Georgia Bankruptcy Blog

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

From the Deal Watch Blog -

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

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

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

 

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

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

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

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

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

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

In re Taylor, 2009 Bankr LEXIS, 09-63210-PWB (March 25, 2009).  The creditor sought dismissal pursuant to § 521(i)(2) because the debtor failed to file pay advices.  Debtor was self-employed, so the Court observed that the pay advice requirement was not applicable because the debtor had no pay advices "from any employer."  Judge Bonepfel scheduled a hearing to determine whether the debtor has to file pay advices, or whether the Court could excuse failure to file in the 45 day time limit.  What the Order does not say is what is required to be filed if the debtor has no pay advices?  Is there an unwritten requirement that the debtor file a certification or affidavit? 

In re Dabney, 2009 Bankr. LEXIS 1112, 08-77955-PWB (April 7, 2009).  The Chapter 13 Trustee objected to the debtor's attorney's flat fee of $3500 where the debtor was only paying unsecured, non-priority claims in his confirmed Ch. 13 plan.  Judge Bonapfel engaged in a lengthy 6 page analysis of fees in Chapter 13 cases (which all Ch. 13 lawyers should probably read).   The lawyer based the flat fee on the average spent on all cases.  The Court could not conclude that the fee was reasonable in this case, allowed the $1500 previously approved, and allowed the lawyer to file another fee application. 

In re Kelly, 2009 Bankr. LEXIS 902, 08-85727-MHM (March 25, 2009).  Debtor's unopposed motion to require Child Support Services to return drivers license was granted, where debtor testified that he was a commercial truck driver, and his Ch. 13 plan cured the support arrearage in a reasonable time.  Pursuant to Section 105 of the Code, the Court had the authority, even though the suspension of the license was not subject to the automatic stay.

In re Hamilton, 2009 Bankr. LEXIS, 793, 07-68258-MHM).  Debtor moved to reopen her Chapter 7 case to file a complaint to determine the dischargeability of her student loan debts.  The motion was denied because debtor did not show grounds to discharge her student loan, and she could pursue the matter in another court in the absence of exclusive jurisdiction.

In re Cavalli, 2009 Bankr. LEXIS 819, Adv. No. 08-6338, Case No. 08-63340-MHM (March 19, 2009).  Plaintiff, the debtor's former spouse, filed a motion for summary judgment arguing that the debtor's obligations in a settlement agreement entered in the divorce action were nondischargeable.  Under that agreement, debtor was to refinance or sell the marital home and pay other debts.  Debtor argued the obligations were not "support" under section 523(a)(5), but did not address section 523(a)(15).  The Court held that all obligations, support and property division, were nondischargeable.  Rule 9011 sanctions against the debtor were to be addressed in subsequent pleadings.

From the Middle District -

In re Morris, 2009 Bankr. LEXIS 1181, 07-70114-JTL (April 21, 2009).  Upon the dismissal of a Chapter 13 case, after the confirmation of a plan, the Chapter 13 Trustee distributed undistributed funds to creditors pursuant to the plan rather than return them to the debtor.

Chapter 11 filings were up leading up to foreclosure day yesterday.  In other posts, I discussed filings by Caraustar and related entities, and MPI/Highlands apartments. In all, over 50 Chapter 11 cases were filed in the Northern District over the last month.

Here are the other Chapter 11 cases filed since early May 2009.

Caraustar Industries, one of the nation's largest manufacturers of recycled paperboard and related products, and related entities, filed Chapter 11 petitions in the Northern District of Georgia yesterday.

From the Atlanta Business Chronicle:

Caraustar (NASDAQ: CSAR) also reached agreement with debt holders to reduce the company's debt obligations by $135 million.

Under the Plan, holders of outstanding shares of Caraustar's common stock will receive their pro rata share of $2.9 million, or 10 cents a share, subject to certain conditions. The restructuring plan calls for the exchange of the company's existing 7.375 percent and 7.25 percent senior notes for an aggregate of $85 million in new senior secured notes and 100 percent of the common stock of the reorganized company.

Wayzata Investment Partners LLC will become the company's controlling shareholder.

In conjunction with the restructuring, Caraustar has landed a $75 million debtor-in-possession line of credit from General Electric Capital Corp. The money may be used for cash collateralizing outstanding letters of credit, paying for goods and services in the ordinary course of the business and general corporate purposes.

The debtor entities are:

 

 

Type
09-73830-mgd Caraustar Industries, Inc.	associated
09-73835-mgd Austell Holding Company, LLC	associated
09-73836-mgd Camden Paperboard Corporation	associated
09-73837-mgd Caraustar Custom Packaging Group, Inc.	associated
09-73839-mgd Caraustar Custom Packaging Group (Maryland), Inc.	associated
09-73840-mgd Caraustar, G.P.	associated
09-73841-mgd Caraustar Industrial and Consumer Products Group,	associated
09-73843-mgd Caraustar Mill Group, Inc.	associated
09-73844-mgd Caraustar Recovered Fiber Group, Inc.	associated
09-73845-mgd Chicago Paperboard Corporation	associated
09-73846-mgd Federal Transport, Inc.	associated
09-73847-mgd Gypsum MGC, Inc.	associated
09-73848-mgd Halifax Paper Board Company, Inc.	associated
09-73849-mgd McQueeney Gypsum Company	associated
09-73850-mgd Paragon Plastics, Inc.	associated
09-73851-mgd PBL Inc.	associated
09-73853-mgd McQueeney Gypsum Company, LLC	associated
09-73854-mgd Sprague Paperboard, Inc.	associated
09-73855-mgd RECCMG, LLC	associated

The owners and managers of several related apartment complexes in Norcross, Georgia filed Chapter 11 petitions in the Northern District of Georgia, apparently as a result of the real estate market.  The filings were precipitated by the filing of a suit in Fulton County by Regions Bank to appoint a receiver.

The cases are:

MPI EAGLES, LLC, Case No. 09-73804-jem  (dba "Highland Corners Apartments")
MPI ASHLEY, LLC, Case No. 09-73808-jem  (dba "Highland Lakes Apartments")
MPI HUNTERS, LLC, Case No. 09-73811-jem dba ("Highland Valley Apartments")
MPI RESERVE, LLC, Case No. 09-73813-jem   (dba "Highland Reserve Apartments")

Yesterday was foreclosure day in Georgia, and several new Chapter 11 cases were filed. Here are the cases filed in the last month, through yesterday May 5, 2009.

In In re Goodman, Ch. 7 Case No. 08-41521, 2009 WL 936910 (Bankr.N.D.Ga. Apr 06, 2009), the debtor proposed a reaffirmation agreement with her auto lender.   However, although her attorney represented her in the negotiations of the agreement, and continued to represent her in the other matters in the case, the attorney refused to sign the certification  11 U.S.C. §524(c)(3).

It is clear from the hearing that the debtor's lawyer represented the Debtor in connection with negotiation of the reaffirmation agreement but declined to provide the required certification for reasons that, properly, she did not disclose, given her duty of maintaining the confidences of her client and the protections of the attorney-client privilege. In this regard, the Court is satisfied that the Debtor's lawyer properly fulfilled her professional responsibilities to represent the Debtor in all aspects of this case, including counseling with regard to the proposed reaffirmation agreement. Thus, this is not a case in which a debtor's lawyer attempts to exclude reaffirmation matters from the scope of the bankruptcy representation.

The question here is whether the Court may even consider approving the proposed reaffirmation agreement in view of the fact that her lawyer represented her at least with regard to advising her about it, continues to represent her in the case, but refused to provide the required certification. The answer must be affirmative because the lawyer's certification necessarily cannot be the only way for a debtor with a lawyer to enter into an enforceable reaffirmation agreement.

In the final analysis, it is the client, not the lawyer, who makes the decision about reaffirmation. So a debtor must have the opportunity to seek to enter into an enforceable reaffirmation agreement notwithstanding her lawyer's decision not to sign the certification based on the lawyer's professional judgment that it is not in her best interest or for other valid reasons. And the debtor's lawyer, who ordinarily has a duty to represent a consumer debtor in all aspects of a bankruptcy case, need not seek to withdraw from representation in the case (in which her services may still be required with regard to other matters) so that the debtor can become unrepresented so that she can pursue an enforceable reaffirmation agreement. Indeed, the lawyer's professional responsibilities actually require the lawyer to represent the debtor in connection with reaffirmation matters.
 

The Court, therefore, considered the proposed reaffirmation under 11 U.S.C. §524(a)(6).  Since the debtor's budget clearly indicated that she could not make the payments on her own, and the vehicle was worth less than the balance owed, the propowed agreement was not approved.  However, because the debtor wanted to protect her mother, who co-signed, the Court noted she could continue to make voluntary payments to the lender to pay off the debt.

Today  is foreclosure day in Georgia, and here are the Chapter 11 filings through today.

Evans v. Potter, Slip Copy, 2009 WL 529599 (N.D.Ga. Feb 27, 2009) (NO. CIVA 1:08CV1687TWT).  The issue was whether the plaintiff was judicially estopped from pursuing harassment claims not disclosed on her bankruptcy petition.

Facts:

Plaintiff was employed by the United States Postal Service (“USPS”). On March 22, 2007, Plaintiff filed a bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia pursuant to Chapter 13 of the Bankruptcy Code. In that petition, Plaintiff did not indicate that she had any contingent or unliquidated claims against the USPS. On August 17, 2007, Plaintiff made a USPS internal complaint alleging sexual harassment and unlawful retaliation arising out of conduct that began in 2004. The USPS issued a final decision on February 12, 2008, finding that Plaintiff's complaint had no merit.

Plaintiff filed the instant lawsuit on May 9, 2008. On May 15, 2008, the bankruptcy court dismissed the bankruptcy case because Plaintiff failed to make proper payments to the Trustee as previously agreed. The bankruptcy court did not discharge Plaintiff's debts. Plaintiff served the instant lawsuit on Defendants in July 2008.

Defendant sought dismissal of Plaintiff's claims pursuant to the doctrine of judicial estoppel.  The Motion to Dismiss was denied.

Generally, a finding of bad faith is required before a court may exercise its inherent sanctioning powers such as judicial estoppel… Although the Eleventh Circuit has not explicitly stated that bad faith is a requirement for application of judicial estoppel, the language used by the Court to describe the doctrine implies as much. See Strauss v. Rent-A-Center, Inc., 192 Fed. Appx. 821, 823 (11th Cir.2006) (declining to apply judicial estoppel in part due to absence of finding that “the debtor intentionally misled the bankruptcy court as to the existence and then character of her employment lawsuit”)…

The evidence in this case does not support a finding that Plaintiff acted in bad faith or that she intended to manipulate the court system to her advantage. Plaintiff denies any such intent, and the facts of this case do not imply otherwise... Additionally, Defendant may have hampered Plaintiff's knowledge of a potential claim by issuing an internal administrative decision finding that Plaintiff had no claim.

This, of course, does not explain Plaintiff's failure to amend her bankruptcy petition once she became aware of a potential claim. However, Plaintiff gained no advantage from her oversight because the bankruptcy court dismissed her bankruptcy case without discharging her debts. ..As explained by the Court of Appeals for the Third Circuit, judicial estoppel should be invoked only when a miscarriage of justice or damage to the integrity of the judicial system would otherwise result:

 

[J]udicial estoppel is an “extraordinary remed[y] to be invoked when a party's inconsistent behavior will otherwise result in a miscarriage of justice.” It is not meant to be a technical defense for litigants seeking to derail potentially meritorious claims, especially when the alleged inconsistency is insignificant at best and there is no evidence of intent to manipulate or mislead the courts. Judicial estoppel is not a sword to be wielded by adversaries unless such tactics are necessary to “secure substantial equity.”

Ryan, 81 F.3d at 365 (citations omitted). In this case, particularly in light of the dismissal of Plaintiff's bankruptcy lawsuit without discharge of her debts, application of judicial estoppel would be unduly harsh and inequitable. I therefore RECOMMEND that Defendant's motion with respect to judicial estoppel be DENIED.

The owner of a Clayton County house built on ABC's Extreme Makeover stopped a foreclosure by filing a Chapter 13 Bankruptcy petition today.  The case is In re Milton Moses Harper, Ch. 13 Case No. 09-65611-reb.  This is not the first time the house was in foreclosure proceedings (click here for story).

See the Atlanta Journal article by clicking here.

In the bankruptcy filing, Harper said he owes $100,000-$500,000 to creditors including the mortgage company, six credit cards, two pawn shops and Sprint. Harper says he owns the same range amount in assets. He is set to meet with creditors April 21, and states he’s received credit counseling...

The Harper home was given a free makeover when the show’s producers learned the family was having septic tank problems. In addition to the $450,000 remodeling, the show gave the family $200,000 in cash.

The couple borrowed against the house to start a business and ended up with a $450,000 mortgage. After struggling several years with finances, the couple faced foreclosure in August. The house was saved then by a loan modification.

 

Today is foreclosure day, so time to review the Chapter 11 filings for the last month in the Northern District of Georgia. 

Haven Trust Bank, which was closed by Georgia Banking and Finance and the FDIC in December 2008, filed a Chapter 7 petition in the Northern District of Georgia yesterday, February 23, 2009.  In re Haven  Trust Bancorp, Inc., Ch. 7 Case No. 09-64497.  The Bank's deposits had been transferred to BB&T.  

Haven Trust Petition and Schedules, and its Statement of Financial Affairs.  Haven Trust is represented by Powell Goldstein/ Bryan Cave.  

On December 4th, 2008, seven affiliates of Pure Med Spa filed Chapter 11 petitions in the Northern District of Georgia.  Click here for information. The cases have been jointly administered with the lead case being Ch. 11 Case No. 08-85038-CRM.

Since the initial filing, eight more related entities have filed Chapter 11 petitions, including four more yesterday, February 12, 2009.  The Motion for Joint Administration filed in one of the new cases provides some background.

An article in the Atlanta Journal discusses the recent Chapter 11 filing of Real Estate Exchange Services, Inc., Ch. 11 Case No. 08-85871-pwb (filed December 17, 2008).  Since the initial filing, Jeffrey K. Kerr, CPA has been appointed Chapter 11 Trustee in the case.  He recently filed a Motion to Convert the case to a Chapter 7 (click here for the motion and brief).

Excerpts from the article -

A prominent metro Atlanta businessman who served as an intermediary for real estate investment clients has sought bankruptcy protection because he can’t meet withdrawal requests.

Ron Raitz, founder and president of Real Estate Exchange Services Inc. in Marietta, filed for Chapter 11 protection in the U.S. Bankruptcy Court’s Northern District of Georgia on Wednesday.

Raitz, a Dalton native who started the 7-employee business 15 years ago, said the company was caught in the liquidity crunch that holders of some auction rate securites find themselves in from holding bonds that investors — spooked by the current market — don’t want to buy...

Raitz’s company is what’s called a qualified intermediary exchange firm. The Internal Revenue Service normally taxes capital gains from the sale of an office tower or apartment building, provided it’s sold at a profit.

But under the “1031 exchange” rule in the federal code, the seller of a commercial property can defer payment of capital gains taxes on profit from that sale. But 1031 only allows the seller to do that if he or she purchases another commercial property that’s equal to or greater in cost than the total net sales price of what was sold.

What’s more, all profit from the sale of the original property has to be put toward the new property, which also must be used for a commercial investment purpose.

And the IRS gives the seller up to 180 days to close on a new property otherwise the profit will be taxed. In the meantime, those funds have to be held by what the IRS calls a “qualified intermediaries,” who make money by charging a fee for serving as the temporary repository and taking some of the return on investments they make with that cash.

 

Here are the Chapter 11 filings in January, through Foreclosure Day, February 2009.

As discussed in this prior post, Georgia School Superintendent Kathy Cox and her husband filed a Chapter 7 Bankruptcy petition in the Newnan Division of the Northern District of Georgia. In re John Hamilton Cox, Jr. and Kathryn Burgess Cox, Ch. 7 Case No. 08-13461-WHD (filed November 17, 2008).   The filing came just two months after she won, and gave away, $1 million dollars from the TV game show Are You Smarter Than A Fifth Grader.

The Chapter 7 Trustee is apparently investigating whether or not the game show winnings, which Fox TV apparently still retains, should be part of the Chapter 7 Estate.

From Fox 5 Atlanta:

It is unclear if three public schools for deaf and blind students will get the money Cox won in August on Fox’s “Are You Smarter than a Fifth Grader?” Alex Teel, the attorney for the bankruptcy trustee, said his client was exploring making a claim on the prize money....Cox said in a statement to The Associated Press on Wednesday that it is “sad that banks and lawyers are standing in the way” of the money getting to the schools.

From Another Fox 5 Report (which includes a video interview):

Creditors, who have a legal right to seize assets from Cox and her husband, are now looking into Cox's game show appearance. If Cox represented herself as an individual, playing for herself, the creditors may take her winnings, If it was clear that Cox was playing for charity, the money will go were Cox wants it to go, three Georgia schools for the deaf and blind.

"The evidence is all there, that I got asked to be on the show because I was the state superintendent of schools. I got asked to be on the show to play for charity. The original email that I received from FOX Are You Smarter than a 5th Grader Productions asked, 'Would you come be a part of our charity edition shows?'" Cox recalled.

 From the Atlanta Journal:

The investment firm hired to create an account for distributing the money to three public schools for blind and deaf students returned the check to Fox Broadcasting Co. in December, according to Cox and her attorney. The company, Fidelity Investments, did not want to become involved in the bankruptcy case, Cox attorney Karen White said....

White said the bankruptcy trustee representing creditors has asked for records concerning the prize money. “Whether he will ultimately assert that the state has a superior legal right to that of the [school fund’s] legal right, I don’t know,” she said. A lawyer representing the bankruptcy trustee confirmed Wednesday the creditors might make a claim on the prize money. “It is what we’re looking into,” said attorney Alex Teel. “As of yet, we haven’t seen those documents.”

The Atlanta Business Chronicle has an article discussing the need for two additional Bankruptcy Judges in the Northern District of Georgia -

For the second year in a row, bankruptcies jumped more than 20 percent in 2008. Filings climbed to 39,214, up 25 percent over 2007. In 2007 there were 31,435 filings, 22 percent more than in 2006... The Committee on the Administration of the Bankruptcy System of the Judicial Conference, which oversees federal courts’ administration, was scheduled to meet Jan. 14 and 15 for one of its two annual meetings during which it would examine the request. If approved, the request would then go to the full judicial conference on March 17 and then on to Congress for final approval.

Chapter 11 Filings in the Northern District of Georgia for the last half of December 2008 and through Foreclosure Day, January 2009.