Glass & Goldberg | Financing, Property & Bankruptcy Law

There are typically several major Chapter 11 bankruptcy cases filed each year. The case of IHeartMedia made headlines in 2018.  This is part four of a summary of the more interesting recent cases of 2018:

IHeartMedia, Inc.

San Antonio-based broadcasting mogul, IHeartMedia Inc. (“IHeartMedia”), the nation’s largest radio station owner, filed 2018’s largest bankruptcy case (based on assets and liabilities) with more than $20 billion of debt. IHeart filed a Chapter 11 case after repeated efforts to solve balance sheet problems and to extend debt maturities proved futile and ineffective.

The company filed its bankruptcy case with a restructuring agreement in place that took several months to approve. This was facilitated by splitting from Clear Channel Outdoor Holdings Inc. and exiting bankruptcy with $5.75 billion in new debt secured by virtually all of its assets.

IHeartMedia has amended its Chapter 11 plan repeatedly with the most recent version amended to form a cash pool for a group of unsecured creditors. At the end of 2018, IHeartMedia announced that the plan was approved by more than 90 percent of voting creditors and shareholders.

This occurred after the debtor’s unsecured creditors had objected to a previous plan and attempted to sue iHeartMedia’s secured lenders, based on the claim that the debtor was leaving claims potentially worth billions of dollars on the table to appease these lenders and gain approval for its plan of restructuring.

iHeartMedia is the second (Cumulus Media Inc. was the first) national broadcast radio mogul to file a Chapter 11 bankruptcy in the last year. It anticipates exiting bankruptcy in early 2019 after the confirmation hearing this month for its’ most recent plan.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

There are typically several major Chapter 11 bankruptcy cases filed each year. Perhaps not in the news as much as its founder and namesake, The Weinstein Company (“TWC”) was in the public eye in 2018 as a result of its bankruptcy filing. Here is part three of a series briefly summarizing the more interesting cases from last year:

The Weinstein Company, LLC

Founded in 2005 by brothers Harvey and Bob Weinstein after the two left Miramax Films, which they also co-founded in 1979, TWC was one of the largest film studios in North America prior to its financial problems and consequential Chapter 11 bankruptcy filing on March 19, 2018.

TWC had been in a downward spiral for several months after allegations were made by over 100 women that Harvey Weinstein had engaged in a pattern of sexual harassment, rape, and abuse. These overwhelming allegations resulted in Harvey Weinstein leaving the company, as well as a long list of civil lawsuits and a high-profile criminal case against him.

In October of 2017, New York State Attorney General Eric Schneiderman had commenced an investigation into whether TWC violated state civil rights and New York City human rights laws in the way it handled sexual harassment complaints and other types of employee discrimination. Prior to the announcement that the investor group led by Contreras-Sweet would purchase TWC, the State of New York filed a civil rights lawsuit against it.

On February 26, 2018, just a little over three weeks prior to the bankruptcy filing, TWC made an announcement that it would file for bankruptcy relief after the collapse of its deal with an investor group headed by Maria Contreras-Sweet, President Barack Obama’s former head of the Small Business Administration.

The plot thickened just a few days later on March 1 when TWC’s board and the investor group confirmed that they had, in fact, reached an agreement whereby TWC would sell all of its assets for $500 million to the group led by Contreras-Sweet. At this time, it seemed bankruptcy was no longer necessary.

However, the deal went south on March 6, not necessarily because of the civil rights lawsuit, but because it was disclosed that TWC had additional debt of $50 million. As a result of this final straw, TWC was forced to file its Chapter 11 bankruptcy case less than two weeks later on March 19, 2018.

On May 1, 2018, Lantern Capital was announced as the winner of the studio’s bankruptcy auction, and on July 16, 2018, it was announced that The Weinstein Company had shut down and its assets were sold to the newly created entity, Lantern Entertainment. The sale of the majority of the company’s assets to an affiliate of the private equity firm Lantern Capital for a diminished sale price of $289 million over the summer was approved by a Delaware bankruptcy court.

The sale included a minimum commitment from Lantern to fund at least $8.75 million for a fund for TWC’s unsecured creditors, a group that includes Harvey Weinstein’s accusers as well as actors, directors, and others who claim TWC still owes them cash for their work in the studio’s productions.

However, to many, it is unclear the extent to which this amount will make the alleged victims and industry professionals whole. Some of Hollywood’s more famous actors, directors, producers, and writers were skeptical and raised concerns about the private equity firm’s willingness to satisfy TWC’s contractual obligations.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

There are typically several major Chapter 11 bankruptcy cases filed each year. Originally filed in the spring of 2017, the case of Westinghouse Electric Co. (“Westinghouse”) made headlines in 2018 with its completion.  This is part two of a brief summary of the more interesting recent cases:

Westinghouse Electric Co.

Westinghouse is a leading global supplier of infrastructure services to nuclear power generating facilities, providing engineering, maintenance, facilities management, and repair services. It was forced to file its bankruptcy case in March 2017 as the result of delays and cost overruns at two U.S. nuclear sites, one located in Georgia and the other in South Carolina.

The bankruptcy filing was precipitated by Toshiba announcing that Westinghouse would be required to write-down $6.1 billion for these cost overruns at the Alvin W. Vogtle Electric Generating Plant near Augusta, Georgia, and the Virgil C. Summer Nuclear Generating Station near Columbia, South Carolina. After the project started, Westinghouse discovered that the cost to complete the U.S. projects would far exceed original estimates.

Brookfield Business Partners LP (“Brookfield”), a publicly-traded utility holding company, purchased Westinghouse out of bankruptcy from Toshiba Corporation for 4.6 billion. Brookfield announced on January 4, 2018, that it had agreed to acquire 100% of Westinghouse. It was reported that Brookfield would fund the purchase with $1 billion of equity and $3 billion of long-term debt financing. The balance would be funded by the assumption of various pension, environmental, and operating obligations.

The company released a statement that the purpose of its Chapter 11 filing was to address “a series of unforeseen challenges that significantly delayed and increased the cost of construction” of four reactors at the Vogtle and Summer sites. During the bankruptcy, Westinghouse eliminated its obligations to finish the U.S. nuclear reactor projects, as a result of multibillion-dollar severance payments made by Toshiba.

On March 27, 2018, Westinghouse confirmed a consensual restructuring plan agreeing to pay in full a class of allowed general unsecured claims while providing $7.6 billion for claims asserted by other unsecured creditors. Since plan confirmation, attorneys for the bankruptcy estate have battled subcontractors and employees asserting claims in class action suits, primarily for layoffs without sufficient warning.

José Emeterio Gutiérrez, president and CEO of Westinghouse stated:

“Confirmation of our plan of reorganization is one of the final steps in the completion of our strategic restructuring.” Our customers, employees, suppliers, vendors, and other important constituencies overwhelmingly supported our plan of reorganization. We are on track to fulfill our promise to emerge from this strategic restructuring process as a stronger business partner while retaining our primary focus on safety.”

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

There are typically several major Chapter 11 bankruptcy cases filed each year. Sears was one of the significant Chapter 11 cases filed in 2018.  Toys R Us filed in 2017, but was in the public eye much of 2018 as it began the liquidation of its assets. Here is part one of a brief summary of the more interesting recent cases:

Sears

Sears Holdings ended a 125-year period as one of the country’s leading retail stores. After several years of trying to maintain solvency, Sears filed for bankruptcy in October. The company announced it would close 142 stores by the end of 2018. Sears had 68,000 employees and approximately 700 stores prior to the filing. It listed $11.3 billion in liabilities and $7 billion in assets while announcing that Mohsin Meghji, managing partner of M-III Partners, would serve as its chief restructuring officer. It started liquidating inventory and other assets shortly after the bankruptcy filing.

Toys R Us

After sixty years of selling toys, Toys R Us, Inc. actually filed its case in September of 2017 with more than $5 billion in funded debt. It hoped to use the 2017 holiday season to rebound and move forward. Instead, its holiday sales were well below expectations and in March of 2018, it announced that it would close more than 700 stores in the U.S. and wind down operations.

A consensual liquidation plan was formulated and the company reached settlement terms with vendors with administrative claims, as well as other unsecured creditors and lenders. The company conducted going-out-of-business sales at store locations nationwide, selling off leases and other holdings, while negotiating purchase deals in other countries, including Canada, for its businesses. It managed to confirm its Chapter 11 plans through extensive settlements and negotiations thus allowing the brand name to survive beyond the bankruptcy case.

Having a large physical footprint and a considerable amount of debt made survival against online competitors almost impossible. In liquidating, the company laid off more than 30,000 employees. Some industry analysts pointed to the leveraged buyout of the corporation in 2005 as a major factor in causing its downfall. In November of 2018, it was announced that a $20 million fund to provide severance pay for some of the chain’s former workers had been established.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

It is a fundamental policy of the State of California that any party engaging in a non-exempt loan transaction must comply with the state law that limits usury. In many cases, a party accused of usury defends a transaction’s usurious interest rate by asserting that the type of transaction is exempt or that the party’s status as a lending party makes it subject to a class-wide exemption. As to the latter, what entities are exempt from the California usury law?

To recap, a transaction is usurious if there is a loan at greater than the legal rate of interest or an exaction at more than the legal rate for the forbearance of a debt or sum of money due. Ross v. Wheeler (1934) 140 Cal. App. 217, 223. Aside from this fact, there is a presumption in California that a transaction is not usurious.

There are many exemptions under California law and most are class-wide exemptions allowed by California statute and the California Constitution. Some of these include:

• California banks; licensed foreign banks and foreign banks with assets of over $100 million. (Cal. Fin. Code § 1716);
• Bank holding companies and subsidiaries. (Cal. Fin. Code § 3707);
• California and federal banks, savings and loan associations, and credit unions. (Cal. Const. art XV, §1);
• Federal and California savings and loan associations, and their holding companies and subsidiaries. (Cal. Fin. Code § 7675);
• Trust companies and California and national banks acting in a fiduciary capacity. (Cal. Fin. Code § 1504);
• Admitted incorporated insurers. (Cal. Ins. Code § 1100.1);
• Physicians cooperative indemnity institutions. (Cal. Ins. Code § 1280.7 (a)(4);
• Finance lenders and brokers. (Cal. Fin. Code § 22002); and
• Licensed brokers and industrial development corporations. (Cal. Fin. Code § 31410).

Generally, our state’s usury laws do not apply to bonds issued by a state or local government. The usury laws also do not apply to licensed securities broker-dealers acting pursuant to an effective, unexpired certificate. The usury laws also do not apply to corporations or associations engaged exclusively in the business of marketing agricultural, horticultural, and viticultural products on a cooperative nonprofit basis when lending to members or when securing credit from a federal intermediate credit bank.

Thus, California’s usury laws do not apply to loans made by most depository financial institutions such as banks, savings and loan associations, and credit unions. The usury laws also do not apply to loans made by insurance companies. Although there are a multitude of exemptions, determining whether an entity qualifies for a particular one may not be clear or straightforward.

Consulting with experienced counsel is the best course of action in this situation since the penalties for violating the law may be severe and costly. Lenders may circumvent the limitations of California’s usury law by obtaining a license under the California Financing Law and following all of its rules and regulations.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

A Chapter 11 bankruptcy may successfully allow a business to reorganize, survive, and move forward, even in a timely fashion. An example of which is the case of Houston-based Mattress Firm Inc. (“Mattress Firm”), which filed for relief under Chapter 11 less than three months ago on October 5, 2018. Just before the end of November, the company issued an announcement that it had completed its financial restructuring and emerged from Chapter 11. The late November announcement added that the process was completed in the expected time-frame of 45 to 60 days.

Problems generated both internally (e.g., bad management) and externally (e.g., market conditions) may threaten the existence of a business. Chapter 11 of the Bankruptcy Code (Title 11 of the U.S. Code) is an example of a mechanism enacted by Congress with a primary purpose of safeguarding the survival of businesses in the U.S. economy. Since 2014, Chapter 11 bankruptcy filings in the U.S. have averaged about 7,000 per year.

Mattress Firm Inc.’s original Chapter 11 petition listed both assets and liabilities between $1 billion and $10 billion. Mattress Firm has operated as a subsidiary of Steinhoff International Holdings NV since it was purchased by the Dutch-registered company in 2016 for $3.8 billion. At the time of the bankruptcy filing, Mattress Firm announced that it would close 700 of its 3,300 stores.

Following its successful reorganization, Mattress Firm’s November announcement indicated that the company presently has approximately 2,600 stores and $525 million of committed exit financing to support operations and future growth initiatives, including a $125 million revolving credit facility that will be undrawn at closing.

Starting in 2005, despite a rapid growth rate, the company started to accumulate substantial debt. It also had problems keeping up with the challenges caused by its significant rate of growth and the acquisition of more than 25 companies. Steinhoff struck a deal with creditors in July to postpone any debt claims for three years.

As the company looks to the future, the following statement by Steve Stagner, executive chairman, president, and CEO of Mattress Firm also acknowledges its past mistakes:

“With an optimized store footprint, stronger balance sheet and significant liquidity, we will be able to more efficiently focus on our strength — delivering the best beds at the best value to millions of customers across the country. We knew that our unprecedented growth had led to duplicative store locations in many of our markets. Now, having completed our operational and financial restructuring, we have the right store locations to not only better serve our customers, but also to fuel future growth. Going forward, we will be intensely focused on enhancing our product offering, driving disciplined and results-oriented operations and building an integrated and educational shopping experience.”

A Chapter 11 bankruptcy filing may provide businesses with a chance to restructure debt and reorganize operational structure. And it may even happen in an expeditious, efficient manner as illustrated by the fact that Mattress Firm filed its bankruptcy petition on October 5 and announced its successful reorganization only 47 days later on November 21.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

State usury laws differ significantly from state to state. “Usury is the exacting, taking or receiving of a greater rate than is allowed by law, for the use or loan of money.” O’Connor v. Televideo System, Inc. 218 Ca3rd 709, 713 (1990). It is a fundamental policy of the State of California that any party engaging in a non-exempt loan transaction must comply with the state law that limits usury. What are the elements of usury under California Law?

A transaction is presumed not to be usurious. One of the elements of usury is that the lending party intends to engage in a usurious transaction. The elements of usury are:

• The transaction must be a loan or forbearance;
• The interest to be paid must exceed the maximum rate of interest allowed by California statute;
• The loan and interest must be absolutely repayable by the borrower; and
• The lender must have a willful intent to enter into a usurious transaction.

A transaction is usurious if there is a loan at greater than the legal rate of interest or an exaction at more than the legal rate for the forbearance of a debt or sum of money due. Ross v. Wheeler (1934) 140 Cal. App. 217, 223. California’s usury laws do not apply to real estate brokers if the loan is secured by real estate, whether or not they are acting as a real estate broker.

Typically, any party accused of usury claims that either the type of transaction is exempt or that its status as a lending party makes it subject to a class-wide exemption, such as the one for California and federal banks, savings and loan associations, and credit unions. (Cal. Const. art XV, §1). This is an example of the fact that there is no single source of usury law, but, rather, it is a synthesis of statutory and case law with the California State Constitution.

California courts take the usury limitations very seriously and are not afraid to subject violators to the maximum penalties allowed by California law. Lenders in violation of the usury law are barred from recovering any interest and may be subject to the loss of any interest previously paid by the borrower. Violators may also be subject to a civil penalty of $2,500 per violation, as well as treble and punitive damages. Willful violation of any of California’s finance lending laws is punishable by a fine of up to $10,000 and imprisonment for up to one year.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The U.S. Court of Appeals for the Ninth Circuit decided a case in early December of 2018 that decided the following question: when a borrower effectively rescinds a loan under TILA, but the lender takes no action to wind up the loan, when must a borrower file suit to enforce the rescission?

In Hoang v. Bank of America, N.A. 2018 S.O.S. 17-35993, (Dec. 6, 2018), the Ninth Circuit panel reversed the district court’s dismissal of an action brought by a borrower against Bank of America, N.A., alleging claims under the Truth in Lending Act (“TILA”) after the bank declared the borrower in default on a loan and initiated non-judicial foreclosure proceedings.

The Hoangs bought a home and financed the purchase with a loan from Wells Fargo Bank. Later they refinanced with Bank of America and the Federal National Mortgage Association (the “Bank”). At the time of the refinancing, the Bank failed to give the Hoangs notice of the right to rescind the loan, thereby violating TILA’s disclosure requirement.

If a creditor fails to make required disclosures under TILA, borrowers are allowed three years from the loan’s consummation date to rescind certain loans. 15 U.S.C. § 1635(f). The borrower sent the bank notice of intent to rescind the loan within three years of the consummation date.

Once the Bank declared a default and initiated non-judicial foreclosure proceedings, the Hoangs asserted a claim in federal court requesting monetary, declaratory, and injunctive relief. Although the Hoangs rescinded the loan within the three-year limitations period, it failed to timely file suit and the district court granted the Bank’s motion to dismiss. Since the court ruled that all of the Hoangs’ claims were time-barred, it dismissed the case without leave to amend. In finding the claims time barred, the district court adopted the one-year statute of limitations applicable to TILA claims for monetary damages, 15 U.S.C. § 1640(e).

Previously, the Ninth Circuit required that borrowers effectuate TILA loan rescissions by giving lenders their notice of rescission and also bringing suit to enforce that rescission within the three-year window set forth in 15 U.S.C. § 1635(f). In Jesinoski v. Countrywide Home Loans, 135 S. Ct. 790 (2015), the Supreme Court altered that usual procedure by eliminating the requirement that a borrower bring suit within the three-year limitations period to exercise rescission under TILA.

Instead, the court held “rescission is effected when the borrower notifies the creditor of his intention to rescind.” Jesinoski, 135 S. Ct. at 792. “[S]o long as the borrower notifies within three years after the transaction is consummated, his rescission is timely. The statute does not also require him to sue within three years.” Id. However, in emphasizing that the borrower must only give notice of rescission within three years, the Court did not clarify when a suit to enforce the rescission must be brought after a lender’s failure to act on that notice of rescission.

In this legal circumstance, courts must borrow the most analogous state law statute of limitations and apply that limitation period to TILA rescission enforcement claims. Here, the Ninth Circuit disagreed with the Statute of limitations applied by the district court. The court applied Washington’s statute of limitation that applies to general contracts or “action(s) upon a contract in writing, or liability express or implied arising out of a written agreement.” Wash. Rev. Code § 4.16.040.

It held that the action to rescind arose out of the Hoangs’ loan agreement, a written agreement, and, therefore, since contract law provided the court with the best analogy, it adopted Washington’s six-year general contract law statute of limitations. Because the Hoangs brought their suit within six years, the district court erred in dismissing the claim as time-barred and its decision was reversed.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The California Residential Mortgage Lending Act (CRMLA) and the California Financing Law (CFLL), respectively in code sections Cal. Fin. Code §50318 and Cal. Fin. Code §22169, allow the state’s Commissioner of Business Oversight (“Commissioner “) to take action against licensees that violate California law, including provisions of the CRMLA and CFLL. These statutes grant the Commissioner the authority to suspend, bar or censure the licenses of any individual or entity, including residential mortgage lenders, residential mortgage loan servicers, and mortgage loan originators.

Under both the CFLL and CRMLA, after appropriate notice and opportunity for a hearing, the Commissioner of Business Oversight may suspend a licensee or bar a licensee from a position of employment, management, or control for a period that may not exceed 12 months. After receiving notice of the Commissioner’s intention to issue an order suspending a license, licensees have 15 days to request a hearing. Any failure to request a hearing within this 15-day period constitutes a waiver of the right to a hearing. If the Commissioner receives a request for a hearing, she must schedule a hearing to commence within 30 days of receipt.

The statutes divide the findings that may serve as a basis for such action into two categories. The first is a finding that the licensee has committed a violation that was known or should have been known to the person committing it, or the violation caused material damage to the licensee, the residential mortgage lender, residential mortgage loan servicer, mortgage loan originator or to the public. Second, a finding that the licensee has been convicted of or pled no contest to a crime or was found liable in a civil or administrative action, and the crime or violation related to dishonesty, fraud, or deceit, or to any of the qualifications or duties of the licensee.

If a licensee receives a notice that the Commissioner intends to suspend its license, the licensee is immediately prohibited from participating in any business activity of a licensed residential mortgage lender, residential mortgage loan servicer, or mortgage loan originator and from engaging in any business activity on the premises where a licensed residential mortgage lender, residential mortgage loan servicer, or mortgage loan originator is conducting its business. If a licensee fails to comply with this order, the Commissioner has the right to revoke the license immediately (Cal. Fin. Code §§22714(a)(1); 50325).

Under the Residential Mortgage Lending Act, the Commissioner has the right to impose a $100 fine per day for up to ten days if the licensee fails to file any required report within ten days of it being due. After ten days, the Commissioner has the right to suspend or revoke the license (Cal. Fin. Code §50326). The Commissioner may not revoke a license if, within 10 days from the effective date of the revocation order, the licensee secures a court order restraining the enforcement of the revocation order.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.