Franchisor 101: Nothing Personal in Claims Against Hotel Franchisor

Lewitt Hackman

A guest sued the Hampton Inn and Suites franchisee in Nashville, Tennessee and the franchisor’s parent company, Hilton Domestic Operating Co., Inc. (“Hilton”), claiming race discrimination by a hotel employee. The plaintiff sought to hold Hilton liable as the alleged franchisor. A Tennessee federal court dismissed the complaint against Hilton for lack of jurisdiction.

Hilton is a Delaware corporation. It argued it was not the franchisor of Hampton Inn and Suites. The court accepted as true (for analysis) the allegation that Hilton is the franchisor. But the court found the guest did not establish that the alleged franchise relationship provided personal jurisdiction over Hilton.

The guest claimed jurisdiction based on Hilton’s supposed status as franchisor and Hilton’s operation of the website used by the guest to book the hotel stay. The court applied a three-part test to decide personal jurisdiction. The court asked if: (1) the defendant purposefully availed itself of the privilege of acting in the state or causing a consequence in the state; (2) the cause of action arose from the defendant’s activities or contacts in the state; and (3) the defendant’s acts or consequences caused by the defendant were substantial enough connection with the state.

Regarding the first factor, the court noted that entering into a franchise agreement may support “purposeful availment” for claims arising directly out of the franchise agreement. Operation of a website likewise can be purposeful availment. But, a defendant’s purposeful availment, alone, is not a basis for jurisdiction absent a “nexus” or sufficient link between that purposeful availment and the underlying lawsuit.

Hilton argued that any contacts in the state were too attenuated from the employee’s alleged discrimination against the guest. The court agreed and rejected the guest’s argument that by allowing the hotel to operate under a Hilton brand and be booked through the Hilton Honors website, Hilton held the other defendants out as agents. The court explained that the guest’s argument would make every franchisor-franchisee relationship an agency relationship, but that “is not how franchising works.”

In dismissing Hilton, the court concluded that the “mere existence of a franchise relationship is insufficient to establish actual or apparent agency.” The guest failed to allege facts that suggest an agency relationship. The guest did not allege Hilton had enough control over franchisees or that Hilton did anything that would give the guest that impression. Franchisors can be liable for a franchisee’s conduct if an agency relationship exists. A franchise relationship should be structured to make sure it does not give rise to an agency relationship. To prevent actual or apparent agency, franchisors must be aware of the level of control exerted over their franchisees to avoid actual agency and not take action that would give others the “impression” of an apparent agency relationship.

Willock v. Hilton Domestic Operating Co., ---- F.Supp.3d ---- [No. 3:20-CV-00042, 2020 WL 4207651] (M.D. Tenn. July 22, 2020)

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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