guys because you’re like, ‘We’ve seen the worst.’”

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