Pilevsky v. Morgans Hotel Group Management

Citations: 961 So. 2d 1032; 2007 Fla. App. LEXIS 10976; 2007 WL 2043456Docket: 3D06-1989

Court: District Court of Appeal of Florida; July 18, 2007; Florida; State Appellate Court

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Petitioners, including Philip Pilevsky and various associated entities, sought a writ of certiorari to quash a trial court's order that denied a stay of proceedings in a case involving their hotel, the Shore Club, against Morgans Hotel Group Management LLC. The court granted the petition, citing substantial similarities between the parties and issues in a parallel case pending in New York.

Factual background reveals that in 2001, PSB opened the Shore Club, and in 2002, entered a management agreement with Ian Schrager Hotel Management, LLC, succeeded by Morgans. The agreement included stipulations to prevent Morgans from managing the Shore Club in a way that favored its other property, the Delano, at the Shore Club's expense. PSB alleged that Morgans violated this agreement by improperly benefiting the Delano, leading to a lawsuit filed in New York in January 2006. The complaint accused Morgans of engaging in fraudulent practices that diverted income and expenses between the two hotels to the detriment of the Shore Club, along with destroying evidence of these actions. PSB sought termination of the management agreement, an accounting, and damages for various claims, including breach of fiduciary duty and unjust enrichment.

In response, Morgans filed a lawsuit in Miami-Dade circuit court in April 2006, alleging that PSB's principals attempted to oust Morgans after it improved the Shore Club's financial standing. Morgans claimed the PSB investors made false accusations against them and sought damages for breach of the management contract and tortious interference. Additionally, a minority investor in PSB aimed to pursue derivative claims against PSB's investors for breach of fiduciary duty.

PSB requested a stay of the Florida action, arguing it involves similar parties and issues as the previously filed New York action, which would resolve most claims in the Florida case. The trial court denied the stay, citing that Morgans' tort claims could not be pursued against certain Florida residents in New York. The standard of review indicates that a trial court has discretion to grant or deny a stay; however, failing to stay a later-filed action that mirrors a prior one with similar parties and issues constitutes an abuse of discretion, grounded in comity principles. 

The court found that both actions feature substantially similar parties and issues, affirming the necessity for a stay. Although PSB is the sole plaintiff in New York, the additional defendants in the Florida action—PSB's individual investors and officers—do not alter the similarity enough to deny the stay. Florida courts disapprove of forum shopping, and allowing the naming of nominal defendants in a second-filed action would undermine comity. While Morgans' tort claims may not be entirely resolved in New York, the central issues concerning the management contract will be addressed there, which is sufficient for a stay, as the actions share a common factual basis. The resolution of the management contract in New York will likely clarify Morgans' inverse claim in Florida and the related tortious interference issues. Morgans conceded these points, focusing instead on the argument regarding unresolved derivative claims in New York.

Derivative claims depend on which party breached the management contract first—Morgans or PSB's investors. If the New York action finds that Morgans breached the contract, PSB and its investors are exonerated from wrongdoing toward Morgans, extinguishing the derivative claims by Shore Club Holdings, LLC, an affiliate of Morgans. Conversely, if Morgans is found to have acted properly, the derivative claims will gain strength due to the elimination of a key affirmative defense. Although the New York and Florida actions differ, the resolution of the New York case will clarify many issues related to the Florida action. 

The principle that subsequent actions should be stayed in favor of a first-filed action in another jurisdiction remains intact, regardless of Morgans' choice not to file counterclaims in New York. Concerns about personal jurisdiction over Florida residents in New York do not justify disregarding this principle. As numerous issues in Florida will be resolved by the New York action, staying the Florida case until the New York action concludes is warranted. Any unresolved issues regarding Florida residents may be addressed after the New York case is settled. The trial court's failure to grant a stay was an abuse of discretion. Consequently, certiorari is granted, the order denying the stay is quashed, and the case is remanded for a stay pending the New York action's outcome. 

Additionally, it is noted that this court has jurisdiction to review the trial court's denial of a stay and that when Morgans took over management of the Shore Club, Shore Club Holdings LLC invested in PSB.