Legal Issues — Other Topics
Leasing in Indian Country
Understanding Important Issues
A lessor contemplating a finance transaction in Indian country should exercise due diligence by consulting with counsel familiar with tribes and tribal law, waivers of sovereign immunity, and their effect on the finance transaction. Ultimately, it is a business decision whether to lease or finance equipment to a tribe, tribal entity or tribal member where the equipment will be on a reservation. Understanding the issues surrounding such a decision is the first step toward a successful transaction.
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Attorneys Discuss Equipment Leasing, Financing and Litigation in 2011
Although There are Growth Opportunities for Equipment Leasing, Finding an Availability of Funds Will Remain a Challenge in 2011
As 2011 brings a hopefully brighter outlook for the equipment leasing and financing sector, we asked a group of attorneys how they see the new year in terms of the state of the economy and its affect on litigation and bankruptcy as well as their predictions for the equipment leasing and financing industry as well as the banking industry. While there are signs for optimism after a number of hard years, our participants note that conservatism in lending, especially, will still reign.
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A Little Something About Suretyship, Co-Borrowers and Co-Lessees
When it comes to co-borrowers and co-lessees, attorney Ken Weinberg returns to remind us that even if you call a duck a monkey, it’s still a duck. As such, lenders and lessors should proceed with caution when using these structures to avoid the potential for sticky situations down the road.
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TOUSA, Inc.: Upstream Guaranties, Fraudulent Transfers & ‘Cute’ Savings Clauses
Special required notices to guarantors and other byzantine defenses help to explain why so many guaranties are practically unreadable and why many are loathe to make changes to these documents. Take the much-examined case In Re TOUSA, Inc...
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Lessors of Motor Vehicles Often Held Strictly Liable for Lessees’ Damage
Blame CERCLA
Many lessors have sighed in relief as the Graves Amendment generally appears to have addressed various state laws, which previously held lessors of motor vehicles strictly liable for damage caused by their lessees. However, the recent case of U.S. v. Saporito, reminds us that strict liability laws are still out there.
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Meet John Doe: A Little Something About Sole Proprietorships
This issue of Dispatches From the Trenches discusses sole proprietorships (d/b/a), and explores some of the increased risks associated with lessees that fall into this category. These risks include the location, name and movement of the debtor as well as the transfer of collateral.
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BALCAP Case: Conflicting Statutes Make for Bad Law for Judgment Lien Creditors
The recent case of Banc of America Leasing & Capital vs. 3Arch Trustee Services, Inc. decided on January 5, 2010, describes what judgment lien creditors might say is an unfair result shutting BALCAP out of the money on its recorded judgment lien. Here is another case where conflicting statutes make for bad law.
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Fair and Clear: Liquidating Damages and Indemnity Provisions
This edition of Dispatches From the Trenches discusses two recent cases from the perspective of liquidated damages and indemnity provisions: National City Healthcare Finance v. Refine 360, LLC and Midwest Concrete Placement, Inc. v. L&S Basements, Inc. The two cases illustrate the necessity of being both fair in terms of liquidated damages provisions and clear with regard to indemnification provisions
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Understanding Fixtures and Special Priority Rules in Lease Default Claims
In a rough economy, lessors are more frequently faced with competing claims against equipment on lease to defaulted customers. Some of these claims come from landlords or mortgagees who have an interest in the premises on which the leased equipment is located. Such claims can be particularly troublesome if the leased equipment may be considered fixtures under state law.
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Commercial Mortgage Backed Securities: Dafaults and Workouts
The very structure of many commercial loans, and the relationship between rents collected and mortgage payments, have the effect of deferring loan defaults for a while. Signs are beginning to appear, though, that delinquencies are sure to accelerate. When they do, there will be an avalanche of defaults, of which perhaps 20% will be of loans that are now held in commercial mortgage-backed securities trusts falling under the general description of “commercial mortgage-backed securities” (CMBS).
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Protecting Your Collateral: A Little Something About Lessee Assignments and Assumptions
In these difficult times, lessors are more frequently willing to allow an existing lessee to assign its rights and interest in leased or financed equipment to a new lessee so long as the new lessee assumes all obligations under the lease. This issue of Dispatches from the Trenches discusses additional due diligence that should be conducted for lessee assignments and assumptions.
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Surmounting a Slippery Slope: Complying With ECOA When Rejecting Applicants
Many in the industry find themselves rejecting more applicants than they have in a long time. This edition provides an outline of the Equal Credit Opportunity Act and the requirements it imposes on finance companies in such situations.
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Meeting §303(b) Requirements in Creditor Involuntary Relief Petitions
The en banc decision in Trusted Media highlights the significant practical and legal implications of a ruling that makes a determination that the requirements of §303(b) are properly met — a prerequisite to subject matter jurisdiction, as the Fifth and Second Circuits hold. Creditors filing an involuntary petition for relief against a debtor must “get it right” or risk substantial uncertainty as to the validity of orders and activities in the case.
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Why Bankruptcy Practitioners Should Care About E-Discovery
The day-in, day-out reality of bankruptcy practice for practitioners is often likened to the emergency room of a busy urban hospital. Sometimes the patient is wheeled in, barely clinging to life. The wounds must be cleansed, the bleeding stopped, sometimes with an incomplete knowledge of the patient’s full history and circumstance, and with foreknowledge that resuscitation may not be in the cards. All of this is done while striving to earn a living, and to uphold the ethics of the profession.
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True Leases Verses Straight Loans
A Matter of Distinction
It is common for those in our industry to distinguish true leases from dollar-out leases or other leases intended as security, which result in nothing more than a secured loan (referred to throughout the remainder of this issue as an ALIAS). This edition goes a step further and discusses situations where a loan documented on a note and a security agreement (sometimes referred to as a straight loan) is preferable to a lease, and vice versa.
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Sixth Circuit Rules on Lease Rejection Damages, the Impact of Mitigation Efforts
The case of Giant Eagle, Inc. v. Phar-Mor, Inc., holds a number of positive rulings for equipment lessors. The court found that lessors’ rights would not be limited in its claims for rejection damages, but also highlights the disadvantages that this type of structure could present for equipment lessors.
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Florida Court Buries Graves Amendment Regarding Lessor Liability Claims and Financial Responsibility
Lessors have had to concern themselves with lessor liability claims and the scariest of these have stemmed from claims that haven’t required evidence of wrongdoing on the part of the lessor. Along came the Graves Amendment, and lessors began to find some comfort. But a recent ruling from the Sunshine State has once again cast ominous clouds in the matter of financial responsibility.
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Important Differences Between Commercial and Municipal Equipment Lease Documents
A veteran commercial leasing professional can quickly become “a fish out of water” when attempting to dive into the murky waters of municipal leasing. Nearly everyone knows that a municipal lease must include something referred to as a “nonappropriation clause,” but beyond that, do you know the legal risks of failing to include certain provisions that are specific to municipal leasing transactions? Do you know the provisions that should not be included?
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How Guaranties can Help or Hurt Lessors
How does a guaranty affect a lease? How does the court rule in the case of a guaranty? In this edition, Barry Marks and Ken Weinberg tread through the different types of guaranties as well as the various rules, to show how they can be of benefit — or a detriment — to lessors.
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Easing the Way Through the Broker-Lender Relationship
In a time when the working relationship between brokers and funding sources has never been more important, attorneys from law firm Askounis & Borst — Thomas Askounis, Alex Darcy and Debra Devassy — discuss the common missteps and resolutions that can arise in these partnerships.
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Relevant Issues Relating to Inventory Financing
The last installment discussed the possibility of a lessor of vehicles being unable to rely on a lien notation on the Certificate of Title for purposes of perfection. This article continues this theme by discussing other issues related to inventory financing.
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Second Circuit: When Debt is Non-Dischargeable in Backruptcy
The influential Second Circuit Court of Appeals has become the latest federal circuit court to add its voice to the interpretation of a key provision upon which creditors can seek a determination that a debt is non-dischargeable in bankruptcy.
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BCI Aircraft Leasing, SEC Legal Battle Heats Up
A legal battle pitting Chicago’s BCI Aircraft Leasing and its chief executive Brian Hollnagel against attorneys from the Securities & Exchange Commission (SEC) has continued to escalate over the past several months. It all started in August when the SEC filed a civil lawsuit in the U.S. District Court for the Northern District of Illinois [...]
Read more...Date Posted November 1, 2007
Liquidated Damages Under True Leases
No Double-Dipping Allowed
This installment discusses liquidated damages under true leases. Ken Weinberg provides three cases: In re Baldwin Rental Centers, Inc., Carter v. Tokai Financial Services, and In re Montgomery Ward Holding Corp. as examples of the complexity of liquidated damages clauses.
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Can Creditors Recover Attorney’s Fees in Bankruptcy Cases?
The Supreme Court Decides
Creditors are often faced with the dilemma as to whether they can recover their legal fees incurred in a bankruptcy once the lessee or debtor files a bankruptcy petition. In the Travelers’ case, the U.S. Supreme Court tackled the question as to whether a creditor may recover attorney’s fees authorized by a prepetition contract and incurred in postpetition litigation.
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Still Impacts Certain Commercial Leasing Transactions
The Fair Credit Reporting Act
This edition discusses the Fair Credit Reporting Act (FCRA) and its application on commercial leasing transactions. Although not a hot topic in the press, the FCRA still impacts commercial leasing transactions when credit reports are pulled from consumer reporting agencies. Those creditors that do not follow the FCRA can face legal consequences.
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Debt or Equity: How the Classification of Hybrid Securities Can Turn a Good Company Bad
A company that appears to be flying high in the black might actually be neck deep in the red if its financing relies heavily on “hybrid” securities. Issuances of hybrid securities — financial instruments that have qualities of both debt and equity — are on the rise. This article reviews three cases that may guide individuals charged with directing a company’s operations to determine whether hybrid securities should be treated as debt or equity.
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Court Determines Payment Intangibles are Separate from Lease
In this issue, Ken Weinberg discusses the Commercial Money Center, Inc. case, and the decision, which determined that payment intangibles are separate from the lease itself. The results of this case offer some recommendations funders may want to consider.
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