Case Study: Sale of Assets Fetches Top Price for Company

Situation

Avenue TV Cable Service Inc. filed a petition for bankruptcy in August 2003. Because of the company’s subscriber-based demographics and service contracts with approximately 9,000 residents in Ventura County, its assets were substantial.

Resolution

Working with Greenberg & Bass, the debtor was able to market and sell all of its operating assets in an all-cash sale to Kirkland, Washington-based Wave Broadband, a cable and broadband services company. The sale commanded close to $20 million. The proceeds were sufficient to retire all secured debt, administrative expense, and unsecured debt with interest, and to return a significant dividend to shareholders. The sale was confirmed in Bankruptcy Court and payments approved to all creditors. The firm handled all related litigation and transactional matters, managed complex regulatory issues in multiple governmental jurisdictions, and navigated the stakeholder politics of municipalities impacted by revenue-producing cable franchises.

 

Case Study: Successful Result for Complex Chapter 11

Situation

The case began with a law suit filed by Fassberg Construction Company against HACLA (Housing Authority City of Los Angeles). HACLA had contracted with Fassberg for the construction of 25 residential buildings containing 156 dwelling units for approximately $13 million. Upon completion of the project, HACLA refused to turn over to Fassberg approximately $1.3 million of retained money. In response to the Fassberg law suit, HACLA filed a cross complaint against the company on a variety of breach of contract claims. The case was tried before a jury. The jury found that Fassberg breached the contract and knowingly submitted 2,983 false claims to HACLA, and that HACLA had suffered $1,104,000 in damages from the breach of contract and $455,000 in damages resulting from the false claims. This figure was trebled and the Court added a civil penalty of $500 for each false claim, pursuant to the California False Claims Act. Further punitive damages were awarded, and Fassberg found itself with zero recovery of the retained funds and a completely unexpected judgment liability of about $4 million, plus legal fees and costs to be awarded.

Challenges

A judgment was entered in April of 2005 and Fassberg was subject to a writ of execution that left exposed bank accounts and other assets vital to the continuing operation of the business. This included the need to finish 16 projects with a completion value of approximately $150 million. A levy of the judgment would have been catastrophic to all of the stakeholders involved in a very complex matrix. These include project owners, institutional lenders, federal and state agencies, material vendors, subcontractors, sureties, bankers and principals, including Abe Fassberg, who personally guaranteed a substantial amount of debt keyed to completion and payment bonds.

Resolution

Following a three year legal ordeal that threatened the survival of venerable Los Angeles-based Fassberg Construction, Greenberg & Bass was successful in confirming a complex reorganization plan and reducing damages on appeal that resulted in a net asset for the company. Lacking the financial ability to bond around the judgment in order to appeal, Fassberg filed Chapter 11 in order to obtain the immediate benefit of an automatic stay. The reorganization had to permit "business as usual" operations for two years, in order for the company to complete work in progress. With Greenberg & Bass navigating the company through the difficult environment of judgment and bankruptcy, Fassberg was able to sustain a level of trust and confidence among its subcontractors and employees to meet stringent timelines and performance demands. Utilizing the Bankruptcy Court, and with support from the surety and Creditors Committee, a reorganization plan was confirmed that provided for a dividend to unsecured creditors who do not have the benefit of payment bonds as a back up. As the Fassberg plan was confirmed, the Court of Appeals reversed HACLA's judgment with directions to the Superior Court to conduct a new trial on the issue of the amount of damages from false claims and penalties, if any. The appeals court reduced the damages owed by Fassberg to HACLA from $1,104,000 to $701,282 and awarded to Fassberg the retention sum of $1,310,036 – turning a $4 million liability into an asset of $608,754. The City plans to petition the California Supreme Court for hearing and will go back to the Superior Court to try the same issues. This represents a large gamble for the City, as a different result on the false claims issue would make Fassberg the prevailing party and entitle it to the recovery of attorney’s fees and costs.

 

Case Study: Settlement of Landmark Bankruptcy Case

Situation

The Adama Land Development Company (ALDC), a Nevada-based real estate company, was formed for the purpose of developing real property and acquired funding by selling units in Limited Liability Entities. Following continuous financial struggles, the troubled company filed a Chapter 11 Petition, which was subsequently converted to a Chapter 7. Greenberg & Bass represented one of the ALDC’s key investors, The Freidson Trust.

Resolution

Greenberg & Bass was responsible for obtaining a judgment against ALDC for over $4 million in March 2002. Following three years of litigation, negotiation and liquidation of assets, the United States Bankruptcy Court approved a settlement that resulted in a $2.1 million payment to The Freidson Trust. Several hundred other investors to whom monies were owed also received distributions as a part of the settlement.

 

Case Study: Franchise Founder Wins Against Franchisee

Situation

Stuart Davis, founder of the City Wok Restaurant concept, City Wok, LLC, the franchisor of the City Wok concept, Fransmart, LLC, the seller of City Wok franchises and Dan Rowe, a principal of Fransmart, LLC were sued in Superior Court by Z Tas, Inc., the first franchisee of City Wok, LLC, and its principal Tom Shahbazi. The suit sought $941,000 in damages from the defendants, and alleged breach of contract, California franchise law violations, intentional misrepresentation, negligent misrepresentation, concealment and unfair competition. City Wok, LLC also filed a Cross Complaint against the plaintiffs, seeking damages for failure to pay royalties and advances to City Wok.

Resolution

G&B litigation partner Keith M. Gregory represented the defendants at trial. After less than two hours of deliberations, the jury found entirely in favor of the defendants and cross-complainant City Wok. The jury concluded that Z Tas, Inc. had failed to prove that it performed all of the obligations that it was required to perform under the franchise agreement, that the defendants had performed all of their obligations, and that the defendants had not committed any fraudulent acts against Z Tas, Inc. The jury also found that Z Tas, Inc. breached the franchise agreement by failing to pay royalties and to pay back advances made to it by City Wok, LLC, and awarded damages to City Wok, LLC in the amount of $45,000.

 

Case Study: Tenants In Common

Situation

A very valuable commercial property in West Los Angeles was owned by a large, extended family for at least two generations. The ownership was scattered among many family members, each of whom owned a separate share in his or her name alone. The property ownership is referred to as “tenants in common” – there was no consolidated ownership and no buy/sell agreement in existence.

Challenges

A death occurred and a non-family member was scheduled to inherit a 12% share of the property. There was extensive and expensive litigation concerning the value of the property, the value of the 12% interest, and who had what rights.

Resolution

Greenberg & Bass Of Counsel, Charles Tigerman, was engaged to assist the family, once the litigation had been resolved. A Limited Liability Company (LLC) was formed to hold the real estate. Each owner then owned shares in the LLC and centralized management was established. A Buy/Sell Agreement was developed so that the rights of each LLC Member and the rights of the LLC itself were clear, during life and on death of a Member. Formed a Limited Liability Company to hold the substantial commercial property owned by “tenants in common” – the individual members of a large, extended family. Established centralized management for the LLC, prepared buy/sell agreement to protect the rights of the members and of the LLC.