San Jose hotel bankruptcy lawsuit pits downtown hotel owner against manager – Silicon Valley

SAN JOSE – The owner and operator of the Fairmont hotel in downtown San Jose are locked in escalating legal hostilities after a lawsuit is filed in connection with the hotel’s bankruptcy proceedings.

The dispute turned into a full-scale battle after the litigation began, which was filed on June 29 as a sister proceeding stemming from the Chapter 11 bankruptcy case.

On Tuesday, in a follow-up file with the bankruptcy court, the hotel owner accused hotel operator Accor of deliberately blocking efforts to reorganize the hotel’s shattered finances through the procedure. bankruptcy.

“By its actions in these matters, Accor has made its position clear: if Accor cannot manage the hotel, it will do everything possible to prevent any other brand manager from managing the hotel,” said the owner of the hotel. ‘hotel in a court file. July 13.

SC SJ Holdings, the subsidiary run by business executive Sam Hirbod, owner of Fairmont San Jose, has filed a lawsuit in US bankruptcy court against Accor Management US, a large corporation that manages and operates hotels.

The lawsuit asks the court to find that the operator Accor Management illegally hampered the owner’s efforts to stabilize and protect the 805-room hotel, closed since March 5, 2021, the day the bankruptcy was filed.

“It’s really controversial now,” said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the California accommodation market. “The relationship between owner and operator has been derailed.”

The lawsuit also found that the hotel’s finances and operations were already unstable even before the coronavirus outbreak that triggered business closures to tackle the deadly virus.

“Before the COVID-19 pandemic, hotel revenues suffered from Accor’s management and a limited reservation pipeline,” the hotel owner said in the lawsuit.

The economic impact of the coronavirus imploded the hotel’s fortunes, the court record said.

“Income has suffered a dramatic and sudden drop as a result of the spread of the COVID-19 virus,” according to the lawsuit.

The future of the hotel turned decidedly murky at the end of June when a set of decisions by a U.S. bankruptcy court judge allowed arbitration proceedings to be initiated to resolve a dispute between the hotel owner. bankrupt and the iconic hotel operator.

It may take five to six months for the arbitration case to be resolved.

“We don’t have a firm date for the property to reopen,” hotel spokesperson Sam Singer said in late June.

The lawsuit claims the hotel operator blocked the owner from accessing major computer systems, financial records and even the technology network that controls the locking and unlocking of the doors of each of the hotel’s rooms. .

“The lockout has recklessly endangered the hotel,” the hotel owner said in court documents. “The key management system that controls access to the rooms has become inaccessible, preventing access to the rooms. It could have been disastrous if there had been a leak or some other emergency.

In a separate filing related to the bankruptcy case, Accor Management accused the hotel group of failing to provide sufficient financial support to the hotel operator until income and occupancy levels could return to normal. pre-COVID levels.

“This position has led to a number of litigation,” said Paul Tormey, regional vice president of Accor, in a statement to the bankruptcy court.

However, the hotel owner said that because operator Accor failed to provide enough funding to keep the hotel afloat, the group of owners decided to terminate their contract with the operator.

The bankruptcy filing was designed to allow the hotel to reorganize its finances, inject capital into the property, terminate the management contract with the operator Accor and integrate a new operator.

In May, the ownership group selected Hilton Hotels & Resorts as their new manager and operator.

Court documents show that Hilton has agreed to inject about $ 45.8 million in funding to help stabilize the hotel.

JPMorgan Chase Bank has also agreed to provide additional funding of $ 25 million to the hotel to help it come out of bankruptcy.

The biggest creditor the hotel owes money to is Colony Capital, which holds a mortgage on the hotel for $ 173.5 million. Colony Capital, however, provided financial assistance to help keep the hotel afloat.

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