But, don’t worry. A bankruptcy filing doesn’t mean that the South’s favorite tiny hamburger is going away. In fact, there’s a good chance it’ll be a stronger chain after all this.
Krystal’s financial problems appear to be a relatively new problem, based on documents filed in the main Bankruptcy case.
As part of the case, the lead company filed a Declaration by its Chief Restructuring Officer, who has been trying to help Krystal correct course (and hired very recently, in November 2019).
Of the nearly 300 locations, the company closed 44 locations in 2019, including 13 closures on December 15, 2019 (in anticipation of the bankruptcy filing, I’d assume).
The quick summary? “Shifting consumer tastes and preferences, growth in labor and commodity costs, increased competition, and unfavorable lease terms.” You can download and read a full copy of the Declaration here:
The Declaration tells the story of the events leading up to the bankruptcy filing, starting with the invention of the “iconic square hamburger patty slider” in 1932. It’s written by bankruptcy lawyers, so don’t expect a glowing press release.
The summary of the problems is this:
Increased competition due to “proliferation of fast casual restaurants as well as online delivery platforms…”
“Difficulty finding and retaining qualified employees…”
Entry into an expensive store rebuilding program, at a cost of about a million dollars per location.
Default under a Forbearance Agreement on a $50 million loan.
A “security incident” involving one of the company’s “payment processing systems.”
In a nutshell, the Bankruptcy docket tells a familiar story, about how a changing industry landscape is creating havoc in long-standing businesses.
This is obviously early–in fact, all the filings I looked at are what is called the “First Day Motions.” But, given the amount of debt involved and brand recognition–and, yes, I’m talking about the out-pouring of concern on twitter–I suspect Krystal’s can figure this reorganization out.
And, honestly, I’ve eaten a lot of Krystal’s during my time. If part of the reorganization is shutting down bad stores and remodeling others, I think it’s a good plan.
Service of process is a hot issue in Tennessee law. The reason is obvious: Without proper service of process, any subsequent action taken in a case is void.
Part of the reason service issues are coming up so frequently lately is the comparison between the 2009 economy and the 2019 economy. Judgment debtors have more money (and reason) to fight now, including more money to fight old judgments.
A new appellate decision considered a service of process last week, inWarren Brothers Sash & Door Company v. Santoro Custom Builders, Inc., et. al., M2019-00374-COA-R3-CV, 2020 WL 91635 (Tenn. App. Jan. 8, 2020), where an individual defendant opposed a judgment creditor’s efforts to renew a judgment rendered in 2008 by contesting service of process.
Looking at the returned Summonses, the individual had a pretty good argument, since both the corporate and individual defendants were served at the business address, when the Sheriff served both Summonses at the corporate address, by serving the person at the front desk.
Under Tenn. R. Civ. P. 4.04, an individual defendant shall be served “personally” or, if she evades, by leaving the copies at her “dwelling house or usual place of abode with some person of suitable age and discretion then residing there…”
Long story short, the Sheriff didn’t serve Santoro personally and the business address wasn’t his house, and, as a result, Santoro had a really good argument on paper.
But, Plaintiff had some really good lawyers. Instead of stopping their work on the face of the Summons, they really dug in on who accepted service. They deposed the person, and they also found at other lawsuits where this person was authorized to accept service for the individual. And, they took care to get all this information properly introduced into the record.
With all this background proof in the record, the trial court found that the agent had implied authority to accept service. In affirming, the Court of Appeals wrote:
An individual may appoint an agent for the purpose of receiving service of process, giving that agent either actual or implied authority. Implied authority “embraces all powers which are necessary to carry into effect the granted power, in order to make effectual the purposes of the agency.” Implied authority can be “circumstantially established through conduct or a course of dealing between the principal and agent.’ ” However, the existence of implied authority is determined by the “ ‘act or acquiescence of the principal,’ ” rather than the actions of the agent.” With respect to service of process, “the record must contain ‘evidence that the defendant intended to confer upon [the] agent the specific authority to receive and accept service of process for the defendant.’ ”
Id. at * 5 (internal citations omitted).
In the end, Plaintiff’s counsel’s thorough analysis of the facts and getting those facts into the record carried the day.
It’s telling that this opinion was written by a fairly new appellate judge, Judge Carma McGee, who spent years as a trial judge. This is a smart, well-reasoned opinion, and all credit goes to the trial counsel, who gave the Judge the proper facts.
Posting the proper bond in an eviction appeal in Tennessee is confusing and, sometimes, very expensive. Remember, though, if a landlord is granted an eviction judgment, the tenant can still have a valid appeal, even if the tenant doesn’t post the possessory bond required by Tenn. Code Ann. § 29-18-130(b)(2).
I thought this issue was settled–I was blogging about it 5 years ago–but it keeps coming up in circuit courts across Tennessee.
The Tennessee Court of Appeals issued an opinion yesterday, affirming this line of decisions, in Thomas v. Millen, W2019-00086-COA-R3-CV (Tenn. Ct. App., Dec. 19, 2019). This case cited the Court’s own recent, similar opinion at Belgravia Square, LLC v. White, No. W2018-02196-COA-R3-CV, 2019 WL 5837589 (Tenn. Ct. App. Nov. 7, 2019).
Long story short, the possessory bond is not jurisdictional, meaning the circuit court has jurisdiction to consider the issues, and an appeal remains valid despite the failure to post the § 29-18-130(b)(2) bond.
As a practical matter, most eviction appeals will die once the tenant loses the right to possession. But, not all. In that situation, the tenant could be dispossessed of the property, but the tenant can still challenge the landlord’s rights and, if successful, seek monetary damages against the landlord if the tenant wins.
That type of fight does happen. I’ve had an opposing party / tenant lose in Sessions, appeal to Circuit, lose possession in Circuit, but continue fighting my matter…all the way to the Supreme Court. The United States Supreme Court.
It’s the holiday season, where we’re bombarded with commercials about door-buster sales and new Lexus cars with red bows on them.
But, at the movie theatres, there’s that Mr. Rogers movie, with the one scene that I’ve seen lots of people talking about.
The scene is based on an award acceptance speech, in which Mr. Rogers asks the audience to take ten seconds to think about the people who have helped him become who they are, to think of the people who have cared about them and helped them in their lives. Here’s a full clip, courtesy of Taye Diggs.
It’s an awesome moment. For this holiday season, I’d take it one step further: Who are the people who are thinking about you and the help that you gave to them?
This is a really indirect way by me of asking you to volunteer your legal skills to help others before the year is over.
This is an incredible program, which helps people clear up their record and get better jobs. This can have a life changing impact on the people who need this service, and, the way the day is structured, you don’t need to know criminal law. You show up, and they’ll teach you everything you need to know.
Your time is an incredible gift, and you’ll leave knowing that you’ve done something to help others. You’ll be the person on people’s minds when they think about those who help.
A new opinion from the Tennessee Court of Appeals provides valuable guidance to attorneys foreclosing on commercial properties.
The matter is Tennessee Funding, LLC. v. William Worley (No. M2019-01099- COA-R-CV, Tenn. Ct. App. Nov. 26, 2019), and the issue was whether a foreclosing lender took ownership of the contract rights associated with the real property–specifically, whether the foreclosure sale of the entire residential development transfer ownership of the “developer’s” or “declarant’s” rights of the property.
The actual issue was more nuanced than that and, trust me, I know (I represented the prevailing party in both the trial and appellate courts). The full opinion can be found here.
For purposes of this blog post, I won’t bore you with the deep analysis, but here are the main takeaways from yesterday’s decision:
In many development loan/construction loan transactions, the lender will be granted both a lien on the real property and a UCC lien on all the “other stuff” associated with the development project.
A real property foreclosure pursuant to the Deed of Trust and Tenn. Code Ann. § 35-5-101, et. seq., transfers to the foreclosure buyer all of the dirt.
The real property foreclosure does not transfer ownership of all the “other stuff,” including contract rights associated with the development.
These contract rights can include plans, drawings, and, yes, developer’s rights under a Master Deed or Declarations (i.e. the right to manage the development/developed property).
The rights are personal property, and those rights must be transferred by a creditor’s UCC Sale under Article 9, including Tenn. Code Ann. § 47-9-610.
Ultimately, that was the critical factor in this case–that the foreclosing lender did a dual sale–a foreclosure under the Deed of Trust to purchase the dirt and a UCC sale under the Security Agreement to purchase the personal property.
Keep this case in mind the next time you represent a creditor contemplating a foreclosure on a property development. You may not be doing your job if you only foreclose on the land.
From the Supreme Court to Nashville... I’m on a plane from Washington, DC, with about 7 Nashville lawyers riding with me, after yesterday’s United States Supreme Court oral arguments that featured Nashville bankruptcy lawyers on both sides.
This was a pretty obscure procedural issue, and I pity those poor student groups who sat through the animated back-and-forth about what a “proceeding” is in Bankruptcy Court.
It was a great day for the Nashville bankruptcy bar, and the lawyers on both sides really shined. It was also my first trip to the Big Courthouse, and I’m planning a longer post about the experience for early next week.
I’m impressed by the grass-roots activism from the Memphis bar, and I have to admit, the show makes the practice of law in Memphis look very exciting and scenic. I’m signing the petition.
The Daily Memphian interviewed me for their story, What comes next in James Wiseman’s eligibility saga?, about the various legal issues and strategies presented (which, I’ve been told, ESPN’s Jay Bilas quoted in an on air interview!)
No deed goes unpunished, and this involved me diving deep into federal court jurisdictional issues, whether a “nominal defendant” destroys complete diversity, and looking up the exact nuances of Injunctive relief procedure.
Trust me, this was the first time this 26 year old reporter ever cited Wright on Federal Procedure.
Regardless, I love the Daily Memphian, and it got me this close to appearing on the Geoff Calkins radio show as a legal expert. I was scheduled to appear on Monday, but a producer bumped my appearance.
It was with great shame that I notified my Memphis friends and family that I was bumped to make room for listener call-ins.
Speaking of great shame… I was alerted that the following blurb and text auto-posted over the weekend. To be clear, the words below this blurb are a quote from the advice column, not how I feel (at least not all the time).
The opening line? “I’m a litigation attorney and am absolutely miserable.”
The James Wiseman news ruined my Friday evening. It doesn’t get more ominous than this:
First, I’m a Memphis fan. This includes the University of Memphis, the basketball team, the football team, the people of Memphis, and the city itself.
(Side Note: As a Memphian For Life, how awesome was it to see my Memphis people representing on twitter last night? Don’t mess with Memphis.)
Second, I’m a commercial litigator, and, here I was, thinking through issues of complex legal procedure, exactly 45 minutes before I was planning to watch James Wiseman play basketball.
So, the Shelby County Chancery Court granted a Verified Complaint filed by James Wiseman, represented by Lesline Ballin, that requested a Temporary Restraining Order.
Story over, right? Not at all.
Legal analysis to follow:
Tennessee Rule of Civil Procedure 65 controls here. Tennessee Rule of Civil Procedure 65.03 provides, in part, that a court “may issue a temporary restraining order without written or oral notice to the adverse party or its attorney” when “an affidavit or verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party can be heard in opposition [.]”
Here, this TRO was entered without notice to the NCAA. The NCAA didn’t have an opportunity to respond with factual or legal analysis…or even a one page “We Object!” filing.
The Shelby County Chancery Court simply reviewed the filed pleadings to make sure that the Verified Complaint, if assumed to be true, connected all the dots to satisfy the elements for getting a TRO issued. In a way, it’s just a matter of being good at paperwork at this stage.
And it helps if you probably have the Judge’s cell phone number.
Don’t get me wrong; it’s still savvy lawyering. Courts refer to any relief under Rule 65 as “extraordinary relief.” It’s a big deal, and a strong move by Memphis and Ballin.
But there is a long road ahead, with the first test coming up soon.
TROs only last 15 days. Under Rule 65.03(3), TROs have a limited life; they only last 15 days, unless they are extended by the Court. That’s the reason for the low proof threshold; TROs are designed to be temporary remedies.
The real fight will be over the Temporary Injunction. Under Rule 65.04, the court will replace the TRO with a Temporary Injunction, which is designed to provide longer injunctive relief to the plaintiff while the litigation proceeds.
Under Rule 65.04, a “temporary injunction may be granted during the pendency of an action if it is clearly shown by verified complaint, affidavit or other evidence that the movant’s rights are being or will be violated by an adverse party and the movant will suffer immediate and irreparable injury, loss or damage pending a final judgment in the action, or that the acts or omissions of the adverse party will tend to render such final judgment ineffectual. “
In deciding whether to grant the temporary injunction, the court will apply a “four-factor test: (1) the threat of irreparable harm to plaintiff if the injunction is not granted; (2) the balance between this harm and the injury that granting the injunction would inflict on the defendant; (3) the probability that plaintiff will succeed on the merits; and (4) the public interest.”
Here, James Wiseman’s case will rise and fall on item # 3, and the NCAA will want a mini-trial on the violation. Wiseman should have a fairly good argument on items 1 and 2, since he’ll lose valuable chunks of his college career if he has to sit out.
If I had to bet, I’d think a judge would let him play, while the matter is being litigated.
But, what Court will decide? There’s no way this matter stays in Shelby County Chancery Court.
Despite what Bluff City Law says (i.e. where every case they handle is in the Shelby County Courthouse), this case will be removed to federal court.
Pursuant to 28 U.S.C. § 1441, a case “may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.” Here, the District Court for the Western District Courts of Tennessee will likely get this case, unless the NCAA both removes the matter to district court and then asks for a change of venue (to a different district court in the US) at the same time.
Given the time challenges here, I’d bet the matter would stay in Memphis’ district courts.
There are a number of reasons a defendant would remove this. For one, a state court judge is popularly elected, and, while judges are generally not biased, an elected judge would face great public pressure from a rabid fan base. District Court judges are lifetime appointees by the President, and they are perceived to be free from bias.
In a strong economy like Nashville-2019, I get lots of calls from people looking for “good deals” on real estate.
First, I tell them to buy a time machine that will take them back to 2010.
Then, I commiserate with them about all the awesome deals that I watched other people pounce on over the last 7 years (with, of course, a quick reminder about all the awful deals that brought people to financial ruin in the 7 years before that).
After all that, I get serious and talk to them about buying distressed real estate, and all the forms and forums where that can happen. Bankruptcy Sales. Foreclosures. Sheriff’s Sales. Tax Sales.
It’s, literally, a path full of misery and heartbreak, but it’s probably the only realm in present-day Nashville where you can truly get a good deal.
And part of the reason that there’s so much upside is that there’s so much risk in these types of sales. There’s no way to avoid that risk, and, at best, your goal is to simply mitigate that risk.
I recently taught a CLE for OutkickCLE on distressed buying, and I’ll post that video link here when it goes live. In the meantime, I’ll be posting snippets from my CLE materials here. Stay tuned.
In March, I discussed the rapidly developing litigation in Tennessee debtor-creditor law about the failure of many process servers to comply with Tenn. Code Ann. § 16-15-901(b). In order to have valid service of process, this statute says: “The process server must be identified by name and address on the return.”
Note: Here’s my post from 2015, when I warned you all that these issues were going to be a problem.
In an opinion issued yesterday, the Tennessee Court of Appeals upheld this analysis, in one of the few times the appellate courts have considered this issue.
It’s a well done opinion, with a good review of personal jurisdiction, ineffective service of process, void judgments, and the method for raising these issues under Tenn. R. Civ. P. 60.02(3).
I’m biased, because–as you may note–I represented the appellee/debtor in the Mundy case. But, nevertheless, Judge Dinkins’ opinion is a good reminder that every lawsuit must start with proper service–or everything else after that may fall apart.
In that post, I considered whether a a truly foreign judgment, i.e. one entered by a different country, could be domesticated and enforced in a state court, whether under state law (i.e. the Uniform Enforcement of Foreign Judgment Act) or under federal law. In the end, I thought it would, citing the Uniform Foreign Money-Judgments Recognition Act, a federal statute that can be found at 13 U.L.A. 261.
To my surprise, I just discovered that the Tennessee Legislature passed a brand new set of statutes on this issue, effective on July 1, 2019.
Found at Tenn. Code Ann § 26-6-201, et. seq., these statutes are titled the “Uniform Foreign Money-Judgments Recognition Act.” Per Tenn. Code Ann § 26-6-202 and -203, this Act expressly applies to judgment issued in a court of a foreign country that “[g]rants or denies recovery of a sum of money” and is “final, conclusive, and enforceable.” Interestingly, the Act doesn’t apply to a foreign judgment for taxes or fines/penalties.
Nothing beats actually reading the statutes, so I’ll just recap some highlights.
Be sure to read Tenn. Code Ann. § 26-6-204, which recites the various standards for recognition. Most importantly, check out subpart (b), which provides examples of matters in which a Tennessee court “may not” recognize the foreign judgment (where the court lacks “impartial tribunals or procedures”; no personal jurisdiction; no subject matter jurisdiction). Also, see subpart (c), which provides the examples for when a Tennessee “need not” recognize the foreign judgment (insufficient notice; fraud; repugnant policy; inconvenient forum; conflicting venue provisions).
Tenn. Code Ann. § 26-6-205(a) provides some examples of where a Tennessee court can pretty easily find personal jurisdiction (i.e. the defendant was actually served in that country; made a voluntary appearance in the proceeding; a car accident in that country).
Pursuant to Tenn. Code Ann. § 26-6-204(c), “[a] party resisting recognition of a foreign-country judgment has the burden of establishing that a ground for nonrecognition stated in subsection (b) or (c) exists.”
Some quick thoughts:
With all the legislative fights in Tennessee over this past summer, I’m surprised that there was no mention of this new Act;
This is a fairly obscure issue, and I’m honestly impressed that Tennessee has such a fair process for recognition of foreign judgments;
I think the statutory text of the Act has some language that will be difficult to navigate, including the “may not recognize” and “need not recognize” phrases in Tenn. Code Ann. § 26-6-204 (b) and (c).
If a party digs in on the “need not” criteria, including whether a cause of action is “repugnant to the public policy of this state,” we’re going to be having some really interesting arguments in Davidson County Chancery Court.
In short, I’m glad that Tennessee has adopted a version of the Act and that we have clarity as to whether a judgment from a foreign country will be enforceable and domesticated in Tennessee.
For years, I’ve handled a number of these, generally shoe-horning these judgments into the existing Tennessee Foreign Judgments Act.
Creditors Rights 101 