During the past six months, the Maui luxury hotel has been the scene of a legal battle royale, pitting its local partner against its Japan-based lender and partners. The fracas has also included allegations of fraud and mismanagement.
At one point, a federal bankruptcy judge authorized the sale of the hotel only to withdraw the order last month. The hotel has remained open throughout the legal battle.
"There are big stakes at issue here," said Curtis Ching, a courtroom observer and attorney with the Office of the U.S. Trustee, the federal agency that oversees bankruptcy cases.
"People certainly don't want to give up real easily."
In many ways, the Embassy Suites saga reads like a postscript to the boom-and-bust cycle of Japanese investment in Hawaii over the past decade.
Financed by Japanese banks, the 12-story Kaanapali oceanfront resort was built in 1988 for $90 million. It sold seven months later year to Japan-based Abe International Ventures Hawaii Corp. for $151.2 million.
The current owners, Resort Suites of Maui Inc., took over the property in 1992 from Abe for $92 million. Resort Suites, a partnership of eight companies, filed for Chapter 11 reorganization bankruptcy May 2 with debts of $151 million and assets of $80 million, amid mounting litigation.
Most of the hotel owner's debts are owed to lender Mitsui Trust & Banking Co., whose affiliate Mitsui Leasing holds a 9 percent stake in Resort Suites.
Much of the dispute centers on the partners' complicated and conflicting attempts to buy and sell the hotel.
The general partner, isle developer Mike McCormack's MTM Resort Suites Ltd., said it offered to buy the hotel with Chicago-based Trinity Investment Trust L.L.C. in February for $76 million but the proposal was rejected by Resort Suites' Japan-based partners.
The following month, the Japanese partners agreed to sell the hotel for $72 million to a company known as Eskimau Inc. Eskimau is controlled by trading giant Itochu Corp. which also controls J.C. Kaanapali, one of the hotel's limited partners, according to MTM.
Eskimau, in turn, tried to sell the hotel for an undisclosed price to another company, West Maui Partners L.P., which is headed by former Haseko Hawaii Inc. executive Sam Kaneko.
The deal prompted the McCormack group in April to sue Itochu and hotel limited partner J.L. Wilmington Corp. in Maui Circuit Court, alleging the two companies interfered with MTM's right to buy the hotel.
The suit, which has been moved to federal court in Honolulu, also charged that a representative of J.L. Wilmington fraudulently assured the McCormack group that they would be given a fair chance to bid on the hotel.
J.L. Wilmington denied any wrongdoing, saying in bankruptcy court documents that MTM is motivated by "simple greed." The company and lender Mitsui Trust & Banking Co. also alleged in bankruptcy court that MTM mismanaged the hotel's assets through unauthorized payments to itself prior to the bankruptcy filing.
An MTM representative today would not comment on the allegations.
Complicating matters, West Maui Partners sued MTM and McCormack for allegedly interfering with its attempt to buy the hotel.
The charges and counter charges came as the federal Bankruptcy Court held an auction on the hotel May 21. Outbidding three competitors, Mitsui offered $78 million but later said that it agreed to resell the hotel to Eskimau for an undisclosed amount. In a rare move for bankruptcy court, Judge Lloyd King last month withdrew the sale order.
MTM attorney Ronald Orr said he now believes that any sale of the hotel won't be completed until early next year to make way for the litigation.
That timetable may not sit well with many of the hotel's small creditors.
Although the hotel is paying its employees for their wages and benefits, it is not paying its debts to small creditors such as caterers and service vendors due to a ruling by the bankruptcy court, said Susan Tius, the attorney for the unsecured creditors.
Tius said unsecured creditors as a whole are owed about $1.7 million.
A hearing on payments to the unsecured creditors was to be held today.
"It's unfair that they should be singled out for nonpayment," said Tius. "There is money."
Owner: Resort Suites of Maui
Built: 1988
Cost: $90 million
Rooms: 413
Employees: 400
General partner:
MTM Resort Suites Ltd., 10 percent interest.
Limited partners:
KJ Capital Management Inc., 18 percent interest.
ILC (Hawaii) Corp., 18 percent.
JL Wilmington Corp., 18 percent.
Mitsui Leasing (U.S.A.) Inc., 9 percent.
NED Second Investment Inc., 9 percent.
SL Development Inc., 9 percent.
J.C. Kaanapali Inc., 9 percent.