Pearson loses control, title of landmark inns

September 30, 1994|By Andrea F. Siegel | Andrea F. Siegel,Sun Staff Writer

Paul M. Pearson II, whose name has become synonymous with revitalizing downtown Annapolis, lost control and title yesterday of his landmark inns to a Dallas-based company, ending a four-year tangle in federal bankruptcy court.

U.S. Bankruptcy Judge E. Stephen Derby said Mr. Pearson's last-minute pitch to have a Washington real estate mogul invest in his partnership that runs the inns was too little and too late.

The ruling takes three well-known hotels -- the Maryland Inn, the Governor Calvert House and the Robert Johnson House -- out of local hands.

When Judge Derby announce his decision, Mr. Pearson cradled his temple in his shaking right hand.

"I gave it my best shot," Mr. Pearson said later. "I lost the case today, but I won the freedom of pursuing new opportunities and new challenges."

He said once the reins are turned over to Chequers Investment Associates, he will look to open a jazz club similar to the one in his King of France Tavern.

"My equity interest, my sister's equity interest, my brother's equity interest, my mother's estate equity -- it was all wiped out. And for what?" asked the 70-year-old Mr. Pearson, who was honored Sept. 18 at a concert given by guitarist Charlie Byrd, vocalist Ethel Ennis and other jazz stars who have played at his club.

The concert raised $28,000, almost enough to cover his legal bills.

Nevertheless, he said, "I went down in flames."

Mr. Pearson arrived in Annapolis in 1968 to sail. He took a liking to the city and began buying and renovating property. His businesses boomed in the 1980s, but fell apart when the economy slowed at the end of that decade.

Yesterday, he arrived in the federal courthouse in Baltimore with a promissory letter for $2 million from Richard Bernstein, the controlling partner of a group of upscale hotels, including the Henley Park in Washington, and a two-page outline of what he wanted to do to stave off the takeover.

He sought 30 days to flesh out a financial plan, telling the judge, "I would like a chance."

"It's just a very unusual and wonderful property that has to be managed with love," he said. "I have the chance to bring love back into this equation."

Judge Derby struggled with the ruling, saying that he respected the work Mr. Pearson has done in Annapolis but time had run out.

"To come in the day of, the day before, the confirmation of the plan with an outline of a new possibility and with a commitment of a certain amount of money and without a commitment of what would be done with it. . . . There is an awful lot between having this letter and having something that is workable," Judge Derby said.

The judge approved a plan drafted by Mr. Pearson's partners, hoteliers John Greco and Leland Pillsbury, and officials at Chequers. It gives Mr. Pearson nothing.

Mr. Greco and Mr. Pillsbury and their investment groups will share in $325,000. Unsecured creditors, who are owed about $500,000, will share in $150,000. Chequers will take title to the property and business assets, which their attorney valued at $8.2 million.

"This is absolutely not what we wanted," said Joel I. Sher, a lawyer representing Mr. Greco and Mr. Pillsbury, who had a falling out some time ago with Mr. Pearson.

But, he said, they had to reach a "pragmatic solution" to the dispute.

The court can ask creditors to consider two plans simultaneously, but creditors, given the choice of getting nothing out of a foreclosure and the plan put forth by Chequers and Mr. Pearson's partners, voted overwhelmingly for the plan.

Marc J. Lipchin, the lawyer for Chequers, said his client will have a management company operate the inns initially with no changes from the way they are run now, but said the company would evaluate them. Mr. Pearson said the Resolution Trust Corp., the quasi-governmental company that takes over insolvent banks, "cost us the hotels."

The inns filed for bankruptcy reorganization in 1990. First Federal of Annapolis held the loans then, but before negotiations to restructure the inns' mortgages could be completed, the banks went under. Mr. Pearson said that while his partnership tried to buy back the notes, the RTC failed to respond until it announced that it sold them to Chequers.

The investment company, which holds the historic inns' first and fourth mortgages, filed to take control of the property shortly after acquiring the loans.

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