Franchisee Sues InterContinental Hotels Group, Alleging Abuse and Manipulation

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InterContinental Hotels Group (IHG) is taking advantage of its franchisees for its own profit, particularly those of Indian and South Asian descent, a new class action lawsuit alleges.

Plaintiff Aaron Hotel Group, LLC, a franchisee of one of IHG’s Holiday Inns in Connecticut, filed the class action against Holiday Hospitality Franchising (HHF), IHG and IHG Owners Association, Inc. Thursday in a Connecticut federal court.

The class action says IHG —  the world’s largest hotel company by room count — owns HHF which offers and sells Holiday Inn brand franchises. 

However, it alleges the companies have been engaging in “unlawful, abusive, fraudulent, anticompetitive and unconscionable practices” designed solely to benefit and enrich their shareholders at the expense of franchisees. 

At the heart of the companies’ “unlawful scheme”, according to the class action lawsuit, is a requirement that its franchisees use certain mandated vendors and suppliers for the purchase of goods and services necessary to run their hotels. 

The companies force franchisees to exclusively use certain vendors and suppliers that cost well above-market procurement costs under the guise of a required “onerous and exorbitant Property Improvement Plan,” the claim states.

Under the guise of improving the franchisees’ hotels to maintain “brand standards,” the class action alleges, IHG and HHF force their franchisees to frequently undertake expensive renovations, remodeling and construction as part of the plan.

“IHG/HHF’s sole purpose is to maximize its kickbacks and unjustifiably run up costs on their franchisees in bad-faith,” the class action says.

According to the class action, the companies claim they are getting their franchisees good deals on suppliers through group bargaining. In fact, their primary goal is to secure the largest possible kickback for themselves, which vendors finance through the above-market rates charged to franchisees in collusion with IHG and HHF, the claim alleges.

“Furthermore, the above-market priced products which IHG/HHF forces franchisees to purchase through the IHG Marketplace and related programs are frequently of inferior quality, and certainly so when the ‘quality’ of these cost-inflated goods and services are considered.”

“Upon information and good faith belief, IHG/HHF have each netted tens of millions of ill-gotten dollars from this fraudulent kickback scheme.”

The class action says many HHF franchisees are individuals or single member LLCs who are either immigrants or second-generation Americans of Indian or other South Asian origin. 

The hotel franchise industry allegedly holds particular appeal for these franchisees by providing traditional family business ownership opportunities which they can build through diligence, dedication and hard work, the claim states.

However, the class action also claims IHG and HHF routinely discriminate, demean, and are both explicitly and implicitly hostile and bigoted towards Indian-American and South Asian- American franchisees. 

The class action lawsuit is suing for violations of the Connecticut Unfair Trade Practices Act, breach of contract, breach of fiduciary duty, declaratory judgment, and for violations of the Sherman Act.

It is seeking to represent all United States residents that operate or have operated a Holiday Hospitality Franchising hotel in Connecticut from Jan. 1, 2014. It is seeking certification of the class, fees, costs, damages, a jury trial and an injunction.

Meanwhile, last year, InterContinental filed a $1.55 million class action settlement in relation to various data breaches. The plaintiffs claimed the data breaches were a direct result of IHG’s inability to protect consumer data. 

What do you think of InterContinental’s alleged treatment of franchisees? Let us know in the comments! 

The plaintiff is represented by Justin E. Proper of White And Williams, LLP and Andrew P. Bleiman, Mark Fishbein and Justin M. Klein or Marks & Klein, LLP.

The InterContinental Hotels Group Franchisee Class Action Lawsuit is Aaron Hotel Group, LLC, et al., v. Holiday Hospitality Franchising, LLC et al., Case No. 3:21-cv-00727, in the U.S District Court District of Connecticut.

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