Health Care Bankruptcy: A Primer of a Provider’s Chapter 11 Case

By David A. Samole

Various factors including increased competition and reimbursement landscape challenges have led hospitals and other healthcare providers to file for bankruptcy over the last few years. For the remainder of 2017, due in part to the current uncertainty in the healthcare industry and its legislative oversight, more financially distressed providers are considering Chapter 11 bankruptcy to effectuate closures, consolidation, restructurings and related transactions. The following are some of the aspects of bankruptcy specific to healthcare providers that they need to consider when weighing this decision.

Additional Parties and Issues in Healthcare Provider Chapter 11 Cases

A.        The Patient Care Ombudsman

Healthcare provider bankruptcies differ from ordinary Chapter 11 cases, as they address unique issues regarding patient care, record keeping and privacy rights, at times with intermediary oversight by a court-appointed patient care ombudsman. The Bankruptcy Code requires the appointment of a patient care ombudsman within 30 days after commencement of a “health care business” bankruptcy case, unless the court finds that an ombudsman is not necessary for the protection of the patients under the circumstances of the case.1 The ombudsman must report every 60 days regarding the quality of patient care, based on onsite inspections, quality control reports and other review mechanisms. The fees of the ombudsman are paid by the bankruptcy estate and are entitled to administrative expense priority. Generally, appointment of an ombudsman is more frequent with operating Chapter 11 providers and less frequent with liquidating providers, where the court takes a cost-benefit analysis between the need for patient care oversight (for those Chapter 11 providers still operating) against the financial condition of the bankruptcy estate.

B.        Government and Private Insurance Company Payors

Healthcare provider bankruptcies are complicated by disputed bankruptcy court jurisdiction over the provider reimbursements and payor claims reconciliation process relative to exhaustion of administrative remedies, the automatic stay, and setoff and recoupment rights, as well as disputing the treatment of provider agreement obligations in free and clear sales and/or assignments of executory contracts under Sections 363(f) and 365 of the Bankruptcy Code.

i.          Pledging Government Receivables as Collateral

Many times receivables owed from a payorare pledged as collateral to a provider’s lender, similar to when a bank takes a mortgage as collateral for providing a home loan. Pledged receivables raise issues in the government payor context. Exercising remedies on government accounts receivable is complicated because the receivables are subject to related federal and state “Anti-Assignment Rules” affecting Medicare and Medicaid healthcare programs. These Anti-Assignment Rules require that Medicare and Medicaid payments be made only to a deposit account over which the healthcare provider has sole control.2Any attempt by a provider to assign these receivables in violation of the Anti-Assignment Rules may result in the termination of the provider’s participation agreement in the Medicare and Medicaid programs. Such termination would de-stabilize the provider’s flow of revenue, making reorganization much more difficult, if not impossible. However, many parties have enacted a successful work-around mechanism in which the government receivables are deposited directly into a provider’s bank account, and then the government payments are subsequently swept daily into a second deposit account under the lender’s control. Upon a provider bankruptcy filing, however, a lender must stop the automatic sweep of cash from the provider’s account due to the Bankruptcy Code’s automatic stay. The automatic stay works by operation of law without any further court order as an automatic injunction in place as of the petition date against creditor lawsuits and collection efforts as to Chapter 11 entities and their property.3 As such, it is advisable for Chapter 11 providers and their lender to enter into cash collateral agreements subject to bankruptcy court approval, which typically provide for adequate protection payments and a negotiated budget.

ii.         A Fight Over Where to Fight with Payors

Outside of bankruptcy, the federal government and its contractors routinely withhold Medicare and Medicaid payments upon determination that a healthcare provider has been overpaid on a prior unrelated reimbursement claim. Under 42 U.S.C. § 405(h), federal courts may take jurisdiction over Medicare disputes only after a party exhausts applicable appeal processes within the Medicare system. The federal courts are split regarding the plain language of 42 U.S.C. § 405(h), as it relates to bankruptcy courts’ jurisdictional limitations, thus impacting a provider’s protections in Chapter 11. Some Circuit Courts of Appeal have determined that a requirement to exhaust administrative remedies is inapplicable in bankruptcy cases; others have found that exhaustion of administrative remedies applies even in federal bankruptcy court.4 A provider in bankruptcy currently has a petition on file with the United States Supreme Court for certiorari review of this issue.5

Forum disputes also exist between network providers in bankruptcy and their private insurance payors, as most contracts contain arbitration clauses and administrative remedies provisions. There is some disagreement by courts as to the enforcement of arbitration clauses in the bankruptcy context.6

iii.        Payor Take-Backs as Setoffs or Recoupment

The government system regarding Medicare and Medicaid payments differs meaningfully from private insurance company payments. Government payments to many providers are made on an interim basis under a prospective reimbursement system, which results in payments before a determination that the services rendered are covered and costs are reasonable. Due in large part to the prospective payment system, more courts than not find that the subsequent take-backs are permissible recoupments as part of a single, integrated and ongoing transaction between the government and the payor.7In the private insurance company setting, payments are not made on a prospective reimbursement system; instead claims are vetted and approved prior to initial payment. Yet there are instances of payment error which trigger requests for overpayment reimbursement. Many insurance company payors resort to unilateral take-backs where they apply their asserted reimbursement overpayment against a more recent valid claim of an unrelated patient. Because private insurance company payments are not made on an integrated, prospective reimbursement system like government payors, the private insurance company payors seemingly have a weaker argument to support that these take-backs are recoupments instead of a setoff. This distinction between calling a take-back a setoff or recoupment is important because setoffs are subject to the Bankruptcy Code’s automatic stay, and generally setoff obligations fall within claims that can be sold free and clear in bankruptcy sales merely attaching to sale proceeds, but not applied against a bankruptcy purchaser of a provider license. In addition, setoff may not be permitted by the Court, as violating the Bankruptcy Code’s temporal aspects concerning mutuality of obligation – when the alleged overpayment itself occurs prior to the bankruptcy filing, but the takeback would occur after the bankruptcy filing. Recoupments, however, are not subject to the automatic stay nor the distribution scheme for creditors, and may not be discharged in a bankruptcy sale or plan confirmation. However, payor recoupment actions remain an equitable defense remedy subject to judicial determination upon challenge by a provider.

iv.        Sales of Provider Numbers Free and Clear of Government Payor Claims

The relationship between the Medicare/Medicaid programs and providers is captured in a written provider agreement, which affords providers a license/number to participate in the Medicare/Medicaid reimbursement program. A dispute arises when the provider seeks a sale of assets in bankruptcy, including the provider number. The government’s general position in bankruptcy is that the provider agreement is an executory contract subject to the Bankruptcy Code requirement that its obligations (the overpayments) must be cured before it can be assumed and assigned to a purchaser/assignee.8

Providers and purchasers tend to argue that the provider licenses/numbers are not executory contracts and are licenses/assets that can be sold free and clear of the overpayment obligations existing at the time of the sale. The general rationale is that the provider license is not a negotiated agreement like most contracts, but is a regulatory form application that is completed and approved by the government. Also, a ruling requiring a cure prior to assumption/assignment or of potential successor liability either would block the sale or greatly diminish the value of the assets, impeding an ability to maximize value for case constituents. However, even if the provider license is not deemed to be an executory contract, if the overpayment recovery actions are deemed a recoupment, then more bankruptcy cases than not hold that a bankruptcy sale still could not extinguish that claim against the purchaser.9 Because of this issue, often settlements are reached and work-arounds are accomplished, such as setting up a portion of the sale proceeds in escrow or setting up a waterfall overpayment recovery scheme: first from the sale proceeds, then other bankruptcy estate funds on hand, and finally perhaps a budgeted annual-capped amount from the purchaser.


Healthcare provider Chapter 11 cases are multi-faceted and include additional parties and issues than standard Chapter 11 cases. A financially distressed provider considering Chapter 11 is best served to find a properly vetted stalking horse deal partner prior to filing the case and engage in meaningful discussions with its payors and lenders, if possible. Providers should aim to move the case to the sale and Chapter 11 plan process expeditiously where the jurisdictional, license and setoff-recoupment issues can be teed up and addressed in short order, during which time patient care can be properly maintained pending litigation and further settlement discussions with the creditor constituents.

David A. Samole is a Partner at KozyakTropin& Throckmorton, LLP in Miami, Florida. He focuses his practice on healthcare litigation, corporate bankruptcy and insolvency-related litigation matters. He represents healthcare providers in disputes with managed care companies and government payors as well as parties in corporate reorganizations, liquidations, workouts and financially distressed transactions. He may be reached at

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Wedding gown chaos: As Alfred Angelo closes all stores, here’s what brides-to-be can do

By Hannah Madans

Bride-to-be Darlene Mejia, 27, was waiting nervously Friday morning outside the closed Alfred Angelo store at Tyler Street and Magnolia Avenue in Riverside.

Her $1,800 dress, a strapless white gown with a full skirt and beaded bodice, was paid for and at the shop to be pressed for her wedding Saturday, July 15.

Mejia was in disbelief when she got a 6 a.m. text from her mother.

“The store’s closed,” she told Mejia. “You better go see if you can get your dress.”

She tried the phone numbers listed on a memo taped to the shop door, but only got recordings. She wondered why someone from the store didn’t call her Thursday when they were still open.

Alfred Angelo, one of the world’s largest manufacturers and retailers of wedding gowns, closed all 60 of its U.S. stores as it filed for Chapter 7 bankruptcy. The retailer, known for its Disney-themed designs, also has partnerships with some 1,400 retailers.

“I’m really trying to stay calm, but all the money we put into these dresses,” Mejia said. “I don’t know what I’m going to do.”

Brides or bridal parties who have been impacted by the sudden closures have been advised to contact attorney Patricia A. Redmond with the Miami, Fla.-based law firm Stearns Weaver Miller Weissler Alhadeff&Sitterson.

Redmond told the Sun-Sentinel in Fort Lauderdale, Fla., that she will work with a court-appointed trustee to release bridal dresses being held by the stores. In a telephone interview, she said had received more than 3,500 emails from panicked brides.

Tory Dean, a manager with The Dresser Bridal Couture shop in Fullerton, said she figured something was up before the stores abruptly closed.

“We kind of got wind about it last weekend,” she said. “We had a couple walk in the door who had gone to an Alfred Angelo store in Brea by the Brea Mall, and they said that store was no longer able to order dresses — everything in the store was discounted. So they came and shopped with us.”

For Redlands bride-to-be Brenda Taylor, 37, the frustration and disappointment have led her to consider canceling her July wedding next summer.

After looking for a dress for a year, she finally found one at Alfred Angelo’s Riverside store that she liked and that came in her size – the Jasmine gown from the Disney collection. Taylor had paid for most of it and was going to complete the purchase when the dress was ready this fall, she said.

After learning the company had shut down, she tried calling different stores and rushed to one in Ontario because the phone number still worked, only to see a rack of dresses inside the locked doors, she said.

Taylor said she thinks it’s unlikely she’ll get her deposit back.

“I worked so much overtime just to pay for that. That’s like $1,000 gone, Taylor said. “I’m almost to the point where I’m saying forget the wedding.”

For rapidly approaching weddings, brides and customers of Angelo’s may be out of luck.

Corali Lopez-Castro, a partner at KozyakTropin& Throckmorton, has handled retail bankruptcies in the past.

All decisions about dresses, she said, are up to a trustee, not the company, in a Chapter 7 filing, which indicates an asset liquidation vs. a Chapter 11 restructuring.

“It would seem to me that the better course of business would be to release the dress to the customer,” Lopez-Castro said. Not doing so, she said, would be a “public relations nightmare and frankly chaos.”

Ron Friedman, a CPA and retail expert at Marcum’s Century City office and co-leader in the firm’s National Retail & Consumer Products Industry group, thinks the brides will get their dresses.

“I would be surprised if a judge didn’t give them their inventory,” he said. “It would be unusual to punish the consumer or the public. The owners of the company and the suppliers and the landlords will take the major hits.”

For any rapidly approaching weddings, Lopez-Castro suggests going to “Plan B.”

“The trustee is going to need some time to figure things out,” she said.

“I hope nobody has a wedding this weekend,” Friedman added. He said the judge and trustee would work together to make these decisions.

If a creditor has a lien on the inventory, they may choose to re-sell the dress, Lopez-Castro said. The Alfred Angelo customer could file a claim, but it “will not be worth very much.”

Anaheim resident Victor Esquivel’s fiancé Airam Arroyo put a deposit on an Alfred Angelo dress at Brea Mall, where a small scuffle broke out Friday between employees and anxious customers.

She texted him today, scared, after hearing the store had closed, Esquivel said.

The two did not go to the store to see what was going on. “There’s no point in going if the store is closed,” Esquivel said.

The two were fearful they wouldn’t have enough money for another one if they didn’t get money back for the lost dress.

“We have so many bills right now. We can’t afford another dress. It’s very stressful,” Esquivel said.

Lopez-Castro said he may be in luck as it was likely the trustee would allow customers to pay the balance instead of selling the dress in a liquidation sale. But the decision would be up to the trustee.

Friedman had a different take. The CPA said these customers would likely be treated as creditors, likely in a preferred class, because “they have deposits on a dress they are never going to get.”

Kristin Laterreur, a 32-year-old Fullerton resident, bought her gown at an Alfred Angelo location in Beverly Hills for her Nov. 3 wedding.

She heard the store had closed on social media and quickly went to the store to see if she could pick up her dress, which was in the store for alterations.

She became frustrated at the store when nobody was there or had any information for her. Other anxious customers were at the store as well.

“A couple hours ago I was crying a lot,” Laterreur said. “I’m at the point where there’s not much else I can do. I just want to know if I need to start over.”

By midday, her mood had improved as she waited to get more information.

A group of about a dozen concerned customers also gathered in front of the Alfred Angelo Bridal shop in Rancho Cucamonga on Friday morning.

A sign on the door of the store at 11540 4th St. provided the email address for concerned customers to get more information.

Angry customers said they were frustrated they were not warned of the closure, and many were expecting a store representative to meet with them when store opened at 11 a.m.

Edith Enriquez of San Bernardino was among the crowd. Enriquez said about $1,400 had been spent on her daughter’s wedding dress, which was to be ready next month.

“They called her and they had her pick up her veil and they said, ‘don’t worry, we’ll ship your dress,’ but they never told her about the situation … it came out on the news,” Enriquez said. “We have that money invested in this dress, so in order to start looking somewhere else, we need that money to start again.”

Alma Alvarez, of Ontario, was also at the store Friday to see if she could pick up her daughter’s bridal gown, worth $2,500.

“It’s really sad because the girls have their dream of getting their dresses, and it’s so hard for them to earn money to pay for the dresses, so it’s hard for me to see the news of their closing,” said an emotional Alvarez. “My daughter called me to go and pick up the dress if I could.”

Help for brides

Affected customers looking to get a dress elsewhere may be in luck as some competitors are offering deals.

David’s Bridal will offer people with an Alfred Angelo receipt 30 percent off wedding dresses, 20 percent off bridesmaid dresses, rush fees waived and alteration services for Alfred Angelo dresses.

Pebbles Bridal, which has locations in Woodland Hills and Orange County, is also offering aid to Alfred Angelo brides.

“We know the abrupt shutdown of all Alfred Angelo stores has left many of you without a gown for your big day and we truly feel for you. Stay calm. We got this,” the group wrote in an Instagram post. The company said customers with an unfulfilled Alfred Angelo gown or bridesmaid order can contact Pebbles Bridal locations for information on new orders and off-the-rack options.

Other retailers jumped in, too:

“If you have your measurements we may be able to help, we just launched our online store and have many designers who will go above and beyond to help those who have been left high and dry,” wrote Garth Hewitt from Timeless Bridal on Alfred Angelo’s Facebook page.

After hearing about the situation, bridal gown alterations specialist Renee Young, who went to the shop in Rancho Cucamonga, said she’s reaching out to help anyone in a bind because of the closure.

“I’m offering to help out any bride that needs help (with a dress),” said Young, who said she could be reached at her home business at 909-994-8463. “They’re frantic getting their gowns. Because it’s going to be a long process, I’m offering anything they might need to help with their wedding. I also have gowns for them to purchase under 100 dollars.”

Here’s how to contact the lawyer for Alfred Angelo:

Patricia A. Redmond, Esquire
Stearns Weaver Miller
150 West Flagler Street
Miami, Florida 33130
Phone: 305-789-3553
Fax: 305-789-3395

Click here for the original article.

Florida’s New PPO Balance Billing Prohibition: Outlook for Providers and Patients

By Maria D. Garcia

“Florida’s New PPO Balance Billing Prohibition: Outlook for Providers and Patients,” South Florida Legal Guide 2017 Edition.

Substance Over Sizzle

The secrets behind the success—and longevity—of four Southwest Florida restaurants.

By Elizabeth Kellar

For food lovers, Southwest Florida can be a place rich in tasty cuisine, locally sourced ingredients and unforgettable tropical settings in which to wine and dine.

But anyone who has ever spent time on the other side of the table knows that running a restaurant is hard work, a task made even more challenging by the boom-and-bust cycle of the Southwest Florida tourist season. Yet some local restaurateurs seem to have the magic touch, a special ability to attract guests, send them out with a satisfied smile, and entice them back again and again. So what do these epicurean entrepreneurs know that others in their industry don’t?

Even David Rosendorf, a partner at Miami-based law firm KozyakTropin& Throckmorton, admits such wisdom can be difficult to pinpoint. The firm has a special focus on bankruptcy cases—including restaurant bankruptcy—and Rosendorf explains that in the past six months, he has seen a wave of restaurants file for Chapter 11 bankruptcy protection. Some of the most legendary eateries in the country have felt the sting of financial failing: In March, New York City’s famed Le Cirque, founded in 1974, filed for Chapter 11.

More and more, a restaurant that has survived more than 10 years is rare— “practically a unicorn,” Rosendorf explains. “For that mature restaurant, it becomes increasingly difficult for them to adapt and survive.”

Nationally, 60 percent of restaurants fail in the first three years—slightly fewer than 30 percent within the first year, roughly 19 percent in the second year and about 11 percent in the third year, according to a Cornell University study conduction by R.G. Parsa, Ph.D., who is now with the University of Denver Daniels College of Business. The numbers are cumulative percentages for chain and independently owned businesses.

But Southwest Florida doesn’t lack for its share of culinary landmarks, restaurants that have become near-fixtures on the dining landscape. Among those are The Veranda in Fort Myers, The Mucky Duck on Captiva Island, Bleu Provence in Naples and Ridgway Bar & Grill.

Want to know what makes a restaurant cook? Read on, and savor the secrets to success.

Know Your Niche

Fort Myers was a different town when Paul Peden bought the property that would eventually become The Veranda. It was 1978, and the number of restaurants in the area was few. No one had yet imagined meal delivery services, and big grocery chains weren’t offering a vast array of gourmet, ready-to-eat prepared meals, either.

All of those eventually arrived, creating more options for hungry diners—and more competition for upscale eateries such as The Veranda.

But The Veranda’s lasting popularity has been buoyed by what Peden explains is a clear understanding of its spot in Fort Myers. As local diners have more and more choices in how they eat, Peden says the secret to The Veranda’s long-term success hasn’t been about being trendy, but about keeping consistent.

“You’ve got to figure out what your niche is and stay in it. You can’t please everybody,” Peden says. “We try to stay true what we do at The Veranda, because it’s a unique product.”

White tablecloths, a gracious courtyard and a historic setting all combine to create an unmistakable Veranda experience, but so too does the professionalism of its wait staff, many of whom have been with the restaurant for more than a decade. The talents of the employees are another reason the restaurant has been such a long-term success, Peden says. (Paul Peden and his son Craig Peden also own and operate the Rib City barbecue restaurant chain.)

And although Peden says The Veranda knows consistency is key to its continued prosperity, that doesn’t mean the restaurant doesn’t reach for innovation where it fits. They’ve embraced social media, using Facebook to showcase the restaurant and its offerings, as well as special events and happy guest news, such as engagements and anniversaries that take place at the restaurant.

That push into social media is also helping The Veranda connect with the next generation of clients. After 40 years, the Veranda has become a multi-generational restaurant, Peden says, one where it’s not unusual for guests to say, “I came here with my parents and now I’m bringing my children here.” Making gentle tweaks to the menu to satisfy changing tastes is necessary, Peden notes, but those guests are coming to enjoy the same experience they had as youngsters, to make new memories with their family.

For that reason, Peden describes The Veranda as “evolving,” a place where the change is subtle, not chaotic.

“You can’t live in the past,” he says. “There’s no time you can say you’re done.”

Location, Location, Location

Restaurateur Andreas Bieri is unabashedly honest when it comes to revealing the secret of his decades-long success: Waterfront views are great for business. And the cozy, beachfront eatery he opened in 1975 as The Mucky Duck has a fantastic view of the exact attraction tourists travel to Captiva Island to enjoy—sun and surf.

“I’m not saying we are better than anybody else,” Bieri says with a laugh. “We are very, very fortunate.”

Since 1994, Bieri has also owned Captiva’s The Green Flash, a sister restaurant to The Mucky Duck. That restaurant is a bit more upscale, and he often offers to transport diners there by golf cart if they decide the wait at the Duck is too long. (They rarely do, Bieri adds.)

“They don’t mind the wait,” Bieri says. “I guess because of the tradition, they have to eat at The Mucky Duck.”

Of course, there’s a bit more to the Duck’s success story than just a great location. Like The Veranda’s Paul Peden, Bieri stresses consistency as being the key to success in Southwest Florida’s competitive restaurant biz. In the kitchen, Bieri’s restaurants have kept up with trends in gluten-free eating, making it possible for most items to be prepared in a way that accommodates gluten-free diners. But there are some items he would never dream of changing, such as the Green Flash’s famed shrimp bisque.

“This would be the biggest mistake I could make,” he says. “No matter how good [the chef] could make it, people would say it’s not the same anymore.”

Being a waterfront restaurant isn’t all smooth sailing, though. Increased proximity to water also means increased proximity to certain kinds of natural disasters, and those businesses that aren’t prepared to handle the fallout of those calamities face almost certain ruin. Fortunately, Bieri had financial reserves in place in 2004 when Hurricane Charley plowed across Captiva as a Category Four storm, causing serious damage to the resort community.

Afterward, lunches remained steady, as visitors came to the island for the day. But dinners slumped, as many of the resorts remained closed for repairs. Bieri estimates his restaurants saw a fifty percent decrease in sales for two years after the storm. Ultimately, the resort diners returned to Captiva, and when they did, their beloved Mucky Duck view was waiting.

Attorney Rosendorf praises restaurateurs who are able to build up a strong reserve fund, since it’s impossible to predict when disaster will strike. But he notes that a slow summer is almost inevitable in Southwest Florida, and those who don’t prepare are asking for a disaster of their own making.

“Every summer is slow here,” he says. “Every restaurant limps by. Not every restaurant owner or manager is prepared to deal with that.”

Be the Right Size

Bleu Provence in Naples is almost unrecognizable from the tiny French eatery it started out as 17 years ago. Indoors, it’s almost four times its former size and now boasts a wine room for sipping a libation before dinner or purchasing a bottle to take home. Outdoors, there’s a private patio area for enjoying evenings al fresco.

Yet, despite all these changes, it feels very much the same. It’s still quaintly decorated in blue and white, with posters of dream destinations in the South of France, and a lively and skilled staff. The classically French food is always fresh and delicious, and the vast, award-winning wine list is always worth sighing over. Somehow, Bleu Provence has managed to walk a line between cozy and expansive—with careful growth being the key to longevity.

“The main challenge of Naples is the season,” explains Jacques Cariot, who owns the restaurant with his wife, Chef LysielleCariot. Sons Clement and Kevin are managers. “There’s no possibility to make a living if you stay small.”

Cariot notes that the bulk of the restaurant’s earnings are made during the four months of season, January to April, and that most people wish to dine between the hours of 6 and 8 p.m. The Cariots discovered early on that they would have to maximize the space in their restaurant if they wished to capture as much revenue as possible during those peak times.

Rosendorf explains that successful expansion is often a difficult line for restaurants to walk; too often, they grow more quickly than their business can support, branching out before their organization is ready. Other times, restaurants don’t discover a way to maximize their available space as Bleu Provence did, leaving them unable to continue.

“A lot of time when we see restaurant failures, it’s because of overambitious expansion plans,” Rosendorf says.

But Bleu Provence has managed to grow with grace, hemming close to their original approach of providing an upscale—but decidedly unfussy—provencal bistro with an almost relentless attention to detail in the restaurant’s ambience, service, food and wine.

“It’s the way to success so far,” Cariot notes. “You never know what’s going to happen next. So we never take anything for granted. Zero.”

Give ‘Em What They Want

It’s probably no great surprise that all of our veteran restaurateurs mentioned the importance of excellent customer service, of making sure guests feel welcomed and loved, and of how no compliment or complaint should ever go unacknowledged.

But in many ways, customer service is more than just making sure a diner’s water glass stays filled; it means actually serving your customers. It means giving them what they want, year after year, and taking your ego out of the equation.

As a chef or restaurant owner, it’s easy to want to rush after the flashy new food trend, Tony Ridgway says.

“But if all you do is chase trends, that’s all you’re going to do. Chase trends. You need to be comfortable in your own skin,” says Ridgway, who has operated restaurants in Naples for 45 years.

With Sukie Honeycutt, Ridgway runs Ridgway Bar & Grill and Tony’s Off Third in Old Naples. Their sister properties at Venetian Village are Sukie’s Wine Shop at the Village and Bayside Seafood Grill & Bar.

The duo notes that they aren’t afraid of changing things or trying new recipes, but that it’s seldom a good idea to attempt a total makeover when guests already enjoy what’s on their plate or in their glass. Ridgway notes that many of the local restaurants that have succeeded through the years may feature different cuisine, but they do have certain commonalities—namely, they feature classically prepared dishes with locally sourced ingredients and a
similar price point.

In Southwest Florida, that’s what diners want, year after year. Not drama and flair, Ridgway says, just delicious food, prepared properly and served by a caring and conscientious wait staff.

“I’ve always hated sizzle over substance,” Ridgway says. “And any restaurant that we’ve ever been involved with, we’ve always been more into substance than sizzle.”

Don’t forget the importance of a great partner, either.

“We share a similar philosophy,” Honeycutt says. “We totally trust and respect each other.”

“You should have core values that are the same,” Ridgway adds. “We agree on the values of the restaurant. We agree on how we treat our people. We treat our people with respect.”

Rosendorf wholeheartedly affirms that statement.

“Even when you have a successful business model, what often causes restaurants to fail is the relationship between the partners,” he says.

Click here for the original article.


Retailers up Their Experiential Cred With Events, Beauty & Selfies

By Caletha Crawford

Much has been made of consumers’ changing shopping habits and the effect its having on American malls. As doors close across the country, retailers are looking for new ways to draw consumers in—and often these efforts go far beyond the products on the shelves.

For William Wilson, head of leveraged finance in the Investment Banking Group at Imperial Capital, the reason why retail is struggling is clear: mall-based stores are no longer relevant. We don’t need stores to curate and dictate anymore, he said. Now, we’re looking for them to excite.

“It’s going to be such interesting time for the next 12-to-18 months because for every loser, there will be winners,” Wilson said, referring to the recent slew of bankruptcies. “There are companies, like Zara, that are much more adroit at maintaining the consumer relevance.”

As an example of how stores are rethinking retail, Wilson cites an upscale hardware chain that’s bringing in restaurants to make visits an experience. That natural connection between home furnishings and meal times will allow shoppers to be surrounded in and interact with the store’s product, creating a connection that ideally leads to sales.

This race to relevancy has retailers looking for ways to augment their products with a buying process that delights. And when the Apple Store—the mother of experiential retailers—finds it necessary to refresh its store concept, you know consumers are becoming hard to please.

The tech giant is doubling down on its commitment to hands-on shopping locations with a new launch, even as malls continue to lean on the company’s ability to draw.

“Before, you had stores like J.C. Penney as anchors and you could count on them to bring to people in who would walk through the mall,” said Corali Lopez-Castro, a bankruptcy and commercial litigation attorney for KozyakTropin Throckmorton. She says today’s draw is different. “One non-traditional anchor is the Apple Store. People go in with questions for their phones and they walk through the mall and see the other stores.”

Apple gets with the (in-store) program

The Apple Store, with its open layouts and gadgets invitingly displayed on every surface, has long been considered the a leader in experiential retail, but even the tech giant is looking for new ways to engage consumers.

The company’s new “Today at Apple” program takes the company’s hands-on approach a step further. Now individuals and families can participate in activities like photography, coding and art and design classes. The events will be headed by team members or experts in their fields for those with skill levels from beginner to professional.

“’Today at Apple’ is one of the ways we’re evolving our experience to better serve local customers and entrepreneurs,” said Angela Ahrendts, Apple’s SVP, retail, in a statement on the company’s site. “We’re creating a modern-day town square, where everyone is welcome in a space where the best of Apple comes together to connect with one another, discover a new passion, or take their skill to the next level. We think it will be a fun and enlightening experience for everyone who joins.”

And the best part for Apple fans is the programs are free.

Forever 21 capitalizes on beauty’s boom

Beauty is having a moment, and Forever 21 wants its time in the spotlight.

The fast fashion retailer has partnered with retail property manager GGP to launch 13 Riley Rose beauty boutiques.

“Forever 21 is always ready to expand into new concepts, and has partnered with GGP to open stores in 13 of their top tier locations,” said Do Won Chang, CEO of Forever 21. “These new, experiential spaces will be focused on accessories, cosmetics and home goods for the millennial consumer. We will open 10 stores in 2017, and follow up with three more in 2018.”

With Forever 21’s built in fan base and the natural experiential promise that beauty provides, the companies hope the new concept will create an emotional connection that will draw young shoppers in.

The upcoming launch is the latest move by Forever 21 into a hot category. Last month, the retailer announced it would open 40 new F21 Red locations, which target shoppers on a budget.

Stores get social with selfies

In the quest to keep consumers engaged, retailers, restaurants and even gyms are turning to a social media staple.

The New York Times reports on businesses offering their patrons the chance to snap selfies on site. The move fulfills a few functions, the first of which is fun. Whether they’re sporting a post-workout glow at Tracy Anderson Method studios or pre-wedding glam at the Paintbox nail salon, it seems customers love sharing with their friends.

At Warby Parker shops, the photo booths are also functional. It’s often hard for people shopping for eyeglasses to see what they look like in their potential new frames but the selfie setup allows them to make an informed choice—and get opinions from friends and family too.

Marketing is another bonus these booths provide. With backdrops bearing the business name, each social share gives a bit of free advertising via friends, family and fans.

“When we were planning the restaurant, we wanted clever ways to promote it and differentiate it, and the younger demographic always wants something Instagram-able,” Hellenic Vincent De Paul, owner of Doomie’s restaurant in Toronto, told the paper.

While guests are hungry for the fun selfies provide, businesses are eating up the exposure they bring.

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Restaurant IndustryChapter 11 Bankruptcies

By David L. Rosendorf

The past year has brought a waveof restaurant businesses filing forreorganization in Chapter 11. With inherently low profit margins, increased competition, limited pricingflexibility and a propensity for expansion without the support of underlying business fundamentals, theindustry is particularly susceptibleto business failure. The recent filings range from luxurious high endrestaurants to casual budget eateries, and often involve hundreds oflocations, thousands of employees, and hundreds of millions of dollars of debt. This article discussesthe causes of the recent trend, andsome of the issues that arise whenrestaurants avail themselves of theChapter 11 process.

A WaveofRestaurant Chapter 11s

  • In March, NYLC, LLC, the owner of Le Cirque, a legendaryManhattan restaurant opensince 1974, filed for Chapter11, blaming temporary cash flow issues. Its first-day filings reflect a projected 15%income shortfall comparedwith anticipated expenses ofmore than $460,000 during itsfirst 30 days of operation inChapter 11.
  • In February, Unique VenturesGroup, LLC, which owns 28 Perkins restaurants that itbought for $38 million, filedfor Chapter 11 in Pittsburgh. Amid disputes among ownership factions, the bankruptcycourt recently directed theappointment of a Chapter 11trustee.
  • In January, Capital Pizza Huts,Inc., the owner of 56 Pizza Hutstores located across six stateswith over 1,400 employeesand $20 million in debt, filed for bankruptcy in Kansas, citing declining gross sales andincreasing food costs.
  • In October 2016, GardenFresh Corp., which operates the Sweet Tomatoes and Sou-plantation restaurant chains,filed for Chapter 11 in Delaware. The group included 125 restaurants, had 5,500 employees, and owed approximately$200 million to its creditors.
  • In September 2016, Cosi,Inc., which operated 72 company-owned “fast casual” restaurants, plus another35 franchised locations, andemployed over 1,500 people,filed for Chapter 11 in Boston.The company, whose stockwas then publicly traded, owed $8 million to noteholders and an additional $15 million to other trade creditors.
  • In August 2016, Roadhouse Holding Inc., the parent company of Logan’s Roadhouse,a Nashville-based chain of steakhouses with approximately 200 locations, 13,000employees, and $400 millionin debt, filed in Delaware; it confirmed its Chapter 11 plan and emerged from bankruptcy in December.
  • Also in August 2016, Last CallGuarantor LLC, which ownedthe Fox & Hound, Bailey’sSports Grill, and ChamppsKitchen restaurant chains, filed for Chapter 11 protection in Delaware the second filing for the group since2013. The company operated79 restaurants in 25 states,and had 4,700 employees.

The restaurant business has always been challenging, and failureis common. Most restaurants operate on very thin margins: after foodcosts, labor costs, lease and otheroccupancy costs, marketing andother expenses, a 5% profit marginis common. Any change in revenuesor expenses can work a substantialdisruption in the business and precipitate a potential filing.

Clearly, some businesses in theindustry perform better than others. Cosi, which never had a profitableyear since going public in 2002, accumulated $300 million in lossesbefore filing. But several restaurantchains are experiencing softening revenues over the past year. And aparallel pattern of recent bankruptcies in the retail sector may signala broader decline in discretionaryspending, suggesting that toughertimes are ahead for the restaurantindustry.


The squeeze may be coming fromthe expense side as well as the revenue side. Food costs can increaseas diners demand better quality ingredients, but customers don’t necessarily want to pay more for them.Labor expenses may also be on therise, between pushes to increase theminimum wage in some states andadditional health care costs beingborne by employers. The recent political environment on immigrationpolicy may also have an impact,  asmany restaurants have traditionallyrelied extensively on undocumented immigrants, as do many farmers who grow the crops that supply those restaurants.

The pressures may be greateston those restaurants situated in themiddle of the market: “casual dining,” as distinguished from “fastfood” or “fast casual” on one end,and fine dining on the other. Thesetypes of venues, which offer tableservice at a moderate price point,bear all the costs of operating afull-service restaurant — higherlease expenses because they requiremore space, higher labor costs forhosts and servers and bussers anddishwashers, plus their larger operations often require more management support — but they are limited in how much they can chargetheir customers.

Many of these ventures are financed through private equity firms,which can create greater pressureto generate higher returns on thoseinvestments than with traditionalbank financing. If internal, same-store sales will not generate sufficient growth, businesses often lookto expansion as a substitute. But anoveraggressive expansion plan thatisn’t supported by underlying profitability is often a formula for business failure. And, unlike traditionalbank lenders, private equity firmstypically have no hesitation abouttaking back the business and operating it if the loan goes into default.

What CanBeAccomplished InARestaurant Chapter 11?

Lease Issues

A common factor among manyrestaurant Chapter 11s is a poorly

executed expansion plan. Often,one of the first steps in rehabilitating a restaurant business is paring back getting rid of unprofitablelocations and refocusing on profitable aspects of the core business.Rejection of unprofitable leasesunder 11 U.S.C § 365(a) provides amechanism for doing so, while also

providing the benefit of cappinglease rejection pursuant to 11 U.S.C.§ 502(g). Moreover, since lease rejection claims will be classified withother general unsecured claims fordistribution purposes, the value ofsuch claims may be fairly minimal.As a result, even the anticipationof a likely Chapter 11 filing maybe sufficient motivation for a landlord to negotiate a consensual leasetermination on favorable terms inadvance of an actual filing, and potential debtors often should pursuesuch negotiations before filing.

On the other hand, sometimes arestaurant business may file Chapter11 in order to keep its lease. Thatseems to be the case with Le Cirque,whose first-day filings indicate thatthe bankruptcy was triggered by anotice of default on the $95,000/month lease for its Upper East Sidespace. Although 11 U.S.C. § 365(d) (3) requires the debtor-in-possession to timely perform all post-petition obligations under a lease untilassumption or rejection, a debtormay seek to extend its time for performance for up to 60 days; thoughif Le Cirque fails to address its cashshortfall issues, such an effort maynot be successful.

In a sale scenario, Chapter 11 alsofacilitates the process of assumingand assigning retained leases toa purchaser pursuant to 11 U.S.C.§ 365(b) and (f), while simultaneously providing one forum for addressing and resolving issues relating to cure obligations in connectionwith the assigned leases.

 Franchise Issues

The recent spate of restaurantChapter 11s has primarily involvedcompany-owned chains. But theindustry also includes a number offranchise operations, which raisetheir own set of issues in Chapter 11.

Where the debtor is the franchisee, one of the key issues is the assignability of the franchise agreement. In particular, the provisionsof 11 U.S.C. § 365(c)(1), which provide that an executory contract maynot be assumed or assigned if applicable law excuses a non-debtorparty to the contract from accepting performance from or renderingperformance to an entity other thanthe debtor, can restrict the debtor-franchisee’s ability to assign thefranchise agreement to a third party.

When a franchise agreement confers the right to use a trademark,as is usually the case, the franchisor may have the right under theLanham Act to refuse to accept orrender performance to a third-partyassignee, and courts have held thatthis right remains enforceable inthe bankruptcy assignment contextpursuant to § 365(c)(1). See, e.g., Inre Wellington Vision, Inc., 364 B.R.129 (S.D. Fla. 2007). Indeed, assumption of such agreements canbe prohibited even in the absenceof assignment to a third party. SeeIn re Trump Entertainment Resorts,Inc., 526 B.R. 116 (Bankr. D. Del.2015); In re Kazi Foods of Michigan,Inc., 473 B.R. 887 (Bankr. E.D. Mich.2011). As a result, a franchisor mayretain a significant degree of controlin a franchisee bankruptcy.

debt is converted into equity in the reorganized debtors; after general unsecured creditors other than the lenders receive $1.5 milli

If the debtor is the franchisor, the potential rejection of the franchise agreement can create another set of issues. Under 11 U.S.C. § 365(n), the licensee of a right to intellectual property under an agreement rejected by a debtor-licensor has the option to either: 1) treat the contract as terminated by the rejection, if the rejection amounts to such a breach as would permit termination under applicable law or another agreement of the licensee; or, 2) retain its rights under the licensing agreement and any supplementary agreements to the intellectual property, for the duration of the agreement and any applicable extensions as of right.

In other words, the debtor franchisor cannot terminate the non-debtor franchisee’s right to continued use of the intellectual property for the duration of the agreement, if the franchisee so elects, rather than treated the agreement as terminated. See Sunbeam Products, Inc. v. Chicago American Mfg., LLC, 686 F.3d 372 (7th Cir. 2012).

 Sale Process and Balance Sheet Restructuring

 Often, restaurant businesses will file Chapter 11 to facilitate a sale of the business as a going concern. Sections 363 and 364 of the Bankruptcy Code provide the means to obtain additional debtor-in-possession financing to continue operations until a sale process can be conducted and closed, while also providing the means to sell assets free and clear of the claims of creditors, and assuming and assigning leases and executory contracts to the purchasers.

But the market for these restaurant assets does not exactly appear robust. In the Garden Fresh case, an auction sale was canceled after no qualified bids were submitted,resulting in the approval of the sale of the debtor’s assets to the “stalking horse” bidder in January 2017 effectively, a credit bid by the debtor’s prepetition secured lenders. Cosi likewise canceled an auction sale when no competing bids were submitted above a stalking horse bid from the pre-petition and debtor-in-possession lenders.

Cosi’s revised Chapter 11 plan, rather than proceeding with an actual sale, now provides for what amounts to a “virtual sale” which represents an approximation of the value associated with the stalking horse purchase offer. Under the Plan Settlement proposed by the Cosi plan, $5 million of the lenders’ on, the noteholders and general unsecuredcreditors share in additional funds available for distribution. The plan is projected to yield a 10%-20% distribution to general unsecuredcreditors.

In other cases, restaurant businesses may emerge from bankruptcy by restructuring debt rather than pursuing a sale process. In Logan’s

Roadhouse, for instance, the holders of $400 million of long-term secured debt agreed to convert most that debt into equity, reducing the company’s long-term debt to $100 million, and creating a $1 million fund to pay the company’s unsecured trade creditors. Though that $1 million was only projected to provide about a 3% recovery, it was still likely a better result than liquidation, which would have yielded nothing for trade creditors, while putting several thousand employees out of work.


 As bankruptcy practitioners know, Chapter 11 does not magically fix underlying business issues. Restaurant chains that have made multiple trips through Chapter 11  like the Fox & Hound group, and Sbarro before it will attest to this fact.Chapter 11 provides a fresh start, but it’s still up to the company to create a recipe for future success.

 David Rosendorf is a partner in the Miami-based law firm of KozyakTropin& Throckmorton, LLP, and focuses his practice on business bankruptcy and other commercial litigation. He has over 20 years’ experience representing debtors, creditors, asset purchasers and other parties in Chapter 11 bankruptcy proceedings, including clients in the restaurant and hospitality industries. He may be reached at

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Finding the Right Outside Counsel For Your Company

By Javier A. Lopez and Monica McNulty

In today’s challenging, competitive business environment, finding qualified outside counsel with the right fee structuresis a top priority for corporate counsel. Following is some practical guidance to help corporatecounsel achieve this goal.

When retaining outside counsel, corporate counsel should focus on three key areas: 1) Conducting thorough research ofthe potential firm’s reputation, particularly its billing practices;2) Exploring flexible billing arrangements that are tailored to suit the nature of the engagement; and 3) Effectively communicating to create clear goals, strategies, and billing guidelines. By taking these steps, in-house and outside counsel canestablish productive relationships that will help prevent unwanted surprises from appearing on the bill.

Targeted research of The Potential firm’s Billing Practices and Reputation

After identifying several firmswith experience in the area oflaw for your engagement, it isequally important to vet thosefirms’ billing practices and reputations with respect to attorneysfees. Your network can provide in-valuable information about the billing practices of a particular firm. Your best resource to get a realisticperspective on their billing practices is their existing and former clients, or former attorneys who wereemployed at the firms. The legalcommunity is very tight. By tappinginto this resource, you can get asense of hourly rates, the nature ofthe firms’ time entries, and whetheryour contacts believe that the billingand the work product were in alignment. Even if your contacts workedwith different practice groups thanthe one you might be considering,there should be a significant degree of continuity between one area andthe next within the same firm.

During your initial contact withthe firm, ask for a budget for thedifferent phases of the litigation:Pleadings, Discovery, DispositiveMotions and Trial. This will helpyou compare apples to apples andassist you in selling which lawfirm you believe to be the correctone to your Board/CEO. Although every case is unique, if the firm recently handled a very similar matter, it is possible that it will notneed to duplicate certain tasks,which could result in a decreasedoverall fee for your matter. Forlitigation matters, another important factor is how well potentialcounsel knows the relevant court system or judge. In many cases,counsel’s understanding of the judicial circumstances of a case canhelp inform how quickly or slowlythe case is likely to proceed, and estimate how it could impact total fees. Intimate knowledge ofthe particular judge before whoma matter is pending is absolutelycritical to the bottom line of a case.There can be a stark difference inthe ability to get hearings in frontof a particular judge. For some, itcan take days or weeks; for others,it may take months.

When establishing a relationshipwith new outside counsel, considerproposing a “test run” with a smaller, less complicated matter that is likely to be resolved quickly. Thiswill give you a first-hand sense ofthe firm’s billing practices and allowyou to make an informed decisionbefore engaging the firm for morecomplicated matters. Giving thenew firm the opportunity to earnyour business and demonstrate thequality of its billing practices is thebest way to get the flavor of howthe firm works a case. Should you decide to later engage the firm formore complicated matters, you willhave already laid the groundworkand established expectations for thefirm’s bills.

Explore Flexible Billing Arrangements

Both inside and outside counsel have long had a relationshipof necessity with the billable hourmodel. However, alternative fees arrangements continue to become increasingly popular and may suit theneeds of certain engagements betterthan the traditional billable hour arrangement.

Pure Contingency

In a pure contingency arrangement, the law firm receives a fixedamount or percentage from any potential monetary recovery in a lawsuit. Usually, the client will only paythe hard expenses during the litigation. This structure is most commonfor plaintiff’s cases that may lead toa reasonably large potential recovery. In a pure contingency arrangement, the law firm bears nearly allof the risk of the engagement andis, therefore, invested in obtaining afavorable outcome.

Hybrid Fee Arrangement

In a hybrid fee arrangement, thelaw firm receives a percentage of itsusual hourly rate, and some level ofcontingency fee dependent on theoutcome of the matter. If the matter does not yield a favorable result,no additional fee is paid. If the firmobtains a successful outcome, it ispaid the agreed additional amount.Such arrangements shift part of therisk of the engagement to the law firm, and align the client and thelaw firm’s interests. This approachlets the firm have additional “skin inthe game.”

This arrangement is most common in plaintiffs’ cases, but can alsobe used on the defense side to create and reward the accomplishment of certain benchmarks or particularoutcomes. It can also be used on thedefense side to reward an ultimateoutcome that is significantly lessthan the amount the client is beingsued for.

Under such an arrangement, thefirm may agree to accept a reduced hourly rate, in exchange for the client’s agreement to pay a percentage of the difference between theamount the client is being sued forand the ultimate outcome. For example, the client may agree to paythe firm $300 per hour, althoughthat is significantly lower thanthe firm’s standard rates, and pay 30% of the difference between theamount sued for and the ultimateoutcome. If the client was sued for$2 million and the case was ultimately settled for $1.5 million, theclient would pay the law firm 30%of $500,000 or $150,000 at the endof the case. The hybrid fee arrangement allows significant room for creativitybecause benchmarks with a smallaward can be set throughout thecase and for a variety of reasons. Forexample, benchmarks might be setfor length of time for disposition ofthe matter to incentivize quick resolution, various outcomes (differentawards for settlement, prevailing at summary judgment, or prevailing attrial), or success on specific issuesin the case.

Blended-Rate Arrangement

A blended rate is another availablealternative fee arrangement. Under ablended-fee arrangement, the hourlyrates of each of the attorneys on a file are considered and a single hourly rate is determined that applies to all attorneys. For example, the seniorpartner may typically charge $800per hour, the junior partner $650per hour and the associate $400 perhour. Based upon these rates, a single hourly rate of perhaps $500 per hour would be established for all attorneys billing on the file. This maybe most appealing in complex matters in which junior and senior partners are expected to do a significantamount of work, as it could help create sizable savings for the client.

Another possibility is to create astructure that rewards law firms forsubmitting bills below budget, for example, by awarding a percentage of the amount under budget.As an example, if the overall budgetfor a case is $500,000, but the caseis resolved for $350,000, the clientwould agree to pay the law firm apercentage of that savings.These are only a few examplesof possible alternative fee arrangements. Law firms are becoming increasingly willing (or should be) toevaluate these possibilities. The old mentality of “take it or leave it” bythe big law firm has gone by thewayside as the business of law hasevolved. You should feel absolutelycomfortable negotiating an arrangement that is beneficial for both yourcompany and the law firm.

Javier A. Lopez is a partner withKozyakTropin& Throckmortonand focuses his practice on litigation. Monica McNulty is an associate in firm’s healthcare and complexlitigation practice groups. They canbe reached at, respectively.

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Kozyak Tropin Throckmortons Javier a Lopez named to Hispanic National Bar Associations Top Lawyers under 40

MIAMI – February 28, 2017 – Kozyak Tropin & Throckmorton today announced that partner Javier A. Lopez has been named a recipient of the Hispanic National Bar Association’s “Top Lawyers Under 40” award. Lopez will be honored during the HNBA Corporate Counsel Conference in Miami on March 31.

At Kozyak Tropin & Throckmorton, Lopez focuses his practice on complex commercial litigation, with particular expertise in advising and representing international clients in matters brought in U.S. federal and state courts. Among many other achievements, Lopez was recently installed as president of the Cuban American Bar Association.

“It’s no surprise that Javier has been recognized by the HNBA for his remarkable accomplishments and contributions to the field of law and the community,” said Tucker Ronzetti, managing partner of the firm. “We congratulate him on this honor and look forward to his continued success.”

The recipient of many accolades and awards throughout his career, he has been named a “Rising Legal Star” for five consecutive years by Florida Super Lawyers, a “Rising Star” by the Daily Business Review, and one of the Cystic Fibrosis Foundation South Florida Chapter’s “40 Under 40.” Deeply involved in the community, Lopez has been honored as a “Golden Angel” for his support of the Jackson Memorial Foundation through JUNTOS, a philanthropic foundation he co-founded.

Lopez received a bachelor’s degree from Harvard University and a law degree from the George Washington University School of Law.

About Kozyak Tropin & Throckmorton

Kozyak Tropin & Throckmorton is a complex commercial litigation firm founded in 1982 that focuses its practice on bet-the-company commercial cases, bankruptcy matters and class actions. For more information, visit




By Alan J. Keays

 Afederal judge has given initial approval to a nearly $150 million settlement with an investment firm over its alleged role in a “Ponzi-like” scheme to defraud investors in EB-5 funded developments projects at Jay Peak, Burke Mountain and in the city of Newport.

“(T)he Court preliminarily finds that the settlement is fair, adequate and reasonable, is a prudent exercise of the business judgment by the Receiver, and is the product of good Case faith, arm’s length and non-collusive negotiations between the Receiver and Raymond James,” Judge Darrin P. Gayles wrote in a filing issued Thursday.

“The Court, however, reserves a final ruling with respect to the terms of the Settlement Agreement, including the Bar Order, until after the Final Approval Hearing.”

That final hearing on the settlement announced last week, according to the judge’s filing, is set for June 30.

Last April, state and federal lawsuits alleged that the two developers, Ariel Quiros and Bill Stenger, misused $200 million in EB-5 immigrant investor funds. Federal regulators say the two men used investor money to buy Jay Peak Resort in a deal facilitated by Raymond James, a St. Petersburg, Florida-based financial institution.

A bar order would provide protection for Raymond James against future claims from the receiver and from investors in the EB-5 funded projects. Any objection to the settlement must be filed at the federal court in Miami where the case is pending by June 5 to have an opportunity to be heard at final hearing.

The case is taking place in Miami because that is where Quiros lives and many of his businesses are located.

Any person failing to file an objection by the deadline, Gayles wrote in Thursday’s filing, “shall be forever barred from raising such objection in this action or any other action or proceeding, subject to the discretion of this Court. “

If no objections are filed by the deadline or if the objections are resolved before the hearing, the court may cancel the final approval hearing, the judge added.

Harley Tropin, a Florida attorney serving as lead counsel in a proposed class-action lawsuit brought by investors against several parties, including Quiros, Stenger and Raymond James, said after the settlement was announced that he didn’t expect his clients will challenge the bar order.

“We’ve discussed it with our clients,” Tropin said. “It’s a great deal and we think all the investors will be benefited by it, they’ll all be favor of it.”

After initial settlement talks took place between Goldberg and Raymond James, attorneys in the proposed class-action case were later brought into the discussion, taking part in a two-day mediation session that eventually led to the settlement.

Tropin said rather than dealing with litigation over several years with the various defendants pointing fingers each other over responsibility for the allegations against them, the settlement brings some closure, at least with the Raymond James portion of the case.

There are about a dozen named plaintiffs in the proposed class-action lawsuit. That lawsuit, according court records, was filed on behalf of a proposed class of all 836 people who invested more than $400 million in the series of projects headed by Quiros and Stenger in northern Vermont as part of the federal EB-5 immigrant investor program.

Curtis Carlson, a Florida attorney representing a group of 33 Chinese investors who decided against joining the proposed class-action case, filed a separate federal lawsuit against Quiros and Raymond James. He said after the settlement announcement that he would need time to review it and discuss it with his clients.

Carlson said his clients invested in various projects, or phases, headed by Quiros and Stenger.

“My initial reaction is that some phases are being treated more fairly than others and that could be a real problem,” Carlson said, declining further comment.

Michael Goldberg, the court-appointed receiver overseeing properties in Vermont’s Northeast Kingdom at the center of the investor fraud case, announced the settlement with Raymond James and Associates Inc. at a press conference at the Statehouse last week.

Goldberg, appointed by a federal judge last April to the post of receiver, oversees Jay Peak Resort and other properties in the Northeast Kingdom after state and federal regulators accused Quiros, the owner of the ski area, and Stenger, the resort’s former CEO and president, of investor fraud.

Stenger has since settled his federal case, while the state case is pending. Quiros has contested the allegations against him in both cases.

Goldberg said Thursday that the action by the judge to preliminarily approve the settlement was expected. Now, the receiver said, he will send out notices to the various parties and investors to inform them of the settlement details and the key dates if they intend to oppose it.

“We are very optimistic that this will get approved,” he added.

A large portion of the settlement funds will be used to refund dozens of investors who put money into projects that never materialized, or weren’t built as pitched. The alleged fraud put in peril the immigration status of many investors seeking permanent U.S. residency. That’s because job creation requirements tied to those investments under the EB-5 foreign investor program for those projects were not achieved.

The Raymond James settlement, if ultimately approved, releases claims against Raymond James and Joel Burstein, Quiros’ former son-in-law, who served as the branch manager of a Raymond James office in Coral Gables, Florida.

Goldberg claimed in his lawsuit that the financial services company and Burstein helped Quiros develop a scheme to commingle and “steal investors’ funds for his own use in breach of partnership agreements.”

Goldberg alleges that Raymond James “aided and abetted” Quiros in a “Ponzi-like” scheme in which he misused $200 million in investor funds, including “looting” more than $50 million.

The settlement provides roughly $80 million to EB-5 investors allegedly defrauded, with the largest chunk of the money going to those who put money into a failed project to build a biomedical research facility in Newport.

The U.S. Security and Exchange Commission has said that project, AnC Bio Vermont, was “nearly a complete fraud.”

The settlement will ensure that contractors and other businesses owed millions will be paid in full for their work and services associated with projects funded through the EB-5 program.

If the settlement is approved after a final hearing, Raymond James will pay the receiver $145.5 million. Combined with $4.5 million Raymond James paid in an earlier agreement with state regulators, that brings the total settlement figure to $150 million.

Most investors in projects at Jay Peak will not get an immediate financial benefit from the settlement, because six of those developments, or phases, were built and are operating.

Investors in Jay Peak’s Tram Haus Lodge, who held promissory notes, will be paid in full with funds from the settlement. Also, the more than 60 investors in AnC Bio will be able to get their money back. That’s because funds from that project were used to cover shortfalls in earlier projects at Jay Peak.

Those investors who do not get immediate funds from the settlement, however, do get the benefit of having debts, such as money owed to businesses and contractors, associated with projects they invested in, paid off so when the properties sell, they will be free and clear to benefit from the proceeds.

Under the settlement, Raymond James admits no wrongdoing. The company has reported that it “accrued” $50 million in expenses related to the case prior to the settlement.

“We believe this resolution is fair and representative of our commitment to redressing the victims’ losses in this case,” Jonathan Santelli, Raymond James executive vice president and general counsel, said in the statement announcing the settlement last week.

The settlement includes $25 million to cover attorneys fees for investors. Attorneys seeking compensation from that fund will have 30 days from Thursday’s order to submit a claim with the court.

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Retailers Going Bankrupt at Staggering Rate on Flood of Store Closures

By F McGuire

Retailers reportedly are filing for bankruptcy protection at a disturbing rate that’s flirting with recessionary levels.

Meanwhile, a steady stream of store closures continues to haunt the battered American retail industry.

“It’s only April, and nine retailers have already filed for bankruptcy since the start of the year — as many as all of last year,” Business Insider explained.

“2017 will be the year of retail bankruptcies,” Corali Lopez-Castro, a bankruptcy lawyer, told Business Insider. “Retailers are running out of cash, and the dominoes are starting to fall.”

More than 3,500 stores are expected to close over the next several months, BI reported.

Annual retail bankruptcies peaked at a total of 20 in 2008. The U.S. could hit that dismal milestone by September if the rate is sustained, CNBC has reported.

The pace of store closings this year is already ahead of 2008, that measurement’s most recent peak, according to Credit Suisse Group AG.

In the past year, companies including American Apparel and Limited Stores have begun shutting down retail operations, while dressmaker BCBG Max Azria, discount shoe seller Payless Inc., and department store operator Gordmans Stores have filed for bankruptcy.

The rapid descent of so many retailers has left shopping malls with hundreds of slots to fill, and the pain could be just beginning, Bloomberg reported. 

More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years, according to data provided to Bloomberg by CoStar Group.

“It’s an industry that’s still in search for answers,” said Noel Hebert, an analyst at Bloomberg Intelligence. “I don’t know how many malls can reinvent themselves.”

With retail rents on the rise due to record-low vacancies, and e-commerce continuing to generate more sales, more stores going dark is inevitable, said Marshal Cohen, chief industry analyst at NPD Group. Now that so many retailers have announced closings, investors may be less skittish when a company does the same, he said.

“This is now a commonplace opportunity for retailers to evaluate and cleanse, looking at every single store and determining whether or not they need that,” Cohen told Bloomberg. “When so many are doing it, they don’t look so bad. It’s almost wrong if you don’t close a store.”

Steve Beaman, chairman the Society to Advance Financial Education, recently told Newsmax TV that mass store closures and layoffs by Sears, Macy’s and Kmart only prove that the retail industry continues to undergo a sea change because of online shopping.

And this seismic shift may soon extinguish a cultural landmark of the recent past – the American shopping mall.

JD Hayworth asked Beaman on Newsmax TV’s “America Talks Live” if malls are a relic of a bygone era.

“My personal opinion is they are,” he said. He cited many many requiring adults to chaperone those under the ages of 21 or 18.

“So we’re already going to see the demise of it being the hang out for kids and I think that will change the retailing habits of it. The overall security concerns of the brick-and-mortar retailers is going to become a draining cost on them. So, they’re going to think more and more let’s go to the internet,” he said.

To be sure, Newsmax Finance Insider Jeff Snyder said the retail malaise just may be indicative of a deeper economic malady.

“When analyzing the shift in consumer preferences it is usually presented as “all or nothing,” meaning that shoppers leaving brick-and-mortar stores are bestowed with a convenience option that they are exercising,” Snyder wrote for Newsmax Finance.

Instead, the shift toward online may not be separable from the “weak demand environment” at all. In other words, if consumers have become fickle about bargains and finding the lowest price, that may be just as much macro-economic as micro-economic.
It may be that online retailers are best positioned in a downward economic transition because they can offer better prices without having the burden of the huge sales distribution costs that come with operating physical stores.

That seems to be the judgment of the world’s producers as this “manufacturing recession” continues on and on.

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