CHARLESTON, W.Va. — A federal judge has dismissed the bankruptcy case of a company that filed bankruptcy over a troubled Morgantown hotel.
Mountain Blue Hotel Group, headed by West Virginia native William Abruzzino, was supposed to provide evidence that it had obtained workers compensation insurance no later than 5 p.m. this Friday.
U.S. District Judge Lisa Ritchey Craig of the Northern District of Georgia wrote that the hotel company failed to do so and dismissed the bankruptcy case today.
Mountain Blue had sought Chapter 11 bankruptcy protection after its lender began making plans to auction the Hilton Garden Inn at Suncrest Plaza in Morgantown and also following a county raid of the hotel.
The dismissal is likely to re-start a federal civil case over the hotel, which was halted when bankruptcy was filed.
The $15 million hotel case is notable for several reasons.
Abruzzino 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.
Among the other investors listed in the original Hilton loan and the lawsuit over the Morgantown hotel were some prominent names — Senator Joe Manchin and his longtime aide Larry Puccio, who were not defendants but who were name-dropped nonetheless.
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.
Mountain Blue Hotel Group filed bankruptcy on Sept. 13, after its lender had notified it of the upcoming auction of the Hilton in Morgantown.
The next day, the federal clerk filed notice that Mountain Blue’s initial filing was deficient. Federal court officials still needed names and addresses of all creditors, a statement of financial affairs, a list of 20 largest unsecured creditors, a list of equity security holders and more.
Lawyers for the hotel group’s lender, U.S. Bank National Association, had asked that for a quick dismissal of the bankruptcy.
They said the hotel’s financial situation was too dire to linger long in federal bankruptcy court.
“Dismissal is also proper due to debtor’s management of cash prepetition,” the lender’s lawyers wrote. “Debtor did not use the revenues to pay over $400,000 in franchise fees with Hilton, $125,000 in insurance, $20,000 in taxes and close to $500,000 in debt service.
“Debtor also prevented any cash from being deposited into the lock box for two months. Debtor has no explanation for what happened to close to $1 million in cash prepetition.”
Lawyers for Mountain Blue responded that proceeding with bankruptcy would be a better process — particularly for unsecured debtors.
“Obviously the secured creditor has an interest in having this case dismissed — it wants the debtor’s property,” lawyers for Mountain Blue wrote. “The secured creditor is not interested in the other creditors or the debtor’s opportunity to reorganize and pay off some or all of those debts.
“If the secured creditor is allowed to foreclose on the debtor’s property, those creditors will get little or nothing for their significant claims.”
As for the financial problems, the lawyers for Mountain Blue argued that’s precisely why companies file bankruptcy — “they have experienced financial difficulties and need to reorganize or restructure their debts.”
Mountain West, the sister company that filed bankruptcy this past spring over hotels in Clarksburg and Elkins, also had its reorganization case thrown out because it never filed the required financials.
Mountain West filed Chapter 11 bankruptcy on May 12 in the U.S. District Court for the Middle District of Florida.
On May 16, the federal clerk provided notice that Mountain West, too, had a deficient filing — also noting that the case may be dismissed without further notice or hearing if the information was not provided.
The clerk asked for materials such as a statement of financial affairs, a corporate ownership statement and a list of the 20 largest unsecured creditors.
On May 26, lawyers for Mountain West filed a request for more time. Mountain West said it had been working on gathering the information but was unable to complete the documents prior to deadline and needed until June 5.
Just a couple of weeks later, June 5, the federal judge granted the request for more time.
But Mountain West never did get its stuff together for the court.
By this past July 18, the United States trustee filed a motion to dismiss Mountain West’s entire bankruptcy case “for the reason that the debtor has failed to comply with United States Trustee Guidelines and amend its schedules and statement of financial affairs.”
The motion continued, “The debtor’s lack of compliance with the guidelines prevents the United States Trustee from properly administering the case.”
And, finally, in a short order issued July 31, U.S. Bankruptcy Judge Caryl E. Delano in Florida dismissed the case.
An automatic stay of an earlier lawsuit against Mountain West was terminated, allowing trustee Deutsche Bank Trust Company to resume its case, including the pursuit of receivership for the hotels.
Just a couple of days later, in the resumption of the federal civil suit, receivers were appointed for the Clarksburg and Elkins properties.