New York Appeals Court Limits Ability To Enforce Hotel Management Contracts
Kelley Drye Client Advisory
On March 26, 2013, a five judge panel of a New York State appellate court issued a unanimous opinion refusing a request for an injunction against the premature termination of a hotel management agreement governed by New York law. Central to the decision was a finding that the agreement was a “personal services” contract, and thus not enforceable by injunction.
The dispute began in April 2012 when the owner of Miami Beach’s iconic Eden Rock Renaissance Hotel brought suit against Marriott International Inc. and various affiliates claiming mismanagement of the hotel. While the dispute was pending in a New York State court, in the early hours of October 14, 2012, the owners of the hotel sought to physically oust Marriott as hotel manager. The attempted ouster was unsuccessful and the following day Marriott sought a court order preventing interference with the performance of its duties under the hotel management agreement.
On November 7, 2012, a New York State trial court judge issued an injunction preventing the hotel owner from removing Marriott and its affiliates as manager of the hotel while the court considered various the contract and tort claims brought against Marriott. In entering a ten page decision read from the bench, Judge Melvin Schweitzer ruled that the hotel management agreement was neither a personal services contract or an agency contract, but rather upheld the terms of the agreement itself, which proclaimed it to be an independent contractor relationship, in this case with more than seventeen years remaining in its initial term. In determining that the agreement was not a personal services contract, the judge noted that a personal services contract can only be one which relies on the services of a specific person or group of persons, and by definition cannot include an agreement which creates a long term commercial relationship between corporate entities.
On March 26, 2013, the Appellate Division (First Department) of the New York Supreme Court reversed the trial judge and vacated the injunction. At the heart of the court’s brief ruling was the fact that the “parties detailed management agreement places full discretion with plaintiffs to manage virtually every aspect of the hotel.” “Such an agreement,” continue the court, “in which a party has discretion to execute tasks that cannot be objectively measured, is a classic example of a personal services contract that may not be enforced by injunction . . .” The court went on to further explain why it did not believe the hotel management agreement created an agency relationship.
This ruling could have significant implications for hotel brands, owners and managers especially because of the large number of hotel management agreements which elect to be governed by New York law even when the hotel is not located in New York.