Last January, Boies, Schiller & Flexner filed a complaint in federal court in Manhattan against the hotel management company Marriott International, the New York hotel workers’ union and the real estate investment trust Host Hotels & Resorts, which owns 118 hotels in the United States and abroad. The suit made quite stunning assertions. Boies’s client, Madison 92nd Street Associates, accused Marriott, Host and the union of engaging in a racketeering conspiracy in which Marriott agreed secretly to help the union organize workers at certain unlucky Marriott-managed hotels in New York City, while leaving key Host properties managed by Marriott, including the Marriott Marquis, ununionized. Madison, which owned a Marriott-run hotel on New York’s Upper East Side, claimed that as a victim of the three-way conspiracy, it was forced into bankruptcy by high labor costs after its workers joined the union.
As it happens, Boies Schiller had represented Host – one of the defendants it was now accusing of conspiracy – at the time the supposed plot was hatched in 2002. In fact, the firm was counsel to a special Host board committee that engaged in a two-year, all-encompassing review of Host’s relationship with Marriott, which culminated in a new agreement between the companies in 2002. Host’s counsel at Hogan Lovells drafted the new deal, but Boies Schiller advised behind the scenes. In all, Boies Schiller worked about 3,700 hours for Host between 2000 and 2005, billing the company about $1.25 million.
That timing alone, according to an unbelievably scathing opinion made public Thursday by U.S. District Judge Colleen McMahon, should have put Boies Schiller on high alert about a potential conflict. According to McMahon, ethics advisers from inside and outside Boies Schiller should have needed “but a moment” to realize that its position in the Madison suit was untenable. It was attempting to assert on Madison’s behalf that an agreement Boies Schiller actually advised upon in 2002 was a sham, McMahon said, which meant that Host might call Boies lawyers who advised on the Marriott agreement as witnesses to defend against Madison’s claims. “A clearer conflict of interest cannot be imagined,” McMahon said. “A first year law student on day one of an ethics course should be able to spot it. BSF, which holds itself out as one of the country’s preeminent law firms, did not.”
As McMahon’s opinion recounts, Boies Schiller acknowledged its conflict and withdrew from the case in February. She said Boies’s realization came more than two months too late and ordered the firm to reimburse all of Host’s fees and costs for investigating and litigating the conflicts question. I’ll treat you to some of McMahon’s blistering comments below, but what makes this dispute more than good gossip about a big-name firm is the question it provokes about the time and money a firm must dedicate to investigating conflicts. As you’ll see, Boies Schiller did a more-than-cursory review after Host’s general counsel – who had received a draft of the Madison complaint in December, before Boies filed it – alerted the firm to conflict concerns in December 2012. Boies Schiller brought in an outside ethics firm, which worked with Boies’s inside deputy general counsel in interviewing lawyers from the old Host representation and reviewing documents from the old files.
Clearly, the investigation was insufficient or it would have revealed the irreconcilable conflict that ultimately led Boies to withdraw. But Boies contended in its brief opposing sanctions that part of the responsibility lies with its former client Host, which did not provide Boies Schiller with a precise explanation of the firm’s conflict and left Boies’s outside counsel and deputy GC to review 40 boxes of 10-year-old files without focus. Boies Schiller argued that it “continuously made good faith efforts to understand and evaluate Host’s conflict.” Host’s lawyers at Proskauer derided that “outlandish” excuse in their brief requesting sanctions, arguing that it would “turn a law firm’s obligation to investigate whether it has a conflict on its head and place the burden on the former client to prove the conflict to the law firm.” McMahon questioned whether Boies had even investigated the conflict in good faith. But I suspect that when Boies appeals the ruling – and to defend its honor, you can be sure it will – it will argue that firms cannot be expected to conduct wide-ranging reviews in response to non-specific conflict allegations by long-ago clients.