Woolley v. Embassy Suites Defines the Boundaries of Judicial Power
Written by William A. Brewer III
It happens overnight. Guards arrive and construction workers move in, stripping every branded item. Every logo comes down. By morning, the former managers are barred from even entering the property, despite a contract guaranteeing them control for the next 40 years. The hotel is back in the hands of its owner.
The New York Law Journal called this “…the hospitality industry’s version of a ‘coup d’etat.’” But, the principles established in Woolley v. Embassy Suites, Inc. (1991), extend far beyond the resolution of that case.
In Woolley, a unanimous panel of the California Court of Appeal held the relationship between hotel owners and managers is an agency relationship, and that principals retain the absolute power to revoke an agent’s authority.
The decision represented a tectonic shift. By vacating an injunction that prohibited hotel owners from terminating management contracts pending arbitration, the court drew a sharp distinction between arm’s length business dealings and those based on the trust and confidence inherent in an agency relationship.
That distinction is what allows an owner to act quickly to place their hotel in the hands of a new manager while the guests are asleep.
The Case and Its Background
Despite its legacy in the hospitality industry, the case itself is rooted in a dispute between property owners and managers. Our firm represented Robert E. Woolley and Charles Sweeney, who (along with others) owned 17 hotel properties, each operated under a management agreement with Embassy Suites (“Embassy”). These agreements gave the owners the right to terminate upon service of a written notice of breach of contract, but permitted the manager, Embassy, 60 days to cure and 15 days to demand arbitration.
In December of 1989, the owners provided written notice to Embassy, alleging they exceeded budgeted expenditures on several of the properties. A month later, the owners filed suit in California, seeking damages and a declaration they could reclaim the hotels they owned. Embassy responded by filing five separate actions in Texas seeking declaratory and injunctive relief as well as demanding arbitration of the claims made in the California lawsuit. They obtained a stay in the California case and persuaded a Texas court to order arbitration in the disputes.
Following the Texas action, the California trial court granted Embassy a preliminary injunction barring termination of the management agreements pending arbitration. The court reasoned that termination might render any arbitration award “ineffectual.”
On appeal, the California Court of Appeal reversed, holding that a principal (owner) has the power to revoke an agent’s (Embassy) authority and reaffirming that, at its core, a hotel management agreement is an agency relationship. In doing so, the court rejected the long-standing practice by many courts which failed to look past the terms of a contract.
The Court’s Ruling
Provisional Relief Has Limits
Embassy relied on a California Code of Civil Procedure § 1281.8, which allows courts to issue provisional remedies, like preliminary injunctions, “upon the ground that the [arbitration] award . . . may be rendered ineffectual without such provisional relief.” Embassy argued that text alone justified the injunction.
In the Court of Appeal’s view, Section 1281.8 on its face, and absent legislative history to the contrary, did not displace the ordinary requirements for injunctive relief: likelihood of success on the merits, irreparable harm, balance of the equities, the public interest, and inadequacy of legal remedies. That statute simply allows a party to seek preliminary equitable relief without waiving arbitration.
The Court of Appeal’s decision preserved the balance between public policy favoring arbitration and the historic restraint of equity.
The Right to Revoke an Agency
The injunction impermissibly infringed a core tenet of agency law: a principal retains the absolute power to revoke an agent’s authority.
Because the management agreements expressly described Embassy as Plaintiffs’ “exclusive agent,” the relationships were agencies in both name and law. Except in rare cases, a court cannot compel an agent’s continued operation of assets managed for the benefit of the owner/principal. Contrary to Embassy’s claim, a financial stake in profits does not constitute a present property interest sufficient to make the agency irrevocable. Plaintiffs were well within their rights to terminate their relationship with Embassy, even during arbitration. The court declared:
“It should always be within the power of the principal to manage his own business and that includes the power of the principal to reassume the control over his own business which he has but delegated to his agent…”
The Prohibition on Specific Performance of Personal Service Contracts
Equally decisive was the court’s invocation of California laws that bar specific performance of personal service contracts. Managing a hotel demands skill, discretion, and mutual trust—qualities a court cannot compel or supervise.
To enforce such a relationship by injunction would contradict the Thirteenth Amendment’s prohibition on involuntary servitude and the practical limits of judicial oversight. Equity by fiat cannot rebuild trust between parties after its collapse.
Adequate Legal Remedies Preclude Equitable Remedies
Where legal remedies like monetary damages adequately remedy a party’s harm, equitable remedies like injunctive relief are unavailable. Embassy submitted evidence offering detailed loss estimates that confirmed its supposed injury was measurable, if ultimately difficult to prove. But the mere difficulty to prove the precise amount of damages, the court explained, “does not provide the basis for injunctive relief.”
What the Decision Means
Woolley v. Embassy Suites became a pillar of judicial restraint not only in California, but as a persuasive authority across all common law jurisdictions, cautioning courts against erroneously stretching equity to preserve crumbled business relationships when the principal has lost trust in its agent.
The case clearly enunciated several enduring principles:
Agency remains revocable. A principal may always reclaim control of its enterprise, even if at some cost.
Courts should not typically compel performance of personal service contracts.
Damages, not decrees, provide the contractual remedy if the owner terminates the agency without cause.
Looking Forward
Three decades ago, when Woolley was decided, the hospitality industry was a different place. Brands still owned the majority of their hotels outright and online booking options were limited. Today, most hotels are independently owned but managed by a brand or a management company. Thus, the law governing the principal-agent relationship is key to advising clients how to reorganize their assets.
The hospitality industry is cyclical. Recessions, ownership changes, and global pandemics disrupt the industry. And throughout each cycle, brands and managers seek new ways to manage the conflicts which arise.
Even beyond hotels, when property owners wish to reorganize, rebrand, or transition, Woolley and its progeny remain as the most consequential precedent governing the likelihood of success in those disputes.
And the guests never even notice.