CHARLESTON, W.Va. — A receiver has been appointed for the defaulting Hilton Garden Inn in Morgantown, but that doesn’t mean the arguments have stopped.
The hotel’s owner, Mountain Blue Hotel Group, and its lender have continued to wrangle in both bankruptcy court and federal court over control of the hotel.
A U.S. Bankruptcy Court judge issued an order Oct. 16 dismissing Mountain Blue’s bankruptcy case because it had not met a deadline to provide proof of workers compensation insurance.
That kicked the dispute back to federal court, where U.S. Circuit Judge Irene Keeley granted an order Oct. 18 appointing a receiver for the hotel. The company that was appointed is MOWV Associates, which is associated with GF Management, a company that has had hotel receivership roles in West Virginia and elsewhere.
So now, on two fronts, the hotel company and its lender have been fighting over whether the receivership should go through and whether the bankruptcy should have been granted in the first place.
The bankruptcy issue may be resolved Nov. 14 in a hearing in U.S. Bankruptcy Court in the Northern District of Georgia before Judge Lisa Ritchey Craig.
The financial troubles of the Hilton Garden Inn have been notable and tangled. The dispute is over payment of a $15,470,000 loan.
William Abruzzino, the head of Mountain Blue, and his co-investors are involved with several simultaneous bankruptcies or civil suits over hotels in Morgantown, Clarksburg and Elkins, plus the Crossings Mall development in Kanawha County.
MORE: Crossings Mall developers held personally responsible in $17 million federal lawsuit.
Senator Joe Manchin and longtime advisor Larry Puccio were initially listed as investors, although a recent filing in bankruptcy court had removed their partnership, AA Properties, from the list. Their initial presence in the lawsuit was described by their aides as as a mistake.
During an Oct. 18 interview on MetroNews’ Talkline, Manchin said he isn’t sure what has been going on with Abruzzino.
“The principal individual, I don’t know what has happened to him or his life or his health or whatever,” Manchin said. “Something drastically has gone wrong for him to be in this situation.
The Morgantown Hilton had been subject to bankruptcy just a few years ago, meaning that its ownership group was going through its second bankruptcy in short order.
Monongalia County was trying to collect thousands of dollars in back taxes that the hotel had collected from guests but had not properly passed on to the county. And hotel workers said their pay and insurance coverage had been spotty during the troubled times. The Hilton franchise agreement was in jeopardy.
Very little of that is resolved so far.
Workers compensation
Mountain Blue is fighting to stay in bankruptcy court, saying it now has proof of workers compensation insurance.
Its lawyers wrote Oct. 18, “Debtor diligently attempted to comply with the requirements and obtain workers compensation insurance. Debtor, and counsel, communicated almost daily with the insurer and underwriter and frequently had to respond to requests for additional information.
“The failure to timely obtain insurance was not due to debtor’s disregard of the United States Trustee’s or Court’s directive to obtain insurance.”
Mountain Blue asked the federal bankruptcy judge to reconsider the situation as quickly as possible, in part because the receiver had been appointed.
“Debtor expects that the receiver and/or secured lender will act quickly to gain control of debtor’s real and personal property, which will have significant consequences for the debtor and its creditors,” lawyers for Mountain Blue wrote.
“At the very least, this would be an extreme disruption of the debtor’s business and hamper its attempts to reorganize in a Chapter 11 case, causing unnecessary expense and delay.”
A day later, lawyers for the lender filed a motion pushing back and then followed up again a day after that.
Responding to Mountain Blue’s claims, the lender’s attorneys wrote, “The actual facts paint a far different picture. Debtor was at all times in control of the insurance issue but failed to act in a timely or responsible manner.”
The lawyers wrote that the workers compensation insurance was due to expire on Sept. 11, 2017, and the hotel owner did nothing at that time to renew the insurance. At that point, the insurance broker stepped in and asked the lender to pay for the workers comp, which it did.
On Sept. 14, the insurance broker asked for help getting Abruzzino to fill out the necessary paperwork.
On Sept. 18, the broker sent an email saying the paperwork needed to be signed immediately and Mountain Blue said he would do it. “Mr. Abruzzino then failed to sign the paperwork.”
By Sept. 26, the broker notified Mountain Blue that because the required paperwork still had not been signed, the company would void the workers compensation policy. “Debtor still took no action to complete the paperwork.” So the insurance was, indeed, voided.
“These communications confirm the debtor’s description of events is not accurate,” wrote the lawyers for the lender. “Debtor created a crisis by failing to address the insurance coverage when it expired on Sept. 11, 2017. Even after that date, debtor failed to complete basic paperwork despite repeated warnings from its insurance broker.
“The insurance issue was basically resolved other than some simple paperwork, which debtor inexplicably failed to process.”
The lawyer for the lender, Christopher Schueller, concluded his affadavit by writing, “Contrary to debtor’s representations in court, it is my opinion that debtor is the cause of the insurance lapse and cannot blame others for the lapse. Because debtor’s behavior led to the dismissal of the bankruptcy case, there is no good cause to expedite the motion for reconsideration in my opinion.”
Liquor license
The same document reported that the liquor license at the Hilton Garden Inn was terminated two months ago.
That was discovered by the receiver upon taking over at the hotel and conveyed by an Oct. 20 email.
“This means for two months the debtor either served liquor illegally or lost substantial revenue by not serving liquor,” the lawyer wrote.
“The failure to serve liquor is another default under the Hilton franchise agreement. The receiver will take immediate steps to address this situation but this is an example of how the receivership will bring stability and protect the value of the hotel.”
Receiver
In separate filings in U.S. District Court, the two sides have also been fighting over the receiver for the hotel.
On Oct. 16, the attorneys for U.S. Bank National Association filed a new request for a receiver to be appointed. “The circumstances at the property are dire,” the lawyers wrote.
On Oct. 18, Mountain Blue filed a motion opposing the receiver’s appointment. Its lawyers claimed the lender essentially has a chokehold on the funds necessary to run the hotel.
“In this particular case, contractually, the plaintiff already has the complete control of the funds and income from the operation of Hilton Garden Inn and can disburse them as they see fit,” wrote lawyer Michael Del Giudice of Charleston.
“In fact since the filing of this lawsuit no funds have been disbursed to the defendant, yet at the same time none of these obligations claimed as defaults the by plaintiff have been satisfied. There is no necessity for the cost of a receivership as contractually the plaintiff already has complete control.”
The same day Mountain Blue made those arguments, U.S. District Judge Irene Keeley appointed the receiver.
“Absent the appointment of a receiver to manage the property and prevent its value from being adversely affected by the inability to operate as a Hilton franchisee, U.S. Bank has no adequate legal remedy,” Keeley wrote.