Month: March 2020

341: Rent is Due Tomorrow; Lawyer Webinars

Rent is Due Tomorrow, and It’s Going to be Bad. Tomorrow is going to be a terrifying day for lots of people across the country.  That’s because it’s the first of the month, and  rent and mortgage payments will be due for millions of families, and a good number of those people are out of work.

Clients in all types of industries are scared. They’re scared for their business. For their employees. For their personal finances.

cheesecake

Some businesses are taking aggressive action to preserve/conserve cash, but that’s a bold move and beyond what most small businesses or individuals can envision.  Who on earth imagined a future where “I’m not paying my mortgage next month” is a valid financial planning option?

It’s important that we, as lawyers, figure out how to help. This article in the Wall Street Journal, Bankruptcy Law Needs a Boost for Coronavirus, suggests that our financial and restructuring bar is thinner than it should be.

This is a real concern that I’ve heard from bankruptcy lawyers for about a year, even before people had any idea that a global pandemic was possible. There aren’t many bankruptcy lawyers under the age of 40. It’s because, basically, in the last 10 years, the economy has been strong enough that there hasn’t been growth in new practitioners.

This Bloomberg News article, Bankruptcy Phones Ring Off the Hook; Firms Prep for Deluge,  suggests that there will be big time growth in the practice area.

So, we get our coronavirus updates whereever we can, right?

Tony Roma Covid

COVID-19 Webinars are the real fast spreading virus. Ok, so what role can lawyers play?

First off, slow down with the webinars. There are so many lawyer webinars right now.

I loved this tweet from @catmoon:

cat moon tweet

This is great advice, and it’s a good reminder to judge your client marketing first from a place of “Is this Useful to the Client?”

Now, don’t get me wrong. I have watched a fair share of coronavirus webinars, and I’ve learned a lot about the state of the economy and business interruption insurance. I even taught one (see below).

(Side Note: I’ve also learned that lawyers should do a test run before going live on a webinar. “I just heard someone grimace.”)

My advice? I agree with Cat 100%. Don’t make me listen to an hour-long webinar, when you could put that together in an article that I scan in 5 minutes. Everybody is busy, so let’s get to the point.

Also, maybe just call the clients and see what they need.  Again, handing the mic to Cat Moon:

2nd cat moon tweet

Call. E-mail. Text. Check in.

Separately, I taught a webinar.  Ok, ok, I know. Webinars.

Mine was a CLE for the Tennessee Bar Association. It was titled “Navigating Client Financial Issues During the Pandemic,” and I hope it gave good, practical advice for both creditors and debtors.

But, yeah, do what I say, not what I do.

tba cle

 

 

 

 

 

 

Does the Mayor’s Safer at Home Order Trigger Business Interruption Coverage? It’s a Billion Dollar Question.

On Sunday morning, Nashville Mayor John Cooper took bold action in response to the coronavirus spread: He entered the Safer at Home Order, which ordered Nashvillians to, generally, stay at home and ordered the closure of non-essential businesses.

Because the Order requires businesses that are “non-essential” to close, did the Mayor do those businesses a big favor, in the event that they decide to make a claim under a business interruption insurance policy?

Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted for some reason, such as a fire or a natural disaster.

This coverage seems like it’d be very helpful to a business that was ordered by the government to shut down during a pandemic, right? Well, it depends on the specific language in the insurance policy.

Remember, insurance companies write these policies, so most will contain text that is as narrow as possible.

Duration of Shutdown? It will be narrow in duration (i.e. only as long as needed to re-establish operations).  As an example, after 9/11, one case held that, once the business owner could physically return to their building, the coverage ended (on 9/18).

But what about coronvirus, when we are prohibited from leaving the house by express order of the government and we definitely can’t go to our business? Seems like a coverable event. Again, though, look the the text of the policy.

Is it a shutdown or a “slow down”? Courts generally require a complete shutdown. Again, good for a Nashville business.

Some interesting questions:

  • If the entirety of your business activities cease; probably a suspension
  • If an entire portion of your business closes but another portion remains
    open?
  • If your normal business activities close, but you convert your business into a
    new but less profitable activity?

So, if you’re a bar that focuses on, let’s say, axe throwing but also serves nachos, and, after the coronavirus, you offer home delivery nachos, are you really shut-down?

Does your policy require the shutdown to be caused by a physical loss or property damage (like a tornado)? Is contamination from a deadly, contagious virus “damage to property”? Maybe…there are cases on dangerous levels of gases that are found to be damage to property.  But, do you have to show documented instances of COVID-19 at your business to get coverage? Also, maybe.

Is there text referencing an Order of Civil Authority? Some policies actually reference shutdowns when access to real or personal property is prohibited by order of civil or military authority.  Here, is the Safer at Home Order a recommendation or an order? Is your businesses clearly not an “essential” business that can stay open?

As a bankruptcy lawyer who rarely gets to fight the exciting fights, I really appreciate the interesting days and arguments that await the insurance lawyer bar over the next few weeks, months, and years.

My advice, today, is to: Pull a copy of your businesses’ insurance policy, and see if it includes business interruption coverage. If it’s a close call, make a claim and see what happens.

 

Is a foreclosure during a global pandemic an "irregular" and invalid sale? (Maybe)

During the coronavirus shut-down, there has been a lot of talk about there being no evictions in Davidson County, based on the Sheriff’s announcement that the Sheriff will not be serving non-essential service of process for the foreseeable future.

But, keep in mind, that announcement doesn’t stop landlord from using a private process server to serve the process.

In fact, the most critical obstacle to detainer proceedings is that the General Sessions Judges have cancelled court hearings through April 10. If there’s no court, then there’s no judgments for possession.

What about foreclosures?

Tennessee is a non-judicial foreclosure sale, so a foreclosing lender doesn’t need a court date, a judge’s approval, or an open courthouse. When they talk about a foreclosure “on the courthouse steps,” they are being literal.

So, as a practical matter, foreclosures can still take place in Tennessee over the next few weeks.

But, is a creditor wise to continue a foreclosure sale to a more stable time? Probably.

That’s because Tenn. Code Ann. §  35-5-118 allows courts to scrutinize the mechanics of a specific foreclosure, with an emphasis on whether a sale is “irregular.”

As I discussed in a blog post last year, pursuant to the Tennessee Supreme Court in Holt v. Citizens Central Bank, 688 S.W.2d 414 (Tenn. 1984), a conscience-shocking foreclosure sale price standing alone, absent some irregularity in the foreclosure sale, is not sufficient grounds for setting aside a lawful foreclosure sale.

What else did Holt say? “If a foreclosure sale is legally held, conducted and consummated, there must be some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price, for a court of equity to set aside the sale. ”

So, there remains a question: If a foreclosure sale occurs when the country is facing unprecedented restrictions in public interaction, when we are under orders from local government to “stay home,” is this an irregular sale? Did the unique conditions chill the attendance of competitive bidders?

These are unprecedented times, but we know that the economy is going to take a hard hit and issues like this are going to be litigated. A lender foreclosing on somebody’s business or home in this crazy time may be opening itself up to scrutiny and, yes, a legal challenge.

This would be a great time to continue a sale to a more stable sale date, which is expressly allowed under Tenn. Code Ann. § 35-5-101(f).

Insight from a Bank Attorney: How to ask a banker for help.

By 10am yesterday morning, one of my bank clients had already received five calls from worried borrowers.

These weren’t high risk consumer loans; these were commercial borrowers whose business has been impacted by the pandemic. A fitness studio who can’t have in person classes. Two AirBnB owners who have empty houses. Two restaurants. And that was just by 10am.

(Sidenote: Yes, I just referred to a fitness studio, AirBnBs, and restaurants as not “high risk” borrowers. This is 2020 Nashville, people. It was a different world until a week ago.)

In yesterday’s Tennessean, I told nervous borrowers to call their banker and talk about their concerns.

But what do you say? Here’s an idea of what banks are looking for:

Have a Plan. Don’t just call and ask to not pay for 90 days. Instead, explain to the banker how you are going to use that extra cash in the next 90 days to strengthen your recovery and maximize your chances of survival (and your chances to repay the bank).

Are there easy expenses that you can cut? Are you changing your operations in response? What are you going to do with “the bank’s money” during this time?

Do your Homework. Experts suggest that we’re going to be dealing with coronavirus for weeks and, maybe, months. Even though we have no idea how long this will last, can you give the banker a detailed forecast of your operations during this time?

Show them the bad news (i.e. the projected income), show them the easy and hard cuts you’ve decided to make, show them the fixed costs you can’t avoid (rent, costs of supplies), and show them that you’re trying.

Can you get more capital from other sources? Can you give the bank more collateral? If you can (or can’t), let them know you’ve explored that before asking the bank for help.

The banker probably wants to help you, because your success helps their bottom line too. Here, your goal is to make it easy for her to help you. Provide a roadmap that relies on numbers, solid projections, and is something that your banker can show his bosses when he advocates for you (or, months later, explains why he said “yes” to you).

Have a clear request. If you’ve done your homework and have a detailed plan, you should also be prepared to have a specific “ask” of the banker.

Do you need an extension of your line of credit amount? How much? How did you get that figure?

Do you need a 90 day payment forbearance? Why 90 days?

Do you need a re-amortization of your debt or to make interest-only payments for a few months? How does the lowered payment fit into your budget?

Be a pessimistic optimist. When you call your bank, you’ll be inclined to ask for as little relief as possible, because you’ll want your “ask” to be granted. Maybe you’ll commit to a reduced payment that’s still a little too high.

Here, if you’ve done your homework and come up with a detailed plan, you’ll have a good idea of what you really need from your bank. Ask for that, but maybe a little lower (give yourself some wiggle-room).

You don’t want to get some relief from your bank, but, then, a few weeks later, realize that you can’t perform and need more adjustments.

Long story short, err on the side of being a pessimist, and give yourself some room to under-perform (or over-deliver).

Again, I encourage immediate contact. In my experience, bankers appreciate transparency and dislike surprises (in this context, because these are generally “bad” surprises). Call them, talk to them, and let them know you’re fighting to protect your business.

What's Good for Bankruptcy Lawyers Probably Isn't Good for America.

During my third year of law school, I signed up for “Intro to Bankruptcy” at the University of Tennessee College of Law.

It wasn’t a popular course, and that’s why I chose it. After a summer clerkship where my supervising attorneys couldn’t spell the word “bankruptcy,” I thought it would be a good niche area to know in a tough job market.

Of course, I never imagined that, 21 years later, I’d have spent nearly every working day of my life spelling the word.

My class was taught by Professor Tom Plank, who really loved bankruptcy law. Passionately. When he got really excited in class, he had a thing he’d say: “What’s good for bankruptcy lawyers is good for America.”

Over the years, though, I’ve wondered what he meant. In my 20 plus years of bankruptcy practice, honestly, when I’ve been the busiest in Bankruptcy Court, it’s been a pretty awful time for Americans.

Sort of like the time we are entering right now…

https://twitter.com/tamburintweets/status/1240332869962207232

This article in tomorrow’s Tennessean will discuss the the financial impact of the coronavirus. Spoiler alert: It’s not good.

The article, Bankruptcy lawyers’ warning as coronavirus crisis mounts: Act Now, has good practical advice for people wondering how they are going to pay their bills.

Nashville bankruptcy attorney Griffin Dunham and I were both consulted for the article.

Griffin’s first piece of advice? “Act now. Waiting to address financial concerns would only exacerbate problems.”

My advice? “People who are out of work or losing income because of the crisis shouldn’t wait until they’re out of money…If they feel like they’re in the pinch now, reach out to the landlord, reach out to the bank now.”

Dunham also advocates having a very deliberate plan when deciding to allocate limited cash resources. “The people and businesses that devise a plan, store cash, and think strategically are in the best position to weather the storm.”

It’s going to be bad. For many people, it’s already bad. Act now. Be proactive. Call your lender, call your landlord.

Or, if it’s really bad, call a bankruptcy lawyer.

Nashville Bankruptcy Lawyers Prepare for the Inevitable Spike in Filings

During this coronavirus pandemic, lots of us aren’t working. (Don’t worry, clients, I am 100% working.)

Many of us are staying at home with the kids. We’re definitely not shopping at the mall or meeting up for drinks (well, some of us aren’t). The hotels are empty. Reservations for dinner are being cancelled. AirBNBs are vacant.

This state of affairs is historically unprecedented, and the impact it will have on all businesses, big and small, and all people people, rich and poor, will be felt for years.

One Nashville bankruptcy lawyer, Griffin Dunham, sees it coming. He’s already hearing from businesses that are struggling, and the choices they are making today can have a big impact over the next months.

Here are his quick thoughts on the decisions that people are dealing with right now.

Now, don’t get me wrong. This blog is called Creditor Rights 101, and I don’t advocate for not paying landlords or banks. But, at the same time, I know that this situation calls for tough decisions, and you’ll need somebody in your corner helping you make these decisions.

From my experience, he’s dead right about the need to act deliberately and with good counsel. These are strange times, and it’s the bankruptcy lawyers who can help you navigate these really tough decisions.

341: Coronavirus Impacts Tennessee Courts, and Creditors too

No Suits, No Ties, No Court…For the Rest of This Month! Tennessee Courts acted quickly in response to COVID-19. On Friday, the Tennessee Supreme Court issued an Order that all courts will remain “open” (sort of) during the coronavirus outbreak. I say “sort of” because all in-person judicial proceedings will be suspended through March 31, 2020.

I’m a litigator, and I generally appear in court 3 to 4 times a week. This is going to be weird. I usually appreciate days when I don’t have to wear a suit or tie to work, but this might be too much non-court time. Especially since I’ll be spending this time, 24/7, with my small children.

I love them, but they make the most unreasonable judge seem like a breath of fresh air.

My collections clients are going to hate this. For many courts, the inability to appear at court proceedings means, effectively, that court is closed. Specifically, I’m talking about General Sessions Court, where judgments get entered only in open court.

Following the Supreme Court’s lead, Davidson County General Sessions Court announced they will be closed to in-person proceedings, except for very limited matters (generally criminal matters), through April 13, 2020, at the earliest.

This means that there will be no debt collection dockets or evictions in Nashville for over a month. You can file new lawsuits all month long, because the Clerk will remain operational to accept new filings, including a “drop-box” for non-in-person filings.

This is good news from a “disease containment” sense, as it’s designed to limit physical access in a very bustling courthouse. It’s also good news for those who are economically impacted by the shut down of our local economy.

But, for landlords with pending eviction actions (i.e. non-paying tenants who had already been in default), these extra weeks will be frustrating.

Creditor attorneys won’t like it either. And, for creditor attorneys whose livelihood depends on that monthly collections disbursement check from the Clerk, any interruption in the Clerk’s ability to meet customers to accept judgment payments, process those payments, and disburse those payments will create a huge cash flow problem.

I’m guessing if debtors can’t get in the door, there’s a chance that they can’t get to the Clerk to make their weekly/monthly payments.

The only civil hearings you’ll see are TRO hearings. The Supreme Court order lists a number of exceptions for legal proceedings involving life, liberty, and limb, but most civil actions will not be heard.

The only civil law exception is for “Proceedings related to petitions for temporary injunctive relief.”

That’s a good exception. Injunctions are generally described as “extraordinary relief,” and they are designed to address emergency situations.

I wonder if the Courts will enter “no response” orders–orders that generally get granted as a matter of course and without a hearing, when there’s no response filed.

All Middle District of Tennessee Bankruptcy Court Chapter 13 Meeting of Creditors will be conducted via Zoom.us online video conference. On Friday, the Chapter 13 Trustee sent around an email announcing that all 341 Meetings would be conducted via Zoom online conferences. I think this is very smart, to reduce the number of people having to come to court and, at the same time, to keep the process moving forward.

But, it’s going to have a steep technological and learning curve. I suspect this is going to be a difficult process to master, but I’m impressed with the quick response and effort.

You’ll be getting Zoom invites from me next week. So, I’ve struggled with finding a good mass/video communication platform, and I’ve experimented with a few services.

If it’s good enough for Jordan Furlong, then it’s good enough for me.

Well, with all the great press I’m seeing about Zoom, I signed up and did my first test run this morning, with my 8 year old in the next room. It went fairly flawlessly and was very user-friendly.

The Coronavirus sheds new light on an overlooked paragraph: The Force Majeure Provision

On January 30, 2020, the World Health Organization declared a global health emergency in response to the rapid spread of novel coronavirus (2019-nCoV).

Since then, it seemed to slowly make its way to the United States–but, then, once it arrived, it hit us rapidly and in ways that have unexpectedly changed how we conduct our personal and professional lives.

And, yes, I say this as someone who was scheduled to depart tomorrow on a Disney Cruise. We (obviously) cancelled our trip, and, in the past week, I’ve seen a nearly nationwide cancellation of events, with unimaginable impact on businesses and employees.

So, what if you’re thinking about cancelling an event? Where do you start your analysis? Well, closely review your written agreement for the terms and conditions related to cancellation.

Is there a “force majeure” provision? Those provisions account for an unforeseen, unavoidable, and uncontrollable circumstance that prevents performance by one party to a contract and, more importantly, “excuses” that party for non-performance. The circumstances are intended to be so extraordinary that they are sometimes referred to as an “Act of God” provision.

The first time many of us dealt with these issues were related to September 11, 2001, and most modern contracts reflect this changed world-view (and the acknowledgement that something short of a natural catastrophe can trigger the defense).

Force majeure provisions are valid and enforceable under Tennessee law. The question frequently becomes a matter of contractual interpretation: Is the [event that occurred] truly a force majeure that prevents performance/excuses non-performance?

This is where the lawyers make their money, and it comes down to how clear and detailed the contract’s definition of a force majeure is. Tennessee law doesn’t define it, so it’s up to the parties to negotiate the definition, scope, and application.

I’ve prepared marketing agreements that are currently being used by the Big 12 Athletic Conference, with Fortune 50 businesses as the counter-parties. Needless to say, these were really big deals. In working on those documents, we spent hours on all sorts of negotiations, but rarely–maybe never–talking about the definition of a force majeure.

So, if you are a business that is shut down–either by choice or by necessity–and it’s preventing you from performing under an agreement, look at your contract and see what it says about cancellation (and damages for cancellation). And, skip to the end, and see if there’s a force majeure provision.

If there’s not one, make sure that your future agreements have them.

With the 2020 Legislature in full swing, here are three bills to watch.

The Tennessee Legislature is considering three new laws for 2020 that impact debtor-creditor lawyers and that you should know about. Here’s a quick recap:

Increased homestead exemptions. This is at Senate Bill 2235 and House Bill 2682. This bill increases the individual Tennessee homestead exemption to $35,000, increases the joint exemption to $52,500, and eliminates the enhanced exemptions based on age and parental status.

My thoughts? Current law provides for a $5,000 exemption for individuals and a joint $7,500 exemption for married couples. While a jump to $35,000 seems pretty steep, keep in mind that the homebuilder lobby is asking for an increase that ranges from “unlimited” to one million dollars to $250,000. Based on my conversations with the Tennessee Bar Association and Tennessee Bankers Association, the $35,000 is designed to both acknowledge that Tennessee currently has one of the lowest exemptions and to head off a greater increase.

This amount is going up, so why not participate in that process and have it go up to an amount everybody dislikes (but not enough to try to get it higher)?

Decrease in number of days to appeal a Detainer Judgment. This is Senate Bill 2563/House Bill 2372. Current law provides a tenant ten days to appeal an eviction judgment, which means that they have ten days to remain the property before the property owner can file a writ of possession to have them removed. This bill reduces that time period from ten days to two.

My thoughts? I don’t support this. This is too creditor friendly. The ten day appeal period gives a tenant time to either prepare an appeal (and the associated possessory bond) and also time to voluntarily move out. The current time period, frankly, feels like a reasonable amount of time. Two days feels inadequate and onerous.

I mean, if the guy who writes Creditor Rights 101 says something is too creditor-friendly…yikes.

The “Medical Debt Protection Act.” This is Senate Bill 2700/House Bill 2346. This proposed law proposes a number of protections onto the medical bill debtor, and it imposes a number of pre-lawsuit and filing requirements onto the medical bill collection agency/attorney, including a shortened statute of limitations. Further, once a judgment is entered, there are limitations on collection, limits on adverse credit reporting, and restrictions on post-judgment interest.

My thoughts? This is clearly in response to the crisis in our country’s healthcare system that impacts the poorest people, and we’ve seen this in Memphis over the past year. While I don’t agree with all the details of this proposed legislation, I see that it’s coming from a legitimate place. We need to do something.

But, according to insiders at the Capitol, it’s a moot issue. I’ve been told that this bill was taken off notice by Rep. John Ray Clemmons after the Tennessee Hospitals Association promised to create a task force to address this issue (and after the Tennessee Bar Association had already expressed concern with this bill).

Four New Bankruptcy Filings add More Mystery…and Misery…in the Riverwood Cabins Case

A few weeks ago, I posted about the Riverwood Cabins, LLC Bankruptcy, which was notable to me because of the scope and magnitude of the amount of money that the Riverwood cabin buyers lost.

It’s a case where about 65 customers (and that number continues to grow) are asking what happened to their $4.5 million in deposits (also a growing number). The customer deposits appeared to evaporate into thin air in the months before the Bankruptcy case was filed.

One of the biggest questions was when the related companies were going to file their own bankruptcy cases (and why hadn’t they already?). The hope was that, when that happened, maybe we’d get some answers then.

Well, we know the first part: Woodtex, LLC, Woodtex of New York, LLC, Woodtex of Tennessee, LLC, and Woodtex of Texas, LLC all filed their own Chapter 7 bankruptcy cases in Nashville Bankruptcy Court late on Monday afternoon.

As far as answers beyond that, the filings don’t do much else, but add more questions.

And more aggrieved customers. These filings show that there’s at least twice as many customers who lost their deposits, with these deposits still being unaccounted for.

But, strangely, there’s not that much debt owed, relative to the deposits that the companies were constantly taking in. With this much money coming into the company (as deposits), you’d expect to see an equally staggering amount of unpaid bills.

The only good news for the Woodtex customers is that, because the Woodtex entities focused on sheds and smaller buildings, the deposits are about 10% of the money that the Riverwood Cabins customers lost.