Key Issues Emerge Around Hotels’ Liability For Sex-Trafficking

When violent gangs arrived in Monroe County, Pennsylvania, in 2011, the general manager of a local Howard Johnson franchise “saw an opportunity” to make money, a federal prosecutor claimed in October 2020.

“Faizal Bhimani and the hotel provided rooms for sex-traffickers for their victims, agreed to let traffickers earn money before paying for rooms and shielded traffickers from police,” Sean Camoni, assistant U.S. attorney for the Middle District of Pennsylvania, told a federal jury on Oct. 6, 2020, the opening day of a criminal trial against the general manager as well as his uncle Nazim Hassam and Om Sri Sai Inc., the firm through which Hassam part-owned the Bartonsville hotel.

While state laws ban prostitution in most of the U.S., the 2000 federal Trafficking Victims Protection Act and its expansions, at issue in the Bhimani case, do not criminalize the voluntary provision of sex acts in exchange for money. Rather, the law targets those who force victims into selling themselves and any third party that knowingly reaps a financial windfall.

“[T]he evidence in this case will show that women were assaulted, manipulated, threatened, lied to, and kept high and addicted to drugs, all to keep them working selling sex for the profits of other people,” Camoni said in his opening argument.

Hospitality firms’ potential involvement with sex-trafficking runs the gamut from unwitting accomplice or turning a blind eye to active complicity, with Om Sri Sai seemingly among the most glaring examples of the latter, and far rarer, typology.

Thanks to the TVPA, as well as a patchwork of state laws that are often deployed in tandem with the federal statute, hotels and motels’ facilitation of sex-trafficking has come into the crosshairs of an increasing number of criminal prosecutions and civil suits over the past several years.

While litigation is still relatively fresh, the contours of some compelling legal questions have started to emerge. These include just how much the use of the civil statute should reflect the tenets of the criminal one, what kind of responsibility franchisors have over their franchisees’ conduct, and even what role, if any, insurance coverage may play, according to several experts.

“What is happening is the civil cases against managers and owners are getting past the motion to dismiss phase and into discovery, and where they go from there is still a story to be told,” said Bryan Mohler, a member of Pryor Cashman LLP’s real estate, hotel and hospitality, and litigation groups, noting many cases have settled privately.

“The general rule … is that you have to show that they knew or should have known, [such as] via continued business relationships between a hotel and trafficker, but that’s been a very easy bar for litigants to get past.”

From Individual Owners to International Chains

At the end of a two-week trial two years ago, the jury found Bhimani and Om Sri Sai guilty of enabling the sexual exploitation of women, while Bhimani’s uncle Hassam and another hotel in nearby Stroudsburg in which he was a shareholder were convicted for facilitating the trafficking of drugs.

In November 2020, the district court preliminarily instructed Om Sri Sai to forfeit the Bartonsville Howard Johnson and all its other tangible and intangible properties.

Camoni, the federal prosecutor, told Law360 this week the case likely marked the first time a federal court ordered the forfeiture of a hotel property in a criminal sex-trafficking case under the TVPA, which also covers forced labor and other forms of modern slavery. The district court later allowed Om Sri Sai to pay $2 million in lieu of handing over the real estate.

It was also one of only a few instances thus far of a hotel being criminally charged under the law, and ostensibly the first conviction, Camoni said, underscoring the complexity and importance of working with victims in TVPA-related criminal cases, sometimes years after the alleged offenses took place.

“Some are still deep in addiction, some have recovered, some have made it out and gone far, far away and really don’t want to be dragged back into that world,” Camoni said. “It is really difficult, but absolutely necessary … because without their testimony, we would just be dead in the water. And that goes for the cases against the pimps, the case against the hotels, all of these sex-trafficking cases.”

Bhimani’s attorney Bernard J. Brown confirmed to Law360 that they are appealing the conviction in the Third Circuit on evidentiary and procedural grounds involving a law enforcement interrogation of the Howard Johnson manager that was played for the jury.

Brown described Bhimani’s predicament as being caught “between a rock and hard place” amid his personal relationship with his hotel owner uncle and the dangerous nature of the activities happening at the Howard Johnson.

Prosecutors have in the past taken aim at individual hotel or motel owners. In July 2015, for instance, Kanubhai Patel of Kenner, Louisiana, admitted profiting from sex-trafficking that took place at the Riviera Motel he owned in New Orleans.

“Patel learned that members of the sex-trafficking conspiracy physically assaulted women they prostituted, including one instance in which a co-conspirator brutally beat one woman with a large piece of wood while she screamed for help,” federal prosecutors noted upon announcing the hotelier’s guilty plea.

According to the latest figures from the Washington, D.C.-based Human Trafficking Institute, 140 new federal human-trafficking prosecutions were filed in 2021, down 22% from the previous year, and contributed to the more than 600 active criminal cases at year’s end. Nearly all the new cases, 92%, involved the sexual exploitation of victims, with the remainder comprising primarily cases of forced labor.

In 43 criminal cases last year, hotels or motels were identified as the place where the commercial sex acts occurred, with locally owned venues appearing in seven suits, Motel 6 in six, Quality Inn in four, and 20 other hotel chains in a combined 32 cases.

“The only data point that I can think of that we’ve actually seen a trend in is … an increase in the number of independent hotels [linked to criminal cases] and not as many cases involving large chains,” HTI’s senior legal counsel Lindsey Lane told Law360.

She noted, however, that she could not pinpoint whether that may be the result of traffickers favoring budget facilities rather than high-end ones, diverging compliance efforts by one and the other category, the focus of recent investigations, or other factors.

Leveraging the TVPA

“If a trafficker is charged and he was using a hotel as a location for the commercial sex to take place, should the hotel be charged as a defendant in that?” Lane asked. “What’s really neat about the TVPA is that there’s also a civil avenue.”

Upon its enactment, the 2000 Trafficking Victims Protection Act streamlined the patchwork legal framework barring “slavery and involuntary servitude” under the 13th Amendment of the U.S. Constitution that federal prosecutors had used to pursue alleged instances of forced labor and sex-trafficking involving adults and minors.

In 2003, Congress enhanced the statute by making human-trafficking a predicate offense under the Racketeer Influenced and Corrupt Organizations Act as well as establishing a civil right of action for victims to sue their ostensible traffickers. In another landmark reauthorization in 2008, federal lawmakers extended application of the law to individuals and companies that financially benefit from activities they knew or should have known are linked to the crime.

The latter expansion spurred a wave of civil litigation against the hospitality industry for profiting from sex-trafficking in particular, according to data from the Human Trafficking Legal Center — another nonprofit organization that collects and analyzes relevant data.

From 2019 to 2021, 117 civil suits were brought against sex-traffickers and their facilitators, according to the latest figures the center makes available on its website, and an additional eight suits contained allegations of both sex-trafficking and forced labor.

According to an earlier, 2021 report from the HTLC, of the 105 civil sex-trafficking lawsuits initiated under the TVPA until Dec. 31, 2020, 49 were aimed at hotels accused of benefiting from the victims’ sexual exploitation on their premises. In 2020 alone, 11 of 27 civil sex-trafficking cases filed by plaintiffs targeted hospitality firms. 

Ricchio v. McLean

Ostensibly, the first civil sex-trafficking lawsuit against a hotel under the TVPA came in July 2015 when Lisa Ricchio sued her convicted trafficker, Clark McLean, as well as the Shangri-La Motel in Seekonk, Massachusetts; owners Ashvinkumar and Sima Patel; and the firm through which they controlled the property, Bijal Inc., for their respective roles in Ricchio’s exploitation four years earlier.

“On one occasion, Ms. Ricchio begged Ms. Patel for help and told her that she was being held against her will,” Ricchio’s complaint alleged. “Ms. Patel refused Ms. Ricchio’s pleas for help, even after Mr. McLean grabbed Ms. Ricchio, kicked her and dragged her back to his motel room in full view of Ms. Patel.”

In February 2016, U.S. District Judge Richard G. Stearns of the District of Massachusetts granted the defendants’ motion to dismiss after finding that, at best, Ricchio’s complaint could plausibly point to the hotel management “turning a blind eye” to the situation, but that it did not “support the inference that the motel managers were in a trafficking venture with Clark.”

Ricchio appealed, and 14 months later, the First Circuit reversed the dismissal and remanded the case after a three-judge panel found that “factual allegations and reasonable inferences in Ricchio’s favor” were “sufficient to pass muster under the plausibility standard.”

The parties settled the case privately in December 2019, on the second day of trial and after Ricchio took the stand, Cynthia D. Vreeland, a partner at WilmerHale in Boston and counsel for Ricchio, told Law360.

Of the other 104 civil sex-trafficking cases filed against hospitality firms and other respondents until December 2020, 14 yielded settlements or judgments for the plaintiffs, 10 were either thrown out by the courts or resulted in judgments for the defendants, and 19 were voluntarily dismissed. More than half of the cases, or 56, were ongoing as of the following year, according to the HTLC.

“On the civil side, it is really difficult to know if there is any kind of upward trend in accountability because those cases are often resolved and the settlements are private,” said Lane of the Human Trafficking Institute.

An Eleventh Circuit opinion from Dec. 22, 2021 — which upheld a district court’s dismissal of four unidentified victims’ claims against Choice Hotels International Inc., Wyndham Hotels & Resorts Inc. and Microtel Inn & Suites Franchising Inc. — appears to go to the heart, though not necessarily resolve, at least two issues that arise from suing property owners over the facilitation of sex-trafficking.

All Over the Map

For one, that 31-page opinion in the interlinked cases Jane Doe #1 – #4 v. Red Roof Inns Inc. addressed the issue previously debated by multiple district courts of whether the TVPA requires that, in showing respondents participated “in a venture” with the trafficker, plaintiffs need to fully align the law’s criminal and civil standards.

Transposing the criminal definition of “participation in a venture” into the civil statute would render the latter’s “should have known” standard “superfluous,” Eleventh Circuit Judge Andrew Lynn Brasher wrote for the panel, in disagreement with the district court.

However, in hitting another legal question that has come into focus over the past two years, the panel agreed with the district court’s finding that the four victims had failed to plausibly show the franchisors participated “in the common undertaking of sex-trafficking with hotel employees, management, owners and sex-traffickers.”

The judges determined the plaintiffs’ allegations that the franchisors’ licensing of their brands in exchange for royalties, fee and revenue-sharing; oversight of certain employee training; monitoring of online reviews that contained generic allegations of sex-trafficking on the premises; and ad hoc investigations did not rise to that threshold.

“[O]bserving something is not the same as participating in it,” Judge Brasher wrote.

According to Mohler of Pryor Cashman, courts across the country have increasingly been adhering to the distinction between a hotel franchisor and its actual managers and owners since the U.S. District Court for the Eastern District of New York became among the first to draw it in July 2020 when largely granting a motion to dismiss by Choice Hotel International, Wyndham Hotels and Resorts, and Howard Johnson International in S.J. v. Choice Hotels Inc. et al.

“However, to conclude that franchisors … are liable under the TVPRA simply because they were generally aware that sex-trafficking sometimes occurred on their franchisees’ properties unjustifiably bridges the scienter gap between ‘should have known’ and ‘might have been able to guess,'” U.S. District Judge Brian M. Cogan wrote at the time in a 16-page order.

Since then, many franchisor defendants have cited that decision in seeking dismissals of similar allegations against them, said Mohler.

“There was lots of litigation brought against franchisors, because they are the ones with the big pockets,” he told Law360.

While courts seem to agree that victims must meet the same minimum “should have known” standard in going after immediate hotel owners and managers and their more remote franchisors — with the latter harder to do, given the distance separating franchisors from the specific premises at issue — many suits against name-brand hotels remain in various stages of development across the country.

For instance, while the Jane Does’ claims against Choice Hotels International Inc., Wyndham Hotels & Resorts Inc. and Microtel Inn & Suites Franchising Inc. were dismissed in the Northern District of Georgia, the victims refiled their surviving allegations against multiple Red Roof Inns, as well as other defendants, under a different case number in the same district. That suit is pending.

Meanwhile, just last month, the Third Circuit waded into another quagmire: whether insurance companies must defend or indemnify hospitality policyholders that are sued for enabling sex-trafficking in their rooms.

A three-judge panel determined that Nautilus Insurance Co. does not have to cover the legal costs that client Motel Management Services Inc. — which operates the Neshaminy Inn outside Philadelphia — and its owners incurred as part of a state suit whereby three women accused them of turning a blind eye to their sexual exploitation.

The victims’ violent abuse “unambiguously” fell under the “assault-or-battery exclusion” of the inn’s general liability insurance policy, the panel found.

Other courts have found differently, based on the exact type of coverage and victims involved.

According to Pat McDonough, a partner at Andersen Tate & Carr PC, commercial insurance policies have typically covered the claims he and his co-counsels have brought and settled under the TVPA, with any exemption being “very fact-specific.”

“To date, we have litigated or have ongoing litigation in over 30 TVPRA cases, and only one carrier for part of our client’s time at a hotel was released on a sexual assault exclusion,” McDonough said. “Conversely, in another trafficking case of ours, the court found a general assault and battery exclusion did not apply.” 

In April, U.S. District Judge Thomas W. Thrash Jr. for the Northern District of Georgia declined to free Mesa Underwriters Specialty Insurance Co. from defending two firms that own and manage a Red Roof Inn in Norcross after finding the insurer did not sufficiently show the two minor victims in the underlying state lawsuit alleged a degree of physical abuse that would fall under Mesa’s assault and battery policy exclusion.

Under the TVPA, much like statutory rape laws, minors are presumed coerced regardless of their specific relationships and dealings with their pimps.

“I think it’s incumbent upon the insurance companies to make decisions about what they’re going to write into their sexual misconduct liability policies,” said Shea Rhodes, co-founder and director of the Institute to Address Commercial Sexual Exploitation at Villanova University Charles Widger School of Law.

According to Rhodes, the dozens of civil cases the TVPA’s expansion in the 2000s have spawned is a “real call to action” for the hospitality industry.

“It is driving awareness among hotel employees; it is driving awareness among people who are also going and staying in hotels,” Rhodes told Law360. “And I just think the more awareness in a community is something that’s really important.”

Since 2017, hotel employees have tipped off federal authorities to at least 12 criminal cases, the HTI found.

In Part 2 of this series, Law360 looks at what hospitality companies have done and can do in the future to help mitigate the threat of sex-trafficking on their premises.

–Additional reporting by Joyce Hanson, Ryan Harroff and Kelcey Caulder. Editing by Philip Shea and Kelly Duncan.