It is not uncommon for financially distressed businesses to get behind on payroll taxes, especially when the company does not have a payroll service that handles the payment of all taxes and automatically deducts the full amount from the company's bank accounts. Chapter 11 cases often have significant unpaid payroll taxes scheduled as a priority claim, after using the funds to pay other bills to stay afloat.
What happens when a company goes out of business (in or out of bankruptcy) and leaves behind unpaid federal withholding taxes (commpnly known as "trust fund taxes")? The Fourth Circuit addressed that question in an opinion entered Wednesday. SeeErwin v. United States, No. 08-1564 (4th Cir. January 13, 2010) (click here for opinion).
Employers are required to withhold social security and federal excise taxes from employee wages.
Those withheld funds are held in trust for the United States, and are often referred to as "trust fund taxes."
Once in the hands of the employer, those funds are held for the exclusive use of the government, not the employer.
Even if the employer needs the withheld tax money to pay suppliers and vendors to keep the business operating as a going concern, it can't, because "the government cannot be made an unwilling partner in a floundering business."
The Internal Revenue Code imposes personal liability for payroll tax on the officers and agents of an employer who are (1) responsible for "the employer's decisions regarding withholding and payment of the taxes" and (2) who willfully fail to see that the taxes are paid.
You do not have to be an owner, officer or director to be a "responsible person" who has personal liability for these taxes. If you have sufficient control over the company's payroll, which creditors to pay or not pay, the day-to-day business affairs and who to hire and fire, you could be liable.
Click here to read Mack's detailed analysis of this opinion and individual liability for taxes.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
Carrie Teegardin of the Atlanta Journal published a story yesterday about the rising rate of personal bankruptcy cases in Georgia for 2009. Click here for the story. It certainly is not a surprise that the numbers are rising, given the significant drop-off after the 2005 amendments and the general state of the economy. According to the statistics, Georgia is third in the nation in bankruptcies per household, with one case filed for every 50 households. Only Nevada (one per 35 households) and Tennessee (one per 48.5 households) had higher rates.
Interestingly, while Georgia has traditionally been a state in which Chapter 13 filings predominate, more than half of the 2009 cases (through November) were Chapter 7 cases. Again, this is not a surprise given the state of the economy.
According to local Chapter 7 Trustees, there is also a significant rise in pro se cases, where individuals file without a lawyer.
You can view the statistics for the Northern District of Georgia on the Court's website. Click here for the filings by month for 2009 and the several previous years. When the December numbers are added, it is possible we will equal or exceed the number of cases filed in 2005, when a significant number of people filed before the BAPCPA amendments (and means test) became effective.
Click here for 2009 filings by chapter and division.
2010 will no doubt be a record year for filings as more people feel the effects of the economy, and exhaust their savings.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
Yesterday, Friday December 4, 2009, three more Georgia Banks failed. This makes a total of 24 failed banks in Georgia for 2009, and 29 failures since August 2008. The latest victims are:
Buckhead Community was founded in 1998 with $34 million in assets by investors including Loudermilk, an Atlanta business legend, and featured some of the city’s business elite on its board, including and real estate developers David Allman, owner of Regent Partners LLC, and Julian LeCraw.
It’s failure brings to mind the Sept. 25 collapse of Georgian Bank, another homegrown lender featuring a who’s who of board members and wealthy investors, and a plan to supply capital-hungry developers in a white-hot real estate market.
Like Georgian, Buckhead Community was heavily weighted in real estate development loans that soured with the fallout of the real estate market.
The bank tripled in size every three years from 1998 to 2007, propelled in part by an ultimately crippling decision in 2007 to acquire Allied Bancshares Inc., the parent company of First National Bank of Forsyth County.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
On December 1, 2009, several amendments to the Federal Rules of Bankruptcy Procedure will take effect. You can see the Public Notice by clicking here. Please note that several time periods are shortened under the new Rules. A summary of the Rules is available here, and new forms are available here.
New Local Rules for the Northern District of Georgia will also be in effect on December 1, 2009. You can see the redline version of the changes by clicking here.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
Section 529 Plans are tax advantaged savings plans intended to encourage saving for future college costs. There are two types of qualified tuition programs: a prepaid tuition plan or a college savings plan They are authorized under Section 529 of the Internal Revenue Code (26 U.S.C. § 529). Click here for a basic summary of 529 Plans. Are funds in the Section 529 Plans property of the Bankruptcy Estate when the account-holder/owner (usually a parent or relative of the child) files a Bankruptcy petition?
Section 541 of the Bankruptcy Code provides that the Estate includes “all legal and equitable interests of the debtor in property as of the commencement of the case” except as provided in subsections (b) and (c)(2) of this section.
Section 541(b)(6), added to the Code in October 2005 (the "BAPCPA" amendments) states that property of the estate does not include:
funds used to purchase a tuition credit or certificate or contributed to an account in accordance with section 529(b)(1)(A) of the Internal Revenue Code of 1986 under a qualified State tuition program (as defined in section 529(b)(1) of such Code) not later than 365 days before the date of the filing of the petition in a case under this title, but –
(A) only if the designated beneficiary of the amounts paid or contributed to such tuition program was a child, stepchild, grandchild, or stepgrandchild of the debtor for the taxable year for which funds were paid or contributed;
(B) with respect to the aggregate amount paid or contributed to such program having the same designated beneficiary, only so much of such amount as does not exceed the total contributions permitted under section 529(b)(7) of such Code with respect to such beneficiary . . .; and
(C) in the case of funds paid or contributed to such program having the same designated beneficiary not earlier than 720 days nor later than 365 days before such date, only so much of such funds as does not exceed $5,475[.]
InIn re Bourguignon, Ch. 7 Case No. 09-00766-TLM (Bankr. D. Idaho Sep. 23, 2009) (click here to download opinion), the Court discussed the application of these Code sections. Debtor opened a Section 529 Plan for their daughter on March 10, 2009, and deposited an initial $14,500 into the account. Debtor's Mother subsequently added $40,000 to the account. Debtors filed a Chapter 7 petition two weeks later. Debtors did not list the account in Schedule B or on their Exemptions.
The Court found that the Debtors had a legal interest in the account as of the petition date, and it was property of the Estate. It was not excluded under § 541(c)(2):
Debtors’ argument that § 541(c)(2) is applicable to the College Account fails. That exception deals with restrictions on transfer “of a beneficial interest of the debtor in a trust[.]” There is inadequate proof of a qualifying trust interest of Debtors. Debtors are not the “beneficiaries” of the College Account; Christian Bourguignon is, instead, the account owner. Debtors’ daughter is the designated beneficiary. Even if Debtors arguably have a contingent, beneficial interest in the College Account because either could potentially become a beneficiary the College Account does not contain the requisite anti-alienation and anti-assignment provisions required under nonbankruptcy law and recognized by § 541(c)(2).
The Court then addressed Debtors' primary argument that the account is excluded under Section 541(b)(2).
Focusing on the term “not later than” and urging the Court to treat it as synonymous with “within,” Debtors contend that “not later than 365 days before the date of the filing” as found in § 541(b)(6) means that “if funds were put into a 529 account LESS THAN ONE YEAR before the petition day, they are NOT property of the estate.” ... Debtors’ interpretation of the Code lacks merit.
The natural reading of § 541(b)(6) provides an exclusion from property of the estate for 529 accounts on a sliding scale. Assuming the qualifying conditions of § 541(b)(6)(A) and (B) are met, any such contributions made to a 529 account more than 720 days prior to bankruptcy are fully excluded from property of the estate. Such contributions made between 365 and 720 days prior to bankruptcy are excluded from property of the estate to the extent below $5,47513 but any such contributions over $5,475 in that same time frame remain property of the estate. Any amounts contributed within a year of bankruptcy are not excluded at all from property of the estate…
Thus, for funds to be excluded from property of the estate under § 541(b)(6), they must be contributed to a 529 account at least a year before the filing of the bankruptcy, and, even then, there is a monetary cap on the excluded funds contributed between 365 and 720 days prior to the filing. It is only those funds contributed more than 720 days before filing that are excluded without a monetary limit. ...In sum, Debtors’ desired construction is not supported by the language of the statute, plainly read; any plausible policy rationale; or their own account documents.
In addition to the funds contributed by the Debtor being property of the Estate, the Court also held that the $40,000 contributed by Debtor's mother was also Estate property.
Section § 541(b)(6) makes certain funds contributed into a 529 account property of the estate and excludes others, but that distinction is based on the timing of contribution, not the source of the contribution. Indeed, during the September 3 hearing, Debtors conceded the Code makes no distinction based on the source of the contributions.
Debtors instead rely on the language of their College Account’s plan description, which states that “Contributions . . . by an Account Owner” made within a year of filing bankruptcy are part of the account owner’s bankruptcy estate and are available to creditors, but which does not mention a third party’s contributions. See Ex. 201 at 13. The plan description’s silence on the subject of third party contributions does not suggest differential treatment under § 541(b)(6). More importantly, the description cannot alter the language and operation of the Code. The Court concludes that the source of the funds in the 529 account is immaterial.
This should be a warning to grandparents and other relatives who want to contribute to a Section 529 Plan. If the account owner files a Chapter 7 within two years of the contribution, you risk losing all or part of your contribution.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
If you have have had the bad luck to deal with customers or clients who have filed a bankruptcy case, chances are good that you have or will receive a demand letter to return money paid to you by the customer or client in the months leading up to the filing of the bankruptcy case. These payments are called "preferential transfers" or "preferences" and are governed by section 547 of the Bankruptcy Code (11 U.S.C. § 547(b)). These demand letters, usually from the lawyer for the bankruptcy trustee or the creditors committee, often carry the threat of a lawsuit if you do not respond or return the payment within 10-20 days.
It is important that you take these demands seriously, as a failure to respond could lead to a lawsuit filed against you in the Bankruptcy Court in which the case is filed, which often could be in a completely different state. Further, because often these letters are sent to every creditor receiving a payment in the 90 days prior to the filing, with little research as to the validity of the claims, it is important to review the payments at issue and avoid having to fight a lawsuit.
The purpose of this post is to provide a brief outline of the law of preferential transfers.
1. What is a "preferential transfer?"
A preferential transfer is "a transfer of an interest of the debtor in property." This is usually money, but could be other property. Did a customer return goods to you for a credit? The next element is that the transfer was for, or on account of, an antecedent debt. In short, this means that as of the date of the transfer, the debtor owed you money. Next, the transfer was made while the debtor was "insolvent." It is presumed that the debtor was insolvent in the 90 day period, although there are occasions where this is disputed. Next, the transfer was made in the 90 day period before the bankruptcy case was filed, or within one year if the creditor was an "insider" of the debtor (i.e, close relative, officer/director of the debtor). While the date of the transfer is often undisputed, keep in mind that the date for checks is the date it cleared the debtor's bank, and not the date the creditor received or deposited the check.
Finally, the transfer allows you to receive more than you would have had the transfer not been made, and the case is a case under Chapter 7. This is often a complicated and litigated element. In short, it means that by receiving the payment, you ended up better off than you would have if you had not received the payment, and simply relied on the Chapter 7 process to get paid a portion of your debt. Keep in mind that the overwhelming majority of Chapter 7 cases result in no payment ro creditors, or a very small payment. Thus, in most situations, creditors who receive a pre-petition payment are better off having received the payment, and this element will be met.
Thus, the first question you must ask is whether the payment(s) at issue meet the definition of preferential transfer. You will want to check your records and, if necessary, ask the lawyer for copies of the checks (including the back of the check showing the date it cleared) or other records of the transfer. If the transfers at issue do not come within the definition, you or your lawyer will want to point this out to opposing counsel.
What is missing from this definition? There is no requirement that the creditor (or debtor) acted improperly in taking the payment. It is simply the Bankruptcy Code's way of trying to make sure all creditors are treated equally and no creditor benefits because they were "fortunate" to receive a payment just before the bankruptcy case was filed.
If the transfers do come within the definition, you are not out of luck. You may have defenses to the claim, which are discussed after the break....
Two more Georgia banks were shut down yesterday, making them the 17th and 18th Georgia bank failures in 2009. Ebank, the Vinings-based thrift founded in 1998 as Commerce Bank, was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. Its one branch and deposits were acquired by Stearns Bank of St. Cloud, Minnesota.
The second closing was First Coweta Bank, based in Newnan, Georgia. It was closed by the Georgia Department of Banking and Finance, and the FDIC was appointed receiver. All deposit accounts, excluding brokered deposits, have been transferred to United Bank, Zebulon, GA. Read more about the closing in the Atlanta Business Chronicle.
Eighteen banks in Georgia have now failed this year, and the nationwide total is 79 failures.
As more and more companies seek bankruptcy protection, we may see more bankruptcy cases involving officer and director liability during the "zone of insolvency" preceding the filing. Since most states look to Delaware for guidance on matters of corporate law, it is important to keep up with the significant decisions of Delaware courts.
In Gantler v. Stephens, (Del. Supr., Jan. 27, 2009), read opinion here, the Delaware Supreme Court, yesterday, issued a major decision on important matters of Delaware corporate law. Delaware's High Court for the first time confirmed and clarified that officers of Delaware corporations have the same fiduciary duties as directors of Delaware corporations.
In addition, the Delaware Supreme Court clarified and enunciated Delaware common law on the issue of "shareholder ratification"...
This post includes a few highlights from a panel presentation entitled “The Expanding Role of Fiduciary Duties in Challenging Times”, and addresses a topic of great interest to readers of this blog: The duties of directors and officers in the context of a failing business, or one in the “zone of insolvency”
Delaware Supreme Court Justice Henry duPont Ridgely and Kurt Heyman, an experienced Delaware corporate litigator, were on the panel that discussed recent Delaware opinions that describe fiduciaries duties in general as well as in the context of a failing business...The Gantler case held that officers have the same fiduciary duties as directors, but also noted that the protections of DGCL Section 102(b)(7) do not protect officers. Kurt explained that the Gantler decision raises three (3) fundamental questions:
(1) what is an officer?
(2) what does it mean for officers to have “identical” fiduciary duties to directors”
(3) what are the consequences of the foregoing?
D&O policies should be reviewed with an eye on how the coverage provided would be affected by the bankruptcy of the insured company. The best time for such a review is when the company is financially stable. Certain policy provisions may help insureds respond to an argument by a bankruptcy trustee or creditors committee that a D&O insurance policy is an asset of the bankrupt estate and is subject to the automatic bankruptcy stay. These provisions include, for example, ones that provide (a) that insured individuals seeking payments from the insurer have priority over claims for coverage by the insured company, and (b) that it is the intention of the insurer and the insureds that insurance payments to individuals are not to be subject to a bankruptcy stay. Other beneficial bankruptcy-related terms provide (y) that, if the company is legally permitted to indemnify an individual but cannot do so because of financial insolvency, the insurer will provide coverage to that individual without the deductible that would usually apply to an indemnifiable claim, and (z) that a claim brought by a bankruptcy trustee or creditors committee on behalf of the estate is carved-out from the “insured versus insured” exclusion.
I was recently asked to look into a Chapter 11 case by a company that licensed software to the debtor company. The client had a significant pre-petition debt, and was not being timely paid in the Chapter 11 even though the debtor (a very large technology company) continued to use the software.
Security Bank Corp. was shut down yesterday by the Georgia Department of Banking and Finance, and the FDIC. Pinehurst-based State Bank and Trust Co. will assume all of the deposits of Security Bank’s six subsidaries and will acquire $2.4 billion of the banks’ assets.
First Piedmont Bank, based in Winder, Georgia, became the state's 15th bank failure in the last year. Its assets were purchased by Athens-based First American Bank and Trust. A total of four banks nationwide were shuttered on Friday. A total of 58 federally insured banks nationwide have been shut down in 2009.
Between 2004 and 2008, the [First Piedmont Bank's] loan portfolio doubled in size to nearly $100 million, primarily on residential construction loans. But those loans began to sour as home sales slumped dramatically through 2007 and into the following years, and the bank’s loan portfolio deteriorated.
By first quarter 2009, roughly one-third of the bank’s loan portfolio was classified as some form of problem, either delinquent or defaulted loans, or had become repossessed real estate.By March 31, the bank’s Texas Ratio — a comparison of its total loan problems to total equity capital, which measure the bank’s ability to absorb losses — exceeded 400 percent.
Lender CIT has been a business lender for 100 years, and is (at least for now) a Fortune 500 company. It is mainly a lender to small to middle market businesses and according to its website has $60 billion in financing and leasing assets. Lawyers who handle Chapter 11 cases have undoubtedly crossed paths with CIT many times. The docket for the Northern District of Georgia has several pages of various CIT entities involved in bankruptcy cases.
Late last week, the news spread that CIT was preparing for a Chapter 11 filing after it lost a bid to get government assistance (as GE Capital obtained) and hired Skadden Arps. Click here for WSJ article and here for Bloomberg. Apparently, the FDIC thought guarantees to CIT would have been to risky for taxpayers. Shares trading at over $61 fell to $1 yesterday and it has hit junk bond status.
The company’s main problem: Some $2.7 billion in debt due from now until the end of the year that investors aren’t sure the company can cover...
But there are some considerable differences between industrial giants like GM, and financial companies that might make CIT’s survival in bankruptcy a less certain situation. “It runs the risk of hurting the deposit base and maybe causing some regulatory action from the FDIC or the Fed,” said Stifel Nicolaus analyst Chris Brendler, in a brief chat with MarketBeat. “I don’t think you’ll see many finance companies survive a bankruptcy filing.”
According to the NY Post, the consequences of a CIT failure could be catastrophic:
Hundreds of thousands of small businesses, shops and restaurants -- CIT CEO Jeff Peek estimates some 760 manufacturing companies and another 300,000 retailers -- could be shut down overnight in a collapse of CIT, their main lifeline to cash and credit.
“CIT has been an especially important source of funding for small businesses, which we know is the engine of job growth in our economy,” said Representative Carolyn Maloney, a New York Democrat and congressional Joint Economic Committee chairwoman, in an e-mailed statement. “If they could no longer lend, it would cause disruption across the country to countless small businesses.”
It remains to be seen what CIT will do, but it will probably happen in days or a few weeks, and not months. If CIT fails, or continues to significantly restrict its lending, the Bankruptcy Courts will see a jump in business because few lenders will be ready, willing and able to step into their shoes (at least, not without a bailout guarantee).
However, Treasure Secretary Timothy Geithner stated yesterday that the government has the authority to address the CIT situation. With the nationalization of GM, the statement is no surprise.
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.
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.
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.
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.
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...
According to an article in Reuters, business bankruptcy cases rose more than 40% over the same period in 2008.
There were 7,514 commercial bankruptcy filings for the month, compared with just 5,354 during the same month a year ago, according to Automated Access to Court Electronic Records (AACER), a database of U.S. bankruptcy statistics used by attorneys and lenders.The figures do not include Chrysler, which filed for bankruptcy in April or General Motors, which filed on June 1...
Per day, 376 companies sought protection from creditors in bankruptcy court.
"The average filing amount per day is actually the highest since the bankruptcy law changed in October of 2005," said Mike Bickford, president of AACER.
The Deal Watch Blog also discusses a study that finds the increase in business filings will continue.
The number of corporate bankruptcies in the United States is projected to rise by 45 percent this year, with worldwide business insolvencies expected to increase by 35 percent, according to a new study published today. It’s a situation that the study’s sponsor, Paris-based credit insurer Euler Hermes, referred to as a “burial ground” for business.
More than 43,500 U.S. companies declared bankruptcy in 2008, according to the study, second only to France, with 57,650, among the list of 29 countries examined by Euler Hermes and its chief researcher, Karine Berger.
My friend Luanne Bonnie has opened a solo practice in downtown Decatur, Georgia, specializing in wills, trusts, estates, probate and elder care. The office will serve the Decatur and metro- Atlanta areas. Luanne was formerly a partner in a large Southeast firm. You can find out more information at her website, www.bonnielaw.com. Luanne has plans to add a blog in her practice areas on the near future.
According to the findings of the American Journal of Medicine, over 60% of consumer bankruptcy cases filed in 2007 were due to medical bills. You can read the report by clicking here. A summary of the results --
Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001.
Click here for an article in the LA Times on the subject. It would be interesting to know how the findings would change for 2008-09 with the changes in the economy.
The letter signed by Dr. Donna James, SACS CASI's North Carolina director, said the organization received complaints about five incidents that may violate accreditation standards. All involve the Burke County Board of Education; two specifically name board member Rob Hairfield for sending racist e-mail and for making remarks, including "shoot to kill," during a November board meeting...
Fellow board member Sam Wilkinson, who remembers intense SACS CASI evaluations during his career as a teacher, said the situation is "very serious."
Wilkinson and Armour have strongly opposed the other board members' refusal to allow public comments before and since the board's decision to terminate Superintendent David Burleson's contract effective June 30. Wilkinson also made the motion at the board's Monday meeting to invoke the First Amendment. The board voted it down, 2-4.
SACS CASI included the limits on public comments as one of its concerns.
Another complaint involves Board Chair Tracy Norman, though it does not name her. At the same November meeting when 38 students wanted to comment on proposed board policies about supplementary reading material, Norman suggested tracing e-mails to learn whether teachers helped organize the students' protest.
SACS CASI classifies its standards into seven areas of school operations and management. The letter cites possible violations in four of the seven: Vision and Purpose, Governance and Leadership, Stakesholders Communications and Relationships and Commitment to Continuous Improvement.
The entire fiasco apparently started when the Burke County School Board decided to terminate the contract of popular superintendent David Burleson. Click here for all of the articles in the News Herald. The public has responded to the rogue Board with promises of being kicked out in the next election, Facebook pages, and the usual talk of recall and removal.
Clayton County residents can expect plummeting home values as parents (or anyone who might be a parent in the next few years) move out of the county so their kids get in college and they are eligible for the Hope Scholarship. Home buyers with school-age kids, or who may have school age kids in the future (i.e, most younger couples) will avoid the county like the plague. The housing market in Clayton County will be a disaster, and the tax base will decrease dramatically. Refinancing will not be possible because the equity in homes will simply disappear. Companies and industries considering Clayton County will immediately strike them off of their list because employees will not want to move there. Some businesses will move, or perhaps even close, because of a decrease in business and an inability to keep qualified employees.
"All the board members need to resign. We need to have a special election and start over with qualified candidates," said David Barton, Vice President of the Metro South Association of Realtors. He said that during the last four years of turmoil in the Clayton County schools, property owners in the county have lost a half billion dollars in value.
The snowball effect for a county which loses its accreditation can be severe. New businesses will not consider the area. Parents of high school students will have to look at expensive private schools or moving out of the county to make sure the kids get in college. Even if Burke County finds a competent Superintendent, would he/she take a job when it appears certain that the Board will be replaced in the new election? Will they have to hire a replacement who was deemed "unqualified" by state educational and accreditation officials, as Clayton County did in hiring John Thompson (who was fired in March)?
Perhaps Burke County will hire Thompson, since they need a Superintendent and he finds himself unemployed? As it turns out, the Burke County School Board has retained attorney Richard Schwartz to represent it in potential litigation by Burleson and in other matters. Schwartz, it seems, was the personal attorney of John Thompson and negotiated his contract with Clayton County. Schwartz then conveniently became the lawyer for the Clayton County Board in dealing with the accreditation issue. We all know how that turned out.
Register now for the annual Spring Bankruptcy Seminar, followed by the Section's annual year-end luncheon and the presentation of the David Pollard Award to Harry W. Pettigrew Pettigrew & Associates, P.C. to be presented by J. Michael Lamberth, Lamberth, Cifelli, Stokes, Ellis & Nason.
Date: May 21, 2009
Location: The Ritz-Carlton Atlanta, 181 Peachtree Street, downtown
Seminar Topic: "Complex Individual and Small Business Bankruptcy Cases for the Consumer Bankruptcy Attorney"
Agenda:
9:00 am - 10:00 am - Small & Individual Chapter 11 Cases
10:00 am - 11:00 am - Complex Business & Individual Chapter 13 Cases
11:00 am - 11:15 am - Break
11:15 am - 12:15 pm - Complex & Business Chapter 7 Cases
Hon. Paul W. Bonapfel, Nancy J. Whaley, Barbara Ellis- Monro, Denise Dotson, Ron Bingham, Melissa Herman, John T. Whaley, Anna Humnicky, Dale R. F. Goodman, Todd E. Hennings
Questions?Email the Atlanta Bar Association or call 404-521-0781.
Omni National Bank was seized by the FDIC today, becoming the tenth Georgia bank failure in the last few months. Click here for NASDAQ announcement.
Update - The FDIC has issued its release (click here). SunTrust will receive the insured deposits.
Omni National Bank, Atlanta, Georgia, was closed today by the Office of the Comptroller of the Currency, which then appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into an agreement with SunTrust Bank, Atlanta, Georgia, to act as paying agent for the insured deposits of Omni National Bank.
As the FDIC's paying agent, SunTrust will operate the six former branches of Omni National, on behalf of the receiver, until April 27, 2009. Omni National had branches in Atlanta, Georgia; Dalton, Georgia; Tampa, Florida; Chicago, Illinois, Dallas, Texas; and Houston, Texas. Banking activities, such as writing checks, can continue normally for former Omni National customers during this transition period
The Federal Deposit Insurance Corp. has taken over as receiver for Atlanta-based Omni National Bank, which was battered by rising losses stemming from souring real estate loans.
The Office of the Comptroller of the Currency (OCC) on Friday made the announcement, saying the $980 million-asset bank had “experienced substantial dissipation of assets and earnings” because of “unsafe and unsound” practices. OCC also said the bank “incurred losses that have depleted most of its capital, and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance.”
FirstCity Bank in Stockbridge was closed by the FDIC today. It is the ninth Georgia bank closed in the last seven months. Unlike the previous closings, the FDIC did not find a buyer for the Bank. More information is available at the FDIC website.
Stockbridge-based FirstCity Bank, which survived two World Wars and the Great Depression, was seized by state and federal bank regulators late Friday, according to an announcement by the Federal Deposit Insurance Corp.
The bank, founded in 1905 as Bank of Gibson, has been seized by the FDIC with no buyer for its $278 million in deposits or five branch offices in Gibson, McDonough or Stockbridge.
Customers of FirstCity will not have immediate access to their money, because regulators could not find a buyer for the bank’s deposits.
This is the first seizure without a buyer in Georgia since the banking collapse... Direct deposits from the federal government, such as Social Security payments, will be transferred to SunTrust Banks Inc, the FDIC said. Depositors should call (877) 367-2719 for additional information.
If you are member of the Atlanta Bar Association, you received an email about the upcoming elections (click here for the elections information page).
I am a candidate this year for the Members at Large Board of the Atlanta Bar Bankruptcy Section. My reasons for running in the election are quite simple - get involved, and use my experience in electronic networking to get information out to lawyers.
I have published this Blog since late 2005 (the BAPCPA), and the Blog consistently ranks among the Top 50 legal blogs nationwide according to Justia. Posts from the Blog have been used in prior editions of The Atlanta Bankruptcy Lawyer newsletter (click here for Winter 2008) and referenced in the Atlanta Business Chronicle, Wall Street Journal Online edition, and other publications. Technology has come a long way in the past few years, and now there are even more methods of getting information out to lawyers. I can help the Atlanta Bar move forward in that respect.
If you still have your email from the Atlanta Bar, it has a link to the voting site, along with your user name and password. If you do not have it, you can log in the election website by clicking here and retrieve your user name and password.
I appreciate your consideration and vote.
Scott B. Riddle, Esq.
Suite 2250 Resurgens Plaza
945 East Paces Ferry Road
Atlanta GA 30326
Ph. 404-815-0164
Fax. 404-815-0165
The foreclosure problem in metro Atlanta appears to be worsening. More than 10,000 lender-owned properties are scheduled to be sold on courthouse steps next month, according to EquityDepot.net, which tracks foreclosures.The 10,138 figure for 13 counties shatters the previous record of 8,425 properties scheduled for sale in February, Equity Depot.net says...
In the new foreclosure numbers, Fulton leads with 2,181 properties scheduled for sale, followed by Gwinnett, DeKalb and Cobb counties...
Foreclosure sales are held on courthouse steps the first Tuesday of each month. Many properties end up not selling because of settlements and bankruptcy filings. When properties generate little bidder interest, lenders end up taking them back for sale later.
Shares of Six Flags Inc. fell in premarket trading Friday as worries grew that the theme park operator may have to file for Chapter 11 bankruptcy protection. Six Flags shares lost 2 cents, or 10.5 percent, to 17 cents in early trading. The stock has traded between 16 cents and $2.50 during the past 52 weeks. In its fourth-quarter earnings report on Tuesday, Six Flags said it does not expect to have enough cash to redeem its preferred income redeemable shares on their redemption date of Aug. 15...
The shares, known as PIERS, must be redeemed for $287.5 million plus accrued and unpaid dividends, which may total up to $31.3 million. The company has skipped paying the dividends since May of last year... In its annual report filed with the Securities and Exchange Commission on Wednesday, the company said it may be forced to file for Chapter 11 bankruptcy if it cannot negotiate an out-of-court restructuring agreement with its PIERS holders, common stockholder and creditors. "Such a court filing would likely occur prior to the maturity of the PIERS or well in advance of such date, if we were to conclude at such time that an out-of-court solution is not feasible or advantageous," Six Flags said in the filing.
Meanwhile, another theme park has already filed a Chapter 11 petition. From Andy Peters' Deal Watch Blog, Ghost Town in the Sky in Maggie Valley, N.C., filed a Chapter 11 petition in the Western District of North Carolina. Ghost Town and nearby Frontierland were frequent destinations for those of us who grew up in western North Carolina in the 1970's. There was even Ghost Town: The Movie. You can see a video of Ghost Town by clicking here.
The House Judiciary Committee’s Subcommittee on Commercial and Administrative Law is holding a hearing this afternoon on the collapse of Circuit City and how recent changes to the Bankruptcy Code may be hurting the ability of companies to restructure under court protection.
Several of the bankruptcy experts testifying at the hearing (Circuit City Unplugged: Why Did Chapter 11 Fail To Save 34,000 Jobs?) are asking Congress to revisit some of the Bankruptcy Code amendments passed in 2005 to again give companies more breathing room to reorganize under Chapter 11...
The big problem, he says, is that companies are so afraid of bankruptcy that they’re waiting too long to file, entering Chapter 11 protection when it’s no longer an effective restructuring tool. Companies need time and cash to pull off a successful Chapter 11 reorganization but are waiting until they have neither. Circuit City, to use the example of the day, could have had a fighting chance if it had sought court protection earlier, Miller says...
George Mason University Professor Todd Zywicki, however, thinks the 2005 changes resulted in a “much smoother and more predictable process.” He thinks Circuit City would have liquidated anyway, even if the changes (including restrictive deadlines, lease-rejection time limits and increased up-front costs) were never passed...
Click here to read the testimony of witnesses, including Harvey Miller, Todd Zywicki and Georgia State Professor Jack Williams. Zywicki, of course, thinks the Code and 2005 amendments, work perfectly well.
On March 6, 2009, Freedom Bank of Georgia, Commerce, GA was closed by the Georgia Department of Banking and Finance. Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.
All deposit accounts have been transferred to Northeast Georgia Bank, Lavonia, GA. For more information on Northeast Georgia Bank, visit us at www.northeastgabank.com.
The FDIC has assembled useful information regarding your relationship with Freedom Bank of Georgia. Besides a checking account, you may have Certificates of Deposit, a business checking account, a Social Security direct deposit, and other relationships with the institution.
Please select the link below to read more about this event:
The new Means Test figures were recently released for cases filed on or after November 1, 2009. The Georgia figures are below, and you can see the entire chart on the U.S. Trustee's website.
Moody's has disclosed a list of companies that have a high probability of filing Chapter 11 petitions in 2009. I did not find a direct link to Moody's, but the list is described in this link.
Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost its performance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the most leveraged drugstore chain in the U.S., according to Zacks Equity Research...
Claire's Stores. (Privately owned; about 18,000 employees.) Leon Black's once-renowned private-equity firm, the Apollo Group, paid $3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past year and analysts believe Claire's is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief...
Chrysler. (Privately owned; about 55,000 employees). It's never a good sign when management insists the company is not going out of business, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfolio that's overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars...
Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%). This car-rental company is a small player compared to Enterprise, Hertz, and Avis Budget. It's also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending. Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. ...
Realogy Corp. (Privately owned; about 13,000 employees). It's the biggest real-estate brokerage firm in the country, but that's a bad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, and Sotheby's franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007...
Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too...
Loehmann's Capital Corp. (Privately owned; about 1,500 employees). This clothing chain has the right formula for lean times, offering women's clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmann's has a lot less cash to ride out a drought than competitors like Nordstrom Rack and TJ Maxx ..
Sbarro. (Privately owned; about 5,500 employees). It's not the pizza that's the problem. Many of this chain's 1,100 storefronts are in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets...
Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling off properties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody's expects cash flow to be negative in 2009, and if consumers aren't spending during the peak summer season, that could imperil the company's ability to pay debts coming due later this year and in 2010.
Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies...
Krispy Kreme. (KKD; about 4,000 employees; stock down 50%). The donuts might be good, but Krispy Kreme overestimated Americans' appetite - and that's saying something. This chain overexpanded during the donut heyday of the 1990s - taking on a lot of debt - and now requires high volumes to meet expenses and interest payments...
Landry's Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June...
Sirius Satellite Radio. (SIRI - parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn't generated the savings needed to make the company profitable...
Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald has received several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt.... (filed Chapter 11 in February 2009).
BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008...
The Honorable Lee H. Rosenthal
Chair, Committee on Rules of Practice and Procedure
Judicial Conference of the United States
Washington, D.C. 20544
Dear Judge Rosenthal:
I am writing to inquire if the Court is complying with two key provisions of the E-Government Act of 2002 (P.L. 107-347) which were designed to increase public access to court records and protect the privacy of individuals’ personal information contained in those records.
As you know, court documents are electronically released through the Public Access to Court Electronic Records (PACER) system, which currently charges $.08 a page for access. While charging for access was previously required, Section 205(e) of the E-Government Act changed a provision of the Judicial Appropriation Act of 2002 (28 U.S.C. 1913 note) so that courts “may, to the extent necessary” instead of “shall” charge fees “for access to information available through automatic data processing equipment.”
The goal of this provision, as was clearly stated in the Committee report that accompanied the Senate version of the E-Government Act, was to increase free public access to these records. As the report stated: “[t]he Committee intends to encourage the Judicial Conference to move from a fee structure in which electronic docketing systems are supported primarily by user fees to a fee structure in which this information is freely available to the greatest extent possible. ... Pursuant to existing law, users of PACER are charged fees that are higher than the marginal cost of disseminating the information.”
Seven years after the passage of the E-Government Act, it appears that little has been done to make these records freely available – with PACER charging a higher rate than 2002. Furthermore, the funds generated by these fees are still well higher than the cost of dissemination, as the Judiciary Information Technology Fund had a surplus of approximately $150 million in FY2006. Please explain whether the Judicial Conference is complying with Section 205(e) of the E-Government Act, how PACER fees are determined, and whether the Judicial Conference is only charging “to the extent necessary” for records using the PACER system.
In addition I have concerns that not enough has been done to protect personal information contained in publicly available court filings, potentially violating another provision of the E-Government Act. A recent investigation by Carl Malamud of the non-profit Public.Resource.org found numerous examples of personal data not being redacted in these records. Given the sensitivity of this information and the potential for indentify theft or worse, I would like the court to review the steps they take to ensure this information is protected and report to the Committee on how this provision has been implemented as we work to increase public access to court records.
I thank you in advance for your time and I look forward to your response.
This is not Bankruptcy related, but hopefully it will be a good tip for lawyers who try to electronically redact or remove text from documents. For lawyers in states or districts with electronic filing (which includes virtually all Bankruptcy lawyers in Georgia), it is important to know how to properly redact a document in .pdf format.
Otherwise, you might get a major screw-up like the one discussed here. Because information was not properly redacted,sensitive information in a legal dispute over Facebook was obtained by the press.
After taking drastic preventative measures to keep the settlement confidential, including barring reporters from the courtroom and redacting portions of the documents, Facebook has been foiled by the most laughable lull in security I’ve heard of:
Large portions of that hearing are redacted in a transcript of the June hearing, but The Associated Press was able to read the blacked-out portions by copying from an electronic version of the document and pasting the results into another document.
Read that again. Just, wow.
Now for the juicy details:
The document reveals that Facebook’s internal valuation of the company is $3.7 billion, or $8.88 per share - far less than the $15 billion implied valuation established by the Microsoft investment in 2007 (though this comes as no surprise, as a value around $4 billion has been rumored for months).
If you have Adobe Acrobat versions 8 or 9, it includes a redaction tool. If you do not have these versions, get it and make sure everyone knows how to use it. For much more information on using Acrobat check out PDF for Lawyers Blog.
Walt Moeling, Bryan Cave Powell Goldstein LLP banking attorney and counsel for the bank, said the failure was due to a combination of market forces and over-concentration in residential real estate lending.
"This is a case of the economy overwhelming the bank," Moeling said.
The slowdown in residential construction, particularly for FirstBank's Henry County and south metro business area, has been acute and reflected in a souring balance sheet for the bank throughout 2008....
The bank owned $105 million in problem construction and development loans, as of fourth quarter 2008...
The move also marks the second local purchase by Regions Financial, which added five branches in north metro Atlanta through the buyout of seized, Alpharetta, Ga.-based Integrity Bank in August 2008.
For those of you who are interested in what the Bible has to say about personal finances, North Point Community Church and Buckhead Church , and Pastor Andy Stanley, have a current series entitled Balanced. They have also created a website for more information. You can access this website and watch the messages online by clicking on the Balanced Online website. The website also includes some helpful tools you can download, including spending and budgeting spreadsheets. As the Bible mentions money and finances over 800 times, this series and information might be helpful and informative.
Perhaps some of this information will help people avoid Bankruptcy (which, while I am on the subject, is not endorsed or otherwise supported in the Bible, contrary to some sales pitches).
Edited to Add pn February 12, 2009 - Based on the number of spam comments attempted here, I'll also add to beware of "Christian Debt Elimination" type scams.
The options for phones and Blackberries has expanded for lawyers in the Northern District. The ban on camera phones has been lifted. Getting the new iPhone is not completely pain free, however, because lawyers must be admitted to the Bar of the Northern District and get an ID card.
The federal courthouse in Atlanta, long a forbidden zone for cell phones that contain cameras, will allow lawyers who are members of the local federal bar to bring the devices into the building beginning today -- but only with a special photo ID...
The relaxation of the ban on cameras in the courthouse does not allow anyone to snap photos with their cell phone cameras, cautioned District Court executive John T. Shope... And only lawyers who are members of the Northern District Bar and who have registered their phones with the U.S. Marshal will be able to take advantage of the new policy. Specially issued badges that will allow a lawyer to carry devices with cameras through security also are valid only in the Northern District.
Local rules established by each district's judges govern whether the devices are permitted in the courthouse. In Georgia's Southern District, an absolute ban on all hand-held communication devices remains in effect, said Robert Fritts, the Southern District's chief deputy clerk...
As camera phones have proliferated, cell phones, BlackBerrys and other hand-held communication devices without camera features have become increasingly rare, he said...
Members of the Northern District Bar may apply for the special photo ID at the court's human resources office in Room 2013 of the Russell Building. The application fee is $35. Photo badges will be made by the U.S. Marshal's ID section and will be valid for two years.
Circuit City, which filed Chapter 11 in November 2008 and closed several stores, gave up the fight this week and announced it would liquidate and close. It could not find a lender or buyer and had no choice.
This will be a common theme according to the Washington Post article:
With the economy in the tank, companies are doing all they can to stay afloat. For many, though, even the most desperate measures have not been enough.
Former giants in American business have recently tilted into extinction. Circuit City announced Friday it would follow Linens 'n Things and Sharper Image into liquidation and sell its assets. Over the next two years, analysts say, countless other businesses will simply fade away. "This is now an unprecedented time as far as how bad things have gotten," said Scott Peltz, managing director of RSM McGladrey, a consulting firm that helps turn around troubled companies.
The number of business bankruptcy filings rose sharply in 2008, with 31 percent more companies looking to liquidate -- instead of just restructure their debt -- in the third quarter than in the first...
Many of the headline-grabbing bankruptcy filings recently have come from retailers. But analysts are seeing filings rise across a broad range of industries such as hospitality, gaming and automotive suppliers. This month, Nortel Networks, one of the nation's largest makers of phone equipment, filed for bankruptcy. So did the U.S. operations of petrochemical giant LyondellBasell.
According to the AJC article, Equity Depot reports that a record number of foreclosures are scheduled for February 2009.
In the 13 counties Equity Depot tracks, 8,425 properties are scheduled to be auctioned Feb. 3. The previous high was 7,967 properties from last September. Fulton County is the leader, with 1,838 troubled properties, followed by Gwinnett and DeKalb counties. Fayette has the fewest foreclosed properties — 128.
On a (potentially) brighter note, according to the Atlanta Business Chronicle some builders believe that the housing industry is going to get better.
Metro Atlanta home builders believe the housing industry will improve in 2009, but differ on when and by how much. Among the most optimistic is Tom Justice, CEO of Legacy Communities LLC, who thinks the worst of the housing market may be over.Recessions historically last six to nine months and the United States has been in a recession since December 2007, he said. “This one is different because it is global,” Justice said. “But I think most of it is done, and blue skies are on the horizon.” ...
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
The epic financial crisis afflicting the banking industry over the past 18 months is largely the result of cratering loan and other asset values stuck on bank balance sheets. When the market for such loans stalled, banks couldn't sell them and had to take billions of dollars in writedowns.
Fearing the worst, the government pumped hundreds of billions of dollars into these institutions, with questionable long-term results. Though it is early in the rescue, the economy has shown few signs of improvement, and the bank losses continue. Why should taxpayers foot the bill when there are trillions of dollars in private money on the sidelines in the world financial markets? Private investment is a far more appropriate agent to revive these institutions, yet little is coming in. One reason for this is that distressed assets on bank balance sheets have artificially low values because of misguided federal bankruptcy laws...
This state of affairs could be improved by eliminating the bankruptcy rule known as the "exclusivity" period. This rule unfairly gives managements, with court approval, a monopoly in drawing up a reorganization plan for a minimum of 18 months. Generally that plan includes proposals to restructure debt, sell assets and void onerous contracts. During this period nontrade creditors, like bank debt and bond holders, languish in uncertainty as to what will happen to their investment.
The exclusivity rule mainly benefits equity holders and managements, not creditors. But why should the same management that got the company into trouble have the right to lock-up its assets for an extended period of time? Without an exclusivity period, different classes of creditors and equity holders could immediately propose different restructuring solutions, including the sale of assets overseen by a bankruptcy court. The biggest impact of such a rule change would be that the assets of a company in Chapter 11 would be priced as though they could be sold -- in effect giving them a "mergers & acquisitions premium" -- rather than be shackled for years in a bankruptcy court.
2008 ranked as one of the worst years for Georgia banking since the Great Depression.2009 may become the worst ever.Bankers, industry experts and insiders are already projecting the new year will be a watershed for banks throughout metro Atlanta and Georgia, potentially setting a new record for the number of banks seized within the state in a calendar year.
There have been five failures in the last five months, a rate not seen in decades.
An informal survey of bankers, attorneys and analysts shows they generally expect that this year no less than 15 banks will fail in Georgia. That would be more than double the previous records, when seven banks were seized in both 1989 and 1991 during the height of the Savings and Loan Crisis.
Estimates vary from as few as 15 to as many as 50 bank failures — or about one a week on average —in Georgia this year. The bulk of any failures, industry insiders said, will be among metro Atlanta banks, which led the charge in new bank creation earlier this decade...
The collapse was so dramatic, and concentrated in metro Atlanta, that national observers are already calling the city the epicenter for U.S. bank failures....
The Wall Street Journal Wealth Blog has a post today entitled The Country Club Crash. The post discusses the problems country clubs are having in these economic times, and the article references the posts here about Gold Creek Golf Club and Cherokee Run Club.
Golf clubs in the South are shutting down or going into foreclosure faster than a Hummer dealership. Gold Creek Golf Club, a 354-acre golf and tennis facility in Dawsonville, Ga., shut down in August after the company that owned it went bankrupt. Cherokee Run Country Club in Conyers, Ga., filed for bankruptcy last fall, owing more than $2.9 million to various creditors. ... Coastal Georgia’s exclusive Sea Island, once considered one of the top courses in the country, has laid off as many as 400 employees.
The Bankruptcy Court for the Eastern District of Michigan entered an Administrative Order (click here to view) making the Court more attractive for "a very large, complex case of national significance." Yes, that means GM, Chrysler and/or Ford. The Order, signed by all Judges, provides:
It is hereby ordered that upon the filing of such a case, the case shall not be assigned by the Court's blind draw system under E.D. Mich. LBR 1073-1 (a)(l). Instead, after consulting with the other bankruptcy judges, the chief bankruptcy judge shall assign the case to a bankruptcy judge.
It is further ordered that the bankruptcy judge to whom the case is assigned shall have the authority to assign adversary proceedings and contested matters to other bankruptcy judges as necessary and appropriate to carry out the purposes of this order.
The Sixth U.S. Judicial circuit, which includes Detroit, is “the backyard” of the United Auto Workers union as well as the circuit most protective of health care benefits promised to retirees, which makes it less likely to attract a bankrupt auto company that would likely seek to terminate those benefits, said Colleen Medill, an employee benefits law professor at the University of Nebraska. Still, the district’s judges are well versed in the auto industry, having handled bankruptcies of auto-parts makers including Collins & Aikman Corp., Intermet Corp. and Plastech Engineered Products Inc.
“There is no district in the country that has a greater stake in the outcome of a filing by one of the Big 3 than the Eastern District of Michigan,” said Chief Judge Steven Rhodes, referring to the formal name of his Detroit-based court. The court is reviewing staffing, security and technology functions so as to be ready to handle a case the size of an automaker.
From the Atlanta Business Chronicle, "Duluth-based Haven Trust Bank was seized by state and federal bank regulators late Friday, as the fifth failure in Georgia this year and the second in as many weeks. Winston-Salem, N.C.-based BB&T Corp. (NYSE: BBT) will assume all deposits from Haven Trust, which had total assets of $572 million and total deposits of $515 million as of Dec. 8. The deal bolsters the local deposit base of BB&T, the fourth largest bank in metro Atlanta."
Here is the FDIC Notice. This makes it the fifth Georgia bank seized by regulators.
The housing market is so bad that some banks and builders that had been business partners are now adversaries, and experts are using the dreaded “D” word.“In northeast Georgia we’re not in a housing recession, we’re in a housing depression,” Jim Williams, president of Southern Highlands Mortgage in Blairsville, told state lawmakers at a daylong hearing Wednesday. .. Likewise, Eugene James, head of the Atlanta division of the research company Metrostudy, said the 22 metro counties it covers “are in a housing depression right now.”
James said sales closings were down 44 percent for the third quarter, compared to the same period last year, and housing starts had plunged 67 percent. The metro area also has about 148,000 lots with infrastructure but no homes — a 117-month supply, he said...
Sen. Chip Pearson (R-Dawsonville), co-chairman of the meeting, was intrigued by a California rescue plan that Chuck Fuhr, Ryland Homes’ Atlanta division president, described. .. “Almost every small builder I know today has his bank knocking on the door, trying to collect his loan and put him out of business,” Fuhr said. If builders continue to fold, competition will lessen and home prices will escalate, he said.
Kurt Cannon, president of Rabun Builders and the Home Builders Association of Georgia, said at the hearing that worried bankers have turned on builders, even those with good credit, by calling in loans and threatening to sue.
The housing pain may get worse, Cagle said. “I don’t think we’ve found bottom yet,” he said. “Once we’ve reached there, I think we’re going to be there for an extended period of time.”
LEADING EXPERTS – This nationally recognized seminar brings the nation's bankruptcy experts, including judges, professors and practicing attorneys together to help you and thereby your clients navigate the Bankruptcy Laws.
Alan Judd at the Atlanta Journal has an article about Michael Vick's spending in the time leading up to his imprisonment, including millions of dollars transferred just before his incarceration. This information was contained in pleadings filed in his Bankruptcy case. Click here for the article.
Among the highlights from Alan's article:
The day he went to jail, Michael Vick bought a $99,000 Mercedes. He cashed four checks that totaled $24,900. He gave $28,000 to the mother of his oldest child. He paid a public relations firm $23,000 and gave a friend $16,000. Altogether on Nov. 19, 2007, Vick spent $201,840. But for the former Atlanta Falcons quarterback, the day was most remarkable for how it ended: behind bars .. From Aug. 27, 2007, the day he pleaded guilty in a Richmond federal courthouse, until Nov. 19, the day he bought the new Mercedes before reporting to jail, Vick shelled out $3,627,291.
During his last weeks of freedom, though, Vick also spent $85,000 on a fish pond and $48,257 for landscaping. He bought a $31,000 Ford pickup and a $33,100 Chevrolet. Vick’s financial records suggest he was hemorrhaging money. In the weeks before he went to jail, he made 48 cash withdrawals for a total of $325,945. The largest was on Sept. 19, for about $67,000. Using three cashier’s checks, he withdrew an additional $90,000.
Vick seems to have relied heavily on cash. In 2007, documents show, he used cashier’s checks to withdraw $908,500 from his bank accounts. During a two-year period, he wrote checks payable to “cash” totaling almost $1.1 million.
Not long after joining the Falcons, Vick bought his first house: a $918,000 mini-mansion behind the gates that guard the Sugarloaf Country Club in Duluth. Two years later, in April 2005, he upgraded to a larger house in the same neighborhood, for almost $3.8 million. He bought four more houses, all in Virginia, and began building another.He bought a condominium in Miami Beach.He bought interests in two farms — one in Virginia, one in Rockdale County, east of Atlanta. He bought six Paso Fino horses, worth about $450,000. He bought two boats, one for $100,000, the other for $125,000. He bought cars: a Bentley, two Land Rovers, Cadillacs, an Infiniti sport utility vehicle and an Infiniti sedan, two Ford pickup trucks, a Dodge, a Chevrolet, the $99,000 Mercedes. And he bought as much as $450,000 in jewelry.
Mike Kavanaugh, a financial advisor and radio show host on WSB, passed away of a heart attack. From WSB
WSB Radio) - News/Talk 750 WSB mourns the death of Money Matters Radio Talk Show host Mike Kavanagh. His passing was sudden and unexpected. He suffered a heart attack in his suburban Atlanta home Saturday. He was 57. Kavanagh is survived by his wife Grace, a daughter and granddaughter.
Mike Kavanagh was a veteran of two worlds - broadcasting and financial planning. In 2007, he celebrated 40 years in radio and TV work. Since 1987 he divided his life between broadcasting and financial planning...
Mike's mission was to convince consumers that investing is not difficult, that fear and greed will combine to be the worst enemies of your financial plan and the main goal of all financial planning is to create your own person "SWAN" plan -- which stood for "Sleep Well at Night".
Zebulon, Ga.-based United Bank will assume all of the deposits of Jackson, Ga.-based First Georgia Community, according to announcements by the Federal Deposit Insurance Corp. and Georgia Department of Banking & Finance.
As of Nov. 7, First Georgia Community had $197.4 million in total deposits in four branches, while United Bank posted $553 million in deposits in third quarter 2008, according to FDIC data.
United Bank is acquiring the deposits for a 0.811 percent premium, and the FDIC expects the failure will cost its insurance fund $72 million.
United Bank also purchased $60.6 million in assets as part of the deal. The FDIC will hold the remainder of First Georgia Community’s assets, totaling $237.5 million, for later disposition.
From the AJC, many people believe that imposing a four loan limit on Freddie Mac and Fannie Mae mortgages will lead to fewer buyers of foreclosed properties and an extension of the recession. See Freddie Mac Bulletin.
The new policy, which limits to four the number of real estate loans by one person that will be backed by mortgage giants Freddie Mac and Fannie Mae, has spread to most local and national lenders. Experienced investors, frustrated and angry, complain the limits prevent them from buying bargain homes and possibly helping resolve the mortgage crisis... The new policy, which went into effect Dec. 1, was designed to keep small-time investors from getting in over their heads and losing numerous rental properties to multiple foreclosures. The previous 10-loan limit was easier to get around, investors say...
“The four-house rule is going to keep us in a recession longer,” said Tom Hutchens, a Dunwoody mortgage broker and real estate investor. “It’s going to keep qualified buyers out of the market.” ..
I am trying to keep up with new media, and finding that many lawyers and other professionals are using Facebook and Twitter for keeping up with new developments and keeping in touch.
I just created a Georgia Bankruptcy Law group on Facebook, which you can access by clicking here.
In addition, I am trying to send Twitter updates for the blog posts, and if you are interested in receiving those, add this profile (@sbriddle) to your list of people you are following.
I have not commented much on the possible Bankruptcies of the Big Three Automakers, simply because articles can be found every day, but Fox News has an article on the financial hit NASCAR will take. Since NASCAR is a major presence in the South, and in recent years, nationwide, it could ave a huge trickle down impact on jobs. As the article notes, in addition to the loss of money from the manufacturers, sponsors have pulled out (even though NASCAR fans have the highest loyalty to sponsors of all sports).
General Motors is cutting back on sponsorships; Sears dropped its 13-year running title sponsorship deal for the NASCAR Craftsman Truck series; and AAA and the Army have left altogether.
In an attempt to cut costs across the board the sport recently banned off-season testing, in which teams use official NASCAR racetracks to test or tweak vehicles or for practice. It's expected to save each team $1 million, but it has also cost about 1,000 garage workers their jobs.
Venues, teams and the sport itself are competing against each other for the same sponsorships. Lower profile racing teams worry they won't have the funds to enter next season; higher profile teams are merging to share resources.
"NASCAR in general is at risk with a broad bankruptcy in the industry, and I think [not bailing out the Big Three] would just frankly take out NASCAR," said Dr. David E. Cole, chairman of the Center for Automotive Research, a nonprofit group that studies the industry.
"But assuming there's some sort type of bridge loan to the Big Three and we'll get stability in the credit markets, I think NASCAR will live and at least two of the Big Three will continue to participate."
"NASCAR has a very significant stake in these talks to develop some form of a bridge loan," Cole said.
Somehow, experts say, NASCAR will survive. If the bailout comes through, industry experts say the sponsorship money will still flow into the sport, just more slowly. But if it doesn't come through, they say, the sport could be set back by 30 years....
Here are two recent articles that might be of interest to readers:
Real Estate A Trap for Metro Atlanta Couple, by Kevin Duffy of the AJC (free reg. req.). This article describes a couple that got into financial trouble by speculating on new properties that declined in value. Relatives are also at risk as co-signers. This is a common theme in Bankruptcy Court these days.
Retailers Circuit City, Goody's, Whitehall Jewelers, Linens N' Things are either gone already, or will be soon. According to data from CoStar Group Inc. and DJM Realty LLC, those stores combined take up space larger than Cumberland Mall. Who might be moving in? Discounters.
A.J. Wright, a division of the parent company of TJ Maxx, department store Rose’s Stores Inc., urban clothier City Trends and men’s clothier Conway Stores Inc., are all scouting the market, retail sources say. Dollar Tree Inc. and Family Dollar Stores Inc., already in the market, want to add more stores... Dollar Tree has more than 60 stores in metro Atlanta and Luedtke is pursuing more... Likewise, Charlotte, N.C.-based Family Dollar is searching for more sites... Rack Room Shoes, Dots LLC, Dress Barn Inc. and Cato Corp. are also expanding here... Raleigh, N.C.-based Variety Wholesalers Inc., which owns Rose’s department stores and Maxway stores, is also looking for space, brokers say.
Deloitte Forensic Center Study Highlights Correlation Between Bankruptcy and Fraud: Companies Filing for Bankruptcy More Likely to Face SEC Enforcement Related to Fraud
According to a new study published by the Deloitte Forensic Center, "Ten Things About Bankruptcy and Fraud," companies filing for bankruptcy protection are three times more likely than non-bankrupt companies to face enforcement action by the Securities and Exchange Commission relating to alleged financial statement fraud. The study analyzed SEC Accounting and Auditing Enforcement Releases and bankruptcy filings.
The study also found that companies that were issued financial statement fraud-related Enforcement Releases by the SEC were more than twice as likely to file for bankruptcy protection as those not issued one. Of publicly traded companies with revenues greater than $100 million that were issued financial statement fraud-related SEC Enforcement Releases, 35 percent filed for bankruptcy compared to 14 percent of similar companies that were not issued the Releases. ...
The federal government agreed Sunday night to rescue Citigroup Inc. by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant.
The agreement marks a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions. Citigroup is one of the world's best-known banking brands, with more than 200 million customer accounts in 106 countries. Its plunging stock price threatened to spook customers and imperil the bank. If the government's rescue plan is a success, it could help bring stability ...
Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies -- the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. -- will take on any additional losses, though Citigroup could have to share a small portion of additional losses.
The Wall Steet Journal has an article about directors quitting as many corporations are experiencing financial troubles, or failing altogether. SeeAs Firms Flounder, Directors Quit by Joann S. Lublin (sub. required).
These high-profile executives find it hard to handle the heavy board workload for a company in crisis. Such boards can confer several times a week, often at odd hours. In more normal times, boards meet an average of six times a year, according to a recent survey by the National Association of Corporate Directors.
So far this year, 46 outside directors who are CEOs or chief financial officers left the boards of 42 companies in three struggling industries -- financial services, retail and residential construction -- concludes an analysis for The Wall Street Journal by Corporate Library in Portland, Maine.
During the same period three years ago, 31 directors with those titles left. (That total excludes companies that no longer exist.) Paul Hodgson, a senior research associate at the governance-research firm, says time constraints are the main reason for the increase.
The departures come as CEOs had already been trimming their outside board commitments. CEOs of Standard & Poor's 500 companies held an average of 0.7 outside directorships this year, down from one in 2003, according to recruiters Spencer Stuart.
"You will see an increase in board members not standing for re-election" at annual meetings of troubled companies next year, predicted David Nadler, a senior partner at Oliver Wyman Consulting in New York....
The Bank of Essex in Tappahannock, Va., will assume all of the bank's $611 million in total deposits. The failure is Georgia’s fourth within the last two years, and the third in the last four months in metro Atlanta.Community Bank, which was founded in 1946, follows the failure of two Alpharetta-based banks, Integrity Bank and Alpha Bank & Trust.
The Federal Deposit Insurance Corp. expects the failure to cost the insurance fund between $200 million and $240 million. Bank of Essex paid a $3.2 million premium to assume the deposits of the failed bank.
The failure of the bank was blamed, at least in part, on the real estate crisis:
“There is no question that the extended difficulty in the broad Metro-Atlanta real-estate market continues to stress area banks that do a lot of business with real-estate developers and builders," Joe Brannen, president and CEO of Georgia Bankers Association, said in a written release. "However, it remains important to emphasize that the overwhelming majority of banks operating in Georgia meet the criteria for being well capitalized by regulators and have adequate reserves on hand to weather the current stresses to the economy.
The Community Bank’s branches will reopen Monday as the Bank of Essex. Customers can continue to access their funds Saturday and Sunday via ATMs or writing checks and deposits remain fully insured for up to $250,000.
Mortgage giants Freddie Mac and Fannie Mae will suspend foreclosures and evictions for owners of occupied homes through the holidays — the latest effort to keep people in their houses.
Freddie and Fannie, which were seized by the government in September, announced Thursday that they will contact an estimated 16,000 borrowers who are facing foreclosure or evictions between Wednesday and Jan. 9. Those proceedings will be delayed and the homeowners will have a chance to work with mortgage servicers to modify their home loans into affordable payments...
Last week Freddie and Fannie — which own or guarantee 31 million mortgages, or 58% of the nation's total — announced a streamlined mortgage-modification program, designed to get borrowers closest to foreclosure into affordable monthly payments. Given that the Federal Housing Finance Agency, which oversees Freddie and Fannie, announced this loan-modification program starting Dec. 15, the decision to suspend foreclosures isn't surprising, says Keith Gumbinger of HSH Associates. "You don't want to start the program and find people who have missed the cutoff by a day or a week." ...
Most loans going into foreclosure are held by other investors. "We hope others will take the cue and offer streamlined modification," Zigas says.
Obviously, everyone saw this coming after the election, but Illinois Democrat Senator Richard Durbin has not even waited for the run-off elections to be decided or a new Congress seated in January. He introduced a bill that would allow Bankruptcy Judges to modify home mortgages.
The bill was introduced in what is expected to be an abbreviated lame-duck session of Congress, called to address a possible auto industry bailout and economic stimulus measures. A new Congress will be seated in January. The Senate in April voted against a similar mortgage bankruptcy proposal, also supported by Durbin. His bill this time around would also require certain federal agencies to restructure mortgage loans involved in homeowner assistance programs already approved by Congress.
It looks like GM really wants the government bailout and is going as far as begging its customers for support.
Dear [GM Customer],
You made the right choice when you put your confidence in General Motors, and we appreciate your past support. I want to assure you that we are making our best vehicles ever, and we have exciting plans for the future. But we need your help now. Simply put, we need you to join us to let Congress know that a bridge loan to help U.S. automakers also helps strengthen the U.S. economy and preserve millions of American jobs.
Despite what you may be hearing, we are not asking Congress for a bailout but rather a loan that will be repaid.
The U.S. economy is at a crossroads due to the worldwide credit crisis, and all Americans are feeling the effects of the worst economic downturn in 75 years. Despite our successful efforts to restructure, reduce costs and enhance liquidity, U.S. auto sales rely on access to credit, which is all but frozen through traditional channels.
The consequences of the domestic auto industry collapsing would far exceed the $25 billion loan needed to bridge the current crisis. According to a recent study by the Center for Automotive Research:
• One in 10 American jobs depends on U.S. automakers
• Nearly 3 million jobs are at immediate risk
• U.S. personal income could be reduced by $150 billion
• The tax revenue lost over 3 years would be more than $156 billion
Discussions are now underway in Washington, D.C., concerning loans to support U.S. carmakers. I am asking for your support in this vital effort by contacting your state representatives.
Please take a few minutes to go to www.gmfactsandfiction.com, where we have made it easy for you to contact your U.S. senators and representatives. Just click on the "I'm a Concerned American" link under the "Mobilize Now" section, and enter your name and ZIP code to send a personalized e-mail stating your support for the U.S. automotive industry.
Let me assure you that General Motors has made dramatic improvements over the last 10 years. In fact, we are leading the industry with award-winning vehicles like the Chevrolet Malibu, Cadillac CTS, Buick Enclave, Pontiac G8, GMC Acadia, Chevy Tahoe Hybrid, Saturn AURA and more. We offer 18 models with an EPA estimated 30 MPG highway or better — more than Toyota or Honda. GM has 6 hybrids in market and 3 more by mid-2009. GM has closed the quality gap with the imports, and today we are putting our best quality vehicles on the road.
Please share this information with friends and family using the link on the site.
Nov. 13 (Bloomberg) -- Web site failures at one of the busiest bankruptcy courts in the U.S. have forced attorneys to return to the oldest tool in their arsenal: paper.
The Web site used to view cases in the U.S. Bankruptcy Court in Delaware was shut down for nearly three days. A related disruption of service also made it difficult to file the kind of billion-dollar cases for which Delaware is famous.
``We've had to file things by paper and then try to follow up later electronically,'' Daniel J. DeFranceschi, a bankruptcy attorney with the Wilmington law firm Richards, Layton & Finger, said in an interview. ...
General Growth Properties Inc., which owns Cumberland Mall, Perimeter Mall, North Point Mall, Southlake Mall in metro Atlanta, said it may be forced to seek protection from its creditors as it struggles to refinance debt.
Chicago-based General Growth has $958 million in debt that comes due Dec. 1 and another $3 billion in debt that matures in 2009. Citing weakness in the credit and the retail markets, the company says it can’t be sure it will be able to refinance or extend terms on the debt.
So far in 2008, there have been a few name-brand bankruptcies—like the recent Circuit City filing, Linens-n-Things, Frontier Airlines, and Mrs. Fields Cookies—plus the colossal liquidation of Lehman Brothers. But believe it or not, it has been a fairly calm year for bankruptcy judges, by one important measure: the corporate default rate. The share of corporate bonds in default over the past 12 months, which goes hand in hand with bankruptcies, has been about 3 percent, according to data compiled by Prof. Edward Altman of New York University's Stern School of Business. That's near the historical average. So, the vast majority of corporations have been paying their debts during the early part of this recession.
But like many good things of the past few years, that's about to end. The latest data from Altman suggest that by this time next year, the corporate default rate will be somewhere between 8.5 percent and 11.1 percent. That means there could be three to four times the number of corporate bankruptcies we've seen over the past year. And each one of those will probably involve layoffs...
Bankruptcy lawyers say the automaker could benefit from a prepackaged bankruptcy, which would be a reorganization that is worked out among the automaker's creditors before the case ever gets to a bankruptcy court judge. "It would be messy but ultimately could help the company restructure itself a lot faster," says Mark Bane, a partner at New York law firm Ropes & Gray.
The biggest obstacle to any bankruptcy is the lack of availability of debtor-in-possession (DIP) financing, which is liquidity normally provided by banks and private equity firms that a company in bankruptcy needs to reorganize itself. Indeed, the question of bankruptcy has been on the minds of GM's top executives. On Nov. 6, GM North America President Troy Clarke told a gathering of auto suppliers that obtaining DIP financing would be "practically impossible" given the state of the credit markets and the size of GM's obligations. "But that's where the government could come in," says attorney Bane, "providing the liquidity GM would need to massively reorganize under Chapter 11."
The worst-case scenario for GM, say most experts, is a spontaneous Chapter 11, like the one filed by electronics retailer Circuit City (CCTYQ.PK) on Nov. 10. But a prepackaged filing could be set up to make sure that the vast majority of auto suppliers would continue to get paid on time.
Others disagree. Kimberly Rodriguez, a partner at Grant Thornton, an accounting and management consulting firm that works with auto companies and suppliers, says bankruptcy is a "last resort." Rodriguez says that in better times GM and Ford (F) have provided liquidity to its biggest suppliers who would have otherwise been forced into Chapter 11, which is very messy and destructive. "The government could play that same role for GM, and it will be a lot more orderly," says Rodriguez...
Chief among them is GM's belief that customers who own GM vehicles, as well as those who might consider them in the near future, would flee the companies' brands if it were in bankruptcy. In the past, when GM has been associated with the specter of a bankruptcy filing, showroom traffic drops off. During an interview with Fox Business News on Nov. 7, Wagoner said that GM's research shows that 80% of those surveyed said they wouldn't buy a car from a bankrupt car company. "If your revenue line falls, you would not be talking about a reorganization, you would be talking about a liquidation." ...
All the construction activity in Buckhead is “goofy.” That description comes not from a disgruntled neighbor but the Urban Land Institute, a national organization of developers, many of whom are in Atlanta...
Next year “promises tough times [in Atlanta] as an overbuilding hangover and slipping demand roil investors,” states the report, now in its 30th year. “It’s no time to buy in any of the property sectors. Office developers play a game of chicken in Buckhead, where a bloodbath is coming.”
Buckhead absorbs less than 500,000 square feet of office space annually, but more than 2 million square feet is under construction, the report points out. “The goofy activity defies description.”
Chapter 11 filings are up between 50 percent and 70 percent over all of last year, depending on how they’re counted. They’re also up significantly from any of the past 20 years —- and there are almost 10 weeks left in 2008. As of Friday, 283 companies and their affiliates had filed for Chapter 11 protection from creditors in Georgia’s Northern District, which has offices in Atlanta, Gainesville, Newnan and Rome....
The list of 2008 Chapter 11 cases includes a number of related filings. But even without those included, it dwarfs previous years.Last year, 161 companies and affiliates filed for Chapter 11 protection. The worst year before was in 2002, when 185 companies filed amid the economic aftermath of the World Trade Center attacks....
An article in the Financial Times entitled Wall Street ‘Made Rod For Own Back’, by Francesco Guerrera, Nicole Bullock and Julie MacIntosh, discusses the 2005 amendments ("BAPCPA") and its (unintended) consequences:
Wall Street unwittingly created one of the catalysts for the collapse of Bear Stearns, Lehman Brothers and American International Group by backing new bankruptcy rules that were aimed at insulating banks from the failure of a big client, lawyers and bankers say.The 2005 changes made clear that certain derivatives and financial transactions were exempt from provisions in the bankruptcy code that freeze a failed company’s assets until a court decides how to apportion them among creditors.
The new rules were intended to insulate financial companies from the collapse of a large counterparty, such as a hedge fund, by making it easier for them to unwind trades and retrieve collateral.However, experts say the new rules might have accelerated the demise of Bear, Lehman and AIG by removing legal obstacles for banks and hedge funds that wanted to close positions and demand extra collateral from the three companies. ...
I am catching up after a trip to Spain, and the Atlanta Business Chronicle has several articles of interest in recent issues that are related to bankruptcy or the econonomic downturn.
School Crisis Cuts Clayton Home Prices. This is certainly not surprising, as discussed in this April post. We are now seeing the effects of "leaders" running that county into the ground (and they continue to do so with their recent choice of investment advisors).
Robert Harris Homes Inc. in Woodstock, which ranked as metro Atlanta’s 19th-largest home builder according to Atlanta Business Chronicle’s 2007-2008 Book of Lists, closed its doors in July and is making “an orderly wind-down to a liquidation,” said attorney L. Matt Wilson, who is representing the company. He expects the firm will file for bankruptcy by the end of the year, or possibly early in 2009 for tax reasons, he said. “There will probably be a couple of [bankruptcy] filings, one for the company and some or all of its subsidiaries.” The company has about $80 million in debt and about $60 million in property, which was once worth double that, Wilson said...
Several other builders are having similar problems, according to the article -
During the same time period, Hedgewood Properties Inc. in Cumming had 326 liens filed against it, while Homeland Legacy Inc. in Norcross had 293 filed against it and some of its affiliates...
Homeland Legacy, which is metro Atlanta’s 24th-largest home builder according to the Chronicle’s Aug. 15 top home builders list, did not return several calls for comment. Quantum Homes Inc., which filed Chapter 7 bankruptcy liquidation Sept. 4, had 189 liens filed against it and its various affiliates, a lien search shows. ..
But some builders are probably in worse financial trouble than lien filings would show, said Michael Davis, partner in the construction law division of Chamberlain, Hrdlicka, White, Williams & Martin P.C. in Atlanta. As entire subdivisions go into foreclosure, he said, liens are virtually wiped out as banks take the majority of the assets. Bankruptcies by home builders are also curtailing lien filings, Davis said.
If you have DirecTV or another provider that carries HDNet, this week's edition of Dan Rather Reports is about foreclosures in Georgia. The episode is "Dirty Money Down South," and will be on several times in the next week. I recorded it, but have not yet watched it. With Dan Rather and Roy Barnes as the primary guest, I do not expect it to be flattering for lenders.
Today's online edition of the Wall Street Journal has an article entitled "Dealing With Debt That Refuses To Die" (free now, but might require sub later).
The problem: Old debts, which are typically forgiven by the courts in a bankruptcy filing, are still being reported as active on many consumers' credit reports... The judge for the case, David O. Carter of the U.S. District Court for the Central District of California, has given the bureaus until Oct. 1 to revamp their systems. Experian and TransUnion say they have already updated their credit files to be compliant with the court order, while Equifax declined to comment. TransUnion also sent notices to some customers saying they "may experience a slight change" to their credit scores if any of their accounts are updated because of a bankruptcy.... "There's no question that having a Chapter 7 bankruptcy has a negative impact on your creditworthiness," says Michael Sobol, one of the plaintiffs' attorneys on the class-action case. "But when you have a bankruptcy, and you also have debts showing up as overdue and not paid -- that is a double hit."
The court order stems from a class-action lawsuit alleging that each of the credit bureaus violated the Fair Credit Reporting Act by failing to maintain reasonable procedures to assure the accurate reporting of debts that have been discharged in bankruptcy. The lawsuit could now move to a trial to determine liability and damages if Judge Carter decides later next month to give the damages portion of the case a class-action status.
Everyone should check their credit report at least annually, and follow the instructions for disputing incorrect entries. One resource is annualcreditreport.com.
This week's (Sep. 26th) edition of the Atlanta Business Chronicle has a very good article about the Reaffirmation Project started by the Atlanta Bar Association. Unfortunately, the articles does not appear to be online so I cannot provide a link, but it appears on page 11D of the Law and Accounting section of the print edition. The article discusses how the project was started after Kilpatrick Stockton lawyer John Mills sat in court and watched a pro se debtor struggle through a hearing on a reaffirmation.
The FDIC reported this news just a few minutes ago, for $1.00 a share. That is One Dollar. It traded at $10-12 per share last week. (Google Finance WB).
Two related neighborhood pubs filed Chapter 11 petitions. Fox & Hounds, which is located on Collier Road in Atlanta, filed on September 27, 2008. In re Fox & Hounds, Inc., 08-79021-pwb (filed September 27, 2008). A related company, Derek Lawford Ventures, which operates Hand in Hand pub on N. Highland Avenue, Atlanta, also filed on the same day. In re Derek Lawford Ventures, Inc., 08-79020 (filed September 27, 2008).
From the Atlanta Business Chronicle, the FDIC has issued a cease and desist order against Chestatee State Bank. The Bank is NOT closed, but does have to address the issues raised in the Order.
The Federal Deposit Insurance Corp. disclosed Friday it issued on Aug. 19 a cease and desist order to Chestatee State Bank of Dawsonville, Ga., for alleged “unsafe and unsound banking practices” and “violations of the law.” ...
Among the allegations, FDIC claims the privately held bank’s management had policies and practices that jeopardized the safety of its deposits and that its board failed to give adequate supervision and direction to the bank. FDIC claims the bank operated with inadequate equity capital and reserves, had a large volume of poor quality loans, had inadequate allowance for loan and lean losses and had hazardous loan underwriting and administration practices.
Some 16.36 percent of the bank's total loan portfolio was in some form of delinquency or default, as of June 30, according to FDIC data. The bank made $238 million in domestic loans, as of that date. The bulk of those -- $120 million -- were in construction and land development.
The amount of construction and non-owner occupied loans are 500 percent larger than its total tier 1 capital of $26 million, a key regulatory metric measuring a bank's health....It also has 90 days to come up with a written three-year business/strategic plans that addressed the overall operation of the bank.
After its bank assets were seized by the FDIC and sold to J.P. Morgan Chase two days ago, Washington Mutual, Inc., the holding company, filed a Chapter 11 petition in Bankruptcy Court in Delaware.
Sept. 27 (Bloomberg) -- Washington Mutual Inc., a holding company for the savings and loan that became the biggest U.S. bank to fail, filed for bankruptcy protection along with its unit WMI Investment Corp.
WaMu, the 119-year-old Seattle-based thrift, filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Delaware, according to a release from Business Wire. The Delaware bankruptcy Web site was closed for site maintenance. Ian Campbell, a spokesman for the bankrupt holding company with Abernathy MacGregor Group, said he couldn't provide further details.
Many believe that, some time ago, legal education in the United States arrived at a sorry junction, where it’s been stuck ever since. Schools proliferating without regard to the job market, churning out debt-strapped students with limited ability to repay loans... We were reminded of all of these takes today when reading, once again, about the American Justice School of Law (recently renamed the Barkley School of Law, and formed as a new entity). On Tuesday, reports the NLJ, the for-profit Paducah, Kentucky-based law school filed for bankruptcy in the U.S. Bankruptcy Court for the Western District of Kentucky, listing its assets at $1.6 million and its debts at $5.2 million...
Dean Larry Putt tells the NLJ that, while the bankruptcy filing puts a dark cloud over the Barkley School of Law, it will not have a direct impact on the school, since, technically speaking, it is a separate entity from the The American Justice School of Law. “Even as I speak, we are building the school up and moving forward,” Putt said. Though the NLJ notes Barkley could potentially face problems with its facilities and buildings, which are still owned by the American Justice School of Law and could be sold off to pay creditors.
In the biggest bank failure in U.S. History, Washington Mutual (note the website has already been changed) was seized by federal regulators last night and immediately sold to J.B. Morgan Chase for $1.9 Billion. See an article here.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July. ... The downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors grew nervous about the bank's health, its stock price plummeted 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.
If you are a WAMU customer, see the Chase website for a little information. Your deposits are still insured up to $100,000 and based on news reports this morning, WaMu branches will be open today.
I don't know why, or what it really means, but I am jumping on the bandwagon and joining Twitter, and you can follow me right here (or @sbriddle in Twitter lingo).
Other lawyers seem to think it is a benefit. See here and here. But NOT here.
The company began in Columbus in 1919, founded by W.T. Heard Sr. It developed into the country’s biggest Chevrolet dealer for years and runs dealerships in Georgia, Alabama, Florida, Tennessee, Texas and Nevada. But the souring economy brought less demand for new cars and GMAC recently eliminated Bill Heard’s credit for inventory, the paper noted. As Atlanta Business Chronicle reported in July 2007, Bill Heard faced a $50 million deceptive advertising lawsuit and was bombarded with a litany of complaints from consumers in the states where it operated.
One of my clients is an Atlanta area dealer of domestic new cars, and they have cut their staff dramatically because of poor sales. However, in the case of Bill Heard, the volume of complaints and investigations is probably a factor. (See article here and some video here).
Though it blamed the current economic turmoil, the company’s financial and legal problems have been mounting for several years. The most recent example was GMAC Financial Services’ decision last month to discontinue credit for new inventory for some of Bill Heard’s dealerships. It cited concerns about financial losses at the company.
Last year, the Consumer Affairs office filed a lawsuit that accuse the company of engaging in a 16-year pattern of deceptive sales pitches. The allegations came a year after the company sent 10,000 Georgia car owners a flyer with the words “Urgent Potential Recall Notice” that appeared to come from General Motors.
The suit, the first the agency has filed against a car dealer in three decades, said the recall notice “was intended and designed to mislead recipients into believing that their automobiles were subject to an urgent recall, so that the recipients would call Bill Heard’s sales staff and be solicited for an automobile purchase or service contract.”
Off topic (though it does involve a company trying to overcome years of financial problems), but Krispy Kreme is going to sell ice cream ... or is it "ice kreme?" If someone had the bright idea to throw the oreo factory rejects and unbaked cookie dough into ice cream mix, why not mix in the superior flavor, and maybe a few chunks, of The Kreme? I note that the other great flavor of the Carolinas, Cheerwine, is already available in ice cream, but not around here.
As part of a turnaround plan to boost sales, Krispy Kreme Doughnuts Inc. will open smaller stores, increase the number of stores abroad -- and offer soft-serve ice cream.
The Associated Press reported that the company's new Kool Kreme soft serve, which will come with a toppings bar, is being tested in several stores around the country.
Two weeks ago, Krispy Kreme reported that it narrowed net losses to $1.9 million in the second quarter compared with the year-ago period, largely because of an extra charge last year that brought the company’s net loss down to $27 million.
Total revenues for the second quarter were down 9.5 percent to $94.2 million, compared to $104.1 million in the second quarter last year.
In a previous post, I mentioned the bankruptcy case of Atlanta builder/developer Stephen Macauley. See also this post about his business partner Brian Jordan.
Macauley filed a Chapter 7 petition reflecting that he had $131 million in personal debt, ,uch of which was business related debt. In a follow-up article in the Atlanta Business Chronicle entitled "Builder’s Bankruptcy Was ‘Greatest Learning Experience,’" by Maria Saporta, Macauley discusses the bankruptcy experience. Here are some highlights -
“This was the greatest learning experience of my career,” Macauley said. “I’m really glad I’ve gone through this. I have a lot more empathy for people of lesser means than I did before.” ... “What was amazing was how fast all of it started to crash,” Macauley said. “I still believed I could get through anything. But there was a point at the end of the first quarter when I realized that there was just no way.”...
Macauley talked about all the emotions he’s gone through as he’s watched his business shrivel away. He has sought comfort among other home builders who are facing similar challenges with their companies. “If this had happened to just me, I would have felt like a failure,” Macauley said. “None of the home builders saw this coming. Nobody expected this devastation. It was very hard. But I came to realize as more time went on that this wasn’t my doing. This is a total, comprehensive collapse of an industry.”
The experience also showed him what was really important — family, friends and faith, a realization that he said sounds so trite but is really true. He has become more engaged with his wife, Lucy, and his three children who are between the ages of 3 and 7.
Lisa Schoolcraft of the Atlanta Business Chronicle has an article in the September 19th edition entitled Home Builders at the End of the Line (subscription required for full article). In the article, Lisa discusses the reality that a reorganization is simply not an option for most builders and developers in today's market. Many opt for Chapter 7 right off the bat, while others try Chapter 11 but quickly realize that they do not have the ability to pull it off.
Three big metro Atlanta home builders have filed for Chapter 7 bankruptcy, listing debts of $27 million among them. Homes By Ken Butera Inc. of Winder filed for bankruptcy Sept. 3, Quantum Homes Inc. of Atlanta filed Sept. 4, and Creative Customs LLC of Stone Mountain filed Sept. 12. Two affiliates of Quantum Homes also filed Sept. 4: JA Development Inc. in Atlanta and Buy Rite Group Inc. in Atlanta. Smaller home builder Copacali Homes Inc. of Canton and its affiliates Copacali Homes & Properties LLC and Copacali Communities Inc. filed Chapter 7 bankruptcy Sept. 16.
I frequently get calls from developers and builders who are experiencing financial difficulties or facing foreclosure. The funds have dried up, and no one is buying new homes. I discussed this issue with Lisa -
Many builders who have filed for Chapter 11 bankruptcy protection may not be able to survive, said Scott Riddle, a bankruptcy attorney who is representing Vision Real Estate Management Inc., which filed for Chapter 11 reorganization protection Sept. 1. Vision Real Estate Management is building the mixed-use development Edgewater Trail in the city of Buford.
“The most common issue now is that there is little hope for a successful reorganization for many home builders and developers,” Riddle said.To have a successful reorganization, builders and developers must have refinancing, additional loans or properties that are selling, Riddle said.
“All of those options have dried up to some extent,” Riddle said. “Many of the builders are simply at the end of the line as far as sales or funding and in that case, Chapter 7 is probably the only option short of just allowing a foreclosure.”
Other bankruptcy lawyers are also getting frequent calls -
“I talk to a broke builder almost every day,” said John Pennington, the bankruptcy attorney handling the case for Willmartin Properties LLC, which filed for Chapter 11 reorganization Sept. 1. “The sad thing is you can’t help them.”...
Chapter 11 reorganization is “a fairly expensive process if you can’t preserve equity or if the banks won’t give you time,” said G. Frank Nason, a bankruptcy attorney with Lamberth, Cifelli, Stokes, Ellis & Nason P.A. in Atlanta. If the bank is eventually going to foreclose on property while a builder is trying to reorganize, the builder ends up being liquidated anyway, he said.
Other cases involving home builders are not evident from Bankruptcy Court records. Many individuals decided to get in the building business a few years ago when the market was much better. They decided to build a spec house or two, personally guarantee the debt and put up their personal residence as collateral, and now they cannot sell the new homes. In many situations, it is a wasted step to file a bankruptcy petition on behalf of the company. Rather, the individuals simply shut down the company (which often has no real assets other than the real property), allow the lender to foreclose, and then file personal bankruptcy because of their personal liabilities.
The news hit over the weekend that Lehman Brothers intended on filing a Chapter 11 petition in the Southern District of New York. See their announcement here. ( WSJ Legal Blog).
In the past few days, incorrect rumors of a new bankruptcy filing by United Airlines have circulated over the internet. It turns out that it was a story from 2002 that was recirculated. According to this story in the Wall Street Journal, the Securities and Exchange Commission has now opened an investigation to see if the release of the old story was an attempt to manipulate the market. Shares of United (UAL Google Finance) dropped dramatically and trading was halted after the story came out.
NEW YORK (Thomson Financial) - Trading in shares of UAL Corp. was halted Monday morning on reports that the company was filing for bankruptcy. While calls to the company weren't returned, CNBC cited the company as saying the reports were untrue.
The shares were halted at 1 cent, down 99.92% off their Friday closing price of $13.20. Volume was 29.1 million shares
This is off-topic, except to the extent that it does relate to the financial condition of companies and sometimes these issues lead to Bankruptcy.
Crocs are cheap plastic shoes, but very trendy nonetheless for some reason. Like flip flops and similar shoes, one can generally look at them and know that are not sturdy shoes. They are what they are. Nonetheless, when these shoes are worn and the wearer finds out they are not hard -soled hiking boots, lawsuits are filed. The latest one was filed by Belinda Skelton, the long-time producer of the Neal Boortz Show. The story from the Atlanta Journal -
The suit filed by Skelton’s husband, Clark Meyer, is asking for $2 million after the couple’s 4-year-old son (shown below) was injured last month at Hartsfield-Jackson International Airport when the popular plastic footwear he was wearing got caught in a moving escalator. Multiple toes were broken on their son’s right foot and his big toe came “within millimeters” of being lost.
Skelton conceded that she was avoiding the message boards Wednesday. “It’s days like this when you find out who your friends are,” she told Buzz with a sigh. Skelton said money was not a factor in filing the suit.
“We struggled, and we prayed over this,” she said. “But we felt that someone had to force Crocs to do the right thing. We want a warning tag on those shoes.”
I have a closet full of shoes, and probably a couple pair of cheap flip-flops. I did not need to read a "warning" that would have to be several pages of small type to warn me about every possible harm that could come by wearing them. I can figure out that they could get stuck in an escalaor, MARTA train or any number of other objects. I suspect women who wear high heels generally do not look for lawsuits when the heel gets stuck in a grate on the street. Similarly, if I had pair of Crocs, I would know right off the bat they were not a substitute for sturdy shows. One need only look at the product. Again, the shoes are exactly what they appear to be. Nonetheless, when an accident happens because the shoes are exactly what they appear to be, it is time for multi-million dollar lawsuits. All of us can probably think of thousands of ways one can be injured when wearing Crocs or any other shoe. Do we need to have every possible scenario on a warning label? How about a warning label on kids?
Of course, money is never the reason these lawsuits are filed. That is, until the time comes to cash the check. That might also be news for the lawyers who take these cases on a contingency fee.
“If some of these [commenters] had to lie next to my son at night and listen as he has nightmares, maybe they would feel differently.
What?? I suspect many would understand that just because there are accidents and injuries, does not mean there has to be fingers pointed at someone else. I suspect many would also regret not paying more attention to themselves or their children, or buying cheap flimsy shoes then expecting them to wear like real shoes. If this was anyone else, Boortz would have a field day but I understand that family has to take priority.
In Milavetz, Gallop & Milavetz, P.A. v. U.S., --- F.3d ----, 2008 WL 4068448 (8th Cir. September 4, 2008) (click here for .pdf), the Eighth Circuit struck down the part of the Bankruptcy Code that prohibits lawyers from telling their clients they cannot incur more debt before filing a petition.
(a) A debt relief agency shall not–
. . .
(4) advise an assisted person or prospective assisted person to
incur more debt in contemplation of such person filing a case
under this title or to pay an attorney or bankruptcy petition
preparer fee or charge for services performed as part of preparing
for or representing a debtor in a case under this title.
The Court held this as prohibiting free speech under the U.S. Constitution -
Nonetheless, § 526(a)(4), as written, does not allow attorneys falling within the definition of debt relief agencies to advise assisted persons (or prospective assisted persons)—i.e. clients (or prospective clients) meeting the definition of assisted person—to incur such debt. Thus, § 526(a)(4) is not narrowly tailored nor narrowly and necessarily limited to prevent only that speech which the government has an interest in restricting. Therefore, we hold that §526(a)(4) is substantially overbroad, and unconstitutional as applied to attorneys who provide bankruptcy assistance to assisted persons, as those terms are defined in the Code.
The Court, however, did hold that bankruptcy attorneys are "debt relief agencies" under the Code and had to disclose it.
Because attorneys were not specifically excluded from the definition of debt relief agencies, we hold that attorneys that provide "bankruptcy assistance" to "assisted persons" are "debt relief agencies" as that term is defined by the Code. Interpreting the definition of "debt relief agency" to exclude bankruptcy attorneys would be contrary to Congress's intent. ...
Section 528 requires debt relief agencies to disclose: "'We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' or a substantially similar statement," in all of their bankruptcy-related advertising materials directed to the general public. 11 U.S.C. §§ 528(a)(4), (b)(2). The requirement does not prevent those attorneys meeting the definition of debt relief agencies "from conveying information to the public; it . . . only require[s] them to provide somewhat more information than they might otherwise be inclined to present." Zauderer, 471 U.S. at 650. Moreover, if any of these attorneys are concerned that the required disclosures will confuse the public, we note that nothing in the Code prevents them from identifying themselves in their advertisements as both attorneys and debt relief agencies. Olsen, 350 B.R. at 920. Simply put, attorneys that provide bankruptcy assistance to assisted persons are debt relief agencies under the Code, and the disclosure requirements of § 528 only require those attorneys to disclose factually correct statements on their advertising.12 This does not violate the First Amendment. ...
The challenged sections of § 528 only require debt relief agencies to include a disclosure on certain advertisements. Although less intrusive means may be conceivable to prevent deceptive advertising, § 528's disclosure requirements are reasonably related to the government's interest in protecting consumer debtors from deceptive advertising, and thus the section passes constitutional muster.
Hayden Kepner, a bankruptcy partner at Scroggins & Williamson, recently participated in a roundtable debate over the Fair Tax. The debate was moderated by CNN's Rick Sanchez, and included Neal Boortz, John Linder, and others.
You can access the video of the debate, which aired on CNN, by clicking here.
Integrity Bank's skyrocket run as the fastest-growing bank in Georgia history, fueled by housing construction, has ended in failure.
Birmingham, Ala.-based Regions Financial Corp. (NYSE: RF) late Friday acquired the deposits for the Alpharetta, Ga.-based community bank in the 10th bank U.S. bank failure this year, according to a late Friday press release from the Federal Deposit Insurance Corp. Integrity Bank operates five branches in metro Atlanta, primarily in the city's affluent north suburbs....
Regions Financial is also buying $34.4 million in cash and other assets from the failed bank. The FDIC estimates the cost to liquidate bad assets it assumes from Integrity Bank will be $250 million to $350 million.
The 50,000-student school system is the first in the nation to lose accreditation since 1969, the Southern Association of Colleges and Schools announced today. The ruling confirms the worst fears of Clayton’s 271,000 residents...
No accreditation means students will have a tougher time getting into some colleges and universities. They may also have difficulty obtaining scholarships. Qualifying Clayton students will still be able to get their HOPE scholarships. Earlier this year, Gov. Sonny Perdue signed a bill allowing graduates of unaccredited schools to get HOPE. Without accreditation, Clayton will also lose pre-kindergarten funding and some teacher benefits. The county also expects more students to flee. About 2,000 students have already left, superintendent John Thompson said.
Apparently the Bankruptcy Court in Atlanta is not as secure as we thought. According to an article in the Atlanta Journal-Constitution, there was a break-in -
“My theory is, because he had a mask on, he got through security,” said Judge Paul W. Bonapfel, a federal bankruptcy judge who reported the crime last week. When he got to work, Bonapfel discovered that a marauder had broken in to his 14th-floor office and eaten nearly half an apple.
But the raccoon goofed: it left a trail of tracks across a stack of federal memos. The judge called in his staff and others to solicit their opinions. Their verdict: Procyon lotor, a raccoon, had busted in. ... In the days following the apple caper, jurists and their staff reported other misdemeanors — chocolate chip cookies stolen from a 10th-floor desk; a purloined sandwich on the 9th; a packet of dried soup stolen from the 23rd floor.
[The GSA] hired a firm that specializes in catching wildlife that has gone astray. Its employees slipped a wire trap in the ceiling over the offices assigned to Judge Mary Grace Diehl — a veritable raccoon highway, based on reports. Workers baited the trap with tuna, closed the tiles, and advised the judges to wait. In addition to being blind, justice can be slow. Their wait ended Monday when Jean Sloan, Diehl’s judicial assistant, heard a chirping overhead. “I thought, ‘Maybe there’s a dove up there,’” Sloan said. Then, she thought again, and called for help....
GSA workers theorize Russell wriggled into the heating system from outside, then climbed pipes and ventilation ducts to commit crimes in the southeastern corner of the building. Nearby construction may have driven the creature to seek quieter digs, they think...
“We don’t have jurisdiction over raccoons,” said Bonapfel. “We leave that to the executive branch.”
Tom Opdyke of the Atlanta Journal Constitution has an article in today's paper entitled Therapists Helping Builders Cope During Housing Slump (reg. may be required). As the title implies, Tom discusses builders who have sought counseling to deal with the stress arising from the business. I have represented a significant number of builders and developers over the years, in bankruptyc and other cases, and can testfy about the level of stress they go through.
"It’s a need we never addressed before," said David Ellis, executive vice president of the Greater Atlanta Home Builders Association, which earlier this year began telling its 3,300 members help was available if they wanted it. "It’s a different time, and we’re trying to be responsive to our members’ needs."...
Measuring vacant available real estate is easier than gauging builder turbulence. Smaller companies simply fold. Larger ones may seek bankruptcy protection, but there is no data on builder bankruptcies.Lawyer Scott Riddle, who tracks local Chapter 11 filings on his blog, sees the mounting evidence of the slow housing market and credit crunch.I think there has been a significant increase in builder bankruptcies," Riddle said...
Charlie Cummins, a counselor and executive coach, is among those trying to get there before the tragedies occur."We talk with people about the changing industry and how they manage its effect on them and their family," said Cummins, a counselor and executive coach who has worked with the Greater Atlanta Home Builders Association.
Tony Perry, who sought bankruptcy protection in December for his Oakwood Homes, thinks talking about the embarrassment and feelings of loss can kickoff the rebound. "The fastest way to get back is to get some emotional help," said Perry, a self-described "recovering builder." .."You can’t feel much worse than this," he said of his bankruptcy and of having to move his family to a smaller home. "You can say it’s just business, but it didn’t feel like just business to me."
The firm’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.
An article published today on CNN's Website, entitled "Track What Your Customers Say ABout You" discusses the bad press a small business can get on the internet. For some reason, we made the cut as part of the "bad press."
Small business especially is heavily dependent on favorable testimonials, as I learned when I was starting a small Internet company. Today's online forums such as AngiesList.com or Yelp.com allow consumers to give a thumbs-up or a thumbs-down to local service providers. Business owners can make positive comments work to their advantage, but negative reviews can create big problems. In just a quick scan of Web sites this morning, I saw a bridal boutique being attacked on Hello-sanfrancisco.com, a VoIP service under siege on Voipreview.org, and a lot of bad press for a jeweler on Georgiabankruptcyblog.com.
The Atlanta Business Chronicle has a front-page article, Bankrupt Home Developer Owes $131,000,000, about another real estate developer who is caught up in the real estate crash.
Stephen H. Macauley, president of The Macauley Companies Inc., has filed for personal bankruptcy, reporting debts of $131 million. In recent years Macauley has completed 32 communities with more than 11,000 homes both north and south of Atlanta.
Those projects include The Lakes of Holly Springs, a 545-acre mixed-use site in Cherokee County; Walden Park, a 591-acre, 806-home community in South Fulton; The Lakes at Cedar Grove in South Fulton, a joint venture with Cousins Properties Inc.; Le Jardin, a 1,100-acre community in South Fulton developed with former Braves player Brian Jordan; the 668-acre Legacy Park and the 88-acre Ridenour in Cobb County. ...
Macauley on May 1 filed for a Chapter 7 liquidation of assets in U.S. Bankruptcy Court in Atlanta and now lists his occupation as unemployed. He earned $835,000 in 2006 and $434,000 in 2007, according to court documents.
He says he filed bankruptcy because the value of his assets today is about half of what they were underwritten for, so there was no way for him to pay the debt. The housing bust “has brought everyone down,” Macauley said in a phone interview. “It’s very sad what is happening to the banks, and what is happening to my friends. So many good people have been brought down. But I’m optimistic we’ll get through this.”
Restaurant chains Bennigan's and Steak & Ale have filed for Chapter 7 bankruptcy protection and will shut their doors.
The companies filed for bankruptcy protection in the Eastern District of Texas. Their parent company - privately held Metromedia Restaurant Group - is based in Plano, Texas.
In a Chapter 7 bankruptcy filing, a company seeks to liquidate its assets and shut down.
In the filing, the company indicated that it has up to 49 creditors. It said it will have no funds left after administrative expenses are paid to repay its creditors.
Nationwide, foreclosures are about double for the same time period in 2007, according to this article.
Soft housing sales, declining home values, tighter lending standards and a sluggish U.S. economy have left strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan.
Foreclosure filings increased year-over-year in all but two states, North Dakota and Alaska.
Nevada, California, Arizona, and Florida continued to clock in the highest foreclosure rates. One in every 43 Nevada households received a filing during the quarter.
Locally, the Clayton County home that was the subject of an Extreme Makeover show has been listed for foreclosure, as noted in this report. From the reports, Beazer Homes donated the materials and labor, the mortgage was paid off, and the owners received $100,000 cash.
A foreclosure notice appeared last Friday, a $450,000 second mortgage they took out less than 15 months ago was in default.... Lake City mayor Willie Oswalt was among the 1,800 volunteers helping "Extreme Makeover: Home Edition" build the Harper’s new home 3 ½ years ago. Beazer Homes of Atlanta was the main sponsor. The mayor said he is baffled.
“Beazer gave them $100,000 cash, paid their mortgage off and they still can't make it," said Oswalt. Harper told Channel 2 they invested the loan proceeds in a construction business and the business hasn’t been good. She didn’t say how much of the money is left. “What’s going to happen is instead of keep paying my mortgage, I’m going to take my money and not pay my mortgage because I’m being harassed,” said Harper.
CBS-46 has obtained documents showing that in two years, two loans have been taken out against it. One was in the amount of $125,000, the other for $450,000.
So ... over about three years, that is a free luxury home, $100,000 cash, and $575,000 in loan proceeds?
Hayden Kepner, formerly of Arnall, Golden Gregory, LLP, sends this announcement:
Hayden Kepner, formerly a partner in the bankruptcy and restructuring section of Arnall Golden Gregory LLP, has joined Scroggins & Williamson as a shareholder. Mr. Kepner specializes in commercial bankruptcies, financial restructurings, distressed investing and out-of-court workouts. Over the last 18 years, Mr. Kepner has represented numerous public and private corporate debtors, creditors’ committees and other major parties in interest in chapter 11 cases throughout the country, initially with Weil Gotshal & Mangess, LLP in Houston, Texas, and later with Arnall Golden in Atlanta. Scroggins & Williamson is a boutique firm in Atlanta that specializes in chapter 11 cases, distressed investing and out-of-court workouts. With the recent downturn in the economy, commercial bankruptcy is a booming practice area. Scroggins & Williamson handled the recent Pike Nurseries chapter 11 case, and currently represents Verso Technologies, Inc. and Cornerstone Ministries Investments, Inc. in their respective chapter 11 cases pending in Atlanta.
J. Hayden Kepner, Jr.
Scroggins & Williamson
1500 Candler Building
127 Peachtree Street, N.E.
Atlanta, GA 30303
(404) 893-3880
(404) 893-3886 (fax) hkepner@swlawfirm.com
IndyMac Bank has been shut down by the Office of Thrift Supervision and Federal Deposit Insurance Corporation. Two operations in Atlanta will be shut down. Additional information can be found at the FDIC Website.
Federal regulators closed Pasadena, Calif.-based Indymac Bank late Friday -- the shuttering of the largest bank nationwide since the Savings & Loan Crisis in 1991, and a move that will affect two Atlanta operations centers.
The closure also marks the second-largest closure of a bank since 1934, according to the Federal Deposit Insurance Corp.
In a unique twist, IndyMac Bank's closure is blamed, in part, by the public disclosure of a letter by U.S. Sen. Charles Schumer (D-N.Y.), expressing concern about the bank's ability to operate going forward.
The bank had $32 billion in assets and $19 billion in deposits, according to the Office of Thrift Supervision and FDIC.
At the time of closing, the bank had roughly $1 billion in uninsured deposits....
Indymac Bank is the largest U.S. bank failure since Jan. 6, 1991, when the Bank of New England, with $22 billion in assets, failed....
In a statement, the OTS said:
"The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac's viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts."
Global Restaurant Group, LLC, the parent company of Crescent Moon Eatery, filed a Chapter 11 petition in the Northern District on July 10, 2008. Ch. 11 Case No. 08-73037.
In re Michael D. Vick, 08-50775, U.S. Bankruptcy Court, Eastern District of Virginia (Newport News).
Michael Vick has hit another low as he serves his 23-month federal prison sentence for dogfighting crimes. The Bloomberg news service reports he has filed Chapter 11 papers in U.S. Bankruptcy Court in Newport News, Va., citing debts of $10 million to $50 million.
Vick's filing also said he has assets in the $10 million-$50 million range and his lawyers' papers said the former Atlanta Falcons quarterback hopes he "can, after the conclusion of the bankruptcy case, rebuild his life on a personal and spiritual level, resurrect his image as a public figure, and resolve matters with the NFL such that he can resume his career.'' ....
The Atlanta Falcons are owed $3.75 million for a ``pro rated signing bonus,'' according to the filing. Other of the largest unsecured creditors listed include Joel Enterprises Inc., owed $4.5 million for breach of contract, and Royal Bank of Canada, owed $2.5 million for a real-estate loan.
Now, a wave of foreclosures is producing an even uglier consequence: an epidemic of fraud perpetrated by "consultants" offering to save homeowners from being put out on the street. ...Typically, the companies advertise on the Internet, by mail or over the telephone, said Chris Starr, a lawyer from Marietta who specializes in consumer finance. ...
Bill Brennan, director of the Atlanta Legal Aid Society Inc.'s Home Defense Project, said a growing number of distressed homeowners are coming to his organization with complaints.
"They tell us they're sending $800 to $900 to out-of-state companies that are offering to help," he said. "These companies take their money and basically do nothing."
More complicated forms of foreclosure rescue fraud involve homeowners who voluntarily surrender their title to a consultant offering to stop a foreclosure and are duped by scam artists into signing over the title.
"They walk away with all of the equity and the homeowner is left with nothing," said Sen. Gail Davenport, D-Jonesboro.
Davenport's Senate district includes Clayton County, which has been hit hard by residential foreclosures. More than 650 foreclosures were filed in Clayton in May, according to figures compiled by RealtyTrac Inc., the fourth-highest in Georgia and far out of proportion with its population.
Sales agents for a large metro Atlanta homebuilder, Robert Harris Homes, were told Thursday to head home. ... Woodstock-based Robert Harris Homes has built more than 2,500 houses, mostly in Georgia and a few in Manatee County, Fla., according to its Web site. It had recently expanded to North Frisco, Texas.
In metro Atlanta, the company built in Cherokee, Cobb, Forsyth, Fulton, Gwinnett and Jackson counties.
Management at Robert Harris Homes did not return phone calls Friday. A phone answering service in Texas said Robert Harris Homes employees there were suspended Thursday. The Florida office has a recording directing questions to Dustin Lough, a director with CRG Partners Group, a turnaround company with an office in Atlanta. Lough did not returns calls.
Robert Harris Homes was founded in 1994 and grew to be the nation's 135th biggest residential builder last year, according to builderonline.com. Its closings in 2007 numbered 337, down 15 percent from the year before, builderonline says...
A Robert Harris Homes representative told the family Thursday that "the [sales] agents were all told to get their stuff and go home, that they were closing their doors," Hays said.
The June 12, 2008 print edition (not online) of the Atlanta Business Chronicle has an article by Lisa Schoolcraft entitled Subdivision Developers Seeking Shelter In Court.
Developers with foundering subdivisions are seeking shelter in bankruptcy court, sometimes days before their foreclosed property goes up for auction. AK Builders, Inc. of Buford, Allegiance-Tyson Woods II Properties, LLC in Woodstock, Green Tree Estates LLC in Atlanta, and several others have filed for bankruptcy recently, just ahead of "Foreclosure Tuesday..."
AK Builders, Inc., which was developing Lynnfield Park in Lawrenceville, Millside Manor III in Dacula, Sedgefield of Hamilton Mill in Buford, and Creekside at Stonecrest in Sugar Hill, all in Gwinnett County, filed Chapter 7 bankruptcy June 3. Its largest creditors include Georgian Bank .. Gwinnett Community Bank... Peoples Bank and Trust...and United Community Bank.
Norris Lake, LLC, with property in DeKalb County, filed for Chapter 11 bankruptcy June 2. ... New Market Properties, Inc., in Fayetteville, a land developer founded in 1995, filed Chapter 7 bankruptcy March 28.
The article also includes comments from lawyers, including your truly (who had to resort to the word "meltdown").
As banks foreclose on property from past-due loans, bankruptcy filings in the residential market have become more common and that is leading to a "complete meltdown," said Scott B. Riddle, bankruptcy attorney with The Law Office of Scott B. Riddle in Atlanta. On any given week, I get calls for subcontractors, suppliers and individual homebuilders. .. Lenders are not willing to lend on the same terms they were two and three yeas ago, Riddle said. ...
The banks are forcing developers into bankruptcy, said L. Matt Wilson of The Wilson law Firm, P.C., who filed the paperwork for Allegiance-Tyson Woods II Properties. Banks need to avoid foreclosure, "which is a horrible remedy" for both developers and bankers, he said. The banks "end up putting their clients out of business, so they'll never get paid." ... "There will be banks going out of business, and that will have long-term economic effects on the community." ...
On May 23 2008, in American Home Mortgage Investment Corp. v. Lehman Brothers, Inc., the United States Bankruptcy Court for the District of Delaware held that a transaction involving the purchase and sale of subordinated notes secured by mortgage loans was a "repurchase agreement" and a "securities contract" entitled to the financial contract safe harbor protections of sections 559 and 555 under the Bankruptcy Code. In so deciding, the Court found that the subordinated notes were "interests in mortgage loans." In addition, the Court ruled that the "commercial reasonableness" standard of Article 9 of the New York Uniform Commercial Code did not apply to the foreclosure and liquidation of the subordinated notes subject to the repurchase agreement. Am. Home Mortgage Inv. Corp. v. Lehman Bros. Inc., et al. (In re Am. Home Mortg. Holdings, Inc.), No. 07-11047, Adv. Proc. No. 07-51739, 2008 WL 2156323 (Bankr. D. Del. May 23, 2008).
For many years, there was a diversity of opinion — including judicial opinion — with respect to various issues connected to the duties of directors and officers in the troubled company situation. Can they be sued directly by creditors? Does the business judgment rule apply to protect them? Is there a tort called “deepening insolvency?” To whom are duties owed? Can directors and officers continue to take (prudent) risks to maximize the value of the enterprise?
The Federal Trade Commission has sued Atlanta-based credit card marketer CompuCredit Corp. and its debt collection unit Jefferson Capital Systems LLC, charging them with using deceptive marketing and abusive debt collection tactics on consumers in the subprime market.
... The federal government is seeking $200 million in fines and restitution from CompuCredit (NASDAQ: CCRT), Wilmington, Del.-based First Bank of Delaware and Brookings, S.D.-based First Bank & Trust. FDIC has settled with a third bank, Columbus, Ga.-based Columbus Bank and Trust, a Synovus (NYSE: SNV) banking unit that paid a $2.4 million fine and agreed to a cease and desist order.
The FDIC is further seeking $6.2 million in penalties against CompuCredit.
FTC has alleged CompuCredit misrepresented the amount of credit that would be available immediately to consumers, failing to disclose up-front fees, failing to disclose certain purchases could reduce a consumer's credit limit and misrepresenting a debt collection program as a credit card offer. FTC has accused Jefferson Capital of misrepresenting a debt collection program as a credit card offer and using abusive collection tactics such as making debt collection calls to individual consumers more than 20 times per day, including before 8 a.m. and after 9 p.m., and on Sundays. ...
It has been a common practice for residents of northeast Georgia to file bankruptcy petitions in Chattanooga, Tennessee rather than Rome, Georgia, in spite of the Bankruptcy Code's requirement that cases be filed in the district in which the debtor resides.
Georgia may not yet be successful in its border battle for water from the Tennessee River. But the Peach State could lay claim to more bankruptcy cases -- and millions of dollars in legal and court fees -- that now end up in U.S. bankruptcy courts in Tennessee.
Although no policy change has been made yet in Chattanooga about cross-state filings, one of the 21 U.S. trustees who represent the government in bankruptcy courts has objected to border crossings from Mississippi residents into the Memphis bankruptcy court, and a Memphis bankruptcy judge has moved to enforce the border. ...
Last year, 1,049 North Georgia residents filed for bankruptcy relief in Chattanooga, representing more than one of every six cases filed here, according to the Eastern Tennessee district of the U.S. Bankruptcy Court....
U.S. Bankruptcy Court Judge Thomas Stinnett, one of two bankruptcy court judges in Chattanooga, said the local court "has always maintained close connections" with the North Georgia bankruptcy courts in Rome and Atlanta.
"This is something that we've known about for a considerable period, and we would certainly accommodate them on whatever may be needed," he said. ...
But whether a policy change is made for Chattanooga may end up being decided by either U.S. Trustee Richard Clippard in Memphis or U.S. Trustee Donald Walton in Atlanta, either of whom might object to bankruptcy filings from Georgia residents in Chattanooga. Jane Limprecht, public affairs officer for the U.S. trustee's executive office in Washington, D.C., declined to discuss any plans to object to cross-state filings.
The practice might come to an end after a recent 6th Circuit opinion -
But a 4-year-old case along the Tennessee-Mississippi border near Memphis threatens to create a new border fence there against people crossing state lines or federal districts to file bankruptcies.
In 2004, the U.S. trustee's office in northern Mississippi moved to transfer out of the Memphis court two bankruptcy cases from Mississippi debtors.
After conflicting rulings in bankruptcy and federal district courts, a three-judge panel of the U.S. Court of Appeals for the 6th Circuit in Cincinnati ruled that bankruptcy cases should be filed in the same judicial district in which the debtor lives. Previously, many bankruptcy courts have accepted filings outside their district as a matter of convenience unless a creditor or debtor objected.
In a seven-page opinion, Chief Judge Danny Boggs said venue requirements of the bankruptcy code "are mandatory and not optional" and therefore debtors from Mississippi should not cross the state line to file their bankruptcy case in Memphis.
Debtors Reuben and Patricia Thompson and Leonard Jordan (“the debtors”), all of whom reside in the Northern Mississippi suburbs of Memphis, filed voluntary petitions for bankruptcy in the United States Bankruptcy Court for the Western District of Tennessee in June 2004. In both cases, the United States Trustee in the Northern District of Mississippi filed motions to dismiss or transfer on the ground that venue was lacking because the debtors did not reside in the district, as required by 28 U.S.C. § 1408. Although the debtors conceded, both then and now, that venue in Tennessee was “technically improper,” Appellants' Br. at 9, they maintained that, both as a matter of statutory construction and for equitable reasons, the bankruptcy judges had inherent authority to retain the cases in the interest of justice or for the convenience of the parties. The Trustee argued that a proper interpretation of the applicable venue statutes left the judge with no discretion to retain the cases, and that the court was required either to dismiss or transfer the cases under the plain language of 28 U.S.C. § 1406.
The decisions of the bankruptcy judges in the two cases were contradictory. In the case of Mr. Jordan, Chief Bankruptcy Judge David S. Kennedy agreed with the debtor's position, holding that “the court, in its discretion, pursuant to its inherent or implicit authority, ... may retain ‘cases' filed in an improper district ‘for the convenience of the parties' or ‘in the interest of justice’ even if a timely motion is filed to contest venue....” In contrast, in the case of the Thompsons, Bankruptcy Judge Jennie D. Latta… found that venue was not proper in the Western District of Tennessee and ordered the case transferred to Mississippi. Both cases were appealed to the District Court for the Western District of Tennessee, which thoroughly analyzed the applicable venue statutes and determined that the Trustee's position was “the most coherent reading of the statute as a whole in conformity with accepted norms of statutory construction.”… The court therefore affirmed Judge Latta's ruling in In re Thompson and reversed Chief Judge Kennedy's ruling in In re Jordan.
A very liberal cut & paste of the Court's analysis, and authority from the Northern District of Georgia, after the jump:
From the Administrative Office of the U.S. Courts, via Law.com, bankruptcy filings are up 30% for the twelve month period ending March 31, 2008. It is not a surprise that Georgia is near the top -
The top five states for bankruptcy filings per capita in the 2008 data are Tennessee, 6.7 per 1,000 population; Georgia at 5.45; Alabama at 5.29, Illinois at 5.16; and Michigan at 4.82 per 1,000.
It's not that the tide of foreclosures has truly ebbed. A legal change forced lenders to file some paperwork differently before foreclosing. When a lender sells a loan to another institution, the change must be recorded at the courthouse before a foreclosure can happen, Hardegree said. The change will push many of the June foreclosures into later months, he said. "Next month will be horrendous," Hardegree said. "And the month after that will be worse." ...
Lowell Pratt Residential LLC lost to foreclosure 35 plots of land in the Wilshire Manor subdivision near Grayson. The foreclosure represented an $8.76 million loss for the Norcross-based builder. Twenty lots and a handful of homes in the Georgetown Commons subdivision also went up for auction Tuesday. Homes had been listed for more than $600,000 in the Grayson-area development. About $10.5 million in residential property was lost to foreclosure Tuesday at Georgetown Commons
The now-not-so-rich and famous are also facing the music. This includes Ed McMahon and, probably no surprise, Evander Holyfield, who also can't make support for at least some of his nine (+) children.
His palatial estate in Fayette County is under foreclosure, according to a legal notice that appeared in a local newspaper, and is set to be auctioned by Washington Mutual Bank on July 1. The home is worth an estimated $10 million
For a bright spot, tomorrow, June 6, 2008 is National Doughnut Day. Stop by the local Krispy Kreme for a freebie.
Six former players, including the star defensive backs Steve Atwater and Blaine Bishop, are involved in a two-year-old civil suit against the Players Association and the N.F.L. The lawsuit accuses the union of improperly allowing Wright onto a list of financial advisers provided to members, even though liens had been filed against Wright.
The union, seeking to have the suit dismissed, says that all of its registered financial advisers undergo annual background checks that were developed in conjunction with the Securities and Exchange Commission. The list also includes a disclaimer, indicating that the advisers are neither endorsed nor recommended.
A new study by Navigant Consulting Inc. offers the most detailed statistical portrait of subprime litigation yet. The Chicago-based firm reports that 448 subprime-related cases had been filed in federal court from January 1, 2007, to March 31, 2008. By comparison, the Resolution Trust Corp., which was created to deal with problems spawned by the savings and loan crisis, handled a total of 559 suits from 1989 to 1995.
And while subprime litigation steadily increased last year, filings really soared during the first quarter of 2008. "What we saw in 2007 was a mild breaking wave compared to the tsunami we're witnessing now," says Navigant managing director Jeff Nielsen. "In the most recent quarter, we're looking at approximately two filings per day, including weekends." Nielsen adds that 86 percent of all subprime cases that Navigant tracked in its study were still active.
The Guardian has an article about the dominance of Delaware and New York when it comes to large Chapter 11 cases.
The choice of judge and court is often seen as particularly important in bankruptcy cases where there are no juries and limited ability to appeal the decisions made by that judge. On top of that, the credit crisis has made it more difficult to get bankruptcy exit financing and the bankruptcy law reforms that took effect at the end of 2004 have pushed companies to get out of court sooner, making it crucial for lawyers to find judges used to handling complex cases. "If you're going to do a pre-negotiated, or pre-packaged bankruptcy, you've got to go to an experienced court," said Roger Frankel,a bankruptcy attorney at the Orrick law firm in New York.
The article also mentions Chicago, and the reason it might have lost the opportunity for larger cases.
In 2000 a Chicago focus group looked into why nearby companies were filing cases in Delaware, and made recommendations about rule changes to the court, which it adopted. The court succeeded in attracting large company filings, such as United Airlines, National Steel, Conseco Inc and K-Mart. But an appeals court ruling in K-Mart restricting how certain trade vendors are paid, has scared many lawyers away from Chicago, Lubben said, illustrating how individual decisions can impact where cases are filed. Only two public company bankruptcy filings were made in Chicago in 2007, and just one so far in 2008, according to BankruptcyData.com
For a refresher on the debtor-unfriendly ruling in the K-Mart case by the Seventh Circuit Court of Appeals, click here and here.
If you have been reading real estate Bankruptcy blogs and headlines, you know foreclosures are up. Way up. Georgia, and Atlanta in particular, are amount the nations leaders in that respect.
That naturally crates a market for individuals or companies who have the ability to invest in foreclosed properties. Kiplinger's Magazine has an article in the Jun 2008 issue entitled How To Buy A Foreclosure (click here for online version, then scroll to table of contents). The magazine also includes tips on financing a foreclosure and cutting closing costs.
Meanwhile, if you are interested in foreclosures in Atlanta, you can take a bus tour of the homes.
The Countrywide executive told a U.S. Senate Judiciary subcommittee that the company was taking new steps to address concerns that have led to an outcry from consumer advocates and that were the catalyst for Tuesday's hearing. Bailey said Countrywide plans to hire an independent auditor to review its treatment of loans whose borrowers have filed for bankruptcy. If Countrywide made mistakes that hurt borrowers, the company will compensate them, he said.
Countrywide also plans to create a bankruptcy ombudsman to review claims of borrower abuse, and adopt a series of "best practices" issued by a national group of bankruptcy trustees.
The article also discusses the adversary filed in the Northern District against Countrywide, discussed in this post:
The subcommittee was also scheduled to hear testimony from Robin Atchley, a mother of four from Georgia and a former Countrywide borrower. Atchley, in her testimony, told the panel that her and her husband were engaged in a "tug of war" with Countrywide and its lawyers to try and stay in their house.
"It seems as if Countrywide used the bankruptcy court to gain even more opportunities to take advantage of our predicament and to profit from our struggle," Atchley said, detailing various fees and charges the company assessed.
After being on the verge of a filing for many months, Linens N' Things finally pulled the trigger. According to this article in the Atlanta business Chronicle, the following local stores will close -
It will close stores at Perimeter Mall in Atlanta, Uptown Square Shopping Center in Fayetteville, Stonecrest Marketplace in Lithonia, Macon Mall in Macon and Southlake Pavillion in Morrow.
The company has landed $700 million in debtor-in-possession financing from General Electric Capital Corp., which Linens Holding said will ensure healthy merchandise flow as it gets ready for the back-to-school and holiday selling seasons.
Georgia ranked No. 2 nationally for its rate of consumer bankruptcy filings in the first quarter of the year. The bankruptcy courts statewide processed 12,981 consumer filings during the quarter, up 16 percent from the same period in 2007.
Only Tennessee had a higher bankruptcy rate than Georgia. In Tennessee, the rate in annual terms was 1 bankruptcy filing for every 56 households. In Georgia, 1 in every 60 households sought legal protection from creditors, according to the National Bankruptcy Research Center, a California-based data firm. ...
Indeed, the first-quarter statistics suggest that most Georgians entering bankruptcy are trying to keep their homes, not walk away. About 55 percent of Georgians who file for bankruptcy filed Chapter 13, which allows consumers to hold onto their house and car but requires that they repay a portion of their debts. A Chapter 7, chosen by 45 percent of Georgians who file for bankruptcy, is a liquidation in which most debts are wiped out, but so are all of a consumer's assets that aren't protected by exemptions.
In a prior post, I discussed Judge Massey's opinion concerning Amended Bankruptcy Rule 6003. In re Smith, Ch. 11 Case No. 08-63990 (click here for Order).
Catherine Vance, Vice President of Research & Policy and Associate General Counsel of Development Specialists, Inc., has subsequently written an article about the new Rule, in which she cites Judge Massey's opinion in Smith (and this Blog).
You can read the entire article, entitled The Purpose and Application (So Far) of New Bankruptcy Rule 6003, on the Bankruptcy Litigation Blog.
The disaster that is the Clayton County School Board has struck again. On the verge of being the third school district in the United States to lose accreditation in the last 20 years (see the report here), they struck again last night. In a non-public session, and in apparent violation of the open meetings law, they hired a "corrective superintendent." It just happens that this candidate had previously withdrawn his name from consideration, and has been deemed unqualified by state and accreditation officials (yes, that would be the officials who determine whether the schools are accredited).
The board voted 5-1 to hire John W. Thompson, who state and accreditation officials said is not qualified. .... Thompson's $285,000 contract runs until to June 30, 2009, and has an option to be extended, Schwartz said. It also includes a car and security, if needed. Thompson initially requested a $275,000 salary, 24-hour access to a car and driver, 24-hour security and $2 million for consultants. It's unclear if he will have a consultant budget.
"His demands are appalling," said Winnie Thomas, whose daughter is a junior at Lovejoy High School. "The fact that Mr. Elgart from SACS and the governor's liaisons disapproved is alarming. For a board to pass an offer to this man is ridiculous. In what world do they live?"
Excellent question, Winnie! They live in a world where they, the School Board, value their own positions and power more than the condition of the schools or welfare of their neighbors. They apparently did not even follow the law when making this hire behind closed doors.
"Unfortunately, this is part of a continuing pattern where the board takes actions without even attempting to follow the law," said Thomas Clyde, an attorney for The Atlanta Journal-Constitution.
Even better, the attorney they hired to represent the Board during the troubling times, Glenn Brock, resigned, stating -
"I fired the school board because of deceptive and unethical behavior," said board attorney Glenn Brock. "Their behavior demonstrated last night is what SACS has been criticizing all along."
What does this have to do with a Bankruptcy Blog? The end result of losing accreditation is that students are ineligible for the Hope Scholarship, and will have a difficult time getting into a decent college.
Clayton County residents can expect plummeting home values as parents (or anyone who might be a parent in the next few years) move out of the county so their kids get in college and they are eligible for the Hope Scholarship. Home buyers with school-age kids, or who may have school age kids in the future (i.e, most younger couples) will avoid the county like the plague. The housing market in Clayton County will be a disaster, and the tax base will decrease dramatically. Refinancing will not be possible because the equity in homes will simply disappear. Companies and industries considering Clayton County will immediately strike them off of their list because employees will not want to move there. Some businesses will move, or perhaps even close, because of a decrease in business and an inability to keep qualified employees.
"All the board members need to resign. We need to have a special election and start over with qualified candidates," said David Barton, Vice President of the Metro South Association of Realtors. He said that during the last four years of turmoil in the Clayton County schools, property owners in the county have lost a half billion dollars in value.
This quote was in February, when there still might have been a chance for remedies. That chance seems to be over, so expect much higher losses in value for Clayton homeowners. If you have school-age kids, or think you might have them in the next few years, stay way from Clayton County.
If you are a homeowner in Clayton County and you find yourself in Bankruptcy, think twice before reaffirming your mortgage debt. Even if you qualify for a reaffirmation and your home is worth the amount of debt, it might not be the case for long. You might be signing up for post-petition personal liability for the mortgage on a home that decreases significantly in value in the coming months and years. You could be locked into staying in Clayton because you cannot sell, selling your home at discount and paying the difference, or a foreclosure. You will owe the full amount of your mortgage (including interest and fees) after your discharge. Again, think twice.
Update - The latest news from the evening of April 24. The Chairman of the board has resigned.
School board Chairman Eddie White said he decided to step down this week after finding a defamatory letter on his desk at the board meeting Wednesday. The unsigned letter, drafted by a board member, accused White of engaging in sexual conduct with a member of the school administration, he said Thursday.
"I do not approve of such conduct. It was very, very inappropriate for that to occur," White said. "It is untrue and negatively impacting my family. I was of the opinion we could meet the nine recommendations, but behavior like that from last night will not help us."
Like a few million other people, I created a profile on LinkedIn. I am not quite sure what that means in the long run (see below), but after joining the legal bloggers group, it occurred to me that it might be useful for creating an online directory for Bankruptcy lawyers in Georgia.
Thus, I have created a LinkedIn group for Georgia Bankruptcy Lawyers (click to join), or others who have a professional interest in Bankruptcy law and/or Georgia cases.
Users will have access to profiles of others in the group, and there is a sort function for finding members in a specific geographic location. It is not a tool for mass emails and "listserve" type threads that we all have probably come to dislike. As far as I know, I do not get a kickback for any fees to LinkedIn (especially since I am not a paid member), and my only fuction is to click "approve" when someone joins.
I asked above what it means in the long run. In this article, entitled Is The Party Over For Social Networking, Larry Bodine asks the question " What if you gave a party, hundreds of people showed up, but almost nobody talked to each other?"
In contrast, LinkedIn aficionado Kevin O'Keefe, president of LexBlog Inc. near Seattle, has more than 500 connections. He gets multiple invitations from others to be a part of their network daily. O'Keefe started a Legal Blogging group on LinkedIn and got 200 applications to join within two days.
"I now have a huge knowledge group that will view me as their leader," he said. "People who don't get results from LinkedIn are the same as people who go to Rotary and complain, 'Nobody came up to talk to me.'" O'Keefe says he has generated new business from LinkedIn. "It definitely helps me get work," he says. "And you can't beat the price." (A basic membership is free.)
Phillip Miles, from South Carolina, has been in custody since his arrest on Feb. 3. He was arrested several days after customs agents at a Moscow airport found a box of 20 rifle shells in his luggage. The court sentenced him to serve three years and two months in prison, with the sentence calculated from his detention date.
Mr. Miles said he didn't know bringing the .300 caliber cartridges was illegal and had packed them for a friend who had recently bought a Winchester rifle. ... "I'm very disappointed. It's a strange sentence for one box of hunting bullets,"
What?!?
The cartridges were not initially found as he flew into Moscow, but a day later, as airport security put his luggage through an X-ray machine while he was on his way to check in for a flight to Perm, a city in Siberia.
Maybe he was lucky to get caught in Moscow. I spent a week in Perm, Russia (which is not really in Siberia, but is the "Gateway to Siberia"), which was a "closed" city for many years after the fall of the USSR because of the defense industry there, and when we de-planed late at night we were thoroughly searched as we looked at the business end of several AK-47 rifles. Like the pastor, we were caught smuggling illegal goods. Thankfully, several containers of Tylenol and aspirin only resulted in confiscation, not a Russian prison. We really didn't consider packing high-powered rifle ammo.
Gretchen Morgenson of the New York Times has an article in tomorrow's Sunday edition about the improper conduct of mortgage lenders. See Piling On; Borrowers Buried By Fees. Morgenson discusses several cases in which Bankruptcy Judges have found misconduct on the part of lenders.
As discussed in this post, the United States Trustee has filed an adversary proceeding in the Northern District of Georgia, making similar allegations.
Morgenson discusses these cases -
The case out of the Eastern District of Louisiana, overseen by Judge Elizabeth W. Magner, is especially depressing. It involves Dorothy Chase Stewart, an elderly borrower and widow whose original loan of $61,200 was serviced by Wells Fargo. Judge Magner cited “abusive imposition of unwarranted fees and charges,” and improper calculation of escrow payments, among other things. She found Wells Fargo negligent and assessed damages, sanctions and legal fees of $27,350.
The heart of the case is that Wells Fargo failed to notify the borrower when it assessed fees or charges on her account. This deepened her default and placed her on a downward spiral that was hard to escape. And Wells Fargo’s practice of not notifying borrowers that they were being charged fees “is not peculiar to loans involved in a bankruptcy,” the court said
....
Finally, borrowers can be cheered by an opinion written this month by Cecilia G. Morris, bankruptcy judge in the Southern District of New York.
The case involved Christopher W. and Bobbi Ann Schuessler, borrowers who had $120,000 of equity in their Burlingham, N.Y., home when their bank, Chase Home Finance, a unit of JPMorgan Chase, moved to begin foreclosure proceedings. The couple had filed for personal bankruptcy protection, which automatically prevents any seizure of their home. ...
The Schuesslers got into trouble because Chase had refused a mortgage payment they tried to make at a local branch. Testimony in the case revealed a Chase policy of accepting mortgage payments in branches from borrowers who are current on their loans but rejecting payments from borrowers operating under bankruptcy protection. ..
“Without informing debtors, Chase Home Finance makes it impossible for JPMorgan Chase Bank branches to accept any payments,” Judge Morris wrote. “It appeared that Chase Home Finance intended to commence an unwarranted foreclosure action, due to ‘arrears’ resulting from Chase Home Finance’s handling of the case in its bankruptcy department, rather than any default of the debtors.”
The 75-page complaint, filed Monday in Manhattan Supreme Court by trustee Richard Gray, alleges McDermott Will put off a much-needed Chapter 11 filing to facilitate self-dealing by two other members of the hospital group's restructuring team. As a result of the delay, the trustee claims, Saint Vincent's incurred greater operating losses, paid more professional fees and took longer to emerge from bankruptcy after it finally did file.
The suit is requesting $1.2 billion in damages for legal malpractice, fraud and breach of fiduciary duty, among other claims, as well as disgorgement of $4.5 million in previously paid legal fees. In addition to the firm itself, partners William P. Smith, Stephen B. Selbst and David D. Cleary are individually named as defendants. ...
The other members of the restructuring team cited in the suit are financial advisory firm Huron Consulting Inc., and turnaround boutique Speltz & Weis, whose principals David Speltz and Timothy Weis respectively stepped into the roles of chief executive officer and chief financial officer at Saint Vincent's in 2004. McDermott Will was retained to advise on the group's financial situation in December 2003.
Like most lawyers, I am often asked what kinds of cases I generally handle. Obviously, one of my practice areas is bankruptcy law, but I also receive questions about what specific types of bankruptcy matters I handle. After a year and a half of publishing this Blog, I thought it time to describe my practice areas in a little more detail.
1. Bankruptcy - I started my career clerking for Judge Homer Drake, U.S. Bankruptcy Judge for the Northern District of Georgia in 1991, was in the bankruptcy section of a large Atlanta firm for several years, and have maintained a bankruptcy practice since then.
On the debtor side, I handle small and medium-size business Chapter 11 cases as well as Chapter 7 cases. I also handle a relatively small number of individual Chapter 7 cases, usually where there are complications such as business debt or potential litigation. As I get many calls from individuals from this Blog, if I can't handle a case I have developed some very good referral sources. I welcome all calls, and am happy to help people find a lawyer if I am unable to assist.
I handle bankruptcy litigation for creditors and other parties. I have prosecuted and defended preferential transfer and fraudulent conveyance actions, and many other litigation matters that arise in a bankruptcy case. I also handle litigation for Chapter 7 Trustees.
I have litigation corporate governance cases, including breach of fiduciary duty matters, in the context of bankruptcy cases in Georgia and other districts. I frequently post about these issues in this Blog (see the Corporate and Fiduciary Litigation category).
2. Business and Real Estate Litigation. I handle a wide variety of business matters, including disputes between partners or shareholders, business collection matters, and other business disputes.
A significant part of my litigation practice involves real estate matters. Over the last several years, I have represented several residential, commercial and golf course developers. I have also acted as counsel in some of the larger mortgage fraud cases in the Northern District of Georgia.
I have handled construction and defect cases in Georgia and several other states.
I have handled real estate and title matters for several title insurance companies.
As I mentioned above, I have handled disputes between partners and shareholders, trade secret cases, and prosecuted and defended breach of fiduciary duty and other corporate governance cases.
This is just a brief summary of my practice over the years, and is by no means and exclusive list. I am fortunate to get a large percentage of my cases from referrals from other lawyers and professionals, and I welcome any emails or calls.
A record number of metro Atlanta properties are scheduled to be auctioned on the courthouse steps next month, according to numbers released Tuesday by Equity Depot, an Alpharetta company that tallies foreclosures. ...
In the 13-county metro area, 7,335 properties are scheduled for courthouse auctions, Equity Depot said. The previous record was 6,992 properties reported in January.
The numbers declined in February and March, then shot up again this month. The difference between March and April was 1,650 properties, according to Equity Depot.
...
April 11 (Bloomberg) -- They're talking more about Chapter 9 municipal bankruptcy in Jefferson County, Alabama, the home of the largest city in the state, Birmingham.
Who can blame them?
The county is now being whipsawed by an ill-thought-out debt policy and the collapse of the bond insurers. Credit-rating downgrades all around have triggered a series of events that are no longer in the county's control, leaving it at the mercy of securities firms that have little room for maneuver themselves.
....
The bankruptcy will be the biggest in the municipal market's history by virtue of the county's debt load, according to the News. Jefferson County has $3.2 billion in sewer debt; Orange County lost $1.6 billion in its investment pool. I'm sure the matter will be debated. I'm also sure Orange County will be happy to pass the crown to Jefferson County.
There are going to be two acts to this drama. First, of course, is the actual filing itself. The county seems to think that this will allow it to hold its creditors at bay and proceed in a business-as-usual fashion. ...
The second act of the Jefferson County bankruptcy is going to focus on Wall Street and all the banks, law firms, advisers and consulting firms that helped put the county where it is today. The county was not well-served, for all the money that changed hands. In this act, the county sues to get some of that money back.
A reception with Dean Jack Boger will follow the CLE program.
Please note: One hour of ethics credit and one hour of general credit are pending with the State Bar of Georgia.
Program Details:
In response to failures related to the investigation of rape allegations involving members of the Duke lacrosse team, the North Carolina State Bar disbarred the then-sitting district attorney, Mike Nifong. Nifong was also convicted of criminal contempt of court and served a one-day sentence.
The Nifong case has much to teach about prosecutorial ethics, pretrial publicity, the prosecutor's role in a pretrial investigation and a prosecuting attorney's duty to justice. The program will reference two articles by Robert P. Mosteller:
Exculpatory Evidence, Ethics, and the Road to the Disbarment of Mike Nifong: The Critical Importance of Full Open-File Discovery, 15 George Mason Law Review 257 (2008)
The Ethical Limitations on Prosecutors When Preparing and Presenting Evidence The Duke Lacrosse Case, Innocence, and False Identifications: A Fundamental Failure to 'Do Justice,' 76 Fordham L. Rev. 1337 (2007).
The program fee is $35. The fee includes two hours of CLE credit and the reception to follow the program. Please respond by April 15, 2008 to louise@unc.edu or (919) 962-1592.
Linens 'n Things Inc., a home-furnishings retailer caught by an increasing debt load and shrinking housing market, is expected to file for Chapter 11 bankruptcy-court protection by Tuesday, several people familiar with the matter said.
A Linens 'n Things filing would mark one of the first major retailers to seek bankruptcy protection in this economic downturn. The New Jersey retailer, which sells home products like towels, bath rugs and kitchen appliances, has about 590 stores ...
From the Bankruptcy Prof Blog, you can now get email updates from the U.S. Trustee. Go to their website, click on Email Updates in the top right corner, and sign up.
04/01/2008 10:58 AM
To: #FW Restructuring Attorneys
Subject: Upcoming Dress Code Program
As part of our KIRT [Kirkland Institute of Restructuring Training] programs, I am pleased to announce a "dress for success" program, which will be held on each Monday for one hour for the next four weeks. I have arranged for outside speakers from a number of prominent men's and women's fine clothing stores to lead the programs. In light of the number of button down shirts being worn with suits and the number of associates (mostly, male) wearing boring and mismatched ties and shiny suits, the program is highly needed. Attendance for the program is strongly encouraged.
Debtors in Chapter 7 generally have three ways to deal with secured debts -- reaffirm the debt pursuant to §524, surrender the property to the lender, or "redeem" the property by paying the secured lender the value of the collateral. (For now, we'll leave discussion of the ride-through for another occasion).
It is common for individuals in Bankruptcy to find themselves in a situation in which they are "upside down" on a loan and the loan balance is far higher than the value of the collateral. A reaffirmation means the debtor pays back the entire loan balance, plus interest, regardless of the value of the collateral. That is, if the debtor qualifies for reaffirmation.
Redemption sounds like a good idea for many people who want to keep the property, such as a vehicle that allows them to get to work, but the reality is that individuals in bankruptcy do not have several thousand dollars available to redeem. This is where redemption lenders come in, and according the Professor Hayes it may be a good deal. If anyone has experience with them, please leave a comment.
Many of the calls I receive are from individuals who own small or mid-size businesses that are experiencing financial difficulties are need to shot down. They often assume that they should file a bankruptcy petition on behalf of the business if it is a corporation, partnership or limited liability company.
Often, filing the petition for the business does no good, and potentially could lead to negative consequences.
Let's look at a common scenario. Richard owns a small residential construction company, set up as a limited liability company (LLC), that he runs from his house. Due to the downturn in the real estate market, the business is going under. It cannot sell its two houses under construction or the two other lots it owns. The secured lenders have sent notices of default and are starting the foreclosure process. Richard also cannot pay the company's sub-contractors or the SBA loan the company took out three years ago, for which he is personally liable. There is no equity in the houses or lots, so even if he did sell them at market value, the company would not receive an excess above the construction loans. Although Richard believes the market would get better if he could hang on for a few months, he has few personal assets and cannot keep the company afloat. Like most small business owners, he has personally guaranteed
Is this company a viable candidate for Chapter 7? There is a good chance it is not.
If, after getting to the end of his rope, Richard simply "walks away" and lets the banks foreclose on the only assets (the land), and the company essentially has no assets, creditors are left with filing lawsuits against the dead company or against Richard for debt for which he is personally liable. Richard must then decide (if he has not done so already) whether or not to file a personal Bankruptcy petition.
If, instead, Richard files a Chapter 7 for the company, a trustee is appointed. The trustee inevitably allows the secured lenders to foreclose on the real property, and creditors file claims in the case. However, the creditors that have personal guarantees then file lawsuits against Richard individually, and he faces personal bankruptcy. Did he get a real benefit from the business Bankruptcy? Probably not.
The Chapter 7 trustee for the company takes a look at the books and records of the debtor company and sees that during better days a couple years ago, Richard caused the company to write a check for the down payment on Richard's house. Almost a year ago, when the company got its SBA loan, Richard also paid himself and his wife "bonuses." The Trustee for the business then files lawsuits against Richard and his wife for preferential transfers and fraudulent conveyances. By filing the Chapter 7 for the company, Richard simply invited someone to come in and review everything he had done for the last several years and he bought himself and his wife lawsuits. Arguably, the fraudulent conveyance claim may not even be dischargeable if Richard files his own Chapter 7 case. Basically, the business Chapter 7 was something he should have never filed.
However, under some circumstances, a business Chapter 7 may be a good idea.
Here's what Nye Lavalle, a private investor, investor and consumer advocate, in Atlanta, writes:
My recommendation and our vote of our shares will be to turn down the proposal and force a bankruptcy liquidation. Now why, some may ask, would we prefer bankruptcy?
Well, since many of Bear's ABS/MBS deals were really financing of receivables and not "true sales," the bankruptcy system, trustees, and courts could very well seek the return of those assets back to BSC. Regardless of the outcome, there is and will be litigation. So, the best forum with the most advantageous laws would be the Federal Bankruptcy Court for Bear shareholders, investors, employee pension funds etc...
However, the downside, is that the house of cards and black box alchemy tools used by many of Bear's partners, counter-parties, trusts etc...will be open for all to see. Thus, those harmed could hold the real parties responsible for the collapse. The true and real value of Bear can be decided whether it is $1, $2, $ 6, or $80.
I was prompted by this blog post to check the monthly Justia Blog Rankings. I was surprised to see this Blog as the No. 22 most popular legal Blog. I am not sure what it means, but it has to be a good thing.
Other good Blogs on the list, that may be of interest to readers interested in bankruptcy, business litigation or Georgia law, are:
Your clients rely on you to unravel the complexities of the bankruptcy process and guide them to the most favorable outcome possible. This innovative program was designed to give you the rules, essential strategies and litigation techniques to confidently handle your next case. Register today!
Review recent updates and judicial rulings pertaining to bankruptcy law.
Gain a solid understanding of the bankruptcy litigation process.
Understand creditors' rights: effectively represent your clients and resolve your cases.
Learn what constitutes a bankruptcy estate.
Understand the difference between adversary proceedings and contested matters.
Identify the impact means testing has on bankruptcy cases.
Effectively determine which chapter debtors need to file under.
Faculty: Paul Burke O'Hearn, James S. Rankin Jr., William Rhymer, Scott B. Riddle
Most of us in the Atlanta area have heard the story of Eve Marie Carson, the Student Body President of my alma matar, The University of North Carolina. Eve grew up in nearby Athens, Georgia, where she was the student body president of Clark Central High School. Eve was shot to death in Chapel Hill last Wednesday, about a mile from campus. Her killer(s) have not been found, but the police have some pictures and leads, and they will no doubt be found. The story has been on the news for several days, and was a focus of the national broadcast of the UNC v. Duke basketball game Saturday night. Duke fans and students wore ribbons, and for one night, dispensed with the "creative" anti-UNC chants.
This Blog is, by definition, about negative events. However, I am going to hi-jack it to celebrate a person who had amazing accomplishments at a young age (and had a completely different experience in Chapel Hill than I).
Teaching and working with children were key service interests for Eve. In 2006, she taught science at Frank Porter Graham Elementary School in Chapel Hill as part of UNC’s INSPIRE program, whose mission is to encourage young students to pursue science as an interest. In her junior year, Carson was a tutor at Githens Middle School in Durham. She was also an assistant coach in the Girls on the Run of the Triangle, a character development program for girls ages 8-12 that uses running to teach values and a sense of self.
Eve's service extended well beyond the Triangle, however. In the spring of her sophomore year, she participated in a study abroad in Havana, Cuba, and she spent her summers working and volunteering in Ecuador (see slideshow) , Egypt and Ghana as part of the Morehead Summer Enrichment program. "I credit my prior experiences, especially my past two Morehead summers, for preparing me to get along with pretty much whatever comes my way," she wrote in an e-mail posted on the Morehead Web site. On campus, she became involved in Nourish International, an organization started by UNC students in 2002 for hunger relief. Eve served as freshman volunteer coordinator (2004) and co-chair (2005) for the group.
There are many more articles and news reports about other interests and activities. I am sure it is no consolation to her parents, family and friends, but they can be proud of the amazing person she was. She is, of course, one of thousands of students who have similar credentials. Sadly, we don't hear about them often enough and it takes a tragic death to bring these students to our attention. So .... I am piling on and spreading the word.
Does flat-fee pricing foster assembly-line lawyering?
That’s what U.S. bankruptcy judge Jeff Bohm suggested in a decision, entered yesterday, in a consumer bankruptcy case involving Countrywide and a Texas homeowner. While Judge Bohm declined to enter sanctions against Countrywide and its lawyers from two firms — Barrett Burke and McCalla Raymer — he wrote: “This fixed-fee business model appears to have been an overwhelming financial success. . . . Meanwhile, the profession has suffered from the ever decreasing standards that firms like Barrett Burke and McCalla Raymer have heretofore promoted. This demise must stop.” ...
These law firms aren’t the only ones that have hit speed bumps in the foreclosure crisis. Law blog colleague Amir Efrati did this story on so-called “foreclosure mills.” He quotes a lawyer who says that while most firms who handle these cases for lenders in general do a good job, in the “gold rush” to get a piece of the growing business, some firms “have cut corners.”
According to this article in the recent edition of the Atlanta Business Chronicle, Ford & Harrison has decided to stop billing for first year associate work -
C. Lash Harrison said his law firm received four letters last year from Fortune 500 companies, stating that they would no longer pay for first-year associates on their cases.
Harrison could see the trend: four turns into 40 the next year and 400 the year after that. So rather than fight it, the managing partner of Ford & Harrison LLP came up with a revolutionary approach.
Starting with its new first-year class last September, the Atlanta-based, 200-attorney labor and employment firm has eliminated its billable hour requirement for first-year associates.
Could this become a trend that finds its way into an analysis of fee applications in Bankruptcy Court? Is it reasonable to assume that if other large companies put pressure on large law firms to follow Ford & Harrison's lead, thus leading to a change in the standard practice, objections to fee applications may follow where the billing firms include first year billing?
The plan, called Project Lifeline, will allow overdue homeowners to suspend foreclosures for 30 days while they try to work out more affordable terms with lenders. It's not clear how many homeowners will be covered under the plan, but the proposal is aimed at delinquent homeowners whose mortgages are 90 days or more past due. The plan initially will involve six of the largest mortgage lenders -- Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., JPMorgan Chase & Co., Washington Mutual Inc. and Wells Fargo & Co.
Apparently, this program will not be available to debtors in bankruptcy. It is also unlikely to be a long-term fix for borrowers who cannot afford their house payment and cannot re-finanace at a lower interest rate.
Nearly $75,000 in legal fees have been blocked by a federal judge who complained that a Long Island, N.Y., law firm was "purposefully vague" in disclosing that its lead attorney in a bankruptcy case was the son-in-law of the executive of one of several unsecured creditors it was representing.
Had the court known in 2002 about the relationship, it might have been "reluctant" to appoint Berkman, Henoch, Peterson & Peddy of Garden City to represent a committee of creditors in the Chapter 11 case, wrote Stephen D. Gerling, chief judge of the Northern District Bankruptcy Court.
In a 2002 affidavit, Berkman Henoch attorney Ronald M. Terenzi stated that an unnamed partner in the firm who would be primarily responsible for representing the creditors "is related to and [sic] officer and shareholder of one of the general unsecured creditors of the Debtors."
In fact, Gerling wrote inIn Re: Matco Electronics Group Inc., 02-bk-60835, Berkman Henoch attorney Douglas Spelfogel was the son-in-law of Joel Girsky, the chief executive officer of Jaco Electronics Inc., one of the creditors in the action. The judge said it also appears that Spelfogel's wife, Wendy, later became in-house counsel at Jaco. ...
He added, "Fed.R.Bankr.P. 2014 is not intended to condone a game of cat and mouse where the professional seeking appointment provides only enough disclosure to whet the appetite of the [U.S. trustee], the court or other parties [of] interest, and then the burden shifts to those entities to make inquiry in an effort to expand the disclosure."
Roark Capital Group said it has formed a private equity fund with $1 billion with which it will invest in consumer and business service companies.
Roark's specific areas of focus include franchising, food and restaurants, specialty retail, direct marketing and financial services companies. Roark has acquired 13 franchise brands including Batteries Plus, Carvel, Cinnabon, FastSigns, McAlister's Deli, Moe's Southwest Grill, Money Mailer, Schlotzsky's and Seattle's Best Coffee International. Atlanta-based Roark has also acquired four direct marketing businesses and three financial services companies.
Last week's Atlanta Business Chronicle has an article by John Manasso about the rise in bankruptcy filings and foreclosures. SeeBankruptcy Filings Bullet Past Other States (subscription req'd).
The Northern District of Georgia is second only to the Eastern District of Michigan (which includes impoverished Detroit) in the number of Bankruptcy filings -- 31,435 in 2007. The article notes that Georgia has higher than average income, but lower than average credit scores, and Judge Bihary sees this as a factor -
"People need to be more realistic about what they can really afford," she said. "People who have bought homes - much more home than they can possibly afford - are well-advised to find less expensive housing that would meet their needs." As a society we need to do everything we can to increase financial literacy. The need to understand the range of products, mortgage and credit cards, is so pressing."
Judge Bihary also places some blame on lenders -
"In the current environment, we're obviously dealing with results of lax lending standards."
Other notes from the article:
In 2000, the last recession, there were 31,906 cases (which the author confusingly calls "claims") filed, and the number jumped by 6,219 in 2001. Judge Bihary believes we may see a similar increase in 2008.
One reason for the large number of cases is the relative ease of foreclosure under Georgia law.
In 2007, the three Chapter 13 Trustees processed $180 million in payments. However, this number is probably skewed because of the unusual number of filings before the BAPCPA went into effect in October 2005.
Update Wednesday afternoon at 3:30 pm: Judge Fuller has stepped down from the Brian Nichols case, stating in his letter -
"Judicial impartiality, real and perceived, is a critical element of the trial process," Fuller wrote to Downs. "In light of recent media reports, I am no longer hopeful that I can provide a trial perceived to be fair to both the state and the accused."
This is a relatively rare stray from the topics of bankruptcy and financial matters, but a subject of interest to lawyers in Georgia.
Judge Hilton Fuller, the Judge in the Brian Nichols ("Courthouse Shooter") case, has essentially held up the case indefinitely and caused the state to allocate millions of dollars to his defense. This has led to accusations, motions, requests to recuse, motions to recuse, and arguments before the Georgia Supreme Court. There is plenty of commentary about all of that so I need not add to it here. Presumably, the theory is that Judge Fuller was going overboard to make sure there would be no grounds for an appellate court overturning the verdict. The Judge has continuously refused to withdraw from the case.
If the case ever gets to trial, the defense will offer an even more contentious argument: that Nichols, who has pled not guilty, acted out of a “delusional compulsion” (a version of the insanity defense allowed under Georgia law). “That’s their only defense, because everyone in the world knows he did it,” Judge Fuller told me.
See the AJC article discussing the quote here, which includes lawyers opining that the Judge violated the judicial canon of ethics. Page Pate, an Atlanta criminal defense lawyer, says the following on his blog -
I'm not saying he's wrong. No sane person doubts Nichols' guilt. But the real question is why in the world would he publicly say this when the case is still pending in his court? Why did he agree to an interview at all? Didn't he put a gag order on everyone involved in the case? Doesn't that also apply to him? I really don't get it. Maybe it's an intentional move to get off the case. But why not simply recuse himself without all the fuss and delay? As much as I would like to explain his comment, or offer some insight, I just don't get it.
Thousands of Georgians facing economic woes have given the state a dubious ranking: the second-highest personal bankruptcy rate in the nation. In 2007, bankruptcy courts statewide processed one personal bankruptcy filing for every 65 households, according to statistics compiled by the National Bankruptcy Research Center. Only in Tennessee was personal bankruptcy more common, with one filing for every 59 households. ...
Bankruptcy filings across the nation were up significantly in 2007, and Georgia was no exception. Bankruptcy courts statewide processed 48,227 personal bankruptcy filings last year, an increase of 24 percent over the 2006 total, according to the research center.
In a comparison of the total volume of filings, irrespective of the rates, Georgia also stood out. Only California and Ohio had more 2007 filings than Georgia did.
The Northern District of Georgia is second in the nation in bankruptcy filings per district, behind the Eastern District of Michigan. That district includes Detroit, which has the highest unemployment rate in the nation.
Taking a short break from the reality of the means test, disposable income and other bankruptcy terms, let's see how the other half .. or Top .0001% .... lives. Shaquille O'Neal's financial disclosures, made in his divorce proceeding, reflect the following monthly expenses -
• $1,500 for cable TV.
• $110,000 for monthly vacations.
• $17,000 for clothing.
• $26,500 for babysitting.
• $23,000 for gas for his vehicles.
How does he have time for basketball with all that driving, shopping, and television watching?
A group of jewelry sellers owed $9.1 million from Friedman's Inc. are trying to force the company into Chapter 7 bankruptcy - the retailer's second trip to bankruptcy court in just more than three years. Three New York-based jewelry firms - including the U.S. arm of India's Rosy Blue Group - filed the involuntary Chapter 7 petition against Friedman's on Tuesday in U.S. Bankruptcy Court in Wilmington, Del. According to court papers, Friedman's owes two Rosy Blue affiliates about $6.3 million. The company also owes Paul Winston-Eurostar LLC $.19 million and two affiliates of Jay Gems Inc. about $950,000.
The Addison, Texas-based retailer, however, is no stranger to the nation's bankruptcy courts.
The company emerged from Chapter 11 in late 2005 following its own reorganization, under the control of hedge fund Harbinger Capital Partners Master Fund I Ltd. Harbinger and Friedman's also purchased West Coast retailer Crescent Jewelers' out of bankruptcy in 2006. Together the company operate some 500 stores under the Friedman's and Crescent names throughout the U.S.
Harbinger, which invests heavily in financially distressed companies, declined to comment
On February 28, 2008, I will be speaking at the "Chapter 7 and Chapter 13 Basics" seminar sponsored by HalfMoon Seminars. The course description is found here and the brochure is here.
My topic will be Creditors’ Claims in Chapter 7, including -
Treatment of secured and unsecured claims
Filing claims
Cooperating with the trustee
Effect of the automatic stay
Determining dischargeability
I will also discuss the recent cases concerning an unsecured creditor's right to include post-petition attorneys fees as part of its claim.
On May 19, 2008, I will be speaking at the Bankruptcy Law and Litigation Seminar, sponsored by the National Business Institute. I'll post more about that seminar as we get closer to the date.
The 2008 edition of the Southeastern Bankruptcy Law Institute is coming up on April 3-5, 2008. For CLE procrastinators, than means it comes just after the March 2008 deadline for making up 2007 hours (but the 19.4 Georgia hours takes care of 1.5 years). The location is the InterContinental Buckhead, 3315 Peachtree Road, N.E., Atlanta, GA 30326 (click here for map).
Early registration ends on February 20, 2008. You can browse the schedule, topics and speakers by clicking here, and register online by clicking here.
The city of Cleveland, an epicenter of the U.S.'s home foreclosure crisis, has sued 21 banks, claiming subprime mortgage lending in inner-city neighborhoods has created a public nuisance that hurt property values and city tax collections.
The one-of-a-kind suit, filed in Cuyahoga County, Ohio Common Pleas Court, accuses venerable institutions such as Deutsche Bank (DB), Goldman Sachs (GS), Merrill Lynch (MER) and Wells Fargo (WFC) of creating a public nuisance. The lawsuit seeks to recover hundreds of millions of dollars in damages, including lost taxes from devalued property and money spent demolishing and boarding up thousands of abandoned houses.
"To me, this is no different than organized crime or drugs," Mayor Frank Jackson told The Plain Dealer. He arranged a news conference Friday to detail the city's legal strategy.
"It has the same effect as drug activity in neighborhoods. It's a form of organized crime that happens to be legal in many respects," Jackson said.
Nothing like a little hyperbole from a politician getting on the bandwagon against lenders! The Wall Street Journal Legal Blog weighs in here.
January 11 Edit - Looks like a done deal. Bank of America agrees to purchase Countrywide for $4 bilion. It will beinteresting to see where this goes in the coming months and years. Theoretically, based on the price, it could turn out to be a goldmine for BofA down the road.
Countrywide Financial, America's biggest mortgage lender, is in advanced negotiations to sell itself to Bank of America in a deal that could rescue its crippled business from the brink of bankruptcy.
Countrywide's shares rocketed 51% to $7.75 yesterday as news of the discussions leaked out. But the California firm, which provides one in seven American home loans, is still worth little more than $3bn (£1.53bn) against $26bn a year ago.
Neither company would comment yesterday, even after the New York Stock Exchange asked Countrywide if there was any explanation for such an unusual share price movement.
Countrywide is widely viewed as one of the main culprits behind America's subprime mortgage crisis. It was a leader in peddling loans to low-income home buyers and is under investigation by US prosecutors for allegedly misleading customers about repayment commitments.
For Bank of America, the cost of a deal would amount to less than three months' profit. The North Carolina-based institution already has close ties with Countrywide - it propped up the mortgage specialist in August with a $2bn investment in convertible stock.
The City of Baltimore thinks so, and has filed a lawsuit against Wells Fargo.
Baltimore homeowners could receive counseling and financial support - including short-term loans to help avoid foreclosure - if the city wins the predatory and discriminatory lending lawsuit it filed yesterday against Wells Fargo Bank, Mayor Sheila Dixon said.
After reviewing foreclosure data, city attorneys concluded that the leading mortgage lender was steering black homebuyers into high-cost, subprime loans, a contention Wells Fargo denies. City officials believe theirs is the first attempt by a municipality to recoup losses as a result of the subprime mortgage crisis.
Predatory lenders penetrate communities and, like polluters, leave distressed properties and desperate people in their wakes. The task of cleaning up falls to cities, yet predatory lending reduces the resources available for this clean up. Declining property values resulting from predatory lending mean reduced tax revenues just as empty buildings lead to increased demand for fire and police protection. City budgets are further strained as victims of predatory lending turn to cities for relief programs and protection from abusive lenders. In the language of economics, predatory lending imposes negative externalities on cities.
Lawyers across the country are pursuing claims on behalf of victims of predatory lending. Legislators are passing new laws to extend protection to borrowers and researchers are exploring the causes and cures for predatory lending. Yet, little attention has been paid to the plight of cities.
In this article, I analyze whether cities have standing to recover damages for the externalities that predatory lenders impose on them and whether cities have standing as parens patriae to pursue claims against predatory lenders. The paper begins with a description of the impact predatory lending has on municipalities and then turns to the law governing municipal standing to sue predatory lenders. I also examine particular claims cities could bring against predatory lenders and the bases for city standing to bring these claims. My conclusion is that broad grants of standing to cities to pursue claims against predatory lenders are necessary to enable cities to protect residents from lender wrongdoing, to recover damages for the injuries predatory lenders impose on cities, and to force abusive lenders to internalize the externalities of their lending practices.
The lender said there was "no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company," but its shares closed down $2.09 at $5.55, their lowest close since 1996.
Countrywide has said it has sufficient liquidity to operate, but credit rating agency Egan-Jones Ratings Co said on Tuesday the company "is severely challenged and might falter if it does not receive an infusion of at least $4 billion within the next couple of weeks."
Shares of Countrywide have fallen 86.9 percent in the last year. Tuesday's decline pulled the KBW Mortgage Finance Index .MFX down 7.1 percent and the Standard & Poor's Financials Index down 3.6 percent. Other decliners included mortgage lender IndyMac Bancorp Inc (IMB.N: Quote, Profile, Research), down 10.9 percent, and bond insurer MBIA Inc (MBI.N: Quote, Profile, Research), down 20.8 percent.
My friend Luanne Bonnie has opened a solo practice in downtown Decatur, Georgia, specializing in wills, trusts, estates, probate and elder care. The office will serve the Decatur and metro- Atlanta areas. Luanne was formerly a partner in a large Southeast firm. You can find out more information at her website, www.bonnielaw.com. Luanne has plans to add a blog in her practice areas on the near future.
The Law Office of Luanne M. Bonnie concentrates its practice in the following areas:
Wills
Trusts
Elder Care
Family Limited Partnerships
Business succession planning
Estate Planning
Probate estates with a will
Probate estates without a will
An unfortunate consequence of the increase in foreclosures is that many homes are being auctioned by the foreclosing lenders. On January 16 and 17, 2007 600 Georgia houses will be auctioned by the firm of Hudson and Marshall, according to this article in the Atlanta Business Chronicle.
The homes are valued from $30,000 to nearly $700,000, according to the company, which says it is America's largest auction firm of bank-owned real estate
The company said it will auction over 500 Atlanta homes Jan. 16 and 17 at the Atlanta Marriott Perimeter Center and Jan. 19 and 20 at the Hilton Atlanta. Other homes will be auctioned in cities throughout Georgia on the following days: Jan. 15 in Athens; Jan. 16 in Macon; Jan. 17 in Ellijay; and Jan. 18 in McDonough. All the homes have been repossessed by banks.
More information, including information and pictures of the houses may be found by clicking the Hudson and Marshall website.
Georgia's foreclosure rate in November made it the seventh-highest in the nation, according to RealtyTrac's November 2007 U.S. Foreclosure Market Report.
Georgia had 8,968 foreclosure filings -- default notices, auction sale notices and bank repossessions -- in November for a rate of one filing per 421 households in November. That rate was down 21 percent form October, but was up 27.1 percent from November 2006.
Across the nation, there were a total of 201,950 foreclosure filings in November, down 10 percent from Ocotber but still up nearly 68 percent from November 2006.
In my prior post about UGA Associate Professor David Hazinsky's ridiculous commentary about "citizen journalists," I noted his call for monitoring and regulation. Interestingly, he stated this about unregulated journalism '' "the reality is it really isn't journalism at all, and it opens up information flow to the strong probability of fraud and abuse." He also states -
But we have already seen the line between news and entertainment blur enough to destroy significant credibility. Continuing to do nothing as information flow changes will further erode it. Journalism organizations who choose to do nothing may soon find the line between professional and citizen journalism gone as well as the trust of their audiences.
He goes as far as to believe that such "citizen journalists" should take classes and be certified -
Journalism schools such as mine at the University of Georgia should create mini-courses to certify citizen journalists in proper ethics and procedures, much as volunteer teachers, paramedics and sheriff's auxiliaries are trained and certified.
While these comments alone are enough to embarass UGA, let's think about the terms I highlighted -- fraud, abuse, credibility, ethics ...
Now let's take a look at Hazinsky's other job. According to his page on the UGA website, Hazinski owns Intelligent Media Consultants. What does this business do? From its website, here is part of their business -
IMC has trained hundreds of journalists. We have proven programs for all aspects of news and content production. We go beyond the mechanics of an operation to try and instill a passion about story telling. IMC employes [sic] world class journalists who are passionate about their craft and enjoy teaching what they know.
We can craft a training package for new journalists or specialized continuing education courses for existing operations. All of our training involves ongoing student evaluation, so you as an employer get qualitative feedback on your employees, or potential employees.
IMC primary training typically involves Newsgathering, Writing, Assignments, Shooting, Editing and Producing. Technical training for control room operation and master control operations can also be arranged based on workflow.
IMC offers its own training certificates for participants and in some cases may be able to offer continuing education credit.
(emphasis added by SR)
Turns out Hazinsky apparently has a paying job competing with the "citizen journalists," or training those who compete. So much for the "credibility" he wants us to believe is so important to him.
"Citizen Journalists" cutting into your business, David? Want to make sure you are first in line to provide that "training" and "certification?" Don't want "citizen journalists" to find out exactly what you are running? It is certainly good to know that IMC "employes" world class journalists.
UGA administrators, students, and clients and potential clients of Intelligent Media Consultants should take note of Hazinsky's actions, and consider what "fraud," "abuse," "credibility", "ethics" and other such terms really mean.
The premise of citizen journalism is that regular people can now collect information and pictures with video cameras and cellphones, and distribute words and images over the Internet. Advocates argue that the acts of collecting and distributing makes these people "journalists." This is like saying someone who carries a scalpel is a "citizen surgeon" or someone who can read a law book is a "citizen lawyer." Tools are merely that. Education, skill and standards are really what make people into trusted professionals. Information without journalistic standards is called gossip.
He is not commenting on quality and reminding people to be careful in what they read, this gem of a "professor" wants some form of "certification" or regulation -
Supporters of "citizen journalism" argue it provides independent, accurate, reliable information that the traditional media don't provide. While it has its place, the reality is it really isn't journalism at all, and it opens up information flow to the strong probability of fraud and abuse. The news industry should find some way to monitor and regulate this new trend....
Having just anyone produce widely distributed stories without control can have the reverse effect from what advocates intend. ...
Journalism schools such as mine at the University of Georgia should create mini-courses to certify citizen journalists in proper ethics and procedures, much as volunteer teachers, paramedics and sheriff's auxiliaries are trained and certified.
Journalists generally don't like any kind of standards or regulation. Many argue that standards could infringe on freedom of the press and journalism shouldn't be regulated.
But we have already seen the line between news and entertainment blur enough to destroy significant credibility. Continuing to do nothing as information flow changes will further erode it. Journalism organizations who choose to do nothing may soon find the line between professional and citizen journalism gone as well as the trust of their audiences.
There you have it! If you don't agree with the content that is flowing around out there, just come up with a way to regulate or control it. Perhaps protecting a few jobs or a journalism school, or a professorship, is worth trying to shoot down one of the most basic and revered principles of the profession. Perhaps this particular school should be more concerned about the quality of instructors they hire.
The federal agency monitoring the bankruptcy courts has subpoenaed Countrywide Financial, the nation’s largest mortgage lender and loan servicer, to determine whether the company’s conduct in two foreclosures in southern Florida represented abuses of the bankruptcy system.
The subpoenas for Countrywide documents were issued in late October by the United States Trustee after the agency announced an effort to move against mortgage servicing companies that file false and inaccurate claims in foreclosure cases. The inquiries into Countrywide by the trustee’s office, a division of the Justice Department, come as foreclosures are increasing across the country.
As we warned you here in August ... and as I explained on CNBC a few days later ... America's kingpin of mortgages is on a collision course with bankruptcy.
Its name: Countrywide Financial.
If it goes under, the impact on U.S. financial markets will be immediate; the damage to the U.S. economy, long-lasting. ... Countrywide is the GM and Ford of the mortgage industry, originating $340 billion in loans in the first nine months of the year — more than the mortgage subsidiaries of Bank of America and Citigroup combined. ...
Already, Countrywide has laid off about 12,000 employees, a number that could soon rise to 20,000 as mortgage originations plummet.
Already, Bank of America, which infused $2 billion of bailout funds into the company in late August, has seen nearly half its investment go down the drain. In just 93 days!
And already, investors who bought Countrywide's shares at its recent peak in February have lost four fifths of their capital. All in just 294 days! ...
The company admits it has a whopping $27 billion of delinquent subprime mortgages, more than the total mortgages (delinquent or not) held by some of the nation's largest banks.
The filing of the Pike Nurseries Chapter 11 case yesterday led to me reviewing the rights of a vendor to "re-claim" (i.e., pick up from the debtor, following the appropriate procedures) goods delivered to the debtor shortly before filing. The key - act quickly!
Section 2-702 of the Uniform Commercial Code and Section 546 of the Bankruptcy Code (statutes are at the bottom of this post, after the jump) covers reclamation. It provides that a vendor of goods may invoke its right to reclamation --
Written notice of reclamation is sent to the debtor.
The goods were received by the debtor within 45 days of the written notice, or not later than 20 days after the filing of the Bankruptcy petition, if the 45 day time limit expires after filing. This extends the time
The debtor was insolvent when the goods were received.
The good were sold in the ordinary course of the vendor's business, and received in the ordinary course of the debtor's business.
The written notice should specify the goods subject to reclamation. Often, the purchase orders will contain this information and can be attached and made part of the notice. The notice should also state that the goods should be segregated by the debtor.
Why should a vendor act quickly if it has 45 days or more to provide the notice?
There is no right of reclamation for goods sold by the debtor before written notice is provided, and authority suggests that there is no right or remedy for good sold after notice is provided. Every day that goes by is a day that the vendor's products are sold. The vendor may have to seek a court order to halt further sales.
The vendor's remedies may be trumped by a secured creditor. It is important to ascertain priorities as soon as possible.
The debtor may request post-petition financing from a lender who then has a super-priority lien on all of the debtor's assets, including the vendor's goods. (for example, see the Motion filed in the Pike case yesterday, Nov. 15).
The debtor will likely want to negotiate the matter, rather than risk losing its inventory. Often, the debtor will have multiple reclamation notices shortly after filing. It is best to start the process early.
An article in the Georgia Bar Journal, The Ethics of Ghostwriting Pleadings by Paula Frederick (scroll to page 46), raises the issue of whether lawyer or their staff may counsel clients with respect to filing bankruptcy, and actually preparing the petition and schedules for the client to file pro se.
The article starts with the applicable ethcal rule -
Rule 1.2(c) of the Georgia Rules of Professional Conduct allows a lawyer to limit the scope of representation if the client provides informed consent. This concept—also known as “unbundled legal services”— is relatively new. It is based on the modern reality that many clients can’t afford, don’t want, or don’t need a lawyer to handle every aspect of their case. If after consultation the lawyer and the client agree, the lawyer can provide help with specific, concrete tasks such as drafting or reviewing pleadings, or making a limited appearance for a specific hearing.
Paula, the General Counsel of the State Bar of Georgia, provides the following example -
I hate to interrupt,” your assistant says, popping into your doorway, “but Judge Brooks is on line one. She says one of your cases is on for hearing this afternoon, and she wonders why you aren’t there.” ... “Remember that potential client from last week? Ms. Jenkins?” “The one with the eviction?” your assistant asks. “Sure. You helped her draft an Answer but you definitely made it clear that you weren’t handling the hearing.... Apparently the judge thought the Answer looked too professional to have been done by a nonlawyer. She asked Ms. Jenkins whether a lawyer actually prepared it. Now the judge is accusing me of deceiving the court by not signing my name or revealing my involvement!” “What?” your assistant squawks. “But you just gave Jenkins some advice without taking the case! You don’t have to do anything else for her!”
This rule, and Paula's example, may lead one to believe that just as a lawyer may prepare complaints, answers or other pleadings, he or she may also provide advice and preparation of the petition and schedules for a client to file a pro se bankruptcy petition. However, she adds this important caveat -
Georgia lawyers should also review the local rules of court of tribunals where they regularly practice, as some courts have rules requiring a lawyer to reveal that he has provided assistance to a pro se litigant.
Where does that leave lawyers advising bankruptcy clients? First, let's dispense with the 2005 BAPCPA Amendments regarding "bankruptcy petition preparers." Section 110 of the Bankruptcy Code provides that a bankruptcy petition preparer "means a person, other than an attorney for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares for compensation a document for filing."
Levitz, which used to have stores all over the country, including Georgia, filed Chapter 11 for the third time in 10 years and the second time in about 2 years. It now has 35 stores, apparently none in the Southeast.
The real estate market took another hit today, with homebuilder Levitt & Sons filing a Chapter 11 petition in Ft. Lauderdale. Local communities of Levitt include Seasons at Laurel Canyon, in Canton, and Seasons on Lake Lanier, both "active adult" communities.
From the home page of the company website -
Levitt and Sons, like many other home builders, is navigating a challenging homebuilding market.
We are working around-the-clock to address those challenges and resolve issues associated with our communities. In the interim, sales and closings are on hold.
Existing customers are welcome to call the customer hotline at 877-538-4889.
Existing vendors are welcome to call 888-538-4893. We hope to have a resolution in the coming weeks.
Levitt & Sons, the home building unit of Levitt Corp that created one of the first American suburbs, said on Friday that it had filed for bankruptcy protection, reflecting the badly battered Florida market.
The unit, which made most of its money in Florida, said Chapter 11 filing in U.S. Bankruptcy Court in the Southern District of Florida, was made "in response to unprecedented conditions in the homebuilding industry, which have severely impacted the company."
Levitt, which built "Levittown," a subdivision in Long Island, New York that is widely regarded as the first master-planned community, said the downturn was especially pronounced in Florida, where nearly all of its focus has resided.
From the AJC -
The announcement late Friday capped weeks of uncertainty after Levitt stopped all construction work on its Georgia properties and laid off workers.
Levitt officials blamed the dismal home sales market, which has been especially severe in Florida, for its troubles and underscored its efforts to restructure the company's debt. Veteran bankruptcy attorney Lawrence E. Young has been hired as Levitt's chief restructuring officer and will oversee Levitt's bankruptcy negotiations and company business related to the filing....
Local contractors filed dozens of liens and other legal actions against the company for unpaid work as they lined up to collect whatever they can garner from the anticipated bankruptcy. A landscaping company removed its flora from the grounds of the long-anticipated, 28,000-square-foot amenities center at Seasons at Laurel Canyon, which is near completion.
Because the Seasons developments are designed as leisure communities for adults 55 and older, most of the homeowners and buyers are retirees who sold their former family homes to finance their move to the neighborhoods' promised fun-filled, hassle-free lifestyle.
In his letters to Fannie and Freddie, Mr. Cuomo wrote that inflated appraisals, giving a false idea of the value of collateral backing those loans and securities, could hurt shareholders of those companies and investors in mortgage-backed securities they guarantee. Many appraisers have complained for years they feel pressure from lenders and mortgage brokers to sign off on unrealistically high home-value estimates.
Mr. Cuomo directed Fannie and Freddie to appoint examiners to look particularly at mortgages acquired from WaMu and any other loans made on the basis of appraisals by First American Corp.'s eAppraiseIT LLC subsidiary. Last week, his office filed a lawsuit against First American, alleging it violated federal and state laws by allowing WaMu to control the selection of appraisers hired to assess collateral for loans.
A recent article in BusinessWeek, entitled "Bankruptcy Reform Bites Back," raises the issue of whether the 2005 BAPCPA amendments to the Bankruptcy Code has had a major impact on the collapse of the mortgage industry. Basically, the author states that more Chapter 7 cases filed under the old law allowed comsumers to get a discharge of unsecured debt, allowing them to pay for the house.
Some highlights -
But today's growing problem in the housing market is different—foreclosures are soaring, while bankruptcies, though clearly on the upswing, are running roughly at half the 2001-2003 pace. The reason: A new bankruptcy law, approved by Congress in 2005 after years of debate, makes it much harder for households to get out from under their consumer debt. The result: More people being forced to walk away from their homes, leaving lenders holding the bag. Perversely, a law intended to help the financial industry may be damaging the housing sector, creditors and borrowers alike. "It doesn't matter what you think of the purpose of the new bankruptcy law. The timing is bad," says Susan M. Wachter, professor of real estate at the Wharton School of Business.
The old bankruptcy law, in effect since 1978, was considered extremely housing-friendly. Most distressed borrowers favored filing under Chapter 7, essentially cheap, quick debt liquidation. In practice, most got to keep their homes, while the rest of their property and assets were sold off to pay a portion of unsecured debts such as credit-card and medical bills. When the assets ran out, the remaining loans were cancelled—although some debts were off limits, like student loans and child support. Future paychecks could go to mortgage payments.
Kevin O'Keefe reports that ALM is now indexing all law blogs in its search engine, and not just its own sponsored blogs. Kevin summarizes the significance of this -
ALM, a traditional legal publisher (National Law Journal and 34 other national and regional legal periodicals), is recognizing the importance of legal content published by bloggers.
ALM recognizing that legal blogs, other than those selected by ALM's Law.com Blog
Network, are of equal or greater importance than those in this network which the unknowing have labeled the best legal blogs.
Legal research of a legal index that did not include legal blogs would be incomplete.
Lawyers may self-publish via a blog without submitting articles to legal publications. Their content will be seen along side content published by legal periodicals.
ALM, and its owner Incisive Media, recognizing that user generated content may be as important as their own content in the well being of their publications.
Law.com could become a legal information center with more content produced by practicing lawyers, law professors, and law students than ALM's own reporters and editors.
Black Atlantans of all income groups were much more likely than whites to take out high-interest "subprime" mortgages when buying a home, making them more vulnerable in the ongoing mortgage meltdown.
Nearly half of blacks who bought a house in 2005 or 2006 ended up with a high-interest mortgage, compared with 13 percent of white home buyers, according to an Atlanta Journal-Constitution analysis of federal mortgage data.
The disparity was striking, even in a comparison of home buyers with similar incomes. Among black home buyers making more than $100,000 a year, 41 percent got a subprime mortgage, compared with 7 percent of whites in the same income category. ...
Many experts say that differences in credit score are clearly not the end of the story. "It doesn't explain all of it, or even most of it," said Dan Immergluck, a Georgia Tech professor who is an expert on mortgage lending. Immergluck said the heart of the problem lies in which lenders minority borrowers turn to. He said subprime lenders tend to market heavily in minority neighborhoods. ...
William J. Brennan Jr., a 39-year veteran attorney at Atlanta Legal Aid who focuses on mortgage lending issues, said he has reviewed case after case in which blacks were aggressively targeted for the worst loans on the market. Often, he said, subprime borrowers ended up losing the equity in their homes that they worked years to accumulate.
The Movie Gallery, which purchased Hollywood Video in 2005, filed a Chapter 11 Bankruptcy petition in Richmond, Virginia. According to the company website, the company has only one location in the Atlanta area. The company has set up a Reorganization Page on its web site.
Movie Gallery paid $1 billion to acquire Hollywood Entertainment, but has been struggling to repay that burden ever since. Movie Gallery's stock plummeted 25%, or 7 cents, to close at an all-time low of 21 cents on Tuesday.
Last month Movie Gallery announced that it would close more than 500 stores in an effort to consolidate assets. The company has been under pressure to compete with online rental businesses such as Netflix and Blockbuster's Total Access program.
Late on Monday, Movie Gallery also got interim bankruptcy court approval to access $140 million of $150 million in debtor-in-possession financing arranged by Goldman Sachs, which will help Movie Gallery to continue managing its business and pay its bills.
Movie Gallery operates 4,430 stores in U.S. and Canada under the names Movie Gallery, Hollywood Video and Game Crazy, though the Canadian operations are not included in the bankruptcy plan.
In announcing the plan, which had been expected for the past week, Movie Gallery said that "vendors should expect to be paid for postpetition purchases of goods and services in the ordinary course of business." The company also has asked for court permission "to continue to honor its current customer policies regarding merchandise returns and outstanding gift cards and customer loyalty programs."
Foreclosure actions for metro Atlanta hit an all-time high this month, with 6,809 properties in 13 counties threatened with public auction in November.
The October statistics, released Monday by Alpharetta-based Equity Depot, represent a 38 percent increase over September and a 49 percent jump when compared with October 2006.
"This is the largest swing we have ever seen from month to month," said Barry Bramlett, an Equity Depot vice president.
The total estimated value of properties entering foreclosure in metro Atlanta was $1,076,975,783.
A California company recently reported Georgia foreclosures had jumped by an alarming 75 percent from June to July, branding the state with the nation's second-highest foreclosure rate.
But there was one problem: The numbers were wrong.
RealtyTrac, one of the nation's leading sources of foreclosure statistics, reported 12,602 July foreclosure actions for Georgia. But that total counted more than 2,000 properties twice, and sometimes more, The Atlanta Journal-Constitution found in a review of the data.
There is little dispute that Georgia faces a foreclosure crisis, but the company's July report overstated the magnitude of the problem. After a preliminary investigation, the company said Friday that its data show foreclosure filings in July actually rose by 14 percent —- not by 75 percent.
A RealtyTrac executive acknowledged the mistake in an interview Friday.
"What we're doing isn't perfect," said Rick Sharga, the company's vice president of marketing.
"It's the best we can do, and we keep trying to get better."
In something of a "merger" between two bankrupt mortgage companies, Pat Flood, the former president of bankrupt Homebanc, has started a new mortgage company in the space formerly occupied by bankrupt SouthStar Funding.
Flood, who left HomeBanc on Jan. 12 after its board fired him because of plummeting stock values, said he invested $500,000 of his family’s money into a holding company to start Covenant Mortgage Corp.
“While the board fired me, the Lord promoted me, and Covenant is my new promotion,” said Flood, who was well known for mixing faith and business when he ran HomeBanc. He said he plans to operate Covenant in a similar fashion.
On July 2, Flood, who walked away from HomeBanc with a $4.5 million severance package, incorporated Atlanta-based Covenant Mortgage Corp. and Duluth-based Covenant Capital Corp., the latter a holding company formed to capitalize Covenant Mortgage. ...
The new company has just 20 employees and has been operating out of a 4,000-square-foot office at 400 Northridge Parkway at The Pointe just off Ga. 400 in the Central Perimeter business district. The space is part of the 110,000-square-foot office space vacated in April by subprime lender SouthStar Funding LLC after it filed for Chapter 11 bankruptcy protection.
Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.
A total of 223,538 foreclosure filings were reported in September, up from 112,210 in the same month a year ago, according to Irvine-based RealtyTrac Inc.
The number of filings in September was down 8 percent from August's 243,947, the firm said. ...
Rounding out the states with the top 10 foreclosure rates last month were Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana.
Atlanta-based homebuilder Beazer Homes, facing trouble on several fronts, has self-reported violations going back several years in its mortgage business. The release from the company can be found by clicking to their website. Here is a portion of the release -
The internal investigation found evidence that employees of the Company's Beazer Mortgage Corporation subsidiary violated certain U.S. Department of Housing and Urban Development ("HUD") regulations, particularly in relation to Down Payment Assistance programs, in certain Federal Housing Administration ("FHA") insured loans originated by Beazer Mortgage Corporation dating back to at least 2000. As discussed below, due to several uncertainties regarding the Company's ultimate liability from these matters, at this time it is not possible for the Company to determine the total financial statement impact related to the mortgage issues identified in the internal investigation.
The Company's potential future liability relates, in part, to the impact of providing reimbursement of losses arising from mortgage defaults in circumstances in which the Company's FHA-insured mortgage origination activities would have violated standard representations made to mortgage purchasers. In the event of fraud or certain misrepresentations at the time of the sale of such FHA-insured loans, the Company may be liable for losses suffered either by the mortgage purchaser, or HUD if any payment was made pursuant to an FHA loan guarantee. The factors influencing the extent of such potential future liability include, among other things, the number of FHA-insured loans originated by Beazer Mortgage Corporation, the percentage of such loans in which misrepresentations or fraud may have occurred, and the default rate, principal amount and losses associated with such loans.
Beazer Homes USA, the troubled Atlanta-based homebuilder, said Thursday that a five-month internal investigation found evidence that employees violated federal regulations governing its mortgage loan business "dating back to at least 2000."
The company also said it will have to restate financial earnings results for much of the past decade. Those restatements will likely boost net earnings cumulatively, but will cut profit for its fiscal 2006 year, Beazer said. ...
Today's Wall Street Journal has a very informative and detailed Page One article entitled "The United States of Subprime" (free as of this posting), by Rick Brooks and Constance Mitchell Ford. The article includes a great interactive map showing state by state figure for sub-prime loans. I highly recommend reading this article.
A couple blurbs from the article -
To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities. ...
To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.
The University of Chicago Faculty Blog has an ongoing discussion between Lynn LoPucki and Douglas Baird about Lynn's (and Joseph Doherty's) paper, "Bankruptcy Fire Sales," which you can read by clicking here.
The abstract of the article is -
This article reports the results of an empirical study comparing the recoveries in bankruptcy sales of large public companies in the period 2000-2004 with the recoveries in bankruptcy reorganizations during the same period. We find that, controlling for company values reported at case commencement, pre-filing operating profits, and post-filing operating profits, the recoveries in reorganization cases are more than double the recoveries from going concern sales. We attribute the low recoveries in sale cases to continuing market illiquidity and the corruption of the bankruptcy process by competition among bankruptcy courts for large, public company cases.
On Monday, we'll begin the October H2H. Lynn LoPucki, the Security Pacific Bank Professor of Law at UCLA Law School and current visitor at Washington University Law, will discuss his recent paper Bankruptcy Fire Sales with our Douglas Baird. This promises to be a lively consideration of key fundamental questions in bankruptcy. In this paper co-authored with Joseph Doherty of UCLA Law, Lynn challenges some recent influential work on bankruptcy (in particular, Douglas’s 2002 paper with 1985 Chicago Law grad and now-University of Southern California Dean Bob Rasmussen). Read the paper over the weekend and show up Monday ready to talk.
I am not in the Blog business, or the internet marketing business, but I do get frequent questions about the how-to's of blogging by lawyers I see from day to day. That comes from having one of the relatively few legal blogs in Atlanta (or Georgia). I also see occasional ads or posts about services that take advantage of the new market of potential legal bloggers. One thing that pops up is the subject of ghostwriting - having someone else write your posts for you. I also include in that definition having someone re-write your posts, over and above basic proofreading. I have seen new "services" offering everything from ghostwriting to hosting to "coaching."
Grant Griffiths sums up the ghostwriting issue pretty well in this post - don't do it. If someone advises you to do so, or offers that service, they likely do not understand the basic purpose of legal blogging (as a poster or reader) and are out to make a buck. If someone passes themselves off as a blog "expert," see if they have a history of success on their own blog(s), other than the one trying to sell their "expertise." Check their Google page-rank. These factors may tell you what their services are worth, and how long they may be around (and how much trouble you may have getting control of your data or domain name).
If you want a complete turnkey blog host and design service, try Lexblog (the designer of this site and dozens of others). You'll get a big jump in Google searches by going that route. If you want to start slow, register your own domain name, set up an account with Typepad. If you need a jump start on how to blog, just start reading blogs in your area of law, email the lawyers who have a blog, and read blogs like Copyblogger (which, by the way, has a very high page rank of 6). There is just no reason to look to people offering ghostwriting, or to people who label themselves as experts when they have scant successful blogging experience themselves. You'll get more by conversing with successful bloggers, participating in blog comments, and by writing posts.
It comes as no surprise that after being shut down by the FDIC, NetBank's parent company, NetBank, Inc., filed a Chapter 11 Bankruptcy petition in Jacksonville, Florida. The case is In re NetBank Inc., No. 07-04295, U.S. Bankruptcy Court, Middle District Florida (Jacksonville).
The parent of NetBank, a pioneer in Internet banking, filed for bankruptcy protection after the savings-and-loan became the first in three years to fail.
The filing in U.S. Bankruptcy Court by NetBank Inc. in Jacksonville, Florida listed assets of $87.2 million and debt totaling $42.4 million.
The bankrupt holding company plans to sell real estate it owns in Columbia, South Carolina and its captive reinsurance subsidiary M.G. Reinsurance Inc. The Chapter 11 filing occurred after a sale of the savings-and-loan fell through and it was taken over by the Federal Deposit Insurance Corp. following a shutdown of the unit by U.S. regulators.
Federal law prohibits the savings-and-loan subsidiary from filing for bankruptcy protection from creditors like its parent. Federally chartered banks cannot be reorganized and must be liquidated by the FDIC.
The Federal Deposit Insurance Corp. and Office of Thrift Supervision shuttered NetBank on Friday, putting its approval on ING Bank's assumption of the failed bank's insured deposits.
NetBank is the largest bank failure in Georgia history, is the second FDIC-insured bank to fail this year and is the first in the state since AmTrade International Bank of Atlanta closed in September 2002. ...
NetBank primarily issued subprime and adjustable rate mortgage loans backed by online national deposits. The company issued mortgage loans particularly in southwest Florida, an area hard hit by the housing slowdown and mortgage meltdown.
Further information about the closing may be obtained at the FDIC website (click here).
From the company's website --
On September 28, 2007, NetBank, Alpharetta, GA was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.
The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a business checking account, a Social Security direct deposit, and other relationships with the institution.
The NetBank web site will be closed from 3:00 pm to 6:00 EST, on September 28th and will reopen in a read only mode. Normal online services will be restored in the early evening Sunday, September 30th.
Donald Walton is the Acting United States Trustee for Georgia and Region 21 as of September 1, 2007, after former U.S. Trustee Felicia Turner resigned to join the American Bankruptcy Institute.
WASHINGTON, D.C.–Donald Walton has been appointed Acting United States Trustee for Georgia, Florida, Puerto Rico, and the U.S. Virgin Islands (Region 21) for an interim period effective on September 1, 2007, it was announced today by Clifford J. White III, Director of the Executive Office for United States Trustees (EOUST). Mr. Walton replaces U.S. Trustee Felicia Turner, who has resigned to work for a private non-profit organization.
Mr. Walton joined the U.S. Trustee Program in 1987 as an Assistant U.S. Trustee in Atlanta after practicing for 11 years with an Atlanta law firm. He has served as EOUST Acting Deputy Director in Washington, D.C., since April 2005. Mr. Walton received his undergraduate degree from the University of North Carolina at Chapel Hill and his law degree cum laude from the University of Georgia’s Lumpkin School of Law. He served three years active duty in the U.S. Navy.
The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. The Program has 21 regions and 95 field offices. Region 21 is headquartered in Atlanta with additional offices in Macon and Savannah, Ga.; Miami, Orlando, Tallahassee, and Tampa, Fla.; and San Juan, Puerto Rico.
Contact: Jane Limprecht, Public Information Officer
Executive Office for U.S. Trustees
(202) 305-7411
SM: How do you propose to change the bankruptcy law?
HS: There are a couple of different types of changes we propose. One is to make filing for bankruptcy less complicated. One of the side effects of the new law — and I'd like to think Congress didn't intend this — is the phenomenal increase in paperwork and cost associated with filing, and it's therefore denying access to people who can't afford them. So one type of change we'd like to see is a cutback on the paperwork and the expense of bankruptcy. The other is that bankruptcy laws be changed to give people more tools to deal with foreclosures, including these exploding adjustable rate mortgages (ARMs) you see now, where payments just go so high because of the interest rate adjustments. So we propose changes to make bankruptcy more useful.
SM: What's an example of that?
HS: Typically, when people face a foreclosure, bankruptcy has allowed them to take up to five years to catch up on their arrearages. In a Chapter 13 case, [usually you would] start paying your monthly mortgage payment of, say, $1,000. You [pay] arrearages over 12 months.... Bankruptcy allows you to do that. That's worked well for people who had a temporary income interruption that caused them to fall behind on payments. [Our proposal] gives three, four or five years to catch up, instead of typically two months.... The two months, or slightly longer, is how long mortgage companies will usually give debtors to catch up outside of bankruptcy.
That doesn't work so well when your monthly payment has been bumped up because of an adjustable rate mortgage. That's the problem suddenly facing a lot of people. It doesn't work if you can't even afford the monthly payment. Our proposal is to take the ARMs and re-amortize them over 30 years as a fixed rate. They'd do that as part of Chapter 13 bankruptcy. [This would apply] if your house was overappraised or it's fallen in value. Say you got a 100% mortgage for your $200,000 house, and now it's worth $170,000. You re-amortize it over 30 years and pay off the mortgage that way. That's the crux of our proposal — strip down the mortgage to the current value of the house and re-amortize that over 30 years. We're hoping that will be introduced in Congress in September.
This issue has come up several times in the last few days. In fact, I as type this, Neal Boortz is discussing it on his radio show. He even called in Clark Howard to discuss it. First, and most important, I am not a CPA! If you have questions, please discuss it with a qualified tax expert.
The basic issue is this - if you borrow money, and the debt is later forgiven, it may be characterized as taxable income and you may get a Form 1099 from the lender. For example, if you borrow $1,000 it is usually not taxable income because you have to pay it back. However, if the lender tells you to forget about it and "forgives" the debt, you have $1,000 that you don't have to pay back and it is treated as income. Similarly, if a lender forecloses on your home, and later sells it for less then you owe, the lender may "forgive" the difference and send you a 1099.
Does this mean you will have significant tax liability? Maybe, maybe not. At least two exceptions apply to the bankruptcy context.
Bob Lawless discussed this issue on Monday with this article on the Credit Slips Blog. Here are the exceptions to the potential tax hit (emphasis mine) --
(1) There are numerous exceptions to the COD rules. For example, "qualified farm property" is an exception. Also, debt canceled in a bankruptcy case is not counted as income. Congress can fix this, if it wants, simply by making excluding from income debt canceled in a bona fide foreclosure or workout on the debtor's primary residence.
(2) The New York Times story relates the tale of one taxpayer where Wells Fargo had taken back the residence on a credit bid of $1 because no one else appeared at the foreclosure sale. Wells Fargo then reported the entire difference between the mortgage debt and $1 as COD income to the IRS. .. The IRS has enforcement authority over the accuracy of the matters reported to it, and it should make sure financial institutions report the difference between the outstanding debt and the full appraised value of the residence.
(3) The COD rules do not apply when debt is canceled while the debtor is insolvent. One might think that anyone who gives up their home in foreclosure is insolvent, but that may not necessarily be the case. If the mortgage foreclosure makes the debtor solvent, then the COD rules apply to the extent the canceled debt made the debtor solvent. Normally, the burden of proof to show insolvency would be on the taxpayer, as it is for most everything in tax law. The IRS could ease the burden of proof rules here and make it easier for homeowners to show insolvency at foreclosure and avoid COD income.
The applicable Code section is 26 U.S.C. § 108, which provides, in part, the following --
(a) Exclusion from gross income
(1) In general
Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm indebtedness, or
(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness.
(2) Coordination of exclusions
(A) Title 11 exclusion takes precedence Subparagraphs (B), (C), and (D) of paragraph (1) shall not apply to a discharge which occurs in a title 11 case.
(B) Insolvency exclusion takes precedence over qualified farm exclusion and qualified real property business exclusion. Subparagraphs (C) and (D) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.
(3) Insolvency exclusion limited to amount of insolvency In the case of a discharge to which paragraph (1)(B) applies, the amount excluded under paragraph (1)(B) shall not exceed the amount by which the taxpayer is insolvent.
In a move that was not exactly unexpected, First Magnus filed a Chapter 11 petition in Tucson, almost a week after it shut down. First Magnus recently acquired local lender Amtrust Mortgage, which closed with the rest of First Magnus.
From the linked Forbes article -
The lender's total assets were estimated at more than $942 million and its total liabilities at nearly $813 million in the company's bankruptcy petition, which was filed in U.S. Bankruptcy Court in Tucson.
"After carefully considering our options, a Chapter 11 filing provides First Magnus with the ability to realize the highest value of our assets for our creditors," First Magnus President and Chief Executive G.S. Jaggi said in a news release.
First Magnus Financial Corp., a mortgage lender that is one of Tucson's only locally based national firms and one of the area's major employers, is no longer writing loans as of this morning...
An e-mail Wednesday evening told branch managers of Great Southwest Mortgage, the retail arm of First Magnus, that the parent company was no longer funding loans. First Magnus ranked 61st in the latest Star 200 survey of the biggest employers of Southern Arizona, reporting 800 full-time-equivalent local employees. "We will not be funding loans tomorrow," wrote Erik Lutz, the president and founder of Great Southwest....
First Magnus has described itself as "one of the largest privately held mortgage banking operations" in the country, lending in all 50 states. It funded loans in excess of $30 billion in 2006, has more than 350 offices and more than 5,000 employees.The company's rapid growth drew national plaudits. In 2005, First Magnus made the list of Inc. magazine's 500 fastest-growing private companies. It ranked 161st on the list with 2003 revenue of $336,367,423 and annual sales growth of 206 percent.
"Some lenders - HomeBanc was one of them - pretty much insisted on doing their funding by check," Hudnall said. Given HomeBanc's regular volume of business and the average size of real estate transactions, Logan estimated that Georgia lawyers are looking at a minimum of $10 million worth of collateral damage from HomeBanc's failure.
"Word on the street" in Atlanta puts the figure higher, said Sanford J. Gerber of Gerber & Gerber, a local real estate firm.
Lawyers with deals in the pipeline have to be able to write good checks themselves or face possible trouble with the State Bar of Georgia, which takes a dim view of attorneys who write rubber checks.
"It's putting attorneys in a very bad position," Gerber said.
The Atlanta Business Chronicle reports that Atlanta real estate law firm Neel & Robinson sued Homebanc in Fulton County Superior Court on July 8, 2007, "alleging HomeBanc bounced checks totaling $1.7 million for real estate closing costs, beginning in late July."
After discontinuing its loan business and selling some assets to Countrywide earlier this week, Atlanta based Homebanc Mortgage Corp. and subsidiaries filed Chapter 11 petitions in the District of Delaware yesterday (Case No. 07-11079).
Shares of Countrywide, the biggest U.S. mortgage lender, have lost a third of their value this year, wiping out $9.3 billion of market capitalization that took three years for the Calabasas, California-based company to generate. They fell as much as 14 percent today, the most since the 1987 market crash. Washington Mutual, the largest U.S. savings and loan, lost 2.2 percent and MGIC, the No. 1 mortgage insurer, fell 13 percent.
The nation's biggest lenders may face a cash shortage because investors who buy their loans aren't bidding and bankers have cut off credit lines. The fallout has toppled at least 70 mortgage companies and half a dozen hedge funds that bought their loans, and stalled buyouts including MGIC's takeover of Radian Group Inc. Regulators in the U.S., Europe and Japan have responded by pumping money into the banking system.
``Any company that has products related to home sales is in trouble,'' said James Stratton, chief executive officer of investment firm Stratton Management Co. in Plymouth Meeting, Pennsylvania. ``Instead of a soft landing, it's a hard landing,'' said Stratton, whose company has $3 billion in assets.
Countrywide fell $1.76 to $26.90 at 12:35 p.m. in New York Stock Exchange composite trading, after reaching $24.71 earlier today. Washington Mutual dropped 78 cents to $35.98. MGIC lost $5.62 to $36.17.
The announcement comes a day after American Home Mortgage, once one of the nation's biggest lenders, filed for Chapter 11 bankruptcy protection. Also on Monday, two other large mortgage firms in Houston and Cleveland said they were suspending new loan applications.
HomeBanc, in a statement on its Web site, said it is unable to borrow on its credit facilities and was unable to meet its mortgage loan funding obligations as of Monday.
"Accordingly, the company does not anticipate funding any future mortgage loans and is no longer accepting any mortgage loan applications or funding any mortgage loans previously originated but not yet funded," HomeBanc said.
After a 24 hour travel day ending yesterday, it is back to work. It was a great trip. We flew into Krakow, Poland, and then took a bus ride to the village of Skoczow, Poland (Google map), where we spent a week working in a camp. Krakow is the former capital of Poland (until 1596) and was left largely untouched in WWII. It's amazing historic square is a UNESCO World Heritage Site. Some of the landmarks of the downtown square are St. Mary's Basilica (Wikipedia), Cloth Hall (Wikipedia) and Wawel Castle (Wikipedia).
On Saturday, we toured Auschwitz and Birkenau (Auschwitz II) concentration and extermination camps, about 50 km west of Krakow in the city of O?wi?cim, Poland. It is still hard to wrap my mind around what happened there and the other smaller camps.
I need a vacation to rest from the trip, but somewhere there are Bankruptcy cases, mail and e-mails to read. Pictures of the trip are here.
Investment bankers began shutting off credit to American Home, leaving the lender unable to fund at least $750 million in loans and stranding thousands of borrowers, according to a U.S. Securities and Exchange Commission filing by the company. ...
American Home specializes in so-called Alt-A mortgages, an alternative for A-rated borrowers who can't satisfy all the terms for a regular ``prime'' mortgage. The company was the 20th-largest Alt-A lender in 2006, according to March data from trade publication Inside Mortgage Finance.
Bids from investors for American Home's loans began falling this year after defaults on U.S. subprime mortgages rose to the highest level since 2002. Investors were concerned that lax underwriting standards and growing fraud might lead to rising defaults on Alt-A loans.
The case is In re American Home Mortgages Holdings Inc., No. 07-11047, U.S. Bankruptcy Court, District of Delaware (Wilmington).
After trips of of town the last couple of weeks, I get to start my vacation. I'll be gone until August 6, so I'll have a lot of catching up to do when I return.
ATLANTA — Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country. ...
A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.
For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.
While the surge in foreclosures in other big cities like Cleveland, New Orleans and Detroit can be attributed to local economic challenges, Atlanta more closely reflects the nation. Its unemployment rate, 4.9 percent in May, is low and close to the national average of 4.5 percent. And businesses here are adding jobs, albeit at a slower pace than they were last year.
Some photos of the Peachtree Road Race and the 55,000 runners (not including me - the knees did not cooperate again this year). I am a couple blocks off Peachtree, around the 2 mile mark of the race.
The world-class elite runners are the first to go by. The winning time was 28:01, or about 4:30 per mile -
Other "elite" runners are in the field -
The masses just pass the 2 mile mark -- mostly downhill so far. It will look like this for about the next 90 minutes as 55,000 pass by -
The Code section in question is Section 522(p), which provides as follows -
(p)(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 [$125,000 (added by BAPCPA 10-17-05) effective 4-1-04. Adjusted every 3 years by section 104.] in value in--
(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(C) a burial plot for the debtor or a dependent of the debtor; or
(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.
(2)…. (B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State.
Professor Pottow opines that the limitation in § 522(p)(2)(B) violates the Due Process clause of the Fifth Amendment of the Constitution by discriminating against interstate movers.
Here’s the problem. The Feds could exercise their Supremacy Clause power and pass hard caps in Bankruptcy for everyone. (Cf. Recommendations of NBRC.) But what they’ve done here, with 522(p)(2)(B), is made a cap but then made an exception to the cap for intra-state movers. What this means, therefore, is that the cap only applies to inter-state moving debtors. As such, it is a direct discrimination on those who move states. Moreover, this is not like a “vesting requirement,” which has survived constitutional scrutiny in previous cases, because the rule is not that the debtor keeps his old exemptions until he vests into the new ones. Rather, the rule is if he moves from Texas to Florida, he forfeits his unlimited exemption under each state’s laws just because he was an inter-state mover – a “penalty” visited by neither state’s laws!
$168.6 million (so far). It would have been nice if much of that had gone to Delta's home town firms.
Twenty-eight firms, groups and individuals filed papers in U.S. Bankruptcy Court in New York over the last two weeks seeking payment for several months of work for Delta as well as final approval for all their bills while the airline was in Chapter 11. A hearing on the requests is set for Aug. 20. Any more requests filed in the future would add to the total.....
Exceptions include a $10.5 million "restructuring fee" Delta owes financial adviser Blackstone Advisory Services LP and a $2.52 million "success fee" it owes financial adviser Babcock & Brown LP.
The largest amount of total fees and expenses billed to Delta by a single firm during the Chapter 11 case was $40.6 million by Davis Polk & Wardwell, the airline's chief bankruptcy firm, records show.
Tina Brozman, the former chief judge of the U.S. Bankruptcy Court in Manhattan and the co-head of Bingham McCutchen’s restructuring practice, died yesterday after a long battle with cancer. She was 54. ...
At 32, Brozman (Fordham Law) became the youngest bankruptcy judge ever appointed in the Second Circuit. Prior to becoming a judge, she was a partner at Anderson Kill; she joined Bingham McCutchen in 2000 after stepping down from the bench. Most recently, Brozman had worked on the high-profile bankruptcy of Refco, representing the trustee of Refco Capital Markets. The National Law Journal recently named her one of the 50 Most Influential Women Lawyers in America.
Triatek, Inc. filed a Chapter 11 petition in the Northern District of Georgia on June 18, 2007, Case No. 07-69507. Assets and liabilities are both listed as between $1 million and $100 million. Triatek lists "Triatek World Labs, Inc." Triatek International" and "Triatek Lighting, Inc." as other names used in the last eight years.
From their website --
TRIATEK founded in 1985, is a growing, privately held company based in Norcross, Georgia. TRIATEK manufactures a complete line of building control products that seamlessly integrate with most building automation systems on the market including but not limited to Johnson Controls Metasys™, Siemens System 600 Apogee™, Automated Logic Webctrl™, Andover Controls, Teletrol, Alerton Technologies, and many others. Additionally, most of our products are LON, BACnet and MODBUS compatible, and are, therefore, poised to be at the forefront of the industry's inexorable move towards open protocols and integration.
As with Anna Nicole, Bankruptcy meets soap opera. Judge Cristol in the Southern District of Florida ruled today that the company set up by OJ's daughter -- Lorraine Brook Corporation -- was a "sham" and "set up to defraud creditors." A written order has not been entered on ECF as of the time of this post.
Judge A. Jay Christol accused Simpson of setting up the company in his children's names in a scheme to "defraud his creditors," calling the effort a "sham."
He ruled that Fred Goldman, who filed a wrongful-death lawsuit against Simpson in 1997 after Simpson was cleared of criminal charges in the murders, is now the corporation's largest creditor. That civil suit found Simpson liable for the deaths, and ordered him to pay $33.5 million in damages.
A meeting is planned next week in which Goldman will consider whether he wants to go after the book rights or pursue other options. If he wins the rights and decides to publish, he wants to rename the book "Confessions of a Double Murderer," according to his attorney. ...
"This judge today found that O.J. Simpson engaged in a scheme to defraud Mr. Goldman in connection with the writing of this book. The payments that were made by the publisher to Mr. Simpson for this book that Mr. Simpson hid from Mr. Goldman, so it's a huge victory," Battista said. The attorney said he believes Lorraine Brooke Corporation filed for bankruptcy in Florida as an "end run to stop a California state court from ordering and concluding an auction sale of the book rights."
Asked about the judge's accusation that setting up the corporation was fraudulent, Whittle told CNN, "We don't believe that. The corporation was formed under the articles of corporation in Florida. We're legally allowed to be an entity. ... Everything was done legitimately. In the United States, you're entitled to form a corporation. The judge's reference, I think, is boiler-plate language that he was utilizing to make his ruling."
Emphasis mine, to stress the interesting legal theory advanced by counsel.
"If I Did It," the still-unpublished book in which O.J. Simpson writes in disturbing detail about how he might have killed ex-wife Nicole Brown Simpson and Ron Goldman, was Simpson's daughter's idea, ABC News Law & Justice Unit has learned.
Simpson's eldest daughter, Arnelle Simpson, came up with the concept for the book along with a friend, Raffles Van Exel, according to a deposition she gave this week.
Click here for the transcript of the deposition of Arnelle.
This is off topic as far as Bankruptcy, but interesting as far as the relationship between Judges and Blogs.
One of my favorite shows was "Flip This House" on A&E Network. The show featured renovations and "flips" of houses by Richard Davis and his company, Trademark Properties, of South Carolina. After the first season, a dispute arose between Trademark and A&E, leading to a lawsuit filed in Federal Court in South Carolina that is discussed in detail in the Flip This Lawsuit Blog. It appears that Davis or others at Trademark have posted on this Blog.
As discussed in the Flip This Lawsuit Blog, at a recent hearing the Judge had plenty to say about the Blog, which apparently has no relationship or affiliation with the litigants or lawyers. Taking liberty to cut & quote the Judge's comments -
One other thing I was not going to mention today, because I just thought it might be best to ignore it, but upon reflection, I think it’s a matter of such seriousness that I do need to mention it.
It’s been brought to my attention that there is a web blog entitled Flip This Lawsuit. I haven’t looked at that blog, I haven’t studied it to see what it says. I have been told what it says.
Now, I’ve never had this happen before, and I consider it a very, very serious matter. At first blush, it appears to me to be an attempt to influence this lawsuit in an improper way. We can’t tell what’s happening there until we draw a jury.
But at some point in time, if I’m convinced that that has been the result of such a blog, in other words, if we have jurors that come in here and they’ve read that blog, and upon reading that, they cannot give the defendants a fair trial, then that is a serious matter, and it will be considered by such as this court. And an appropriate punishment and sanctions will be handed out. I’m not sure what those will be. I think you lawyers know that if you did that, what would happen to you, you would probably be looking for another profession. So that’s how I feel about that.
Now, whether what’s going on that blog is of such a nature that it in and of itself, whether members of the public read it and act on it or not, warrants a sanction by this court, and some sort of obstruction of justice, some sort of contempt of this court, I don’t know. But it’s because of those consequences that I see fit to bring this to your attention. This is a serious matter. This is a serious court. And we will not permit its function to be undermined in such an unseemly fashion.
Now, who is responsible for that blog? I don’t know. It may be that I’ll have to ask the FBI to look into it. It may be I’ll have to ask the U.S. Attorney to get the grand jury to look into it, I don’t know. Those are things down the road. But it seems to me that the information I have certainly shows that the defendants don’t have their name on this blog and that the plaintiff does.
And I would think that good, prudent action on his part would have gotten it off of there a long time ago. And that’s all I’m going to say on that. But when we get to the end of this case at some point, we’ll look at it again and see who is responsible; what the effects are and what action we should take.
But it just felt like that it is such a serious matter and such an unthinkable thing for a litigant to do in this court, that it needed to be commented on. I mean, we are not in Boy Scout camp; we are in serious court here and we don’t do business that way. And I’m not going to permit litigants in this case to do business in that way. Okay?
It is not clear from these comments whether or not the Judge understood that the Blog was not affiliated with either party or their lawyers or representatives, but it will be interesting to see what comes of this. Assuming there is no gag order, would a party be subject to sanctions for posting on a blog, as opposed to commenting to a reporter? We'll see....
The story does not end there, and we have an Atlanta connection. A&E replaced the Trademark Team in the second season of Flip This House with two new teams - one from Atlanta. Dale Russel, a reporter for the "I-Team" of Fox 5 Atlanta has recently done several news reports on the Atlanta team. You can link to the reports from the Fox 5 page linked above, and you can read more about it on Dale's Blog.
NEW YORK, June 11 (Reuters) - Tweeter Home Entertainment Group Inc. (TWTR.O: Quote, Profile, Research) filed for Chapter 11 bankruptcy protection from creditors on Monday after struggling with declining prices, falling customer demand and increased competition.
The Canton, Massachusetts-based electronics retailer and seven affiliates filed for protection from creditors with the U.S. bankruptcy court in Wilmington, Delaware. Tweeter listed $258.6 million of assets and $190.4 million of debts in its bankruptcy filing.
WASHINGTON (AP) - Fence builder American Landmark Group Inc. filed for Chapter 11 protection in Atlanta.
The Marietta, Ga.-based company's bankruptcy petition on Wednesday listed assets and liabilities each in the range of $1 million to $100 million.
Through its American Landmark Fence Co. subsidiary, the company says it is Georgia's largest fence builder.
A variety of materials suppliers and other vendors were listed among the creditors holding the 20 largest unsecured claims against the company.
The largest unsecured claims include Morrow, Ga.-based Merchants Metals' $126,401 claim, G-Plex Inc. and Peach State Manufacturing's $100,563 claim, and Atlanta-based Home Depot's $65,070 claim.
The company also owes about $50,062 in credit-card debt to Bank of American Corp.
American Landmark Group said it expects to have funds available to pay unsecured claims.
Update June 27, 2007 - I received a few emails (mainly people who lost deposits) that the company had gone out of business, and was no longer answering phones. The debtor has now filed a motion to sell substantially all of its assets on an expedited basis.
Meyer-Sutton Homes, Inc. and Meyer-Sutton Land Acquisition Inc. filed Chapter 11 petitions in the Newnan Division of the Northern District of Georgia on June 4, 2007. Case Nos. 07-11307 and 07-3006.
From the AP -
WASHINGTON — Georgia builder Meyer-Sutton Homes Inc. filed for protection from creditors Monday in the U.S. Bankruptcy Court in Newnan, Ga., the result of a "sudden and dramatic" decline in business.
Meyer-Sutton, of Fayetteville, Ga., listed total assets of about $44 million and debts of $40 million in its bankruptcy petition. Meyer-Sutton Homes and affiliate Meyer-Sutton Land Acquisition Inc. filed for Chapter 11 protection. Both companies are owned by James W. Buchanan.
"The housing market has suffered a dramatic decline in demand with the result problems of excess inventory and compressed profit margins," Buchanan said in court papers.
According to its bankruptcy filing, the company has cut new construction starts to two per month from 25 per month.
"The decrease in construction activity, along with a decrease in closed sales" forced Buchanan to put his company into Chapter 11, he said in court filings.
Meyer-Sutton owes its bank lenders about $26.5 million and its trade creditors $2.8 million. Atlanta's Stock Building Supply, owed $1.3 million, is its biggest unsecured creditor.
Founded in 1994, Meyer-Sutton Homes had $36.2 million in revenue last year. The land acquisition company brought in an additional $3.5 million. ... Meyer-Sutton intends to remain in business during its reorganization.
Small tidbit from the news wire. The family from the American Chopper television series have been sued for fraudulent transfers arising from the bankruptcy filing of their original business, O.C. Ironworks.
According to court papers, Paul Teutul Sr. transferred that business to Paul Teutul Jr. The business was called O.C. Iron Works. Paul Sr. continued to serve as a consultant.
Paul Jr. then sold the assets of the business to Orange County Ironworks LLC, which is owned by his brother, Daniel Teutul.
According to the complaint filed by Bankruptcy Trustee Tom Genova, the Teutuls systematically moved the equipment, employees, accounts and other assets of the steel fabrication business O.C. Iron Works to a new company, Orange County Ironworks LLC, but the new company didn't pay fair compensation. The Teutuls then had O.C. Iron Works file for bankruptcy, leaving creditors out in the cold.
The complaint also names Orange County Ironworks LLC as a defendant.
I am a little late on this, but the Georgia Bankruptcy Blog was Blawg of the Day on April 27, 2007 at the Inter Alia Blog. That will teach me to get behind on reading and posting. Thanks to Tom Mighell and Inter Alia for the recognition.
Off topic, but I found this interesting. The North Carolina law firm of Helms, Mullis & Wicker has a new branded Honda Element (no surprise it is a hybrid) to use for 6,800 annual courier trips. Thanks to Larry Bodine for the tip.
And today, with Chapter 11 filings at multi-year lows, law firms are ramping up their restructuring practices in anticipation of a turn in the cycle. Skadden says it plans to add 24 lawyers to its practice, bringing it to 120. Kirkland & Ellis says it’s boosted its department to 85 lawyers, an increase of 25% from last year. And Weil Gotshal says it expects to add up to a dozen lawyers over the next year; in March, Harvey Miller — one of the pioneers of Big Law bankruptcy work — left investment bank Greenhill & Co. to rejoin Weil.
Hopefully some of the work will trickle down South.
NEW YORK, May 10, 2007 – O’Melveny & Myers LLP announced today that Michael J. Sage, formerly the co-chair of Stroock & Stroock & Lavan LLP’s Financial Restructuring Group, along with fellow former Stroock partners Gerald C. Bender, Doron Lipshitz, and Patricia M. Perez, have joined O’Melveny’s New York office. Michael Sage will be co-head of O’Melveny’s Business Restructuring and Reorganization Group, along with San Francisco-based partner Suzzanne Uhland.
Financial Guy Dave Ramsey will be speaking at North Point Community Church in Alpharetta on Sunday, May 6, 2007. Service times are 9:00 am, 11:00 am, and 1:00 pm. I suspect that the topic will not focus entirely on financial issues, but Ramsey's faith plays a key role in his financial advice. You can listen to him locally from 3:00 to 6:00 pm on WGST. This is not a commercial or recommendation for Dave, as I have not listened to him enough to reach a firm opinion, but I can say that his show is much more practical, if not in-your-face, than the popular financial advice on the radio in Atlanta for the last few years, which tends to pander to the listeners and callers and tell them only what they want to hear, correct or not.
On the same subject of Christian-based financial counseling and information, Crown Financial Ministries, based in Atlanta, is another resource. I have reviewed these materials and found them practical, even beyond the faith-based nature of the materials.
I know ... I am falling behind. Real work is getting in the way. I have a stack of Georgia and other cases ready to go and hope to get to them in the next few days. Until then, if you want a recap of a few of the Georgia cases entered in the past year, the latest Atlanta Bar Bankruptcy Newsletter is out.
It appears as though the term "sub-prime mortgage" is going to be thrown around quite a bit in the near future, especially in the Bankruptcy context. Two of the largest sub-prime lenders are now in Bankruptcy. New Century has filed a Chapter 11 and is still operating, at least as of today. Atlanta based SouthStar has closed and is liquidating in a Chapter 7.
A sub-prime lender is one who lends to borrowers who do not qualify for loans from mainstream lenders. Some are independent, but increasingly they are affiliates of mainstream lenders operating under different names.
Sub-prime lenders seldom if ever identify themselves as such. The only clear giveaway is their prices, which are uniformly higher than those quoted by mainstream lenders. You do want to avoid them if you can qualify for mainstream financing, and I’ll indicate how shortly.
There are lenders who offer both prime and sub-prime loans, and one of them is referred to below. For borrowers who aren't sure where they stand, dealing with a lender who offers both has a distinct advantage. They will try to qualify you for prime and only if that fails will they drop you to subprime. Lenders who are strictly subprime might refer a prime borrower to an affiliated prime lender, but their financial interest dictates otherwise.
Subprime lending (also: B-Paper, B-tier, non-prime, near-prime, special finance, second chance lending) describes loans to customers having a credit score below 620[1], although there is no official definition -- others consider subprime loans to borrowers with credit scores below 650 or 660, for example.
Typically, subprime customers are those who do not qualify for prime market rates because of a low credit score. Subprime loans are considered more risky, and generally have a higher rate of default than prime borrowers. Subprime lending programs were created for borrowers unable to qualify for loans under traditional, more stringent criteria. Subprime borrowers tend to pay more for the loans to compensate for the increased probability of future default. This charge may come in the form of a higher interest rate, regularly charged fees, or an up-front fee.
According to the 2001 Expanded Guidance for Subprime Lending Programs, a subprime loan refers to "... the credit characteristics of individual borrowers. Subprime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories. Subprime loans are loans to borrowers displaying one or more of these characteristics at the time of origination or purchase. Such loans have a higher risk of default than loans to prime borrowers."
The recent subprime mortgage meltdown has made bankruptcy types more confident that a spate of filings might be on the way. On Monday, New Century entered Chapter 11, the largest of the subprime lenders to file thus far. Here’s the company’s press release and Chapter 11 petition, filed in Delaware. Winning the New Century assignment: Suzzanne Uhland at O’Melveny, which has long represented the company in other matters; local counsel is Mark Collins of Richards, Layton & Finger. Other mortgage companies that recenty filed include ResMae and Ownit.
Peter includes a blurb from a New York Times Q&A with Greg Milmoe, head of the Bankruptcy Practice group of Weil, Gotshal & Manges.
Although I have not focused on the issue here, other blogs have discussed the taking of the sub-prime lending market. The latest shot is the Chapter 11 filing of New Century Finance (see also here). one of the largest sub-prime lenders in the country. New Century also laid off 3200, more than half its workforce.
During the real estate boom earlier this decade, subprime lenders such as New Century, which is based in Irvine, Calif., made loans that carried high monthly payments to people with poor credit, making them far more likely to enter foreclosure. In Massachusetts, those subprime loans are being blamed for a sharp increase in foreclosure filings against homeowners last year. State and federal regulators said that many subprime borrowers were given loans for houses they could not afford.
New Century made $52 billion in subprime loans nationwide in 2006. In Massachusetts, New Century was the third largest subprime lender in 2005, according to the most recent available data. ....
On March 13, the banking commission ordered New Century to cease selling mortgages in the state after the company said it expected to post a fourth-quarter loss and would restate earnings in the two prior quarters.
New Century is not the first recent filing -
In early February, some home buyers were left in the lurch when Connecticut-based Mortgage Lenders Network USA Inc. experienced a cash crisis and could not fund its loans. Some customers were eventually able to close on their loans, or find a new lender, but others were not able to complete their home purchases.
Mortgage Lenders Network eventually filed for bankruptcy protection, and regulators began closely monitoring other lenders in the state.
Francis Pileggi at the Delaware Litigation Blog has posted a summary of comments made by Delaware Supreme Court Chief Justice Myron Steele at the Spring meeting of the American Bar Association, concerning developments in Delaware corporate law and recent Delaware Supreme Court cases. Francis credits Mark Saltzburg with the summary of the speech. I have included only a short excerpt here:
First, Chief Justice Steele noted that the Delaware Supreme Court had just heard argument in the Trenwick America Litigation Trust litigation that may result in a decision on whether creditors may bring a cause of action for violation of fiduciary duty where a company deepens its insolvency in a way that further damages creditors after any residual interest of shareholders is out of the picture. Typically, fiduciary duties are only owed by directors to shareholders and not to creditors. Steele noted, however, that in an earlier decision by former Delaware Court of Chancery Chancellor William Allen in the Credit Lyonnais case, the court commented that directors may owe creditors a fiduciary duty where a company is in the vicinity of insolvency.
The Atlanta-based airline (Pink Sheets: DALRQ) said it plans to give its 39,000 noncontract employees 3.5 percent of the outstanding Delta common stock, which is estimated to be worth about $350 million. Eligible employees also will get cash lump sum payments worth a total of $130 million. The cash lump sum payment represents 8 percent of the noncontract employees' 2006 earnings
Delta also plans to adopt an industry standard pay structure over time, beginning with a pay increase of 4 percent at top of scale in summer 2007.
...
A large part of compensation for company management will be at-risk and tied directly to Delta's and individual performance. The new program for management includes equity awards of restricted stock, stock options and performance shares. In the aggregate, the equity awards to 1,200 managers represent about 2.4 percent of Delta's value upon emergence from Chapter 11 -- about $240 million
The Western part of the country saw half as many bankruptcy cases as Bucharest, i.e. 914 against 1,931. The county with the fewest cases of bankruptcy is Calarasi, just 41 cases, i.e. less than 0.4% of the 10,431 cases reported so far. Bucharest is followed by Bihor (with 5.5%), Brasov (with 4.95%) and Galati (with 4.1%). The study took into consideration companies undergoing bankruptcy proceedings, those under administration and also companies for which bankruptcy proceedings have ended, irrespective of the year when the proceedings were started.
I post this only to note that if anyone wants a great vacation, fly into Budapest and then take a car or train ride over into Timisoara, Romania (keeping in mind the lower rate of Bankruptcies there). I have done this on two occasions and it is a great trip: Centuries old churches and castles, old villages, Roman ruins (watch for rattlesnakes), the Timisoara square (the site of the start of one of the last Revolutions against the Soviet Republic in 1989) and the Danube River that splits Buda and Pest. You can go further into central Romania to Transylvania, the home of Dracula (so the story goes).
In modern culture, for fans of Borat, the home village of the character of Borat was the real village of Glod, Romania. The scenes were actually filmed in the Village with the real residents. The villagers were not happy (after they were informed so by a lawyer) and filed a suit later dismissed as "vague." Sadly, the Roma people (generally referred to as "gypsies") are still treated far worse than minorities in the United States.
Here is a picture taken in the village of Petris, north of Arad.
These are trips you don't often see on Rick Steves or the Travel Channel, but they provide a glimpse into history. Now back to Bankruptcy news....
But what, exactly, do the "Super Lawyer" Editors think of the ethical rules that the lawyers must follow? I was browsing the Super Lawyers website tonight and clicked on the Georgia section to see who was listed. What do we see at the bottom of the page, in small print? This gem --
NOTE: Use of the Super Lawyers Web site is subject to Terms & Conditions
No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.
Blah Blah Alabama Rules of Professional Conduct Rule 7.2(e) (2002).
Interesting that they deem the content of the rules as "Blah Blah." I am sure someone will know how to archive this page before it is edited. I expect this slip to be discussed in greater detail on the Bob Loblaw Law Blog.
I received a message from the ABI that several Bankruptcy Blogs would be featured or linked from the ABI Homepage. I have seen what I believe is a draft of the page, but it should go "live" soon. It appears to acts as a newsreader and show all new posts from the bankruptcy Blogs. It will be a great way for viewers (presumably ABI members) to keep up. I'll post an update when it goes live.
Gym operator Bally Total Fitness Holding said on Thursday it may have to file for Chapter 11 bankruptcy protection from creditors if it is unable to restructure its debt.
The company said it has $45 million in cash and $827 million in outstanding debt, adding that it is "exploring a broad range of options" for reducing it. ...
Bally also said it expects to post a loss from continuing operations in 2006, with membership revenue falling 3%, or more than $25 million less than 2005.
Bally has been struggling in recent years to attract new members. In 2005, the company put itself on the block, but was unable to find a buyer.
...
Elson said the company's strained finances have prevented it from making much-needed upgrades to its facilities in recent years, making it vulnerable to competitors offering sleeker amenities to consumers.
After I started the Georgia Bankruptcy Blog, it became clear that many of the Bankruptcy cases also involved discussion of corporate and fiduciary litigation, another area of practice. As you can see from the right-hand side of this page, there is a category for Corporate and Fiduciary Litigation.
Naturally, the next step was the creation of the Georgia Litigation Blog. While this was actually set up several months ago, I could not devote the time in getting it up and running to the extent I wanted. While this is still true, I have decided to officially go live, and add a link from this site. Additionally, I will soon add a co-author/editor to add some additional content and another perspective. The next goal is to move to a professionally designed and hosted site, such as this one.
As of this date, the Georgia Bankruptcy Blog is in the Top 100 All Time for all legal blogs out of the 1699 indexed, according to the Justia Blawgwatch. Thanks for googling and reading!
In actuality, RPost protects the sender with proof of their entire e-mail transaction by providing a registered receipt (which is legally valid evidence) that your registered e-mail was sent; that it was received and when that took place. It also verifies the content of the e-mail message sent, including all the attachments!
If you think that RPost could not be the standard that your next trial might just need, consider this: the Federal Government has tested, approved and accredited RPost, and they use it in the arm of Congress known as the GAO (Government Accountability Office).
[T]he scope of this article will be limited to the act's amendment to, and introduction of, some of the more crucial Code sections affecting a retailer's ability to meet its liquidity needs and obtain necessary postpetition financing -- the linchpins to any successful retail reorganization effort.
Although it is still far too early to tell whether the act truly signifies the "death" of retail reorganization, it seems fairly evident that the changes wrought by the act represent the "worst of times" for retailers seeking to rehabilitate their businesses under Chapter 11 and the "best of times" for certain creditor constituencies, including utility providers, commercial lessors and taxing authorities.
CompUSA said its plans also include a $440 million cash capital infusion to bolster its balance sheet, major expense reductions and a corporate restructuring. The company said it will now focus its efforts on keeping a strong presence in its 103 stores in 39 states and Puerto Rico.
"Based on changing conditions in the consumer retail electronics market, the company identified the need to close and sell stores with low performance or non strategic, old store layouts and locations faced with market saturation," said Roman Ross, CEO of CompUSA. "The process began last week with the closing of four CompUSA stores and over the next 60 to 90 days, the company will close a total of 126 stores in the United States to focus on initiatives that enhance its top performing locations."
The Law Journal article timely discusses some of the hurdles retailers such as CompUSA may face in a Bankruptcy case if that becomes an option of them.
Out of curiosity, I did a search for the top retailer Bankruptcy cases. The following is from BankruptyAction.com.
[Update] - Bob informed me that Larry Gottlieb has represented the creditors committees in two of these cases, Allied Stores and Montgomery Ward]
COMPANY (Note: Ames Department Stores are included twice as they filed twice)
Paul Kaplan of the Atlanta Constitution has an article with today's date (free registration may be required) about the Chapter 11 filing of Tattersall Club Corporation, the owner of Horsheshoe Bend Country Club in Roswell, Georgia. The Chapter 11 was filed to stop a foreclosure by the club's secured lender, Textron Corp. The club is part of the Horseshoe Bend subdivision (see some of the homes for sale here).
Not surprisingly, the property values of the 1200 homes are tied to the club and amenities it provides. From the article, homeowners are concerned -
"Folks in the community would like to have it operated by someone who would invest in the club and bring it up to a better standard," said Les Hunter, president of the Horseshoe Bend homeowners association. "They're not expecting to see any improvement unless the ownership changes."
...
That would please Roger Wise, who has lived in Horseshoe Bend for 25 years. Wise said he's watched the club and course go downhill ... and that his neighbors are "apprehensive and mad" about the situation.
Wise said that [the owner] "took something that was cherished" and let it deteriorate.
...
"I'm disappointed that someone else isn't going to be able to take this facility and do with it what should be done," Wise said.
Another LexBlog-designed Legal Blog has joined the community. The Trial Presentation Blog ("Preparation and Presentation of Visual Exhibits at Trial or in Pre-Litigation") is sponsored by Charles Perez.
Charles was gracious enough to include a link to this Blog, and I am happy to return the favor as I believe we can all use more information on using (or not using) technology in the courtroom.
There are three ways to buy assets from a Chapter 11 estate: through a sale under §363 of the Bankruptcy Code (§363 sale), under a Chapter 11 plan of reorganization or from a post-confirmation liquidating trust.
This article focuses on sales under §363, which allows a buyer to obtain court approval of a purchase cheaper and faster (and with the advantages and protections of a court order largely intact) than through a reorganization plan or from a post-confirmation trustee.
A §363 sale transfers the acquired assets free and clear of any liens, claims and encumbrances. The power of the §363 order to cleanse troubled assets propels many acquirers to condition their purchases on the Chapter 11 filing of troubled sellers to obtain its benefits. The flip side of these advantages is that the bankruptcy sale process is public, and the sale is almost always subject to higher and better offers at an auction. ....
We made the Top 10 Legal Blogs of the Day (so far) on the Justia Legal Blog Search (click on top results today). This changes by the minute, so I don't know how long it will last, but thanks to everyone searching and reading.
On May 18, 2007, I will be speaking at a Bankruptcy CLE seminar sponsored by the National Business Institute. You can get all of the information, including a registration form, from the NBI Website, and I have included the agenda below (click "continue reading"). I will be speaking on the topics of Bankruptcy Code and Rules, and Bankruptcy Litigation. Other speakers are Jonathan Ginsberg, John Christy and Christopher Strickland. The seminar will be held at the Buckhead Sheraton Hotel.
Hopefully, as I prepare my materials I will be able to add some updates here.
In an order entered today, Allied and the Teamsters consented to a stay of a hearing an ruling on Allied's Motion to Reject the Collective Bargaining Agreement.
The Teamsters responded to Allied Holdings Motion to Reject Collective Bargaining Agreement --
Teamsters National Carhaul Director Fred Zuckerman responded angrily to the Allied move. "For the past several weeks we have been holding talks with Allied in an effort to develop a fair and equitable plan that would allow the company to come out of bankruptcy. For Allied Chairman Hugh Sawyer to now file this motion to set aside our contract shows they were never serious about negotiating a solution but instead want to have their loyal and hardworking employees pay dearly for his mismanagement of the company."
Zuckerman taped a recorded message to all Teamster members employed at Allied saying "we must be prepared to take appropriate action should the judge rip up our contract." Last June all 60 Teamster locals with Allied members voted overwhelmingly to give the union authorization to strike Allied if the contract was voided. Zuckerman also said that Teamster lawyers and financial experts would vigorously oppose the Allied motion in front of Judge Mullins next week.
Isn't it management's and owner's prerogative to "mismanage" the company? Mismanagement could include agreeing to wages and benefits that are too high (at all levels) to sustain. Putting everyone out of work rarely solves that issue.
According to the Motion, the latest negotiations, including proposed agreements exchanged in the last week, were not fruitful. Allied is seeking to reduce its unionized labor costs about $65 million a year and without them, the motion states, liquidation is a possibility. In fact, the motion states that if the current CBA is not modified, "there is no doubt the Debtors would be forced to liquidate." The Teamsters response (in pleadings and otherwise) will be interesting.
General information about Allied and affiliates, from the Allied website --
Allied is likely the largest transporter of new automobiles, sport-utility vehicles (“SUVs”) and light trucks in North America. Its business operations fall into two main categories. The largest category of business operations is providing “short-haul” delivery services for new and used vehicles over distances averaging less than three hundred miles. A smaller category of business operations is providing various support services with respect to vehicle transportation and distribution. Allied’s revenues in the year 2004 were approximately $895 million. Approximately 97% of these revenues were attributable to Allied’s delivery services. General Motors, Ford DaimlerChrysler, Toyota and Honda account for approximately 88% of the revenues generated by delivery services.
As of the Petition Date, the Debtor had approximately 6,400 employees. Most of these employees are based at Allied’s 133 terminals located throughout the United States, Canada and Mexico. Over 3,900 of these employees are unionized drivers represented by collective bargaining units affiliated with the International Brotherhood of Teamsters (the “Teamsters”). Allied also contracts with independent Teamster owner-operators. As of March 31, 2005, Allied owned 3,438 tractors and 4,275 trailers specially designed for transporting vehicles (each tractor-trailer unit a “Rig”). Allied also leases approximately 451 Rigs and uses 691 Rigs owned by its owner-operators. In total, Allied has 4,580 Rigs under management in its North American operations.
Not that this is a news site, but I noticed on the docket that another local auto carrier, Blue Thunder Auto Transport, Inc., and its affiliates, filed Chapter 11 petitions in the Northern District of Georgia (Case No. 07- 61268, filed January 30, 2007). It comes a year and a half after the filings of Allied Holdings, and its affiliates (still in Ch. 11).
A few points from the one pleading I gave a quick glance -
Debtors provide vehicle transportation services for new and used vehicles, for several manufacturers.
Debtors have 337 employees, 445 power units and 430 trailer rigs. Debtors have ten terminals.
Affiliates also filing are Auto Carrier Holding, Inc. (which owns 100% of Blue Thunder Auto Transport), Blue Thunder Logistics, Inc. (the party with the contracts with manufacturers and sub-haulers), Auto Carrier Leasing, Inc. (the owner of the trucks that provide the hauling services). They are seeking joint administration of the cases (but not substantive consolidations).
According to the Complaint in an adversary, the Ch. 11 cases may have become necessary when a sub-hauler, Penta Auto Transport, Inc. , picked up cars to deliver on behalf of for Blue Thunder and then then put them in storage under its alleged lien rights until Blue Thunder paid the $120,000 owed to Penta for past due hauling services.
It'll be interesting to see if this filing further affects the markets (hauling, and auto maker) and whether Blue Thunder will have the same union issues as Allied.
The press release from the company -
Valued Employees
Subject: Blue Thunder Files for Bankruptcy Protection under Chapter 11
As a result of reduced volumes system wide during the fourth quarter of 2006, Blue Thunder experienced cash flow difficulties that caused us to fall behind in some of our payments to vendors and sub haulers.
In an effort to aggressively address our cash flow issues, Blue Thunder’s Board hired Aurora Management Partners, Inc. as its restructuring advisor. They are assisting senior management in stabilizing our operations, managing our daily cash activity, and repairing our relationships with key vendors thereby regaining the confidence of our senior lender.
Concurrently Blue Thunder’s Board engaged Morgan Keegan, an investment banker, to seek out a partner through sale or merger that would be capable of carrying on its business as the new foundation is set. There are several candidates who’ve expressed an interest in a transaction that will move our business forward.
The recovery plan was beginning to demonstrate positive results when an unforeseen and unfortunate event took place. A key sub-haul vender, with whom we’d been negotiating in good faith to reduce our past due account payable, balance seized three loads of our customer’s vehicles and refused to release them. Repeated efforts to obtain the release of the vehicles through legal intermediaries were met with silence.
Without a clear path to resolving this situation, we had to make an unpleasant but practical choice to file for relief under Chapter 11 in order to free the vehicles and enable the company to work fairly and comprehensively with all of our employees, customers and vendors. Filing for Chapter 11 protection under these circumstances allows Blue Thunder time to organize and re-energize its operations while continuing to provide reliable transportation service to our customers, sustain gainful employment for our employees and offer payment to our suppliers in a fair and orderly manner. A sale or merger will continue to be considered as a key element of our restructuring plan to be reviewed during our protection period.
We will continue to operate as a going concern which means we will continue to service our contracts, pay our employees and pay our post bankruptcy bills for ongoing operations while we get our house in order.
Most important to each of you we will continue to meet all of our payroll obligations and maintain our current benefit structure throughout this restructuring process.
We appreciate your patience and look for your continued support as we vigorously move through this process to emerge a stronger and more capable transportation organization.
I am available to discuss any questions or concerns you may have.
Sincerely,
Steve Worman, President
Blue Thunder Auto Transport
From a blurb by Kent Hoover in the Atlanta Business Chronicle -
More than 70 percent of respondents to a recent American Bankruptcy Institute online poll expect middle-market bankruptcies to increase substantially this year.
Business bankruptcies declined in 2006 thanks to a strong economy, low interest rates and other factors, according to ABI.
Consumer bankruptcies, meanwhile, fell to their lowest levels since the 1980s last year due to bankruptcy reform legislation that forces more debtors to pay off more of their debts.
But 61 percent of ABI poll participants expect consumer bankruptcy filings to increase by at least 20 percent this year.
I previously posted about the Delaware case of Stone v. Ritter, (Del. Supr., Nov. 6, 2006), in which the Delaware Supreme Court "clarified its position on whether "good faith" is a separate stand-alone duty, in the same way as loyalty and due care are." There the court stated -
First, although good faith may be described colloquially as part of a "triad" of fiduciary duties that includes the duties of care and loyalty, the obligation to act in good faith does not establish an independent fiduciary duty that stands on the same footing as the duties of care and loyalty. Only the latter two duties, where violated, may directly result in liability, whereas a failure to act in good faith may do so, but indirectly. The second doctrinal consequence is that the fiduciary duty of loyalty is not limited to cases involving a financial or other cognizable fiduciary conflict of interest. It also encompasses cases where the fiduciary fails to act in good faith. As the Court of Chancery aptly put it in Guttman, "[a] director cannot act loyally towards the corporation unless she acts in the good faith belief that her actions are in the corporation's best interest."
Assignment for the Benefit of Creditors in Georgia
With the increases in Bankruptcy filings over the past 20+ years, state law alternatives are used far less often. Many lawyers are not even aware of how some of these alternatives work. One example is the state law created, and infrequently used, Assignment for the Benefit of Creditors ("ABC"). Both individuals and other entities may make use of an ABC.
Generally, an ABC is "a transfer of all of the debtor's assets to another person in trust to distribute among the creditors with such delay only as may be incident to liquidation." The Law Governing Liquidation, Garrard Glenn, Baker Voorhis (1935). The ABC begins with the formal transfer, by deed, of all of the Assignor's (debtor's) assets to the Assignee, a fiduciary. OCGA §18-2-43, 18-2-46. The assignor should also submit books and records and a complete list of creditors. OCGA §§18-2-44, 18-2-45. Thus, title to the assets actually passes to the Assignee.
The Assignee than files an affidavit attesting to the list of creditors and and books and records (OCGA §18-2-47), notifies the creditors of the ABC, (§18-2-50), collects and liquidates assets (§18-2-53) and examines fraudulent conveyances (§18-2-54). Presumably, the Assignor can employ counsel or other professionals and can file suit to recover fraudulent conveyances.
While the focus of the Blog is on Bankruptcy law and cases, there is also a significant overlap with corporate and fiduciary litigation cases and commentary. It is common for causes of action such as breach of fiduciary duty, corporate waste, deepening insolvency (where it exists), and similar claims to be brought in the context of a corporate bankruptcy or insolvency. I also have done a significant amount of work in these areas outside of bankruptcy. For these reasons, I have created a new category for the Blog: Corporate and Fiduciary Litigation. Most of the posts in this category will also be posted in the existing categories, but this will allow readers to bypass some of the bankruptcy-specific posts. Over time, I'll go back and cross-post previous entries in the new category.
This is not a bankruptcy issue, but is of local interest and related to the problems many companies have faced with poor accounting practices and questionable compensation packages.
However, Nardelli recently faced criticism from shareholders for what they claimed was his very "generous compensation package" relative to the stock's weak performance and declining profits in the face of a general slowdown in the housing market.... According to the terms of the separation agreement, Nardelli is entitled to receive approximately $210 million, including amounts which have previously been earned or vested, complying with the terms of the employment contract entered into in 2000. Additionally, Nardelli is entitled to the payment of account balances under the company's 401(k) plan and other benefit programs currently valued at a total of approximately $96 million.
Home Depot routinely backdated stock options grants for executives and employees at all levels of the company for nearly 20 years, according to an internal investigation whose results the company announced Wednesday. It said in a statement the investigation by a board subcommittee and the Hogan & Hartson law firm found "there was no intentional wrongdoing by any current member of the company's management team or its board of directors." Because of the errors, which included regular backdating of grants from 1981 through November 2000, the company had unrecorded expenses of about $200 million, Home Depot said.... Home Depot's findings could cause public relations problems for two members of its board:
•CEO Robert Nardelli. Named CEO on Dec. 6, 2000, Nardelli had nothing to do with the backdating earlier, according to the report. But he has become a lightning rod for criticism of excessive CEO pay. He has collected some $200 million in salary, bonuses and options since joining the company, but Home Depot's shares have declined in value during that time.
According to an article by Carrie Teegardin on today's Atlanta Journal Constitution, Georgia led the nation in bankruptcy filings for the first three quarters of 2006. The State was also second, behind Tennessee, in number of filings per 1,000 residents.
During this erratic period for bankruptcy filings, Georgia jumped to the top not because of any startling new trend, but because filings didn't decline as much here as in other large states.... For example, in California, which usually tops the charts, filings were 75 percent lower in the first three quarters of 2006 than in the same period of 2005. In Georgia, filings dropped by 51 percent during that period...
Chapter 13 filings are more common in Georgia than Chapter 7 —- a liquidation in which most debts are wiped out, but so are all of a consumer's assets that aren't protected by exemptions... The impact of the federal bankruptcy reforms was not as great in Georgia because the reforms targeted Chapter 7 filings, requiring consumers to meet income tests before they can file....
For most who file for bankruptcy, the debt load is crushing. The average consumer filing for bankruptcy who sought court-mandated counseling from CCCS had an average annual income of $30,222 and unsecured debts totaling $41,980.
According to Consumer Credit Counseling of Atlanta, they conducted 130,000 Bankruptcy counseling sessions this year --
Average annual income: $30,222
Average mortgage payment: $859
Monthly deficit: $1,990
Unsecured debt: $41,980
Net worth: -$31,254
Average credit score on a scale of 300 to 850: 518
The Atlanta Business Chronicle has an article (click here) profiling the Chapter 11 petition filed by the owner of MidCity Cuisine, formerly a popular restaurant in MidTown Atlanta. In re MJ Acquisition, LLC, Chapter 11 Case No. 06-74866-JEM (filed November 17, 2006). Another article in yesterday's online Business Chronicle says the restaurant closed on December 27, 2006, though it still appears to be in a Chapter 11.
The Macon Telegraph has an article today (click here) on the potential closing of the Collins & Aikman plant in Americus, Georgia, amid investigations into financial fraud. Over 300 jobs may be lost.
David Youngman, vice president of corporate communications for Collins & Aikman Corp. of Southfield, Mich., said the plant could "cease operations" within the next few weeks unless another company takes over. ...
Collins & Aikman announced in mid-November that it was trying to sell all of its factories and assets around the country because of its financial problems. Some of the company's plants have attracted buyer interest, but not the Americus plant, Youngman said....
Collins & Aikman filed for Chapter 11 bankruptcy protection last year, and a prosecutor confirmed earlier this month that its former chairman and CEO, David Stockman, is a target of an investigation into possible financial fraud at the company.
Chris Miller and Debra Robinson, with whom I worked at a firm a few years ago, have recently started the firm Robinson & Miller, PC, in Alpharetta, Georgia. They focus on wills, trusts, estates, incorporations and LLC formations. The description of their practice from their website --
Founded by Debra A. Robinson and J. Christopher Miller in June of 2006, Robinson & Miller, P.C. provides its clients with sound legal advice in the areas of trusts and estates and business law. The lawyers of R&M are committed to delivering quality work on a timely basis to its clients and to explaining the reasons behind their recommendations. They pride themselves on listening closely and responding to the wishes of their clients, and strive to communicate openly and honestly with their clients regarding how the laws may apply to particular situations.
The founding partners developed their consistent, friendly manner toward clients by practicing closely together in other firms for more than seven years before establishing R&M. As a team, they have drafted hundreds of estate plans, each one customized to the specific needs of the client.In addition, they have aided dozens of executors and trustees in carrying out their fiduciary duties, or have helped beneficiaries work through difficult family situations to arrive at reasonable outcomes. The firm’s clients cover a wide variety of ages and backgrounds, and R&M can draft for its clients the simplest of Wills or can skillfully demonstrate the advantages and drawbacks of such advanced planning techniques as private foundations, charitable remainder trusts, and credit shelter trusts.
The lawyers of Robinson & Miller regularly advise small and mid-sized businesses on issues relating to their customers, vendors, and management succession, often helping to construct exit strategies for one or more owners, while preserving the efficient operations of the client’s business.
To better serve its clients, Robinson & Miller has named Edward J. Rappaport as "of counsel" to the firm. Ed lends to the firm his expertise in advanced tax planning and business consultation.
Other practice areas in which Robinson & Miller may be of service include:
Non-agency adoptions
Business acquisitions and mergers
Asset liquidation counseling, and
Tax-exempt and other non-profit organizations
The Electronic Discovery Blog has a good summary of the new amendments to the Federal Rules of Civil Procedure as they pertain to electronic discovery. You can view the post by clicking here.
The Amendments to the Federal Rules of Civil Procedure, and by extension the Federal Rules of Bankruptcy Procedure, are effective this coming Friday, December 1, 2006. You can read a summary of the amendments by clicking here. All lawyers, including in-house counsel, should be aware of the new rules regarding electronic discovery and the preservation of electronic data. Here is another article that discusses the new rules and you can also read the Electronic Discovery Blog for cases on the subject.
I can't attest to the accuracy of this, but you can find an online means test calculator by clicking here. It is not a replacement for sitting down with a lawyer, but may provide individuals some idea how close they are to qualifying for a Chapter 7 case. Keep in mind that most recent studies show that a large percentage of people who filed Chapter 7 under the old law (pre-October 2005) would still be eligible under the BAPCPA.
Since quite a few readers of the Blog are searching for information on the Amrex case. I am posting this information here.
Amrex, Inc., the international adoption facilitator, filed a Chapter 11 petition in the Northern District of Georgia on September 21, 2006. The Case No. is 06-71679-PWB. On November 17, 2006, Jeffery K. Kerr, CPA was appointed as Chapter 11 Trustee.
I have been retained (subject to court approval) as counsel to the Chapter 11 Trustee. We have set up a special e-mail address for inquiries about the case and adoption records. That e-mail address is amrextrustee@mindspring.com.
Very Important Note: Adoptive parents should contact their adoption agency for any urgent questions, or questions about a specific adoption matter. Agencies have recently been provided updated information about adoptions in-progress.
The very popular Atlanta Bar CLE program, Bankruptcy and Commercial Law Year in Review, is coming up on December 14, 2006. You can download the flyer and registration information here by clicking here.
Steve, with permission from the author and publisher, has posted excerpts from the article, and you can download the pdf version of the entire article from a link his post. I have tried to cover most BAPCPA cases and developments from Georgia and beyond, but it will be interesting to see how many other issues, problems and absurdities that have developed in the past year.
My friend Luanne Bonnie has opened a solo practice in downtown Decatur, Georgia, specializing in wills, trusts, estates, probate and elder care. The office will serve the Decatur and metro- Atlanta areas. Luanne was formerly a partner in a large Southeast firm. You can find out more information at her website, www.bonnielaw.com. Luanne has plans to add a blog in her practice areas on the near future.
The Law Office of Luanne M. Bonnie concentrates its practice in the following areas:
Wills
Trusts
Elder Care
Family Limited Partnerships
Business succession planning
Estate Planning
Probate estates with a will
Probate estates without a will
Guardianships
Creditor Bankruptcy
Update November 20, 2006 -- On November 17, 2006, a Chapter 11 Trustee was appointed by the US Trustee. I will post an additional update, with more information and contact information, following the Thanksgiving weekend.
Our prior entry dated October 10, 2006 -
A story in today's Atanta Journal (Adoption Services Firm Faces Criminal Investigation) (registration req.) concerns Amrex, Inc., a local adoption services firm that apparently facilitated international adoptions. The company filed a Chapter 11 in the Northern District on September 21, 2006, Case No. 06-71679-PWB.
Click here for a copy of the Chapter 11 petition filed by Amrex.
The story reminded me of my trips to orphanages in Russia and Romania. International adoptions are a big "business" (many non-profit). The starting point for prospective parents may be $25,000 and go up from there. There are usually two or more trips required for the parents to the birth country, and waits of a year or more. Money has to be allocated for "gifts" to various people in the birth country, including government officials. Sometimes it falls through at the last minute, and the parents have to start over. If you know people who have gone through this process, you know what a difficult road it is.
Here is a (cached) story about a Russian girl we randomly met in an orphanage near the Ural Mountains, near the border of Siberia. We found out she later made her way to Atlanta a few months later for a much better life.
Non-Bankruptcy related again (for now?), but the upcoming issue of Fortune Magazine has a fascinating story about Milberg Weiss, the law firm that has been indicted for allegedly giving illegal kickbacks to class-action plaintiffs. It reads like a combination of a John Grisham novel and The Smartest Guys in the Room, and kicks off with a domestic dispute. Read the story here - The Fall of America's Meanest Law Firm
Again, slightly off topic, but I was content to express disappointment about the campaign strategy for both candidates for the Georgia Supreme Court. At the risk of suggesting that one is better than the other as far as campaign tactics go, I will follow up about a statement made by Linton Johnson, Communications Director for Justice Carol Hunstein. He responded in a letter to the Daily Report (Nov. 3) with the expected complaints about Steve Korn's editorial, and included the following curious statement -
Korn also falls for Wiggins’ spin that he “won” his suit against his sister. The truth is he successfully bullied her through verbal abuse and physical threats into giving up. A signed statement from the sister’s lawyer released just this week confirms as much. That’s hardly a win to boast about.
I know nothing about the lawsuit other than the blurbs in various articles, but I find it curious that the campaign of a sitting Supreme Court Justice would make this statement, especially in the daily legal newspaper. What "spin" should one "fall for?" The findings and holding (whatever they may be) by the Judge who heard the case, or a subsequent letter from the losing litigant, released during an election involving the opposing party, explaining the loss? What would the Georgia Supreme Court finds more persuasive if it was reviewing the lawsuit? A very curious letter indeed....
While not Bankruptcy related, the issues decided by the Georgia Supreme Court affect all areas of law. Lately, the candidates have also succeeded in giving people (including lawyers) a reason to question the profession. One one hand, we have a challenger, Michael Wiggins, who has made many allegations that Justice Carol Hunstein is a "judicial activist," and that she ignores the law and sets criminals free. Much has been made of the fact that his campaign has been financed by special interest groups. An ethics complaint has been filed against his campaign. Steve Korn, publisher of the Daily Report, in an editorial in today's issue taking both candidates to task, provides the following -
A Daily Report analysis of the Supreme Court’s rulings reveals something altogether different: In close criminal cases Hunstein sided with the government 39 percent more often than the court as a whole. Facts. They can be so annoying.
For her part, Justice Hunstein decided to hit back, and hit hard. Her ads about Wiggins' lawsuit with his family, while technically true, were extremely and intentionally misleading. In a sit-down with the Daily Report --
At her session with a Daily Report editorial panel, Hunstein was asked about these pleadings, which her staff had provided to us that morning. She refused to talk about them other than to state repeatedly “the documents speak for themselves.” I know that we lawyers love that phrase, but this is a political campaign, not a deposition or answers to interrogatories. As a political candidate, if you level charges at your opponent based on court records, repeating that “the documents speak for themselves” is just not acceptable.
Justice Hunstein, in a previous interview stated “If I’m defeated, it will affect the entire court.” I'd say that entire court is already affected in the public's view, if that counts for anything, because the public will likely see these ads as coming from the Court as a whole.
I fully agree with Steve's final observation --
As citizens of Georgia aren’t we entitled to more from our judicial candidates? As lawyers and officers of the court shouldn’t we demand more of those who seek to lead our judiciary?
One would think the answer is "yes."
The Daily Report has all of the articles, Wiggins family lawsuit pleadings, Wiggins ethics complaint, and other related documents online.
The BAPCPA, or at least most of it, is a year old today. The prevailing opinion of commentators and judges seems to be that it is, at best, confusing, and at worst, a monumental failure in doing what it was intended to do. This is especially true for consumer cases. Credit counseling, while seemingly a good idea, has turned into a complete failure when it comes to steering people away from bankruptcy. We can't even figure out how to label the hanging chad paragraph in §1325, or whether to dismiss or strike. Most experts believe cases will soon be at or near pre-BAPCPA levels, as evidenced by the rising foreclosure rates in Georgia. Chapter 11 cases are down a little nationwide, although that is likely due to the economy more than the BAPCPA.
This Blog, at least in this format, is a little over four months old. It has over 200 posts, and reference to most of the published (and some unpublished) Georgia Bankruptcy cases decided since October 2005. I also try to include key cases from other jurisdictions, and discussions of non-bankruptcy developments that may affect Bankruptcy cases. I have a stack of 20 or so new cases on my desk. Lawyers are kind enough to send me important opinions I may not otherwise locate. Hits and viewership go up on a weekly basis.
Thanks to everyone for reading! It will be interesting to see how things go in the next year, especially with many of the BAPCPA cases reaching the Courts of Appeals.
I tend to doubt this method of marketing will work for the Chapter 11 cases or creditor representation, but apparently it works for consumer cases. Then again, a few months ago I was not quite sure how a blog would be relevant for business.
The case deals with the distinction between disposable income for the Means Test and projected disposable income for Chapter 13 plan payments.
Court records show that Elizabeth and Lawrence D. Rotunda had an annual income of about $68,000, well above the median income for a two-person family in New York. Consequently, their capacity to repay was governed by a rigid "means test."
Before the Bankruptcy Abuse Prevention and Consumer Protection Act, the calculus of how much a Chapter 13 debtor had to pay was measured by his or her "projected disposable income." Under the old law this was simply the income the debtor listed on the bankruptcy petition minus the expenses. Whatever was left over went toward debt repayment.
The new law does not define "projected disposable income," but it does redefine "disposable income" as current monthly income less certain expense allowances. And under the new definition, Social Security income, like that received by the Rotundas, is excluded from the definition of current monthly income.
Here, the debtors argued that only their "disposable income" -- which excludes their Social Security -- should be included in their repayment plan. The Chapter 13 trustee objected to the plan that would allow the Rotundas to initially pay $800 a month rather than about $2,000 per month, arguing that it fails to make all of their "projected disposable income" available to unsecured creditors.
The Judge ruled for the Debtor, even though under the old law the creditors would have received more -
"To allow a debtor with income above the state median to provide for zero payments to unsecured creditors in a chapter 13 plan ... when ... there remains sufficient funds to pay even a minimal dividend to them is contrary to the approach taken by this Court for over 20 years in considering chapter 13 plans," wrote Gerling of Utica. "Yet ... it is not for the Court to second guess Congress despite the fact that the statute, as written, may result in a confirmed plan that is contrary to the view expressed by President Bush."
I am catching up (again) from the latest news about Britney's new baby, backdating, and the tragic Whitney and Bobby saga, to the exciting world of the BAPCPA.
The highlights of how to save $ 140 and perhaps qualify for a Chapter 7 --
Currently, the IRS guidelines allow $471 in monthly payments for the ownership of "Vehicle 1" and $332 in monthly payments for the ownership of "vehicle 2." In our problem, the married couple owned two automobiles. On one auto they made a $610 monthly payment, and they were no longer making payments on the other auto. It matters not that they one vehicle free and clear. .... under the bankruptcy law but not the IRS guidelines, the debtors could deduct the full $610 monthly payment they were actually making.
"Vehicle 1" [on the BR form] means the newer, more expensive car, right? A student gently pointed out that definition was specified nowhere in the Bankruptcy Code or IRS guidelines. Indeed, the issue does not arise under the IRS guidelines because the amounts operate as caps, not minimums. If instead we designated the $610 payment to "vehicle 2," we get to use the statutory minimum of $471. Because one generally loses eligibility if there is $100/month left to pay creditors, the difference between a statutory minimum of $471 and $332 could be dispositive.
As Whitney would say... "That is Wack!"
Keep in mind that the US Trustees and Judges may not always agree with the analysis, and have the right to seek dismissal under the "substantial abuse" catch-all.
Update - In In re Fowler, the Delaware Bankruptcy Court analysed the statute, legislative history and policy considerations and held that a debtor could use the standard deductions even though she did not have a car payment. See 2006 Bankr. LEXIS 2117 (Bankr. D. Del. Sep. 11, 2006).
You can also see the monthly statistics for the Northern District of Georgia here.
It is no surprise that numbers are way down, but slowly rising. With interest rates rising, credit cards requiring higher payments, and the still-high foreclosure rate, the rate of consumer bankruptcies will probably rise steadily.
The last several days have been hectic and busy, so I am behind in my updates. I do have a couple of Georgia cases to report when things slow down later this week. However, in honor of school starting, here are some homework assignments to keep everyone up to date --
Steve Jakubowski at the Bankruptcy Litigation Blog has links and summaries of 22 recent bankruptcy-related articles. If that does not hold you for a while, scroll down his blog for links to 20-30 more scholarly works.
Professors Ribstein and Bainbridge analyze a very important case in Delaware wherein the court ruled on the viability of a deepening insolvency claim. See Deepening insolvency = shallowing profitability. I am working on a short article on deepening insolvency in Georgia courts, but if you do corporate litigation you need to read the articles and the Delaware case.
I note that many questions, comments and search terms from the Blog are related to the Kirk Wright and International Management case. While I occasionally post some news about a couple of big cases, I am now involved in those cases so I will probably limit the updates to significant orders entered in the case.
Thankfully, The Kreme has, to this point, survived major problems of a couple years ago but they are still in danger. Also see stories here and here and here.
I recently had occasion to review the changes to § 366 of the Code (click here for the redline version) regarding adequate assurance for utilities, and attend a hearing on the issue. Section 366(a), relatively unchanged, serves to enjoin utilities from altering, refusing or disconnecting service "solely on the basis of the commencement of a case." Subsection (b) then limits this injunction to 20 days unless the debtor or trustee furnishes "adequate assurance of payment, in the form of a deposit or other security, for service after such date."
Early in my career, I had the task of handling the §366 matters for a large utility. Typically, upon notice of the bankruptcy the utility would (and still does) request a deposit of two and a half month's service. This would either be placed on a bill sent to the debtor, or in larger cases, in a letter from counsel. Conversely, in larger Chapter 11 cases, debtors typically file, as a first day motion, a request to either limit the deposit or a determination that the utility was "adequately protected" with the debtor's "promise" to pay on time, or with a priority administrative expense claim.
The amendments to §366 in the BAPCPA change the landscape for Chapter 11 cases. Importantly, new subsection (c)(1) dictates what constitutes "adequate assurance" --
(c)(1) (A) For purposes of this subsection, the term `assurance of payment' means -- (i) a cash deposit; (ii) a letter of credit; (iii) a certificate of deposit; (iv) a surety bond; (v) a prepayment of utility consumption; or (vi) another form of security that is mutually agreed on between the utility and the debtor or the trustee.
(B) For purposes of this subsection an administrative expense priority shall not constitute an assurance of payment.
Additionally, and perhaps more importantly, new subsection (c)(2) allows the utility to "alter, refuse, or discontinue utility service, if during the 30-day period beginning on the date of the filing of the petition, the utility does not receive from the debtor or the trustee adequate assurance of payment for utility service that is satisfactory to the utility." Thus, the above sections clearly place the burden on the Chapter 11 debtor or trustee to come up with tangible adequate assurance "satisfactory to the utility" or risk the loss of service.
However, the debtor does have some limited recourse from new subsection (3) --
(3) (A) On request of a party in interest and after notice and a hearing, the court may order modification of the amount of an assurance of payment under paragraph (2).
(B) In making a determination under this paragraph whether an assurance of payment is adequate, the court may not consider--
(i) the absence of security before the date of the filing of the petition;
(ii) the payment by the debtor of charges for utility service in a timely manner before the date of the filing of the petition; or
(iii) the availability of an administrative expense priority.
Does this subsection mean that Chapter 11 debtors can continue the practice of filing a first day motion requesting some limitation on the adequate assurance requested by the utility?
I previously posted a note on the penalty for omitting relatively insignificant assets from bankruptcy schedules -- The Price is High For False Bankruptcy Schedules. This morning I ran across a couple other instances to drive this point home --
United States v. Zoher, 2006 WL 2163107 (3rd Cir. August 2, 2006). Two years in federal prison for one count of bankruptcy fraud. The debtor opened thirty-four credit accounts by misrepresenting his income, made purchases and took cash advances totaling $386,000, then filed a bankruptcy petition.
Man Who Filed For Bankruptcy Charged With Concealing Assets. Six counts of bankruptcy fraud for failing to schedule assets in his bankruptcy five years earlier. "He is being held in federal custody in lieu of 75-thousand dollars surety bond."
The Boston Globe is doing a four-part series called "Debtor's Hell." The description of the series is the following --
This Boston Globe Spotlight Team investigation into the world of consumer debt in the United States found a system where debt collectors have a lopsided advantage, debtors are often treated shabbily by collectors and the courts, and consumers can quickly find themselves in a life-upending financial crisis.
Credit to Credit Slips for the tip on this series.
The latest edition of Preference Quarterly hit the inbox today. It includes articles on venue in preference actions, and the proposed bill that would "radically change" preference litigation.
The newsletter is edited by Byron Starcher of Nelson Mullins and Mark Duedall of Alston & Bird. For more information, and to download previous issues go to the Preference Quarterly Website.
In checking my Technorati page this morning, I found that Bob Eisenbach of Cooley Godward LLP, recently started In The (Red); Business Bankruptcy Blog and was nice enough to link to this site. I hope everyone will check out the new entry and add it to your feed and reading lists.
Steve Jakubowski at the Bankruptcy Litigation Blog posted a nice note about the new bankruptcy blogs that followed his lead, including this one. I was not aware of the Credit Slips: A Discussion of Credit and Bankruptcy Blog which is authored by several well-known and highly respected professors, including Elizabeth Warren of Harvard and Melissa Jacoby (a professor at my alma mater, The University of North Carolina School of Law -- Go Heels!!).
If you are reading this, you have probably tapped into the information you can find on the web. Take a few minutes to surf the links on the right-hand side, and the links from those sites.
If you are interested in getting a professional blog, get in touch with Kevin at LexBlog. If you want to give it a look before investing, get a domain name (www.whateverblog.com) for $8 a year, a typepad account for about $9/month for up to 3 blogs, and give it a shot. Many of the most popular blogs are on low cost or free accounts, and if you want to change over to a pro version later, they can simply import the content and you are on the way. You can even find several blogs by professional marketing people, and get all the free tips you want about marketing via blog.
NACBA ANNOUNCES FREE INITIAL CONSULTATIONS WITH CONSUMERS TO KEEP BANKRUPTCY AVAILABLE, JOINS CFA IN OPPOSING 4TH BANKRUPTCY FILING FEE HIKE IN LESS THAN A YEAR
This is not directly related to a bankruptcy issue, but interesting nonetheless to the extent it involves a corporate fraud criminal case. Many of these companies end up in Bankruptcy Court, and this provides some indication of the Circuit Court's view of these cases and individuals.
Seemingly fed up with the lenient sentences imposed on former HealthSouth CFO Michael Martin by former U.S. District (Ala.) Judge U.W. Clemon, the 11th Circuit dismissed him from the case and reassigned it to another judge. Yesterday the appeals court overturned Martin’s seven-day prison sentence, calling it “shockingly short.” It had previously tossed Judge Clemon’s initial sentence — only five years of probation — for being too lenient. The federal sentencing guidelines had called for a sentence of nine years or more. Here’s the opinion.
...
Though Judge Clemon cited Martin’s cooperation for its leniency, the 11th Circuit would have none of it. Martin’s cooperation, said the court, “while commendable and extremely valuable, is not a get-out-of-jail-free card.” It continued:
Martin not only participated in this fraud for over three years as HealthSouth’s CFO before finally resigning, he also chose not to approach authorities about the conspiracy until they had learned independently about his criminal conduct. Put simply, the 7-day sentence imposed by the district court wholly fails to take into account the egregious years-long nature of Martin’s crimes.
In reassigning the case, the 11th Circuit wrote, “In light of the two reversals in this case and three other appeals in which we have reversed the same judge for extraordinary downward departures that were without a valid basis in the record, we find it likely that the original judge would have difficulty putting his previous views and findings aside.”
Delderico L. Lee, 31, Lawrenceville, Georgia, was sentenced to twenty months in prison to be followed by five years of supervised release. He was also ordered to pay $220,488.25 in restitution. Lee plead guilty to bank fraud on February 3, 2006 in connection with his abuse of a line of credit to steal more than $220,000 from Bank One, N.A., now known as JP Morgan Chase & Co, as well as attempts to obtain mortgage loans based on false bankruptcy documents.
According to United States Attorney David E. Nahmias and the information presented in court:
On March 31, 1998, Lee filed a voluntary petition for bankruptcy under Chapter 7 of the United States Bankruptcy Code. Lee‘s bankruptcy petition was assigned to Judge Stacy W. Cotton of the United States Bankruptcy Court for the Northern District of Georgia, who declared Lee bankrupt and entered a court order to that effect on September 2, 1998.
On April 27, 2001, Lee applied for a home equity line of credit from Bank One. In completing the line of credit application, Lee falsely claimed that he not been declared bankrupt within the last seven years. In addition, Lee tendered a forged bankruptcy order, purportedly executed and entered by Judge Cotton, which falsely represented that Lee‘s voluntary bankruptcy petition and Judge Cotton’s subsequent discharge order had been filed in error. Lee obtained the line of credit as a result of the misrepresentation.
There have been a couple of updates related to the pending Chaper 11 case of International Managements Associates, and the pending criminal case against its principal, Kirk Wright. See here for a previous post.
Twenty four new counts of mail and securities fraud were just added against Kirk Wright.
Additionally, several former NFL players who lost money investing with Wright filed a lawsuit against the NFL and Players Union, alleging (according to the article) that the NFL and/or Union endorsed the investments. See story here. The former players in the lawsuit allegedly lost a collective $20 million.
The article includes the following quote from plaintiff Steve Atwater -
"They are a huge billion-dollar company," Atwater, a former Pro Bowl safety for the Denver Broncos, said of the NFL at a news conference. "We hope that they would at least come to the table and talk to us."
One can draw their own conclusions from the comment, but you can read the Complaint here.
Judge Clarence Cooper concurred with the U.S. attorney's office. He revoked a $1 million conditional bond granted by a Miami magistrate and ordered Wright detained until he faces trial on two dozen counts of mail and securities fraud. Wright has pleaded not guilty.
....
About 80 percent of those collective funds is determined to have been all but consumed by Wright, according to court-appointed receiver William Perkins, while the rest has not been traced. Authorities say the accounts may have grown in value to $180 million and that Wright operated a Ponzi scheme, raiding the account of one investor to pay another.
...
Anand said arresting officers found in Wright's Ritz-Carlton hotel room, where he was registered under a fake name, an X-Acto knife and laminating material, apparently used to create cards and documents of two false personas.
Incorporation papers retrieved from the room, Anand said, suggested that Wright was creating a company called Co-Accent Medical Associates. The prosecutor noted that Wright could have begun defrauding investors anew.
Based upon search engine traffic on this site and the importance of the upcoming decision in Allied Holdings, I thought it may be helpful to post a quick note or two on the rejection or modification of collective bargaining agreements in Chapter 11 cases.
This post summarizes the rejection of such contracts. The starting point is the statute, which states in relevant part --
§ 1113. Rejection of collective bargaining agreements
(b) (1) Subsequent to filing a petition and prior to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession or trustee (hereinafter in this section "trustee" shall include a debtor in possession), shall--
(A) make a proposal to the authorized representative of the employees covered by such agreement, based on the most complete and reliable information available at the time of such proposal, which provides for those necessary modifications in the employees benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably; and (B) provide, subject to subsection (d)(3), the representative of the employees with such relevant information as is necessary to evaluate the proposal.
(2) During the period beginning on the date of the making of a proposal provided for in paragraph (1) and ending on the date of the hearing provided for in subsection (d)(1), the trustee shall meet, at reasonable times, with the authorized representative to confer in good faith in attempting to reach mutually satisfactory modifications of such agreement.
(c) The court shall approve an application for rejection of a collective bargaining agreement only if the court finds that--
(1) the trustee has, prior to the hearing, made a proposal that fulfills the requirements of subsection (b)(1); (2) the authorized representative of the employees has refused to accept such proposal without good cause; and (3) the balance of the equities clearly favors rejection of such agreement.
.... (d) (2) The court shall rule on such application for rejection within thirty days after the date of the commencement of the hearing. In the interests of justice, the court may extend such time for ruling for such additional period as the trustee and the employees' representative may agree to. If the court does not rule on such application within thirty days after the date of the commencement of the hearing, or within such additional time as the trustee and the employees' representative may agree to, the trustee may terminate or alter any provisions of the collective bargaining agreement pending the ruling of the court on such application.
According to an article in the Atlanta Business Chronicle, City of Millionaires: Economy Will Undergo Eye-Popping Change, "[m]etro area households with $1 million or more in investable assets are expected to soar to more than 102,000 households by 2011.
There is little doubt that much of this increase is due to the growing population and not necessarily growing wealth, and the same factor will keep Georgia at the top of the consumer bankruptcy statistics. Either way, it should be good news for both business and consumer bankruptcy attorneys.
I happen to hear a certain local Libertarian talk show host discussing the first line of the article -
Multiplying millionaires will dramatically alter the way Atlantans live, shop, bank and give back over the next several years. (emphasis mine).
One can come to their own conclusions about what the author meant by "give back," though she has indicated she is open for an interview.
Professor Spencer discusses a recent N.D. Ill. case, In re Federalpha Steel LLC, 341 B.R. 872 (Bkrtcy. N.D. Ill., May 31, 2006), at his Federal Civil Practice Bulletin.
A paragraph from the case -
After confirmation of a chapter 11 plan, moreover, “related to” jurisdiction is “sharply reduced.” Cytomedix, Inc. v. Perfusion Partners & Assocs., Inc., 243 F.Supp.2d 786, 789 (N.D.Ill.2003); see Pettibone Corp. v. Easley, 935 F.2d 120, 122 (7th Cir.1991). The number of issues potentially affecting the estate or the administration of the case necessarily decreases at that point. Conseco, Inc. v. Davis (In re Conseco, Inc.), 318 B.R. 425, 432 (Bankr.N.D.Ill.2004). Post-confirmation “related to” jurisdiction is therefore appropriate “only to ensure that reorganization plans are implemented and to protect estate assets devoted to implement the confirmed plan.” Cytomedix, 243 F.Supp.2d at 789. Once assets have left the estate, the court's jurisdiction to decide disputes involving them lapses. FedPak, 80 F.3d at 214.
E. Pierce Marshall, who battled Anna Nicole Smith for his father's (her late husband's) estate died today at age 67 after a brief illness. Story here.
It was just over a month ago that Smith (real name Vicki Lynn Marshall) prevailed in the Supreme Court and got another chance at part of the estate after the initial award of the Bankruptcy Court was overturned.
Since the Georgia Bankruptcy Law Blog just moved to the new LexBlog format, it is a good time for an update on resources included in this Blog and available elsewhere on the internet.
My goal is to provide updates on Bankruptcy cases and developments in Georgia. Primarily, this is cases from the Eleventh Circuit, Georgia Bankruptcy and District Courts, and Georgia state courts. We have summaries and citations from many significant cases (published and unpublished) dating back to October. You can access them by clicking the appropriate category on the right hand side of this page and scrolling down, or by searching for a keyword. Don't miss the "continue reading" link to get the entire post.
I will also ocassionally post updates on key cases or filings, including cases outside of the Eleventh Circuit or Georgia, and news that may be relevant to Bankruptcy lawyers. These will generally be in the "News and Comments" or "Miscellaneous Cases" sections.
To subscribe and receive updates from this blog, there are a couple of choices. You can provide your e-mail address in the right-hand column. It will not be shared, and you will get no spam from us (or LexBlog). If you are a little more advanced, you can receive updates from this and other Blogs by RSS feed. I plan on posting a more detailed description of RSS shortly, but if you want to keep up with daily news from the web and blogs (the sources you choose, or by keywords) this is the way to go. I had no knowledge of RSS before I started this project, but with Newsgator and FeedDemon it was easy to set up either a free webpage based reader or a desktop application. Once you start, you will be hooked on relevant daily updates.
Any questions or comments on the page or any posts, shoot me an e-mail. I also inviate any comments on posts - just click on "comments" in each post.
Steve Jakubowski at the Bankruptcy Litigation Blog has put together an incredible resource on consumer BAPCPA cases and issues. You can find the outline here, and link to the various sections from the outline. Everyone interested in consumer cases decided under the BAPCPA should read Steve's materials, which were prepared for a CLE program. Steve will add new sections over the upcoming weeks and months.
Georgia Bankruptcy judges have also weighed in on several BAPCPA issues, and you can find those opinions by using the search function or browsing the categories in the right sidebar of this page.
At least that is what the headline could read if the Hawks were bankrupt under Title 11, and not just in the standings.
Since it is a slow bankruptcy news day (as many sites are still stuck on the $40 million payday for Delta professionals), I'll add my thoughts on a local company in the zone of insolvency.
A Massachusetts Judge today ruled that minority owner Steve Belkin, who has been trampled in the press, could buy out the majority owners at costbecause the majority owners breached their contract. The judge also held that was dispositive and dismissed the other claims. This ruling comes after Belkin tried to hold up a trade for Joe Johnson, the majority tried to remove him, the court (and the NBA) restrained them removing him, the TRO was lifted, and Belkin allegedly agreed to sell his interest to the majority.
Oh yes, the player traded for Johnson was Boris Diaw, who came up huge for Phoenix in the playoffs and averaged 24 points in the Dallas series, and former Hawk and current Maverick Jason Terry dropped 32 on the Heat in the finals last night.
A change in ownership and complete overhaul didn't work a couple years ago, but maybe Belkin is the one who will know what he is doing?
Maybe the Hawks can get Diaw and Terry back as fraudlent conveyances?
For anyone interested, Dallas owner Mark Cuban's frequently updated blog is Blog Maverick.
The IRS has issued Internal Revenue Bulletin 2006-22, published on May 30, 2006. The Bulletin describes the steps a trustee or DIP must take to obtain a prompt determination of any unpaid tax liability incurred during bankruotcy administration.
The following are a few of the requirements --
* The request must be marked "Request for Prompt Determination," and must be accompanied by an exact copy of the return (or returns) for a completed taxable period filed by the trustee with the service.
* a statement indicating that it is a request for prompt determination of tax liability and specifying the return type and tax period for each return for which the request is being filed;
* the name and location of the office where the return was filed;
* the name of the debtor;
* the debtor's Social Security number, taxpayer identification number and/or entity identification number;
* the type of bankruptcy estate;
* the bankruptcy case number; and
* the court where the bankruptcy is pending.
These new regulations arise from new Code § 505(b), which discharges certain tax liabilities if the IRS fails to timely respond to the request. Based upon the language of the Code section, it appears that trustees and debtors should, as a matter of course, always request a prompt determination of unpaid tax liabilities.
The latest edition of Preference Quarterly, as newsletter devoted to §547, is out and you can get a copy by clicking here. The newsletter is edited by Byron Starcher of Nelson Mullins and Mark Duedall of Alston & Bird. To get on the mailing list, send a request to preferencequarterly@nelsonmullins.com
In a prior post, I mentioned the Chapter 11 filings of International Management Associates, LLC and its affiliated hedge funds. These entities have made the news, in part, because of the accusations that professional athletes have been bilked out of millions of dollars and because the principal of the entities has apparently been on the run. Bill Perkins initially served as the state court Receiver, and was subsequently appointed Chapter 11 Trustee.
Kirk Wright was finally apprehended in Miami on May 17, 2006. Here is the AJC Article and Reuters article.
The National Association of Consumer Bankruptcy Attorneys and the Connecticut Bar Association have filed a lawsuit in federal court in Connecticut to enjoin the enforcement of certain provisions of the BAPCPA against attorneys. Among other arguments, the suit claims the provisions are unconstitutional. The initial pleadings may be reviewed on the NACBA Website, and the body of the press release is reprinted below --
FOR IMMEDIATE RELEASE
CONNECTICUT BAR ASSOCIATION AND CONSUMER BANKRUPTCY ATTORNEYS CHALLENGE PARTS OF NEW BANKRUPTCY LAW
Washington, DC -(May 11, 2006) The Connecticut Bar Association (CBA) and the National Association of Consumer Bankruptcy Attorneys (NACBA) today filed suit in the federal court challenging several key provisions of the new bankruptcy law passed by Congress in 2005. According to the suit, the challenged provisions create requirements for "debt relief agencies" that prohibit lawful legal advice and require statements that are untrue or misleading. If these provisions are applied to attorneys, they would impair the constitutional rights of attorneys and their clients under the First and Fifth Amendments to the Constitution.
"The U.S. Justice Department has taken the position that attorneys are 'debt relief agencies' and bound by these provisions," said Louis R. Pepe, President of the CBA. "We do not agree, but if that is so, then the new law would prevent attorneys from carrying out their professional and ethical responsibilities to give their clients complete and truthful advice and impair those clients' constitutional rights to access to the courts."
NACBA President Henry J. Sommer added, "We have thousands of members around the country who are trying to figure out how to deal with these provisions. Some attorneys are being deterred from representing any individuals in bankruptcy, even pro bono, because they are afraid of being classified as "debt relief agencies." In other cases, attorneys will not even talk to clients on the telephone for fear of violating these provisions, or feel they are restricted in giving legal advice. Their possible application to all consumer bankruptcy attorneys is a serious obstacle to giving our clients the competent and complete representation to which they are entitled."
The lawsuit seeks a preliminary injunction prohibiting the provisions from being enforced against attorneys. The court has not yet set a hearing date.
The Complaint and accompanying documents may be viewed at www.nacba.org
As Bankruptcy Courts may have reached the point where they are entertaining individuals' second petition filed under the BAPCPA, the distinction between dismissing or striking the petition will become more important for debtors and creditors. If the prior case was stricken, and deemed a nullity, the debtor may reap the benefits of the full automatic stay, as if a prior case had never been filed. The distinction also may alter the way creditors operate. In those jurisdictions that strike, and deem a nullity, petitions filed by an ineligible person, creditors may be inclined to make their own determination (at their own risk) as to eligibility and proceed to foreclose or collect if they do not see the counseling certificate on the docket. After all, if they play it safe and wait for the court or clerk to strike the petition, the same individual may file obtain a certificate and file a second petition, presumably with an entitlement to the full stay. Thus, the cautious secured creditor who awaits a judicial determination in the first case may be delayed an additional two or three months, or more, if the individual files a second case before the creditor can advertise and foreclose.
We have previously noted that Judge Bonapfel has held that petitions filed by a person ineligible to filed under §109(h) should be dismissed and not stricken. In re Ross, 338 B.R. 134, Case No. 05-86669 (Bankr. N.D. Ga. February 7, 2006). Other courts have subsequently analyzed and ruled on the issue. In re Seaman, 2006 Bankr. LEXIS 582 (Bankr E.D.N.Y. March 30, 2006)(following Ross, cases should be dismissed); In re Salazar, 2006 Bankr. S.D. Tex. March 29, 2006)(such cases should be stricken). The Court in Salazar, recognizing the uncertainty, certified its decision for direct appeal to the 5th Circuit pursuant to 28 U.S.C. §158(d)(2).
So what's the right answer? My two cents -- remember that "syllogism" in Salazar which led to the conclusion that a filing of a petition by an ineligible debtor does not trigger the automatic stay? Here's where I think the flaw is. Section 362 says that "a petition filed under section 301, 302 or 303" operates as a stay. But 301, 302 and 303 do not actually say that a petition may only be filed by an eligible debtor; rather, what they is that "a case is commenced" by the filing of a petition by an eligible debtor. Thus, the filing of a petition by an ineligible debtor can trigger the automatic stay under 362 (which refers to the filing of a petition, not to the commencement of a case), but that petition will not commence a "case" unless the petitioner is eligible. So the stay would be in effect temporarily pending determination of eligibility, but if the debtor is determined not to be eligible, then the petition would be dismissed (or stricken, if you prefer), and would not be regarded as a "previous case" for purposes of 362(c)(3) or (4). To the extent this presents an opportunity for abuse by debtors seeking to take advantage of the temporary stay, courts could remedy such abuse in the same ways they have dealt with serial filings before -- through retroactive annulment of the stay, dismissals with prejudice, in rem stay relief orders, and so on. Would it work?
Update - In In re Westover, 2006 Bankr. LEXIS 1418 (D. Vt. July 11, 2006), the issue was to strke or dismiss but it was the debtor who filed the motion based upon her failure to get counseling. The court followed the courts that held that dismissal was appropriate. Clearly, this is an example where the debtor could have used the first filing to stop a foreclosure then file a new case and get the benefit of the full stay for the second filing.
PRESS RELEASE
For Immediate Release
April 12, 2006
FELICIA S. TURNER TO SERVE AS U.S. TRUSTEE IN KANSAS, OKLAHOMA, AND NEW MEXICO FOR INTERIM PERIOD
WASHINGTON, D.C.-Felicia S. Turner, United States Trustee for Georgia, Florida, Puerto Rico, and the U.S. Virgin Islands (Region 21), is also serving as United States Trustee for Kansas, Oklahoma, and New Mexico (Region 20) for an interim period, the United States Trustee Program announced today. She replaces United States Trustee Mary E. May, who died on March 25, 2006, after serving with great distinction since September 2002.
Since August 2003, Ms. Turner has been the U.S. Trustee for Region 21, which is headquartered in Atlanta, with additional offices in Macon and Savannah, Georgia; Miami, Orlando, Tallahassee, and Tampa, Florida; and San Juan, Puerto Rico. Immediately before her appointment as U.S. Trustee, Ms. Turner was a partner in an Atlanta-based law firm, where she was a member of the bankruptcy practice group and the litigation section. Ms. Turner received her law degree from Duke University School of Law in Durham, North Carolina, and her undergraduate degree in mathematics magna cum laude from DePauw University in Greencastle, Indiana.
The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws.
The U.S. Trustee Program has 21 regions and 95 field offices. Region 20 is headquartered in Wichita, Kansas, with additional offices in Oklahoma City and Tulsa, Oklahoma, and Albuquerque, New Mexico.
David Rosendorf has posted several new articles in his ABI BAPCPA Blog, each of which is very informative. In the first article, Chapter 13 Plans, Substantial Abuse and Related Issues Addressed, David discusses several issues surrounding Chapter 13.
In Dude, Where's My Car? Most Courts Hold Purchase Money Vehicle Loans Still Secured Under BAPCPA,David analyzes two cases from the Southern District of Georgia in which the issue was the application of section 1325(a) and 506 to vehicles purchased within 910 days of the petition date. See In re Brown and In re Carver. Both of these cases are summarized in the Casenotes sections, but David's post provides a very thorough analysis of these and other cases addressing the issue.
Steve Jakubowsky, in his Bankruptcy Litigation Blog, discusses the aftermath of the Seventh Circuit's decision in the K-Mart bankruptcy case, wherein the court struck down the payment of pre-petition claims of "critical vendors." After the District Court reversed the Bankruptcy Court order authorizing the payments (but before the Circuit affirmed the District Court), K-Mart filed adversary proceedings to avoid and recover the post-petition payments. Count I was based upon §549 and Count II was grounded in §105. Steve describes the subsequent order on motions to dismiss as follows:
In a wide-ranging, 62 page unpublished opinion, Judge Sonderby denied the creditors' motion to dismiss Count I, but granted the motion to dismiss Count II. In so doing, the opinion --
details the complex procedural history of the case, including the quick thinking employed by the litigants when the district court's bombshell reversal came down a mere two days before the start of Kmart's confirmation hearing (pp. 2-13);
rejects the movants' "plain meaning" arguments that recovery should be denied under Code section 549 because the Court had previously authorized such payments (pp. 13-24);
notes the banishment by the 7th Circuit of the term "equitable mootness" from the local lexicon (pp. 20-21);
dissects when a "private right of action" arises in the bankruptcy context (such as "in connection with alleged violations of the discharge injunction and the filing of inflated secured claims"), and concludes that no such "separate and independent action exists under §105(a)" (pp. 24-33);
reviews at length the doctrine of judicial estoppel and its inapplicability to this case, finding not only that Kmart was not "exploiting" the 7th Circuit's reversal of the critical vendor order, but that "application of the doctrine under the circumstances of this case would itself amount to [] a perversion [of the doctrine of judicial estoppel]" (pp. 33-48);
affirms the adequacy of provisions in the confirmed plan purporting to retain these avoidance actions, even though the pre-confirmation plan modifications were made without attempting to resolicit votes on the plan (pp. 48-58); and
punts the remaining arguments, including detrimental reliance, equitable estoppel, and recoupment, as "fact-intensive defenses inappropriate for disposition at this time" (pp. 58-61).
Judge Sonderby obviously has long ruminated about the mess spawned by the reversal of her "critical vendor" order. Now, in an unpublished decision, she has given us much to ruminate about too.
As of this date, the Eleventh Circuit has not ruled upon the critical vendor issue. However, some cases within the Circuit that have addressed the issue include In re Tropical Sportswear Int'l Corp., 320 BR 15 (M.D. Fla. 2005) and In re Fultonville Metal Products Co., 330 B.R. 305 (Bankr. M.D. Fla. 2005).
FirstLine Corp., manufacturer of building products and industrial packaging, filed a Chapter 11 petition in the Middle District of Georgia on March 6, 2006. FirstLine has over 400 employees, and 2005 revenues of $70 million.
Update: The Debtor has filed a Motion to Approve the Sale of its assets pursuant to Section 363 and to Approve Bidding Procedures. The Motion does not identify any potential suitors for the assets, but states that the debtor has engaged in extensive marketing efforts.
Or, in the words of the competition judge to Adam Sandler's title character in the movie, "Billy Madison", after Billy Madison had responded to a question with an answer that sounded superficially reasonable but lacked any substance,
Mr. Madison, what you've just said is one of the most insanely idiotic things I've ever heard. At no point in your rambling, incoherent response was there anything that could even be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.
Deciphering motions like the one presented here wastes valuable chamber staff time, and invites this sort of footnote.
The Order was actually picked up by the Smoking Gun. However, it is nothing compared to the Order entered by another Texas judge, who had his sights on lawyers in this order ...
An article in the March 19, 2006 Atlanta Journal, entitled Bankruptcy Tide Rolls On (one time registration may be required), discusses the steady rise in consumer filings since the effective date of the BAPCPA. Several local consumer bankruptcy attorneys are qouted. It remains to be seen if this purported trend has taken off in the Northern District, but filings are increasing in 2006. According to Clerk statistics, filings in the Northern District in February 2006 are still less than half of filings in February '05. January '06 filings were down over 67% from January '05.
On March 16, 2006, International Management Associates, LLC ("IMA") and nine related entities filed Chapter 11 petitions in the Northern District of Georgia (06- 62966-PWB, et al.). IMA, and related debtor International Management Associates Advisory Group, LLC, reportedly had approximately $166 million in funds under management in hedge funds. Seven related entities are the funds. Filings indicate that the petitions were filed after both the Superior Court of Fulton County and the US District Court entered a TRO's and appointed a Receiver for some or all of the related entities. Debtors have filed a Motion to jointly administed the cases under the IMA case number.
Update - The March 21, 2006 Atlanta Constitution has an article about the Debtor entities and their missing principal. The article may be viewed by clicking here.
The National Association of Consumer Bankruptcy Attorneys has released a study of over 61,000 consumers who sought credit counseling after October 17, 2005. The study concludes that "nearly all (97 percent) are unable to repay any debts and that four out of five would-be filers (79 percent) were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse." Thus, the BAPCPA may serve only to add an additional roadblock to consumers who are already in dire financial straits. The full report, summaries and commentary may be viewed at the NACBA website.
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