Macdonald | Fernandez LLP


221 Sansome Street
San Francisco, CA 94104
Telephone: (415) 362-0449
Facsimile: (415) 394-5544
914 Thirteenth Street
Modesto, CA 95354
Telephone: (209)549-7949
Facsimile: (209) 236-0172

Wednesday, August 12, 2015

Success Story: $20 Million Hotel and All Jobs Saved From Collapse

In the summary below, we tell the story of how we recently saved a $20 million hotel from collapse, keeping the doors open without interruption and saving all jobs.

The Company: A hotel in Riverside, California.

The Problem: The hotel defaulted on certain terms of an approximately $20 million loan agreement with a lender.  The lender subsequently initiated state court litigation to foreclose. 

The Solution:  We filed a chapter 11 bankruptcy case for the hotel, halting the state court litigation and allowing the hotel to continue to operate without interruption.  Thereafter, we handled issues touching upon municipal bond financing, assumption of the franchise agreement, disputed easements and purchase options.  Recently, we obtained bankruptcy court confirmation of the hotel's chapter 11  plan of reorganization, which modifies the terms of the loan agreement and completely resolves all issues.

The Impact: Through a confirmed chapter 11 plan, we saved the hotel from foreclosure.  The hotel’s bankruptcy case is now closed and the hotel is operating profitably. 

Tuesday, August 4, 2015

Mortgage Modification Procedures Established in Bankruptcy Courts forNorthern District of California

Effective August 1, 2015, most bankruptcy courts adopted sweeping new mortgage modification procedures, which can be viewed here.

This impressive set of new procedures was tested in Florida and certain other jurisdictions but is entirely new to the Northern District.  Specifically, the procedures provide for monitoring and mediation of mortgage modifications based upon lender consent.  Most major lenders regularly consent and have pre-registered with the electronic documentation system, which is key to the functioning of the program.

The program applies to all open and new chapter 13 bankruptcy cases in participating courts.  It may also be applied in individual chapter 11 bankruptcy cases by special request.

The new procedures streamline the processes under HAMP, HARP, Fannie Mae, Freddie Mac, FHA, VA, private bank programs and other mortgage modification procedures.  It also eliminates several common roadblocks to mortgage modification approval and dealing with mortgage modification denials, including document completion, income and expense analysis, forbearance and balloon payments, reamortization, cure of arrears and due diligence and title problems.

A key advantage is the combination of mortgage modification with bankruptcy relief, adding opportunities for discharge of unsecured debts, reorganization of priority debts and resolution of title and lien-priority issues.  This combination is likely to provide relief for thousands of debtors who were poorly served by either process standing on its own.

Monday, August 3, 2015

Macdonald Fernandez LLP is Proud to Announce Premier Commercial Bankruptcy Attorney from the Eastern District of California, Carl W. Collins, has Joined the Firm as Partner






1127 12th Street, Suite 106
Modesto, CA  95354
(209) 521-8100

Iain A. Macdonald
Reno F.R. Fernandez III
Matthew J. Olson
Roxanne Bahadurji

Bankruptcy and Related Litigation

San Francisco Office
221 Sansome Street, Third Floor
San Francisco, CA 94104
(415) 362-0449

Monday, June 15, 2015

Chapter 7 Trustee Must Notify Creditors and Obtain Court Approval Before Paying Taxes

In In re Cloobeck, 14 C.D.O.S. 5982, No. 23-15432 (9th Cir. June 12,  2015), the United States Court of Appeals for the Ninth Circuit ruled that a chapter 7 bankruptcy trustee must notify creditors, set a hearing or opportunity for a hearing and obtain bankruptcy court approval as a condition of paying taxes incurred by the bankruptcy estate.  Specifically, a trustee must obtain court approval both as to the appropriate amount of taxes and authority to pay the taxes.

Bankruptcy Code Section 503(b)(1)(B) affords administrative priority to tax claims against the estate.  A creditor objected to the trustee's payment of estate taxes more than two years after apparently learning of the payment, arguing that Section 503(b) requires "notice and a hearing" before payment of administrative expenses.  

The trustee argued that this would be inconsistent with Internal Revenue Code (26 U.S.C.) Section 6012(b)(4), which provides that:  "Returns of an estate, a trust, or an estate of an individual under chapter 7 or 11 of [the Bankruptcy Code] shall be made by the fiduciary thereof."  Moreover, the trustee must ordinarily pay federal taxes on time.  28 U.S.C. § 960. Also, Section 503(b)(1)(D) excuses the government from filing a request for payment of an administrative expense, unlike other creditors.

The bankruptcy court rule in favor of the trustee.  On appeal, the district court affirmed and determined that the creditor's objection was untimely.  The creditor appealed to the Ninth Circuit.

The Ninth Circuit reversed and remanded for further proceedings.  Specifically, the court ruled that the trustee must notify creditors and set a hearing, or provide an opportunity for a hearing, and must also obtain court approval both as to the appropriate amount of taxes and authority to pay the taxes.  The court explained that a trustee must pay taxes in time, even if the IRS does not file a request, and must also provide notice and an opportunity for hearing.  Judge Wallace concurred in the result but write separately to voice concerns over the timeliness of the creditor's objection.

Monday, April 13, 2015

Reno Fernandez Recognized by Bar Association of San Francisco for National Volunteer Week

Today the Bar Association of San Francisco recognized Reno Fernandez in honor of National Volunteer Week for his work as chair of the Commercial Law and Bankruptcy Section, an arm of the bar association dedicated to continuing legal education of the bankruptcy bar.  Read more here.

Friday, March 27, 2015

Starting Up & Winding Down: Both Sides of the Business Cycle

Join Matt Olson for lunch as he and Greg Demirchyan present "Starting Up & Winding Down: Both Sides of the Business Cycle" for the Business Law Section of the Bar Association of San Francisco on Tuesday, May 26, 2015.  Reno Fernandez is a member of the section's executive committee.

Starting Up and Winding Down: Both Sides of the Business Cycle

Fail again.
Fail better.
- Samuel Becket

This is the entrepreneur's motto.  In this program, learn to properly form and advise a startup and also wind it down so entrepreneurs can smoothly transition to the next project.


Greg Demirchyan
Emergent Legal

Matthew J. Olson
Macdonald Fernandez LLP


• Forming corporations and limited liability companies
• Advising startups, tips and best practices
• Winding up and dissolving a company out of court

Date, Time & Location

Tuesday, May 26, 2015
Noon to 1:30 pm
301 Battery Street, Third Floor
San Francisco, California


Thursday, February 19, 2015

The Intersection of Tax and Bankruptcy

This Monday, February 23, 2015, at the City Club of San Francisco, the Bay Area Bankruptcy Forum in cooperation with the Taxation Section and the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco will present "The Intersection of Tax and Bankruptcy."  Reno Fernandez is a member of the Forum's board of directors.

The Intersection of Tax and Bankruptcy

Dennis Bean, CPA
Bean Hunt Harris & Company

Heinz Binder
Binder & Malter, LLP 

Richard Pierotti, CPA
Kokjer, Pierotti, Maiocco & Duck LLP

A. Lavar Taylor
The Law Offices of A. Lavar Taylor

February 23, 2015
5:00 to 7:00 pm

The City Club
155 Sansome Street
San Francisco, California

More information here.

Monday, February 16, 2015

Chapter 11 Reorganization Solutions to Port Strikes and Shipping Delays

A strategic chapter 11 bankruptcy case can provide crucial help to businesses facing delayed shipments of supplies and inventory resulting from the port strikes and shutdowns, including:

  •  The Automatic Stay.  A worldwide injunction goes into effect immediately, preventing creditors from suing, collecting collateral and even calling and harassing the business.  This provides a critical breathing spell.

  •  Adjust Payments to Creditors and Vendors.  Repay creditors in full or in part over time on a schedule that works in light of delayed shipments and delayed sales.

  •  Preserve and Assert Claims.  If the business holds claims against third parties on account of delayed shipments, these are preserved and can be asserted during or after the chapter 11 case.  These can be difficult or impossible to assert if the business is allowed to collapse.

  •  Obtain Operating Cash.  Lenders are reluctant to loan to a distressed company.  However, lenders - including the principals of the company - can make loans on a preferred and protected basis through court-approved DIP financing in chapter 11.

To summarize, a central purpose of chapter 11 is to solve short-term cash flow problems, and it provides good tools to do so.

By Reno Fernandez, a partner with Macdonald Fernandez LLP, a law firm focusing on business bankruptcy, reorganization and commercial litigation.  Macdonald Fernandez LLP helps businesses and individuals file for relief under the Bankruptcy Code throughout California, including Los Angeles, San Diego, the San Francisco Bay Area and the Central Valley, and the firm is a debt relief agency as defined under the Bankruptcy Code.  Advertisement.  Reno can be reached at (415) 362-0449 x 204 or

Thursday, February 12, 2015

Business Bankruptcy Basics

Learn about business bankruptcy basics and earn CLE credit valid in ten states with this video, available here.  The provider, namely LexVid, should give you one video for free.  Here is the course description:

There are a number of complex issues to consider when representing a business client in a bankruptcy.  Join Reno Fernandez, San Francisco commercial bankruptcy attorney, as he covers all the basics of a business bankruptcy case.  The program will focus mostly on corporate Chapter 11 cases, which allows the business to continue to operate with the goal or reorganizing and paying creditors.  Mr. Fernandez will also cover business Chapter 7 cases, which are an effective way to dissolve and wind up if the business does not require a reorganization.  Other topics include discharge, the automatic stay, trustees, and many more.

Chapter 11 Plan Cannot Treat Undersecured Claim as Fully Secured Absent Section 1111(b) Election

In In re Marlow Manor Downtown, LLC, No. AK-14-1122-JuKiKu (9th Cir. B.A.P. Feb. 6, 2015), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit (the "BAP") ruled that a chapter 11 plan of reorganization cannot classify an undersecured claim as fully secured unless the creditor itself elects to be treated as fully secured under Bankruptcy Code Section 1111(b)(2).
In Marlow Manor, the debtor proposed a chapter 11 plan treating a partially-secured lienholder, namely AHFC, as fully secured.  This allowed the debtor to classify the deficiency claim separately from general unsecured claims in order to avoid the impact of an unfavorable vote against the plan by AHFC.  The creditor moved for a determination that the classification was improper.  

The bankruptcy court granted the creditor's motion.  The debtor appealed, and the BAP affirmed.
The BAP found that the plan sought to treat AHFC’s unsecured claims as though it had made the Section 1111(b) election although it had not.  The Section 1111(b) election required the debtor to treat a partially-secured claim as fully secured and pay the full amount of the claim under a plan.

The BAP held that, under Bankruptcy Code Section 1122(a), separate classification of AHFC’s deficiency claims was improper because there was nothing to distinguish them from other general unsecured claims.  Specifically, although the existence of a guarantee may justify separate classification, in this case the guarantor was insolvent and not a source of recovery.

This opinion highlights the importance of determining the value of collateral in bankruptcy.  If the value is not estimates, and the debtor and creditor cannot agree on a value, debtors may not be able to neutralize the creditor's objections by simply paying the creditor in full.

Friday, February 6, 2015

Radio Shack Bankruptcy Update: Emergency First-Day Motions to be HeardToday

At 11:00 am today in Delaware, Radio Shack will request emergency relief pursuant to several "first-day" motions, including approval of debtor-in- possession financing and authority to use cash collateral and pay pre-petition wages.  View the hearing agenda here.  We represent California landlords in the Radio Shack bankruptcy cases. 

Thursday, February 5, 2015

Radio Shack Files for Chapter 11 Bankruptcy

RadioShack Corporation and Atlantic Retail Ventures, Inc. filed voluntary chapter 11 bankruptcy petitions today in the United States Bankruptcy Court for the District of Delaware.  Both companies declared assets and liabilities of more than $1 billion.  View the RadioShack Corporation petition here and the Atlantic Retail Ventures, Inc. petition here.

Thursday, January 29, 2015

Cramming Down Secured Debt and the Section 1111(b) Counter-Measure

On Tuesday, February 10, 2015, the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco will present a lunch program entitled "Cramming Down Secured Debt and the Section 1111(b) Counter-Measure," explaining the most significant moves a debtor can make to modify mortgages and other liens and the countermoves the credit might take.  Reno Fernandez is the Section's Immediate Past Chair.

Cramming Down Secured Debt and the Section 1111(b) Counter-Measure


Robert G. Harris

Binder & Malter


Michael St. James

St. James Law



• The Nuts and Bolts of Cramming Down a Secured Creditor

• The (Under) Secured Creditor’s Leading Counter-Measures

• Future Value, Credit Bidding, and How it all Plays Out in Practice

Time and Place

February 10, 2015
Noon to 1:30 pm

The City Club
155 Sansome Street
San Francisco, California


Tuesday, January 27, 2015

Second Circuit Rules Bankruptcy Code Section Section 546(e) Protects Fraudulent Transfers in Bernard Madoff Ponzi Scheme Case


In In re Bernard L. Madoff Investment Securities LLC, ___ F.3d ___, 2014 WL 6863608 (2d Cir. 2014), the U.S. Court of Appeals for the Second Circuit considered whether the “safe harbor” provision of Bankruptcy Code section 546(e) provides a defense against a trustee’s claims to avoid Ponzi scheme payments under state fraudulent transfer law made applicable by section 544(b), and under Bankruptcy Code provisions allowing the avoidance of “constructive” fraudulent transfers.  The court ruled that section 546(e) did apply, and affirmed the dismissal of such claims against the recipients of the transfers.

For a copy of the Second Circuit’s decision, please click here.


For some time, the bankruptcy trustee of a Ponzi scheme perpetrator has been able to recover from investors the "fictitious profits" paid to them in excess of their investments.  In Madoff, the trustee appointed to oversee the SIPA liquidation of Madoff Securities’ investment advisory unit (“BLMIS”) sought to avoid payments of fictitious profits to investors as “actual” and “constructive” fraudulent transfers under bankruptcy and state law. Certain customers defended on the ground that the transfers were protected by the safe harbor provision of section 546(e), prohibiting the trustee from clawing back their distributions because the payments were made by a stockbroker “in connection with a securities contract” or, alternatively, because they were “settlement payments” made by a stockbroker.

After withdrawing the reference in multiple adversary proceedings, the U.S. District Court for the Southern District of New York (the “District Court”) dismissed the trustee’s “constructive” fraudulent transfer claims under section 548(a)(1)(B) and his state law fraudulent transfer claims (asserted pursuant to section 544) due to the applicability of section 546(e)’s safe harbor. SIPC v. BLMIC, 476 B.R. 715, 722 (S.D.N.Y. 2012).  The District Court also ruled that section 546(e) did not bar the trustee from avoiding “actual” fraudulent transfer claims asserted under section 548(a)(1)(A).  Id.  The trustee appealed as to the first ruling, and the Second Circuit affirmed.


Section 546(e) provides, in part, that notwithstanding sections 544 and 548(a)(1)(B) of the Bankruptcy Code, a trustee may not avoid a prepetition transfer that is a “settlement payment” made by or to (or for the benefit of) a stockbroker, or that is a transfer made by or to (or for the benefit of) a stockbroker “in connection with a securities contract.”  This safe harbor has been steadily expanded to embrace more transactions. The Second Circuit and other courts interpreting section 546(e) have acknowledged the breadth of the coverage of this safe harbor and have largely applied the plain language of the provision to broadly immunize enumerated transactions from avoidance even where the transactions at issue arguably did not impact the financial markets.

In Madoff, the Second Circuit imposed a broad and literal interpretation of section 546(e) in examining whether the agreements between BLMIS and its customers constituted “securities contracts” as defined in section 741(7) of the Bankruptcy Code, and whether the payments were made “in connection with” a securities contract. The trustee argued, among other things, that section 546(e) did not apply because BLMIS never actually initiated, executed, completed or settled any securities transactions. But the Second Circuit found that section 546(e) does not require an actual purchase or sale of a security. Rather, the transfer need only be broadly related to a securities contract and not an actual securities transaction. The Second Circuit also concluded that the interpretation of section 546(e) espoused by the trustee would in that case risk the very sort of market disruption Congress was concerned with when it enacted the provision.  Noting that BLMIS’ clients had every reason to believe that BLMIS was engaged in actual securities transactions, the Second Circuit ruled that they had every right to avail themselves of the protections afforded by section 546(e) because their agreements were “securities contracts” and because the payments made to them were “settlement payments,” as defined in section 741(8). The Second Circuit also rejected SIPC’s argument that Ponzi scheme payments are, by definition, not made “in connection with” a securities contract.


This is the latest in a string of decisions from the Second Circuit that broadly construe the section 546(e) safe harbor in accordance with the statute’s plain language.  There is a certain irony in the court’s holding, given that the profits of the Ponzi scheme were fictitious because the investment account was itself fictitious. This decision should provide comfort to recipients of transfers made in connection with both actual or purported securities transactions.

These materials were written by Iain A. Macdonald, the senior partner of MACDONALD | FERNANDEZ LLP in San Francisco, California.  Editorial contributions were provided by John N. Tedford, IV, of Danning, Gill, Diamond & Kollitz, LLP, in Los Angeles, California.

Monday, January 26, 2015

Cities in Distress: Is Chapter 9 the Best Vehicle for Saving Cities and Providing Needed Governmental Services?

On Thursday, January 29, 2015, the Bay Area Bankruptcy Forum in cooperation with the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco will present "Cities in Distress:  Is Chapter 9 the Best Vehicle for Saving Cities and Providing Needed Governmental Services?"  This program was a big hit at last year's Northern District Judicial Conference.  Come and help us further the discussion on this interesting topic!

Is Chapter 9 the Best Vehicle for Saving Cities and Providing Needed Governmental Services?

Moderated by:


Honorable Hannah L. Blumenstiel
United States Bankruptcy Judge


Panelists include:


Professor Michelle Wilde Anderson
Professor of Law, Stanford Law School


William A. Brandt, Jr.
President and CEO, Development Specialists, Inc.  and
Chair, Illinois Finance Authority


James E. Spiotto
Managing Director, Chapman Strategic Advisors LLC

Time and Place:

January 29, 2015
5:00 to 7:00 pm

The City Club
155 Sansome Street
San Francisco, California

Bay Area Bankruptcy Forum members, RSVP here.

Bar Association of San Francisco members, RSVP here.

Reno Fernandez is a member of the board of directors of the Bay Area Bankruptcy Forum and immediate past chair of the Commercial Law & Bankruptcy Section

Tuesday, January 20, 2015

Insolvency 101: Evaluating an Insolvent Entity and Rehabilitation Strategies

We are pleased to announce that Roxanne Bahadurji is organizing a program entitled "Insolvency 101:  Evaluating an Insolvent Entity and Rehabilitation Strategies" for the California Bankruptcy Forum's annual Insolvency Conference, set for Saturday, May 16, 2015, at 1:45 pm.  The program description is as follows:
The rehabilitation of a corporation is a delicate process often involving a variety of complex issues. In the context of a hypothetical reorganization, the panelists will identify some of the usual suspects that lead corporations into dire financial straits, how to address these issues from a practical standpoint, and how to evaluate the available reorganization mechanisms. In so doing, the panelists will discuss various insolvency tools, including receiverships, assignments for the benefit of creditors, distressed work-outs, and, of course, bankruptcy, and the pros and cons of each for debtors and creditors.

This is sure to be an excellent program.  Read more here, and register here.

Saturday, January 17, 2015

UCC Lien Priorities Altered When One Creditor Breaches Fiduciary Duties to Another Creditor

In Feresi v. Livery, 2014 LEXIS 1138 (Cal.App. 2d Dist. Dec. 15, 2014), a California court held that equitable principles control over the Uniform Commercial Code's priority scheme when a creditor breaches its fiduciary duty owed to another creditor.
Mesa and Faresi were husband and wife, respectively.  Feresi obtained a stake in a limited liability company -- half of the 25% she owned with Mesa -- pursuant to a judgment dissolving the marriage.  The husband granted the wife a lien against his 12.5% interest to secure other obligations related to the divorce.  However, he did not perfect the lien by filing a UCC Financing Statement.  The wife promptly notified the company's manager of her own 12.5% ownership stake and her lien against her former husband's 12.5% interest.
Thereafter, the manager made a loan to the husband and took a security interest in his 12.5% interest.  The husband defaulted on his obligations to his former wife, who attempted to foreclose her lien.  When the manager learned of the foreclosure attempt, he filed a UCC Financing Statement to perfect his lien.  
The wife's foreclosure was successful.  The husband later defaulted on his indebtedness to the manager.  The manager claimed a senior lien and attempted to foreclose his lien against the portion of the company now owned by the wife.  Specifically, the manager argued that the wife's lien was unperfected.
Although the court acknowledged that the manager's lien was senior to earlier unperfected liens, the UCC provides that that the code is supplemented by principles of law and equity.  Moreover, the court found that the manager owed fiduciary duties to the company's members (including the wife), and perfecting his lien ahead of the wife without her knowledge breach his fiduciary duties.  Accordingly, the court ruled that the wife holds her membership interest free and clear of the manager's lien.
This result cuts against the strict, predictable order of priorities under the UCC, and it is sure to cause commercial lawyers significant heartburn.  It is important to note that pursuant to Bankruptcy Code Section 544, an unperfected lien is avoidable regardless of the debtor's actual knowledge of other liens.

Friday, January 16, 2015

Top Ten California State Bar Insolvency Law Committee eBulletins Now Available Online!

The Insolvency Law Committee of the State Bar of California's Business Law Section has posted its top ten eBulletins for 2014!  Read more here.

Tuesday, January 13, 2015

Reno Fernandez Recognized as Outgoing Chair of BASF Commercial Law & Bankruptcy Section

Reno Fernandez ended his three-year term as chairperson of the Bar Association of San Francisco's Commercial Law & Bankruptcy Section, and the section thanked him for his service at a luncheon today by presenting him with a commemorative gavel.  Reno feels honored to have had the privilege of supporting the bankruptcy bar.

Medical Debt Collectors and the Telephone Consumer Protection Act

A court has ruled that a medical debt collector may make automated collection calls to a patient's cell phone notwithstanding the fact that the patient's wife provided the number to the hospital, not the collector.  Specifically, the United States Court of Appeals for the Eleventh Circuit reversed a district court's grant of summary judgment in a Telephone Consumer Protection Act (“TCPA”) action against a medical debt collector under the so-called “prior express consent” exception.  

In Mais v. Gulf Coast Collection Bureau, Inc., Case No. 13-14008 (11th Cir. 2014), the Eleventh Circuit focused upon a 2008 ruling of the Federal Communications Commission (“FCC”), which held that calls to wireless telephone numbers provided in connection with a pre-existing debt are permissible as calls made with the prior express consent of the called party.  23 FCC Rcd. 559, 564.
After receiving radiology treatment, the patient's wife signed hospital admission forms on behalf of the patient and provided the patient's mobile telephone number.  She also acknowledged receipt of the hospital privacy notice, which permitted it to use and disclose health information to bill and collect payment.  The number was eventually provided to Gulf Coast Collection Bureau, which is a debt collector that uses an automatic dialer to call telephone numbers and leave messages.  

The patient sued Gulf Coast, alleging inter alia that such collection practices violate the TCPA because the telephone phone number was provided to the hospital, not Gulf Coast.  The district court granted summary judgment in favor of Mais.  On appeal, the Eleventh Circuit reversed.
The Eleventh Circuit found that the FCC ruling was intended to reach a wide range of creditors and collectors, including medical debt collectors. Therefore, prior express consent was obtained in accordance with the ruling.  Moreover, the court held that there was no practical distinction between the patient providing his telephone number directly and disclosure by an intermediary because the main issue is whether the party gave consent to be contacted, not whether the number was provided directly.

This ruling raises a question as to how attenuated or distant must the connection be between the collector and the debtor before they fall out of the prior express consent exception.  Disputes over tracing such tenuous connections appear ripe for litigation.

Wednesday, January 7, 2015

Chapter 11 Bankruptcy in a Nutshell

Reno Fernandez spoke on this panel for the 2014 California State Bar Annual Meeting entitled "Chapter 11 in a Nutshell."  The video is now available here.

Viewers earn one hour of MCLE credit as well as one hour of Legal Specialization in Bankruptcy Law credit.

This program will take the mystery and confusion out of the Chapter 11 bankruptcy process.  Learn the basics of Chapter 11 from the filing of the bankruptcy petition and first day motions through confirmation of a plan of reorganization.