Host Hotels GC ID'd Boies Schiller Conflict Early On

, The Litigation Daily

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This story first appeared in Corporate Counsel, an American Lawyer affiliate.

Hell hath no fury like a general counsel scorned by her outside counsel. On Thursday, GC Elizabeth Abdoo made Boies, Schiller & Flexner (BSF) feel the depth of that fury.

Abdoo and her company, Host Hotels & Resorts Inc., won sanctions against BSF for its conflict of interest in trying to represent another entity suing Host. In a sharply worded decision [PDF], U.S. District Judge Colleen McMahon in Manhattan ordered the firm to pay Host’s attorneys fees after the law firm agreed to bow out of the litigation.

“A clearer conflict of interest cannot be imagined. A first year law student on day one of an ethics course should be able to spot it,” Judge McMahon wrote.

“BSF, which holds itself out as one of the country’s preeminent law firms, did not” adequately investigate the conflict of interest when Abdoo raised it, the judge said. Instead the law firm “undertook a representation that would inevitably attack its own [previous] work for Host.”

Abdoo said in a brief statement:

“Host placed its trust in Boies to handle one of the most important matters in our company’s history, and the firm’s failure to fulfill the most basic ethical obligations to its client is deeply troubling. We are of course pleased with Judge McMahon’s decision, which clearly and forcefully sets forth the law firm’s conflict of interest.”

BSF partner and general counsel Nicholas Gravante Jr. said in a statement [PDF] that the firm is disappointed in the court’s ruling, which he said ignored crucial and undisputed facts.

“We believe the ruling is wrong and its intemperate language, and the amount of sanctions awarded, wholly unjustified. We are confident that once the facts are fairly and properly evaluated on appeal, the ruling will be reversed.”

The situation resembles a case last year, when 3M sued its one-time outside counsel, Covington & Burling, for breach of fiduciary duty and breach of contract when that law firm decided to represent a plaintiff against 3M. Several general counsel at the time called that case “troublesome” because of Covington’s stance.

In the Host case, Abdoo said in court documents that she joined Host in 2001 and began overseeing BSF’s work as an outside counsel to the company over the next several years. She declined further comment.

As recently as the summer of 2012, Abdoo told the court, Host deputy general counsel Kevin Gallagher contacted name partner David Boies by phone and email to ask if BSF would represent Host in a litigation matter. Boies didn’t respond.

A key element of Boies' work for Host had involved settling a long-running dispute between Host and Marriott International Inc. in 2002.

Host owns 103 hotels in the U.S. and 15 foreign properties, and its hotels are managed by third parties under brand names, such as Hyatt, Marriott, and others. For instance, Marriott operates the New York Marriott Marquis and the New York Marriott Downtown, both Host hotels.

When the dispute with Marriott was settled, BSF also did work for a special committee of Host’s board of directors analyzing all the agreements that went into the settlement. Most of these documents were sealed by the court.

But in January this year another New York hotel operator—who went bankrupt and blamed union problems—sued Marriott and Host in federal court. The plaintiff claimed a deal was reached at the same time as the 2002 settlement that included a conspiracy among Marriott, Host, and a major hotel union that was detrimental to the plaintiff’s investment.

BSF had argued that before it agreed to represent this plaintiff, its own general counsel Gravante performed a conflict check and concluded the new matter was not substantially related to the former representation of Host.

But when Abdoo was first notified of the pending litigation and of BSF’s role on Dec. 4, 2012, she thought otherwise. She said she immediately called BSF citing the conflict, and followed up with an email. She said BSF had been privy to confidential business and legal information, as well as to the confidential Marriott settlement that it negotiated.

She received an email response two days later from BSF partner and deputy general counsel Magda Jimenez Train saying the law firm had investigated her allegation and concluded, “There is no actual or potential conflict.”

Jimenez Train sent a second email to Abdoo on December 8, according to court documents, saying on further review the law firm still felt that no conflict existed.

So Abdoo hired J. Charles Mokriski, Proskauer Rose’s professional responsibility counsel, to try to settle the matter. Mokriski tried to convince BSF of its conflict in the case, but again it claimed it had none.

“Eventually after Proskauer prepared a motion to disqualify [BSF] that spelled out the situation in words of one syllable, BSF capitulated and withdrew,” the judge said.

Gravante complained in his post-decision statement that Host relied on two documents found in 39 boxes of records that BSF had voluntarily produced concerning its previous representation 10 years ago.

But apparently that was enough for Judge McMahon. She cited one particular 23-page memo written by Boies and sent to Abdoo in May 2002 that “was proof positive that BSF had a serious conflict.” The content of the memo was redacted in court files.

Judge McMahon wrote, “It takes but another moment to understand that the [BSF] lawyers who advised Host and who helped draft the [2002] documents here under attack . . . would be critical witnesses about the very matters asserted” in plaintiff’s complaint.

She concluded, “This is not ethical rocket science.”

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