Barnes: Member group had 'insider status'
BURLINGTON — Hermitage Club founder Jim Barnes claims the bankruptcy sale of his companies' assets can be appealed due to the "insider status" of the new owners.
In a federal civil court filing opposing a motion from Hermitage Club Member Group Inc. to dismiss the appeal, Barnes' attorney William E. Whittington of Whittington Law Associates of Hanover, N.H. raised concerns about having no hearings to determine whether the purchasing group acted in good faith.
He said several individuals who spearheaded the creation of the member group and continue to be involved in managing an entity that financed the Barnstormer chairlift at the private Wilmington-based ski resort were "actively and continuously involved with the financial and operational affairs" of the Hermitage under Barnes. He said they worked for Barnes before the companies filed for bankruptcy by serving as members of the board of managers or ad hoc committees appointed by Barnes "to provide a layer of additional oversight for the club members."
"These individuals have fiduciary duties as managers of the debtor limited liability companies that are imposed under Connecticut law," Whittington wrote. "They acted in such roles while subject to extensive confidentiality and non-disclosure agreements, which they circumvented once the opportunity to grab the Hermitage Club away from Mr. Barnes presented itself to them as the businesses continued to struggle."
Late last month, Judge Christina Reiss granted motions to consolidate two appeals made by Barnes. The appeals involved an order rejecting his request to postpone a bankruptcy auction in March due to coronavirus concerns and an order authorizing a bankruptcy trustee to sell Hermitage assets and properties to the member group after it was deemed the highest bidder.
"In the rush to close out the bankruptcy case and hand over the Hermitage Club to the Member Group, the Bankruptcy Court failed to conduct a thorough examination of the 'insider' status of the Member Group, its management interlocks with the Barnstormer managers, and the coordinated campaign perpetrated by the individuals at the center of these entities to use the Bankruptcy process to wrestle control of the Hermitage Club away from Mr. Barnes — whose success they deeply envy if not outright despise," Whittington wrote. "Had the Bankruptcy Court taken the prudent action of ordering a short postponement of the ... auction, not only would these issues have been confronted, but other parties with substantially greater resources and experience in owning and operating resort properties on par with the Hermitage Club would have had an opportunity to participate in the auction process and generated significantly greater value for the Bankruptcy estate."
Whittington said "these irregularities and deficiencies" in the process support his conclusion that the member group is not an entity that purchased the assets in good faith as required by under bankruptcy law. Therefore, he wrote, the appeals cannot be considered moot as suggested by the member group in a previous filing.
The Hermitage sale included a private ski resort at Haystack Mountain in Wilmington and a nearby golf course as well as inns. Companies run by Barnes defaulted on loans in 2018, resulting in a foreclosure complaint from Berkshire Bank.
Whittington said when the Hermitage began to experience financial issues, Barnes did not "devise a plan to ring-fence off his personal assets."
"Quite to the contrary, in fact," Whittington wrote. "He mortgaged his homes, withdrew cash from segregated trusts intended for his children, and tapped into every readily available source of cash he had and delivered those funds to support the Hermitage Club."
Reach staff writer Chris Mays at firstname.lastname@example.org and at @CMaysBR on Twitter.
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