Originally Published in Law 360 - May 7, 2013.
Scott L. Baena is a senior partner with Bilzin Sumberg Baena Price & Axelrod LLP in Miami and chairman of the firm's restructuring and bankruptcy group. His practice focuses on creditor's rights, workouts, bankruptcy and commercial loan transactions. Baena has served as a commissioner on the Uniform Law Commission. For more than 30 years, he has been active in the development of Florida's commercial laws, beginning with service as co-sponsor of the 1980 revisions to Article 9, Uniform Commercial Code (Chapter 679, Florida Statutes). He is a frequent lecturer and author on subjects within his practice specialties.
Q: What is the most challenging case you have worked on and what made it challenging?
A: I served as lead bankruptcy counsel for Fontainebleau Las Vegas Holdings LLC (09-21481-BKC-AJC). The dynamics were daunting and at times overwhelming. To begin, the Fontainebleau Las Vegas was a half-finished $2 billion hotel on the north end (which happens to be the wrong end) of the "Strip" in Las Vegas. Construction of the hotel was well underway when the economic meltdown occurred. As we all know, the first and biggest casualty of the economic crisis was the failure of Lehman Brothers which happened to be the construction lender for the retail component of the hotel.
Construction of the resort component was financed by a Byzantine array of term and revolving lenders. The term debt was traded in the secondary market so those lenders were essentially replaced by hedge funds and investors which had no intention of lending money to complete the hotel. Indeed, no one was anxious to provide a billion dollars of financing for the construction of a mega hotel in a city that was in the throes of its own meltdown. Moreover, there was disharmony in the ranks of the terms.
The revolvers sought an opportunity to get out from under their commitments. After all, they were largely immersed in negotiating their own bail outs from the federal government. The hotel itself was degrading from the elements in what proved to be a drastic summer followed by an even more drastic winter. As the hotel was not operating, it had zero cash save for some undisbursed loan proceeds that the term lenders controlled and were jealously guarding. It was the perfect storm. Ultimately, we were forced to sell the structure for less than what it cost to build the pool deck. The building continues to sit idle and the dessert elements continue to take their toll. Litigation over whose fault all this was and who is entitled to what little was obtained from the sale continues.
Q: What aspects of your practice area are in need of reform and why?
A: As bankruptcy grows more costly and risky, debtors and lenders alike have looked to other means to resolve distress situations. To that end, there is growing enthusiasm for state and federal court receiverships, particularly among secured lenders. Unfortunately, however, the rules of engagement in receiverships are far from clear, not uniform from state to state and rarely the subject of workable and instructive statutory laws. As a consequence, receiverships can be uneven playing fields for debtor and lenders alike and worse yet, improvisational exercises. Legislative attention is in order.
Q: What is an important issue or case relevant to your practice area and why?
A: The Supreme Court's 1999 decision in Bank of America National Trust and Savings Association v. 203 North LaSalle Street Partnership, 526 U.S. 434 (1999), may have had the most profound effect on the number of bankruptcy cases filed and on the outcome of bankruptcy cases since the Bankruptcy Code was enacted. The court determined that absent consent or the full payment of all creditors, equity holders may not reserve to themselves the right to purchase the debtor out of bankruptcy under a plan of reorganization. Rather, the sale must be subjected to a market valuation process, like an auction, or creditors must be given the right to file their own plan of reorganization. As a consequence, bankruptcy became a riskier proposition for debtors as there is no assurance that existing equity holders will retain their interest in the debtor post-bankruptcy.
Q: Outside your own firm, name an attorney in your field who has impressed you and explain why.
A: Daniel Golden at Akin Gump. Danny is among the most creative and effective restructuring lawyers I have ever met. His greatest strength though is his ability to align opposing views. The cornerstone of the Bankruptcy Code is consent. Indeed, bankruptcy is generally ineffective when consensus is unattainable. Through his creativity and persistence, Danny is a master at harmonizing divergent positions.
Q: What is a mistake you made early in your career and what did you learn from it?
A: I represented a widow who was trying to save her husband's business from his lenders. She had no money and I sympathetically continued to indulge her by not pressing for the payment of my fees and costs. I let it go on too long and the unpaid costs to mount. As the pressure in my firm built to collect or sever the relationship, the client felt compelled to serve up her own recriminations. A valued relationship was strained, the client and I parted ways, and the costs and fees were never collected proving yet again that "the road to hell is paved with good intentions."