Starwood 2003 Annual Report Download - page 112

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
does not believe that any payments under this guaranty will be signiÑcant. Lastly, the Company does not
anticipate losing a signiÑcant number of management or franchise contracts in 2004.
Litigation. The Sheraton Corporation (""Sheraton Corp.'') (formerly ITT Sheraton Corporation), a
subsidiary of the Company, is a defendant in certain litigation relating to Sheraton Corp.'s management of a
hotel. The case is titled 2660 Woodley Road Joint Venture v. ITT Sheraton Corporation, Civil Action
No. 97-450-JJF (U.S.D.C., D. Del.). In December 1999, following trial, the jury returned a verdict Ñnding
that Sheraton Corp. had violated its contractual obligations to the hotel owner and awarded contractual
damages totaling $11 million. The jury also found for the plaintiÅ on certain common law and other claims
and awarded compensatory and other damages of $2 million and punitive damages of $38 million. These
amounts were fully reserved for as of December 31, 1999. The jury found for Sheraton Corp. and rejected the
plaintiÅ's additional claims that Sheraton Corp. had violated the Racketeer InÖuenced and Corrupt
Organizations Act (""RICO''), and that Sheraton Corp. had engaged in fraud. Sheraton Corp. believes that
the jury's determination against it on liability issues was erroneous as a matter of law, and that the damage
awards were excessive and not supported by the evidence. Sheraton Corp. sought to have the verdict set aside
in the trial court. In response to Sheraton Corp.'s motion, the court, in January 2002, amended the judgment
and reduced the punitive damages award from $38 million to $17 million; the court also trebled the jury's
$750,000 award for Robinson-Patman Act violations to $2.25 million on the basis of the court's interpretation
of that statute. The amount of the judgment, as a result, will be $31.4 million. Sheraton has Ñled a Notice of
Appeal with the United States Court of Appeals and plaintiÅs have Ñled a Cross-Notice of Appeal. The
appeal was signed on February 13, 2003. There can be no assurance that Sheraton Corp. will be successful in
having the verdict set aside, overturned or reduced on appeal, or that other owners of properties managed by
Sheraton Corp. will not seek to assert similar claims.
The Corporation, Sheraton Corp. and Sheraton Holding are defendants in certain litigations arising out of
purported contracts allegedly requiring the purchase of telecommunication, video and power services from
Intelnet International Corp. (""Intelnet''). The Ñrst suit was commenced in late 1997 by Intelnet in the
Superior Court of New Jersey Law Division: Camden County, alleging that Sheraton Corp. violated what
Intelnet claimed were Intelnet's exclusive rights to provide telecommunications and other services to Sheraton
Holding and its aÇliates. The complaint sought injunctive relief to enforce alleged exclusivity rights and
unquantiÑed monetary damages. The complaint was subsequently amended in November 1998 to seek speciÑc
monetary and unspeciÑed punitive damages. Sheraton Holding and Sheraton Corp. served an answer denying
Intelnet's claims, and asserting counterclaims seeking damages and a declaration that the purported contracts
at issue were unenforceable.
In June 1999, Intelnet commenced a second lawsuit in the Superior Court of New Jersey Law Division:
Camden County, naming Boardwalk Regency Corp. (formerly a subsidiary of the Corporation) and the
Corporation. The claims in this case are similar in nature to those made in the Ñrst suit, and relate to an
alleged breach of a purported exclusive contract to provide certain services to the Caesar's Atlantic City hotel
and casino. The two suits have been consolidated and were in mediation until 2001. The mediation ended
during the Ñrst half of 2001. Discovery is now complete, and the Company has Ñled summary judgment
motions for dismissal of Intelnet's claims. The hearing on these motions is scheduled for oral argument on
February 27, 2004. Trial is scheduled to commence in March 2004 if the defendant is not successful on all
their motions. The Company believes that Intelnet's claims are meritless and will continue to contest them
vigorously. The Company has accrued for the expected legal cost associated with the dispute and does not
expect that the resolution will have a material adverse eÅect on the consolidated results of operations, Ñnancial
position or cash Öows.
In November 2001, the Corporation, Sheraton Holding and Sheraton Corp. commenced a separate
litigation in the United States District Court for the District of New Jersey, asserting claims arising under
F-46