Georgia Bankruptcy Blog

The Atlanta Business Chronicle is reporting that Ritz Camera, which operates as Wolf Camera in many locations (incl. Georgia), is giving up its reorganization efforts and will try to sell all remaining locations.  Click here for the article by Barton Eckert.

From the article:

In a court filing, Ritz Camera reported it is talking with two potential bidders, although neither has been willing to sign a contract. The company is hopeful at least some of the remaining 400 photo stores will be sold to a going-concern buyer. The other 400 stores already have been closed in going-out-of-business sales...

Ritz Camera also owned Boater’s World, a boating-and-fishing supply retailer. The bankruptcy court judge gave Ritz Camera permission on March 19 to hire Gordon Brothers to shut down the company's 130-store Boater’s World chain... Its retail brands today include Wolf Camera, Kits Cameras, Inkley’s and The Camera Shop.

Coincidentally, I stopped in the local Wolf Camera yesterday to take a look at two Canon lenses, and they did not have either in stock.  They did go through the effort to "check the system" to see when they might have them available, but I thought it was unusual they asked for no contact information to let me know what it arrived.  I probably do not need to check back in 1-3 weeks as suggested.  Unfortunately, Showcase, Inc., the other store in the area, also was out of stock for both so Amazon.com was the answer.

Bank of America, NA v. Mukamai (In re Egidi), No. 08-15958 (June 18, 2009) (click here for .pdf of opinion).  The facts were not in dispute. Within 90 days of filing her bankruptcy petition, debtor caused one credit card company to directly transfer a total of $16,065 to Bank of America ("BOA") as part of a balance transfer.  The trustee filed suit against BOA to recover the payments, and BOA defended on several grounds discussed below.  The Bankruptcy Court ruled in favor of the trustee and the District Court affirmed.  The Eleventh Circuit affirmed as discussed below.

In Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1181 (11th Cir. 1987), which involved fraudulent transfers, we discussed “[t]he rules established in the avoidable preference cases” and explained that “any funds under the control of the debtor, regardless of the source, are properly deemed to be the debtor’s property, and any transfers that diminish that property are subject to avoidance.” ...

On appeal, BOA argues that the Bankruptcy Court erred because the transfer was a bank to bank transfer that was a mere substitution of creditors and was not an avoidable preference. BOA asserts that the funds from the other credit card companies were not controlled by Egidi and were not the property of Egidi, the debtor. This argument fails.The evidence established that Egidi directed other credit   card companies to  pay MBNA and had control of the lines of credit from other credit card companies. There is no evidence that any credit card company decided to direct the funds to MBNA on its own accord or specifically instructed Egidi to pay MBNA with the funds...

BOA argues that the funds were not in the control of the debtor because they were never in Egidi’s bank account. This argument must also fail. The inquiry is whether Egidi controlled the disposition of the funds, not whether she mechanically made the payment to MBNA. That the “possession [by Egidi] took place electronically rather than mechanically (through deposit slips and checks) is of no moment.” ...

BOA also argues that the transfer was not an avoidable preference because it  did not diminish the funds available to the other creditors. According to BOA, the funds belonged to the other credit card companies and had the funds not been transferred, they would have remained the property of the other credit card companies...  Egidi’s transfer of funds to MBNA, instead of other creditors, deprived her  creditors of “an equal distribution of the . . . assets” and constituted a voidable preference. Once the credit card companies extended the lines of credit to Egidi, she could have paid  other creditors or purchased other assets that would have become part of the estate and been available to other creditors. Because Egidi  chose to pay MBNA from the  lines of credit, the other creditors were denied payment or an opportunity for payment. ...

More after the break --

Friday afternoon in Georgia often means a bank gets the final visit from the FDIC. Today, two were shut down.

Community Bank of West Georgia, based in Villa Rica, was seized.  No buyer was found, so the bank will be closed.  Click here for the article in the Atlanta Business Chronicle. 

Neighborhood Community Bank of Newnan was also seized.  CharterBank has assumed the assets and deposits.  Click here to read more. 

The tally of closed Georgia banks is now at 14 for the last nine months. According to this article by Joe Rauch of the Atlanta Business Chronicle, we may see many more.

“They’re ramping up a little bit,” said Chip MacDonald, Atlanta-based Jones Day banking attorney. “With their efforts to staff up, raise money for the deposit insurance fund through the special assessments and the Treasury, I expect they’ll try to resolve these faster throughout the remainder of the year.”

The national deposit insurer, which backstops accounts to avoid customers pulling their money from a bank and hastening its demise, previously avoided seizing two banks in the same metro area during this crisis...

“This is a perpetuation of what we’ve been talking about for a while now,” said Brian Olasov, an Atlanta-based managing director at McKenna, Long & Aldridge LLP, who noted Georgia banks have an imbalance between fewer customer, or core, deposits and more outstanding loans.

“The numbers indicate Georgia banks got way out over their skis. This was a great place to lend in the boom, but now they’re paying the price,” Olasov says...

Georgia’s failure woes began in earnest in August 2008, when Alpharetta-based Integrity Bank, once the state’s fastest growing bank, collapsed under the weight of highly speculative real estate loans, concentrated amongst a small group of borrowers.

The Atlanta Journal Constitution has an article today entitled "Cornerstone Ministries betrayed them by straying from mission, investors say," by Christopher Quinn.  You can read a little more about the Cornerstone Chapter 11 case by clicking here.   

Cornerstone filed for Chapter 11 protection in 2008 and is beginning to liquidate assets. Meanwhile, the state has launched an investigation into the company...

After the denomination closed the program in 1996, the ministers who ran it, the Rev. Cecil Brooks and the Rev. John Ottinger, took the organization public and called it Cornerstone.

The examiner’s report says they raised money through bond sales and loans, and they lent the money to churches from various denominations. The company morphed into financing general developments under “a tangled web of non-profit and for-profit corporations and limited liability companies,” where the ministers made “substantial income over and above the salaries disclosed in the … filings with the U.S. Securities and Exchange Commission,” the report says.

John A. Thomson Jr., Ottinger’s attorney, said the report is full of “incorrect” conclusions “based on only half the truth or taking certain facts out of the context of Cornerstone’s investment transactions.”  Thomson noted in a written response to The Atlanta Journal-Constitution that Ottinger and his family lost $1.4 million in Cornerstone investments...

Court documents show the company knew it had $128 million in “significant credit risks” months before filing for bankruptcy. More than 3,600 investors held $142 million in bonds. The examiner’s report by Marietta attorney Pat Huddleston characterizes Brooks and Ottinger as “self-dealing” in their business transactions while they touted the company’s spiritual mission. It says company letterhead in 2000 read, “Using God’s money for God’s Kingdom.” Huddleston wrote, “It is difficult to conclude that Cornerstone had any interest in financing churches between 1999 and 2006.”  Huddleston defended his report by phone, saying it is based on sworn testimony and company documents.

The examiner’s report says they raised money through bond sales and loans, and they lent the money to churches from various denominations. The company morphed into financing general developments under “a tangled web of non-profit and for-profit corporations and limited liability companies,” where the ministers made “substantial income over and above the salaries disclosed in the … filings with the U.S. Securities and Exchange Commission,” the report says.  In one instance, the two made more than $6 million each by selling one corporation’s holdings to another.

Brown Steel, LLC and Case Engineered Lumber, Inc. have filed Chapter 11 petitions in the Northern District of Georgia.

From the Deal Watch Blog -

Brown Steel, based in Newnan, manufactures and fabricates structural and plate steel for commercial and industrial customers. G. Frank Nason IV of Lamberth, Cifelli, Stokes, Ellis & Nason represents the company, which in its petition, filed in U.S. Bankruptcy Court for the Northern District of Georgia, estimates that it has between $1 million and $10 million in both assets and liabilities.

This reorganization is not Brown Steel’s first debt-fueled trip to court. Colonial Bank of Alabama, represented by Kevin B. Getzendanner of Arnall Golden & Gregory, sued the company in Coweta Superior Court on June 11. According to the complaint, which seeks a receiver and injunctive relief, Brown Steel defaulted on more than $5.6 million in loans from the bank. [click here for Newnan Times-Herald article about suit] ...

The other reorganization petition filed in the Northern District by Flowery Branch, Ga.-based Case Engineered Lumber, lists assets of less than $50,000 and between $10 million and $50 million in liabilities. Barbara Ellis-Munro of Ellenberg, Ogier, Rothschild & Rosenfeld represents the company, which supplies engineered floor and roof systems to homebuilders and lumber dealers.

 

Southern Community Bank, based in Fayetteville, Georgia, was closed by the Georgia Department of Banking and Finance and the FDIC on Friday.  Its assets were taken over by United Community Bank.  It is the 12th Georgia bank failure in less than a year.  Click here for information from the FDIC.

From the Atlanta Business Chronicle:

Last October, Southern Community announced it had overhauled operations and raised capital in an attempt to survive, after receiving a cease and desist order from the FDIC.   The bank changed management, replacing founding CEO Gary McGaha with Dave Coxon, and raised $2 million in additional capital from directors, to weather additional loan losses.

The bank reported a 28 percent spike in problem loans during the fourth quarter of 2008 -- the worst increase for the bank during the recent economic downturn.

By first quarter 2009, Southern Community reported a 39.4 percent problem loan ratio -- a comparison of delinquent loans, and foreclosed real estate to total loans -- one of the highest levels in the state.

On March 31, the bank reported $33 million in foreclosed real estate, but only $13 million in capital to absorb further loan losses.

The bank had a Texas ratio of 518 percent. The ratio is a measure of a bank’s nonperforming loans and foreclosed real estate, compared against the tangible common equity and loan loss reserves of the bank...

The United States Supreme Court agreed on Monday to  decide whether an individual who owes on a student loan may wipe out a portion of the debt in a bankruptcy without showing that the debt posed an “undue hardship.” United Student Aid Fund v. Espinosa (08-1134).  See the cert petition by clicking here.

In Espinosa v. United Student Aid Funds, Inc.,  530 F.3d 895; 2008 U.S. App. LEXIS 13314 (9th Cir. June 24, 2008) (click here for .pdf file,  here for the subsequent opinion, and here for the third opinion), the issue was whether a debtor could discharge a portion of his student loan debt in his Chapter 13 plan where he provided notice of the deadline for objections and the confirmation hearing, but did not file an adversary proceeding under secion 523(a)(8).  

This is the nub of Funds’s argument: To satisfy its obligations under the Bankruptcy Code, a Chapter 13 debtor usually only has to notify creditors by mail of the deadline for filing objections and when the confirmation hearing will occur, Fed. R. Bankr. P. 2002(b), as Espinosa did here. However, student loans may be discharged under Chapter 13, 11 U.S.C. § 1328(a)(2), only if the debtor can show “undue hardship,” id. § 523(a)(8), and such a showing can only be made in an adversary proceeding, Fed. R. Bankr. P. 7001(6). To initiate an adversary proceeding, a debtor must file a complaint, id. 7003, which must be served on the creditor along with a summons, id. 7004. Espinosa didn’t commence an adversary proceeding and therefore did not obtain a judicial declaration of “undue hardship.” Absent such a declaration, Funds argues, the bankruptcy court lacked authority to discharge the student loan debt by means of the Chapter 13 plan. Funds’s motion for relief from the discharge order was based on the fact that Espinosa obtained his discharge without following the statutorily-prescribed procedures for discharging student loan debt.

The Court noted that its prior precedent dictated that the Court rule against the creditor:

 Funds argues that the confirmed bankruptcy plan is void, because Funds didn’t receive service of a complaint and summons and there was no adversary proceeding to establish “undue hardship,” which the Bankruptcy Code and Rules require as a condition for discharging a student loan debt. We rejected this argument in Pardee v. Great Lakes Higher Education Corp. (In re Pardee), 193 F.3d 1083, 1086 (9th Cir. 1999).

Relying on the Tenth Circuit’s opinion in Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253, 1258 (10th Cir. 1999), overruled by Educ. Credit Mgmt. Corp. v. Mersmann (In re Mersmann), 505 F.3d 1033, 1046-47 (10th Cir. 2007) (en banc), we held that “[i]f a creditor fails to protect its interests by timely objecting to a plan or appealing the confirmation order, ‘it cannot later complain about a certain provision contained in a confirmed plan, even if such a provision is inconsistent with the Code.’ ” Pardee, 193 F.3d at 1086. In reaching this conclusion, Pardee also relied on a long line of cases, from our circuit and elsewhere, that “recognized the finality of confirmation orders even if the confirmed bankruptcy plan contains illegal provisions.” Id...

Silverton Financial Services, Inc., formerly known as The Bankers Bank,  filed a Chapter 7 petition in the Northern District of Georgia on June 5, 2009.  The Bank was closed by the FDIC on May 1, 2009.  The case number is 09-74623-jem. 

Jeffrey K. Kerr, CPA was appointed as Chapter 7 Trustee to liquidate the assets of the company.

The FDIC had just decided to liquidate the assets prior to the filing.   From a June 6, 2009 Wall Street Journal article -

The Federal Deposit Insurance Corp. has decided to wind down Silverton Bank, the failed Atlanta "bankers' bank," instead of selling it to investors, a setback for the private-equity industry but not one expected to damp its hunger for troubled banks.

A consortium that included Carlyle Group LLC submitted a bid for the lender two weeks ago. "The bid underwent an evaluation and negotiation process by the FDIC," the agency said in a letter sent to Silverton's customers late Thursday. "Regrettably, an equitable offer could not be agreed upon by all parties."

In addition to Carlyle, the potential investor group included private-equity investors Lightyear Capital LLC, Harvest Partners LLC and Colony Capital LLC...

In re Campbell, 2009 Bankr. LEXIS 833, Ch. 11 Case No. 08-51832-JDW (Bankr. M.D. Ga. March 25, 2009).    Debtor owned a 50% interest in an LLC.  The LLC was indebted to the Bank for more than $5.1 million, secured by the LLC’s assets and Debtor’s assets, and Debtor personally guaranteed the debt.  The loan was in default.  The parties agreed that the total value of the Bank’s collateral, including LLC and Debtor’s assets, was more than the total debt.  However, the value of the Debtor’s property that served as collateral was worth less than the total debt.

The Bank sought relief from the automatic stay to repossess the Debtor’s Rolls Royce automobile, which was worth approximately $220-225,000.  Debtor objected to the motion on the grounds that he had equity in the vehicle if the Court considered the total value of the Bank’s collateral, including LLC property.

The Court granted the Bank’s motion and lifted the stay. 

The statute provides for stay relief if the debtor has no equity "in such property." 11 U.S.C. § 362(d)(2)(A). The phrase "such property" apparently refers property protected by the automatic stay, id. § 362(d), which includes property of the estate and property of the debtor but not property of non-debtors. See id. § 362(a). However, bankruptcy courts are divided on the proper interpretation of the statute. Compare In re Colonial Center, Inc., 156 B.R. 452, 461 (Bankr. E.D. Pa. 1993) ("The measurement of equity in section 362(d) ... should depend upon the circumstances and the purpose behind the valuation of property.") with In re New Era Co., 125 B.R. 725, 729 (S.D.N.Y. 1991) ("[S]ection 362(d)(2) only demands an analysis of the debtor's equity in property[.]").

The Court need not analyze the merits of the two positions at this time. There is no question Debtors must relinquish the Rolls Royce. Its value will either benefit the Bank or the unsecured creditors. Therefore, it is appropriate to allow stay relief for the limited purpose of selling the Rolls Royce. The proceeds of the sale shall be held by the Bank as property of the estate, which the Bank may not disburse until further order of the Court. Such further order will depend on a change in circumstances, such as liquidation of other collateral and the conclusion of additional litigation that affects the Bank's security. The Court will consider entering such further order upon application of any party in interest at such time as a change of circumstances should occur.