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BY - TONI GIOVANETTI

PHOENIX - August  1998 -  A group of Best Western International (BWI) member owners filed a lawsuit in Arizona’s Superior Court against the association to force its democratically-elected board of directors to disclose financial, personnel and other records to expose what they allege are improper business practices and to seek to address them.

Calling itself “Vision 20/20,” the 100-plus member group had paid for an audit investigation in which a review of Best Western financial statements that began last January and was completed in May allegedly turned up “questionable” expense payments and severance  payments for former staff, among other alleged irregularities.

Jerry Manion, COO at BWI, said the lawsuit was “ill-founded” and based on personal vendettas by members who don’t want to live up to their membership requirements.

“There are three members with ulterior motives and they’re attempting to wreak havoc on the organization for their own personal reasons,” Manion said. “All of their questions were addressed by the board.”

The report was researched by accountant Charles Berg, a certified fraud examiner, who alleged numerous problems in the chain’s accounting procedures, such as ill-documented advances and falsified expense vouchers. Although the report was presented to the BWI board of directors for review, Vision 20/20 committee members stated in the lawsuit that their requests to review additional documentation and disclose it to the membership was denied, prompting the lawsuit by Roger Marce, who also represents litigant James Dittmer in personal litigation.

Filed June 9, the claims in the lawsuit include:
 

Questionable expense payments to  former President/CEO Ron Evans;
Former executives allegedly receiving “excessive” severance payments, one of which was rumored to be as much as $350,000, in exchange for silence about the company;
An endorsed vendor program which promises better service at lower rates, but which allegedly charges Best Western members more and provides the chain with a kickback;
Potential liability related to its refusal to disclose information to claimants suing the former BWI-endorsed insurance agent over the mishandling of insurance premiums;
Member dissension and potential litigation over design change requirements that have put an estimated 26% of members on probation (BWI puts the figure at 8.5%);
Pressure by the board to keep the Berg report a secret, instead of implementing independent controls and reviews of management expense practices and requiring the return of improperly paid expense monies.

Manion said the expenses incurred by Evans were investigated in an independent audit by Ernst & Young, which found that all but $13,043 were not sufficiently documented. The unexplained expenses were related to a tennis club with a private dining room that Evans used for business entertainment for directors, staff, the press and others that billed the company. 

Manion said Evans did not have detailed receipts and could not recall all of the occasions that he had signed for meals, so he reimbursed the company the difference to settle the issue. Evans had left the company at the end of March to assume directorship of Northern Arizona University’s hospitality school.

“The company did not pay one dime of personal expense for Ron Evans,” Manion said.

The BWI board of directors sent a  7-page letter to its membership on July 24 responding to a letter from Marce to members on the lawsuit, calling its assertions “ill-founded allegations.” The letter stated that three members of the Vision 20/20 committee sued BWI, not the full committee, and claimed that they had personal agendas. According to the board of directors, Best Western had given Berg access to all of the records he had requested, prior to his preliminary presentation of his findings at the board meeting on March 17.

“Mr. Berg now claims he was hampered in his access to records,” the letter states. “Best Western has no knowledge of  Mr. Berg ever requesting records to which he was denied accesss or making claims to that effect before Best Western refused to take over financial responsibility for his services. When Mr. Dittmer insisted that the transaction be dependent upon the unreasonable demand that Best Western also take on legal liability for any and all acts relating to Mr. Berg’s report, Best Western rightfully refused to agree.”

The three Vision 20/20 members  who the lawsuit said volunteered to file the suit for the committee included:

  • James Dittmer, 
  • Peter Kreuziger and 
  • Norman Blankman. 
The letter from the BWI board addresses oversight issues, stating that independent controls and reviews have been implemented and an additional full - time audit function is being developed under a contract with Deloitte & Touche, in addition to annual external audits by KPMG Peat Marwick.

Addressing “excessive payments to past employees,” the letter said the board adheres to a standard severance package in the majority of situations. It claimed that the “confidential settlement agreement” that was made in 1994 for an amount rumored to be around $350,000 was to a former vp “who threatened to sue Best Western and raised issues that posed possible legal jeopardy to the Best Western organization.” Two other payments to former executives were outlined, including a former vp who was given a short-term consulting contract in addition to severance for a “smooth transition,” and a staff director whose lawsuit for unjust termination was settled. Another case of a vp terminated in 1995 is ongoing and could not be  discussed, according to the letter.

Manion said the records are personnel-related and are private. Roger Marce, the attorney for Vision 20/20, said BWI’s board offers a circular argument for why it doesn’t go beyond the limited review of financial and related records for full disclosure to an auditor.

“They’re saying your request is  being rejected because it’s not for an  individual, and by the way, if it were for an individual it would be rejected for these reasons,” Marce said.

The BWI board of directors letter also addressed questions about the endorsed vendor program, explaining that individuals on occasion could potentially negotiate better prices, that Best Western charges a 2.4% mark-up, rather than the industry standard of between 14%-20% and that it is essentially fair to members.

BWI said virtually all litigation connected to the insurance program had been settled and that the problems have been addressed. Also, the letter said that only 8.5% of the membership is on probation for failing to make design changes, and that the changes were necessary to remain competitive. 

The hearing that at presstime was scheduled for Aug. 5 should have determined whether Best Western had any grounds to withhold any of the information requested and then set another hearing for ruling on the matter.

“We’re only asking for information that would help with creating a more open way of operating, so that programs that are ill-advised can be recognized early on,” Marce said. “We think there are problems being swept under the rug and people being paid off for confidentiality.”

Marce said the lawsuit has already had an impact in motivating the board to address issues, such as its move to establish an internal review office that doesn’t report to the president, is not hired by the president and is not accountable to the president.

A non-profit organization in which the chain operators are “members,” BWI elects its board of directors from seven districts in the United States. The board of directors, which meets in the headquarters office in Phoenix one week out of each month, essentially runs the company, but hires an executive team to execute policy. The board includes: Don Seaton, chairman; Mike Scholz, Loren Unruh, David Huff, Sr., Mark Brown, John Van Duyn and Cindy Binkele. Comprised of small business  operators, the directors on the board are paid for their time, including travel and other expenses.

Can not be reprinted without express written permission.  © ICD Publications,
HOTEL BUSINESS®, August 7-20,1998.

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Also See:
Jansen Named Vice President for Best Western International / Jan 1998 
H. Skip Boyer to Head Best Western Communications Functions / June 1998 

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