Judge Orders Dismissal Of Roxby Bankruptcy Cases
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WHEELING -- A federal judge on Wednesday dismissed the bankruptcy cases filed by Roxby McLure LLC and Roxby Development and lifted the stays that had temporarily protected the embattled company from legal action by a long list of creditors.
Judge David L. Bissett presided over a hearing via teleconference Wednesday afternoon in the U.S. Bankruptcy Court of the Northern District of West Virginia on a motions to dismiss Roxby's bankruptcy cases based on failure to maintain insurance -- specifically property insurance on the Scottish Rite building and the McLure Hotel and its adjacent parking garage.
Several parties joined the hearing, including a number of creditors to whom Roxby owes significant amounts of money.
Attorneys representing the former owners of the McLure House and the Scottish Rite Cathedral both concurred with attorney Shari Collais, representing the Office of the U.S. Trustee in the bankruptcy cases, that property insurance on both landmark buildings in the city was necessary to protect the interests of the creditors involved.
Roxby President Jeffrey Morris and his attorney, Salene Kraemer, requested additional time to secure money through a DIP (Debtor-in-Possession financing) loan to secure property insurance for the buildings within the next week or two, but the judge dismissed the bankruptcy cases and granted motions to lift the stay. Parties noted that the McLure Hotel carried liability insurance only, while the Scottish Rite Cathedral had neither property nor liability insurance.
"Property damage coverage is absolutely imperative," Collais said during the hearing, who indicated that the liability insurance on the hotel did not adequately protect the parties' interests. "Again, that doesn't cover the property itself. For example, if someone drops a cigarette and the whole place burns down, that's not going to solve the problem."
Roxby was given some time to get the properties covered prior to the hearing, but Morris said he was still in the process of securing the money to satisfy the insurance coverage needs.
Judge Bissett said he took the decision very seriously and understood the position of the debtor, Morris. The judge described the situation as "disappointing" and found the U.S. trustee's motion to dismiss the bankruptcy cases valid.
"We do not have liability insurance on the property that appears to be vacant (the Scottish Rite building) and subject to vandalism, and quite simply the court cannot tolerate that," Bissett said, adding that proof of property insurance had also been requested, but Roxby failed to comply. "The court frankly has no option but to dismiss both of these cases for failure to obtain required insurance."
The Chapter 11 bankruptcy filings had triggered an automatic stay against further legal proceedings just before a foreclosure sale on the McLure House and the adjacent parking garage was scheduled to take place. Attorney David Delk, named substitute trustee on the deed of trust for the McLure Hotel and parking garage, had planned to move forward on a foreclosure sale of the property on behalf of the hotel's previous owner FA Management Inc. and FG Management LLC.
"Our position is that we totally agree with the judge's decision," Delk said. "There's no evidence that Roxby had any way to come up with the money."
Delk indicated that he intended to get the ball rolling again on the foreclosure of the property before the ink dried on the judge's entry.
Shortly after Wednesday's ruling in U.S. Bankruptcy Court, Delk submitted a public notice of a new date of sale at 10 a.m. June 1 in the Ohio County Courthouse for the McLure House Hotel and parking garage.
Attorney David Croft of Spillman Thomas & Battle, representing the Scottish Rite, said he is also planning to take similar action as soon as possible to foreclose on the Scottish Rite Cathedral.
"We will begin immediately to exercise remedies available to us and begin our foreclosure process," he said about the Scottish Rite Cathedral.
Croft noted that the previous owners of both the properties are creditors who are permitted to and who may likely submit creditors bids during auctions if foreclosure sales take place.
According to the bankruptcy filing on behalf of Roxby Development, Roxby Labs and Roxby McLure LLC, the company is in debt to the tune of between $10 million and $50 million. There are also mechanics liens and tax liens on the properties.
Representatives of Ramada Worldwide were among parties that participated in the hearing in U.S. Bankruptcy Court on Wednesday, as did one creditor who spoke in support of proceeding with the bankruptcy cases. Lucy Gurian of Jolu Properties LLC, the Texas-based investor who had served as the primary financial artery to Roxby during its ascension in Wheeling, urged the court to give Morris additional time to obtain the necessary insurance.
Gurian and the myriad of other creditors are expected to lose footing in the line to recoup money in the wake of the court's dismissal of the bankruptcy cases.
Following the judge's ruling, Morris expressed his disappointment in the court's decision. He noted that there were several creditors involved in this situation and asserted that the dismissal of the bankruptcy cases primarily benefits those who hold the assets through the deeds of trust. He said the previous owners of the McLure Hotel and the Scottish Rite Cathedral stand to come out far ahead through the foreclosure process while the other creditors - who stood a much better chance to recoup money through an approved bankruptcy court reorganization plan - are getting pushed to the back of the line.
"The decision of the court is more than unfortunate," Morris said. "It was instigated by pressure from the two most secured parties that have far more value in a foreclosure than the amount they are owed.
Morris has noted that Roxby has already paid the previous owner of the McLure Hotel around $1 million. Roxby has also poured large amounts of money into improvements at the hotel and at the Scottish Rite facility.
Morris said he planned to secure insurance on the buildings and refile for bankruptcy.
"This is not the end for us," he said. "We will continue to pursue the additional insurance required and refile once it has been obtained."