Legal Issues: Shocking DisconnectsNovember 1, 2015

Top Experts Advise Planners to Give Far Greater Attention and Care to Legal Matters By
November 1, 2015

Legal Issues: Shocking Disconnects

Top Experts Advise Planners to Give Far Greater Attention and Care to Legal Matters

business people making deal

Almost by definition, corporate meeting planners focus on elemental, day-in and day-out practical considerations such as destination and hotel selection, food and beverage choices that fit the budget, convenient airlift and impactful meeting content.

But there is another critically important factor that is often overlooked.

And that is the sometimes complex legal matters involved in executing and hosting a meeting.

In today’s world, however, planners and meeting hosts who pay insufficient attention to those legal matters do so at their peril — and the peril of their organizations.

The Shocker: Sloppy Contracting

Written contracts with hotels are the foundation of every meeting and event. And over the last few years, host companies have exerted more influence on the contracting process by creating their own addendums to the traditional contract templates used by every major flag hotel company and many independent properties.

But it’s shocking to discover that there is often a critical disconnect in that process.

“The legal issue that I see every day is that the hotel sends out its contract, then the meeting client sends out what they call their addendum,” says Phoenix-based meeting industry attorney Lisa Sommer Devlin of the Devlin Law Firm, P.C. “And the addendum is 100 percent the opposite of the hotel contract. Then they slap those two documents together and that leads to disputes if anything goes wrong. It’s just really sloppy contracting. Instead of the two parties just throwing together two completely different documents, they should sit down and actually negotiate clauses that are compromises on key points and which work for both sides.”

“Even if you have a firm contract for the meeting, that does not mean it cannot be canceled by the hotel if they get a better piece of business for those dates.” — Joshua L. Grimes, Esq.

Sloppy contracting and a lack of clear communication and negotiation over key terms are common in today’s harried, go-go meeting industry, Devlin says, with meeting planners overburdened and the booking window for many meetings as short as it has ever been.

“In fact, it’s extremely common,” says Devlin, who often represents hotels. “And it’s bad business for both sides, because what happens is that companies come in and say, ‘You have to use our contract addendum or we won’t even talk to you.’ And that’s just lazy contracting that leads to problems down the road.”

Fundamental causes of the problem include the realities that meeting demand is approaching an all-time high, while many meetings are booked on short notice. As a result, both the hotel and the meeting planner overlook the obvious contradictions and flaws in the contract just to get it done expeditiously — while assuming nothing will go wrong.

“And the vast majority of the time, the assumption that nothing will go wrong is correct,” Devlin says. “But when something does go wrong, like a cancellation or attrition, and both parties look at the agreement, they realize they have one that is ambiguous or confusing or conflicting and they end up in a legal fight over it.”

John S. Foster, Esq., CHME, a partner at Atlanta-based Foster, Jensen & Gulley and another veteran meeting industry attorney, agrees that what Devlin calls sloppy contracting is indeed a serious industry issue.

“I use client addendums all the time,” says Foster, who typically represents corporate meeting hosts. “But the point is, you have to go to the original (hotel) contract and cross out what you disagree with and then reference the relevant provision of your addendum and say the addendum takes the place of the provision deleted from the hotel’s contract.”

As Foster sees it, the reason sloppy contracting happens is that “both parties tend to be lazy,” he says. “And one reason for that is that most corporate meetings are small compared to association meetings. And the company’s legal department doesn’t have time to mess with meeting contracts, so they just slap something together. It’s a time saver in the short run because people are in a hurry, but in the long run it ends up causing problems.”

The legal standard for how such a dispute must be resolved, Devlin says, is that “if there is an ambiguity in the contract, the judge or arbitrator has to try to figure out what the two parties intended their agreement to be and then attend to that intention. The problem is that if you have a hotel contract and a client addendum that were signed without real negotiation, there is no clear intention. There are two different interpretations of what the agreement was. And that’s not easy to resolve.”

And almost always, she says, when such a dispute happens, the legal costs to both the company and hotel are substantial, even if a compromise settlement is eventually reached before the case goes to court.

Devlin cites a related issue she finds almost incomprehensible in today’s technology-driven business world, where virtually anything and everything is just a mouse click away — contracts that include handwritten and initialed changes.

“I see that regularly and it’s shocking to me,” Devlin says. “And with computer technology and e-mails and Microsoft Word, there is no reason a contract with handwritten changes should ever be signed, because those are the kinds of changes that invariably lead to disputes. And the reason for that is that they are often poorly written and too vague. Half the time you can’t even read exactly what they say. You can’t tell who initialed it. It just creates a cascade of issues. And there is no excuse for it.”

The solution to the broader issue? Devlin and Foster agree that the contracting process must be given much more care and attention than it is currently getting in many instances.

Or, in other words, let both buyer and seller beware.

Thanks, but No Thanks

Yet another important legal issue in the robust meeting market of 2015 is the fact that hotels are not shy about canceling a meeting already booked — and often upcoming in a fairly short time frame — if a better piece of business comes along on short notice. Such unilateral cancellations are often aimed at meetings booked back at the tail end of the recession, when planners were able to negotiate sweetheart deals with previously unheard of concessions.

Today, however, those sweetheart deals can render a planner and his or her event persona non grata.

The virtually unprecedented strength of the post-recession seller’s market means that hotels are canceling previously booked meetings to accommodate more profitable groups, even on sometimes disturbingly short notice, says Joshua Grimes, Esq., of Grimes Law Offices LLC, another highly regarded meeting industry attorney.

“Even if you have a firm contract for the meeting, that does not mean it cannot be canceled by the hotel if they get a better piece of business for those dates,” Grimes says.

And such a turn of events is not at all rare these days, he adds.

“Then the issue becomes whether the remedies for damages in the contract are sufficient to protect the group if the hotel indeed chooses to cancel the meeting,” he says.

For example, Grimes explains, “contracts typically have fairly extensive provisions for what happens if the group cancels. But if the hotel cancels, there is either no provision at all, or it says that the group is entitled to its ‘remedies under law.’ Period. And that basically means that after the fact, the group has to prove all of its damages. But even if they do that, very few properties are going to just write you a check. They will go into negotiations with you.”

Therefore, Grimes recommends that meeting planners and hosts carefully examine their contracts to make sure there are clear and actionable provisions for legal and financial remedies if the hotel cancels the meeting. “You must make sure that the damages outlined in the contract are sufficient to cover your event if it’s canceled, meaning that all of your costs to relocate the meeting are broadly interpreted and fully covered,” he says. “And those costs can include the cost of a site visit to the new destination, the cost of reimbursing attendees who have already booked their flights or attorney’s fees for the negotiation of a settlement.”

One important practical detail, Grimes says, is that there is no cutoff date that is presently considered the legal standard for what point prior to its scheduled date a meeting can be canceled. And the closer to the date, the more damages potentially accrue to the meeting host. “And I believe that in some cases, the property may know about the issue coming up further in advance than the time they actually inform the original client,” Grimes says. “And the sooner the client knows, the more options they have for repositioning the meeting than they will if the hotel cancels six weeks before the meeting.”

Devlin concurs that based simply on obvious market dynamics and economics, “more and more hotels are canceling what they consider bad business,” she says. “And that’s why I always stress the fact that both sides should be negotiating contracts that are fair to both sides. If a hotel thinks they’re getting (an upcoming meeting) that is terrible for the hotel and they have another opportunity that’s better, then they might very well cancel the first meeting and pay the company off to get rid of them, and then still make more money by booking the more lucrative meeting for those dates.”

Foster adds that, “You can say it’s unethical for hotels to do that. But it’s not against the law. It’s just about dollars and cents. It’s a business decision.”

Can a meeting planner negotiate a “non-cancellation” clause?

That is a complex question legally, with no clear cut answer. “And even if you have such a ‘no cancellation’ clause, the hotel can still cancel,” Grimes says. “The legal question is what damages it will be liable for and have to actually pay.”

The only practical solution to the potential dilemma, Grimes says, is to negotiate contract terms that are so strict in terms of damages and liability to the hotel that their financial incentive for canceling the meeting are essentially negated.

However, Devlin — who usually represents hotels — challenges that assertion. “Under the American system of law,” she says, “a penalty in a contract is invalid. You can’t penalize someone for breaching a contract or for not going forward with it. No court is going to enforce that.”

Her solution: While there is no way a planner can prevent a cancellation by the hotel, because monetary damages after the fact will remedy your situation, the remedy is often fairly simple. “If the meeting was booked at $100 a night for rooms and the rebooked meeting costs $125 per night, the original hotel will be liable for the difference,” she says. “But those are the only real damages that can be enforced in most cases.”

In addition, a major hotel brand that has multiple properties in the same destination can mitigate claimed damages simply by relocating the meeting to a sister property in the same destination. “And if the meeting planner says, ‘No, we’re not going to do that, we’re going to move to a more expensive hotel,’ ”, Devlin says, “a judge is probably going to say, ‘You don’t get compensated for that, because you had an opportunity to minimize your losses.’ ”

Foster agrees with Devlin that a contract provision cannot be a penalty for cancellation. But it can be calculated as liquidated damages, which must be provable.

“The reality is that either side can breach the contract,” Foster says. “The only question is how much damages they will owe, based on the facts.”

And damage provisions must include a clear formula for calculation and settlement negotiations.

The Force Majeure Dilemma

A third legal issue that has becoming increasingly significant since 9/11 — and especially since incidents like the Ebola scare and SARS epidemic more than a decade ago — is the force majeure provision in contracts.

Tyra Hilliard, Ph.D., JD, CMP, of Hilliard Associates in St. Simons Island, Georgia, is a speaker and multipreneur as well as a respected meeting industry attorney. Hilliard says that force majeure clauses are currently a hot topic of interest and concern to both meeting planners and hotels.

And history over the last 14 years, beginning with 9/11, has forever altered the perception of the importance of force majeure provisions.

“For example,” Hilliard says, “when the Ebola cases came to the U.S., interesting issues arose in Dallas and Cleveland, where people were afraid to come to those cities because there were Ebola cases. And I had meeting planners calling me to ask if they could invoke the force majeure clauses in their contracts. Well, the fact is there were only a couple of cases, so there was no state of emergency declared in those cities by the World Health Organization or Centers for Disease Control. So what that meant, in reality, is that people were just afraid. But fear does not constitute a force majeure issue.”

There was also a case in San Francisco, Hilliard notes, where a company wanted to cancel a meeting years ago because hotel workers were on strike and the company refused to have attendees cross picket lines. As a result, they also tried to claim force majeure. “And again, the answer was no, that is not force majeure,” Hilliard says, “because the hotel would likely have a new contract with workers by the time the meeting happened.”

The point? Almost anything can be put in a contract if it is agreed to by both sides. But the provision must be clear. Therefore, if the company holding the San Francisco meeting had included in its force majeure clause its refusal to cross union picket lines in the event of a strike, it would have prevailed.

Foster note that there are three standards in the law that define force majeure. “And those are impossibility, commercial impracticability and frustration of purpose,” he says. “What the hotels want to do is eliminate the last two of those from the force majeure provision in their contracts. What they want to say is you can only terminate the contract — not cancel, but terminate, which means there can be no damages due either side — if it’s impossible to perform. And that’s a high bar. And there is also a lot of space between impossible and commercially impracticable. Impracticability means substantially and materially more difficult for one of the parties to perform due to unforeseen facts that are outside the control of the parties that occurs after the contract is signed.”

As an example, Foster cites the SARS epidemic and its headline generation in the spring of 2003.

He had a client booked into Toronto for a major medical meeting that included use of the convention center. SARS hit the news two weeks before the meeting. As a result, many registered attendees canceled.

“So it wasn’t impossible for them to hold the meeting,” Foster says. “But it was impracticable because people said they were not going to show up.”

The CVB got together with booked hotels and sent the client a bill for $6.5 million as a cancellation fee. “The client had taken out cancellation insurance with a major insurance company, but the company denied the claim,” Foster says.

Under threat of litigation, the company ultimately paid the claim, based on the premise that the SARS epidemic was unforeseen at the time the meeting contract was signed. But the hotels got paid.

And the insurance company changed its policy so that epidemics would no longer be included in event cancellation policies.

Foster’s best advice: A force majeure clause today should include a clear provision that covers “any threat to the safety, health or wellbeing of attendees. And I’ve been using that ever since the SARS incident in Toronto.”

Although sloppy contracting, sudden cancellations of meetings by the hotel, or the complexity and uncertainty of force majeure provisions are the three issues the attorneys agree are currently timely and important, there are many others. And new ones, such as risk to a company’s intellectual property or proprietary information presented at the meeting, or the risk implicit in relatively dangerous teambuilding activities, or the legal liability involved in alcohol-related incidents or even an attendee death from a food allergy — all issues noted by one or more of the attorneys — the message is to be aware of the breadth of legal risks and act accordingly.

“I think what’s most important is that the law, and contracts in particular, are about allocating risks,” Hilliard says. “So there is no perfect contract because neither party can totally eliminate their risks. That would mean shifting all of it to the other party, and neither one would ever sign a contract like that. That means the issue then becomes understanding the risks you’re facing and making an informed decision about how much risk you’re willing to take on.” C&IT

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