## Facts

- North Star Hotels Corp. managed the Minneapolis Hilton under a management contract owned by Mid-City Hotel Associates, a limited partnership.
- North Star sued Mid-City in federal diversity for breach of the management contract.
- Faegre & Benson represented North Star in the suit while also representing two nonparty real-estate partnerships, St. Louis Centre Partners and Burnsville Woods Partnership, in unrelated matters.
- Harry Johnson was Mid-City’s general partner and also a principal in the two development partnerships represented by Faegre.
- As Mid-City’s general partner, Johnson faced potential personal liability if Mid-City could not satisfy a judgment.
- Johnson had personally guaranteed approximately $3 million in debt obligations tied to the development partnerships.
- In the litigation, Faegre filed a lis pendens against the hotel property; Mid-City asserted this contributed to a lender’s refusal to provide a needed letter of credit for a Johnson-related development project.
- At least one development partnership requested that Faegre withdraw from representing North Star.

## Issues

1. Whether Faegre & Benson’s concurrent representation of North Star (suing Mid-City) and the two development partnerships created a disqualifying concurrent conflict under Model Rule of Professional Conduct 1.7.
2. Whether the conflict existed because the representations were “directly adverse” or because there was a significant risk Faegre’s representation of one client would be “materially limited” by duties to another.
3. Whether any conflict could be cured through informed consent sufficient to permit continued representation.

## Decision

- The court granted Mid-City’s motion to disqualify Faegre & Benson from representing North Star.
- The court found an impermissible concurrent conflict under Model Rule 1.7 based on the close financial interdependence between Johnson, Mid-City, and the development partnerships.
- The court concluded the conflict was practical and present, not merely speculative, and that continued representation would risk divided loyalties.
- The court determined that informed consent was not shown to be available or adequate on this record, particularly given a partnership’s request that the firm withdraw.

## Legal Principles

- Federal courts have inherent authority to supervise attorneys appearing before them and may order disqualification to enforce ethical rules and protect the integrity of proceedings.
- Under Model Rule 1.7, a lawyer may not represent a client if the representation is directly adverse to another current client, or if there is a significant risk the lawyer’s responsibilities to another client will materially limit the representation, absent effective informed consent.
- Separate entity status is not dispositive for conflict analysis where a common principal’s liabilities and guarantees create economic interdependence that can make client interests adverse in practical effect.
- Concrete, case-linked effects on another client’s financial or credit position can support finding a current, real conflict warranting disqualification.

## Conclusion

The court disqualified North Star’s chosen counsel because the firm’s simultaneous representation of other clients financially tied to Mid-City’s general partner created a concurrent conflict under Model Rule 1.7, and the court deemed disqualification necessary to avoid divided loyalties and protect the fairness of the litigation.


North Star Hotels Corp. v. Mid-City Hotel Assocs., 118 F.R.D. 109 (D. Minn. 1987)