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!
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.
Penn Data Services, Inc. filed a voluntary petition for Chapter 11 bankruptcy protection on October 1st, 2013 in the Bankruptcy Court for the Western District of Pennsylvania (Pittsburgh). The case has been assigned to the Honorable Judge Carlota M. Bohm under case number 2:13-bk-24153. A summary of the docket can be found here.
This is the debtor’s 2nd consecutive voluntary filing for Chapter 11 bankruptcy protection, having previously filed over a year ago on August 21st, 2012 (that is referred to as a “Chapter 22” by those in the industry). That case was assigned case # 2:12-bk-24156 and was also overseen by Judge Bohm. The 2012 case was dismissed on August 30th, 2013 for failure to timely file a Chapter 11 Plan and Disclosure Statement. A docket summary of the initial filing for the 2012 case can be found here.
Penn Data Services, Inc. is a billing services company founded in 1996 and located in Natrona Heights, PA. The debtor claims assets of less than $50,000 with liabilities between $50,000 and $100,000. Christopher M. Frye of Steidl & Steinberg P.C. is again representing the debtor, having been debtor’s counsel for the 2012 case.
Founded in 2005, the Chatham University: Center for Women Entrepreneurship was founded in 2005 with the mission is to educate, create economic opportunities, and foster entrepreneurial thinking for women entrepreneurs and business managers in all stages of business and students. Through the Center for Women Entrepreneurship (CWE), women entrepreneurs and business managers can take advantage of Chatham University’s resources and its more than 120 years of experience in education.
The CWE’s programs and services include the Small Business Basics Workshop, the Women Business Leaders Breakfast Series, and the Annual Think Big Forum, and consulting services.
The Small Business Basics Workshops are geared towards women interested in starting their own business or expanding their current business. At the workshops, industry experts discuss business planning, financing, bookkeeping, marketing, and legal issues pertaining to small business.
The Women Business Leaders Breakfast Series features prominent regional women business leaders speaking on a variety of progressive business topics. Casual networking and a continental breakfast is followed by interactive presentations on topics essential for women in business such as innovative entrepreneurship, strategic business growth, unique marketing strategies, and logistical business planning.
The Annual Think Big Forum has been hosted by the CWE every year since its founding and has been growing every year. Think Big hosts leading women business leaders and entrepreneurs such as CEOs and other executives from startups and established companies as speakers and panelists.
For more information about the Chatham University: Center for Women Entrepreneurship and its programs please visit http://www.chatham.edu/cwe/.
On September 10th, 2013 Prithvi Catalytic, Inc. filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court for the Western District of Pennsylvania, which was incomplete. Statements A-J, Statement of Operations, Summary of Schedules, and Tax Information are due by September 24th, 2013 and a Chapter 11 Plan is due by January 8th, 2014. Debtor claimed assets between $1 million to $10 million with liabilities ranging from $10 million to $50 million.
The Debtor is a multi-national IT Consulting and Engineering solutions company that began operations in 1998 with its registered office in Hyderabad, India and opened its first U.S. office near Seattle, WA in 2000. The Debtor expanded operations with new development centers and sales offices in the U.S., Canada, Brazil, India, South Africa, and the Middle East. Debtor focuses its strategic business in the healthcare, retail, BFSI (banking, financial services, and insurance), and telecom markets and provides services in Europe in addition to the regions where it maintains offices.
A total of fifty-four creditors are listed on the Debtor’s petition including the District of Columbia, various Departments from 22 different U.S. states, the federal government, and several private companies. Click here for Complete list of Creditors and summary of docket.
Debtor is represented by Louis P. Vitti of Vitti & Vitti & Associates, PC located at 215 Fourth Avenue Pittsburgh, PA 15222. The Office of the United States Trustee Liberty Center shall be represented by Kathleen Robb located at Suite 970 1001 Liberty Avenue Pittsburgh, PA 15222.
The first 30 days of a Chapter 11 bankruptcy case often are like water spewing violently out of a fire hydrant. Fast. Furious. Urgent. Many issues being thrown at the Debtor, its employees, and its lawyers at one time.
According to the Pre-Bankruptcy Planning for the Commercial Reorganization: A Brief Guide for the CEO, CFO/COO, General Counsel and Tax Advisor, written by the Reorganization and Restructuring Group of Squire, Sanders & Dempsey, LLP (2nd edition, 2008), a whopping 83 percent of chapter 11 reorganizations that are filed generally “die on the vine” and are never confirmed.
I purchased this Brief Guide at the American Bankruptcy Institute that I attended this past Spring and I thought I would write a few blog posts integrating my experience with the concise content of the book. As set forth on Appendix A to the Guide, generally certain matters must be addressed within the first 30 days of a case.
- Petition filed
- Filing of list of 20 largest creditors
- Applications for retention of professionals (attorneys, accountants, turnaround professionals, valuation specialists, real estate brokers). A Debtor cannot pay a professional unless the retention of the firm is first approved by the Judge and the professional files a fee application on the docket, to which parties may review and/or object.
- Filing of ”first day” motions (seeking authority to pay wages, use pre-petition bank accounts, pay deposits for utilities, use of cash collateral, payment of interim compensation to professionals)
- Filing of schedules of assets and liabilities and statement of financial affairs. Getting correct addresses and dollar amounts owed for every single creditor often is a daunting task. Once the Schedules are filed, a creditor matrix is generated. The Bankruptcy Court and parties in interest use this address list to mail or “serve” important pleadings in the case. If the matrix is enormous, certain limited servicing lists can be authorized by the Court. In mega-cases, servicing agents are employed by the Debtor to handle only this aspect of the case, i.e., proper service.
- Filing of Corporate Resolution authorizing the Chapter 11 filing
- Negotiation of debtor in possession financing
- Hearing on use of cash collateral and adequate protection
- Negotiation with trade creditors regarding reclamation claims and/or reestablishment of trade terms.
The first few weeks of a case can be exhausting and dramatic. Often, by the time a petition is filed, a debtor runs out of money and payroll has not been paid (therefore employees are angry and morale is low), bank accounts frozen, the utilities have been shut off, and/or the front doors have been padlocked by a creditor. Once a case is filed, a creditor may immediately file a motion to dismiss the case.
The filing of the petition and related schedules requires a financial autopsy of a business and all of its related entities. In order to avoid confusion down the road, Debtor’s counsel should try to obtain as much factually accurate information as possible during this time. The process requires persistence, diligence and coordination with the Debtor’s employees, who basically become your co-workers for as long as the case is open, which could be 18 months or longer.
During this critical time, management and key employees must be counseled regarding what to do and not do, now that the actions of the Debtor are under close scrutiny by not only a Judge but also a U.S. Trustee as well as the creditor body. Employees should be clear regarding what transfers may or may not be made without court approval. Also, at the same time, the U.S. Trustee’s Office dictates that a debtor comply with its financial reporting requirements (hence the required “Monthly Operating Report”), and the filing of insurance and bank account information. Lack of compliance may lead to a dismissal of the case or a conversion to a Chapter 7. Often the debtor must close pre-petition bank accounts and open new ones.
Keeping all constituencies informed is an important part of the role of Debtor’s counsel. Creditors may include key lenders and critical vendors who will want to know what the turnaround strategy is for the company. Once creditors receive the “Notice of Suggestion of Bankruptcy”, they too will be scurrying around to hire bankruptcy lawyers if the size of their claims warrants such an expense.
On June 12, 2013, Duke Investments, LLC, of 300 Tarentum Bridge Road, New Kensington, PA 15068, filed a voluntary Chapter 11 Bankruptcy Petition in the United States Bankruptcy Court for the Western District of Pennsylvania, Case No. 13-22509. The Debtor is owned by John Coutlakis and John Hareras.
The case was designated a “small business case” pursuant to 11 U.S. C 101(51(D). The summary of schedules discloses assets worth about $41,900 and debts totaling $399,591, most of which consisted of taxes ($190,000 to the IRS and $85,000 to the Pennsylvania Department of Revenue). The Debtor also scheduled several unsecured debt obligations to WesBanco and First Commonwealth Bank.
From the list of the Debtor’s executory contracts, it appears as though this Debtor operated several coffee shops in the area, Robinson Court, The Frick Building, and Bridgeville.
The Debtor is represented by Mr. Richard R. Tarantine, Esquire, 437 Grant Street, Suite 416, Pittsburgh, PA 15219, 412-321-5229, Email: email@example.com. Mr. Tarantine disclosed an hourly rate of $250/hour and a pre-petition compensation around $8,000.
The docket can be found here.
On May 2, 2013, River Cities Glass & Construction, LLC, a glass and glazing contractors company, located at 4750 Winchester Avenue, Ashland, KY 41101 filed a voluntary Chapter 11 bankruptcy protection in the Southern District of West Virginia (Huntington), assigned case No. 3:13-bk-30226 (RGP). The case was assigned to the Honorable Judge Ronald G. Pearson. See docket here. William Cox signed the Debtor’s Schedules as President of the Debtor.
The Debtor is represented by Mitchell Lee Klein of the Klein Law Office, 3566 Teays Valley Road, Hurricane, WV 25526. Klein’s disclosed a retainer of $5,000 and an hourly rate of $200/hour.
The Debtor elected to be considered a “small business debtor” pursuant to Bankruptcy Code Section 1116. Its Chapter 11 Plan is due in 6 months, or by October 29, 2013. Its Disclosure Statement is also due on October 29, 2013. The Debtor listed liabilities of $159,936.01 and assets under $50,000 with less than 50 creditors. Simultaneously with its voluntary petition, the Debtor filed an initial operating report and an application to employ an attorney. Because this is a “small debtor case”, in addition to filing a petition, schedules and a statement of financial affairs, the Debtor is required to also submit a balance sheet, statement of operation, and a cash flow statement, as well as a federal tax return.
New Bankruptcy Code Section 1116 imposes duties on a small business debtor beyond not required of other Chapter 11 debtors, beginning with the filing of the petition. Under § 1116(1), the debtor must attach to its petition (or in an involuntary case, file within seven days after the date of the order for relief) either (a) its most recent balance sheet, statement of operations, cash flow statement and federal income tax return or (b) a statement made under oath that such documents have not been prepared and that such tax return has not been filed.
We found this listing on the salespider website for the Debtor; we are not certain when it was ever initially listed. The listing stated that the company has about 7 employees and estimated yearly revenue of $1,200,000 and that the Debtor’s SIC Code is 5231. This industry consists of establishments engaged in selling primarily paint, glass, and wallpaper, or any combination of these lines, to the general public. While these establishments may sell primarily to construction contractors, they are known as retail in the trade. Establishments that do not sell to the general public or are known in the trade as wholesale are classified in the wholesale trade industries. See SIC Code article here.