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I often ride my bike past the headquarters for THQ, a large video-game company in Agoura Hills, California.  In fact, it’s the third-largest employer in the city, after Bank of America and the local school district.   Two days ago, it filed for bankruptcy protection under Chapter 11 of the code.  The debtor’s attorneys listed on the filing are Gibson, Dunn, and Crutcher in Los Angeles, and Young Conaway Stargatt & Taylor, a local firm in Wilmington, Delaware, where the corporation filed its case.

Even though world headquarters for this company are down the street, the Delaware filing is a reminder that the venue provisions for bankruptcy courts allow a filing in the debtor’s district of (1) residence, (2) domicile (residence and domicile are not the same thing), (3) principal place of business in the United States, (4) principal site of assets in the United States, or (5) incorporation.  The first four work for people as well as corporations: I once filed a case for a U.S. citizen residing in Switzerland by showing that he owned a bank account and shares in a corporation doing business in Agoura Hills.

THQ’s president spins the chapter 11 filing as an opportunity, and I admire that.  The company faced undeniable problems (which, having almost no interest in video games, I am happily ignorant of) and had lost $2 billion in market capitalization over the last six years.  That’s a lot of mojo down the drain.  If, as the company and the LA Times report, the company found an investor to purchase its assets, bankruptcy will be a great vehicle for it to strip off the liens attaching to those assets and allow it to continue doing business and catering to the tastes of hard-core action gamers.  We’re probably all better off in that case, because those guys will stay off the streets, to blow up zombies on their electronic screens, rather than interact with the rest of society.

Question:  The Debtor surrendered the property in the plan and moved out.  No one foreclosed.  Is the Debtor still liable for the HOA fees?

“The First Circuit has held that ‘surrender’ only means that the collateral is made available to the creditor, but the creditor is not required to accept the property.  See In re Pratt, 462 F3d 14 (1st Cir. 2006).  I think that ‘surrender’ is not effective until the debtor actually vacates the property since so long as the debtor has actual possession, it isn’t really ‘available’ because the creditor/HOA would have to do an eviction case or take some other affirmative step to obtain actual possession.

“I think the better way to handle this is to provide in the chapter 13 plan that upon confirmation, the property will vest in the mortgagee or HOA (as the case may be), in accordance with §§1322(b)(8) and (9).  See In re Bryant, 323 BR 635 (Bkrtcy.E.D.Pa. 2005).  I did this in a plan recently, for the first time, and somewhat to my surprise, no one blinked, much less objected, so the plan was confirmed.  I will record a copy of the Confirmation Order at the Registry of Deeds, and that will take the debtor off the title.”

David Baker
Boston

Additional comment for 9th Circuit readers (subtitle – “there’s always another side”):

You’ll want to do research in your jurisdiction to determine how the courts treat post-petition dues in a 13.  Here in the 9th circuit, lower courts are leaning towards treating the dues as obligations that run with the land and are the personal obligation of the debtor despite the bankruptcy or inapplicability of 523(a)(16). See, e.g., In re Foster, 435 B.R. 650; 2010 Bankr. LEXIS 2468 .

I would caution trying to transfer title as part of a bankruptcy order.  Transfer of title is a matter determined by state law and it’s unlikely the bankruptcy court has the authority/jurisdiction to do what you’ve proposed.  Most HOA CC&R’s and most deeds of trust have attorneys fees provisions, so if you end up in court over it, your client may end up paying a lot more than they would have.

Stephen M. Smith
Seattle, WA

Nice summary here. 

The hearings on the First Day Motions are set for tomorrow, November 7, 2012, in front of Judge Clarkson at 10:30 a.m.

The various motions can be viewed at www.omnimgt.com/asmc.

American Suzuki filed chapter 11 in Santa Ana yesterday, November 5, 2012.  The case has been assigned to Judge Catherine Bauer.  Case No. 8:12-bk-22808-CB.  Debra Grassgreen is counsel for the Debtor.  There are (count em) 22 first day motions not including Debra’s Employment App.  My favorite part of the first day motions in these big cases is the Declaration filed to support the motions.  The Declaration filed in this case is attched here.    Suzuki First Day Dec  It has a fantastic amount of information about the company, the problems, the plans, the people etc.  The debtor has some $220 million of assets and $346 million of debts.  It appears the big problem is the autombile division.  The debtor filed a PLAN with everything else which provides essentially that it will sell all of its assets other than the automotive division to a related entity and then wind down the automotive division.