BURLINGTON — Vermont has been determined "the proper venue" for bankruptcy cases involving Hermitage Club companies, which ran a private ski resort at Haystack Mountain and golf course in Wilmington until its establishments were closed last year as a result of financial issues.
All three Hermitage cases "shall proceed in the Bankruptcy Court for the District of Vermont, effective immediately," Judge Colleen A. Brown wrote in an order issued Wednesday.
Brown granted a motion made by three creditors, who are seeking liquidation via an involuntary Chapter 7 bankruptcy petition against Hermitage Inn Real Estate Holding Company LLC submitted last month, to transfer Chapter 11 hearings to Vermont. HIREHC and Hermitage Club LLC filed a Chapter 11 bankruptcy petition in Connecticut five days after the three creditors filed their petition in Vermont.
HIREHC's motion to transfer the Vermont case to Connecticut was denied. Through Chapter 11, its goal is to reorganize and reopen the club.
"The location of the Hermitage debtors and their assets, in Vermont, indicate Vermont would be the more convenient venue," Brown wrote. "While it is difficult to predict who the witnesses and professionals will be once these cases move forward, it is clear that if the debtors' real property is to be sold (whether in Chapter 7 or Chapter 11), Vermont will be the more suitable location, and if the debtors proceed to reorganize there is no compelling evidence before the court that the Vermont location would be unduly inconvenient. Finally, since many of the disputes that are evident, both from the debtors' schedules and the record associated with the contested venue hearing, involve issues of Vermont law, this court is best positioned to efficiently and economically resolve them."
Brown said the court weighed "the economic and efficient administration of the estate" most heavily in determining the venue.
Her decision says several "key creditors" wanted to have the cases proceed in Vermont. Brown noted that either venue would be proper and quoted a rule saying: "The court in the district in which the first-filed petition is pending may determine, in the interest of justice or for the convenience of the parties, the district or districts in which any of the cases should proceed."
The involuntary petition had not been filed as "a preemptive strike, to control the outcome," according to the decision. Brown said Hermitage Founder Jim Barnes had "a long history of intimating he would soon file a bankruptcy case but then not doing it, and the petitioning creditors believed the Hermitage Club would only be able to operate during the 2019-2020 ski season if a bankruptcy case was filed immediately."
"There is no testimony or evidence before the court that suggests the petitioners filed the involuntary case in Vermont in order to obtain some strategic advantage," wrote Brown.
The court would not give the Hermitage's choice of forum any deference since its "assets, the lion-share of their business activities, and the great majority of their non-member creditors are located in Vermont," according to the decision. Of 74 secured creditors listed in filings, 35 are based in Vermont and six are in Connecticut.
"Initially, it would appear that a comparison of the amounts of the secured claims by state yields a closer comparison: $8,897,568 of the secured debt is held by Vermont-based claimants while $10,743,499 of the secured debt is by Connecticut-based claimants," Brown wrote. "But the court considers more than these raw numbers. It also factors in the position of any secured claimant that has weighed in on the venue question, as well."
Brown said Barnstormer Summit Lift LLC, which is made up of club members who loaned money for installing a chairlift at the resort, has the largest Connecticut-based secured claim: $9,252,753 and "emphatically favors" the Vermont court as the venue. Without that group, she wrote, "$8,897,568 of the secured claims are held by Vermont claimants and $1,490,746 of the secured claims are held by claimants from Connecticut."
"It is also noteworthy that in this case many of the Vermont-based holders of secured claims are tradespersons and vendors, who hold smaller claims secured by judgment or contractor liens," Brown added. "It is likely to be burdensome to these creditors to have this case proceed in the debtors' choice of forum, as these smaller Vermont-based lienholders are less likely than larger creditors to have the resources to hire Connecticut-based counsel."
Brown said the Vermont Department of Taxes and towns of Wilmington and Dover have claims totaling more than $1,475,000.
"The other two priority unsecured creditors are the Internal Revenue Service and the U.S. Department of Labor," she wrote. "The number and amount of Vermont-based priority claims, based on the debtors' schedules, along with the work necessary to ascertain and resolve those claims, establish Vermont as the more convenient venue for the majority of this class of claimants."
Since just two club members testified, Brown said, "it is not possible to determine which venue would be most convenient for the majority of this group of general unsecured claimants."
Brown noted the proceedings could take place in Rutland instead of Burlington, where the bankruptcy court is, as hearings on the motions regarding venue occurred in Rutland.
"The court takes judicial notice of the fact that the debtors' principal place of business and assets are closer to Rutland ... than to Hartford, Conn.," Brown wrote, adding that "as most of the Connecticut-based creditors, including those who testified at the evidentiary hearing, chose to contract with, invest in, or participate in, a golf and ski club located squarely in Vermont, they cannot be surprised that the bankruptcy case of that club might be conducted in Vermont."
She anticipates an unsecured creditors committee would represent the interests of many members if the case proceeds under Chapter 11.
Brown said the location of the assets took on more importance in determining the venue given that liquidation is "one of the viable options" in the proceedings. But "there is nothing preventing the debtors from utilizing the same [debtor-in-possession] lender for its post-petition financing if the case proceeds in Vermont," she wrote, referring to a reorganization plan presented by Barnes.
"Mr. Barnes testified that, despite his understanding about the lender's preference for, or expectation of, a Connecticut-based transaction, there is no language in the proposed DIP Agreement which makes the loan contingent upon the bankruptcy case proceeding in Connecticut," Brown wrote. "Finally, there is no reason to believe Connecticut is the only state where post-petition financing would be available to the debtors ... There is also nothing in the record to indicate that any Connecticut lender who might undertake to enter into a post-petition DIP loan agreement would require the case to proceed in Connecticut."
With liquidation, Brown said, "the marketing and sale of those assets would be best conducted as close to the location of those assets as possible, and by a court with the most familiarity with the market."
Reach staff writer Chris Mays at email@example.com, at @CMaysBR on Twitter and 802-254-2311, ext. 273.