Daniel Patrick Moynihan U.S. Courthouse, Southern District of New York, at 500 Pearl St. (NYLJ/Rick Kopstein)
Boies Schiller & Flexner, sharply reprimanded last year by a federal judge for taking on a case in which it had an obvious conflict, now has been ordered to pay $271,000 in legal fees and expenses to a former client.
Southern District Judge Colleen McMahon (See Profile) last October sanctioned Boies Schiller for suing its former client, Host Hotels & Resorts Inc., and performing an “incompetent” document review to investigate the conflict.
She held off on imposing the amount of sanctions until this month. After Host’s counsel, Proskauer Rose, requested Boies Schiller pay $412,343 in fees and costs, McMahon reduced that amount by about 34 percent in Madison 92nd Street Associates v. Courtyard Management Corporation, 13 Civ. 291.
In a statement to the Law Journal, Boies Schiller general counsel Nicholas Gravante said, “We expected the excessive fees that Host requested would be cut substantially and they were. However, now that we can finally appeal to the Second Circuit, we also expect the remaining sanctions to be summarily reversed.”
More than a decade ago, Boies Schiller represented Host, a real estate investment trust that owns more than 100 hotels in the United States.
Boies Schiller advised Host on whether Marriott International had violated obligations to Host related to Marriott’s management of Host’s properties. The Boies Schiller attorneys on that matter included lawyers from its New York City and Armonk offices, including name partner David Boies.
In the spring of 2002, Host, with the help of Boies Schiller and another law firm, negotiated and executed a settlement with Marriott, which included a number of new agreements about the relationship between Marriott and Host going forward.
More than 10 years later, Boies filed suit against Host, on behalf of Madison 92nd Street Associates, the former owner of an Upper East Side hotel. Also named as defendants were Marriott, a union and others.
In the January 2013 lawsuit, Boies Schiller on behalf of Madison alleged that Host and Marriott entered into a conspiracy to ensure that certain hotels owned or operated by Marriott would not be union hotels, while others, including Madison’s hotel, would be.
The lawsuit accuses Host and Marriott of entering into an agreement in mid-2002—-the time when Host, advised by Boies Schiller, entered into multiple agreements with Marriott that restructured and extended their relationship, McMahon noted.
“[Boies Schiller's] involvement in negotiating, papering and blessing a settlement that it has now painted as an unlawful racketeering and antitrust conspiracy clearly shows that its recent representation of Madison was substantially related to the firm’s prior engagement with Host,” McMahon said in her October 2013 ruling.
“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,” she said. “[Boies Schiller], which holds itself out as one of the country’s preeminent law firms, did not.”
Before taking on representation of Madison, Gravante performed a conflict check, revealing that Host had been a client of the firm years earlier, McMahon said.
The judge said the record does not include much information about what Gravante did next. “It is clear enough what he did not do: he did not ask to review either the file or the billing records related to the earlier representation,” McMahon said.
A month before the Madison suit was filed in the Southern District, Elizabeth Abdoo, Host’s general counsel, received adraft of the complaint. Abdoo expressed concerns to Boies Schiller about the firm representing Madison.
Magda Jimenez Train, deputy general counsel at Boies Schiller, told Abdoo the firm did not have any reason to believe that the lawsuit was substantially related to any matter where the firm had represented Host. Boies Schiller had consulted with an outside ethics counsel, Michael Ross.
For advice on the conflict matter, Host turned to Proskauer Rose professional responsibility counsel, J. Charles Mokriski, who demanded that Boies Schiller turn over to Host all its records about the 2002 settlement and to immediately stop work on the Madison matter.
In early January 2013, Boies Schiller produced the first five boxes of documents. Jimenez Train said in court papers she reviewed the documents with “enhanced care” before turning them over.
“Either her definition of ‘enhanced care’ differs from mine or her statement is patently false,” McMahon said, adding the first five boxes of documents contain drafts of the revised Host/Marriott management agreements, which include a provision about “hotel employees” and a section tiled “collective bargaining agreements.”
In mid January, the firm filed its complaint against Host, Marriott and others.
It was only after Proskauer outlined to Boies Schiller that it was preparing to file a disqualification motion that Boies Schiller filed papers to withdraw from the case in March 2013.
What changed Boies Schiller’s mind, McMahon said, was seeing and understanding the importance of some documents from 2002, including a document that was turned over by Boies Schiller in early January.
In her October ruling, McMahon said Boies Schiller adamantly rejected Host’s complaint about the conflict before it even reviewed its own files relating to the work it had done for Host.
“It is incontrovertible that [the firm] started this lawsuit before anyone at the firm actually bothered to review the vast majority of its relevant files,” she said. “As for the document review that did take place: to describe [it] as incompetent is no overstatement.”
In her October ruling she said Host could collect fees it incurred from Dec. 18, 2012, which is when Boies Schiller, for the third time, denied there was a conflict and refused to stop work on the lawsuit.
In November, McMahon denied Boies Schiller’s motion for reconsideration.
“If you were looking for it, there was NOTHING subtle about this conflict. And the responsibility for unearthing it rested squarely on the shoulders of [Boies Schiller]—not its outside counsel, not its former client and certainly not Proskauer,” she said. “Any competent lawyer should have been able to see what was obvious.”
Proskauer sought $412,343 in attorney fees and costs. McMahon, in her most recent ruling, noted that the amount of lawyer time and client money expended on the conflict representation was excessive, She cut the sanction against Boies Schiller down to $271,063.
McMahon has also dismissed Madison’s entire case.
In his statement, Gravante said the record is clear that Boies Schiller and Ross “acted at all times in good faith.”
“Together, we diligently searched files over a decade old after pulling them out of storage, spending substantial time and resources, searching for the conflict that Host alleged existed, but refused to articulate to us. Further reflecting the firm’s good faith, after Host finally relented and showed us the single footnote in a memorandum that created the conflict, we withdrew within hours,” Gravante said.
“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,” said Abdoo in a statement.