Automatic Stay — a legal thriller by Mark Shaiken
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My new legal thriller, Automatic Stay is out and for sale. https://tinyurl.com/4pmvt44y It’s the second in my 3J series. The storyline goes like this:
3J and Pascale are back and file bankruptcy cases for six Kansas City jazz clubs that have somehow managed to survive the Covid pandemic. Now they must battle an unknown enemy who runs an anonymous disinformation campaign on social media to try to put the clubs out of business. Will they be able to stop the campaign in time to save the clubs and keep jazz alive in the city?
Here is the book trailer: https://www.youtube.com/watch?v=KyJSXZNCRaY and here is an excerpt of the book for you to enjoy.
CHAPTER 4
Tuesday, October 31 to Wednesday, November 1, 2023
3J arranged to meet with their new clients, the Rapinoes, on Wednesday morning. By early Tuesday afternoon, the clients delivered cash flow projections to 3J and Pascale, and by 4 p.m. on Tuesday, 3J and Pascale sat down with each other to discuss the projections and fashion a plan for the meeting the next morning.
“These projections aren’t really as bleak as I thought they might be,” 3J said to Pascale, “but the devil is in the assumptions. Assumption number one: patrons continue to return and to do that, they’ll have to feel comfortable in close quarters again, as we all hopefully put the memory of the pandemic behind us.”
“That’s a biggie,” Pascale observed. “Tough times to be in the entertainment and hospitality business.”
“Number two: the clubs being able to book acts, meaning older, famous jazz musicians are back on the road performing live. Again, something of a Covid issue. The musicians want and need to perform, but they’re older and more at risk for their health, and they’ll also have to navigate tight quarters and these small, intimate clubs. Not all of them will immediately return to the road to gig in-person concerts.”
“Another biggie, I’m afraid,” Pascale said, looking very serious, raising his eyebrows high on his forehead.
“And number three: normally, we base the projections on recent years of actual cash flow, but here, 2020 through mid-2022, cash flows were in the toilet because of Covid.”
Again, Pascale agreed and responded, “So, they’re going to have to lean on older actual cash flow performance, and that may or may not be acceptable to a bankruptcy judge.”
3J said, “Exactly. I’d like to say ‘it is what it is because what else could it be,’ to quote your favorite phrase, but it seems a cop-out in this case.”
Pascale paused for a moment. “Well, ‘it is what it is’ has always been a derivative of ‘what you see is what you get,’ but here, we’re just going to have to drift from the ‘what you see’ notion to using some smoke and mirrors. We’ll have to create the illusion that the projections are reliable and are just what they appear to be, even if they’re based on some seriously uncharted territory. It’ll be a challenge, but I think we can pull it off — with the right witness.”
“I hope so. I really do,” 3J responded slowly.
“Say, what else do we know about this guy, Phillip Dewey, and Veridical Lending? Do we know any of the bankruptcy lawyers in town that have tangled with him before? Because I sure haven’t, and all I know about the company or him is what I told you the other day — that is, next to nothing.”
“I have a friend at Brewer Hopkins, who I called over the weekend. She said he’s an odd duck; on the shorter side, dapper to an extreme, partial to bow ties. A bit of a dandy. Middle-aged. She described his speaking style as one where he chooses every word carefully and articulates each word perfectly. Soft-spoken. Little to no inflection. And she said his tone is ‘eerie.’ When I asked what an eerie voice sounds like, she said it was a nasally sort of whisper, no emotion — just like you heard on the radio show. She said when he talks, it’s coupled with ill-timed smiles, and a weird, occasional ‘tssk’ noise at the back of his mouth before he starts a sentence, as if to announce that important words will follow the tssk.”
“So he really is an odd duck, with odd mannerisms?”
3J nodded her head, and then continued, “My friend said that Dewey looks at the entire business of lending and collection as something of a holy war. He tells anyone who’ll listen that he always gets his money back, no matter what. She said that when Dewey says that, he sounds like a Vegas gambler who tells you in a soft-spoken voice with all seriousness that he never loses at the craps table. She said Peter Lorre should play Dewey when the movie comes out and we should rename the Dewey character Joel Cairo, like the strange little guy in Maltese Falcon.”
“Oh, sounds just wonderful,” Pascale observed sarcastically.
“She actually called him a complete ‘fuck knuckle.’”
“Not familiar with that descriptive term.”
“Means he struggles to make socially acceptable decisions,” 3J explained, shaking her head slowly from side to side.
“So, what next?” Pascale asked.
“I’ll go ahead and draft up the usual bankruptcy memo to explain the process to the Rapinoes. Would you have time to prepare to lead the discussion on cash usage and the projections?”
“Sure thing.”
3J grabbed her now lukewarm cup of tea and stood to leave the conference room. As she rose, Pascale added, “And thanks for listening last night. Sorry to burden you with my meditations and musings, but it was thoroughly therapeutic for me to talk with someone — well, not just someone, you — about all of it.”
3J turned, looked pleased, locked eyes with Pascale, and said, “Anytime, any day, anywhere, 24–7.”
Pascale nodded a slow affirmation, and they each headed back to their offices.
Early the next morning, Bey and Adam Rapinoe arrived with their outside accountant, Ralph Kane, and met 3J and Pascale in the 27th floor Conference Room B, that 3J called the “War Room.” Not fancy, sometimes messy with boxes from other cases strewn around the perimeter, but always comfortable enough.
Both Rapinoes were in their fifties. Adam was five-foot-ten-inches, maybe 180 pounds, athletic, and he sported a navy blue jacket, white button-down shirt, gray pants, polished black leather loafers, and no tie. He had short, straight, salt and pepper hair brushed forward, light brown eyes, and a Romanesque nose. Bey was a trim five-foot-four-inches, slender, maybe 105 pounds, and wore a similar navy blue jacket, light blue button-down shirt open at the collar, black pants, and flats, dark gray-colored. She had sandy blond hair, cropped short, dark red-painted, professionally manicured fingernails, a short nose, and blue eyes — one of which was slightly crossed, adding a hint of intrigue to her gaze. They could both have passed for bankers in any Hollywood movie. 3J thought to herself, I guess if you’ve spent your life dealing with bankers, you start to dress and look like them. Maybe it can’t be helped.
At the first introductory meeting, 3J had learned that the Rapinoes met in college at George Washington University, were an item for three years, and married when they graduated. Both were economics majors and, after college, they had joined Bey’s family real estate development business before venturing out on their own. Over the years, they developed, built, operated, and sold shopping centers, and repeated the process for decades before cashing out to pursue the return of live jazz to Kansas City.
3J had not met Ralph Kane before, and she was interested to hear his take on the projections. She addressed the Rapinoes and Kane. “Thanks for coming in, folks. Here’s a memo we give to all of our business debtor clients that explains the bankruptcy process. Read it after this meeting and let either of us know if you have questions.”
“Thanks,” Adam said. “Unfortunately, we’ve had experience with some parts of the bankruptcy process as a number of our commercial tenants over the years commenced bankruptcy cases. Just part of being a landlord in the shopping center world.”
3J nodded and said, “Let’s turn to the problems at hand. We’ve gone through all the information you sent me and the projections you put together, and we have some questions. Let’s start with the jazz club concept. What made you give up a successful and lucrative development business and dive into the deep end of the entertainment and hospitality industry?”
Bey responded, “I’ll field that one. There’ve been many late nights since we made the shift when I thought we were certifiably crazy to have gone down this path. Pure bonkers. We learned over the decades since college that we were good in the development game, very good, and very lucky. Luck helps a lot. But unlike other real estate developers who seem to have passion in their blood, almost an inherent need to keep bringing new projects to market, we didn’t feel passionate about it. When we finished a project, cut the ribbon, and stepped back to admire the creation, we just didn’t see ourselves in the handiwork. We got into the business because it’s what my family did. But, unlike other family members, we always planned to exit the business when we identified what else we wanted to do.”
Bey had a smooth, mid-range, silky voice. No accent, like so many born and bred Midwesterners. She was poised in her comments, and spoke in a way that conveyed she was used to speaking, used to people listening, confident in herself, and her manner let the audience know she expected people would believe her. She made eye contact as she spoke and seemed to have the ability to lock eyes and control the other person’s field of vision. Her gaze was commanding and even disarming.
Bey paused for a sip of the firm’s Filling Station dark-brew coffee from a tan, Greene Madison-branded mug. Adam continued for her. “Yeah, so why? Why indeed? We’ve been actively involved with the American Jazz Museum over on 18th and Vine for years. Events, board service, fundraising, membership drives, interviews for the press, concerts, curating exhibits. And, in particular, the Kansas City Jazz Academy at the museum, started in 2016, that provides jazz instruction for middle and high school students teaching them improvisation, and offering master classes taught by national and international jazz musicians. You name it; we did it. And still do.”
As 3J listened, she observed that there could be no mistaking the Rapinoes’ passion.
Bey asked, “Did you know that over 160,000 people visit the museum each year? Maybe they come because they’re jazz aficionados. But maybe they come to see Charlie Parker’s plastic Grafton alto saxophone because there’s nothing more American than Parker and jazz.”
Adam cupped his coffee mug with both hands, nodded his head, and continued, “We’ve been active with Steve Penn’s Coda Jazz Fund since its inception in 2002. The project raises money to help cover funeral and burial expenses for the families of deceased Kansas City jazz musicians and vocalists. Musicians come from all over the country to donate their live performances to raise awareness and money.
“As we got more and more involved in these projects and the jazz scene in KC, we wanted to do more — return our city to the hub for jazz that it once was. Hence the idea of trying to bring back the small club and restaurant concept that so pervaded the Kansas City jazz scene in the 1920s, 1930s and 1940s, and even into the 1950s. We named our clubs after the iconic clubs from the 1940s: The Hi Hat, The Hey Hay, The Cherry Blossom, The Boulevard Lounge, The Paseo Club, and The Spinning Wheel.”
Adam spoke with a soothing tenor tone, and sounded to Pascale much like Merle Haggard, complete with a bit of the Bakersfield twang by way of Oklahoma. Most importantly for the lawyers in the room, he spoke with authority and presence, commanding attention without being overbearing. As he finished discussing the club venture, Bey took over again and said, “Sounds crazy, but it’s important work for us and it’s beyond hard work, so it gives us a way to fill our days and keep ourselves out of trouble. We built the clubs and, just as we had hoped, they came, and many of them. We developed quite a loyal following. We were a destination not only for patrons, but the word got out quickly and the musicians lined up for us to book their shows. The clubs received stellar reviews. Everything was better than we could have hoped for. At least until the pandemic. But we’re optimistic that the crowds will return as well as the musicians.”
Tireless ambassadors for jazz as an art form and for Kansas City’s place in jazz history, 3J thought.
Adam added, “At least hopeful they’ll come back, even on those days where it’s a little harder to find the island of optimism in the sea of bad news, after what we’ve all gone through worldwide.”
3J found it interesting that the couple passed the lead speaking role back and forth, much like a jazz ensemble using a call and response technique between the musicians — one playing a musical phrase and the other answering, a musical conversation of two instruments speaking to each other while the audience listens in. Everyone on stage gets a chance to take the lead in the spotlight, to the delight of the audience. Good old gospel and native African music roots, 3J thought. The musical version of democratic participation. The Rapinoes shared the spotlight equally with each other. Quite effective. Probably good for the marriage as well!
Pascale asked, “What about this Dewey guy? How did you hook up with him as your lender?”
Bey responded, “The project wasn’t a good fit for traditional bank lenders to take a chance on us. Remember also that we began looking for financing in 2013, just after the end of the 2008 to 2012 financial crisis, and banks were pretty conservative in their lending practices then. We’d never been in the nightclub business before. We had no history and no real business experience in either music concerts or food. We were following by a few decades the collapse of the Hyatt skywalks, which we think tainted the prospect of live music in our city for many years. We had many bank contacts from our years in the shopping center business. Good relationships; we approached all of them. They were respectful, and many liked the project concept. But most weren’t interested in banking us and none were willing to go out on the limb with us.”
Adam continued, “A friend of a friend told us at a cocktail party that they knew a private lender who was more risk tolerant than the banks. Just that easily, we met with Phillip Dewey. He was, to be sure, a different sort, and his loan pricing was higher than we would’ve liked, but we figured it was a short-term arrangement and we took his money. We frankly had little contact with him after we signed the loan documents and Bey and I guaranteed the BJB debt, other than the occasional ‘how’s it going’ phone call from him. He wasn’t big on site visits and in-person meetings with us, but I’m guessing that in his mind, we were model debtors because we always paid on time. So we made him thrilled, to the extent he has the capacity to be thrilled. Have you met him? A truly strange man.”
Pascale nodded in understanding then said, “No, we don’t know him, but we’re learning of his eccentricities.” He had been using the time that the others were discussing Dewey to gather the projections he and 3J had reviewed the day before. “Ok, let’s talk about the projections. We see them as the cornerstone to a successful bankruptcy case. Walk us through your assumptions.”
Bey turned to Ralph Kane and said, “Ralph, can you take this one?”
“Sure thing.” Kane was a burly man, six feet tall, with large, weathered hands, graying medium brown hair cut Marine-short, and spoke with a deep-pitched voice. He folded his hands on the conference table and began. “The last two years of Covid have ravaged the industry, and Adam’s and Bey’s business in particular. So, in my estimation, pulling data from 2020, 2021, and 2022 to construct the prediction of what the next five years will be like isn’t a useful exercise. 2023 has begun to turn around, and so what I did was to take data from 2018 and 2019, as well as the first nine months of 2023, to project what the cash flows could look like for the rest of this year and five years into the future. Not necessarily ideal or textbook, but there’s no other way to make sense of the numbers as we come out of the pandemic.”
Kane paused to see if 3J or Pascale had questions. Hearing none, he continued, “The good news is that while the method may take some liberties with what used to be standard operating procedure in the world of business cash flow projections, there’s also no good way to challenge the assumptions. We’ll probably be in court on this, right? So my thought is that the only way to ‘force’ us to use the numbers from the pandemic years in projecting for the years after 2023 would be if the judge determined that 2023 and beyond will be like the pandemic years; rather than coming out of the pandemic, these years will be more of the virus continuing to hurt business. But even the flu pandemic in 1918 didn’t last that long, so we’d hope that the judge wouldn’t be of a mind to imprint the future years with the financial woes of 2020–2022. The three of us have given this quite a bit of thought and it’s our considered view that this is the fairest method to use to project numbers into the future in the current world we live in. And we hope that you can help us sell it to the judge.”
3J and Pascale listened carefully to how Kane presented the thesis. This, of course, was the elephant in the room. They liked what they heard, and how Kane presented the projections and defended the method.
Pascale said, “We’ll work with you to tighten up how we present this, but it sounds logical and believable. We’ll just have to hope that besides us five, the judge will be the sixth believer in the room.”
3J added, “You should know that the Bankruptcy Code doesn’t require the judge to find that the projections will in fact come true. The standard is a good bit lower. The judge just has to find the plan, based on projections, isn’t likely to be followed by liquidation. It’s the feasibility requirement. The courts regularly say that the plan isn’t a guarantee of success, and the mere potential that the plan might fail isn’t grounds to toss it out. The judges are looking for projections that are well-reasoned and credible.” 3J stood to stretch her back and continued, “The judges want to avoid approving visionary schemes. No hope-upon-hope testimony that’s just wishful thinking.”
3J returned to her chair and Bey said, “Good to know. But it seems like a fine line between ‘well-reasoned’ and ‘hope-upon-hope.’”
“To be sure. Largely, it’s the judge’s reaction to the presentation that carries the day. If the judge gets a whiff of too much conjecture, he tosses the plan and says it’s impermissible wishful thinking. If he finds the testimony credible, he says the projections are well-reasoned. If we run a good, dependable ship during the case and before the plan, we’ll have a better chance of the judge going with ‘well-reasoned’ when he gets to the plan.”
“Well, using those guidelines, these projections are certainly feasible — at least in my estimation,” Kane stated confidently.
“We agree, and we just need to hone the presentation. It’ll be the cornerstone for our success in getting a plan approved,” 3J assured them.
Pascale asked, “Any reason we should try to meet with Dewey before filing?”
Bey answered, “I’m not sure. What would that accomplish?”
“Not always, but sometimes it’s helpful to meet with the lender before a bankruptcy filing to see if there is any common ground that could form the basis of a compromise without necessitating bankruptcy filings,” 3J said.
“I don’t see that happening here,” Adam chimed in. “I don’t mean to dump cold water on the negotiation idea, but we met with Dewey and told him we’d have to restructure our payments for a period of time. We didn’t get a chance to identify how long or how much, because he shut the conversation down. He can be very off-putting, to be honest. He speaks softly, but his eyes light up and seem to flicker with anger. The whole package, especially those eyes, comes across as a bit menacing.”
“I think that’s the effect he’s going for,” Bey put in.
“In any case,” Adam continued, “we couldn’t even finish presenting to him the notion of a restructuring or a compromise. He wasn’t interested.” Adam paused. “I want to make sure I accurately quote him here: ‘You will pay every penny you owe when you owe it. That is what the papers we signed say. That is my unwavering expectation.’ Then, I think for emphasis, he lowered his chin, raised his eyebrows, and asked us as he loudly tapped his conference room table twice with his pointer, ‘Do I make myself clear?’ I took from the confrontation that he’ll fight us at every turn and has little interest in a gentlemanly discussion of alternatives to bankruptcy.”
Bey added, with disgust at herself, “After that exchange, I did what I should have done way back when, before taking this man’s money. I did some deep dive, due diligence. What we witnessed wasn’t an act. It’s how the man is. He has a well-earned reputation for cutting no deals. It’s menacing, the way he looks at you, especially as it’s such a stark contrast to his stature and measured tone. He’s been through some bankruptcy cases before. I mean, this is America — what lender hasn’t? But, believe me, there’s no deal he’s looking for. There are no loan modifications he’s interested in.”
Adam jumped in as Bey took a sip of coffee. “We’ve talked about this a little, and we think we just file the bankruptcy cases and get on with the process. Which brings us to our fundamental question. What should we expect? Because, what we need and want, is some form of scaled-back payment plan, a lower interest rate, and maybe even an initial short moratorium on payments to our friendly private lending service.”
3J shook her head knowingly and responded, “We’ve talked as well and here’s what we think we should ask the judge for on day one, and what we think will likely happen. First, let’s talk about the collateral. Veridical has a lien on your business furniture and fixtures, receivables and inventory. You have tables, chairs, some art on the walls, some autographs, some food in the fridges, etc. Not much inventory in your business. You have a day or two of money due to you from credit card companies; that’s it. You’re not like Walmart, where you have a store full of inventory or a manufacturer who makes goods from raw materials. With this in mind, we need you three to figure out what the used furniture and fixtures are worth, as well as your average float owed to you by the credit card companies — that would be your receivables. We’re guessing those items won’t yield a lot of value.”
Bey responded, “We can do that quickly. We know those numbers.”
“Good. Then we need to understand the value of the five pieces of real estate owned by your company, BJB LLC, where clubs operate. By the way, what does ‘BJB’ stand for?”
Adam and Bey smiled, and Adam said, “Bring Jazz Back.”
Pascale smiled broadly. “Ahhhh. Of course. Got it.”
3J continued, “With that information, we’ll have an understanding of what Veridical’s collateral is worth on day one of the bankruptcy cases. Our guess is that the collateral package will be worth significantly less than the balance left owing on the loan — do you agree?” As Bey and Adam murmured agreement, 3J went on. “Good. Then we’ll need to be able to show that the value of the real estate is stable. Should be, right?”
Bey said definitively, “Right. No issue there.”
“Great. Then, turning to the cash, we’ll ask the judge to approve a budget for the use of the cash to operate the clubs, and we’ll exclude payments to Veridical from the budget — we suggest for the first sixty days. When Mr. Dewey’s lawyer objects, we’ll argue that since the real estate isn’t diminishing in value, no payments are due. And, for a little bankruptcy icing, we’ll argue that when new patrons frequent the clubs after we’ve filed the bankruptcy cases, Veridical has no lien on the cash paid by patrons. So Veridical has no say in how that money’s spent.”
This last point caught the Rapinoes’ attention.
“Can we actually get away with that last argument?” Adam asked with a tone of surprise and hope.
“We think we have a good chance to make that one fly.”
“And what of the operations once we file?” Bey asked.
“The bankruptcy filings will result in the imposition of what’s called the automatic stay, a cornerstone of the protections afforded to debtors who file for bankruptcy relief. The stay enjoins creditors from taking any steps to collect their pre-bankruptcy debts. It’s a powerful tool that gets you a breathing spell from creditors. We’ll be relying heavily on it to get you the protection you need from Mr. Dewey and Veridical. You’ll be in command of the narrative; something like ‘Clubs file to restructure debt and keep live jazz in Kansas City.’ In the absence of collection efforts, the businesses should be stable. Bankruptcy and the automatic stay will manage Dewey for a good while.”
“And creditors abide by the automatic stay?” Bey asked.
“Unless they have a death wish, they do,” 3J responded. “No judge would countenance a creditor ignoring the stay.”
“Ok, then,” Bey said. “We have some work to do to get you what you want.”
3J then explained, “When we get to the Chapter 11 plan process, you can expect to reset the interest rate to something akin to a market rate. So, much lower than 7%. As well, we can restructure the payments over a longer period of time than the remaining term set forth in the loan documents. In other words, we should be able to alter a number of the terms in Dewey’s sacred documents.”
Bey smiled and shook her head. “Dewey will shit a brick.”
Pascale replied, “Yeah, the Bankruptcy Code can do that to some creditors.”
“One other thing Dewey told us at the non-meeting we had,” Adam recalled. “He said he might run out and get a receiver appointed shortly.”
“We’re worried about that possibility,” Pascale revealed. “We need to get this project in order quickly to file the bankruptcy cases before a state court judge appoints a receiver. A receiver would displace you from running BJB and would wreak havoc on an operation already deeply bruised by Covid. It might also preclude you as the owners from seeking bankruptcy protection for BJB.” Pascale paused to let his analysis sink in. “We need to beat Mr. Dewey to the filing finish line here.”
3J then asked, “One last topic, please. Give us an overview of who else BJB owes money to.”
“We’ll get you a complete list as soon as we get back to the office, but the high-level picture is this,” Adam explained. “We have a group of vendors we rely on for food, linens, cleaning, ticket sales, and web page operations … all the things you might imagine a restaurant needs to stay in business and serve its patrons. One reason we want a moratorium from Dewey is to make sure we don’t fall behind in payments to these vendors, who have worked with us throughout the pandemic. We need them to keep working with us.”
Adam looked at Bey and she continued, “At any given time, we owe tens of thousands of dollars or more to our vendors in the aggregate.”
3J responded, “Ok, get us the list, with addresses, contacts, debts owed, and amounts past due. We’ll start to put the papers together quickly and we’ll be ready to quick-file even if we haven’t finished all the papers yet.” She made eye contact with the threesome sitting across the conference table. Questions?”
Adam looked at Bey, then back to 3J, and answered, “None, but we know how to find you if we think of any.”
