Jan. 13–The owners of the Lodge on the Desert have filed a Chapter 11 bankruptcy reorganization plan under which new investors would provide more than $1 million in new financing and the hotel would repay most of its debts over time.

But it's unclear if the plan will be fully examined, as a judge considers a motion to dismiss the case filed by the hotel owners' biggest secured creditor.

A trial on that motion started Thursday but after hours of testimony, Judge Brenda Moody Whinery continued the matter to Jan. 31.

In late November, hotel owner Lodge Partners filed its second Chapter 11 bankruptcy in three years, saying it had arranged a short-term loan and longer-term financing to successfully reorganize the business.

The company had defaulted on payments required under a Chapter 11 bankruptcy case filed in 2013 and closed last year.

The hotel's major secured creditor, Palatine Tucson LLC, filed a foreclosure action and prompted a state court to appoint a receiver for the hotel in early November.

The bankruptcy filing halted a foreclosure sale of the 103-room boutique hotel at 306 N. Alvernon Way, originally scheduled for Jan. 5.

But a bankruptcy judge ruled in December that the receiver would remain in place.

Palatine filed a motion to dismiss the case, or consolidate it with the earlier case, arguing that the new bankruptcy filing was an improper attempt to modify the prior, failed reorganization plan, sometimes referred to as a "Chapter 22" case.

Palatine also contends that little has changed at the hotel to suggest the latest bankruptcy reorganization bid would be successful, arguing that a new Chapter 11 case should be allowed only if the judge finds the filing was prompted by extraordinary or unforeseen circumstances leading to failure of the prior reorganization plan.

Lodge Partners has contended it doesn't have to meet that legal test, and that its enlistment of a so-called "white knight" investor to help it successfully reorganize supports its bid for another reorganization effort.

The hotel's top financial officer testified that a combination of unusual forces contributed to the failure of the earlier reorganization attempt.

Peter LaFemina, chief financial officer of the hotel for contract manager Coastal Hotel Group, testified Thursday that Lodge on the Desert had failed to meet projections on revenue and occupancy from 2014 through 2016 that were made in two studies, including one commissioned by the hotel's former major creditor, Wells Fargo Bank.

LaFemina also cited figures showing that its "competitive set," or local industry peers, including boutique hotels like the Arizona Inn, also failed to meet projection of the same period.

"It's difficult in a hotel environment sometimes to fight those market forces," LaFemina said.

Other factors affecting the hotel's performance, LaFemina said, included the unexpected garnishment of about $144,000 by Wells Fargo last year, health challenges faced by Lodge Partners principal partner, Dan Donahoe, and the growth of short-term rentals such as the Airbnb peer-to-peer marketplace.

Palatine, which purchased about $12 million in secured debt from former creditor Wells Fargo last year, has said that the hotel's financial slide was the result of poor management and rejected the idea that the circumstances of the failure of the earlier reorganization plan was caused by unforeseen factors.

The investment group also has moved to exclude Lodge's evidence about the hotel's current operations, the hotel's valuation and circumstances the hotel's owners have not previously spelled out.

Lodge on the Desert has continued to operate and is honoring all reservations, attorneys for the hotel and the receiver have said.

Contact senior reporter David Wichner at [email protected] or 573-4181. On Twitter: @dwichner