TUCSON — The consolidated bankruptcy cases of all four Tate automobile dealerships formerly located in Show Low, Holbrook, Winslow and Gallup, New Mexico, are inching towards a resolution with the attorneys and financial advisors being paid first, to the tune of $139,036 in fees and costs. According to court records, on Dec. 12, 2019, Tucson bankruptcy judge Brenda Moody Winery “allowed” the expenses and ordered $112,860.26 to be paid ”immediately,” as “first, interim” compensation.
The four Tate companies filed for bankruptcy protection under Chapter 11 of Title 11 of the U.S. Code on March 8, 2019. A Chapter 11 case is intended to allow the filing company protection from creditors while it reorganizes its affairs. Typically, the owners or managers remain in charge of the company while the case proceeds. In this case, Richard Berry, husband to Amy Elaine Packard Berry and son of Linda Tate, took on that responsibility as the companies’ Debtor in Possession, as it is called.
At the time of the filing, there were plenty of creditors suing or threatening to sue. The Tate companies had been sued in February, 2019, by Ford Motor Credit Company in the Navajo County Superior Court. Ford claims damages in excess of $22 million. There was also litigation brought by the Federal Trade Commission (FTC) against all four Tate companies and Richard Berry and Linda Tate personally, alleging “a range of illegal activities” including falsifying financial information regarding customers’ financing applications and “misrepresenting important financial terms in vehicle advertisements,” according to an August, 2018 FTC press release. Moreover, the companies were in litigation with Santandar, a finance company from which Tate customers got loans to buy Tate vehicles.
The Chapter 11 case was only about three months in, but in June, few were happy with Berry’s management. The judge remarked at one hearing that there didn’t seem to be anyone at the helm of the companies and bemoaned the lack of transparency. Judge Winery removed Berry from that position and appointed a United States Trustee, one Bryan Perkinson of Mesa. Trustees are usually attorneys or CPAs and have the authority to hire experts to sort out whatever company the trustee is charged with operating. The money used to hire experts comes from the assets of the bankrupted companies and are called “administrative” costs, are paid first, ahead of other claimants, like former employees who are owed wages.
The new trustee apparently found such a mess that he asked the judge to convert the four cases to Chapter 7 cases, meaning that the companies assets will be liquidated because there is no reasonable likelihood of a successful reorganization. Within about three weeks of Perkinson taking over, at his request, the court converted the cases to Chapter 7 and the trustee began the process of “winding down the Debtors’ business and liquidating the Debtors’ assets,” according to court filings.
In August, the trustee reported that he was “diligently working to restore access to the Debtors’ electronic records,” but because the “Debtors did not file monthly operating reports during the pendency of their Chapter 11 cases,” he was unable to list amounts of cash receipts or cash distributions. He did however report that “Remaining balances turned over to the Trustee” were $68,029 from Tate’s Auto-Center of Gallup, Inc.; $52,947 from Tate Ford-Lincoln Mercury, Inc.; $153, 694 from Tate’s Auto Center of Winslow; Inc., and $616,783 from Tate’s Automotive, Inc. These balances totaled $891,454 as of August 12, 2019.
Tate’s lists around 183 creditors expecting to be paid, but $139,036 went to the lawyers and financial advisors, and that was just for work between June and October of last year. The pay outs are called ‘first interim” compensation, so creditors can expect the pie to shrink even further. On the other hand, the trustee may discover more assets as well.
The Phoenix law firm of Allen Barnes & Jones, PLC, represents the trustee, Perkinson. Their application for payment evidences highly trained and experienced professionals. For legal fees, they bill hourly at rates between $450 and $255 per hour, a paralegal at $195 per hour and a law student law clerk at $185 per hour. The attorney who bills at $450 per hour only spent .6 hours on the case so far. That firm’s “first interim” fees and costs were allowed in the amount of $95,583.92.
The trustee, Perkinson, through his lawyers, the Allen Barnes & Jones firm, also submitted an application for payment to the financial advisors that have been assisting the trustee. That company is called Sonoran Capital Advisors, LLC. Sonoran advisors bill between $225 and $295 per hour. The court ordered the trustee to pay that company $43,452, for Sonoran’s “first interim” compensation. That includes lodging, travel expenses and meals—Sonoran billed $100.26 for a July 31 meal at Charlie Clarks’ steakhouse.
One noteworthy claimant is Ms. Amy Berry. She wants to be reimbursed for $18,287.54 which she claims she charged on her own credit card for parts used in repair orders for customers when things weren’t going so well at the companies. A hearing was set on her claim for Dec. 3, 2019, but that hearing was vacated for reasons unknown.
According to records in the Ford’s case pending in Navajo County, Richard Berry, his marital community and Linda Tate, suffered a partial judgment against them personally for guaranteeing the companies’ debts to Ford. Ford’s claims against them for, among other things, “Fraud/Fraudulent Inducement” regarding false documents have not been decided yet.
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