Rogers Towers, PA welcomes readers to its new Florida Banking Law Blog! A product of the firm’s Banking and Financial Services Practice Group, the blog will serve as a convenient way for us to share our expertise in banking-related legal issues. We represent banks and other providers of financial services in a broad range of matters throughout the state of Florida. As a result of our significant experience, we will have much to share in the upcoming blog posts and we hope that you will find these posts to be informative and beneficial to you in your respective positions in the industry. We appreciate your interest in the field and in Rogers Towers, PA and we look forward to your comments in response to our blog. Again, welcome to the Florida Banking Law Blog!
Magistrates to Handle Florida Residential Foreclosure Actions – Florida Supreme Court Amends Rule 1.490 and Significantly Changes Landscape of Residential Foreclosure Litigation
Posted in Debt and Judgment Collection, Residential Foreclosure, Special Assets LitigationIt is no secret that Florida consistently ranks among the worst states in the union in regards to the mire of the residential mortgage foreclosure case backlog. From 2007 to 2013, approximately 1.5 million foreclosure cases have been filed in Florida alone. As of February 2013, nearly 360,000 cases remained pending in Florida courts, and an estimated 680,000 new cases will be filed within the next three years. Clearly, something had to give.
On May 3rd, the Florida Senate passed H.B. 87, and shortly thereafter on May 9th, the Florida Supreme Court issued an order amending Rule 1.490 of the Florida Rules of Civil Procedure to allow general magistrates to handle foreclosure actions. The changes are effective as of the publication of the order.
General magistrates are members of the Florida Bar that have been appointed by the circuit Court to conduct civil hearings and prepare reports containing findings of fact, conclusions of law, and recommendations to the referring Judge, who reviews the magistrate’s report before it becomes final. Prior to the amendment of Rule 1.490, general magistrates were primarily utilized in family, juvenile and probate court matters. With the amendment of Rule 1.490, the chief judge of each judicial circuit may now appoint magistrates to handle “all actions and suits for the foreclosure of a mortgage on residential real property.”
Prior to the amendment of Rule 1.490, express consent by both parties was required for a matter to be referred to a magistrate. Consent for referral to a foreclosure magistrate, however, is now implied, absent a timely objection by either party. Thus, if a homeowner does not file an objection to the referral within ten days,[1] their case will automatically be assigned to a magistrate. Although language notifying both parties of the right to have their case heard by a judge must be included in every referral order, the small window to object ensures that this implied consent will be a tremendously contentious issue going forward.
An interesting provision in the amended Rule is that foreclosure magistrates cannot practice the “same case type” of law in the county where they work as they are appointed. While this portion of the amendment was certainly enacted to prevent conflicts of interests (as magistrates are bound by the same grounds for disqualifications as judges), the measure narrows the pool of qualified candidates to attorneys who (a) no longer practice foreclosure law, or (b) have never practiced foreclosure law in that jurisdiction.
Because the amendments were passed without a formal comment period, the deadline to submit written objections to the new procedures is July 8, 2013. These amendments represent a significant change in the landscape of foreclosure practice in Florida. The Florida Banking Law Blog will continue to monitor any developments as they arise.
[1] The objection period may be extended, depending when the referral order was served.
What can Twinkies and Beer Teach Investors about Purchasing the Assets of an Insolvent Corporation?
Posted in BankruptcyWhen Hostess announced last November that it would be shutting the doors to its factories, spooked by the news and likely addled by decades of cream filling, hoarders of Ho-Ho’s scurried to buy every brand name snack cake they could find, boosting the online sale of Twinkies alone by 31,000% in the first twenty-four hours. Naturally, the hysteria caused a convergence of conspiracy theories from the Ding Dong devotees, and suspicions rose that the Mayan 2012 prophesies were coming true: the end of the Devil-Dog days was indeed drawing nigh.
Hostess, however, is not a newcomer to financial distress. Throughout the early 2000s, the company’s confectionary debts continued to Sno-Ball, forcing the troubled company to twice file for Chapter 11 bankruptcy relief. Although the owners and the workers’ union engaged in lengthy negotiations in its recent iteration of insolvency, unlike its Twinkies, Hostess could not be preserved indefinitely.
Today, however, those Cup Cake connoisseurs can breathe a collective sigh of relief. The snack cake Armageddon has been averted by the most unlikely hero: Judge Drain.
Indeed, on March 19, Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York approved the $410 million bid of private equity firms Apollo Global Management and C. Metropoulos & Co. for Twinkies and Hostess’ other snack cake assets. Metropoulos is no stranger to resuscitating long-neglected brands. The company scored a big hit with Pabst Blue Ribbon, which they acquired in May 2010 – decades after PBR’s market share had gone flat.
Section 363 of the Bankruptcy Code provides an effective mechanism for distressed companies seeking to sell their assets and for buyers looking to purchase assets at potentially bargain prices. Because the sale effectively takes the place of a plan and disclosure statement, bankruptcy courts take extra care to ensure that creditor’s rights are not lost in the process.
A properly conducted “363 Sale” benefits all major parties in a bankruptcy case. Debtors satisfy their fiduciary duty to maximize the value of assets for creditors, who also understand that in general 363 Sales are faster and more efficient than selling assets through a Chapter 11 plan. Secured creditors interested in purchasing the debtor’s assets have the option to offer the cancellation of debt as consideration for a bid, a practice known as “credit bidding”, and unsecured creditors may obtain a carveout from sale proceeds of the secured creditor’s collateral. Finally, the assets sold at a 363 Sale are acquired free and clear of liens or other claims.
Despite these benefits, 363 sales are not without their drawbacks. Thus, entities interested in purchasing a debtor’s assets through a 363 Sale should do so cautiously and with the guidance of an experienced bankruptcy attorney.
So take heart Hostess fans – if all goes as planned, Twinkies should be back in circulation by July 2013. What this means for the hearts and circulation of their consumers, however, remains to be seen.
A Lesson from the Lumber Yard: Middle District of Florida Raises Particularity Requirement for Trustee Standing in § 549 Avoidance Actions
Posted in Bankruptcy, Commercial LendingOne of the primary roles of a Chapter 7 trustee is to ensure that the bankruptcy estate is preserved prior to liquidation. It is no wonder, then, that the Trustee’s avoidance powers are well defined by the Bankruptcy Code. Nevertheless, a string of recent cases out of the Middle District of Florida has illustrated that a trustee is not given carte blanche to avoid all transfers that diminish the estate without first establishing that it has standing to bring the avoidance action.
Under § 549 of the Bankruptcy Code, a trustee may avoid a postpetition transfer that is authorized by the Bankruptcy Code or Court. To do so, the trustee must establish that the transfer actually injured or diminished the bankruptcy estate. Establishing a causal relationship between an unauthorized postpetition transfer and a diminution of the estate does not, at first blush, seem too onerous of a task. However, a string of recent decisions out of the Middle District of Florida in the Wood Treaters case have illustrated that even if the trustee can establish that the transfer was unauthorized, it still bears a significant burden to connect the individual transfer to a direct depletion of the estate.
In Wood Treaters, the debtor filed a Chapter 11 petition and was granted conditional permission to use cash collateral to make postpetition transfers. After the case was converted to Chapter 7, the trustee sought to avoid a number of the debtor’s transfers because they had not been made in strict accordance with the cash collateral order.
Though not condoning the debtor’s unauthorized transfers, Judge Paul M. Glenn found that the trustee had failed to establish that the bankruptcy estate suffered a direct injury as a result of any particular transfer. Specifically, Judge Glenn held that the trustee failed to establish that the goods purchased in any specific transaction (i) were not fair value for the purchase price, or (ii) were re-sold at a loss by the Debtor or the liquidator. This particularity requirement was especially vexing for the trustee, because the trustee did, in fact, introduce evidence that the aggregate effect of the transfers diminished the overall value of the bankruptcy estate.
Judge Glenn’s strict interpretation of § 549 is not universally accepted, although the preliminary holding in Wood Treaters has already been adopted by the Tenth Circuit Bankruptcy Appeals Panel, as well as two lower federal courts. The effect of holding that a showing of aggregate harm will not suffice to carry the jurisdictional burden in a § 549 avoidance action may be chilling to present avoidance actions, but establishing that the estate suffered a loss as a direct result of a particular transfer is certainly not outside the trustees’ collective wheelhouse. Because trustees must now scrutinize each postpetition transfer with greater specificity, Wood Treaters should ultimately prove positive for lenders and other creditors.