As LuxUrban Hotels winds its way through the bankruptcy process, a branch of the Justice Department is calling for an independent trustee to be placed in charge of the company.
Attorneys for the Office of the U.S. Trustee filed a motion last week for an independent trustee to take over the bankrupt firm, Bisnow reported. The motion described the bankruptcy case as a “free fall” and described “chaos” encountered by customers and creditors alike, pointing to “gross negligence” on the part of LuxUrban.
“A hotel operator … that leaves customers stranded, places people in rooms where no services are available, and where union workers appear to have been unpaid, is untenable, and dangerous,” said U.S. Trustee trial attorney Andrea Schwartz.
LuxUrban filed for bankruptcy a month ago, citing less than $10 million in assets and at least $50 million in liabilities. The company said the Chapter 11 filing would allow it to continue operating four hotels in New York City.
Shortly after the filing, however, news outlets reported that paying customers were showing up to claim room reservations at the company’s Manhattan properties, only to be turned away. That prompted letters to the bankruptcy judge, requesting an emergency hearing due to potential consumer harm.
One of those letters was sent on the same day the Hotel and Gaming Trades Council alleged that LuxUrban owed weeks of wages to unionized workers and managers. The union also claimed the company was illegally withholding at least $57 million in retirement contributions.
There are at least 85 lawsuits pending against LuxUrban in either state or federal court, according to Schwartz. The attorney also claimed LuxUrban omitted additional creditors and debtors in its initial bankruptcy filing, including $118 million in overdue state sales taxes.
LuxUrban’s bankruptcy attorney, Leo Jacobs, did not respond to the outlet’s request for comment.
The company has faced a myriad of issues in New York.
At the 166-key property known as The Herald, LuxUrban allegedly racked up at least $1.6 million in arrears through December, leading a judge to approve the landlord’s eviction request this summer as ownership tried to fend off foreclosure.
Other problems range from a $1.2 million city fine over illegal Airbnb rentals to a Nasdaq delisting. The company’s also been accused of overstating its hotel holdings and is facing a shareholder class action lawsuit.
— Holden Walter-Warner
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