FEBRUARY 28, 2003
ROCHESTER BUSINESS JOURNAL
Golisano asks bankruptcy court to halt payments
By WILL ASTOR
Paychex Inc. chairman and CEO Thomas Golisano has asked the U.S. Bankruptcy Court to halt compensation to Hudson Hotels Corp. chairman Anthony Wilson, Hudson presidentand CEO Thomas Blank and other Hudson executives.
Golisano on Tuesday filed papers here objecting to Hudson's plan to keep 10 ex- ecutives on the payroll while the two Chapter 11 cases the hotel firm filed last month wend their way through the court.
"The corporation has failed to establish a need for continued retention of these executives," Golisano attorney Glenn Pezzulo of Culley, Marks, Tanenbaum & Pezzulo LLP said. "These are the same individuals who brought the company to the condition it's in now."
The Hudson officials covered in Golisano's objection collectively are paid some $1 million a year. Wilson, who is living in Florida, collects a $72,000 annual salary as Hudson chairman. Blank's salary is $124,711. Wilson's and Blank's compensation packages include company-paid leased vehicles and some $4,000 a year in dues for an unspecified organization for Wilson, papers filed in bankruptcy court show.
Pezzulo is trying to form an unsecured creditors committee to further watchdog the Hudson bankruptcies. He is ready to take the lead on the committee, Pezzulo said. But it takes three creditors to form a committee, and so far, only Golisano is interested.
The apparent lack of creditor interest is surprising, Assistant U.S. Trustee Kath- leen Schmitt said. It is unusual in a Chapter 11 of Hudson's scope for creditors not to get involved, Schmitt added. She went to greater than usual lengths to notify creditors of their right to form a committee, but none responded.
Pezzulo plans to start working the phones in hopes of finding two cohorts for the unsecured creditors committee.
Bankruptcy court is the most recent stage onto which an ongoing legal brawl among Golisano, Hudson, Wilson and Constellation Brands Inc. CEO Richard Sands has spilled.
The Golisano-Hudson dispute traces to a $2 million loan Golisano gave Hudson in 1998. Golisano, who still is trying to collect on the loan, is a $2 million unsecured Hudson creditor. The loan was supposed to go to fund an initial public offering for a Hudson-related real estate investment trust. Sands lent the hotel firm an equal amount.
When the IPO fell through, Hudson said it could not pay Sands or Golisano back. Sands took Hudson stock, becoming one of the firm's largest shareholders.
"I want my money," Golisano said at the time. In 1999, Golisano sued Hudson along with Wilson and Sands, claiming Hudson had unequally and wrongly repaid Sands' $2 million 1998 loan while stiffing Golisano. State Supreme Court Justice Thomas Stander gave Golisano a $2 million judgment against the failed REIT, Hudson Trust, but dismissed charges against Wilson and Sands and against a Sands family partnership called MLR&R. The judgment is a hollow victory, however, because Hudson Trust has no assets.
When Hudson filed bankruptcy, Stander had not heard Golisano's claims against Hudson Hotels Corp., Hudson Hotels Properties Corp. and HH Bridge, a Hudson related company that is 57.8 percent owned by the Sands-controlled MLR&R.
Normally, the Hudson bankruptcy filing would put Golisano's state Supreme Court suit in limbo under an automatic stay pending the bankruptcy's resolution. But Pezzulo said that parties to the Hudson bankruptcy have agreed to let the state court suit go to trial. A conference to schedule a trial date is slated in March.
The Hudson bankruptcy will proceed on a parallel track.
Hudson filed two intricately related Chapter 11 and two Chapter 7 cases in late January.
Paychex chairman and CEO Thomas Golisano has asked the court to halt compensation to Hudson Hotels executives.
Blank said at that time that Sept. 11 and other factors had put the hotel business in the doldrums and that Hudson's 25-hotel portfolio and its hotel-management business had been losing money for some time.
The bankruptcies are supposed to serve as a vehicle to arrange a sale of the company to RHD Capital Ventures LLC, Blank said. He had expected RHD to file an offer momentarily, but as of midweek, it had not appeared.
RHD, which is controlled by Sands, had become a Hudson secured lender when it purchased some $20 million in Hudson debt from Nomura Capital Assets Inc. in 2000, county records show.
The transfer of Hudson to RHD, or to any other buyer that might bid on the firm in bankruptcy court, would not exactly amount to the buyer acquiring Hudson's 25 hotels, RHD attorney William Thomas of Nixon Peabody LLP said. Rather, a buyer would acquire shares in two Hudson-affiliated partnerships that together owe some $80 million to Nomura in mortgage debt on the hotels. So if RHD is the buyer, it would then hold some $100 million in Hudson debt.
Other potential buyers have inquired about Hudson's hotels, Hudson bankruptcy lawyer Lucien Morin II of McConville, Considine, Cooman & Morin P.C. said
Thomas and Morin initially said that they hoped to see a sale completed by the end of March.
Given that no offer has been filed, that aim seems unlikely to be met, Schmitt said.
Morin said Hudson has yet to file a plan to pay off creditors, and until offers from RHD or other buyers are in, it cannot make a plan.
If Golisano wins judgments against Hudson Hotels Corp. or Hudson Hotels Properties in state court, it would entitle him to stand in line with other unsecured creditors to be paid according to the terms the plan dictates.
But Pezzulo said he intends to prove in state court that Hudson transferred "the equivalent of Golisano's $2 million" to HH Bridge after first moving it through Hudson Hotels Corp. and then through Hudson Hotels Properties. The Sands controlled HH Bridge is not part of the bankruptcy, Pezzulo said. So Golisano might still collect his whole $2 million.
Though it has descended to penny stock status, Hudson (OTC: HUDS.PK) is a publicly traded firm, and could spark scrutiny from the Securities and Exchange Commission.
Morin said he had notified the SEC of the Hudson filings, but had not heard back from the agency.
wastor@rbj.net / 585-546-8303
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