The broker, Robert Koger, then persuaded Host to sell three hotels to the partnerships - essentially to himself - and then flipped the properties to another buyer a short time later for nearly $15 million in profits, plus commissions.
Two people, a former employee of Koger's brokerage and a friend of Koger's, have pleaded guilty to federal wire-fraud charges in the matter, while Koger himself has been jailed in another, unrelated case in which he is accused of bilking a Pittsburgh hotel owner.
Fox Rothschild, with more than 530 lawyers, is one of the marquee legal brands in Philadelphia, and it represents many of the region's - and nation's - most prominent companies and interests. It has denied that its attorneys did anything wrong, and asserted in a legal filing that Host simply was seeking a "deep pocket" for economic gain by suing the law firm.
"The claims asserted in the lawsuit are entirely meritless, the Fox Rothschild lawyers acted consistently within their obligations under the rules of professional conduct, and appropriately represented their clients," said Scott H. Marder, a partner with Center City-based Duane Morris L.L.P., which is defending Fox Rothschild.
"Fox Rothschild will vigorously defend against this lawsuit," Marder added.
Host, a real estate investment trust based in Bethesda, Md., won a significant legal victory May 20 when Maryland Circuit Court Judge Ronald B. Rubin denied Fox Rothschild's motion to dismiss the lawsuit.
"There are ample facts pled from which a jury could find that Fox substantially assisted Koger and others with commiting the underlying torts," Rubin wrote. "The facts alleged in the amended complaint, if proven, show that Fox committed overt acts that furthered Koger's scheme to defraud Host."
According to the Host lawsuit, the scheme began in 2008, when Koger was engaged as Host's broker for the sale of hotels in Herndon, Va., and Stamford, Conn. Host alleges that Koger had a duty to find the highest bidder but that Koger, with the help of Fox lawyers, set up sham partnerships that Koger used to flip the hotels to third parties at a profit - without telling Host.
Host alleges that Fox Rothschild partners Michael Kornacki, a commercial real estate lawyer, and Mark Morris, a lawyer specializing in the hotel industry, hid Koger's role from Host and misrepresented the nature of the transactions. Both lawyers are based in Philadelphia.
"This case is about a fraudulent scheme perpetrated by Fox and its clients," Host said in one legal filing. "This is not a case about a law firm merely representing a 'bad' client; this is a case about a law firm actively participating in a client's fraud."
In one transaction in July 2009, Host alleges, it retained Koger as an exclusive broker for the sale of its Dearborn, Mich., Ritz-Carlton. While Host still owned the hotel in August 2009, the lawsuit alleges, Fox Rothschild lawyers began drafting documents to create a phony buyer who would then flip the hotel to a third party for a profit.
A Koger information technology manager named Terence Lloyd, who the complaint said supplemented his income working as a roofer, was listed as the principal of the partnership.
Lloyd was found dead in his home on Feb. 3, 2010, but his signature appears on a sales contract dated March 17 of that year, the lawsuit charges. It is unclear from the court papers how Lloyd died.
When the transaction closed on June 3, 2010, his signature also was on the closing documents, the lawsuit alleges, and on the same day, the hotel was flipped to a third party for a profit to Koger of $1.95 million.
"Lloyd, although now dead for nearly four months, purportedly signed the relevant closing documents," the lawsuit alleges.
Host alleges that another scheme, to sell the company commercial debt, bilked Host out of an additional $6.3 million, bringing the total to more than $20 million.
The lawsuit against Fox is the latest development in a continuing legal battle over the hotel transactions and allegations that they say were riddled with fraud. In 2012, in a separate lawsuit against Koger by Host, Host was awarded $22.7 million by a Maryland court.
Now Host is seeking compensation from Fox, citing the firm's involvement. Last year, Jonathan Propp, the former chief operating officer of Koger's hotel brokerage, Molinaro-Koger, pleaded guilty in federal district court in Alexandria, Va., to federal conspiracy and wire fraud in connection with the transactions. In his plea, Propp admitted that he assisted in the sham transactions by acting as a straw buyer and by forging signatures, presumably those of Lloyd.
Both Propp and another person charged in the scheme, Todd Lawyer, described in charging documents as a friend of Koger's, agreed to cooperate with the U.S. Attorney's Office in Virginia as part of their plea agreements.