U.S. District Senior Judge Alexander Harvey II yesterday dismissed a claim for punitive damages against Host Marriott Corp., but agreed to continue a bondholders' suit for $18 million in compensatory damages against the Bethesda-based hotel owner.
At the end of the second week of testimony in a federal securities fraud case, Judge Harvey said there was not enough evidence to support a common law fraud claim against Host and its predecessor, the Marriott Corp., which has been accused of illegally concealing from bondholders plans to divide the company in two.
Common law claims, which provide for punitive damages, are proven only by "clear and convincing" evidence.
But the judge agreed to let the bondholders continue with a federal securities law claim. That law, which does not allow for punitive damages, says claims can be proved by "a preponderance of the evidence."
Attorneys for both sides said they were pleased with the ruling.
Arne Sorenson, lead attorney for Marriott, said he was "quite pleased" that the judge had dismissed one of the claims. He said he expected to mount his defense of Marriott Tuesday and hopes to wrap up the trial by the end of the week.
Lawrence Kill, the lead attorney for a group of 11 bondholders, said he was pleased the judge had allowed one of his claims to proceed.
For the past two weeks, Mr. Kill has brought top Marriott executives to the witness stand in an attempt to prove allegations that they plotted to divide Marriott Corp. into a profitable half and a debt-ridden half even as they sold $400 million in bonds in April 1992.
But the Marriott officials have unanimously insisted they didn't think of the division until after the bonds were sold.
After the October 1992 announcement of the plans to divide Marriott into Host -- which held the bonds, $2.5 billion in other debts, and some troubled real estate -- and the profitable hotel management company Marriott International Inc., the bonds fell in value by as much as 30 percent.
Since then, the bonds have risen back to their face value, and the stock in both new Marriotts has risen.