I am analytical. I like numbers. I like clear answers. Black and white. Not grey.
I was the Calculus member of my high school’s academic team in high school. Dad was an industrial engineer and the visual lens through which he viewed the world rubbed off on me. I initially majored in Physics because I appreciated how Calculus concepts could be applied to real life.
Fast forward 25 years. I love my work as a business lawyer. But, I still crave that opportunity to solve math problems (I did have a chance to be a financial analyst for two years before I started the firm). I just recently realize that, whenever I can, I attempt to solve my clients’ legal problems using spreadsheets and finite alternative scenarios. I reduce chaos and moving parts down to a formula, decision tree, or spreadsheet. There are only so many scenarios. There is a range of only so many possible outcomes. The law can only go so many ways.
Such an approach has worked really well for me in the context of settling business litigation. Recently, in bankruptcy litigation, I had to resolve the extent, amount, and priority of competing lien positions of 5 creditors (2 mortgage holders and 3 taxing bodies), on my clients’ commercial assets (including a building) and one of the owner’s residence. We tried to negotiate for months and no one was budging, but then I busted out my spreadsheets. I kept running the numbers given different assumptions regarding the value of the assets, whether to include interest and penalties, and given the two alternative legal outcomes as to whom should be first in lien priority. With the help of an esteemed mediator, we resolved the matter and successfully confirmed the plan of reorganization.
My abstract skills and fancy excel handywork also came in handy when I was about 29 (12 years ago, gasp), and working as a young associate. I developed an extensive series of “aging analysis” excel spreadsheets to utilize math to resolve a special type of bankruptcy litigation: preference litigation. The cases we handled were large dollar amounts in controversy, ranging from $15k- $8 million. Where a creditor is sued in a preference action (see first post on What the Heck is a Preference Action: Paying Off Favorite Creditors As a Business Tanks), there is an ordinary course of business defense. In order to mount this defense, a defendant should present an “aging analysis” of the length of time the parties were engaged in the transactions at issue.
We settled every time (with only one exception) and I am sure my extensive volumes of “aging analysis” spreadsheets helped. Maybe Dad would have preferred that I became an engineer like him. I don’t know. I do know that he would be proud of the way I approach my work now. Both my clients and I can thank my science and math teachers (Mr. Pete Karpyk, Mr. Phil Carey, Mrs. Kladakis, Mr. J.) for helping me be able to create these frameworks in which I can more readily resolve legal problems. So remember, #notalllawyershatemath.
Stay tuned for another post on exactly what is an “aging analysis” to be used to mount an ordinary course defense in a preference action.
Salene is a business and bankruptcy lawyer. This post does not constitute legal advice and does not constitute a guarantee of any legal outcome. The facts and legal issues vary from case to case; and not all outcomes will be the same.
By Daniel Hart, Paralegal and Salene Mazur Kraemer, Esquire.
In October 2015, every Pittsburgh local news outlet and national entertainment magazine reported on the bankruptcy fraud story of Abby Lee Miller. We have previously written here about her Chapter 11 Case: “Dance Mom” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts: Abby is the controversial star of the reality television show, “Dance Moms”. Her often abrasive personality is in contrast to the glitter of dance and beauty of her young dancers. She is quick to throw scathing insults at any of the children and their sometimes overly zealous Dance mothers.
Abby Lee filed for Chapter 11 bankruptcy in 2010, in Bankruptcy Court here in Pittsburgh. After some television surfing by a local bankruptcy judge and a subsequent investigation by local authorities, Abby may have committed bankruptcy fraud.
What is bankruptcy fraud? It is a white-collar crime that generally has taken four general forms:
- Debtors conceal assets to avoid having to forfeit them;
- Individuals intentionally file false or incomplete forms (underreporting income, overstating liabilities);
- Individuals file multiple times using false information or real information in several states;
- Debtors bribe a court-appointed trustee.
Nearly 70% of all bankruptcy fraud involves the first form, the concealment of assets. At the 341 meeting of creditors in each bankruptcy case, a debtor is required to testify under oath as to the accuracy of his or her bankruptcy petition and schedules. A bankruptcy trustee appointed by the United States Department of Justice probes each debtor about the facts and circumstances surrounding each case.
A bankruptcy trustee can only liquidate unexempt assets that are a part of the debtor’s “bankruptcy estate”. If the asset is not listed on the debtor’s schedules or the debtor does not reveal the asset, it can fly under the radar.
I tell each of my bankruptcy clients always to “tell the truth, reveal everything, err on the side of caution.” “You don’t want to end up in jail over this filing.”
The effects of bankruptcy fraud are often passed on to businesses, financial institutions, and the general consumer in the form of higher interest rates, greater loan fees, and higher taxes.
Bankruptcy fraud is a criminal offense. When a bankruptcy trustee suspects fraud but does not have enough evidence, he/she can compel testimony and document production from just about anyone through a Bankruptcy Rule 2004 examination. If fraud is suspected, the trustee refers the case to the Federal Bureau of Investigation (FBI). The agency will undergo its own investigation. A debtor guilty of bankruptcy fraud faces stiff penalties as outlined at 18 U.S.C. §152 which can result in a fine up to $250,000 for each count of fraud, or up to a five-year prison sentence, or both.
A federal grand jury indicted Abby Miller on 20 counts of bankruptcy fraud, alleging she concealed about $755,000 in assets and made false bankruptcy declarations. Federal Bankruptcy Judge Thomas Agresti nearly approve Miller’s Chapter 11 reorganization plan but then he was channel surfing one night and saw commercials for the new season of “Dance Moms”. Miller claimed in her bankruptcy reorganization plan that she did not have a signed contract for a new season and that her income from the show was “volatile.”
It is alleged that Abby did in fact, have a signed contract and steady income. During the past three years while the the bankruptcy proceeding was pending, as required by the Department of Justice for all debtors, Miller was required to deposit her income into a special DIP (Debtor in Possession) account and report that income to the court on a monthly basis. Instead, it is alleged that she set up other bank accounts and funneled her income from the TV show and other ventures into those accounts.
If found guilty, Abby Lee faces up to five years in prison, not to mention outrageous fines given 20 counts. The surprising twist in this case is that Abby’s bankruptcy plan, we believe, provided for a 100% payout to unsecured creditors (a rarity); it appears that she would have had no need to hide assets; she was obligated to pay unsecured creditors 100% anyway! We shall see!
by Justin A. Saporito, Law Clerk
Aramid Entertainment Fund, Limited filed for Chapter 11 protection in the Bankruptcy Court for the Southern District of New York on June 13, 2014. Debtor has declared assets of $237.3 million and consolidated debt of $11.5 million. Debtor was assigned case number 1:14-bk-11802, a judge has yet to be assigned. Approximately 96 creditors were listed in the petition; among them are several other Aramid entities including Aramid Liquidating Trust, Ltd. and Aramid Entertainment, Inc. which jointly filed with the Debtor and were assigned consecutive case numbers.
Aramid Entertainment Fund, Limited is part of Aramid Capital Partners, LLP, a London based hedge fund that specializes in financing movies. According to their website, Aramid Capital has provided financing for thirty-two (32) movies including Paranormal Activity, W., and How to Lose Friends & Alienate People. Please click here for a list of their productions.
Debtor filed for Chapter 11 protection due to the cost of ongoing litigation against several of its borrowers who failed to repay loans or violated film-financing agreements. One such suit began in February 2012 and is over an alleged $44 million in losses. Debtor invested $22 million in a financing deal between Relativity Media, LLC and Sony Pictures. Debtor alleges that executives from Fortress Investment Group, LLC used Aramid’s confidential information, which was allegedly obtained during a 2010 portfolio review as part of a proposed purchase of Debtor’s assets, to make a deal with Sony that destroyed Debtor’s investments.
By: Justin A. Saporito, Law Clerk
Bradford & Byrd Associates, Inc. filed for voluntary Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey on May 23rd, 2014. The case has been assigned to the Honorable Christine M. Gravelle under case number 3:14:bk-20478.
Debtor claims assets of less than $50,000 with liabilities ranging between $500,000 and $1 million. Among debtor’s 21 creditors are the Internal Revenue Service, New Jersey Department of Labor, New York State Workers Compensation Board, Mercedes Benz, and several other companies and private individuals. Debtor is represented by Bunce Atkinson of Atkinson & DeBartolo, PC from Red Bank, New Jersey.
Debtor is a janitorial firm that was founded in 1989 and headquartered in Freehold, New Jersey. Debtor provides janitorial services clients in New York, New Jersey, Pennsylvania, Georgia, and North and South Carolina. Some of debtor’s more notable clients include UPS, the Social Security Administration Headquarters, and Public Service Electric and Gas Company. In debtor’s more than 20 years in business, it has achieved some noticeable accomplishments including servicing the Statue of Liberty in 1996 and being contracted to clean vintage chandeliers at West Point Military Academy in 2001.
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.
On April 12, 2013, Debtor Renees LLC, of 8739 Newportville Road, Levittown, PA 19054, filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the Eastern District of Pennsylvania (Philadelphia), Case No. 13-13236. Debtor’s counsel is Michael P. Gigliotti of Kashkashian & Associates , 10 Canal Street, Suite 204, Bristol, PA 19007. The case was assigned to Chief Judge Eric L. Frank.
Renee’s LLC did business as Renee’s Pizza and Grill offering a takeout service and grill. Assets and liabilities both were in the range of $0-$50,000. This Chapter 11 is an asset case and it is anticipated that there will be some distribution to creditors.