CLARKSBURG, W.Va. — Sen. Joe Manchin and longtime aide Larry Puccio, in addition to being listed among the investors in a Morgantown hotel in a federal default case, are also listed as investors in the case of default over a $19,630,000 loan on hotels in Clarksburg and Elkins.
The breach of contract lawsuit over the Clarksburg and Elkins hotels was actually filed first, on May 10, but it’s received less attention than the Morgantown deal.
In the Morgantown lawsuit, the defendant is a company called Mountain Blue Hospitality. In the Clarksburg lawsuit, the defendant is the related Mountain West Hospitality.
MORE: Financial problems hound Clarksburg hotel too
Both share developer William Abruzzino as a top officer. In both cases, Abruzzino signed a multi-million dollar loan document.
And in both cases, Manchin and Puccio are listed as investors through their partnership in AA Properties LLC.
AA is listed in the original, 2012 loan document as a 12-percent investor in Mountain West. Manchin and Puccio are listed as 50-50 investors in AA.
They, along with other investors that include several members of the Abruzzino family, are listed in the lawsuit not as defendants but to show diversity for court jurisdiction.
When news about the Morgantown hotel broke, Manchin’s staff and Puccio initially said they are not invested in AA, which is described as a property management corporation. They then revised their statements to acknowledge AA ownership but to say they are not invested in the hotels.
Manchin’s Senate financial disclosures say he had $50,001 to $100,000 invested in AA in 2016, with earnings of $11,200.18.
Previous reports show the AA partnership earned Manchin $11,000 in 2015, $11,454.52 for 2014, $15,000 for 2013 and $12,966 in 2012.
So there’s no question Manchin is an investor in AA. But AA’s involvement with Mountain West and Mountain Blue is murky.
Last week, Manchin attorney Steve Ruby said the senator’s listing as an investor in the Morgantown hotel is a mistake.
“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 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.”
No such clarification had been filed as of Friday afternoon in the Morgantown case. No such clarification appeared to have been filed in the months of litigation over the Clarksburg and Elkins hotels.
The loan agreements on file in both federal cases 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.
A receiver was named for the Hilton Garden Inn in Clarksburg and for the Hampton Inn in Elkins on Aug. 2 in an order by U.S. District Judge Irene Keeley.
In its lawsuit, the plaintiff Deutsche Bank claims a breach of contract over the hotel loan. It says default events have already occurred over the April 11, 2012, loan of $19,630,000.
The lawsuit says the hotel franchises failed to keep up with payments to Hilton of $239,067.66 for the Clarksburg hotel and $160,827.49 for the Elkins hotel. Mountain West then agreed to a repayment plan but failed to keep up with that too.
Hilton notified Mountain West that its franchise agreement would terminate this past May 11, although later communication showed that the hotel chain would refrain from that action if a receiver were to be appointed.
“If the franchise agreements are terminated, potentially millions of dollars of value will be lost,” lawyers for Deutsche Bank wrote.
Deutsche Bank contends that the hotels face other kinds of financial trouble too, including the inability to consistently pay employees or to keep up with state and local taxes.
“Hilton is aware of the nonpayment of wages and failure to pay taxes and is highly concerned with the current management continuing in place,” lawyers for Deutsche Bank wrote in the lawsuit.
In a May 10 letter, the lender notified Mountain West that its obligations under the loan have accelerated, and it demanded repayment of the loan. About that time, $17,678,463.04 remained on the loan, along with $8,249.27 in late charges.
The lawyers for Deutsche Bank wrote that the appointment of a receiver is essential to protect the value of the hotels because the loan is nonrecourse, meaning the loan is secured by collateral and the borrowers are not personally liable.
“A legal remedy is inadequate for plaintiff because the loan at issue is nonrecourse subject to certain narrow exceptions and therefore properties will likely be the only assets against which plaintiff may have recovery,” the lawyers wrote.