KANSAS CITY, KAN. The fate of the historic Eldridge Hotel will be determined at a public auction, a bankruptcy judge here ruled Wednesday.
One day after Rob Phillips, the hotel's general manager and majority owner, announced a $2.5 million deal to sell the bankrupt hotel to a group including Kansas University alumni, Judge Robert Berger rejected the deal.
Instead, Berger ordered that the 48-room hotel at 701 Mass. be put up for public auction and sold to the highest bidder. A date for the auction has not been set, but it could be as early as this fall.
Berger said the court would finalize details of the auction later this month but indicated it would be open to anyone who had the money and desire to bid on the landmark property, which has history dating to before the Civil War.
Berger made his ruling after attorneys for creditors, including those for the hotel's primary lender, the Internal Revenue Service and the Kansas Department of Revenue, urged the court to reject the deal proposed by the group of investors.
Bruce Woner, attorney for Baldwin-based Mid-America Bank, said the deal offered by 701 LLC was not in the best interest of creditors and that an auction would be the quickest and surest way for creditors to be paid.
"Mr. Phillips may have the best intentions, but with this deal he is seeking to put his best interests ahead of the creditors, and it is time for the court to put an end to that," Woner said.
Phillips declined to comment as he left the courtroom Wednesday.
An auction is likely to attract multiple bidders. Steve Traxler, a member of 701 LLC, said his group still was interested in the property and would consider bidding on it.
But Traxler, a KU alumnus and Chicago-based theatrical producer, said his group -- which includes his brother Seth, a KU graduate and Chicago attorney, and Bob Werts, an owner of downtown's Waxman Candles -- was disappointed with the ruling.
"We felt like we had a plan that would take care of everybody," Traxler said. "An auction doesn't guarantee anybody will be taken care of."
Woner said Mid-America Bank also could be a potential bidder at the auction. He also said he had been in contact with a Lawrence attorney representing a group of area investors interested in making a bid.
An attorney for an investment group led by KU football great Bobby Douglass told the court his clients were still interested in purchasing the property, as well. That group made a $2.3 million offer, which Phillips rejected in late July.
The hotel filed for bankruptcy protection in December after it racked up about $580,000 in unpaid county, state and federal taxes, and $170,000 in unpaid debts to vendors, and defaulted on a $1.4 million loan to Mid-America Bank, which began foreclosure proceedings.
Phillips had said the hotel struggled as the tourism industry slumped after the 9-11 terrorist attacks. But Wednesday, the attorney representing the investment group led by Douglass alleged that mismanagement and improper compensation to the hotel's owners were largely to blame.
In a court filing, attorney Todd Ruskamp said his clients had discovered during the course of their negotiations with the hotel that Phillips had withdrawn $2.2 million from the hotel to pay himself and other "insiders" from 1998 to 2003. During that same period, the business posted losses of $1.2 million.
Ruskamp said his clients presented the information to the court to persuade the judge to look carefully at any future deals to determine whether they were in the best interest of the creditors or the best interest of Phillips.
Phillips declined to comment about the allegations.