Bank accused of 'defrauding' Hermitage Club chairlift investors
BRATTLEBORO — Berkshire Bank is being accused of "defrauding" a group of Hermitage Club members who invested in a six-person, bubble chairlift at the now-shuttered private ski resort at Haystack Mountain.
Barnstormer Summit Lift LLC is seeking an order declaring that the group's lien is superior to any lien or claim the bank has on the chairlift. The group also wants to be granted attorney fees for seeking the judgment.
Barnstormer claims the bank has failed to address the issue "in good faith and to deal fairly with Barnstormer," according to a complaint filed by attorney David Dunn of Phillips, Dunn, Shriver & Carroll in Brattleboro. The group also claims Berkshire has engaged "... in a course of conduct intended to defraud Barnstormer investors of the value of their investments in the summit lift in order to improperly increase Berkshire's recovery from failed loans that it made to Hermitage Inn Real Estate Holding Company."
The bank is currently looking for court approval to continue a foreclosure process it began in February 2018. Since then, bankruptcy filings have put litigation against Hermitage entities on pause.
Dunn said the bank knew the Hermitage was in financial trouble as early as 2015 and its earlier loan investments in the company were at risk.
"As a result, in an effort to improve Berkshire's chances of recovering the proceeds of its loan investments, Berkshire supported HIREHC's efforts to borrow funds from members of Hermitage Club LLC, purportedly to finance improvements to the Hermitage Club in the form of purchasing and installing the summit lift, but in reality, at least some of the funds were intended to be used to repay debts owed to Berkshire by HIREHC," wrote Dunn.
The investors claim only one payment was made to them in March 2016 then the Hermitage was "unwilling or unable to make scheduled payments ... instead favoring payments to Berkshire including using Barnstormer funds for such payments."
"Incredibly, by June 2016, HIREHC was in default on the loan from Barnstormer to HIREHC, a loan that closed mere months before," wrote Dunn.
The bank continued to issue new loans to the company in hopes it would overcome its financial issues, according to the complaint. Dunn said in June 2016, a new loan was issued giving the bank a second priority lien on the lift.
The bank and the company agreed that the bank would place a lien on the lift even though it never provided construction or acquisition funds, according to the complaint. Dunn said the investors were never notified of the agreement.
The complaint alleges an agent of the bank falsely represented that the bank would wait to file a Uniform Commercial Code financing statement until a member of Barnstormer filed one but then filed it the next day "thereby defrauding Barnstormer of the benefits of filing first." The investors claim they discovered last year the bank filed its financing statement before them and they requested the bank amend the statement to confirm that the bank's lien on the chairlift falls behind theirs.
"By that time, it was clear that HIREHC was heading towards bankruptcy, and Berkshire was facing the possibility of substantial losses on its loans to HIREHC," Dunn wrote. "Berkshire refused to grant the subordination request and for more than a year has continued to so refuse notwithstanding repeated requests by Barnstormer."
The investors claim to have expended "significant funds and resources seeking to address the lien priority issue and Berkshire's fraudulent conduct."
Dunn said because of the lien issue, they cannot market the lift and seek out buyers. The bank's strategy, he added, is to meant to force the investors into selling the lift at a discounted price to the purchaser of Hermitage real estate subject to the bank's liens — as Hermitage assets are anticipated to be sold through a Chapter 7 bankruptcy process.
Another group has issues to work out with the bank. Reinhart Foodservice LLC is in "an ongoing dispute with Berkshire Bank over what Hermitage entity owns what Hermitage personal property," attorney Adam Mordecai of Primmer Piper Eggleston & Cramer in Manchester, N.H., wrote in a recent filing.
"For the goods and equipment it provided to the resort, Reinhart was paid more than $1 million by Hermitage Inn LLC, a non-debtor in this case, and an entity against which Berkshire Bank has no lien or claim," added Mordecai.
Reinhart hopes to continue litigating its pending disputes with the bank through the foreclosure action. The group supplied Hermitage establishments with food, supplies and kitchen equipment. It says it is owed more than $2.8 million in judgements secured against the Hermitage in Windham Superior Court, Civil Division. It has been seeking financial records and communications related to Hermitage Inn LLC.
Berkshire Bank has no problem with Lakeland Bank wanting to continue its litigation against the Hermitage. Owed for a $900,000 loan it made for snowmaking equipment, Lakeland Bank hopes to sell those assets separate from a foreclosure or bankruptcy sale.
If the case is to resume, Berkshire Bank is asking that Lakeland Bank be required "to remove its collateral from the debtors' property within 30 days of the order granting Lakeland Bank relief from stay, and to coordinate such removal with the Chapter 7 trustee and the representatives of Berkshire Bank," according to a recent filing submitted by attorneys Elizabeth Glynn of Ryan, Smith & Carbine in Rutland and Paul F. O'Donnell III of Hinckley, Allen & Snyder in Boston.
Reach staff writer Chris Mays at email@example.com, at @CMaysBR on Twitter and 802-254-2311, ext. 273.
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