Professional actors. Professional productions.

A Pound of Flesh: Lessons in Enforcement of Creditors' Rights

June 25, 2012 - 9:03 AM

A POUND OF FLESH: LESSONS IN THE ENFORCEMENT OF CREDITORS’ RIGHTS FROM
THE MERCHANT OF VENICE

June 28, 2012 3:00 p.m. to 5:30 p.m.

Riverside Theatre, 213 N Gilbert St, Iowa City, Iowa

Speakers: Gary Whittington, Business Unit General Counsel, AEGON USA Realty Advisors, LLC, Cedar Rapids, Iowa; James Wine, Nyemaster Goode, P.C., Des Moines, Iowa; Steve Steine, MECCA Services – Community Based Substance Abuse and Behavioral Health Services, Iowa City, Iowa

Accreditation CLE Credit: 2.5 hours of Iowa CLE credit has been applied for (including 1.0 hour of ethics credit).

Theatre Presentation: Participants are encouraged to attend the Riverside Theatre’s presentation of The Merchant of Venice, which runs now through July 7.  No CLE credit is given for the performance.

PROGRAM OVERVIEW: 

Are promises made to lenders sacred, or do creditors risk disaster when they enforce their remedies strictly? Should a creditor who is a reprehensible outsider enjoy less legal protection than one who is one of us? What moral hazard arises from a failure to enforce the law of contracts? William Shakespeare’s The Merchant of Venice has concepts of contract law and creditors’ rights at its core. In this CLE program, the speakers will identify these ancient concepts of creditors’ rights that will resonate to lawyers today who enforce or defend against the enforcement of debt obligations. The speakers will explain their relevance under current Iowa law and in bankruptcy, from the point of view of a secured real estate lender during and after the Great Recession. In addition, there will be an hour long ethics presentation on the issue of substance abuse.

I. CREDITORS RIGHTS ISSUES (3:00 – 4:30) Gary Whittington and Jim Wine

A DOMINANT TREND: STRICT ENFORCEMENT FAVORING CREDITORS

“…And, I beseech you.
Wrest once the law to your authority;
To do a great right do a little wrong,
And curb this cruel devil of his will.”

“It must not be; there is no power in Venice
can alter a decree established:
‘Twill be recorded for a precedent:
And many an error by the same example
Will rush into the state. It cannot be.”

  • Reluctance of courts to reform contracts
  • Differences from the cycle of the early 1990s
  • Enforcement of Springing Guaranties as Deterrent to Bankruptcy

LEGAL DEFENSES TO ENFORCEMENT: TOUGH, IF THE CONTRACT IS AIRTIGHT

“Therefore, prepare thee to cut off the flesh.
Shed thou no blood, nor cut thou less nor more,
But just a pound, be it but so much
As makes it light or heavy in the substance . . .if the scale do turn
But in the estimation of a hair,
Thou diest, and all thy goods are confiscate.”

  • Lenders beware! Drafters of contracts must live with their mistakes!
  • Borrowers beware! Sophisticated borrowers can’t plead ignorance!
  • Impossibility of performance as defense: Nice try, but no cigar.
  • Trump: Recession as Force Majeure
  • Cherryland: Another lesson for drafters of boilerplate, but favoring lenders

HOW CAN A BORROWER IN DEFAULT FIND MERCY?  BANKRUPTCY AND WORKOUT ISSUES

“The quality of mercy is not strained
It droppeth as the gentle rain from heaven
upon the place beneath . . . Therefore, Jew,
Though justice be thy plea, consider this,
That in the course of justice none of us
Should see salvation; we do pray for mercy
And that same prayer doth teach us all to render
The deeds of mercy. I have spoke thus much
To mitigate the justice of the pleas,
Which if thou follow, this strict court of Venice
Must needs give sentence  ‘gainst the merchant there”

  • Bankruptcy and Discharge as the “mother lode” of mercy.  

Give me my principal, and let me go.”

  • The cram-down plan: how afraid should lenders be? Discussion of cram down requirements, valuation of property, plan feasibility, LaSalle Partnership
  • Recent case law on credit bidding for equity under LaSalle.
  • Till analysis and exposure to low, restructured rates.
  • Workouts and Mortgage Modifications
  • Fraudulent Conveyance Issues

LENDER LIABILITY IN THE GREAT RECESSION: WHEN DOES A LENDER GO TOO FAR?

“There is no power in the tongue of man
To alter me. I stay here on my bond.”

 For, as thou urgest justice, be assured:
Thou shalt have justice, more than thou desir’st”

  •  Equitable Subordination as Punishment for Lender Overreaching
  • The Yellowstone case
  • Residential foreclosures, robo-signing,  defective foreclosures.

LOAN DOCUMENT LESSONS FROM THE GREAT RECESSION

  • Changing credit standards
  • Personal Liability and Recourse Issues
  • Reserve Requirements/Cash Management
  • Single Purpose Entity Requirements

THE SERVICING STANDARD: SUPER SECRET INSIDER TIPS

“Be merciful
Take thrice the money, bid me tear the bond”

  • Explanation of the servicing standard and how it guides special servicers
  • Decisions on the margins: hidden agendas of special servicers
  • How borrowers can use the CMBS servicing standard to their advantage
  • Hidden incentives of special servicers that borrowers can exploit
  • Understanding lender capital issues

II. ETHICS: MAYBE THE DUKE OF SAXONY’S NEPHEW NEEDS TREATMENT – CHEMICAL DEPENDENCY ISSUES AND TREATMENT (4:30 – 5:30)

“How like you the young German, the Duke of Saxony’s nephew?”

“Very vilely in the morning when he is sober, and most vilely in the afternoon when he is drunk: when his best, he is a little worse than a man, and when he is worst, he is little better than a beast. An the worst fall that ever fell, I hope I shall make shift to go without him. . .I will do anything, Nerissa, ere I will be married to a sponge.”

  • Thirteen Myths About Substance Abuse Treatment
  • Continuation of Care Overview – Chemical Dependency
  • Stages of Chemical Dependency

About the Speakers:

Gary Whittington serves as Business Unit General Counsel for AEGON USA Realty Advisors, LLC in Cedar Rapids, Iowa, where he has acted as lead counsel for loan enforcement in connection with a $14 billion commercial mortgage loan portfolio.  Gary received a B.A. from Southern Methodist University in 1976 and a J.D., with honors, from the University of Texas in 1987.  Gary serves on the Board of Directors of the Riverside Theatre Company.

James Wine is a shareholder at Nyemaster Goode in Des Moines, Iowa, where he practices primarily in the areas real estate and real estate finance.  Jim serves on the Board of Regents of the American College of Mortgage Attorneys, is a Fellow in the American College of Real Estate Lawyers, and serves on the Council for the ABA Real Property Trust and Estate Law Section (“RPTE”).  Jim has previously served as Chair of the Mortgage Lending Committee of the RPTE.  Jim received an A.B. from Princeton University in 1979, and a J.D. from the University of Iowa, with high distinction, in 1982.

Steve Steine is the Director of Outpatient Services for MECCA (Community Based Substance and Behavioral Health Sciences) in Iowa City, Iowa.

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