Bringing 360° thinking
to transactional challenges.

hospitality transactions consulting

One Man's Opinion Vol 2, No. 3

At the 2013 Georgetown Hospitality Law Conference, I suggested that the hotel management space consisted of the "majors" (generally speaking, Marriott, Hilton, Starwood, Hyatt, Wyndham, Fairmont Raffles, Four Seasons and a few of the luxury brands) and everyone else, including the third-party management companies. I posited the idea that all the litigation about which so many of us "hotel management geeks" (as my friend, colleague and new favorite author, Nelson Migdal, has called us) have written has been conducted to a near-universal result by the majors, who could afford the fight and needed to establish a precedent. Of course, the precedent now established has, for the most part, gone against them. I went on to suggest that the third-party managers would not have incurred the expense nor taken on the challenge of the issue of termination/agency/independent contractor raised (and mostly settled) by the Woolley case and its progeny. I raise this here because of the juxtaposition of two unrelated events.

As this is being written in early November 2014, word has come that Morgans Hotel Group has filed a lawsuit in New York to be allowed to remain in management of the Mondrian Soho based on the harm to its system that termination might bring, perhaps attempting to elevate itself into the "major" category (SeeMorgans Hotel Group battles to hold on to Mondrian Soho”). It seems to this commentator that the Morgans lawsuit should be virtually DOA. Morgans' argument that its system provides a basis for its remaining in management (under a theory of agency coupled with an interest) was more than adequately addressed a long time ago in the GGF v. Hyatt case in the USVI. The Eden Roc decision -- explicating the very same New York law in question in Morgans' suit -- would likely rule out any other argument that, somehow, Morgans has the right to stay. I am perplexed that this lawsuit was even filed.

At the same time, three different client assignments have required me to review pro forma management agreements from eight different third-party managers for both independent and chain-branded hotels. There is a noteworthy difference in complexity between a brand's management agreement and the myriad provisions protecting its contractual rights to tenures that border on unlimited, at least in the life of a hotel, and the rational term lengths and termination provisions contained in the vast majority of these form agreements. That the combined length of the eight different agreements I have recently reviewed averages about 28 single-spaced pages versus a two-times-or-more average length of an agreement from any of the majors should give pause to any rational participant in these markets.

I acknowledge that, at stops during my career, I was a contributor to some of the provisions that resulted from particular events in one hotel leading to a wholesale means of legislating that such event did or did not occur again, depending on whose ox was being gored. Reviewing 28, rather than 60, page agreements makes me regret my contribution to this aspect of the hotel management "literature."

Four Corners Notes

The onset of the NCAA basketball season will bring a welcome respite to Tar Heel fans, following the football team's less-than-stellar performance this Fall and the recently-released (and near-disastrous) Wainstein Report. Chancellor Folt is committed to restoring the University's good name, and, one can hope, Coach Williams' team will make only good headlines as we approach winter.

The principal of FCA, Michael Shindler, has over 40 years of sophisticated legal and transactional experience in commercial real estate, of which the last 30 years have been spent in the hospitality field.