Danning Gill partner Zev Shechtman was quoted in Globe St. about construction firm Katerra Inc. that had bragged of “breaking new ground in the building industry.” But its recent bankruptcy filing in the Southern District of Texas was a more recognizable collection of issues including a potential over extension, pandemic-driven problems, questions about accounting procedures, and then tumbling support by wary investors complicated business as usual for the six-year-old company with nearly $3 billion invested in the startup.
“They had a vision, they borrowed a lot of money on the basis of this vision, then they sought to disrupt the construction industry,” Shechtman.
Globe. St. also reported that the pace of growth was one likely factor in the events. Acquisition and integration of businesses is a challenge to any company. A startup like Katerra doing more than three acquisitions a year is no exception. The positioning of the company may have played another role.
“There’s a lot in here about this financial problem and I think that’s going to be a big part of the story,” Shechtman says of the filing he reviewed. “There’s a lot to unpack here about what happened financially, which kind of business mistakes were made, what kind of lending mistakes were made, and institutional oversight.”
Danning Gill attorney, Aaron E. de Leest, prevails in the Ninth Circuit in a published decision on an issue important to Danning Gill’s trustee and debtor clients. In its decision, the Ninth Circuit held that the doctrines of issue preclusion and claim preclusion can be applied to deny a debtor’s amended claims of exemption. The Ninth Circuit went on to add that:
“[t]o hold otherwise would not only undermine the finality of exemption orders, but would considerably frustrate the trustee’s duty to expeditiously close the debtor’s estate. Debtors can amend their exemptions as a matter of course, Fed. R. Bankr. P. 1009(a), so if orders denying exemptions carry no preclusive weight, debtors could delay matters by claiming the same property as exempt time and time again. Debtors could also decline to meaningfully press their claims, and creditors would bear the brunt of such behavior, as the relitigation of resolved issues would drain estate—not to mention judicial—resources. Those burdens are precisely what the preclusion doctrines were designed to avoid, and they remain available to the bankruptcy courts when ruling on previously denied claims” (internal case citations omitted).
Danning Gill is pleased to announce that our Partner Zev Shechtman has been appointed President of the Los Angeles Bankruptcy Forum for 2021 to 2022. The LABF is the leading educational and networking resource for bankruptcy and insolvency professionals in the Central District of California, and particularly in Los Angeles, the San Fernando Valley and Santa Barbara. Zev is particularly excited about the LABF’s Diversity Equity & Inclusion Committee. The mission of LABF’s Diversity Equity & Inclusion Committee is to reflect our fundamental belief that diversity strengthens our practice and that all people deserve inclusivity, equity and a chance to have a seat at the table.
In light of the premier of the new seasons on ‘Real Housewives of Beverly Hills’ on Wednesday, May 19, Danning Gill Partner Zev Shechtman spoke with Variety about the risky move reality star Erika Jayne is making appearing on the show in the midst of her soon-to-be ex-husband’s legal troubles including his involuntary bankruptcy.
He told Variety, “If she even is under oath, she’ll have a lot of evidence against her that she’ll have to account for. So you don’t want your client out there making public statements. And her whole life is a public statement.”
Danning Gill welcomes Alphamorlai “Mo” Kebeh as an associate at our firm and as a newly admitted member of the State Bar of California! Mo is a 2020 graduate of UCLA Law School. On April 5, 2021, the firm, along with Mo’s friends and family around the country, had the unique experience of observing Mo’s swearing in ceremony, in which The Honorable Martin R. Barash, United States Bankruptcy Judge, administered the attorney oath, all via Zoom. The event was a reminder that, even as the pandemic has presented unprecedented challenges, it has also afforded special opportunities for people to connect.
Read about Mo, his recent publications and accomplishments here.
As Women’s History Month Comes to a Close, LABF Honored and Recognized Some of the Women Trailblazers in our Bankruptcy Community Who Opened the Door and Set the Path for Today’s Women Practitioners.
FIRST WOMAN BANKRUPTCY TRUSTEE IN THE CENTRAL DISTRICT
Sarah Danning was the country’s and the district’s first female bankruptcy trustee.
Danning began practicing law in Los Angeles a year after she graduated from USC Law School in 1923. In her later years, she recalled the gender discrimination she experienced early in her career, revealing advice she received while applying for her first legal jobs: Never tell any prospective hiring law firm that she was able to type, as law firms were likely to give her secretarial work rather than legal work.
One of her first jobs was with The Local Loan Company in Los Angeles. She later had an office in the Subway Terminal Building, which opened in Downtown Los Angeles in 1925 (designated Los Angeles historic cultural monument #177). She entered the practice of bankruptcy and became the country’s first female bankruptcy trustee.
One of six siblings, she passed her commitment to bankruptcy law on to her brother, Curtis Ben Danning. 17 years her junior, Mr. Danning later became one of the founders of the Danning Gill firm. Sarah Danning worked well into her 80s. After retiring from her practice as trustee, she made weekly visits to the Danning Gill offices, where she drafted wills for her own clients. A Danning Gill staff member who befriended Ms. Danning recalled her as a “spitfire” who always spoke her mind. Another member of the firm described her as “an exceptional woman, intelligent, humorous and kind.”
Sarah Danning was honored by the State Bar in 2003, when Ben Danning accepted certificates acknowledging the siblings’ respective 50 and 75 years of practice, as told in this State Bar posting: click here. Ms. Danning passed away later that year at the age of 100.
Variety 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?”
“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 Law.com’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.”
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.
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.
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.
