The VLW Blog

Michael Vick’s efforts to reorganize his finances through bankruptcy continues to be bogged down by difficulty in determining just what he has – and where it has gone.

The Daily Press has an account of yesterday’s hearing, which raised the possibility that family members will have to return money and gifts from Vick in the two years before he filed for protection.

There’s no question about the gifts to erstwhile financial advisor David Talbot. Bankruptcy Judge Frank J. Santoro ordered Talbot yesterday to account for jewelry and cash that Vick gave him. An $80,000 Mercedes already has been returned.

By Alan Cooper

That seems to be a key question for U.S. Bankruptcy Judge Frank Santoro as he seeks to make sense of Michael Vick’s financial affairs.

As reported in The Atlanta Journal-Constitution, Santoro has ordered a hearing on Sept. 5 to explore the quarterback’s finances.  Questions have arisen about the reliability of both Vick’s “trusted advisor” and his business manager, and the U.S. Trustee has moved to step in to protect Vick’s assets.

An earlier hearing, set for Aug. 22, concerns the status of Vick’s former advisor, David Talbot.  Santoro has ordered Talbot to appear.

Meanwhile there is talk that Vick, who has less than a year to serve on his dog fighting convictions, might be quarterbacking a team in the new United Football League in 2009.

Posted by Peter Vieth

In what his attorneys say is an effort to stop the financial bleeding, former pro football quarterback Michael Vick filed for Chapter 11 protection yesterday in Newport News. Bloomberg has an account of the filing, and we have the petition and a motion to extend the time to file a statement of financial affairs.

His attorneys, Paul K. Campson of Norfolk and Peter R. Ginsberg of New York, say the filing was precipitated by the efforts of Joel Enterprises, a sports agent, to collect on a $4.5 million judgment. Other creditors have been cooperative, but Vick and his financial advisor, David Talbot, have concluded that the petition is the best way “to avoid the judgment and its impact on other creditors. Now that it has been commenced, the bankruptcy case may be beneficial to creditors and the estate by providing a single forum in which the Debtor may effectuate a global resolution of all of the claims against him,” according to the motion to extend.

The bankruptcy also “may provide a mechanism for the Debtor to recover assets from certain third parties who may have taken advantage of the Debtor during the pre-petition period,” the motion says.

The petition lists assets and liabilities of between $10 million and $50 million. Vick is serving a 23-month prison term in Leavenworth, Kan., on a federal dogfighting conspiracy charge. After the charge was filed, the National Football League suspended him, and the Atlanta Falcons terminated his contract.
By Alan Cooper

Debtors’ lawyers left hanging by the “hanging paragraph” controversy for car buyers don’t have to hang around any more. And creditors don’t have to hang back.

Yesterday, the 4th U.S. Circuit Court of Appeals said that when a Chapter 13 debtor owes money for a car and surrenders the vehicle, but its sale nets less than the car buyer owed, a creditor can split its claim and pursue an unsecured deficiency claim against the car buyer.

The 4th Circuit panel acknowledged in Tidewater Finance v. Kenney that “a majority of bankruptcy courts in other circuits” – and several courts in Virginia – have concluded that the “hanging paragraph” in the 2005 amendments to the federal Bankruptcy Code protected a debtor from the creditor’s deficiency claim. That interpretation allowed debtors who purchased their vehicles within 910 days of the bankruptcy filing to surrender the vehicles in full satisfaction of the car debt.

In Kenney, the 4th Circuit reversed a Norfolk bankruptcy court’s approval of a Chapter 13 plan for Jennifer Kenney, who still owed over $5,000 on her 2003 Chevy Impala, and joined the 7th, 8th and 10th Circuits in holding that the creditor could still use state law remedies for the unsecured deficiency.

The court said the car debt, like Kenney’s other unsecured debts, didn’t necessarily have to be paid in full, “but it can’t be written off in toto while other unsecured creditors are paid some fraction of their entitlements.”
By Deborah Elkins

The nexus between debt and divorce has occupied the Virginia Court of Appeals this week.

In a published opinion out of Hanover County, the appellate court said in Marvin v. Marvin that a husband’s debt of attorney’s fees to wife in her proceeding charging violations of a court visitation order could not be discharged in husband’s bankruptcy, because the fee award to wife is “in the nature of child support.”

In Stacy v. Stacy, a wife tried to insulate the husband’s ongoing mortgage payments from a possible bankruptcy by calling them “in the nature of support” in the parties’ PSA. But a panel majority said the husband still could terminate the mortgage payments when wife admitted to cohabitation with another man. Judge Elizabeth McClanahan dissented in the unpublished opinion in the case out of Buchanan County, saying the parties expressly waived their rights to spousal support in the PSA and the trial court had no authority to terminate the husband’s obligation to a third party, the mortgage lender.

A former bankruptcy attorney was sentenced yesterday to a year and a day in prison for conspiracy to commit bank fraud.

Leslie W. Lickstein, 54, of Fairfax, was accused of preparing a false settlement statement in the sale of a property in Great Falls in July 2002.

As a result, Lehman Brothers Bank made a multimillion dollar home mortgage loan to a home buyer who was not creditworthy. The loan went into default, and the bank sold the property at a loss of $1.1 million. Lickstein was ordered to pay that amount in restitution.

Chuck Rosenberg, U.S. attorney for the Eastern District of Virginia, identified Lickstein as the first president of the Northern Virginia Bankruptcy Bar Association.

Lickstein’s license to practice law was suspended for five years in 2004 by the U.S. Bankruptcy Court in Alexandria and by the Virginia State Bar. He was found to have failed to disclose to the court a fact necessary to avoid assisting in a criminal or fraudulent act.

There is a legal story that’s been floating around the Internet that is worth pulling to ground and blogging about.

Last month a lawyer from a big firm in Chicago was handling a case in federal bankruptcy court in Miami. Lawyer is head of the bankruptcy section of said big firm.

The judge holds an emergency hearing. As reported in the court transcript posted by the legal blog Above the Law, said lawyer was not the most deferential to the judge. Judge seemed to be wanting to do something the lawyer didn’t like, so the lawyer told her, “I suggest to you with respect, Your Honor, that you’re a few French fries short of a Happy Meal in terms of what’s likely to take place.”

First, anytime you see someone preface a remark to you with the phrase, “with respect,” watch out. You’re about to do a turn as Rodney Dangerfield.

Second, Ronald McDonald is not recognized as much of a legal authority. He is, after all, a clown.

And third, if you insult a judge in open court, you do so at your peril.

Needless to say, the judge at whom the Happy Meal remark was aimed was not so happy. She issued a show cause to the lawyer, scheduling a hearing on why he shouldn’t be suspended from practicing in her court and have his pro hac vice admission revoked.

Above the Law broke the story; the Daily Business Review provides an update on the fallout for the lawyer and his firm. Among other developments, the client is no longer his client.

The show cause hearing is set for June 25. Stay tuned.

In case you’ve been waiting for a Virginia court to weigh in on the theory of “deepening insolvency,” that time has come.

The theory is a way of holding corporate directors liable for operating a financially strapped company in a way that only digs a deeper hole – penalizing them for not knowing when to quit.

“Deepening insolvency” has drawn a fair amount of academic debate since it first cropped up in the early 1980s, but the theory has been on the wane since a Delaware court rejected it last year.

U.S. Bankruptcy Judge Kevin Huennekens threw out the claim in a new case, In re James River Coal Co. (VLW 007-4-003). In JRCC, a coal company and its 21 subsidiaries sought to reorganize under Chapter 11. The trustee of a liquidating trust sued First Reserve, an entity that included major shareholders of the coal company and the managing general partner of the shareholder funds.

The trustee claimed that First Reserve and its directors, “by virtue of their overreaching, domination and control” over the debtors’ businesses, fraudulently or negligently “prolonged the corporation’s existence for more than three years.”

Huennekens said that application of the theory “would fundamentally transform Virginia law,” which does not require a financially challenged company to abruptly wind up its business and liquidate its assets.

“Simply because a business may be failing does not make the directors personally responsible for insuring the success of the business strategies they decide to pursue,” the bankruptcy judge said.