"Foreigners Screwed Again by Russians!"
You've seen a variation of this headline in the Moscow Times a million times. The players change with the victims -- investors, tourists, Canadians, or government agencies -- taken for a ride and the perps -- real estate agents, gangsters, oil companies, uborshitsas -- charging more than market rate. But the basics of the story are as sure as a stolichny salat at a Russian birthday party: the predatory Russians with their petty schemes are always out to take advantage of well-meaning and honest Westerners. The West represents transparency, service with a smile, and good corporate governance and has Russia's long term interests in mind.
It's an easy story to push on a Western audience, because it reinforces our sense of moral and cultural superiority. So what happens when a story comes out which proves just the opposite -- that Westerners, the very best, can be just as underhanded, crude and fraudulent in Russia as Russians? We found out first-hand when lawyers who failed to get the Moscow Times to follow a story about one of the Times' biggest advertisers finally got frustrated and approached the eXile.
What follows is the story of a typical Russian scam, one that you can see on almost every street corner in Moscow, but this time the plaintiffs are claiming that it is being perpetrated by three of the biggest hotel chains in the world to the tune of tens of millions of dollars.
The scam itself is hardly newsworthy -- it's the old bait and switch, in which the customer believes he's paying price only to find out that he's had to pay a chunk more upon purchase. Just about every Obmen Valuti (currency exchange) in the center of town uses this scam, advertising one rate on the street and offering another in the booth as a means to earn a few extra rubles. Restaurants, car companies and airlines all use the UE (uslovnaya edinitsa, or conditional unit) to advertise a price in dollars and then offer an outrageous exchange rate on the final bill. It's also common practice among Western-operated hotels in Moscow, including the Marriott, the Hyatt and the Radisson, the three American hotel chains getting sued: they let guests book a dollar price on their website, but then fix it at an exchange rate that adds 15% or more to the bill.
Russia's courts are not highly respected for their impartiality, even by the Kremlin, so a consumer has little chance of defeating a multinational here. However, Paul D. Cullen, Sr., attorney and founder of the Washington, DC-based Cullen Law Firm, is trying to make the case that American consumer protection laws should apply to rooms reserved on the above hotels' on-line registration systems. His firm is trying to get jurisdiction in the U.S. for their lawsuit.
"Each of these companies has a worldwide reservation system and creates the impression that the final bill will be settled in dollars," he said. "A guest who's quoted for $230 expects, justifiably, that that's what he'll pay."
The way it works now, when a guest checks out, he gets charged in the ruble equivalent of UEs, which at these hotels is equal to 32 rubles. So, instead of the Central Bank's official rate of about 28.5 rubles to a dollar, the guest pays 32 rubles per dollar. It's basically adding a 15 percent surcharge to the room rates. Guests at these hotels pay overwhelmingly with credit cards, and many of them have no idea that they've been overcharged until their AmEx bill arrives. After all, add enough zeros and it all starts looking the same, but translate it back into dollars and 15 percent is nothing to sneer at. The complaint against Marriott filed by Cullen on behalf of Britt Shaw claims that he was overcharged 116 bucks for a single night, or 18 percent.
The gist of all three of the lawsuits is that consumers are promised one price when reserving a room online, only to be charged much more when presented with the bill. Since these hotels are based out of the U.S., Cullen argues that they should be accountable to U.S. consumer rights standards. "Our position is that consumers should be protected under American consumer protection laws," he said. "It's immaterial whether this practice is legal or illegal under Russian law."
Even though the rights to run these Moscow hotels are farmed out like franchises -- that is to say that the mother companies don't actually own or manage their Moscow properties -- the suits claim that the American companies are responsible for the false claims being made on their websites. "It's like claiming that a room has a panoramic view of Red Square and the Kremlin and, when the guest arrives, he finds out there's a building blocking his view," Cullen said. "It doesn't matter who the building blocking his view belongs to, the hotel knowingly created expectations that can't be fulfilled."
Since all three suits make more or less the same point, I'm going to concentrate on the Marriott case, which was first filed in May and is due for a status conference on November 15, by which time the judge has indicated that she hopes to rule on the Marriott's motion to dismiss. All three complaints are available at the Cullen Law Firm's website, www.cullenlaw.com.
Cullen's firm tried to contact the Moscow Times in May to get them to write about the case. Back then, Denis Maternovsky was the Times' real estate guru, although he has only a vague recollection of the story. "I checked the story out and it didn't seem like these guys were serious," he said. "I mean, the complaint was obsessed with proving that the Marriott was based in DC."
It's true, to the untrained eye the complaint does seem a little fanatical about proving the fact that the Marriott is headquartered in DC. There's no good reason that Maternovsky, who has since left the MT for greener pastures, should understand why that is such an important issue. The issue at the heart of this contention is that the Marriott presents itself as being headquartered in DC, although it is actually registered in Bethesda. It's a little like living on Tverskaya and being registered at the Kosmos Hotel out at VDNKh. You tell the authorities one thing and a girl you're trying to bring home another. In this case, the Marriott's website and stationary claim a sexy DC address, but have most of their employees working in the infinitely less-glamorous Bethesda.
But since DC has stronger consumer protection laws and one of the initial plaintiffs is a DC resident, Cullen's firm believes there's a stronger case to try the Marriott there.
The Cullen Law Firm is hardly an international heavyweight, which might be why Maternovsky dismissed their claim. However, most Americans (like the MT's editors) should know that it's generally small law firms that pursue personal injury and class action cases, while giant corporate firms generally represent corporations.
Lucian Kim, the MT's Business editor, also had a dim memory of the story. According to him, the Times was in a "state of transition at the time," and they didn't have an editor responsible for assigning real estate stories. "There's no conspiracy here," he said. "If you want to know whether Lynn pulled me aside and told me to sink the story, it's not the case."
But maybe they weren't terribly interested in pursuing the story, either.
Just after Cullen filed the complaint and requested a jury trial, the Times came out with a glossy special report on the Moscow hospitality industry (chock full o' ads from the Marriott, Radisson and Hyatt) that included hard hitting investigative pieces as "Moscow Hotels Declare 'Bed Wars,'" "60 Years Later, a Very Important Slumber Party" and "Moscow's Hotels Thrive in 2 Parallel Worlds."
Funny, but this is the same newspaper which hurrumphed about zakazukhi, or paid-for articles, with pieces like "Russian Journalism's Dirty Little Secret," published in the MT on June 9, 2001: "Ever wonder how newspaper editors decide which stories to print -- or not to print?" the article begins. "According to more than a dozen sources, including government officials, advertising agencies, academics and journalists themselves, the answer is money. Lots of money."
Oh, those corrupt, dirty Russians! Fu!
The Marriott, for their part, has hired DLA Piper Rudnick, one of the biggest law firms in the world, to defend itself. Their motion to dismiss -- the one that should be ruled upon by November 15 -- is mostly procedural fighting. That is, it doesn't dispute that the claims have merit, only whether it's within the DC court's jurisdiction to decide.
DLA is arguing that there is no case for DC jurisdiction, that the Consumer Protection Procedures Act does not have extraterritorial reach (meaning U.S. companies can screw Americans so long as they're abroad), and that since the guests voluntarily paid the bill, the Marriott is absolved of responsibility. Finally, and not surprisingly, DLA is arguing that Russia is a more appropriate venue to try the case. I repeatedly tried calling the three lawyers listed on DLA's motion, but they were always away from the desk, and never returned my calls.
Interestingly, the Marriott hasn't stopped its practice of overcharging, although a disclaimer is now posted on the Moscow reservations part of their website, claiming that all charges are in rubles, subject to the hotel exchange rate, and that prices exclude taxes, which equal 18 percent per night -- the exact percent mentioned in Cullen's case. This suggests to some that the Marriott recognizes its wrongdoing. Moreover, Cullen claims that the Marriott has compensated some guests who complained about the extra charges. "We've learned of some people who have complained directly to Marriott," he said. "If they made it enough of an issue, Marriott reimbursed the difference in the exchange rate." Perhaps Marriott is charging a sucker tax, then, applicable only to those who don't notice the discrepancy?
If the motion to dismiss gets denied, Cullen's next step is to file for class certification, which would open up a whole new can of worms. The issue then would be determining just who qualifies for consumer protection. Are non-U.S. residents covered? "Is, say, a resident of London or Paris also entitled to consumer protection under U.S. law?" Cullen asked. "The U.S. has treaties of navigation that go back to the 18th century which guarantee citizens of other countries access to U.S. courts." He certainly hopes so. The complaint asks for compensation of $1500 per violation over a three year period, starting May 2002. That would be for everybody who reserved a room online at any Marriott property in Moscow over that period. Not exactly chump change.
Obviously, Cullen is no Ralph Nader; he stands to make buckets of money if he wins this case. And it's not like Marriott guests are like Russian pensioners getting cheated out of their privatization vouchers. But this isn't a case of good guys vs. bad guys, just as it isn't in the reverse; rather, it's a case of Western companies -- and pious Western media -- getting caught behaving like the same savages that they've been wagging their fingers at for years.
The MT, with its conviction that Russia's salvation is in the hands of foreign investment, is guilty of turning a blind eye to it. While they'd certainly have pursued a case that presents the Russians in a bad light more aggressively, they always give foreign investors the benefit of the doubt, even when a good scoop is knocking at their door.
"We've made several attempts to contact the Moscow Times about these cases," Cullen said. "But so far to no avail."
Now, with this article, that might change. As Kim told me, "I'm going to put our new real estate guy on it."
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