Instead of Zen Dens, Starwood Builds an Espionage Case Against Hilton

The lawsuit, filed in April, alleges that when Nassetta began the recruiting process, Klein requested "large volumes of confidential information from Starwood employees, which he took home, had loaded on a personal laptop computer and/or forwarded to a personal e-mail account, and which he then took to and used at and for Hilton." The lawsuit also contends that Klein signed an employment agreement -- which he faxed to Hilton from Starwood's office -- but waited three days to tell his boss he was leaving, all the while requesting more documents.

Klein's attorney, Ronald Nessim, said: "Starwood's complaint is in large part an exaggerated and one-sided recitation of the facts. Ross Klein is convinced that once all the facts are known, and put in perspective, it will be shown that, while mistakes were made by everyone involved including himself, Starwood and Hilton, he acted in good faith and with no intent to injure Starwood."

After joining Hilton, Klein recruited other Starwood employees to join him. Starwood was not happy and began arbitration proceedings against him for violating non-solicitation provisions of his employment contract. Hilton's attorneys, in preparing for that case, discovered hundreds of thousands of Starwood documents and electronic files, according to the letter they sent Starwood with the returned material. A few days later, Hilton said it was launching a brand code-named Project Global 21, which a month later it introduced as Denizen.

"Klein and Hilton have trumpeted the name Denizen, which has a familiar ring with Starwood," the lawsuit says, noting that some of the documents taken contain confidential references to a new but unclear concept within W hotels called "zen den." Among other things allegedly stolen: the idea for a "restro-lounge" in a living-room area, a roster of developers that own luxury hotels, and "Brand in a Box" modules that include "proprietary training, operational materials and procedures for opening" a boutique hotel.

"This brand-in-a-box information provides Hilton with the means to bring a competitive hotel chain to market expeditiously and without expending tens of millions of dollars and many years on development, thereby avoiding the inevitable and costly trial and error along the way," the lawsuit contends. "Instead, Hilton has been able to exploit the time and tens of millions of dollars that was invested by Starwood to create these materials."

Starwood officials declined to comment on the allegations. Lalvani's attorney, Christopher Morvillo, said: "Given the pending investigation and lawsuit, all I can say is that Amar has a sterling reputation in the industry and looks forward to putting this all behind him at the appropriate time." Meanwhile, Hilton has placed Klein, Lalvani and several others from their team on paid leave and has stipulated in court that it was suspending development of the project.

The case poses a distraction for Hilton as it prepares to move to the region. What the company intends to say in its defense of the lawsuit and whether criminal charges can be brought are unclear, as is how far Starwood wants to take the fight, according to attorneys following the case. "I think Starwood has gotten a lot out of this already," Liffer said. "Their former employees aren't working for their competitor, and they have stopped this product. So if they wanted to, they could declare victory right now."

When Hilton hired the former Starwood employees, Nassetta said, "I believe that their experience will be invaluable as we work to fulfill our growth ambitions." Now the hotel world is waiting to see whether those contributions -- and Hilton's entry into a key hotel segment -- will ever happen. Quadri-Felitti, the NYU professor, said, "We haven't had something this juicy to follow in a while."