Property owners, Marriott face off

For John J. Flatley, a multimillionaire property developer, the eviction of his trusted overseer was more than he could bear.

Flatley, an experienced real estate executive, had hired Marriott International to run his big new hotel in Quincy, Mass., south of Boston, but had installed his own man, Steven Lambert, to keep an eye on the business. The relationship between Flatley's team and Marriott had grown contentious over some disputed invoices, and the breaking point came last March, when Lambert asked Marriott to explain what he said was a vaguely worded bill to the hotel for $3,000 in unspecified sales and marketing services.

"Marriott said, 'You're not privy to that information,' " said Philip A. Baldi, the chief financial officer of the Flatley Co., in Braintree, Mass., which runs a Flatley family trust that owns the hotel. Marriott, Baldi said, then ousted the asset manager from his hotel office.

In September, just 15 months after his Boston Marriott Quincy Hotel opened, Flatley sued Marriott in U.S. District Court in Boston, accusing it of fraud, accounting irregularities, mismanagement and taking kickbacks from suppliers.

At least three other lawsuits by the owners of Marriott-run hotels — including Ritz-Carltons, Marriotts and Renaissances in several cities — make similar complaints, tarnishing the company's reputation and its stock price. At stake is not just Marriott's market value but tens of millions of dollars in fees — and, perhaps, the balance of power in the $80 billion hospitality industry.

Hotel owners now pay Marriott up to 17 percent of their gross revenue in fees, up from about 9 percent in the early 1990s, said Jack Westergom, an asset manager at Manhattan Hospitality Advisors, a consulting firm in Manhattan Beach, Calif.

In some cases, hotel owners say Marriott's fees have unexpectedly doubled or tripled, in part because of what one lawsuit calls self-dealing by Marriott.

"Marriott had always seemed to run great properties," Baldi said. "But then they built a culture of secrecy in their accounting practices. Had we known what we were getting into, we wouldn't have gotten into it." Last year, he said, Marriott billed the hotel about $8 million, but despite repeated requests by Flatley has yet to provide invoices backing up the expenses. Flatley has hired two forensic accountants, Warren M. Schneider and Raymond R. Ciccone, to review Marriott's books in connection with the lawsuit.