Can Alamo Drafthouse Battle Back From Bankruptcy and Lead a Moviegoing Revival?

March 31, 2021
Danning, Gill, Israel & Krasnoff, LLP partner Zev Shechtman
spoke with Variety regarding the movie theater’s bankruptcy.

“Alamo’s challenges mirror those of the entire cinema industry, which has just endured the most punishing 12-month stretch in its century-long history. Can it put its financial house in order while recapturing its pre-pandemic swagger? Will it be able to successfully remind customers of the fun they once had sipping a microbrew and munching on truffle popcorn while watching the latest Tarantino flick? Are its customers so eager to go out and socialize after a year of being housebound that they’ll see anything and everything that hits the big screen, or will COVID-19 prove to be the final nail in the coffin of the theatrical experience?”

Read more:  click here.

Leadership Perspective:
A Bankruptcy Boutique’s View of The COVID-19 Crisis’s The Mid-Market Report
February 26, 2021

“Changes in the economy drive bankruptcy filings, even absent major events like a recession or pandemic,” according to managing partner Eric Israel was featured in a Q&A in’s Mid-Market Report.  The profile was focused on the firm’s success and issues that impact mid-size firms.

In responding to the question about fostering the next generation of legal talent, Eric said, “The next generation is our future. We would all like to see our firms prosper long after we’re gone. To accomplish that, we need to groom our young folks, not just in substantive law (which is also important), but in the ethics of practicing law, marketing and law firm management. All are necessary for a properly working firm.”

Eric P. Israel, Attorney at LawFirm Name: Danning, Gill, Israel & Krasnoff

Firm Leader: Eric Israel, Managing Partner

Head Count: 10 attorneys

Locations: Century City (Los Angeles), California

Practice Areas: business bankruptcy, restructuring, insolvency, debtor-creditor disputes, fiduciary representation, related litigation, mediation

Governance structure and compensation model:  LLP

Do you offer alternative fee arrangements?  Yes, although most of our work is still on an hourly or fixed fee basis.

What do you view as the two biggest opportunities for your firm, and what are the two biggest threats? 

Ironically, first off COVID is proving to be an opportunity for my firm, as we are a bankruptcy boutique firm. Changes in the economy drive bankruptcy filings, even absent major events like a recession or pandemic. The world is presently experiencing significant economic changes with the shift to remote working that I predict will have many long-term ramifications. The transition from brick and mortar to online business that was already underway will only accelerate.  Manufacturers and even service providers will need to adapt or fail. This will also drive down rents for retail and office space, and in turn increase bankruptcy filings by landlords and lenders. Second, changes in technology drive increases in productivity, but they also can cause severe swings in the economy.  For example, the shift away from oil and gas to renewables is affecting the price of oil, which this year crashed and has only started recovering. We have also seen many retail bankruptcies where management failed to shift to online marketing soon enough.

In terms of threats, as a countercyclical practice, the volume of our business typically decreases as the economy grows. Longer periods of economic growth put pressure on insolvency-centered practices. Second, as a boutique law firm, we are only as successful as our relationships. A challenge for an older firm is to maintain strong connections with our historic commerce partners while continually expanding our referral base as both our rainmakers and our clientele age and eventually retire.

There is much debate around how law firms can foster the next generation of legal talent. What advantages and disadvantages do midsize firms have in attracting and retaining young lawyers, particularly millennials? 

The next generation is our future. We would all like to see our firms prosper long after we’re gone. To accomplish that, we need to groom our young folks, not just in substantive law (which is also important), but in the ethics of practicing law, marketing and law firm management. All are necessary for a properly working firm. We actively encourage our younger talent to join us at marketing functions and introduce them to ongoing clients to hopefully keep the relationship strong long term.

To read the full Q&A please click here. (Subscription required)


Recent Case Adds to Trend of Courts Allowing Bankruptcy Trustees to “Look Back” as Far as 10 Years to Avoid Transfers When the IRS is a Creditor

In the recent case of Mitchell v Zagaroli, 2020 WL 6495156 (Bankr. W.D.N.C. 2020), 2020 WL 6495156 (Bankr. W.D.N.C. 2020), the bankruptcy court ruled that a chapter 7 trustee under 11 U.S.C. § 544(b) could “step into the shoes” of the IRS as an actual creditor to avoid a fraudulent transfer of property occurring up to ten years prior to the petition date.

Under section 544(b) of the Bankruptcy Code, the trustee of a bankruptcy estate may “avoid” (or colloquially, “claw back”) certain transfers of property.  According to section 548 of the Bankruptcy Code, the reach back period for the trustee prior to the bankruptcy filing to avoid transfers is two years.  However, section 544(b) allows a trustee to avoid any fraudulent transfer “that is voidable under applicable law by a creditor holding an unsecured claim.”  Generally, this has been applied to a trustee employing avoidance powers under applicable non-bankruptcy law (i.e. State law), typically extending the look back period by a few years.  In Zagaroli, the Court ruled that, if the IRS is an unsecured creditor of the bankruptcy estate, the look back period may extend to ten years prior to the petition date.

In Zagaroli, the debtor allegedly transferred multiple parcels of real property to his parents for no consideration in December 2010 and June 2011.  In May 2018, the debtor filed a chapter 7 petition.  The IRS filed a proof of claim in the debtor’s case.  Thereafter, the trustee filed an action to avoid the debtor’s 2010 and 2011 transfers to his parents.  The trustee claimed that section 544(b) allowed the trustee to use section 6502 of the Internal Revenue Code to avoid transfers as far back as ten years before the debtor’s petition filing.

To determine the merits of this claim, the court relied on the plain meaning of Bankruptcy Code section 544(b).  As the IRS had an unsecured claim in the debtor’s estate, the court determined that the plain language of section 544(b) allowed the trustee to “step into the shoes” of the IRS (an “actual creditor”) and use section 6502 of the Internal Revenue Code to avoid the debtor’s real estate transfers.  To support this conclusion, the court relied heavily on In re Gaither, 595 B.R. 201 (Bankr. D.S.C. 2018), which determined that section 544(b) similarly permitted the trustee to step into the IRS’s shoes and that courts should not look beyond the plain meaning of this provision.  Zagaroli cited other cases as well and characterized this as the “majority rule.”

It does appear that the majority of cases in the nation ruling on this issue have come to the same conclusion as Zagaroli, though some courts have disagreed.  For example, in In re Vaughan Co., 498 B.R. 297 (Bankr. D.N.M. 2013), the court relied more heavily on congressional intent and determined that a trustee should not be permitted to use the unique powers of the IRS.  The Vaughan Co. court opined that the federal government was not meant to be used as a “mere conduit for the enforcement of private rights which could have been enforced by the private parties themselves.”  Id. at 304 (citing Marshall v. Intermountain Elec. Co., 614 F.2d 260 (1980)).  Thus, under this court’s analysis, a trustee could step into the IRS’ shoes but would still be barred by the state’s statute of limitations, unlike the IRS.  Id. at 305.

Despite the few opposing decisions, the holding in Zagaroli suggests that courts are continuing to extend trustees’ avoiding powers by extending the look back period when the IRS is an unsecured creditor of the bankruptcy estate.  At this time, however, there is no binding authority on this issue from the Ninth Circuit.

How a bankrupt fleet now has 100 drivers

Transport Dive
February 10, 2021

Before the pandemic, the trucking industry faced rising costs, evolving compliance mandates and multiple other challenges.  Many fleets struggled; some filed for bankruptcy — according to Broughton Capital, 640 of them in the first half of 2019.

Then, along came COVID-19, and many of the smaller trucking companies couldn’t pivot as fast as the larger ones, to meet the demand for essential goods.

They didn’t have the right equipment, enough trucks, good contacts.  So, they lost out, and many went out of business in 2020.  What would have happened if these smaller trucking fleets had instead filed for Chapter 11 bankruptcy?

It depends, said Zev Shechtman, a partner at Danning, Gill, Israel & Krasnoff.  “What happens hinges on how the company is situated — if it’s still allowed to operate, has the cash to operate and how deep in the hole the fleet is,” Shechtman said.

To read more insights from Zev in this  article, click on the link here.

Debtors Beware: Exemption Planning in California Now Subject to Challenge

Nearly two decades after the Ninth Circuit ruled that debtors could protect their assets from creditors by converting them to exempt status before they file for bankruptcy, the Court of Appeals for the Second District of California has determined that such a transmutation may be challenged as a fraudulent conveyance under California law.

In Nagel v. Westen, 59 Cal. App. 5th 740 (2021), Nicole Nagel (“Nagel”) received a 4.5 million dollar arbitration award against Tracy Westen and Linda Lawson (“Sellers”) as a result of the Sellers’ failure to disclose material facts about a home they sold to Nagel.  To protect their assets, the Sellers applied the proceeds of the sale to a home in Texas (with a high homestead exemption) and a variety of investments in Nevada and Minnesota.  In response, Nagel sought to unwind those transactions under California’s Uniform Voidable Transactions Act (“UVTA”).

The primary issues before the court were: (a) whether the Sellers’ transactions constituted “transfers” within the meaning of the UVTA, and (b) if they were transfers, whether those transfers were fraudulent.  The trial court dismissed the claims as failing to state a claim for relief, and this appeal followed.  The appellate court noted that the UVTA defines “transfer” as “every mode . . . of disposing of or parting with an asset or an interest in an asset.” Cal. Civ. Code § 3439.01, subd. (m).  The court in Nagel determined that physically relocating property and transmitting sale proceeds out of state and then transmuting the proceeds into a different form is a mode of “parting with assets,” constituting a transfer per the definition in the UVTA.  Nagel, 59 Cal. App. 5th 740.  To support its reasoning, the court further explained that manipulating property to evade creditors would contravene the UVTA’s stated purpose “to prevent debtors from placing, beyond the reach of creditors, property that should be made available to satisfy a debt.”  Nagel distinguished as dicta language from the California Supreme Court in Kirkeby v. Superior Court, 33 Cal. 4th 642, 648 (2004), that a “transfer” requires the conveyance of an interest to a third party.  Id. at 648.

We believe that the decision in Nagel does not bear on the Supreme Court’s decision in Law v. Seigel, 571 U.S. 415 (2014).  There, the Supreme Court ruled that trustees may not rely on federal law to deny an exemption on grounds outside the scope of the Bankruptcy Code, but they may apply state law to disallow state-created exemptions.  Id. at 425.  It does, however, conflict with the Ninth Circuit’s ruling in Gill v. Stern (In re Stern), 345 F.3d 1036, 1045 (9th Cir. 2003), which held that the conversion of a debtor’s assets from non-exempt to exempt status on the eve of bankruptcy is not sufficient to qualify as a fraudulent transfer as a matter of law.

This decision could significantly affect a debtor’s strategies before filing for bankruptcy.  The practice of exemption planning, whereby debtors organize their financial assets to maximize the amount of property protected in bankruptcy, must be done more circumspectly following Nagel.

Daily Journal Article on Bankruptcy Venue Reform

November 23, 2020
By Zev Shechtman, et al.

It’s time for Congress to address bankruptcy venue

What do the Dodgers, American Apparel, Rubio’s Fish Tacos, California Pizza Kitchen, MGM Studios, and Pacific Sunwear have in common?  Each is an iconic Southern California brand.  But that’s not all they have in common.  These companies are members of a growing list of California companies that strategically elected to file for bankruptcy outside of California.  By filing for bankruptcy in faraway states, they deprived local employees, vendors and creditors from participating in the bankruptcy process.  Read more —


Danning Gill Represents Chapter 11 Trustee
in California Oil and Gas Bankruptcy & Sale

LOS ANGELES – Danning, Gill, Israel & Krasnoff, LLP represented  Michael A. McConnell, the Chapter 11 trustee (the “Trustee”) for the estate of HVI Cat Canyon, Inc. (“HVI”), which owned approximately 1,000 oil wells, most of which were idle or not performing.  The $26.75 million sale of the oil and gas assets located in Santa Barbara and Kern Counties closed on October 26, 2020.  HVI is affiliated with Rincon Island Limited Partnership that went through its own bankruptcy commenced in 2016.  The Trustee also closed a second sale for oil wells located in Orange County.  The Trustee was represented throughout by Danning Gill Partner Eric P. Israel.

The HVI bankruptcy case was filed in the Southern District of New York on July 25, 2019, transferred to the Southern District of Texas, and then transferred to the Northern Division of the Central District of California.  The Bankruptcy Court directed the appointment of a Chapter 11 trustee on motion by the State of California and others.  The Trustee was able to procure post-petition financing via a series of loans from the main creditor, UBS AG, and ultimately borrowed approximately $13.5 million.  With those funds, the Trustee operated the company for approximately one year.  During that time, the global price of oil crashed due to a price war between Russia and Saudi Arabia, and the effects of the COVID pandemic on global demand for crude oil.

In order to improve marketability of the company, the Trustee converted the company into a stand-alone vehicle instead of being part of a conglomerate of affiliated entities.  As part of the process, the Trustee rejected contracts with insiders and affiliates that had provided office space, equipment rentals, back office services and even sales of its product, replacing those arrangements with insiders and affiliated entities to third party vendors at market prices.

According to Mr. Israel, “The sale was complex, requiring settlements with numerous diverse parties in interest, including over 500 mineral owners, numerous governmental regulatory agencies and several secured creditors, and the County of Santa Barbara for many millions of dollars in real property taxes owed.  Ultimately, the mineral owners agreed to waive pre-petition back royalties of about $13 million in order to procure a responsible new operator.”

UBS was represented by O’Melveny & Myers, LLP.  The Official Committee of Unsecured Creditors was represented by Pachulski, Stang, Ziehl & Jones, LLP.  CR3 Partners was the Trustee’s financial analysts.

Ravn Alaska’s Emergence from Bankruptcy

From Float Alaska to the New Ravn—Acquiring Alaska’s Largest Regional Airline through Bankruptcy During the COVID-19 Pandemic

In March of 2020, Ravn Air Group, Inc. and its seven affiliates (collectively, Ravn) comprised the largest regional air carrier in the State of Alaska.  Ravn had 1,300 employees, 72 aircraft, 21 hub airports, and 73 facilities serving 115 destinations in Alaska, with 400 daily flights.  In addition to transporting passengers throughout the state, Ravn provided logistics, mail, charter, medical and freight air services in Alaska.  Ravn operated two Part 121 FAA certificates, and one Part 135 FAA certificate.  The Ravn affiliates were assembled and owned by a group of private equity firms and other investors.

In 2015, Ravn entered into a secured credit agreement with secured lenders for a term loan of up to $95 million and revolving loans of up to $15 million.  In March 2020, Ravn owed the secured lenders approximately $91 million.  All of Ravn’s assets were pledged as collateral to secure the loans.

Due to the seasonal nature of Alaska air travel, Ravn relied heavily on spring and summer bookings.  In March of 2020, the COVID-19 pandemic upended the business.  By March 12, 2020, the World Health Organization declared COVID-19 a pandemic, and the first case of the virus was announced in Alaska.  Travel restrictions, cancellations and decreased booking resulted.  By March 20, 2020, the State issued a travel advisory to cease all non-essential travel.  By the end of March 2020, Ravn lacked cash to fund operations, including payroll.

On April 5, 2020, the eight Ravn entities filed for chapter 11 bankruptcy protection in Delaware bankruptcy court.  The Ravn debtors obtained superpriority secured financing from their prebankruptcy lenders, with such debt being repaid ahead of other debts, and a limited budget available for the administration of the bankruptcy cases.  The debtors originally sought to reorganize in chapter 11 utilizing funds made available under the CARES Act, but the debtors’ secured debt burden proved too great.

The debtors’ agreement with their DIP lenders required an accelerated timeline to confirm a liquidating chapter 11 plan.  The plan also allowed for sales of assets under section 363 of the Bankruptcy Code outside of a liquidating trust, so long as the secured lenders consented to the sale.

The debtors started a sale process, with the initial intent of selling the entire business as a going concern.  The debtors solicited bids.  However, no bidder submitted a bid that the lenders deemed adequate to acquire all of the assets of the debtors.  Accordingly, the debtors sold the Ravn assets in over two dozen lots, comprised of aircraft, ground support equipment, real estate, parts and equipment, contractual rights and other personal property.

FLOAT Alaska, LLC is a company founded by Josh Jones, a startup incubator manager and investor, Tom Hsieh, an engineer and social entrepreneur, and Robert McKinney, a veteran regional airline executive.  The team previously founded FLOAT Shuttle, Inc., focused on the Southern California market.  The FLOAT Alaska team viewed the Ravn going concern sale as a unique opportunity to provide essential air services to the rural communities of Alaska and to return much needed jobs to the region.  The team also understood that a successful going concern acquisition would be accompanied by the CARES PSP grant of at least $15 million which would be used to rehire personnel and other startup costs.

The FLOAT team completed extensive due diligence on the company and its assets.  The team worked diligently to submit a qualified bid satisfying the numerous operational, financial, and procedural requirements to acquire a commercial airline.  FLOAT participated in a multiday auction with numerous competing parties vying for the going concern business.  It was a complex process where the debtors repeatedly divided, and re-divided, their assets in efforts to maximize the value.  The debtors went so far as to expressly instruct bidders to “bid against themselves,” by asking bidders to increase their offers for various assets, some of which had only one bidder.  The FLOAT Team worked indefatigably to adjust its bid to meet the requirements of the court, the debtors and creditors.

FLOAT’s ultimately successful bid for the key assets of Ravn’s passenger business was $8 million, with a waiver of major contingencies, and a firm commitment to an early and expedited closing process.  The core assets FLOAT sought to acquire included the corporate name, intellectual property and goodwill, Ravn’s Part 121 certificates, and a core fleet of six Dash-8 aircraft.  The debtors concluded that FLOAT’s carefully crafted bid was the best and highest bid for the going concern business.

In addition to the initial aircraft purchased, FLOAT acquired essential ground support equipment and several important real properties, including the debtors’ main hangar and training facility.  The FLOAT team utilized an interdisciplinary team of attorneys specialized in bankruptcy, corporate laws, aviation, and CARES Act financing, led by restructuring attorney Zev Shechtman of Danning Gill.  Because of the vision and perseverance of FLOAT’s outstanding leadership team, they were able to rapidly transition  from bidders to owners and now operators of Ravn Alaska.  The company has hired or rehired over 200 employees, and it plans to grow further.  The New Ravn will resume commercial passenger travel by the end of October. 


Wave of Bankruptcies Washes Over Los Angeles Businesses

Los Angeles Business Journal

October 12, 2020

John Tedford, partner at Danning Gill Israel & Krasnoff spoke with the Los Angeles Business Journal (LABJ) for an article about various industries hit hard financially by the COVID-19 pandemic.

One industry discussed is hospitality. According to the LABJ, there were 747 Commercial Chapter 11 filings recorded nationwide in September, a 78% increase over the same month in 2019, according to New York-based research firm Epiq Systems Inc. With a total of 5,529 filings during the first three quarters of 2020, Chapter 11 commercial filings are up 33% over the same period last year.

“The hotel space is really hurting,” said Tedford. “They aren’t receiving the revenues that they need from their hotels … and their lenders have decided enough is enough. I’m guessing that that case will get filed in and about in a couple weeks in Delaware.”

Tedford added that restaurants are also in a vulnerable position, but many may disappear without filing for bankruptcy.

“The restaurants generally are just leasing, and I think a lot of them, it’s better just to shut down, so we won’t necessarily see bankruptcy filings for them,” Tedford said. “I’m surprised that we haven’t seen more restaurants closed permanently. I don’t know how they can go this long without having sustained revenues at high levels. It doesn’t look like California is just going to be allowing full occupancy anytime soon.”

To read the full article, click here.