United States District Court, S.D. New York
OPINION & ORDER
HONORABLE PAUL A. CROTTY, United States District Judge.
Interstate Hotels and Resorts ("IHR") and
Interstate Management Company ("IMC")
("together Interstate"),  move to dismiss Chelsea
Grand, LLC's ("Chelsea") Third Amended
Complaint ("TAC"), for failure to state a claim,
pursuant to Fed.R.Civ.P. 12(b)(6). The TAC alleges three
causes of action: (1) Breach of the Hotel Management
Agreement ("HMA") signed by Chelsea and Interstate
in February, 2003; (2) Intentional Breach of Fiduciary Duty;
and (3) Negligent Breach of Fiduciary Duty. The Court has
previously determined that Interstate did not promise to
operate the Chelsea as a non-union hotel; and that Chelsea
and Interstate had an arms-length relationship, not a
fiduciary one. Chelsea is not free to relitigate these
issues. Accordingly, the defendants' motion to dismiss is
is based on events that occurred more than a decade ago, and
which were the subject of prior litigation between Chelsea,
and the New York Hotel and Motel Trade Council, AFL-CIO
("Hotel Workers Union"). After a two week, non-jury
trial, in which Interstate also participated, this Court
confirmed an arbitral award by the Impartial Chairman of a
joint union- employer entity in favor of the Hotel Workers
Union ("Chelsea I"), Chelsea Grand,
LLC v. New York Hotel and Motel Trades Council, AFL-CIO,
07 Civ. 2614 (PAC), 2014 WL 4813028 at *3, (S.D.N.Y.
September 29, 2014). On appeal, the Second Circuit modified
and affirmed the judgment of the District Court, Chelsea
Grand, LLC v. New York Hotel and Motel Trades Council,
AFL-CIO, 629 F.App'x. 152, (2d Cir. 2015).
summarize, in Chelsea I, the Courts found that
Chelsea was bound to certain obligations with respect to the
union recognition process for employees at Chelsea's
hotel (card check and neutrality),  even though Chelsea did not
want to be unionized, and never signed any agreement with the
Hotel Workers Union. Chelsea's current complaint blames
Interstate for this situation. Further, Chelsea argues that
wages for the Hotel Workers Union members are higher than
Chelsea wished to pay; and the higher wages would raise
operating costs; which in turn decreases profits and reduces
the value of Chelsea, thereby causing Chelsea damage,
Established in Prior Litigation
is owned by the Lam group, a closely held family enterprise,
headed by John Lam, Mr. Lam previously worked in the garment
industry, but he decided to build a hotel in New York City.
Mr. Lam sought an affiliation with a better known and higher
quality hotel chain. Sheraton Hotels would not grant him a
franchise, however, and instead insisted that Chelsea obtain
a managing agent to operate the hotel. In February 2003,
Chelsea entered into the HMA with Interstate to operate
Chelsea's hotel, the Sheraton Four Points Flotel, on West
25th Street in Manhattan. Chelsea's franchise agreement
with Sheraton specifically refers to Interstate. Interstate
also helped Chelsea refinance the hotel with Merrill Lynch.
There is no doubt that Interstate was and is a skilled and
well-regarded hotel manager/operator, which had numerous
contacts in New York with the Hotel Workers Union as of
February, 2003 when the HMA was executed.
Union Agreements with Hotel Association of New York
hotels in New York are usually members of the Hotel
Association of New York City ("HANYC"), a
multi-employer entity, which collectively bargains on behalf
of its members with the Hotel Workers Union. The parties'
collective bargaining agreement-the Industry Wide Agreement
("IWA")-dates to 1990 and sets forth wages,
benefits, as well as other terms and conditions of
employment. It also provides for card check and neutrality.
2000, the parties entered into a Memorandum of Understanding
("MOU") which became effective on June 1, 2001,
modifying the terms of the existing IWA ("the 2001
IWA"). The MOU added an accretion clause which provided,
that if a signatory became the owner or manager of another
hotel in New York, it would be required to apply the IWA to
that property on the basis of accretion. In other words, if a
manager of a hotel that is subject to the IWA takes on
management of another hotel in New York City, such new hotel
will be bound by the IWA, based on the doctrine of accretion.
2000, Interstate managed two hotels in New York which were
members of HANYC, and covered by the Industry Wide Agreement.
Thus, Interstate was bound by those provisions as of the date
it executed the HMA with Chelsea.
January 15, 2004, the Hotel Workers Union and
Interstate signed a Memorandum of Agreement
("MOA") which provided that the accretion and Card
Count/Neutrality provision of the 2000 MOU would be applied
to any hotels which were owned, operated or managed by
Interstate on July 1, 2001. None of these arrangements were
secret, indeed, they were well known in New York City's
result of these agreements, all of which were subject to
arbitration, was that Chelsea was bound by the Card
Count/Neutrality provision as part of the union recognition
process. The arbitration award so held; and that decision was
confirmed by the District Court, and the Second Circuit
gravamen of Chelsea's TAC is that it did not want a
union; that its agent (Interstate) was well aware of
Chelsea's position; and Interstate had both a contractual
and fiduciary duty to not enter into such an agreement. The
HMA (at paragraph 16.1), states specifically that Chelsea
"desires to ... operate ... as a non-union hotel."
Further, Chelsea never signed a union contract or an
agreement to recognize the union. Chelsea alleges that the
hotel was unionized because of Interstate's breach of
contract (Count 1), and its intentional and/or negligent
breach of fiduciary duty (Counts 2 and 3). Chelsea was forced
to pay higher employee wages, which increased its operating
costs, diminished profits and caused a diminution in value.
Chelsea seeks damages in the amount of $30, 000, 000.
now moves to dismiss the complaint because the issues raised
by the TAC were all resolved against Chelsea in the earlier
litigation with the Hotel Workers Union. Specifically,
defendants rely on two cases: Blonder-Tongue Labs., Inc.
v. Univ. of Illinois Foundation, 402 U.S. 313 (1971),
and Parklane Hosiery Company. Inc. v. Shore, 439
U.S. 322 (1979). In Blonder-Tongue, the Court
overruled its prior ruling that a determination of ...