No Vacancy: Duff on Hospitality Law : Northwest Attorneys & Lawyers for Hospitality, Travel & Tourism based in Seattle

The Seattle King County Convention and Visitors Bureau (SKCCVB) and the Seattle Hotel Association (SHA) have much to celebrate. Tuesday's well attended press conference, which included presentations by Councilmembers Tim Burgess and Jean Godden, SKCCVB President, Tom Norwalk, Seattle Mayor, Mike McGinn, and King County Executive, Dow Constantine, was the culmination of months of hard work and planning by the SKCCVB, SHA, the Seattle City Council (specifically, Tim Burgess), the Seattle City Attorney's Office and others. Relying on Washington statutory authority that permits the formation of Business Improvement Areas (RCW 35.87A) to support economic development through a variety of authorized activities, this group of local tourism industry leaders and supporters produced an initiative that garnered the support of 41 of the 53 downtown Seattle hotels proposed to be affected by the initiative, if enacted. If successful, the initiative will assess downtown Seattle hotels with 60 or more rooms $2.00 per occupied room per night, resulting in the creation of a $5 - $6 million annual fund dedicated to the promotion of leisure tourism in the City of Seattle. With the adoption of this initiative, Seattle will join the growing list of large West Coast metropolitan areas (e.g., Los Angeles, San Francisco, San Diego, Anaheim) that have resorted to self-assessed funding mechanisms to provide needed financial support to tourism.

The initiative now heads for the City legislative process, including a public hearing scheduled for August 8 at 5:30 p.m. before the City Council. If you are a member of the local tourism industry, are affected by the local tourism industry or just want to support the local tourism industry and its many benefits to the City and region, I encourage you to contact the Seattle City Council to support this important City initiative.  

• Richard Conlin, Council President, Position 2
• Sally Bagshaw, Position 4
• Tim Burgess, Position 7
• Sally J. Clark, Position 9
• Jean Godden, Position 1
• Bruce A. Harrell, Position 3
• Nick Licata, Position 6
• Mike O'Brien, Position 8
• Tom Rasmussen, Position 5

Mailing Address:
Seattle City Council
PO Box 34025
Seattle, WA 98124-4025
council@seattle.gov

Recent Press Coverage: 

7/12/2011 - Puget Sound Business Journal - "Seattle hotels consider $2-per-night tourism tax" http://www.bizjournals.com/seattle/morning_call/2011/07/seattle-hotels-consider-2-per-night.html

7/12/2011 - KING 5 News - "Seattle hotels to charge $2-a-night tax for tourism campaign" http://www.king5.com/news/local/Seattle-hotels-proposing-2-fee-for-hotel--125408588.html

7/11/2011 - Hotel Online, "Seattle hotels seek $2-a-night tax for tourism campaign" http://www.hotel-online.com/Neo/News/2011_Jul_12/k.SEG.1310496257.html

7/11/2011 - Seattle Times, "Seattle hotels seek $2-a-night tax for tourism campaign" http://seattletimes.nwsource.com/html/localnews/2015580659_hoteltax12m.html

If you would like more information about the proposed STIA, or are interested in exploring the possibility of creating your own Business Improvement Area to provide or supplement important City services or objectives, please let me know.

OK, this is naughty, but why should you care? Because it might get you into trouble. Even though you have no control over the actions of your guests or customers, current copyright law may consider you to have committed “contributory” copyright infringement—basically, you contributed to or encouraged the infringement, and you should have to pay up (as well as the original infringer, who is virtually impossible to find).

There are ways, as always, to try to limit your risk. The most common set of legal protections invoked by those who provide Internet or online services is referred to as the Digital Millennium Copyright Act (DMCA) Safe Harbor. The DMCA is actually a series of amendments to the existing Copyright Act, and the sections linked to in this post set forth a series of requirements that online services providers (including providers like you, who are merely giving third-parties access to the Internet) can adhere to in order to be effectively immunized from liability for the goings-on on their networks.

Unfortunately, if you’re a hotel, restaurant, bar, coffee shop or similar type of business, you may not meet at least one of the requirements, which of course appears way at the bottom of the section dealing with these matters, namely, that you “[have] adopted and reasonably implemented…a policy that provides for the termination in appropriate circumstances of subscribers … who are repeat infringers” 17 U.S.C. §512i(1)(A) (see the link above).

If you do not capture, track and monitor identifiable information about the people or the machines accessing your network, you have no way of knowing who the repeat infringers are, let alone whether any repeat infringement is occurring. This is particularly troubling for food and drink establishments, whose guests don’t even stay the night. There may be software solutions that allow you to connect a particular device with a person and the device and the person with an infringement, but we understand from our hotel clients that merely tracing network activity to one room requires a lot of expense.

However, just because you may not be able to take advantage of the DMCA Safe Harbor does not mean you will be found liable for contributing to the copyright infringement of your network users, as long as you are not actively contributing to the infringement. Generally following the DMCA requirements—including, most importantly, a well-drafted set of Terms and Conditions for use of your Internet access that clearly indicates all use must be lawful—will help you protect yourself.

Next post: more detail about what a demand letter looks like and additional steps you might consider to reduce infringements carried out on your networks.

Collectively, the presenters were extremely bullish on the region's prospects. Following several weeks of negative economic news, the positive opinions expressed by most of the presenters were well received by most everyone's ears.

Highlights from this year's presentations include the following:

• Notwithstanding the U.S. economy's struggle to generate any real employment growth, the Seattle market over the past year has seen solid employment growth with a large number of those jobs being added in the leisure and hospitality industry
• The Puget Sound market will likely be the best market (economically) of all West Coast markets over the upcoming year or two
• The U.S. and Seattle lodging markets continue to enjoy unprecedented growth in lodging demand
• Seattle's increase in lodging demand, when compared to other key markets monitored by STR, ranks second only to Denver
• National ADR levels are not expected to return to pre-recessionary levels for another 2 years, while Seattle's ADR may not return to pre-recessionary levels for at least 4 more years
• Seattle's YTD numbers as reported by STR: Occupancy 63%, ADR $108.33 and RevPAR $67.78
• PKF forecasts annual demand growth of 4.5%, 3.8%, 2.5% and 3.4%, annual occupancies of 67.9%, 70%, 71% and 72%, and annual ADR growth of 3.2%, 7.2%, 6.8% and 6.2% for 2011, 2012, 2013 and 2014, respectively
• According to the U.S. Department of Commerce, Seattle and Washington led the U.S. in growth of overseas visitors in 2010
• Seattle is forecasted to welcome an unprecedented number of cruise passengers in 2012 (440,000) with sailings scheduled for Monday, Tuesday, Friday, Saturday and Sunday of each week during the prime cruise season

If you would like more information about any of the presentations, please let me know.

Congratulations to Dennis Clark, Howard Cohen and the entire Seattle Hotel Association for putting together another terrific annual symposium. See you next year.

I left with so many great insights it was difficult to narrow it down to my top 3 take-away topics: (1) wage and hour compliance; (2) unions; and (3) retaining talent after the downturn. If I had to summarize this year’s HR in Hospitality Conference in 10 words or less, I would borrow a well-know phrase: the more things change, the more things stay the same. I think you will see what I mean based on my highlights below.

(1)  Remain vigilant regarding wage and hour compliance.  This is not a new or earth-shattering directive. Administrative agencies and plaintiffs’ employment attorneys have long been on the hunt for employers in the hospitality industry who are violating wage and hour laws and regulations, including regarding rest and meal breaks and overtime. And, as we know, wage and hour class actions are plentiful and show no signs of going away.

The new twist is that the US Department of Labor recently announced the intent to target the hospitality industry for wage and hour audits because it has labeled the industry “high risk.” And, once on site for an audit, the DOL can scrutinize any area under its jurisdiction.

What should you do? Run for the hills. Just checking to see if you are still reading even after learning the DOL is out to get you and the entire industry. If you are still reading, you should confirm how long it has been since your organization conducted an internal audit of wage and hour compliance – including looking at your policies, HR practices, and very importantly, your managers’ day-to-day practices. The best policies will not protect your organization if your managers do not understand what they need to be doing to ensure compliance. Speaking of your organization’s managers, make sure they are classified properly. Some organizations had managers take on more and more “line” duties during tough economic times, which could be an issue on the classification front. Get external help with a wage and hour audit if you need it because this is absolutely an area where a relatively small investment in prevention can help your organization avoid very expensive audits and lawsuits.   

(2)  The hospitality industry remains a focus for unions.  Let’s start with the good news. As confirmed by three individuals who are paid to know these things (DC-based governmental affairs experts from the American Hotel & Lodging Association, U.S. Travel Association, and the Society for Human Resource Management), the proposed Employee Free Choice Act is dead (at least for the foreseeable future). You may have heard the collective sigh of relief when these experts confirmed in-person what we have all been hearing. 

However, unions are not giving up and are looking for new ways to increase membership. UNITE HERE is focusing on pressuring the large brands to require neutrality and card checks in franchise agreements. While there was much discussion questioning whether such an agreement would even be legally enforceable, such efforts underscore the need for coordinated efforts by industry members.

What should you do? Treat employees fairly and with respect so they are not eager to have the “help” of a third party to improve their wages, benefits or work environment if approached by organizers. Be alert for signs of union organizing efforts in your workplaces and be prepared to appropriately and lawfully respond to them. Get active in local, state and national industry organizations and reach out to others in the industry to help influence issues that impact the industry.  

(3)  Be proactive to retain top talent as we emerge from the Great Recession.  All conference speakers and attendees seemed to agree that it is crucial for hospitality employers to have engaged employees. Engaged employees are more productive, take better care of guests, and are an important key to higher profitability. There was also agreement that if employers had not already made adjustments focused on retaining top talent now that the economy is showing positive signs, they should act fast and may already be too late. There was hardy laughter when one speaker mentioned he had instructed conference attendees from his organization to leave their business cards at home because he did not want to make recruitment too easy for his competitors. 

What should you do? Make sure your compensation packages are at least competitive and perhaps generous for top talent. Compensation is the easy part. Bad managers cause great employees to leave, thus you must invest in your managers. Ensure your “keeper” employees have adequate opportunities to learn and grow. Seek input and insights from your top employees. Give your top employees a reason to be loyal and committed – connect them with the larger purpose.   

If you would like more information about the conference or any of the topics covered, please let me know.

Our good friend Chris Kraus, Senior Vice President of Colliers PKF Consulting USA presented his recap of national and regional performance for 2010, and the forecast for 2011 and beyond.  His hotel market overview revealed that demand in 2010 was stronger than previously projected as the economy improved over all metrics (employment, payroll, income GDP, CPI, etc.) contributing to lodging demand and increases in revenue per available room (“RevPAR”) at 5.5% for 2010 nationally, and 4.5% in 2010 for the Seattle area:

New hotel projects will not come online until 2013, and therefore, lodging demand should continue as the economy improves.

The national forecast for the hotel industry shows an improving trend to RevPAR at 9.0% in 2011, and 9.9% in 2012, as employment returns to pre-recessions levels:

In the Seattle area in particular, the total number of booked rooms for conventions is up 8% for 2011, and SeaTac Airport passenger count increased by a modest 1.0% in 2010.  The Seattle Four-Year Forecast is as follows with RevPAR increasing to 8.9% in 2011, 10.5% in 2012, and 10.8% in 2013, but dropping down to 5.1% in 2014 when new supply comes online: 

Following is the RevPAR forecast broken down for upper tier hotels in the Seattle area:

The RevPAR forecast for Seattle lower tier hotels is more impressive, but supply coming online in 2014 will decrease RevPAR growth more significantly than for upper tier hotels:

In Portland, the four year RevPAR forecast shows that upper tier hotels will fare slightly better than lower-tier hotels:

The Spokane four-year RevPAR forecast demonstrates similar opportunities except with less RevPAR growth in 2013 and 2014 than in Seattle and Portland:

Following the economic presentation, Greg Duff moderated the following panel of industry experts on distressed hotel assets: 

• Richard Hooper, Pivotal Solutions
• Jeff McKee, Premier Capital Associates
• Yousef Arefi-Afshar, Cairncross & Hempelmann
• Matt Hanna, Cairncross & Hempelmann
• Neil Hodge, US Bank
• Mike Dolan, GE Capital
• Andy Olsen, Chambers Group

Greg initiated discussion on the distinction between distressed assets and unsalvageable assets.  Matt Hanna defined a distressed asset as a property where the owner is not able to meet loan covenants such as debt service.  Panelists viewed an unsalvageable asset on a continuum from not able to “break even” on a balance sheet to uninhabitable in physical condition. 

Discussion then shifted to new FDIC regulations that make it difficult for lenders to change the interest rate for borrowers who fail to make payments, among other regulations that have led to the lack of restructuring loans, resulting in foreclosures and receiverships.

Yousef Arefi-Afshar informed attendees of the flurry of activity by lenders to take control of properties through receiverships in the first three quarters of 2010, with the drop off in the fourth quarter of 2010, and potential of such activity to come back in 2011.  We have seen lenders use general receiverships to take over the entire business entity, but also have seencustodial receiverships to manage a specific asset for the benefit of the bank.  Essentially, a receiver and its attorney step into the shoes of the owner of the asset and takes over the business with the added responsibilities of negotiating debts, including utilities, and clearing legal issues.  Once a general receivership is established by the Court, the investors should talk to the receiver who has the power to sell.

Panelists relayed that many distressed assets did not come to market even though opportunistic investors created funds to acquire such assets.  Panelists advised that if the facility cannot cover its operating expenses, occupancy is declining and the property is physically degrading, the lender is left with fewer options.  Banks have to ask sponsors to put money in the deal, and take action if the sponsors do not.  The borrower needs to take a pro forma to the bank with a viable workout/exit strategy. 

Greg presented two case studies of typical distressed asset scenarios for the panel to workout. 

One asset was cash flow positive leading the panel to conclude that the asset could attract financing, but the fact that the borrower had failed to make loan payments would make it difficult for the bank’s credit committee to approve new financing.  If the lender is willing to provide forbearance, one option is that the borrower could return the property to the bank through a deed in lieu of foreclosure -- a negotiated agreement to give the property to the lender and the guarantors would not be liable for the deficiency.  This would avoid a judicial or non-judicial foreclosure that could have a “stigma” on the value of the property.  Further, panelists uniformly agreed that cooperation by the borrower goes a long way to avoid the lender’s enforcement of guarantees in such a situation.

A second case study involved an asset that was cash flow negative, with the potential of switching hotel flags to revive the asset.  Lenders on the panel considered lending additional funds for the new flag, with some level of recourse, but stated that the borrower needs to show level of equity commitment to support the property.

Greg concluded the panel presentation inquiring about lessons learned.  Consensus among panelists emphasized communication between lender and borrower, as the underwriting concerning loan-to-value and debt service will be more conservative in the next cycle.

If you would like more details from this presentation, including information about receiverships and bankruptcy, please let us know.  Similarly, if you did not attend Wednesday’s presentation but would like to attend future similar presentations, let me know.   Also, if you find these topics of interest, we invite you to subscribe to the blog either via RSS or email, by completing the field to the right.

2010 Standards for Accessible Design

The most significant revision to Title III of the existing regulations is the establishment of the 2010 ADA Standards for Accessible Design. In an attempt to avoid conflicts with other Federal accessibility standards and model codes adopted by most states, the Justice Department drafted the 2010 Standards to be consistent with the Federal Architectural Barriers Act and private sector model codes. Highlights of the new standards include the following:

• Broadened reach range requirements;
• New toilet clearances for single-user restrooms;
• Design requirements for accessible seating, sightlines, and companion seating in assembly areas;
• Relocation of accessible routes to coincide with general circulation paths, including direct routes from parking garages to facilities;
• Dispersion of guest rooms with accessibility features;
• Accessible entries and exits from pool facilities; and
• Design standards for placement of exercise equipment.

Unlike the majority of the new regulations, the 2010 Standards do not take effect March 15, 2011. Instead, compliance with the 2010 Standards for Accessible Design is permitted as of September 15, 2010, and becomes mandatory on March 15, 2012.

Redefinition of “Service Animal”

The new regulations change the definition of a “service animal” permitted on private premises to assist an individual with a disability. The new definition of “service animal” is a dog that has been individually trained to do work or perform tasks for the benefit of an individual with a disability, including a mental disability. Dogs used solely for emotional support by individuals with a disability are not deemed service animals under the new regulations. Animals other than dogs generally do not qualify as service animals under the new rules, although there is some flexibility to permit the use of trained miniature horses as an alternative to dogs.

Distinctions between Mobility Devices

The new rules adopt a two-tiered approach to mobility devices, with different accessibility requirements for wheelchairs as opposed to mobility devices, like the Segway®, which are not designed for individuals with disabilities. This latter category of devices is defined as “other power-driven mobility devices” in the new rules. Under these rules, wheelchairs and other mobility devices designed for people with impairments must be permitted in all areas open for pedestrian use, with very few exceptions. The same general rule applies for “other power-driven mobility devices,” but the exceptions are much broader: they need not be permitted if the covered entity can demonstrate that such use would fundamentally alter its programs, services, or activities, create a direct threat, or create a safety hazard.

Reservations

The new regulations establish requirements for reservations made by places of lodging. The rules mandate procedures for individuals with disabilities to make reservations for rooms in the same manner and during the same time as other guests. They also require places of lodging to identify accessible features of guest rooms, and to hold back from rental accessible guest rooms until all other non-accessible rooms of that type are rented. Finally, reservations systems must prevent reserved accessible rooms from being accidentally released to someone other than the person who made the reservation. Timing note: Due to the potential need for hospitality providers to change reservation systems to satisfy the new rules, these requirements do not take effect until March 15, 2012.

Timeshares and Condominium Hotels

The new rules specifically state that timeshare and condominium properties that operate like hotels must comply with Title III of the ADA. However, units that are not owned or substantially controlled by a public accommodation have limited obligations: they need not comply with certain new reservation requirements, and are not subject to certain barrier removal and alterations requirements.

If you have specific questions about the impact of the new regulations on your property, or regarding compliance with the new rules, please don’t hesitate to contact us.
 

To fully appreciate and understand this issue, it is important to have a little background . . .  First, state law in both Washington and Oregon (and nearly every other state) imposes on business owners of all types the obligation to protect customers from dangerous conditions that a business owner knows or has reason to know to exist on the business premises.  Second, these same state laws rarely impose on people the obligation to protect others from the criminal acts of third parties.  Finally, exceptions to the second principle have been found to exist where business owners enjoy special relationships with their customers so as to put the business owners in a unique (and possibly better) position to be able to protect their customers or clients.  Examples of these "special relationships" included transportation providers and their passengers, employers and their employees and, you guessed it, hotel owners and their guests.  In 1997, Washington (like a growing number of states who have addressed this issue, including Oregon) concluded that all business owners (regardless of the type of business) have customer relationships sufficient to impose an obligation to both discover and warn or protect their customers against criminal acts where such acts are reasonable foreseeable.

So what does this mean practically for hoteliers and restaurateurs?  There are a couple of important key points to remember:

• Hoteliers and restaurateurs only have a duty to discover / warn / protect when the harm to the guest or customer by a third person is foreseeable.  Not until the hotelier or restaurateur knows or has reason to know of the harm does the duty arise.
• Foreseeability is likely found to exist where the hotelier or restaurateur knows or has reason to know of the specific harm or general category of harmful activity.  In other words, while the hotelier may not have had reason to know that his guest would be physically assaulted in the hotel’s garage, the hotelier could be held responsible if he knew of general ongoing criminal conduct (e.g. car prowling, theft, etc.) in the hotel’s garage.
• Knowledge on the part of a hotelier or restaurateur includes both actual knowledge and constructive knowledge (i.e. knowledge imposed under the circumstances).  Constructive knowledge can be based on the general location or nature of the hotelier’s or restaurateur’s business or the hotelier’s or restaurateur’s personal experience.  Courts that have looked at this specific issue tend to focus on the history of violence known to the business owner.  In other words, the more you know about crime being committed in or around your business, the more likely it is that you will be found to have knowledge of future crimes being committed against your guests or customers.
• Finally, and perhaps most importantly, the duty owed to a hotelier’s or restaurateur’s guests or customers includes both (a) the duty to discover that criminal acts are being committed or are likely to be committed and (b) the duty to warn guests or customers so that they may avoid harm or to protect them against harm. 

As I said at the outset, the more a hotelier or restaurateur knows about crime at or around his location (which is the likely outcome of the hotelier or restaurateur fulfilling his obligation to discover criminal activity), the more likely it is that the hotelier or restaurateur must discover even more about the crime and warn of, or protect his guests or customers against, the crime.  The standard creates somewhat of a vicious circle for any business owner facing crime at or around his or her business. 

While I never advise clients to bury their heads in the sand and ignore the events and activities going on around them, I do routinely advise clients that taking a responsible and proactive approach to area crime requires that they must act appropriately in response to the information that they receive.  Knowledge plus inactivity is a recipe for disaster. 

(You can skip this next part if you know the drill or don’t like math). The dispute arises because of the lower dollar amount of tax paid when rooms are booked through OTAs using the merchant model, as opposed to the more traditional travel agent commission model.

Sample Calculation: Traditional Commission Model

• Hotel provides rooms for OTA to distribute at retail, say, $100.
• OTA collects the $100 plus per room plus 10% tax ($10) from the traveler
• OTA pays the hotel $110 and the taxing authority gets $10.
• Hotel pays OTA a 20% commission on the $100 ($20) on top of that and nets $80.

Sample Calculation: Merchant Model

• Hotel provides rooms for OTA to distribute at a price lower than retail, say, $80 per room.
• OTA marks up the “wholesale” price to, say, $110 and collects that amount from the traveler.
• OTA pays hotel $80 and the taxing authority gets 10% tax ($8).
• OTA keeps the rest ($22) as profit.

You see the problem, from the taxing authorities’ perspective. What happened to that $2 they feel they are owed in taxes? The hoteliers certainly don’t want to pay it, as that would effectively raise their tax rate, which can’t be right. The OTAs maintain that it’s not their tax to pay. All they’re doing is making profit by facilitating transactions; they aren’t hotel operators, they’re middlemen.

It’s a contentious issue, with all three sides having serious money at stake. Travelers have gotten into the fight as well with at least one class action lawsuit filed against Expedia on its home court in King County, Washington. The class action settled, but demonstrates this isn't one of those arcane tax issues exciting only to tax geeks.