Soloway & Mohler Examine Efforts by Hotel Operators to Disclaim Fiduciary Duties in NYLJ Article
“There is a trend in the hospitality industry in which [hotel] operators are seeking to limit or avoid the fiduciary obligations attendant to a principal-agent relationship,” Partner Todd Soloway and Associate Bryan Mohler write in their latest article for the New York Law Journal.
In their piece, “Efforts by Agents to Disclaim Their Fiduciary Duties,” the authors explore whether the long-settled principles of New York agency law permit hotel operators to curtail their fiduciary obligations to hotel ownership, and thus reduce their exposure to liability for violating these duties.
Agency Basics and Fiduciary Obligations in New York
Fiduciary obligations often arise in the context of a principal-agent relationship. Pursuant to New York law, an agency relationship results from “a manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act.” When acting on behalf of its principal, an agent is “bound to exercise the utmost good faith.”
In the context of the hospitality industry, the relationship between a hotel owner and operator has long been regarded as one of principal and agent. And yet, as Soloway and Mohler explain, hotel operators have begun to seek – via language in Hotel Management Agreements (“HMAs”) – to:
- Disclaim the existence of a principal-agent relationship between the owner and operator; or
- Specifically disclaim or significantly narrow the scope of fiduciary obligations owed by the operator to the owner.
In spite of these efforts, New York law makes clear that where a contract establishes “the essential structure of an agency relationship,” even an explicit disclaimer cannot undo it. Simply put, in New York, agency law unequivocally holds that an agency is still an agency regardless of how it is characterized by the parties.
Still, the authors emphasize that “hotel owners would be wise to remain vigilant and resist efforts by managers to disclaim these essential obligations.”
The full text of Soloway and Mohler’s article can be viewed here.
More About the Authors
Todd Soloway leads Pryor Cashman’s Real Estate Litigation and Hotel + Hospitality Groups. He has been named a leading attorney in real estate law by Best Lawyers in America and Super Lawyers, and is a frequent contributor to industry publications.
Bryan Mohler is an associate in Pryor Cashman’s Real Estate Litigation and Hotel + Hospitality Groups. He has been recognized as a “Rising Star” by Super Lawyers. Both he and Soloway were members of the litigation team from Pryor Cashman that won a $44M judgment against Starwood Hotels in a matter involving breaches of the operative HMA.
Jason Mencher, an associate in Pryor Cashman’s Real Estate and Litigation Groups, also assisted with the preparation of this article.
