A federal appeals court has sided with a major creditor of the Westin La Paloma Resort & Spa, ruling that a lower court wrongly approved the former resort owners’ Chapter 11 bankruptcy reorganization plan without properly considering the lender’s objections.
The ruling by the San Francisco-based Ninth Circuit Court of Appeals sends the issue back to federal district court, which must now figure out how to comply — though the property changed hands three years ago.
The resort owners, affiliated companies of Transwest Partners/NCH Corp., filed for bankruptcy reorganization in 2010 amid a crush of debt.
In January 2012, a bankruptcy judge approved a reorganization plan allowing Southwest Value Partners, an investor group co-founded by Phoenix Suns owner Robert Sarver, to acquire La Paloma and another property in South Carolina.
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The plan was approved despite the objections of a senior lender, JPMCC 2007-C1 Grasslawn Lodging LLC, over how it would be repaid nearly $250 million in mortgage and other debt on the property over 21 years.
U.S. District Court Judge Raner C. Collins ruled against Greenlawn, agreeing with the bankruptcy judge that the lender’s objections were “equitably moot.”
But a three-judge panel of the San Francisco-based Ninth Circuit Court ruled last week that the lender had significant objections that were not moot because the lender had diligently sought a legal stay, or halt, to consummation of the reorganization plan.
Though the reorganization plan has been in place for nearly three years, the appeals panel in a 2-1 decision said “it would be possible to devise an equitable remedy to at least partially address the lender’s objections without unfairly impacting third parties or entirely unraveling the plan.”
But in a dissent, Circuit Judge Milan D. Smith said the ruling is grossly unfair to Southwest Value Partners and could jeopardize the reorganization, contending that the court cannot force the new owners to repay Grasslawn.
In 2013, La Paloma’s new owners completed a $35 million renovation to the property at 3800 E. Sunrise Drive.
