The Israel Hotel Investment Summit: Take Five!

Posted in Boutique Properties, Brand Management, Firm News, Hotels, Investment

On Nov. 20-21, 2019, Greenberg Traurig participated in and sponsored the Israel Hotel Investment Summit in Tel Aviv, Israel. Washington, D.C. office Shareholder and Hospitality Practice Co-Chair Nelson Migdal joined a panel, together with representatives of leading international hotel brands, on the benefits of international brand penetration into the Israel hotel market, as well as legal structuring and operational models for hotels in Israel. Attended by more than 200 professionals from Europe, the United States, and Israel, the conference demonstrated Israel’s status as a major international hospitality destination. Tel Aviv office Managing Shareholder Joey Shabot (M&A), Shareholder Lawrence Sternthal (Real Estate), and Associate Saar Warner-Lipton (Real Estate) also attended the summit.

Here are the top five highlights:

  1. Since 2013, Israel’s hospitality industry has grown from 2 million tourists to 4.5 million tourists!
  2. The distinguished attendees and panelists from around the world highlighted the summit’s multinational appeal and focus.
  3. Israel’s leading hotel developers were well-represented.
  4. The optimism of the hospitality market attracted many non-traditionalists and first-timers to the event. Potential owners, developers, and investors saw the summit as their initial foray into hospitality.
  5. The dynamism of the hospitality market brought out a large number of young faces interested in getting involved, investing in Israel, and breaking into the market to take advantage of the hospitality space, which they saw as a solid business opportunity.

Thank you, International Hotel Investment Forum organizers, for all your efforts in making this event successful! And thanks to all who met with us at The Israel Hotel Investment Summit in Tel Aviv.

See you next year!The Israel Hotel Investment Summit 2019

Trump Administration Cracks Open Door to Private Law Suits Against Cuba with Partial Libertad Act Title III Implementation

Posted in Cuba, Cuba Restricted List, Hotels

On March 19, 2019, a never-before-used Cuban embargo measure went into effect that makes it possible for U.S. claimants to sue the Cuban government in U.S. courts for confiscated Cuban property. The measures could be further expanded on April 17, 2019, to permit lawsuits against non-Cuban entities operating in Cuba.

Since its enactment, Title III of the 1996 Cuban Liberty and Democratic Solidarity (LIBERTAD) Act has threatened to be a potent weapon against entities that do business in Cuba by providing U.S. nationals with a private right of action in U.S. federal courts against entities that “traffic in property which was confiscated by the Cuban Government on or after January 1, 1959.” Of course, the United States has never implemented that private right of action because every president since Bill Clinton has postponed the enactment of Title III for consecutive six-month periods, in part because many foreign governments objected to the idea that non-U.S. companies could be sued in U.S. federal court because of their commercial dealings with Cuba.

Therefore, it was a surprise on March 4, 2019, when U.S. Secretary of State Pompeo announced a partial exception to decades-long waivers of Title III of the 1996 Cuban Liberty and Democratic Solidarity (LIBERTAD) Act. The exception is effective beginning March 19, 2019, and provides a cause of action for certain U.S. nationals against Cuban entities and sub-entities (but only those listed on the State Department’s Cuba Restricted List (CRL) (see Department of State Nov. 14, 2018, press release here) that “traffic in property which was confiscated by the Cuban Government on or after January 1, 1959.”

Click here to read the full GT Alert.

Case Law Update: Expelling the Email Warrior From Clubs

Posted in Clubs, country club, golf club, member discipline, member expulsion

Club boards and management are often the targets of members’ critical emails to other members and social media posts, which are often inflammatory. They may view these attacks as improper behavior, as well as divisive and detrimental to the club’s interests and harmony. They may want to expel or otherwise discipline the offending member. The offending member will claim that a member has the right to criticize management and that the board or management took disciplinary action against the member as revenge and to stifle dissent.

In Master v. Country Club of Landfall, a North Carolina appellate court in December 2018 addressed a club’s ability to expel a member for sending an inflammatory email about the board to other members. A club member sent a series of emails to other members in opposition to proposed amendments to the governing bylaws. The member claimed that the proposed amendments were unethical and immoral, using references to Hitler, Barabbas, Jesus and slavery. A Club Hearing Panel that comprised board members and other members expelled the offending member after a hearing at which the member’s attorney, but not the member, attended.

The member sued the club for breach of contract and declaratory relief. The trial court granted summary judgment in favor of the defendant club, which judgment was affirmed by the appellate court. The court explained North Carolina precedent on court review of club disciplinary actions: “[i]t is well established that courts will not interfere with the internal affairs of voluntary associations. A court, therefore, will not determine, as a matter of its own judgment, whether a member should have been suspended or expelled.” Thus, “when a plaintiff challenges a voluntary organization’s decision, the case will be dismissed as non-justiciable unless the plaintiff alleges facts showing (i) the decision was inconsistent with due process, or (ii) the organization engaged in arbitrariness, fraud, or collusion.” (citations omitted)

The plaintiff club member claimed he was not afforded due process because he received notice of a change in the hearing date only three days before the new hearing date. The club claimed the notice was sent to him by email and regular mail a week before the rescheduled hearing date. The court rejected the member’s argument, explaining, “’Private voluntary organizations are not required to provide their members with the full substantive and procedural due process protections afforded under the United States and North Carolina constitutions.’ . . . Rather, private associations are usually only required to ‘(i) follow their own internal rules and procedures, and (ii) adhere to principles of fundamental fairness by providing notice and an opportunity to be heard.’” (citations omitted)

This court decision may provide ammunition for club boards and management to defend themselves against email and social media attacks they believe “cross the line” and should give club members reason to pause before clicking “Send.”

Hotels Included in U.S. State Department Cuba Restricted List

Posted in Cuba, Hotels

As of Nov. 15, 2018, the State Department is adding 16 hotels owned by the Cuban military to the Cuba Restricted List (CRL).

As discussed in the November 2017 GT Alert, U.S. Implements President Trump’s Cuba Policy, the Department of State published the CRL, identifying certain entities and sub-entities that are “under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services.”

Except as otherwise authorized, no U.S. person may engage in a direct financial transaction with any entities and sub-entities identified on the CRL. Furthermore, any application to export or re-export items for use by entities or sub-entities identified on the CRL will be generally denied by the Department of Commerce’s Bureau of Industry and Security.

Among other entities added to the CRL, it now includes the brand new Grand Packard Hotel, a 321-room luxury hotel newly inaugurated in Cuba, managed by the Spanish brand Iberostar Hotel, which currently operates 27 hotels with 7,881 rooms on the island.

Cuban President Miguel Díaz-Canel personally attended the inauguration of the Packard Hotel, a little more than a year after the opening of the Kempinski’s Gran Hotel Manzana, showing the Cuban Government’s intent to make the island’s hospitality sector more upscale. Both the Packard and the Manzana (originally included in the first CRL) are now identified on the CRL.

This aspect of U.S.-Cuba relations continues to impact the hospitality industry. Caution is key. Please contact Greenberg Traurig should you need to explore this further.

Regulatory Update: Wireless Licenses Issued by the Federal Communications Commission

Posted in Regulatory Update

Hotels, resorts, country clubs, and other hospitality facilities commonly utilize wireless communications systems to support security, maintenance, and other functions conducted on the relevant properties.  Many private wireless radio systems used at hospitality facilities use portions of the radiofrequency spectrum that are licensed by the Federal Communications Commission (FCC).  Prior to operating radio systems (which include wireless headphone sets and handheld portable radios) it is essential to determine whether an FCC license is required to operate communications equipment and whether a license has been obtained.  The FCC considers unauthorized use of the radiofrequency spectrum to be a serious matter and has authority to initiate and enforcement action and impose monetary penalties for violations of its rules.

In addition to ensuring that any required FCC licenses are obtained, hospitality companies should be aware that the FCC also regulates changes in the ownership of FCC licenses or of licensees.   Section 310(d) of the Communications Act (47 U.S.C. § 310(d)) prohibits the assignment or transfer of control of any FCC license, including any private wireless license used for internal business communications, prior to obtaining FCC consent (see also 47 C.F.R. § 1.948).  Section 310 is applicable when an FCC license is sold to another entity in an asset sale (an assignment) and when a controlling ownership interest (50 percent or more) in a licensee is acquired (a transfer of control).  The statutory prohibition of assignments and transfers of control of an FCC license is applicable when such changes occur as the result of an internal corporate reorganization (a pro forma transaction under FCC rules), as well as when a third party is involved.  Obtaining FCC prior consent for transactions involving assignments and transfers of control of private wireless licenses is a relatively simple and inexpensive process.  However, licensees may overlook the need for FCC approval as part of larger transactions affecting the ownership or control of FCC licenses.  The importance of receiving prior consent from the FCC for assignments and transfers of control of licenses is highlighted by a recent Consent Decree entered into by the FCC and Marriott  International, Inc.  As part of the Consent Decree Marriott admitted liability, will implement a compliance plan, and will pay $504,000 as a civil penalty.  See GT Alert:  FCC Consent Decree an Important Reminder that Prior Consent Is Required for Transactions Affecting Control of FCC Licenses, August 2018.

Case Law Update: Golf Course Restrictive Covenant Upheld

Posted in Clubs, Court Cases

Owners of unprofitable golf courses are increasingly wanting to redevelop their golf courses as residential property, especially in areas where land for residential development is at a premium. Some golf courses are subject to recorded covenants that require the property to be used for recreational purposes and therefore prohibit such redevelopment.  In Victorville West Limited Partnership vs. The Inverrary Association, a golf course owner unsuccessfully filed a suit against the homeowners association seeking to cancel this type of restrictive covenant on the grounds that the golf course was unprofitable.

The trial court ruled in favor of the homeowners association. The golf course owner appealed, arguing that the trial court should have cancelled the restrictive covenant because a substantial change in circumstances prevented the covenant’s original purpose from being carried out and the covenant was an unlawful restraint on alienation.  The appellate court affirmed the trial court decision.  The court stated the test for determining the validity of a restrictive covenant is whether “the original intention of the parties can be carried out despite alleged materially changed conditions or, on the other hand, whether the covenant is invalid because changed conditions have frustrated the object of the covenant without fault or neglect on the part of the party who seeks to be relieved from the restrictions.”  The court determined that the Inverrary restrictive covenant was still valid because it continued to benefit the surrounding residential properties by preserving the character of the community and providing residents with a pleasant view.

If other courts follow the reasoning of the Inverrary court, it will be difficult for an owner of a golf course that is subject to a restrictive covenant to succeed in invalidating the covenant, because neighboring property owners can almost always claim the golf course continues to benefit their properties by preserving the character of the community and providing them with a pleasant view.

Industry Consolidation Reflected in New Franchise Agreements

Posted in Hotels

This is the time of year when the branded hotel operating companies that sell franchises (Franchisors) start to use the new 2018 forms of franchise agreements. As the hospitality industry has continued to consolidate, it should come as no surprise that some of the larger brands have modified their treatment of things such as group services contributions, marketing costs, and other expenses that apply across the brand or group of brands and impact every hotel within the specific system of hotels. For example, some separate contributions made by a franchisee will now be an element of a larger bucket of contributions, giving the Franchisor a single payment through which to allocate different amounts for a number of services delivered by the Franchisor across the system that might have previously been paid for by franchisees separately. This modification in approach has not altered the fact that the Franchisor may make changes to how the funds are used, merge a number of separate funds, or discontinue certain services, so long as it does so for all system hotels. The overall philosophy of treating similarly situated hotels within the brand system of hotels in a similar manner has not changed. It is also worth noting that the provisions of the franchise agreement with respect to liquidated damages and remedies may have been modified.

Providing for the payment of liquidated damages is a standard element of hotel franchise agreements. The calculation generally involves determining the average monthly amount of all franchise fees under the agreement, multiplied by the lesser of a certain number of months or the number of months remaining in the term or some percentage of the number of months remaining in the term. The franchise agreement is expected to say that it is difficult to calculate franchisor’s damages over the remainder of the term and the liquidated damages represent a reasonable estimate of fair compensation for the damages that Franchisor would incur, and are not a penalty. Some of the newer franchise agreements may, in one way or another, leave the door open for Franchisors to seek damages against franchisees in addition to the liquidated damages, relating to other matters and not compensation for franchise fees. Arguably, a Franchisor would have this right anyway if a franchisee had acted in a manner to besmirch the intellectual property and reputation of the Franchisor or fail to discharge any post-termination obligations. Nevertheless, there is often now an affirmative reservation of rights in favor of the Franchisor to seek other remedies available under applicable law, beyond the pre-negotiated liquidated damages stated in the franchise agreement. Under any analysis, a review of the new franchise agreements would be wise.

Trends In Hotel Branding: Hyper-Specificity

Posted in Brand Management, Hotels

It’s long been said that a successful brand understands its audience. This has been true of hotels, as the major internationally-branded hotel operating companies have developed and continue to develop various brands to service and cater to a wide array of guests and their specific preferences and assumed preferences. These hotels often have a variety of brands, and each brand is intended to target a particular type of customer (for example, a business traveler, the millennial traveler, the independent vacation traveler) at a particular price point. More recently, and with the entry of many non-traditional hotel competitors into the market, it has become increasingly important for hotel brands to target customers more precisely and directly.

Many brands have developed specific themes to set themselves apart and attract specific customer segments. One major demographic that virtually all hotel brands seek are millennials. Some brands design properties to encourage social interaction between guests outside of the guest room through live music and communal pool tables, while keyless entry and free Wi-Fi appeal to the technologically-inclined and connected young traveler.  Then there are the health conscious or “wellness” hotels.  A stay in these hotels might include organized morning runs, complimentary yoga mats in each room, 24-hour gym access, healthy food options, and aerobics channels presented every time you turn on your television.

This trend toward increased theme specificity is global in scope and appeal. Recently, Patrick Landman of GreenShoes Hospitality wrote an article titled, “How to Develop a Successful Hotel Concept.”  In his article, Landman writes that the “legacy form of segmentation was simple: business or pleasure. But, it’s not enough in this day and age. To be effective, it must go much further. Holistic, deep segmentation will go a long way towards informing your hotel concept.” Landman further discusses a hotel’s need to understand what makes it distinctive and combining a hotel’s best attributes to provide a unique experience and concept.

Developing a strong and focused theme will remain crucial to owners and hotels alike, to find ways to distinguish themselves from the increasing list of competitors in the industry. This trend appears to be only getting stronger as technology develops and globalization continues.

GT Guides Developer on Major ‘Six Senses’ Resort Planned in Northeastern Brazil

Posted in Firm News, Hotels

Global law firm Greenberg Traurig, LLP advised the developer of the Six Senses Formosa Bay Resort planned for Rio Grande Do Norte, Brazil. The firm acted as international hospitality counsel, in cooperation with Brazilian law firm Koury Lopes Advogados. 

The Formosa Bay Resort is to be managed by Six Senses, which operates resorts worldwide. According to the developer, an entity owned by international businessman Greg Hajdarowicz, the resort will be one of Six Senses’s first projects in South America. 

“This was a remarkable opportunity to work with one of Poland’s most prolific entrepreneurs on a unique ecological resort in an emerging tourist destination,” said Jaroslaw Grzesiak, managing partner of the law firm’s Warsaw office.

According to published plans, the resort will include 185 villas, 58 of which will include Six Senses residences, to be made available for private ownership. The seven kilometer long coastline on which the resort will be built is owned by the developer.

Continue Reading.

Case Law Update: The Potentially Alcoholic Member

Posted in Clubs, Court Cases

A recent decision from a Florida District Court of Appeal shows that dram shop cases against clubs are fact dependent and difficult to resolve by summary judgment without a trial. Gonzalez vs. Stoneybrook West Golf Club, 2017 WL 2988826 (Fla. 5th DCA July 14, 2017).

In Gonzalez, a car driver was killed in a car accident with a golf club’s member after the club member had consumed alcohol at the club.  The estate of the deceased driver sued the club for wrongful death pursuant to Florida’s reverse dram shop law.  Fla. Stat. § 768.125 (2014).  The reverse dram shop law provides that a vendor serving alcoholic beverages is not liable for damages resulting from a purchaser’s intoxication unless the vendor serves the purchaser knowing that he or she is habitually addicted to alcohol.  The District Court of Appeal reversed the trial court’s summary judgment order in favor of the club.  The court concluded that the plaintiff “offered sufficient evidence to raise a factual dispute not resolvable by summary judgment as to whether [the club member] was habitually addicted to alcohol and, if so, whether [the club] knew of his addiction.”  The evidence showed that the club member had played golf at the club approximately 70 to 80 times over a three year period and one of the club member’s playing partners testified that the club member was intoxicated virtually each time they played together.

The case illustrates the challenges a club faces in dealing with a member who drinks alcohol excessively on a regular basis.  The mere fact that the member drank excessively created a factual question as to whether the club knew that the member was habitually addicted to alcohol.