CHARLESTON, W.Va. — A lawyer for Senator Joe Manchin says his listing as an investor in a hotel that’s the subject of a federal lawsuit over a $15 million investment was a mistake.
The defendant in the lawsuit filed early this month was Mountain Blue Hotel Group LLC. Manchin and longtime aide Larry Puccio were listed as investors in Mountain Blue through their partnership in AA Property LLC.
“The statement in there that AA is a member of Mountain Blue LLC — that was a mistake. We’ve communicated that to the lenders counsel. We’re working on getting that corrected, and I’m hopeful that correction will be made soon,” said Steve Ruby, a former assistant U.S. attorney who is now in private practice with the Bailey Glasser law firm.
Ruby went on to say, “Nobody has alleged that AA did anything wrong. They were only named for technical reasons having to do with federal jurisdiction, and even that was erroneous. We’re working right now on getting that erroneous statement corrected.”
AA, Manchin and Puccio were listed both in the original 2013 loan document for the Hilton Garden Inn in Morgantown and in the lawsuit filed August 8. The lawsuit claims Mountain Blue is defaulting on its loan, asks for immediate repayment of more than $14 million remaining and wants the hotel to be placed in receivership.
If they were mistakenly listed in the lawsuit, some questions still remain such as whether the original listing in the loan was false or if AA, Manchin and Puccio transferred their investment and under what terms and timeline.
Ruby said he would not expand on those matters.
“What I’m going to say for now is that while we are working on having this corrected in the legal proceeding, I’m going to withhold any further comment on it,” Ruby said.
The loan agreement specifies how minority investors could get out of the deal without notifying the lender.
“Lender’s consent shall not be required in connection with one or a series of transfers, of not more than forty-nine percent in the aggregate of the direct of indirect ownership interests in any restricted property,” according to Section 8.2 of the loan, which has to do with transfers by borrowers.
Such transfers may happen, the loan document goes on to say, as long as default or an event of default has not occurred. That’s key in this case because the lawsuit is all about the hotel currently defaulting.
With a 12 percent total investment, Manchin and Puccio would fall within that range where consent of the lender to transfer ownership interests is not required.
Another section of the loan deals with the use of proceeds.
Borrowers were to use the $15 million to acquire the property and pay off any other existing loans, pay any past due costs on the property, deposit the reserve funds, pay costs and expenses related to the closing of the loan, fund any working capital requirements and “distribute the balance of the proceeds, if any, to the borrower.”
That seems to allow the possibility that, in a $15 million deal, there might have been cash left over after other expenses to be distributed among the original investors.
When the first stories about the federal lawsuit were published, Manchin’s staff said he is not an investor in AA.
Shortly after that, Manchin’s staff and Puccio revised their position to acknowledge investment in AA but to say there is no investment in the Morgantown hotel.
“Most certainly, take it to the bank, AA is not a stockholder and has no affiliation nor ownership with the hotel company, nor does Manchin or Puccio,” Puccio said on August 16.
That same day, Manchin’s congressional staff sent out an email stating, ““Senator Manchin has part ownership in AA Property, but AA Property has no ownership or affiliation with the hotels.”
Puccio, like Ruby, has said all will be sorted out in court — although his way of expressing that was different.
“I’ve made it clear as I could that we have no ownership, and I think if you’re patient you’ll see I was right and no ownership,” Puccio said in a brief telephone conversation Aug. 21. “I’m not going to keep doing this. I’m out, bud.”
Nothing filed in federal court so far sheds specific light on the involvement of Manchin and Puccio.
Lawyers for Mountain Blue filed an answer in federal court this week, denying almost everything in the original complaint.
The response even had a paragraph denying any knowledge of AA, Manchin and Puccio, whose investment was described in Paragraph 10 of the original complaint.
“After diligent inquiry, the Defendant is without sufficient knowledge or information to either admit or deny the allegations set forth in Paragraph 10 of the Plaintiff’s Complaint therefore denies the same and demands strict proof thereof.”
Mountain Blue is being represented by Charleston attorneys Michael J. Del Giudice and Timothy J. LaFon. In legal filings, they said they weren’t retained until August 14, a little more than a week after the lawsuit was filed.
On August 15, they filed a motion to continue an evidentiary hearing originally scheduled for Aug. 18 — in part because they need to familiarize themselves with who they’re representing and what their interests actually are.
“This the first time this law firm has represented the Defendant and it will take a considerable amount of time to become acquainted with the business and review the Complaint, attachments, Emergency Motion for Appointment of Receiver and Memorandum,” the attorneys wrote.
U.S. District Judge Irene M. Keeley granted the motion to continue. She then set an evidentiary hearing date for 9 a.m. Oct. 5.
By Sept. 14, the lawyers for Mountain Blue are supposed to file a brief in response to the original lawsuit. The lawyers for the lender are supposed to file a response to that by Sept. 21.
By Sept. 28, both sides are supposed to file a list of exhibits and witnesses.