Antitrust Law Daily Wrap Up, ANTITRUST—S.D. N.Y.: Hotel developer failed to state antitrust, RICO claims against Marriott over employee union, (Jul 30, 2014)

By Linda O’Brien, J.D., LL.M.

A hotel developer failed to plausibly plead antitrust claims against a hotel management company for conspiring with a hotel labor union to allow union representation of hotel employees and misrepresenting its position against unionization during negotiations of the parties’ hotel management agreement, the federal district court in New York City has ruled. The hotel developer’s RICO claims against the company were dismissed as time-barred (Madison 92^nd Street Associates, LLC v. Courtyard Management Corporation, July 28, 2014, McMahon, C.).

Madison 92^nd Street Associates was formed in 2001 for the purpose of developing a hotel on the upper east side of Manhattan. Madison entered into negotiations with hotel management company Marriott International to manage the hotel under the “Courtyard by Marriott” brand. During the negotiations, Madison advised that it considered low labors costs to be critically important, since labor costs were the largest expense for a hotel and union hotel labor could significantly increase a hotel’s operating costs. Marriott and Courtyard represented they were anti-union companies and would resist unionization at the hotel. Madison subsequently executed a management contract with Courtyard, providing that Courtyard had discretion and control in all matters relating to the management of the hotel and would manage the hotel under standards comparable to those in other hotels.

Shortly after the execution of the management agreement, Marriott entered into an agreement with the AFL-CIO, a union representing non-managerial hotel employees, under which Marriott hotels would grant the union access to hotel property and not attempt to influence their employees’ decision whether to unionize. After the hotel opened in 2006, the union was certified to represent certain hotel employees and Marriott negotiated a work rules agreement which granted the union major concessions. After the hotel’s gross revenue decreased significantly without a corresponding downward adjustment of labor expenses by Courtyard, Madison filed a bankruptcy petition and the hotel was ultimately sold without the management agreement. Madison filed suit against Marriott, Courtyard, the union, and other hotels, alleging violations of the Sherman Act and Racketeer Influenced and Corrupt Organizations Act (RICO), among other claims. The defendants moved for dismissal.

Antitrust claims. The court found that Madison failed to allege an unreasonable restraint of trade because it did not define a proper relevant market. To state a claim under Section 1 of the Sherman Act, a plaintiff must allege a plausible relevant market in which competition will be impaired. The proposed relevant market must include all products or services reasonably interchangeable by consumers for the same purposes. Madison’s complaint defined the relevant market as labor services provided by non-managerial hotel employees working in hotels managed by Marriott. The court noted that Madison could not limit its relevant market to a single brand when the proposed market clearly did not encompass all interchangeable substitute labor services. Moreover, Madison’s relevant market was insufficient as it focused on a “contractually created class of consumers” because the contractual “lock in” was created by its management agreement, which delegated personnel decisions to Marriott.

RICO claims. Madison’s RICO claims were barred by the four-year statute of limitations, according to the court. In this case, Madison had actual notice that the hotel was subject to a union neutrality agreement in 2003 when it applied for a construction loan for the hotel’s development from a union-affiliated lender. Madison requested representations from Marriott that hotel management would refrain from interfering with union representation of hotel employees in order to obtain the loan. Despite Marriott’s representations that it would oppose a union workforce, Madison received notice that the hotel was already subject to a union agreement and failed to exercise due diligence to investigate the agreement.

Finally, the defendants’ purported fraudulent concealment did not toll the statute of limitations. Madison alleged no facts that Marriott concealed the union neutral agreement, since it was disclosed in connection with Madison’s construction loan. Madison could not rely on fraudulent concealment to salvage its claims when it chose to finance its project using a union-affiliated lender that would not fund a project that management intended to operate in an anti-union manner, the court concluded.

The case is No. 1:13-cv-00291-CM.

Attorneys: Sean F. O'Shea (O'Shea Partners, LLP) for Madison 92nd Street Associates, LLC. James P. Ulwick (Kramon & Graham, PA) for Marriott International, Inc. Boris Zeldin (Proskauer Rose LLP) for Host Hotels & Resorts, Inc. Jeffrey Schreiber (Meister Seelig & Fein LLP) for Diamondrock Hospitality Co. Barry Neal Saltzman (Pitta & Giblin, LLP) for New York Hotel & Motel Trades Council, AFL-CIO.

Companies: Madison 92nd Street Associates, LLC; Marriott International, Inc.; Host Hotels & Resorts, Inc.; Diamondrock Hospitality Co.; New York Hotel & Motel Trades Council, AFL-CIO.

Cases: Antitrust RICO NewYorkNews