The Riverhounds Event Center, L.P. and Riverhounds Acquisition Group, L.P., the limited partnerships that own and operate Highmark Stadium and the Pittsburgh Riverhounds Professional Soccer Club respectively, jointly declared voluntary Chapter 11 bankruptcy on March 26, 2014. Debtors filed in the United States Bankruptcy Court for the Western District of Pennsylvania, assigned case numbers 2:14-bk-21180 and 2:14-bk-21181 respectively. Both cases have been assigned to the Honorable Jeffery A. Deller.
The Riverhounds Event Center, L.P. owns and operates the newly constructed Highmark Stadium located in the South Side area of Pittsburgh and claims assets ranging from $1 million to $10 million with liabilities between $10 million and $50 million. Of those liabilities, $7.2 million is mortgage debt and $1.5 million in bank loans.
The Riverhounds Acquisition Group, L.P. is the limited partnership that owns the Pittsburgh Riverhounds minor league soccer team and claims assets ranging from $500,000 to $1 million with liabilities between $1 million and $10 million. The Pittsburgh Riverhounds was founded in 1999 and currently plays in the United Soccer Leagues. Much of the debt leading up to the bankruptcy was incurred in 2012-2013 during the construction of Highmark Stadium. The bankruptcy is not expected to affect the 2014 season.
Debtors share some creditors such as Shallenberger Construction, Inc., First National Bank of Pennsylvania, and Urban Redevelopment Association of Pittsburgh. Both debtors are represented by John M. Steiner of Leech Tishman Fuscaldo & Lampl, LLC.
BY: Katie Imler, Law Clerk
On July 26, 2013 , TAM of Allegheny LLC d/b/a Stonefront Witch Way Inn filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Western District of Pennsylvania (assigned No. 13-23143-GLT). The Stone Front Witch Way Inn, located at 2827 California Avenue, Pittsburgh, PA 15212, was a local café and bar that was padlocked by police on June 28, 2013 for not paying the Allegheny County drink taxes totaling more than $22,390. The Allegheny County Treasurer, John Weinstein, has been cracking down on businesses that are not paying the alcoholic beverage tax.
The case has been assigned to the Honorable Judge Gregory L. Taddonio. Norma Hildenbrand has filed an Notice of Appearance and Request for Notice on behalf of the United States Trustee. A summary of the docket can be found here.
The Debtor listed $50,000-$100,000 in Assets and $0-$50,000 in Liabilities, which are primarily business debts. Although there are less than 50 creditors, the top creditors holding unsecured claims include: Allegheny County ($21,864), BMI ($658.07), Chase Bank ($2,723.39), Dietz Electronics, Inc. ($438.98), IRS ($8,058.44), Joseph J. Brunner, Inc. ($407.80), and Trudy L. Schmitt, President of TAM of Allegheny LLC. All Schedules and Attorney Disclosures are due on August 9, 2013. The Chapter 11 Plan and Disclosure Statements are due November 25, 2013. However, the Government Proof of Claims Bar Date is set for January 22, 2014.
The Debtor is represented by J. Michael Baggett of McCann Garland Ridall & Burke, 11 Stanwix Street, Suite 1030, Pittsburgh PA, 15222. Jodi L. Hause filed a Notice of Appearance on July 29, 2013 to represent Creditor Duquesne Light Company. A Status Conference will be held on October 20, 2013 at 10:00am.
This is the second in a series of blog posts I am writing here about preference lawsuits (I have a 50 page research treatise that I wrote, from which I am pulling to create these posts!). I will try to make the subject matter as interesting as possible.
Does the motive of a debtor a creditor matter in a preference law suit?
Scenario One: I know our business is not going to make it another 30 days. I have one $10,000 receivable that we can expect to receive. We owe our trade creditors about $100,000 and we owe my Aunt Molly $50,000 that she lent to us on an unsecured basis. We have been making monthly payments in the amount of $500 to her for the past three years. I want to take the $10,000 once we get it and pay her all of it because she is my favorite Aunt, I feel bad we are going to stiff her, and she use to buy me pink marshmallow peeps for every Easter.
Scenario Two: My critical supplier knows that we have been in distress. He knows that we lost our biggest customer and we are barely making ends meet. He just recently shortened my payment terms from net 30 to net 7, he has told me he doesn’t care if I cannot pay my electric bill or payroll and that he wants me to pay his aged account receivable now! He sends me threatening letters, emails, and nasty voicemail messages. I don’t even answer my phone anymore.
As set forth in my prior blog post, there are the five basic elements of a preference; basically, a transfer must be made (1) to or for the benefit of a creditor, (2) on account of an antecedent debt, (3) while the debtor is insolvent, (4) within ninety days before bankruptcy (for non-insiders) or 1 year (for insiders); and (5) the transfer must enable the creditor to receive a greater amount had the transfer not occurred and had the creditor received payment in a hypothetical Chapter 7 liquidation.
What is absent from that list is mental state of mind, motive, or intent. Under the predecessor statute to Bankruptcy Code § 547 (§60 of the Bankruptcy Act of 1898), a plaintiff had to establish that the creditor had “reasonable cause to believe” that a debtor was insolvent before a preferential transfer could be avoided. But, importantly, a creditor’s state of mind is no longer an element to the preference cause of action. See Barash v. Public Finance Corp., 658 F.2d 504, 510 (7th Cir. (Ill.) 1981). In the Barash case, the Seventh Circuit Court of Appeals held that voluntary payments by a debtor to creditor on an installment contract were preferential transfers, and the fact that the creditor had no way of knowing that the debtor was having financial difficulties was irrelevant. The Barash Court quoted the legislative notes regarding Bankruptcy Code § 547: “A creditor’s state of mind has nothing whatsoever to do with the policy of equality of distribution ….”. H.R.Rep.No.95-595, supra, at 178, 5 U.S. Code Cong. & Admin. News at 6139.
Collier on Bankruptcy, the most authoritative secondary authority on bankruptcy law, acknowledges this change as well. “Intent or motive is not a material factor in the consideration of an alleged preference under §547. Generally speaking, it is the effect of a transaction, rather than the debtor’s or creditor’s intent, that is controlling.” See 4 COLLIER ON BANKRUPTCY, ¶547.01 at 547.12.
Some courts, however, have attached a significance to the intent, motive or state of mind of either the debtor or a creditor, even though intent is not a “material” or a basic element of a preference,. In the Eleventh Circuit, for example, see In re Craig Oil Co., 785 F.2d 1563 (11th Cir. (Ga.) 1986)). The Craig Oil Court held that a pre-Petition payment was a preference, attaching significance to fact that debtor’s motive for making a payment to a creditor was to forestall an involuntary petition and to prevent personal liability on guaranteed debt, but observing that state of mind of the debtor alone, would not establish unusual or extraordinary actions by the debtor, but merely would go to explain unusual payment actions by debtor. Also, in the First Software Corp. v. Micro Educ. Corp. of Amer., 103 B.R. 359 (D. Mass. 1988), the United States District Court for Massachusetts held that payments made by a debtor under an agreement with a creditor were not preferences. The debtor agreed to make larger weekly payments to a creditor until the balance on the account was reduced to zero. The Court held that the transfers were within the ordinary course of business (and not preferences), where there was no evidence that indicated that the creditor knew that the debtor was on the verge of bankruptcy when the payments at issue were agreed upon and made.
I have had cases in which my creditor clients were guilty of making dunning phone calls to the debtor prior to company’s slide into bankruptcy. I have also had cases in which my client was a critical supplier and it wanted to keep servicing the debtor during the time of distress. Often, at moments like that, new deals are struck in order to keep the debtor afloat and the supplier still dealing with the debtor. Perhaps, the supplier is owed a substantial amount of money from the debtor and the supplier is willing to do anything to keep the debtor as a going concern; otherwise, the supplier faces the threat of its own bankruptcy.
Although the intent, mens rea, state of mind, motive of either the debtor or the creditor is no longer a prima facie element to a preference action, when I conduct diligence surrounding an alleged preferential transfer I always ask the necessary questions to get a better understanding of what was really going on in the business relationship as the debtor became unable to pay its debts as they came due. Asking these questions is important in order to paint an accurate picture of the course of dealing between the parties and how such dealing may have changed prior to the filing of the case.
I often advise the credit risk groups of all of my clients always to have a pulse on the financial condition of their clients, especially if a client generates revenue from only a handful of customers. I even advise my clients to put “google alerts” on each such client so that they can catch wind of any distressed circumstances.
Without a doubt, a business should be strategic when dealing with a distressed client, especially if there is a significant amount owed, and especially if you are striking a new deal with the debtor with changed terms. Even if you are paid in the year or 90 days prior to your customer’s bankruptcy filing, you always run the risk that the payment will be clawed back post-Petition. You should be prepared for what defenses you will mount in the event that happens.
MAZURKRAEMER represents debtors and creditors in bankruptcy courts all over the country. The information, comments and links posted on this blog do not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the blog and/or the blogger. For legal advice, contact an attorney at MAZURKRAEMER or an attorney actively practicing in your jurisdiction.