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Hotel Lawyer with more on M Waikiki Edition lawsuit against Marriott – What Marriott’s General Counsel says

21 August 2011

One of the most read articles in the history of Hotel Law Blog is entitled: “
M Waikiki’s Edition lawsuit against Marriott and Ian Schrager – an owner’s HMA dispute with Marriott.

I have gotten a lot of compliments on the article from people saying that it helped them understand what was going on there. But a recent letter from Ed Ryan, Executive Vice President and General Counsel of Marriott International took quite a different tone.

Although I disagree with many of Ed’s points, the letter is thoughtful and well written. Ed encouraged me to publish it so people could see the “other side” of this issue. And in the interest of airing another view, I have done just that.

Read Ed’s letter below. Then read the blog again, and take a look at the complaint. Then you be the judge.

I look forward to hearing your thoughts.

Marriott International
10400 Fernwood Road
Bethesda, MD 20817

Edward A. Ryan
Executive Vice President and
General Counsel

August 18, 2011

James R. Butler, Jr., Esq.
Jeffer Mangels Butler & Mitchell LLP
1900 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067
Dear Jim:

I read with some dismay your blog about the Waikiki Edition lawsuit and what, in your view, it all means. Admittedly, there are a few points we agree on. You are correct, for example, when you say that it is important for owners to choose the appropriate operator and brand, and I also agree it is in everyone’s interest to carefully negotiate a contract that reflects a business arrangement we all are satisfied with and will live with. But some of your comments were simply wrong, and I write in the hope you will correct them.

With respect to the Waikiki Edition lawsuit, you refer to the “facts” in the complaint. But the complaint does not state facts – it makes allegations. I won’t discuss the specifics in this letter, but I am attaching our recently-filed Motion to Dismiss to ensure that you have a clearer picture of the facts and the law. It will suffice for here to say that Marriott remains committed to the success of the Waikiki Edition hotel, which has won rave reviews from the media. Marriott likewise is committed to the development of the Edition brand, although, ironically, the publicity the plaintiff created by filing the Waikiki lawsuit, as well as the current economic downturn, has rendered that task more challenging.

Second, I want to help give you a better view on the landscape of owner/manager dispute resolution. To begin, courts and arbitrators do not find that management agreements create an agency relationship that can be terminated at will. Quite the contrary. The Embassy Suites case you refer to was decided back in the early ’90s, and since that time, management agreements have changed radically to make clear that no agency relationship is being established. As a result, more recent cases go the other way. In two very recent decisions, for example, a New York court and an international arbitration panel both found that Marriott and Ritz-Carlton were not agents of the owners. The New York decision was rendered just last year in a case litigated by K.C. McDaniel on behalf of the owners of a Marriott property in Manhattan. We received the decision of the arbitration panel in April of this year in a case litigated by William Bosch of the Steptoe firm on behalf of the owner of The Ritz-Carlton, Jamaica. I’ve attached both decisions.

I think you will find the Jamaica decision particularly interesting, because it considers in great detail the owner’s multiple claims of breach and finds them to be unfounded. The panel refused to find any default and refused to allow termination of the agreement, and instead required the owner to pay several million dollars of Ritz-Carlton’s attorney’s fees.

This leads me to my next point. To be honest, I’m offended by your statement that operators make litigation a “war of attrition.” Of course operators vigorously defend lawsuits that are brought by owners; we have to, because our management agreements are key assets of our business. But typically the burdens of discovery fall far more on the operator than on the owner, because it is the operator that possesses most of the documents relevant to the operations of the hotel. We do not want to be involved in litigation and certainly have no interest in making the process any more difficult than it needs to be. Unfortunately, it sometimes seems that owners are enticed by plaintiffs’ lawyers into trying to solve their economic problems with litigation – an approach that, in the end, only benefits the lawyers. We understand that difficult economic times can place a strain on the relationship between owner and operator, and both suffer. But as we saw in the most recent downturn, we do our best to operate efficiently in such times and to maintain margins and flow through. We all know about cycles, and the approach of some to use litigation as a crutch to address a bad economy is simply counterproductive.

I hope this information proves useful, and you should certainly feel free to print this letter in its entirety if that seems appropriate.

Ed Ryan
Our take on terminating hotel management agreements from Hotel Law Blog

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This is Jim Butler, author of and hotel lawyer, signing off. We’ve done more than $87 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who’s your hotel lawyer?

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