U.S. Magistrate  Judge James Clark III/photo by Carmen Natale

A federal judge has denied a motion to disqualify New Jersey-based law firm Archer Law from representing the defendants in a dispute among owners of a hotel.

The ruling comes from U.S. Magistrate Judge James Clark III of the District of New Jersey in the case in which the owners of the Fairbridge Hotel and Conference Center in East Hanover face claims from plaintiff Sandadi Reddy.

Reddy alleges he was induced to invest $350,000 in the hotel property but has not been permitted to inspect the business' financial records or receive written confirmation of his part ownership. Reddy brought the suit against three owners of the hotel—Ghanshyam Patel, Atul Patel and Dharmendra Barot. Ghanshyam Patel, referred to in court documents as Sam, brought cross-claims against Atul Patel and Barot for breach of contract, membership oppression, breach of fiduciary duties and fraud. The suit also names East Hanover Hotel and Conference Hospitality LLC as a defendant.

In addition, Sam moved to disqualify Archer from representing Atul and Barot based on the firm's past involvement in other litigation related to the same hotel.

Archer represented East Hanover Hotel and Conference Hospitality LLC, which the court referred to as Hospitality, when it was named as a defendant in a landlord-tenant suit in 2016. One claim in that case was dismissed, and the remainder of the case was settled, according to the decision.

Archer also represented an entity called East Hanover Associates in a suit filed in 2016 in Morris County Superior Court. After Atul and Barot were added as defendants in that case, Archer withdrew from representing EH Associates but continued to represent Atul and Barot. The suit was settled in 2018, the decision said.

Hospitality holds a 100% interest in EH Associates, which owns the hotel and leases the premises. In turn, 50% of Hospitality is owned by East Hanover Hotel and Conference Management LLC, which the court referred to as Management, and the other half is owned by East Hanover Route 10 LLC, which the court referred to as EHR10.

Archer also was involved, albeit in a limited capacity, in a 2016 suit filed by EHR10 against Management, Atul, Barot and Sam. The firm did not enter an appearance but acknowledges that it helped negotiate the settlement agreement on behalf of Atul and Barot, Clark noted.

In his motion for disqualification in the present case, Sam argues that Archer's past representation of EH Associates and Hospitality present a conflict of interest because Sam has brought derivative claims on behalf of EH Associates and Hospitality as an alleged minority member. He contends that Archer should be disqualified because their representation violates proscriptions in the Rules of Professional Conduct against representation involving a concurrent conflict of interest. He also contends the rules say representation of a client should not be followed by representation of another client with adverse interests in the same matter or a related matter.

Sam does not claim to have been represented by Archer, but rather that Archer represents and has represented the entities on behalf of which he now seeks to assert derivative claims as an alleged minority member.

He cited a 2014 ruling from the Appellate Division, Comando v. Nugiel, in which the court held that Norris McLaughlin could not represent the defendants in a suit brought by one co-owner of a business against the other co-owner.

But Clark in his Nov. 1 ruling said that the Norris McLaughlin case could be distinguished from the present case because there, the plaintiff's status as a member of the company on whose behalf she sought to bring derivative claims was established and uncontested. In the present case, the parties dispute whether Sam has any ownership interest in EH Associates through Hospitality, making his argument a disputed litigation position and thus not a basis for disqualifying Archer, Clark ruled, noting that the defendants claim Sam relinquished his interest in Management in 2015, before Archer represented any of the subject entities or individuals, and holds no interest in Hospitality now.

"The court is persuaded that a New Jersey court would not disqualify counsel based on a potential conflict such as the one Sam presents at this time. It is undisputed that Atul and Barot hold an interest in Hospitality; however, Sam's interest is disputed by Defendants and Hospitality," Clark said.

"Accordingly, the Court finds Sam's argument to be premature because the Court has yet to make a finding that Sam is a member of Hospitality, and therefore declines to disqualify Archer Law at this time, which has represented Atul and Barot since the commencement of this litigation, based on a potential conflict that may arise if Sam is later found to be a member of Hospitality," Clark added.

Sam's lawyer, Andrew Chigounis of Saldutti Law Group in Cherry Hill, did not respond to a request for comment.

Patrick Papalia of Archer's Hackensack office, who represents Atul and Barot, declined to comment.