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HOST MARRIOTT CORP. v. FAST FOOD OPERATORS

June 6, 1995

HOST MARRIOTT CORPORATION, A Delaware Corporation, Plaintiff
v.
FAST FOOD OPERATORS, INC., A New York Corporation, Defendant



The opinion of the court was delivered by: CHESLER

 STANLEY R. CHESLER, U.S. Magistrate

 Introduction

 This matter comes before the court on the motion of plaintiff, Host Marriott Corp., to disqualify William Ward, Esq. and the firm of Waters, McPherson, McNeill, P.C., as counsel for defendant Fast Food Operators, Inc. Defendant, Fast Food Operators, Inc., cross-moves to have Robert B. Kroner, Esq. disqualified as counsel for plaintiff in this litigation. *fn1" The motions were referred to the undersigned by the Honorable Maryanne T. Barry. Oral argument was heard on April 24, 1995. For the reasons stated below, the motions to disqualify are denied.

 Background

 This action arises *fn2" from the leasing and subsequent partial condemnation of commercial property located at 121 Route 202, Raritan, New Jersey. Marriott Corporation ("Marriott"), predecessor in interest to plaintiff, Host Marriott Corporation ("Host"), leased the subject property on September 18, 1980, from Gateway Motor Inn of Raritan, Inc. for a term ending on October 30, 2028 ("base lease"). *fn3" On May 1, 1990, Marriott subleased the property to its subsidiary, Mid-Atlantic Specialty Restaurants, Inc. ("Mid-Atlantic") for a term ending one week prior to end of the base lease. Complaint Exhibit A at 2.

 On August 2, 1991, Mid-Atlantic transferred its interests in the sublease with Marriott to defendant Fast Food Operators, Inc. ("Fast Food"). In light of the condemnation proceedings, Marriott, as landlord, and Fast Food, as subtenant, executed an amendment, dated August 2, 1991, to the Mid-Atlantic sublease which provided in relevant part:

 
2. Condemnation. The Sublease is amended by adding the following new paragraph 33 at the end of the Sublease:
 
33. Condemnation. In the event of a condemnation of the Leased premises, any condemnation award which Sublandlord has right to receive under the terms of the Base Lease shall be applied as follows:
 
(i) The first One Hundred Seventy-Five Thousand Dollars ($ 175,000.00) or . . . shall be applied to reduce the outstanding balance on the Note.
 
(ii) Any amounts in excess of the above shall be paid either directly to Subtenant or paid by Sublandlord to Subtenant.

 William J. Ward Certification Exhibit H.

 Even though Fast Food was not a named defendant in the condemnation proceedings, it retained Ward and WMM to represent its interests in that action. See Ward Certif. at P4. Moreover, Robert B. Kroner and WMM executed a substitution of attorney, dated August 19, 1991, wherein WMM was substituted in as counsel for Marriott in the condemnation proceedings. *fn4" Kroner Certif. Ex. A1.

 During settlement negotiations of the condemnation action, WMM communicated with Marriott only through its attorneys, Kroner and Phillip Carlin. Similarly, during the allocation hearings, which followed the entry of a three million dollar ($ 3,000,000) consent judgment in favor of the condemnees, WMM reported to Kroner and Carlin, in their capacity as attorneys for Marriott. Ward Certif. at P10. At the conclusion of the condemnation action, Ward wrote the Clerk of the Superior Court of New Jersey, "Dear Sir: Enclosed please find two forms of Consent Upon Withdrawal of Funds executed on behalf of our clients Marriott Corporation and Gateway Motor Lodge, Inc. respectively." Kroner Certif. Ex. G.

 Although a substitution of attorney was executed, WMM did not charge, and Marriott did not pay, a fee for the services performed by WMM in the condemnation action. Host's counsel stated during oral argument that he knew of no confidential communications which Marriott had with Ward. Indeed, there is nothing in the record before the court to suggest that Marriott had any communications whatsoever with Ward and WMM during the condemnation proceedings. WMM insists that it never provided legal advice to Marriott, and dealt with Marriott only through its attorneys, Kroner and Carlin. WMM asserts that it was not "privy to any of 'Marriott's obligations or intentions under the Sublease' other than what it obtained from reviewing the lease documents provided to the firm by Fast Food." Ward Certif. at P7.

 Following the conclusion of the condemnation proceedings, Fast Food sought to terminate its sublease with Marriott, effective July 31, 1993. Ward Certif. Ex. C. Helen Savill, Marriott's Property Manager, rejected Fast Food's attempt to terminate the lease, and asserted default under the lease by letter addressed to Ward. Negotiations ensued between Ward on behalf of Fast Food, and Savill on behalf of Marriott. See Kroner Certif. Ex. B-D; Ward Certif. Ex. C-F. Savill was under the misconception that Kroner represented Marriott in the condemnation action, and indeed, was not aware that WMM had been Marriott's attorney of record. Savill Certif. at P3, 6.

 On September 30, 1994, Kroner filed a complaint on behalf of Host and against Fast Food, asserting breach of the lease, fraud and unjust enrichment. Davis of WMM answered the complaint on behalf of Fast Food.

 Host now moves to disqualify Ward and the firm of WMM asserting that, under Rule 1.9 of the Rules of Professional Conduct, WMM cannot represent Fast Food because its interests are materially adverse to the interests of WMM's former client, Marriott, and the instant lawsuit involves the same matter or is substantially related to the prior representation. Most insists that it now "has its former attorney [WMM] who is fully aware of Marriott's obligations and intentions under the sublease acting as attorney for the subtenant."

 Host also moves to disqualify Ward and WMM under Rule 3.7 of the Rules of Professional Conduct which, save for three enumerated exceptions, forbids a lawyer from acting as an advocate in a case where the lawyer will likely be a necessary witness. Host maintains that although Ward represented Marriott, Ward negotiated with Host's property manager on behalf of Fast Food to terminate the sublease. This, asserts Host, renders Ward a necessary witness on issues of: 1) when WMM discovered that Fast Food intended to vacate the premises; 2) did Fast Food ever intend to comply with the terms of the lease; 3) what motivated Fast Food to terminate the lease and cease paying rent after the condemnation award was granted; 4) was WMM aware of Fast Food's intentions.

 WMM counters that Rule 1.9 is not applicable here because WMM did not represent Marriott in the earlier proceeding. WMM contends that it "has never represented Marriott, and the filing of a substitution of attorney at the beginning of the condemnation action and on the withdrawal of funds at the end of the case was merely an expediency so as to avoid delays which would be necessitated if the condemnation complaint were to be amended." WMM challenges the assertion that it was Marriott's counsel in the condemnation action by noting that: 1) a retainer agreement was never signed; 2) WMM did not bill Marriott for its services, nor did Marriott pay for those services; 3) Marriott did not share client confidences with WMM; and 4) at all times WMM dealt with Marriott through its attorneys, Kroner and Carlin. Moreover, even if an attorney-client relationship existed, WMM contends that disqualification is not proper because it was not privy to any confidential communications from Marriott.

 WMM also challenges disqualification under the necessary witness provision, RPC 3.7. WMM contends that the motion is premature because at this early stage in the proceedings all that can be shown is why the testimony may be relevant at trial. Additionally, to the extent that the testimony may be relevant, WMM asserts that such communications would be covered by the attorney-client privilege which would prevent WMM attorney's from testifying. Lastly, WMM urges that the motion should be denied because Fast Food is a less intrusive source from which Host can obtain the information it seeks. Alternatively, Ward maintains that if he is a necessary witness by virtue of ...


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