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: Stephen Krug, Law Clerk
The various entities that comprise the Quiznos sandwich chain (“debtors”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware on March 14, 2014. A motion filed by debtors for joint administration of the cases was granted on March 17, and the case has been assigned to the Honorable Peter J. Walsh.
While debtors’ liabilities range from $500 million to $1 billion, the assets are only estimated to fall between $0 and $50,000. However, Debtors maintain that, although assets are low and 10,001 to 25,000 creditors exist, funds will be available for distribution to unsecured creditors. U.S. Bank National Association, as administrative agent and collateral agent under debtors’ second lien financing facility, is the largest unsecured claimant with a claim for approximately $174 million. Horizon Media Inc., MG-1005, LLC, and ESPN Inc. also hold substantial unsecured claims.
Debtors have proposed a pre-packaged reorganization plan that would slash debt by more than $400 million and would permit the handful of company-owned sandwich shops to remain operational. Sandwich stores operated by franchisees are not part of the bankruptcy proceedings and thus are not provided for in the pre-packaged plan.
Debtors hope to emerge from bankruptcy more viable than ever. Moving forward, debtors hope to reduce food costs and place more of an emphasis on advertising.
As is almost always the case, principals of a distressed business have personally guaranteed the debt on a credit line or property or equipment lease. When a business files bankruptcy, an automatic stay is imposed against any adverse actions taken against the business entity, the Debtor. But what about the owners of the business? Often, I find myself seeking to extend the automatic stay injunction to those principals. This issue came up in a recent case we had pending in the Fourth Circuit. We were compelled to find case law regarding the standard for relief.
A factual example would be as follows: A distressed business ABC Recylcing owns a building, and the building has a mortgage on it in favor of Meanie Bank, N.A. The business falls behind on payments. Meanie Bank initiates a foreclosure action to set an auction to sell the building. Jake, the owner of the business had to sign a guaranty in order for ABC Recycling to get the loan with Meanie Bank. ABC Recycling still operates with the faint hopes of reorganizing through a Chapter 11 bankruptcy. Once the Chapter 11 is filed, the foreclosure action is stayed as to ABC Recycling, but now the Meanie Bank is going after Jake. Help, my clients say.
ISSUE: Pursuant 11 U.S.C. §105 and §362 of the Bankruptcy Code, is a court likely to grant an injunction to protect the principal of a bankrupt business?
CONCLUSION: Where the principal Jack is a primary guarantor of the mortgage and Meanie Bank now intends to secure a judgment against the principal, the principal will only be able to obtain an injunction by demonstrating a mutuality of identity with the Debtor such that allowing Meanie Bank to proceed against Jake will substantially deprive the Debtor of a primary asset (its owner’s time and attention). In Plain English, how important is the principal Jake to the Debtor’s operations? A four-part test is employed to make that determination.
While automatic stay proceedings are usually only available to the Debtor, under unusual circumstances, the Fourth Circuit has held that the Bankruptcy Court can enjoin proceedings against third parties. In re F.T.L. Inc., 152 B.R. 61 (Bankr. E.D. Va. 1993). However, where no compelling or unusual circumstances exist, then under §362 the Debtor’s guarantors must file their own bankruptcy petition in order to be protected by the Bankruptcy laws. Id. at 63. (this also happens often).
A court is only likely to grant an injunction to a third party non-debtor principal in the unusual circumstance that it is evident that the identity of the debtor and the non-debtor third party is so interconnected that it is clear that the creditor is proceeding against the debtor. Under such circumstances, the court may apply a four-part test and equitably grant an injunction where the court finds that:
- the plaintiff principal has a greater likelihood of succeeding on the merits;
- plaintiff principal has shown that lack of relief will result in irreparable injury;
- an injunction will not substantially harm other interested parties, and;
- preserving the status quo until the merits of the controversy is decided will serve public interests. Id.
In re F.T.L., the primary secured creditor to a car wash company debtor, secured a judgment lien against the debtor’s guarantors, the plaintiffs. Plaintiffs are the primary owners and guarantors of the car wash and the creditor perfected its lien against plaintiffs’ personal residence. Id. at 62. Noting that the collection activities against the owners arose from the car wash’s debt to the creditor, the court applied the four-part test and found that the debtor was likely to succeed on the merits by proposing a confirmable chapter 11 plan; the debtor’s chapter 11 plan would be impossible if the owners were forced to file their own chapter 11 petition; very little harm was likely to come to the creditor if it was enjoined from collection activities against the owner, and; lastly the creditors as a whole were best served if the debtor were allowed to propose a plan for reorganization. Id. The Court extended the injunction to the owners.
If you own a business and are wondering the same questions, you should review the facts and circumstances of your workout with your attorney. I think, by and large, the automatic stay is difficult to extend in Bankruptcy Court. You have to make a really compelling argument that the principal will be so consumed with his or her own bankruptcy that the Chapter 11 reorganization will suffer.
“Dance Moms” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts
Salene’s Preface: I was in Bankruptcy Court last week in Pittsburgh and noticed Abby walking into Court. (She is a stunning woman by the way and you can understand why she is on TV). I had to ask myself, “How do I know her?” I did figure it out pretty quickly. I was surprised to see her on my turf (that is in the world of commercial bankruptcy) and was not aware that Abby had filed for Ch. 11. My daughter is a dancer and I watch the show!
Abigale Lee Miller filed for Chapter 11 relief on January 3rd, 2011. The petition was filed in the United States Bankruptcy Court for the Western District of Pennsylvania under petition number: 10-28606 TPA and has been overseen by the Honorable Judge Thomas P. Agresti.
Debtor is better known as Abby Lee Miller, the host and instructor for the popular Lifetime reality television show Dance Moms. The show follows a group mothers and their young daughters who are participating in the world of young competitive dance. The show takes place in Pittsburgh, PA at the debtor’s studio, the Abby Lee Dance Company, and follows the ladies as they travel across the country to various competitions. Dance Moms is currently holding open casting calls for its 4th season.
The Abby Lee Dance Company was formed 27 years ago as a not-for-profit organization and is an audition only program. It is located at 7123 Saltsburg Road, Pittsburgh, PA, 15235. Debtor is also the owner of Reign Dance Productions, which shares the building with The Abby Lee Dance Company.
Debtor has declared approximately $325,500 in assets with approximately $356,500 in liabilities. Thirty-four creditors are listed in the petition, with Chase Mortgage holding the largest unsecured claim in the amount of $50,000. This debt is the unsecured portion of what appears to be a $200,000 undersecured mortgage on a home of Ms. Miller’s in Florida valued at $150k. Ms. Miller’s dance studio has a $96,000 mortgage on it; the studio is valued at around $150,000 Ms. Miller owes about $27,000 in back taxes (which are unsecured priority claims). Her unsecured debt only totals $32,000, many of whom are vendors for her business.
The Second Amended Disclosure Statement was approved on January 18th, 2013 and the Order Approving Disclosure Statement and Scheduling Hearing on Plan Confirmation was entered into on October 21st, 2013. Please click here to for a copy of the order. The debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C. The Confirmation Hearing to approve her Plan of Reorganization is set for December 12, 2013 at 1:30 p.m. EST. Please click here for a copy of the Disclosure Statement. A summary of the Chapter 11 plan can be found here.
Salene’s comment: We purposefully do not often write blog posts about individual Chapter 11 cases (usually filed by very wealth individuals. Most folks file a Chapter 7 or Chapter 13). When a company or person files for bankruptcy, I warn my clients that you are subjecting yourselves to a “financial autopsy”; you are making a public filing of all of your assets and liabilities. So, information seekers can look up what your home is worth, what kind of car you drive, how much credit card debt you have, whether you own a fur coat, how much your wedding ring costs, and whether you have any money in an IRA/401k. Anyone can see how much money you have made in the last three years and they get to read what your monthly budget is for expenses. While there are certainly benefits to the privilege of filing for bankruptcy, public disclosure of private facts is certainly one of the drawbacks.
By: Justin Saporito, Law Clerk and Salene Mazur Kraemer, Owner
What fees are associated with filing a Chapter 11 case? Aside from payment of attorneys’ fees (which can be steep), there are filing fees and ongoing quarterly administrative fees.
For a chapter 11 case, quarterly fees must be paid to the U.S. Trustee each quarter, or fraction thereof, until that case is closed, dismissed, or converted. These fees are in addition to the filing fee that must be paid by the debtor. The amount owed by the debtor is based upon the amount of disbursements made during the quarter starting at a minimum of $325 with a maximum of $30,000. (Complete breakdown of quarterly fees w/ instructions.) Again we repeat, there is a minimum payment of at least $325 a quarter. If significant assets are sold, a debtor may be looking at a quarterly fee up to $13,000 or even $30,000 to be made payable to the U.S. Trustee’s office. The fee schedule is uniform for all Federal Judicial Districts that are a part of the U.S. Trustee Program which includes all Federal Judicial Districts except for Alabama and North Carolina.
Quarterly fee bills are mailed to the debtor by the U.S. Trustee at the end of each quarter with instructions on how to determine the amount of fees owed. These fees are due on the last day of the calendar month following the calendar quarter. The minimum fee is due even if no disbursements were made that quarter and failure to pay a quarterly fee is cause for conversion or dismissal of the chapter 11 case. Failure to receive an invoice does not excuse the obligation to timely pay U.S. Trustee’s fees. Debtor’s counsel should contact the Office of the U.S. Trustee If a quarterly bill is not received, unless counsel for the debtor has executed an authorization allowing the U.S. Trustee to discuss the issue of quarterly fees with the debtor.
For payments made by check, the payment is converted to an electronic funds transfer (EFT). This means that the account information will be copied from the check to electronically debit the debtor’s account for the amount of the check. The debit usually occurs within 24 hours after which the original check is destroyed. A copy of the check will be made by the U.S. Trustee’s Office however. If the EFT cannot be process due to technical reasons, the debtor authorizes the U.S. Trustee’s Office to process the copy in place of the original check. If the EFT cannot be completed due to insufficient funds, two more attempts to make the transfer may be made.
TIPS FOR THE CHAPTER 11 DEBTOR: Payment of these U.S. Trustees fees is important. The U.S. Trustee is an agent of the Department of Justice. He or she is a lawyer who plays a critical and influential role in every Chapter 11 Case (more on this later). Do not overlook paying these fees or responding to any requests made by a U.S. Trustee. If a Debtor ignores such requests or fails to pay U.S. Trustee fees, the Debtor can almost be certain that a Motion to Dismiss the Case or Convert the Chapter 11 Case to Chapter 7 Case (liquidation) will be forthcoming.
BY: Katie Imler
On July 26, 2013 Beulah Road Land Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Western District of Pennsylvania (Case No. 2:13-bk-23148). The Debtor, located at 800 Beulah Road, Pittsburgh, Pa 15235, is the new majority owner of the land on which the Churchill Valley Country Club sits. The Debtor has been fighting with creditors of the club, as to who owns the 147-acre property. These creditors forced Churchill Valley Country Club into a Chapter 7 bankruptcy (Case No. 13-23122 filed July 25, 2013). At the same time, Zokaites Properties, Inc. recently purchased the outstanding $1.2 million mortgage held on the club and property from PNC Bank. A local lawyer and ex-business partner of Zokaites is challenging this transfer.
The Beulah bankruptcy case has been assigned to the Honorable Judge Carlota M. Bohm. In the petition signed by the Debtor’s President Richard Hersberger, the Debtor listed $1-$10 million in assets and $1-$10 million in liabilities. All Schedules are due August 9, 2013. The Chapter 11 Plan and Disclosure Statement are due November 25, 2013. On August 1, 2013, creditor Zokaites Properties, Inc. by and through its attorney Jeffrey Hulton, made a motion to dismiss the bankruptcy case. There will be a hearing regarding the motion to dismiss on August 9, 2013 at 3:00pm.
The largest creditors include several law firms, the Penn Hills School District, PNC Bank, and the Woodland Hill School District.
The Debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C. located at 310 Grant Street, Suite 1105, Pittsburgh, PA 15219. The US Trustee is represented by Norma Hildenbrand located at Suite 970 Liberty Center, 1001 Liberty Ave., Pittsburgh, PA 15222.
Preferential Treatment. My two older siblings Nathan and Nicole and I often teased my folks about being the favorite kid, each of us jockeying for the favorite position (not really). I will be writing a series of posts on paying a favorite creditor and the consequences of a debtor doing so as his or her business slides into bankruptcy. This is the first post. (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.
I have been prosecuting and defending the recovery of alleged preferential transfers since my first few weeks as a bankruptcy associate at a large firm in Philadelphia and Wilmington, DE. I have developed a massive library of research regarding this special type of litigation that arises only in a bankruptcy case. So let’s start with the basics; what is a preference action?
As business owners and management see the tell-tale signs that they are going to close their doors or reorganize, the issue always comes up—who can I pay now and in what order? Often, we see significant outstanding tax liability, much of which consists of trust fund taxes (i.e., payroll, sales taxes, etc.) for which the owners of the company are personally liable. We also see mom and dads or related companies (aka insiders) lend an ailing business sizable chunks of money on an unsecured basis. We also see business owners who feel terrible stiffing their long-term business buddy suppliers because they know if that last payment is not made, then the suppliers’ business will become troubled too. In their darkest hour of distress, as the lights are about to go out, the owners scurry to pay “preferred” creditors.
But, the Bankruptcy Code provides a recourse to protect those creditors who are not on the preferred list. Specifically, pursuant to 11 U.S.C.§ 547 (aka Bankruptcy Code §547(b)), a preference action is a statutory right unique to bankruptcy that allows a debtor-in-possession or trustee to recover transfers made to a creditor within 90 days of a bankruptcy filing or within 1 year if to an insider, where such transfers were made to pay pre-existing debt. By initiating preference lawsuits inside of a bankruptcy proceeding, a bankruptcy trust or debtor is able to sue the creditors that it once “preferred” (either voluntarily or involuntarily) in order to claw back those monies into a debtor’s estate for fair distribution to all unsecured creditors.
The five basic elements of a preference are as follows:
- The 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 within one 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.
All of these elements of a preference under Section 547(b) of the Bankruptcy Code must be present. If the plaintiff trustee/debtor-in-possession cannot prove a transfer’s avoidability by a “preponderance of the evidence” (generally the ability to prove as “more likely than not” that the five preference elements exist) then a defendant creditor will prevail. Note that, neither the debtor nor the creditor’s intent regarding the transfer is a material factor in the consideration of an alleged preference (more on this later).
I have been on both the prosecuting and defending side of numerous preference cases. When a debtor initiates preference actions, often a debtor is directed to pull its check register to identify payments and persons that the debtor has paid over the last year. Sometimes, those names, addresses and payments are placed into an excel spreadsheet that is then merged with a form complaint. The preference lawsuits are then filed in “batches.” I have seen hundreds of preference actions filed in a batch. Truth be told then — often, not a whole lot of diligence is put into determining whether a debtor’s actually preferred a certain creditor defendant (i.e., whether the debtor or trustee can satisfy each of the statutory elements of a preferential transfer and/or whether a defendant will have any valid defenses to the action that will either limit or eliminate liability). So the lawsuit is set in motion and now each creditor defendant to hire a bankruptcy lawyer and defend the lawsuit by either asserting that the plaintiff has not satisfied each of the prima facie elements set forth in the statute and/or asserting an affirmative defense.
Preference laws were designed to facilitate a fundamental bankruptcy policy of equality of distribution among creditors of the debtor. Nonetheless, in practice, preference actions are often viewed by creditors as extremely punitive, inasmuch as their effect is to cause creditors to disgorge funds that they have received for legitimate, undisputed bills. Fortunately, as referred to above, the bankruptcy statute also provides numerous defenses to a preference claim that can often substantially reduce or eliminate liability that would otherwise arise if the defenses are not timely asserted. I will discuss defenses in another post! Stay tuned.
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.