The franchisees’ suit includes the allegation that Choice Hotels discriminates against operators with South Asian backgrounds.
Photo: Luke Sharrett/Bloomberg NewsA group of Choice Hotels International Inc. franchisees have filed a lawsuit that claims the hotel company is burdening operators with inflated costs for goods and imposing duplicative fees to boost its own revenue.
In a lawsuit filed Friday, franchisees that run lodging properties under Choice brands like Sleep Inn and Comfort Suites also claim that the company has favored white hoteliers over operators with South Asian backgrounds.
A spokeswoman for Choice didn’t immediately comment on the suit, which was filed in the U.S. District Court for the Eastern District of Pennsylvania.
The Rockville, Md., company is one of the largest hotel franchisers in the world with more than 7,100 hotels globally, according to its latest annual report.
Like other lodging companies, Choice has faced pressure due to the Covid-19 pandemic, which brought travel to a standstill in many markets. Choice last month reported flat total revenue and operating income for the first quarter as travelers stayed home.
The franchisees claim Choice has set up its qualified-vendor program, which provides items hotel operators need, to extract payments from suppliers. The suit says vendors cannot be considered for inclusion in the program unless they pay an initial $25,000 fee.
In turn, those vendors pass expenses along to operators, according to the complaint from the franchisees. Operators of Choice hotels, for example, pay $34.50 for 10 pounds of frozen sausage links, while non-Choice franchisees pay $22.37 for the same quantity of the meat, according to the suit.
“Choice knows that qualified vendors cannot sell goods and services to its franchisees at competitive prices,” the lawsuit says.
The franchisees also claim Choice finds ways to add fees and impose penalties on them in order to boost its share of the revenue generated at lodging properties they run.
Franchisees are required to pay Choice royalties and a so-called system fee, amounting to at least 7% of their monthly revenue, but with the additional fees and penalties operators end up paying on average more than 20% of monthly revenue to the company, the complaint says.
The lawsuit also alleges Choice has discriminated against Indian-Americans and other people of South Asian backgrounds, more stringently enforcing rules and regulations against them.
In 2016, Choice said it would no longer allow two-story properties to use the Comfort Inn brand and aggressively enforced the rule with Indian-American and South Asian-American hoteliers, according to the complaint. But Choice allowed some white franchisees to begin operating new Comfort Inn properties using two-story buildings, it says.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
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