San Jose Fairmont Hotel says operator Accor is acting in bad faith

By Sarah Lizee

Olympia, Wash., July 15 – FMT SJ LLC and SC SJ Holdings LLC, which own the San Jose Fairmont Hotel in California, have asked the U.S. Bankruptcy Court for the District of Delaware to enter into an order finding that Accor Management US Inc., the hotel’s operator, is acting in bad faith, according to a motion filed Wednesday.

The debtors said that at least eight months prior to their bankruptcy filings, they searched for sources of capital to save the hotel from the financial crisis it suffered as a result of the 2020 lockdowns, loss of bookings, and a steep decline in revenues.

The debtors said that during the last of these four months, the debtors asked Accor to provide financing for the hotel. Accor senior management told the debtors on several occasions they would inquire, and each time, the last being on Feb. 23, Accor said no. Shortly after, the debtors filed for Chapter 11.

“Within less than two hours after learning of the debtors’ first bankruptcy filing on March 5, Accor brazenly, and in violation of the bankruptcy code’s automatic stay, locked the debtors out of all the systems containing the debtors’ books and records,” the debtors said.

“Upon information and belief, Accor’s intent was to impede the debtors’ reorganization efforts, which Accor knew included replacing it as the brand operator.”

To date, Accor still has not turned over all of the debtors’ books and records, the debtors said.

“Accor intentionally engaged in this process to frustrate the debtors’ Chapter 11 restructuring efforts,” the debtors said.

Though Accor refused to provide financing to the debtors, in May, it submitted a financing bid to resume operating the hotel.

“In other words, 60 days into the case, Accor made the very sort of proposal that it refused to make pre-bankruptcy, which had it done so, might have led to further negotiations and the debtors avoiding bankruptcy altogether,” the debtors said.

The debtors received bids to manage the hotel more favorable than Accor’s, and the prevailing bidder was announced on May 14.

“Nevertheless, with knowledge that the prevailing bidder has been selected to operate the hotel, and is a cornerstone of the debtors’ Chapter 11 plan, Accor continues to falsely advertise the hotel on its website,” the debtors said.

“Through its actions in these cases, Accor has made its position abundantly clear. If Accor cannot manage the hotel, then it will do all it can to prevent any other brand manager from managing the hotel, thereby impeding the debtors’ efforts to reorganize and re-open the hotel.”

The debtors also added that, last month, Accor sent litigation hold letters to the pre-petition secured lender and the prevailing bidder in what appears to the debtors to be “an apparent attempt to intimidate them.”

“Accor’s actions demonstrate that it will continue to seek to prevent confirmation of [a Chapter 11 plan] through litigation and/or by requesting modifications that are off-market or unreasonable under the circumstances, even if these demands jeopardize Accor’s chances of getting paid in full on its claims, because it is seeking to further its agenda, by among other things, ensuring that the hotel does not reopen under a new flag,” the debtors said.

The San Jose, Calif.-based hotel owner filed bankruptcy on March 5 under Chapter 11 case number 21-10521.

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