CHARLESTON, W.Va. — Mountain Blue Hotel Group, headed by developer William Abruzzino, has declared Chapter 11 bankruptcy over its troubled Hilton Garden Inn in Morgantown.
The hotel was raided last week by Monongalia County Sheriff’s deputies over thousands of dollars in unpaid hotel/motel taxes. The hotel’s lender had set an auction date for the hotel and this week made an emergency request for a receiver, saying the hotel is in imminent danger of failing.
A hearing over the proposed auction was set for this afternoon in U.S. District Judge Irene Keeley’s courtroom. The bankruptcy filing now means a stay will be issued in that case.
The hotel case stands out because of its financial troubles on multiple levels, because of its connection to the other lawsuits and bankruptcies affecting Abruzzino properties around West Virginia and because of the stated involvement of Senator Joe Manchin and longtime aide Larry Puccio as investors.
The bankruptcy was filed Wednesday in U.S. District Court in the Northern District of Georgia, where Mountain Blue has headquarters. “The automatic stay now applies,” lawyers wrote in the document, with the practical effect of holding off other proceedings such as the hotel auction.
Chapter 11 means the company seeks relief from its creditors while it reorganizes. Lawyers checkmarked boxes indicating Mountain Blue has between 0-49 creditors, $0 to $50,000 in assets and $0 to $50,000 in estimated liabilities.
The bankruptcy notice was filed the same day the hotel’s lender filed a motion to appoint a receiver for the hotel immediately. That motion said the receiver is necessary right away because the hotel is on the verge of failing.
“In the last week, developments have come to light to reflect a highly volatile situation at the property,” according to the motion. “A receiver is needed immediately to stabilize the property.”
The motion, filed by trustee U.S. National Bank Association, says the hotel’s situation was made clear when Mountain Blue did not oppose a legal complaint filed by Monongalia County over about $140,000 in unpaid hotel/motel taxes:
“The default judgment resulted in a sheriff’s levy of virtually all of the property at the hotel on Sept. 8, 2017 — the eve of a West Virginia University home football game — when the hotel was likely at full capacity. Another levy is expected before the busy weekend ahead (another football weekend).”
The deputies got into cash registers to take cash and checks and also marked specific items of property to be taken. The motion by the bank association included a hand written list from the sheriff’s department of items to be seized.
The receiver request goes on to note that insurance for the property was expected to expire this past Monday and would not be renewed without Mountain Blue stepping in to guarantee payment of the premiums.
Moreover, there are new delinquent franchise fees to Hilton of $167,000, and virtually no receipts from the hotel were deposited into a control account in August and early September “raising concerns that receipts are being diverted away from the property.”
All those matters have made the hotel situation come to ahead, wrote the lawyers for the U.S. National Bank Association.
“When the parties last convened, the situation at the property appeared to be stable enough to schedule and hold a trustee’s sale under the deed of trust,” wrote the lawyers for the lender.
“However, it is clear that the situation at the property is not stable at all and a receiver is needed until title can be transferred to the plaintiff or a third party.”
The public auction of the hotel had been set for 4 p.m. Sept. 21.
Judge Keeley had set a hearing on a temporary restraining order motion meant to block the auction for 1 p.m. today. With the stay, that hearing will be put off.
Mountain Blue had filed a request to block the hotel’s auction, saying it had the means to pay its debts if it could get more cooperation from its lender.
The U.S. Bank National Association this past Tuesday filed its opposition to the auction being blocked. “The hotel is on the verge of being shut down,” the lawyers wrote in that motion.
“The public interest is best served by denying the motion and allowing the plaintiff to proceed with the sale. The likely outcome of the sale is that plaintiff will take title to the hotel. Once plaintiff takes title it can stabilize the situation at the property, ensuring that the public has access to the hotel and that future taxes are paid. Allowing defendant to remain in business and continue to thwart payment to its creditors, including taxing bodies, does not serve the public.”
The original lawsuit filed in early August in the Northern District of West Virginia alleges a commercial breach of contract over the original $15,470,000 loan.
The investor who signed the loan, Abruzzino, also heads Mountain West LLC, which is involved with a breach of contract lawsuit over Clarksburg and Elkins hotels. Another Abruzzino company, Tara Realty, is involved with the bankruptcy of the Crossings Mall in Elkview.
Manchin and Puccio, through their AA Properties LLC, are listed as investors in the original loans for the Morgantown, Clarksburg and Elkins hotels.
AA Properties was listed as having a 12 percent ownership in the hotels, with Manchin and Puccio having a 50-50 split of AA.
All of the investors, including several members of the Abruzzino family, were listed to establish a diversity of investors for court jurisdiction purposes.
A lawyer for Manchin has said AA was listed as an investor mistakenly in the lawsuits and that the matter was on its way to being cleared up by filings in court. That hasn’t been apparent so far.