The Wall Street Journal-20080201-Jury Votes Against Ritz in Bali Case
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Jury Votes Against Ritz in Bali Case
Full Text (533 words)In a sign of the increasingly complicated landscape for luxury hotels, a Maryland jury last week found luxury-hotel operator Ritz- Carlton violated its contract with the owner of a hotel in Bali and awarded the owner $10 million in punitive damages.
Like most hotel companies, Marriott International Inc.'s Ritz- Carlton is primarily in the business of operating hotels on behalf of hotel owners. The owners pay Ritz-Carlton fees to brand and manage their properties.
As part of an agreement with Karang Mas Sejahtera, a privately held real-estate company that contracted with Ritz-Carlton to manage its resort in Bali, Indonesia, Ritz-Carlton agreed that it wouldn't open a competing property in proximity to the KMS property, the Ritz-Carlton Bali Resort & Spa, without its prior approval.
In 2006, in partnership with the Italian jeweler Bulgari SpA, Ritz- Carlton opened the Bulgari Hotel & Resort, Bali, about three miles from the Ritz-Carlton. KMS lawyers argued that the Bulgari Resort & Hotel benefited from the use of the Ritz-Carlton name in marketing and promotion and was in violation of Ritz-Carlton's contract with their client.
A spokeswoman for Ritz-Carlton said the company doesn't comment on matters of litigation.
The verdict, in U.S. District Court for the District of Maryland, Southern Division, gives KMS the right to terminate its contract with Ritz-Carlton. But KMS lawyer, Bill Brewer, said his client hasn't decided whether it will part with Ritz.
The jury also awarded the plaintiff $382,304 in compensatory, or actual, damages. The majority of KMS is owned by managing partner Rudy Suliawan.
"My client believed when he financed the development of the Ritz brand in Bali that he was there with someone who actually had his best interests in mind," Mr. Brewer said. But not long after KMS added luxury villas to the Bali Ritz-Carlton, "here comes Ritz announcing they are going to build 59 villas just up the beach from us and call it a Bulgari."
The case, which has been closely watched in the industry, comes as large conglomerate hotel companies are launching more luxury brands, at times with partners from the world of fashion and retail. In a hotel landscape increasingly cluttered with brands, managing relationships with hotel owners -- already fraught with tensions over fees, renovation costs and competition -- could become trickier after this week's verdict.
The verdict "could potentially cause significant troubles for the hotel-brand companies if plaintiffs can prove these new hotel brands are substantially the same as other hotel brands," said Robert LaFleur, a lodging analyst at Susquehanna Financial Group.
"One of the ways hotel companies have continued to expand is through brand extensions," said Mr. LaFleur. "They'd either modify an existing brand or come up with a new brand, and that would be seen as a way to get around territorial restrictions that franchisees or hotel owners have."
Hotelier Barry Sternlicht, founder and former chief executive of Starwood Hotels & Resorts Worldwide Inc., last year announced the launch of a luxury hotel brand named after French crystal maker Baccarat SA. Global Hyatt Corp. recently announced a new luxury brand called Andaz. And Hilton Hotels Corp. is building a luxury brand around New York's famed Waldorf-Astoria hotel called the Waldorf- Astoria Collection.
