The Hyatt Regency Buffalo will stay a Hyatt – at least for a little while longer.
A State Supreme Court judge late Friday blocked Hyatt Hotels Corp. from withdrawing its affiliation and operation of the Hyatt Regency Buffalo, handing hotel owner Snyder Corp. at least a temporary victory in its battle to save its anchor business.
The order by Justice Emilio Colaiacovo granted a temporary restraining order against the Chicago-based hotel giant to prevent it from terminating the management agreement with Genesee Hotel Properties, a subsidiary of Snyder.
The order also blocks Hyatt from ending that July 1982 agreement, which means the hotel can continue operating. It was slated to reopen on Monday, following a two-month suspension of business because of the Covid-19 pandemic.
Colaiacovo scheduled a hearing for 2 p.m. June 15 at the Erie County Courthouse, to consider a preliminary injunction.
Snyder, through attorney Kevin J. English of Phillips Lytle, filed suit against Hyatt on Thursday, accusing Hyatt of violating the management agreement under which it operated the hotel as agent of Snyder for the past 38 years.
The lawsuit alleged that Hyatt improperly claimed that Snyder failed to live up to its obligations under the agreement, demanding "an improper amount" of money to "cure the alleged default" and didn't give the Buffalo company enough time – as permitted under the contract – to fix the situation, despite Snyder's "good faith attempts" to do so.
The lawsuit lays bare an undercurrent of tension and bitterness between the two parties that have owned and operated Buffalo's second-largest hotel. It also demonstrates the precarious situation that the area's hotels have faced during the coronavirus pandemic, which has not only shut down businesses throughout the state but also caused a precipitous drop in travel and meeting business.
While Snyder fights Hyatt to save its flagship property, documents included with the lawsuit also show that Snyder was preparing to either sell the hotel or give it back to the lenders to avoid foreclosure.
Since 1982, the hotel has generated more than $400 million in gross revenues, with Hyatt reaping more than $100 million in management fees, according to Snyder's lawsuit. And Snyder has renovated it multiple times – including more than $1 million in ongoing remodeling – and even hired a consulting firm in early 2019 to develop long-term plans for further restructuring and remodeling of the property.
But according to letters and emails included as court exhibits, Snyder was negotiating by early April and through early May to sell the hotel in April to a third party that would continue operating it as a Hyatt. By mid-May, Snyder's lenders had appointed a special servicer to manage the loan and Snyder had hired a Largo Capital official to negotiate with the lenders "to relinquish ownership of the hotel."
Meanwhile, according to the lawsuit, Hyatt's actions "already damaged Genesee's reputation and goodwill," while deterring new guest and event bookings, and causing the loss of the hotel's workforce.
"If Hyatt is allowed to improperly terminate the management agreement, it is highly unlikely that Genesee will be able to secure another operator for the hotel in the near future," the lawsuit said. "The hotel would therefore likely cease to exist as a going concern."
According to court documents, Hyatt wrote a letter to Paul Snyder on April 10, demanding $2 million in "required working capital" to reimburse Hyatt for a $90,000 manager advance, cover anticipated liabilities of $480,000 through May 1 and to cover $1.4 million in accrued and future bills to third-party vendors.
That also doesn’t include other money owed to Hyatt, the company said, and it also expected the hotel to require additional capital infusions in the coming weeks and months.
In its letter, Hyatt executive Paul Devitt said that, as of April 7, the hotel operating account was overdrawn by $20,000 but Snyder’s Genesee subsidiary “did not provide sufficient funds to cover current payroll expense.” So Hyatt advanced enough to ensure that the hotel’s employees would be paid.
English, in a letter to Devitt on April 16, accused Hyatt of “a thinly veiled attempt to have Genesee fund Hyatt’s carrying costs during the Covid-19 pandemic shutdown without any contractual obligation requiring Genesee to do so” at a time when the hotel was shut down. The Hyatt Regency had suffered a 75% decline in business just in March.
“The circumstances created by COVID-19 have made Genesee's performance under the Management Agreement impossible,” English wrote. “Genesee is proceeding promptly, with due diligence and in good faith to fund expenses through the hotel shutdown.”
English also noted that Hyatt employs the workers “as the agent for Genesee,” and should be making decisions in the best interests of Genesee, not Hyatt. But instead of preserving Genesee’s working capital, Hyatt directed employees to use their accrued paid time off, rather than laying them off so they could seek unemployment benefits, and then charged Genesee to cover those costs.
English also complained that Hyatt “unilaterally” decided not to seek any loan under the Paycheck Protection Program to fund the payroll, but advised Genesee to do it on its own and then failed to provide information to help it do so.
English also said Hyatt used $100,000 in the operating account to pay insurance premiums in late March, even though Genesee had advised it not to do so “given imminent government action regarding the return of insurance premiums due to Covid-19.”
Hyatt also “refused” to file notices of potential insurance claims and damaged Genesee’s efforts to seek forbearance from Wells Fargo & Co. on its existing loan and permission from it to seek additional financing under the CARES Act, including the PPP, English added in the letter.
“Hyatt has repeatedly failed to consider the best interests of Genesee or has acted contrary to Genesee's interests," English wrote. "Genesee can only conclude that Hyatt's action was taken deliberately to unlawfully exert pressure on Genesee to succumb to Hyatt's demands.”
Finally, English said it would not pay for hotel costs until Hyatt withdraws its April 10 letter, the parties reach an agreement and the hotel can resume operations. The attorney also said Genesee would countersue Hyatt.
The parties negotiated back and forth, but Hyatt still demanded $1.3 million, first by May 11 and then by May 20 as a condition of delaying action until June 14, but only if the money had no restrictions on its use, so that Hyatt could cover previous payroll expenses. Snyder, which had planned to use PPP funds, offered $900,000 in PPP funds and $400,000 in additional working capital, which would have complied with federal PPP rules. Hyatt refused on May 22, and publicly announced the termination of the contract on May 26.
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