Tuesday, April 21, 2009 | 1:32 p.m.
With a grand jury apparently investigating allegations of corporate espionage, Hilton Hotels Corp. today said it suspended development of its Denizen Hotels brand -- a brand that Hilton had planned to bring to Las Vegas and other cities.
Hilton, based in Beverly Hills, Calif., today acknowledged receipt of a federal grand jury subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting documents relating to Hilton's employment of former employees of competitor Starwood Hotels & Resorts Worldwide Inc. and materials that Hilton returned to Starwood in February.
On April 16, Starwood filed a lawsuit alleging its former employees Ross Klein and Amar Lalvani, and Hilton, unlawfully obtained and used Starwood information for development of the brand.
Hilton today said it has placed Klein, Lalvani and their luxury and lifestyle team on paid administrative leave pending Hilton’s review of the situation.
"At this time, further development of the Denizen Hotels brand has been temporarily suspended," Hilton said in a statement today.
Last week, after the suit was filed, Hilton said it was without merit and that it would vigorously defend itself.
Sources have told the Las Vegas Sun that the Denizen brand was planned for the 3,000-room Cosmopolitan resort under construction on the Las Vegas Strip. In announcing the Denizen brand last month, Hilton called it an upscale, eclectic product that was planned for Las Vegas and other key cities.
Starwood, based in White Plains, N.Y., charged that Klein, former president, Starwood Luxury Brands Group; and Lalvani, former senior vice president, Starwood Luxury Brands Group, "aided and abetted by Hilton, stole massive amounts of proprietary and highly confidential Starwood information which was used to expedite Hilton’s entry into the lifestyle hotel market, reposition its luxury brands and substantially reduce its costs and risks of doing so.''
Starwood said Klein and Lalvani were recruited to Hilton in June. The lawsuit alleges that Klein and Lalvani, directly and through other Starwood luxury brands employees they recruited to Hilton, stole more than 100,000 electronic files – truckloads of documents when printed – before and after they joined Hilton, in violation of both their contractual and fiduciary duties. The lawsuit also alleges that among the stolen materials was confidential information about Starwood’s W hotel brand that Hilton used in the development of its Denizen brand.
Starwood said that in November 2008, Starwood initiated arbitration with Klein over the non-solicitation provisions in his employment contract and separation agreement, and put Hilton on notice to preserve relevant information.
"Three months later, and just days before Hilton announced the launch of its new lifestyle brand, Starwood received from Hilton eight large boxes of hard copy documents as well as computer hard drives, Zip drives, and thumb drives containing more than 100,000 electronic files downloaded from Starwood computers, much of it highly proprietary. It was at this point that Starwood first became aware of the theft," Starwood charged.