This Just In

Challenge to San Diego Convention Center Exclusive Heads Back to Trial

HIL ANDERSON, SENIOR EDITOR

San Diego, CA – A recent appeals court ruling over cleaning services at the San Diego Convention Center threatened to fan the differences of opinion over exclusive services at convention centers.

The U.S. 9th Circuit Court of Appeals ruled on August 15 that a new trial should be held in San Diego based on allegations that the San Diego Convention Center Corporation (SDCCC) improperly interfered with a valid contract between United National Maintenance (UNM) and two general service contractors to provide cleaning services for trade shows held at the convention center. At the same time, the appeals court upheld the contention by the San Diego Convention Center Corporation (SDCCC) that it was immune from antitrust laws since it was considered a government entity.

BACKGROUND

The dispute arose in 2007 after the SDCCC mandated that UNM use only convention center employees to perform cleaning services, and in addition to paying their hourly wage, UNM should turn over what essentially amounted to 100% of UNM’s revenues from the show to the SDCCC.

UNM alleged that SDCCC’s rules in effect knocked UNM and other cleaning contractors out of the market, particularly when overhead costs such as equipment, insurance, supervision, etc. were factored in, which forced them to operate at a loss.

UNM sued in 2007 on the grounds that the SDCCC was improperly interfering with UNM’s contracts with general service contractors. The company also accused the SDCCC of antitrust violations, alleging the SDCCC created a monopoly on cleaning services at the center strictly to collect the money. Read more from TSE’s archives: http://65.36.240.184/archive/industry-news/us-federal-court-rules-against-san-diego-convention-center-cleaning-policy-dispute/

A federal court jury in 2011 found that the SDCCC had torpedoed UNM’s contract for cleaning services when it declared in 2007 that only SDCCC employees could perform cleaning services for trade shows at the convention center and barred employees of other companies such as UNM from performing that work.

The jury did not reach a verdict on the antitrust allegation, but it awarded UNM $668,905 in damages for contract interference. But in a surprise twist, the trial judge agreed with the SDCCC’s motion to nullify the jury verdict on the grounds their decision was not supported by the law.

The 9th Circuit ruling last week reversed the reversal, but did not reinstate the damages due to a technical issue in the jury instructions.

NEW TRIAL

The ruling will send UNM and SDCCC back to trial court in San Diego to retry the interference claims. It gives UNM another shot to win damages for SDCCC’s alleged interference with its contract, but it also appears the ruling may open the door down the road to convention centers freely imposing exclusive services.

THE SDCC’S POINT OF VIEW

The SDCCC viewed the ruling as a “landmark win” for convention centers seeking to improve revenue streams and exercise greater control over access to their buildings. Carol Wallace, president & CEO of the SDCCC, was not available to speak with Trade Show Executive to elaborate on the future status of exhibit hall cleaning and other services in San Diego, but she issued a statement. “This is a win for San Diego, but more importantly, it is a landmark win for the facility management industry as it allows venues to operate and manage their buildings as they see fit,” she claimed in the statement.

The International Association of Venue Managers (IAVM) told TSE they were pleased with the ruling. “We believe our venues have an obligation to their stakeholders to balance the expectations of those who operate inside their venues with their need to maintain and operate their facilities in the manner they feel is appropriate,” said IAVM president & CEO Vicki Hawarden. “We supported San Diego’s position fully and are very pleased with the outcome.”

REPERCUSSIONS FOR SHOW ORGANIZERS

The case has been closely watched by the trade show industry from the very beginning since many believe the SDCCC policy established an exclusive in which show organizers and general service contractors are limited to the convention center as the sole source of cleaning services. While venue managers may feel that cornering the market on various services is a convenient revenue stream to help cover overhead costs, show organizers see them as a dangerous long-term drag on their ability to offer cost-effective services to their own customers. Exclusives also disrupt the multi-event deals that some show organizers have with various service contractors, and thus have a ripple effect on pricing, often resulting in show organizers raising prices for their exhibitor and attendee customers. Finally, show organizers say that changing from an open policy to exclusive services often backfires. Convention center exclusives remain a bane to show organizers, who have in the past considered exclusives to be a good reason to avoid certain venues and look at others.

In 2010, prominent show organizers and industry associations sent letters to the SDCCC officials, asking them to reconsider the policy. The Society of Independent Show Organizers (SISO) released a statement, calling exclusive services “anti-competitive” in a TSE article in August 2010. The International Association of Exhibitions and Events (IAEE) and the Exhibition Services and Contractors Association (ESCA) also issued statements. Read more from TSE’s archives: http://65.36.240.184/archive/industry-news/siso-calls-service-exclusives-anticompetitive/

SISO, IAEE and ESCA told Trade Show Executive on August 22 that they plan to reiterate their position on exclusives with a joint statement soon.

WHAT’S NEXT?

A date for the new trial has not yet been set, but attorneys for UNM said they were confident they would prevail, and that there was no question now that the SDCCC could be held liable for damages. “The appellate court reversed that erroneous decision and sent the case back to the district court for a retrial,” said UNM’s attorney James Lance. “UNM looks forward to presenting its intentional interference claim to a jury again, and is confident that a second jury — like the first jury — will find that SDCC unlawfully interfered with UNM’s contracts to provide services at the San Diego Convention Center.”

Richard Simon, CEO of United Service Companies, the parent company of UNM, said a successful verdict in the second trial would “preserve the age-old tradition of letting show managers make the decision as to who provides their services based on price and level of service.”  (Simon is also the chairman of Trade Show Executive Media Group.)

“This is an industry issue that should be looked at by every show manager as a potential interference with their relationships with their service providers,” said Simon.  “At issue is whether or not show managers and show contractors can make contracts that will be upheld without interference from the facilities they use.”

Reach Richard Simon at (312) 922-8558 or rsimon@unitedhq.com; Carol Wallace at (619) 525-5000 or carol.wallace@visitsandiego.com; Vicki Hawarden at Vicki.Hawarden@iavm.org