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Handy List of Basic Issues to Consider for the Transactional Workout

While significant energy here at the Bankruptcy Cave is devoted to substantive bankruptcy matters, not all aspects of a general insolvency practice are always fun and litigation.  Oftentimes insolvency lawyers add the most value by helping clients avoid a bankruptcy filing, or by successfully resolving a case through a consensual transactional restructuring.  Below are a few key issues diligent counsel for creditors and debtors should think through in connection with a transactional restructuring.[1]

1. Notice and Demand After Default. As anyone reading this knows, a lender often sends a notice of default and maybe even a demand for payment after its borrower defaults.  However, simply sending a notice of default and demand for payment may not always be sufficient or have the intended effect.  Most loan documents provide a cure period before a breach becomes an actionable default.  Some loan documents will only permit a lender to accrue default interest after specific notice is given to the borrower.  And sometimes no notice or demand is required at all.  While it is generally considered best practice for a lender to notify a borrower of a breach, demand repayment, and affirmatively elect to accrue default interest after a breach, a careful reading of the loan documents is an absolute necessity.  Also, remember that a lender doesn’t always have to react to a breach by attempting to exercise every possible remedy.  Sometimes a simple reservation of rights letter that notifies the borrower of the breach and reserves the lender’s rights and remedies may be sufficient to protect the lender and yet not scare the borrower into precipitously considering extreme countermeasures like bankruptcy.  After all – all you can control is your actions; you cannot control (or sometimes even predict) how others may react or overreact to your actions.

2.  Pre-negotiation Agreements. Post-default discussions between a lender and a borrower can be tense, with both sides guarded so as not to say or do something that they may later regret. A critical tool to cut through some of the tension is a pre-negotiation agreement between the parties, which in general is a contractual agreement regarding the parameters of negotiations between the parties regarding the defaulted debt, an acknowledgment that things said in those discussions will not be used in future litigation, and an acknowledgement that the discussions will result in an agreement regarding the defaulted debt only if put into writing.  Often these agreements will include additional features, such as acknowledgments of defaults and debts or a tolling of the statute of limitations, but the primary function is to allow the parties to negotiate without fear that statements made during negotiations may be used against them in the future.  All it takes is a single offhand comment by a lender or its counsel in an email, such as “we think that sounds like a good proposal” for an unscrupulous debtor to argue that the loan was modified, or a concession was granted by the lender.  The pre-negotiation agreement will prevent these sorts of arguments; we highly recommend them in all workout discussions.

3.  Document Review and Cleanup. A lender will have no better opportunity to scrub its documents and fix any documentation gaps than after a default.  We consider it best practice when in-taking any distressed matter for a lender client to thoroughly scrub all loan documents and identify any potential issues that the lender should address.  We consider it best practice to do the same for a borrower representation.  Did the lender fail to obtain signatures for all of the loan documents?  Do the loan documents contain any significant errors affecting the deal?  Did the lender fail to properly perfect its security interest?  (Consider especially any sorts of unusual collateral, where the perfection rules can be different.)  Did the lender opt at origination not to get a guarantee from the trust holding all of the assets of the borrower’s principals, and now the lender wishes it had?  Did the lender receive non-ordinary course payments recently?  In a situation where the borrower is in default and is probably asking for more time or other financial accommodations, the lender has unparalleled leverage to clean up errors, grab the additional guarantees or collateral that it didn’t require previously, and otherwise manage things like preference exposure.  And where a borrower identifies that some of these issues exist, it too may have significant leverage to obtain the accommodations it seeks.  (By the way, for more specific tips on collateral issues you really need to check in advance of any workout, check out this ABI post by our colleagues Leah Fiorenza and Wendy Godfrey.)

4.  Forbearance Agreements. Sometimes a workout doesn’t result in a waiver of defaults and new deal terms.  Rather, many times a lender may be looking to exit the relationship but may be willing to give a borrower time to get its affairs in order to accomplish a payoff, refinancing, sale, etc.  In this situation, the lender may agree to forbear from exercising rights and remedies with respect to a default for a limited period.  The lender will often agree to modify covenant compliance requirements or other terms of the loan during the forbearance period, but the existing defaults are not waived.  If the borrower doesn’t repay the debt at the end of the forbearance period, the lender then once again has the ability to exercise its rights and remedies due to the default.

5.  Modification Agreements. And sometimes a workout does result in a waiver of defaults and new deal terms.  That is often accomplished through a modification of loan documents, where the parties agree to waive existing defaults and modify the terms of the loan.  While the goal here may still be an early exit (i.e., where the parties agree to shorten maturity), the loan modification will bring the borrower back into compliance and eliminate the threat of default interest and enforcement actions.

6.  Acknowledgments and Reaffirmations. Whether through a forbearance agreement, a modification agreement, or any other variation of agreement, acknowledgments and reaffirmations are critical.  A lender will expect to receive from the borrower and any guarantor in any such agreement an acknowledgement of the debt owing to the lender, an acknowledgment of the loan defaults, and a reaffirmation of all of the loan documents and of the security interests granted to the lender.  These, and the releases discussed below, are often the only consideration, and sometimes the most important consideration, that a lender will receive in a workout.

7.  Releases. Perhaps the most critical consideration that a lender will expect to receive, and any borrower or guarantor should expect to be asked to give, in a workout is a general release of claims.[2]  While releases come in many varieties, a well-crafted release will provide for an immediate and complete release by all borrowers and guarantors in favor of the lender of any and all claims, known or unknown, that may exist as of the time of the written workout agreement, an agreement by the borrowers and guarantors not to bring suit based on any released claims, and an acknowledgment that the release may be pled as a full and complete defense to any such suit. Of course, state law differs regarding releases.  We always recommend a thorough review of applicable state law regarding releases and that practitioners include all relevant statutory release and waiver language where applicable.

8.  Authority. Finally, one of the most overlooked aspects of any transaction, and particularly a workout transaction, is ensuring all necessary corporate, trust, or other authority has been granted for the parties to enter into the agreements evidencing the transaction.  We often see practitioners either ignore this issue or, perhaps, rely on representations in the written agreement along with the provisions of any applicable corporate or LLC statute to confirm the authority of the parties to enter into the agreement.  However, that does not substitute for an actual review of the relevant organizational or trust documents to determine who is actually authorized to sign on behalf of the entity.  For instance, you may find that although your signer is a member of the LLC borrower, the LLC’s operating agreement gives the member no power to enter into agreements on behalf of the LLC and rather all power is vested in a manager or board that must approve all transactions.  Taking the time to analyze these authority issues and obtain the necessary authorizing resolutions as part of the transaction will eliminate any pesky argument down the road that the person who signed the documents had no authority to bind the entity to the agreement.

The foregoing is, of course, just a brief discussion of some of the many issues insolvency lawyers may need to address in a transactional workout, but each is an important component to consider in any distressed debt representation where a transactional workout is a possibility.

[1]           While we talk here about lenders, borrowers, and loan debts specifically, this discussion is generally applicable to any sort of debtor-creditor relationship.

[2]           Of course, there will be situations where borrowers and guarantors will rightfully expect releases as well. That is not often the case for a general workout in our experience, but these same principals would apply for any release in favor of borrowers and guarantors.

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The A++ Forms and Resources–Defending Depositions, Prepping Your Witness, Practical Tips and Key Errors to Avoid

Editor’s Note:  Ok, we know, this is waaaay to long for a blog post.  But this is just too good not to share!  In our continuing effort to avoid re-inventing the wheel, getting the easy stuff down to checklists, and helping us lawyers impress our virtually-impossible-to-impress clients, we offer our most recent post: everything you need (actually, must) to do to get ready to defend a deposition (including the critical steps to take to prepare your witness).  We have previously posted in our A++ Forms and Resources (TM), great checklists on the timeline of all steps to prepare to take the perfect deposition, the script you should always have in your lit bag to make a perfect record for a no-show deposition (it happens!), and the super-comprehensive list of opening questions to get to everything a witness could know.  All of these, and the post below, are available to send to you in Word form so you can integrate them into your own work product.  Just shoot an email to Wendy Godfrey, Leah Fiorenza, or me, and we would be glad to send any of them to you (and they are much better in Word – the blog machine we use here at the Bankruptcy Cave just ain’t really user friendly in preverving spacing, bullets, sub-bullets, etc.).


Part I:           What to Provide the Deponent in Advance of the Preparatory Session

Part II:        Setting Up and Details about the Preparatory Session

Part III:       Key Points for You in the Actual Meeting with the Deponent

Part IV:       30 Things Your Deponent Should Take Away from the Preparatory Session

Part V:        The Deposition Itself – Breaks

Part VI:       The Deposition Itself – Objections

Part VII:     The Deposition Itself – Rehabilitating the Deponent and Correcting the Record


Part I: What to Provide the Deponent in Advance of the Preparatory Session

Should You Provide Documents to the Deponent?

  • If a document is used to refresh a witness’ recollection, that document is discoverable; opposing counsel can and will see it, and ask about it.[1]


  • If a summary chart is prepared, that also is discoverable.


  • In general, assume that everything you show a deponent to prepare for the deposition is discoverable, and so if in doubt, give the deponent nothing (except in a Rule 30(b)(6) deposition – see below).


  • Exception: You should provide the deponent with the complaint, answer, perhaps a motion to dismiss and response – just the key pleadings.


  • Related Issue: Should Witness Be Shown Documents During the Preparation Session?


  • Do you want your witnesses to be “cold?” Or do you want your witness to demonstrate the strengths of the case? We suggest the latter – you will have to decide for your case.


  • Senior executives don’t know everything going on beneath them however, so it is fine for them to be a bit cold, unless they are your key witness.


  • Suggested best practice: if the witness received, sent, or was copied on a relevant document, you should go over it with them so they are ready for questions.


  • Rule 30(b)(6) Depositions:


  • You must produce a knowledgeable witness. It does not have to be an employee – it can be a consultant, or other third party, if that person is the most knowledgeable. “I don’t know” is not acceptable as to a question fairly within the category that witness speaks to. So you must think about all the topics identified, and ask the witness about them in detail, well in advance of the deposition.


  • You can, and should, in a Rule 30(b)(6) deposition, work to get the witness up to speed on their testimonial categories.


  • Often, a separate person is designated as to highly technical or financial issues.


  • Recent Case: Opengate Capital Group LLC v. Thermo Fisher Scientific, 2015 U.S. Dist LEXIS 120022 (D. Del. Sept. 8, 2015) (counsel held liable for sanctions, and new Rule 30(b)(6) deposition ordered, when the witness was knowledgeable about some topics, but the witness did not make inquiry of others in the company that knew the most about those topics).


Part II: Setting Up and Details about the Preparatory Session


  • Make sure that your witness blocks off ample time to meet with you in a place where there will be no interruptions or distractions by other obligations.


  • Allow a lot of time for the prep session: 
  • If the witness is key to the case, the prep session should be 4-8 hours.


  • If the witness has never been deposed before, add two hours to the prep session.


  • In addition, the prep session should not be the full day before the deposition. Your witness is going to leave the session somewhat comfortable, but also somewhat confused, demoralized, and nervous. You may leave the session confused and demoralized too, if the witness tells you things you did not know. Best practice – have the prep session a week before, and then a re-fresh the night before or morning of. 
  • Except for the most seasoned witnesses or the most unimportant witnesses, the prep session can never be the evening before, or the morning of, the deposition. 
  • The witness must be able to give you complete attention for a long as you need. For a complex case, preparing an important witness will easily occupy several hours.


  • During the prep session, cover the following, in addition to the next two sections of this paper:


  • Explain the mechanics of a deposition. This may be the witness’ first time being deposed, or first time involved in the legal system.


  • Explain what a deposition is, who will be present, where people will sit, the court reporter’s role, objections, and the like. (All of this is covered in detail in the next sections.)


  • This is critical to helping the witness to relax.


  • A typical approach for you to take in preparing the witness is as follows (and then go into specifics, as discussed in the next sections):


  • Ask the deponent open-ended questions.


  • Start broad, then get more narrow.


  • Does the deponent understand the key parts of the case? The key factual disputes?


  • Does the deponent understand what is important and what is not?


  • Does the deponent help solidify your theory of the case, or not? (Recall, this is why we suggest that the prep session be a week before – you need time to think about what to do if you are getting ready to put up a witness that is really, really bad for your case.)


  • Don’t suggest alternative testimony – that will be a very bad day for you. You can go through the key elements of the case, and ask them again. But at bottom, their testimony is what it is, and if the deponent changes their story, you will be the one to blame, not them.


  • If the witness struggles, you need to be thinking about your case, a lot.


  • But if the witness simply lacks confidence, you can build them up – explain they are entitled to their side of the story, the client is in the right, and the other side is in the wrong. Show the deponent you are a fighter based on the facts, and your deponent will feel like one too.


  • Group witness preparation?
    • Though convenient, you should never do this. Your opponent will learn this, and call it out as collusion to get everyone on the same page.


  • Showing another transcript to the Deponent? 
  • We advise against it. As with group preparation, your opponent can argue the witness used an outside source to shape his or her testimony. Remember, the deponent can be asked – and has to answer truthfully – what he or she did to prepare for the deposition!



Part III: Key Points for You in the Actual Meeting with the Deponent 

  • Re-Mirandize the Witness


  • Has the deponent produced everything?


  • Notes?


  • Email files?


  • A notebook?


  • Ask the witness if s/he can think of anything else s/he has, had, or has access to, and verify it was produced.


  • If the witness has not produced everything, and this comes out in the deposition, you will have to do the deposition again – probably with you paying for the other side’s fees and costs. Remember, this is why the prep session is a week before – sending the other side a raft of additional documents the deponent just now remembers, the day before the deposition, will be your fault.


  • Don’t forget to ask your client about communications outside the normal course of communication and documents, such as (i) text messages the witness may have sent that are relevant to the dispute, or (ii) posts on Facebook, Twitter, any other social media that pertain. If your client has any texts or posts about the case or underlying events, they must be preserved, and likely produced.



  • If the witness provided interrogatory answers or produced or supervised the production of documents, you should prepare the witness for detailed questions about the discovery. You must go over all of those responses with the witness in the preparation session, to ensure the witness agrees with the interrogatory answers and properly supervised the document production.


  • Avoid surprises – ask the client in multiple different ways about key areas of the case. You should try to confuse them, and then explain why you did that.
  • Acquaint your client with lawyer tricks, such as embedding questions with false assumptions, or speeding up the questions.


  • Beware of the deponent that is in-house counsel or a senior executive. They often think “I can handle it” without realizing the other side is much more formidable then they think. This is where it is key that you prepare questions you think the other side will ask, and go through them in detail. Extensive role-playing is a must.


  • “I Represent You”


  • Interestingly, you need to explain this to corporate employees during their prep session. Otherwise, be ready for the following colloquy:


  • Q: Are you represented by an attorney in this deposition?


  • A: No.


  • Q: Does Mr. Bryan Cave represent you?


  • A: No.


  • Q: Tell me everything you have discussed with him.


  • Objection: That is privileged information.


  • Q: But she said you didn’t represent her……[etc.]


  • In other words, you must tell the witness during the prep session that you are his or her lawyer.



Part IV: 30 Things Your Deponent

Should Take Away from the Preparatory Session

  1. Tell the truth: A lie may lose the case. You must testify accurately about what you know. If you tell the truth and tell it accurately, nobody can cross you up. You should not exaggerate. If you lie, I will have to correct you, and that will be absolutely awful. If you stick to the truth of what you did, what you saw, and what you heard, you will be on firm ground. No one knows what you did, saw or heard better than you.
  2. If you are concerned about something you know, discuss it candidly with me, now.  Do you feel you may get in trouble if you answer truthfully? Is there anything you really don’t want the other side to know about this case or its underlying facts? Whatever it is, you need to tell me, now.
  3. Avoid jargon. If you have to use a word or term that the average person isn’t familiar with, then explain what it means.
  4. Don’t lose your temper no matter how hard you are pressed. Lose your temper and you may lose the case. If you lose your temper, you have played right into the hands of the other side, and the transcript will read like you are at fault, to blame, or a hothead.
  5. No jokes or wise cracks. Don’t make facetious remarks about the questions, the other lawyer, or the case. No one reading the transcript will take you seriously, and they will think you are a wise ass. You will come off terribly.
  6. Don’t try to outsmart the questioner or get cute. You are not here to “win” the deposition or show the other side up. You will end up looking bad.
  7. Don’t spar with the other lawyer. You will lose, and will look like you are hiding things. Your lawyer will spar for you – that is why I am there. Don’t argue with the questioner.  Don’t ask questions of the questioner (unless you don’t understand the question). Don’t try to outsmart the questioner. Remember – the questioner has a right to ask you questions. You have a duty to answer. If you want to take it out on someone by criticism, sarcasm, or argument – don’t, for you will be in the wrong, completely.
  8. Be courteous. Being courteous is one of the best ways to make a good impression on any party reading the transcript or viewing the video deposition. Be sure to answer “Yes, sir / ma’am” and “No, sir / ma’am.”
  9. Listen carefully to each questions. This requires intense concentration. Don’t be thinking about your last answer or what someone else is doing in the room. Listen to the entire question.
  10. If you don’t understand a question, say so.
  11. If you didn’t hear all of the question, say so.
  12. Pause a few seconds before you answer. This gives you time to think about your answer and gives your attorney time to object. Stop if your attorney objects. Don’t blurt out your answer. Wait for the question to be completed. Don’t anticipate the question.
  13. Listen to your attorney’s objections. It may be a technical objection for the record. However, many objections may alert you to a problem with the question.
  14. Don’t guess. If you don’t know, say so. You do not have to know the answer to every question asked. It is okay to just say “I don’t know.” Don’t attempt to testify to facts you don’t know because you think you should know those facts, or because you assume those must be the facts. Testify to only what you personally know. Do not volunteer who might know.
  15. Don’t volunteer! You must answer the question that is asked but answer only the question asked. Keep your answers short. You are not required to answer “yes” or “no” and you may explain as part of your answer, but you should do so only to make your answer truthful and complete. Keep it short. After your answer, stop. If there is silence after your answer, don’t feel compelled to expand upon your answer. Wait for the next question. Do not fill the silence – practice this.
  16. Do not memorize your testimony. If you do, you will appear to be a liar. Justice requires only that a witness tell his or her story to the best of his or her ability. Simply answer the questions asked in your own language.
  17. Documents: Be entirely comfortable with a document before you answer any questions regarding any document. Read or review the entire document first.
  18. Beware of questions involving numbers, including dates or times. If you make an estimate, make sure that everyone understands that you are estimating.
  19. Give a positive answer when you can. Don’t let the lawyer on the other side catch you by asking you whether you are willing to swear to your version of what you know by reason of seeing or hearing. If you were there and know what happened or didn’t happen, don’t be afraid to “swear” to it. You were “sworn” to tell the truth when you took the stand. Don’t say “I think”, “I guess”, or “maybe”, when you mean to be more positive in your testimony. It is better to say “as I recall” or “in my opinion”.
  20. Be on guard always. The questioner is not your friend. Do not chat with the examiner before, during, or after the deposition. They will try to make a connection with you; you don’t want this.
  21. The deposition isn’t over until you leave the building. Don’t let down your guard. Some lawyers will let you think they have finished, you relax, and then they ask you twenty of the toughest questions.
  22. The examiner may suggest that your testimony is inconsistent with some document, someone else’s testimony, or your prior testimony. Don’t believe it unless you are first convinced there is an inconsistency. Then you may explain it. Simply give your best recollection. If the lawyer says your testimony is inconsistent with a document, ask to see it. Then read it all. Remember, the document may not be accurate. It is not your job to jive everything for the other side, or win the case, or explain “how it all works.” It is only your job to testify to things you know.
  23. Don’t let the lawyer put words in your mouth. If he attempts to rephrase your testimony by asking “Is it your testimony that….” or “are you saying….” your answer may be “That is not what I said and I’ll stand on the answer I gave previously” or “I’ll stand on the answer I gave before.” Don’t assume the lawyer has accurately summarized your testimony. [Explain to the witness this is also where you may object.]
  24. If you are asked the same question several times, stick with your original answer, if accurate. Don’t change it simply because the same question is asked in a slightly different form. This is a common trick.
  25. Beware of leading questions containing half-truths. The lawyer may ask you a question containing facts which are only half-true or containing facts not within your knowledge. Don’t let the lawyer put words in your mouth. Don’t answer yes or no; answer in your own words.
  26. Beware of questions which begin “Isn’t it a fact …” and “Is it fair to say ….” These questions usually contain implications which may be only partly true. If you don’t agree, say so. If you don’t know, say so.
  27. Beware of alternative questions. “Did you get this information from A or B?” There may be several sources, including those not mentioned.
  28. Everybody makes mistakes. If you gave a wrong answer, say so. You have a right to correct your answer. It is better to correct a wrong answer at the deposition rather than at trial.
  29. Take your time. This is not a race. Don’t rush. Pause after each question and think about your answer before you respond. Then answer.
  30. Breaks. Do not hesitate to ask for a break at any time. This is especially true if you are losing your concentration, are becoming tired, or you are starting to lose your temper. [Explain you will also help with that by monitoring the tone and attitude of the witness, and will ask for breaks when the witness needs it.] If a question is pending when a break is sought, you must answer the question, but then we will break for a few minutes.


Part V: The Deposition Itself – Breaks


  • The deponent should be permitted to take them whenever necessary. The general rule is to break every hour, for 5-10 minutes.


  • Some questioners will try to finish a line of questions before breaking. It is not necessary to honor the request, so long as you do not appear to be impeding, delaying or frustrating the fair examination of the deponent. See Fed. R. Civ. P. 30(d)(2).


  • In most jurisdictions, you cannot communicate with a client about the case or the deposition after the deposition starts.


  • Thus, following each and every break, your deponent should expect to be asked whether she consulted with counsel on break and, if so, what was said. And your deponent must answer that truthfully.


  • Beware of continued depositions!! Your opponent can assert that anything said to the deponent during the days or weeks between testimony is no longer privileged.


  • For a great, fifty state survey in this area, see David S. Wachen and George Hovanec, Can We Talk? Nationwide Survey Reveals Wide Range Of Practices Governing Communication With Witnesses While Defending Their Deposition, published by the Section of Litigation of the American Bar Association (Undated), available on file with the authors.


Part VI: The Deposition Itself – Objections 

  • Federal Rule 30(c)(2) requires that “[a]n objection must be stated concisely in a nonargumentative and nonsuggestive manner.”


  • Rule 30(c)(2) also requires that “A person may instruct a deponent not to answer only when necessary to:


  • preserve a privilege,


  • enforce a limitation ordered by the court, or


  • present a motion under Federal Rule 30(d)(3) (moving to terminate for bad faith or unreasonably annoying, embarrassing or oppressive conduct).”


  • How to direct the witness not to answer: “Objection, that question calls for attorney-client privileged information. I instruct the witness not to answer.”


  • Courts are increasingly militant in punishing “speaking objections.”


  • Require reading: Security Nat’l Bank of Sioux City v. Abbot Laboratories, 299 F.R.D. 595 (N.D. Iowa 2014) (counsel sanctioned, and required to prepare a training video for future lawyers, for excessive speaking objections).


  • As a general rule: explain any inappropriate conduct off the record first, and try to defuse it. If it persists, then put things on the record.


  • What objections do you have to make?


  • “The usual stipulations” – all objections are preserved, except as to form.


  • But the actual rule is very different – you need to be ready!


  • Objections to competence, relevance, or materiality of testimony are not waived by failure to object prior to or at the deposition, “unless the ground for it might have been corrected at the time.”   R. 32(d)(3)(A).


  • Timely objection is required if related to “manner of taking the deposition, the form of a question or answer, the oath or affirmation, a party’s conduct, or other matters that might have been corrected at that time.” Fed. R. Civ. P. 32(d)(3)(B).



Part VII: The Deposition Itself –

Rehabilitating the Deponent and Correcting the Record


  • Never leave a bad record. If the witness wasn’t given a chance to fully explain, or there are other facts the witness left out, or must clarify, then you should get into these matters on re?direct.
  • The same is true with “read and sign.” Always preserve the right to read and sign – it is rare that a deposition is completely correct, especially one that features many people, dates, numbers, or the like. You should use the read and sign process to correct things (but be aware the witness can be asked at trial

[1]               Some cases hold that a document shared with a witness may still be protected as work product, but most don’t. Assume anything you share with the witness will be seen by the other side.

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Preparing Yourself and Your Client for Chapter 11: Part I of II – The Petition Package, Filing the Case, Filing Fees, and First Days

Editor’s Note: While we at The Bankruptcy Cave always enjoy writing about new cases or legal developments, we really love using our posts as an opportunity to pass along tips, easily forgotten rules, and things that make the client think you are a rock star (and avoid a client’s distrust in your ability to captain the Chapter 11 ship).  (For prior A++ Forms and Resources on taking depositions, see here; on preparing for a deposition, see here; and on preparing for and handling the no-show deposition, see here.)  Here is our latest, focusing on the petition package, filing the case, and first days.  Coming in a few weeks is a post on preparing the list of creditors, and the tips and traps of giving proper notice to creditors and avoiding foibles (or worse, accusations) relating to notice of the case and the 20 largest creditors.

As a Chapter 11 debtor’s attorney, the prospect of serving as debtor’s counsel is an exciting – and increasingly rare – opportunity. The preparation for filing a Chapter 11 case involves negotiating complex cash collateral and financing issues and drafting numerous first-day motions.  But as important as those strategic issues are, don’t forget to give due attention to the seemingly simpler issues, which can turn into time-consuming hurdles as the filing date quickly approaches.  The list below contains a few suggestions for filing-related items to work on well in advance, in hopes of minimizing time spent correcting procedural snafus or worse, jeopardizing the effectiveness of the petition itself.


  1. Preparation of the Petition Packages: It’s tempting to think of the petition as the simplest of documents to prepare for the Chapter 11 filing, and it probably is.  Still, the short petition is not the only document required for filing, and the information required in the larger petition package might take some extra searching.  For example, in the new petition forms, you’ll need to identify your client’s four-digit North American Industry Classification System (“NAICS”) code.  If your client has not used a NAICS code before, they will need to identify the code that best describes their business.  The client will also need to provide, pursuant to Fed. R. Bankr. P. 1007, a list of all holders of equity security interests in each debtor, which may require research by the client.  Other items required in the petition packages are the list of the top 20 creditors (tips on the preparation of that coming in our next post) and the board resolutions authorizing the filing, which might be subject to last-minute changes as the filing date crystallizes.


  1. Corporate Authorization: Make sure you actually read the articles of incorporation, by-laws, LLC agreement, and any other organic documents for each and every putative debtor to determine what procedures you must follow to obtain authorization for the filing.  (And make sure you have the most recent copies of each – amendments to these documents tend to be forgotten or hard to find, especially by a floundering debtor.)  Things on which you must focus:


  • Is an actual meeting of the board (or other governing body) needed?  Can that be waived?


  • Are a certain number of days’ notice required for any meeting or any consent?  And can that notice be waived?


  • What are the quorum rules?


  • Are any directors (or other governing parties) going to be on vacation, or indisposed on or around your projected filing time?  If so, what can you do now to work around that?

 Think hard about these issues a few weeks before any potential filing – looking into this a few days before filing is not a suggested practice. 

  1. Order of Filing Multiple Petitions: Venue must be proper for the initial debtor under 28 U.S.C. § 1408(1).[1]  For all subsequent debtors, you can rely on the “affiliate” venue rules of 28 U.S.C. § 1408(2).[2] But even for the subsequent debtors, make sure they are filed in the correct order – don’t make the second case be one for a “cousin” of the initial debtor that, while it may be in the same corporate family, does not qualify as an “affiliate” under the Bankruptcy Code’s definition. 
  2. Alerting the Court: In some jurisdictions, like Delaware, the local rules require at least two days’ notice to the court of an imminent Chapter 11 filing.  If the rules are silent, consider discreetly alerting the court clerk of the impending case, especially if the district in which you’re filing is does not frequently see Chapter 11 cases.  A conversation with the clerk will provide an opportunity to ask for the court’s preferences on certain mechanics of docketing the petition and first-day motions.  For example, certain first-day motions, like motions to use cash collateral or motions to provide adequate assurance to utilities, might have their own ECF event, whereas others are generic motions.  The clerk might also have advice on how to link multiple debtor cases together so that they receive the same judge assignment.


  1. Filing Fees: This one is really important, and easily forgotten until it is too late.


  • If you have multiple debtors, consider whether the payment of the filing fee will be an issue.  The filing fee is currently $1,717 for each debtor; if you’re using a single credit card, it could take fewer than ten debtors to hit a credit card limit.


  • Likewise, make sure you ask the debtor a few weeks in advance for an additional deposit to cover the filing fees.  Just before filing, the prospective debtor may have little or no access to cash – the day before filing is not a good day to call the client and say “I need $17,000 wired to me immediately for the filing fees for the ten affiliated debtors.”  And if you don’t get paid for this in advance, you eat it, since your firm can’t be retained as a disinterred professional, if your firm is a creditor by virtue of having advanced the filing fees.


  1. Don’t Get Off on the Wrong Foot with the U.S. Trustee: You should also provide drafts of the petition and first-day motions to the Office of the United States Trustee with as much notice as possible, which will be difficult because those motions are usually undergoing continuous revision in the days leading up to the filing.  Providing notice to the U.S. Trustee right when you file is not ideal – give the U.S. Trustee a day or two’s notice, to engender goodwill and avoid a flustered U.S. Trustee.


  1. Identifying Local Precedents: As with any motion, in preparing first-day motions, you will cite to precedents authorizing relief similar to the relief sought in your motion.  However, first-day operational motions are not often the subject of appellate decisions, and a more effective source of authority is previous local debtor cases.  Searching for those orders on PACER is time-consuming and requires historical knowledge of cases filed in your district, so be prepared to spend more time than usual on this element of the drafting.  And plan ahead, even months or years ahead – if you are in a jurisdiction that rarely sees complex Chapter 11s, when one is filed, go ahead and set up a special Outlook folder to contain key pleadings that you may use in the future, as precedent or forms.  Spending 20 minutes now, when you see some handy precedent from a local Chapter 11 – can save dozens of hours in the future.


  1. Expected Additional Filings: Jurisdictions can vary in the particular pleadings the court expects to see filed with the petition. For example, some courts require employment applications immediately.  Other jurisdictions require a motion for expedited relief for any motion to be heard in the initial days of the case.  Apart from the motions you’ll file immediately based on your client’s urgent financial and operational needs, be sure to find out whether additional pleadings are expected, and what the local rules require for an immediate first day hearing.

[1]           That is, the district where the case is filed must be the debtor’s “domicile, residence, principal place of business in the United States, or principal assets in the United States . . . for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district.”


[2]           The affiliate venue rule allows a petition to be filed in the district “in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.”


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The A++, Guaranteed to Go Smoothly and Make You Look Like You Do This All the Time, Timeline and Checklist to Prepare to Take a Deposition

Editor’s Note:  If you would like a copy of this document in MS Word (we know the font on this blog is hard on the eyes, we are working on it I swear, but in the meantime we are happy to send you our forms or checklists in Word), then please feel free to contact either of the authors, or  And if you find this helpful, please check out the other “A++ Forms and Resources” we have posted to the blog, using the “Categories” drop down menu at the main page or clicking here and here.  Coming up next week:  another comprehensive checklist for preparing and filing a complaint.

The Master Deposition Timeline and Checklist

Two Weeks before Issuing the Subpoena (if you are issuing a subpoena to a non-party)

  • Please remember to run conflicts on every witness before you issue a subpoena to them. Failure to do so can be a very serious problem for you, and your Firm; it is a real problem to subpoena a client.

One Week before Issuing the Subpoena / Notice of Deposition

  • Request the check for the subpoena in advance of the date you intend to serve the subpoena. The check should include both mileage (round trip) and the witness fee.
  • Note recent changes to Federal Rule 45:
  • A subpoena must be issued from the district where the deposition will be held or where the production of documents will be made.
  • Make your court reporter arrangements now, especially if it is an out-of-town deposition. Do not call another law firm or whomever you know in that town the day before issuing the subpoena asking for a room – do this well in advance of finalizing the subpoena.
    • N.B.  If anyone ever calls you asking if they can use a conference room for a deposition in a case they are working on, your Firm likely has very strict policies on this. At an absolute minimum, you must run and clear conflicts on every party to your colleague’s case, and on the witness and his / her affiliation. (It would not do at all to host a deposition for someone that is suing a client of your Firm.) Then, call your office manager or office managing partner and obtain his or her express permission.
  • We have had great nationwide success using Will Ward of Courtroom Sciences Inc., 877-784-0004 (work), 706?581-6293 (cell), He can arrange a court reporter anywhere in the country, conference rooms out of town, interpreters, etc.
  • However, determine whether your client requires a certain court reporting company and, if so, use that company!

Things to do on the Saturday or Sunday before the deposition (this really needs to be done on a weekend – you need several hours, uninterrupted, to complete this): 

  • Prepare (and put in order) all exhibits for the deposition. 
    • Your exhibits should include, at a minimum:
      • The subpoena or notice of deposition (almost always, this is exhibit 1, and starts the deposition).
      • Copies of any discovery responses certified or signed by the deponent. It is very important that you ask the deponent if s/he reviewed, approved, and then signed off on the answers. Many times, s/he did not, just signing at the direction of an attorney, or s/he only reviewed the responses in a cursory fashion. This is very important to cover in the deposition.
  • Labeling Exhibits
    • Avoid duplicative or confusing labels.
    • Think about using them at trial; try not to have labels change, (although numbers may, as that is somewhat unavoidable).
    • Check local rules or any applicable scheduling or discovery order; otherwise, do it the way it makes sense to you.
    • Think about future depositions, clarity, and simplicity.
  • Is there anything else that you need as a resource for the deposition (we suggest you bring a separate notebook containing each of these):

Things to do two days before the deposition:

  • Finalize your exhibit folders or binders!
  • Finalize your exhibit folders or binders!!
  • Please, we are begging you, at least two days before the deposition, finalize your exhibit folders or binders!!! 
    • In other words, you really cannot wait until the day before the deposition to finalize your exhibits. You will need multiple sets (see below), and the day before should be final prep, not hunting down documents and integrating them into your deposition plan and questioning.
    • This is especially true is the deposition is out of town. It is impossible to guarantee that your full exhibit sets will arrive by 8 am the morning of the deposition. The only other options, carrying multiple sets of your exhibits (you need at least four – see below) on the plane, is not advisable.
  • If the deposition is out of town, send all copies off by overnight mail to a trusted soul at the location of the deposition, except your master set that you carry with you. Note – you are sending these out two (2) days in advance of the deposition.
    • Number of copies: at least four.
      • Deponent;
      • Court reporter (optional, but highly recommended);
      • Your master set; and
      • A complete set for the attorney defending the deposition.
  • Keep exhibits orderly and accessible.  Methods vary by preference (e.g., binders, folders), but choose a method that works for you and that you have tried in advance in other depositions or with a colleague.
  • Binders truly are preferable; pulling documents out of folders, and circulating them to all parties, will really interrupt your flow and slow you down.
    • The only problem with binders is that you may not use some of the items in the binders, and the deponent or the other side will wonder why. Let them wonder. We still think flipping documents in a binder is far easier than taking out a folder, getting copies, and the attendant delay of circulating its contents to everyone. 

Things to do the day before the deposition:

  • Have your secretary re-verify that:
    • the court reporter is coming.
    • all conference room arrangements are complete, including drinks (including a break out room if you want one for yourself and client, and/or for the other side).
    • the names of all parties attending (including the court reporter) are entered into building security.
    • N.B. It is not customary to order lunch for anyone, people usually go out on their own.

Matters of Form During the Deposition

  • Beware of letting documents control the deposition so much that they impede quality testimony and/or constrain your ability to interrogate the witness.
  • Beware of letting documents become a distraction or a waste of time.
  • The court reporter is referred to as “Mr. Court Reporter” or “Ms. Court Reporter.”
  • Provide the court reporter with a list of names and/or words that are hard to spell, that you expect will come up during a deposition.
  • Take a break every single hour, no matter what.
  • Be careful with the use of pronouns. Using pronouns can often make a statement unclear and it can make quoting from the transcript more difficult and less clear. If you can, don’t ever use pronouns at all, always “Ms. Smith” or “Steve” or other proper names.
  • Go off the record absolutely as much as you need to, to clarify things, head off conflict or inappropriate behavior, re-instruct the witness (if s/he keeps talking over you or not waiting for you to finish, a constant problem), or deal with other matters.
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The A++ Forms and Resources: Handling the No-Show Deposition

Editor’s Note:  Here at The Bankruptcy Cave, we love insolvency stuff; we eat it for breakfast and dream about it at night.  (We are not kidding.)  Sometimes that includes credit-related litigation, and so we keep our pre-trial, trial, and appellate skills honed.  To that end, here is a very helpful cheat sheet we prepared and which we bring with us to every deposition, just in case.  (Your author Leah even got to enjoy a no-show deposition in Chicago last year; she created a perfect record using the below.)  Feel free to use it, and if it is handier to have a Word version, email one of the authors.  We will update the post later to make it download-able, but the rudimentary blogging skills of your new editor prevent that now, alas.

Editor’s Note 2:  If you like practice tips and cheat sheets like this, see also Mark and Leah’s “The A++, Super Comprehensive, Don’t Ever Start Anywhere Else Set of Opening Questions, Introductory Matters, and Document Inquiries for Taking a Deposition,” posted Aug 2015 here on the Bankruptcy Cave.  And coming soon, “The A++, Super Comprehensive, Way to Ensure ‘The Client Just Called and Said He or She Was Completely Prepared and the Deposition Went Great,’ Checklist and Key Items to Prepare Your Witness, Defend a Deposition, and Not Lose the Case.”

Without further ado, today’s post . . .

The Nonappearance (i.e., “No-Show”) Deposition Script


  1. Always bring a copy of this to every deposition – you sometimes do not know that you are going to have a “no-show” deposition.
  2. If you think you may have a no-show, bring with you exhibit copies of all email and letter correspondence with the other side from the previous days, most importantly including any email or letter to the other side telling them that the deposition is going forward, and you expect them to be in attendance. As set forth below, those should be entered into the record with the reporter.

Begin Script:

My name is [_______] and I am joined by [name of anyone else attending deposition with you], and I/we represent the [___________]. This is to be the Rule 30 / 30(b)(6) / 45 deposition of ___________ taken pursuant to Rule 30 / 30(b)(6) / 45 of the Federal Rules of Civil Procedure in Civil Case Number __________ pending in _____________________. [Alternatively, for Georgia cases, or conform to your applicable state laws or rules, “This is to be the deposition of ______ taken pursuant to Sections 9-11-26 and 9-11-30 [or 9-11-45] of the Official Code of Georgia in Civil Action Number ______ pending in the _______ Court of _______ County, Georgia.”]

It is now [time] on [date] and the representative for ________________ [or name person], has not appeared. In addition, counsel for the deponent is not here. We will go off the record for 20 minutes to give the deponent and his/hers/its counsel a bit more time [or so you can call the other side].

It is now [time] and the deponent and his/her/its counsel have not appeared.  [If you sent them an email or called them during the break, which is not required but maybe you do it anyway if you think the other side will try to come up with some excuse later, then put on the record what you did, and the response, if any.] Before marking _________ exhibits, I will provide a concise summary of what has happened in the days leading up to this deposition.

[Provide Concise Summary, noting precisely (i) when you served your notice, and (ii) how you served it. If you had communication with deponent’s counsel (or just the deponent, if the deponent is not represented), you should state the nature of the communications and the purported reasons, if any, for the nonappearance.]

And now, I would like to enter a few exhibits into the record.

Index of Deposition Exhibits

Tab Exhibit Description
1. (Is a true and correct copy of the ) Notice of Deposition
2. (Is a true and correct copy of a) Proof of Service
3. [Email or letters from you re: you better not no-show]
4.  [Other written stuff to get into the record to show the harm of the no-show, if you want and had a sense the no-show was likely.]


It is now approximately [time] and the deponent and counsel for the deponent still not appearing, this deposition is suspended due to nonappearance. [Mark and Leah prefer “suspended,” as then the original notice or subpoena is still valid, if discovery periods are expiring you may not need to extend (although check your local rules on this, folks), and you will have the argument that this is a “break” in a deposition that makes the intervening communications between opposing counsel and client fully discoverable and not subject to the privilege.][1] This will conclude today’s transcript.


[1] See David S. Wachen and George Hovanec, Can We Talk? Nationwide Survey Reveals Wide Range Of Practices Governing Communication With Witnesses While Defending Their Deposition, published by the Section of Litigation of the American Bar Association (Undated), available on file with the authors.

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The A++, Super Comprehensive, Don’t Ever Start Anywhere Else Set of Opening Questions, Introductory Matters, and Document Inquiries for Taking a Deposition

Santa holding wish list isolated

The A++, Super Comprehensive, Don’t Ever Start Anywhere Else Set of Opening Questions, Introductory Matters, and Document Inquiries for Taking a Deposition [1]

Have you ever had to press garlic for a recipe? Or put together a Swedish bookshelf, purchased from a Swedish superstore? Yes, you have – and you may have succeeded, so long as you had a garlic press, or the bag of special Swedish tools respectively. But what if you don’t? Yikes. An easy part of the job becomes hard; your likelihood of failure increases, substantially.[2]

Practicing law is often the same. Certain tasks are very complicated. Reasoning, analysis, complex drafting, making hard things simpler for busy clients to understand – not easy stuff. But with the correct tools, forms, checklists, and honed skills, you can render some of the harder tasks easier, allowing you to focus your time, smarts, and passion on the really tough part of the assignment.

Now, this is not to say the right tool makes for a perfect end result. Preparing Mom’s classic lasagna is no slam dunk, even if you purchased your garlic press from the high?end kitchen store. And the Swedish bookshelf, even with the complete set of tools, well . . . next subject.

So in the first of a long series, we are circulating our best checklists, scripts, do’s and don’ts, and the like. Our first: the introductory matters, opening scripts, and initial questions (word?for?word) to use in any deposition. Why try to remember all the usual opening stuff? (BTW, you never will – there are twelve pages of opening questions and tips, each of them serving a unique purpose, as set forth below). Why scramble the night before the deposition, writing out introductory things (for the nth time), taking you away from preparing for the substance of the deposition, such as key dates, words, thoughts, and documents? We hope that after you read this article, such exercise will be a thing of the past.

Below you will find the following:

  • In case you need more convincing, a preamble of classic deposition errors, made in the first minutes of the deposition, due to the lack of a comprehensive, word?for?word script of introductory matters and questions.
  • The script: a comprehensive, word?for?word list of every opening question and introductory matter for your deposition.[3]

But wait, there’s more!

  • Virtually every deposition deals with documents. But before asking about the substance of a document, ask about its history and minutia – who drafted it? Were there prior versions? Did other people work on it? For how long? Did the deponent ever make notes on it? Or on a prior draft? And where are those notes today?
  • So as your added bonus, we include “The Forty-One Questions to Ask About Every Single Document in a Deposition.”

We hope this is helpful to you.


Part I: Classic Deposition Errors –

Often Made in the First Minutes of the Deposition

These have happened to all of us (or a colleague we know) when taking a deposition:

  • You ask the deponent if she has ever been deposed before, but forget to ask if she has ever testified at trial. Thus, you fail to obtain some good information on the deponent. Worse, you don’t know to obtain a trial transcript from some old case to reveal how the deponent holds up (or breaks down) under cross-examination.
  • You ask the deponent how he is feeling that day. He says, “fine.” But you forget to also ask if he is taking any medication. Halfway through the deposition (or afterward, such as when the “read and sign” comes back), you learn the deponent was medicated that day. Or as high as a kite. The deposition is more or less worthless. You probably have to take it again. And you have to explain to the client why it has to pay your billable rate to prepare again, and also take the deposition again (and pay for the new transcription expense) – because you didn’t have a script of opening questions covering this point.
  • You ask the deponent about a document. But you forget to ask if the deponent knows of any prior versions. Or, you actually remember to ask about prior versions, and the deponent states “I don’t know of any.” Yet then, you forget to ask the follow up: “Is there anyone that would know of any prior versions?” And so, you never get the real answer you need: “Well, Ted and Sally ran with the document for a while before I got involved.” This is information you need – it might be critical – but by failing to have written down every single follow up question you should ask about every single document (see Part III, infra), you miss out.
  • You ask the deponent if she has ever been convicted of a crime. But you forget to ask if she has ever filed for bankruptcy or been denied a discharge in bankruptcy. You fail to obtain important information about the deponent and her past fraud or wrongdoing.
  • The attorney defending the deposition asks at the outset if “the usual stipulations apply.” Not wanting to appear uncooperative, or inexperienced, you say “of course.” But why would you agree to ground rules that are not clearly stated? At best, the other lawyer is being lazy and co?opting you into equal laziness. At worst, the other lawyer is creating a record that you agreed to whatever rule, waiver, or system that he later creates to attempt to limit the use of your outstanding deposition.[4]
  • For instance, “the usual stipulations” typically includes waiving the deponent’s right to read and sign. But in some jurisdictions, if the deponent is a non?party, waiving the read and sign process precludes you from using the deposition at trial, unless the other party to the lawsuit also agrees to waive the read and sign. If the other party to the lawsuit simply sat there during your opening of the deposition, saying nothing and smiling as you agreed to “the usual stipulations” mentioned by the non-party deponent’s counsel, then you have likely waived your ability to use the deposition at trial.[5] You have made an error – a very serious one – by agreeing to unstated “usual stipulations.”

The examples are myriad. But it doesn’t have to be this way. None of these are strategic mistakes – they are simply a failure to have, and use, a tried and true list of opening questions and descriptions of the rules of deposition. But fear no longer! Review the attached, and file it away. (Or email your authors for a word version, to cut and paste in to your next deposition outline.) Put the opening stuff on autopilot with the following script, and spend your time and energy on the real deposition preparation.

To continue reading, please download:

Part II: The Word for Word Script of Every Opening Question and Introductory Matter for your Deposition

Part III: The Forty-One Questions to Ask About Every Single Document in a Deposition


[1] The Authors wish to thank Wendy Godfrey and Melissa Kotun of Bryan Cave, and Juan Martinez (Emory University School of Law Class of 2015), for their suggestions, additions, and thoughtful revisions, in making this as comprehensive as possible for our fellow litigators.

[2] For some comic relief in the middle of your hard day, enter “What can I use if I don’t have a garlic press?” into the website YAHOO! ANSWERS, https://answers, (last visited July 28, 2015). Some great responses: “a Chinese knife would be best,” “I used a hammer,” and of course, the classic, “run out and buy a garlic press.”

[3] We don’t pretend to be perfect! If you have others, or better formulations, please contact your authors, we would love to hear from you and include them in a future iteration of this document, with full credit to you.

[4] See Stephen D. Archer, The Dangers of the “Usual Stipulation” in Deposition Practice, Los Angeles Bar Association Survival Guide for New Attorneys, Fall 2006, at 46

[5] See Fla. R. Civ. P. 1.310(e) (requiring all parties to agree to allow a deponent to waive signature, if the deposition transcript is to be used at trial).

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Spring Cleaning, Avoidance Actions, and Time to Tweak the Loan Forms, Just In Case

Winter is over; time for spring cleaning. Alas, your authors are so desperate to put off such drudgery that they decided to write about avoidance actions, and form language for notes and security agreements. If you represent lenders, try taking five from the cluttered garage, dust-bunnied closet, or bursting kitchen junk drawer, and read this; you may save your lender client a buck or two.

The Basics: Workout lawyers all agree on certain principles. For instance, fully secured creditors with undisputed claims deserve to be paid. Further, if the collateral value exceeds the amount of the secured creditor’s claim then payment must include interest, costs, and attorneys’ fees, if the loan documents so provide.[1]

The Wrinkle: But add a wrinkle – the kind of wrinkle rarely considered when structuring a loan, in the glorious salad days of the lending relationship. That wrinkle: Upon the obligor’s bankruptcy, what if the obligor, or its bankruptcy trustee, sues the lender to recover a preference or fraudulent transfer to the lender made prior to the bankruptcy?[2] If the lender defeats such an action, then surely the principles listed above would allow the lender to automatically add its defense costs to its claim, and collect those costs from the collateral or the bankruptcy estate. A recent California ruling says “yes” but notes that some less than ideal loan drafting made it a very hard call.[3] It also notes other rulings featuring unhappy lenders left with large, unpaid legal bills despite a failed attempt by a borrower/trustee to claw back monies properly and validly paid to the lender. So read below, tweak your forms on the front end (see suggested language at the end of this missive), and try to avoid this ever happening to your lender client.

The Facts: The obligor, Mac-Go (the “Obligor”) and its affiliates enter into various loans with a bank (the “Lender”). Later, the Obligor enters bankruptcy and a trustee (the “Trustee”) is appointed. The Trustee asserts various avoidance actions against the Lender, alleging that the Obligor previously paid money to the Lender actually owed by other affiliates, the Obligor did not receive value for the loans, the Obligor preferred the Lender over other creditors, and other claims. The Trustee and the Lender litigate for three years. The Trustee loses. And the Lender has spent $350,000 in attorneys’ fees.[4]

The Problem: There are enough funds in the bankruptcy estate to pay secured claims in full, including the Lender. But the problem is the Lender’s loan documents, and the nature of an avoidance action. Here, the Lender’s documents required the Obligor to pay all fees and costs of collection. And all costs and fees incurred by the Lender to enforce the loan. And all costs, expenses, and fees to enforce the Lender’s collateral and lien rights. Indeed, one loan document stated that enforcement costs included fees and legal expenses in bankruptcy proceedings.[5] Unfortunately, a Trustee’s suit to recover past payments to the Lender, and the Lender’s efforts to protect prior payments, isn’t really “collection.” Nor is it “enforcement,” as the Lender is trying to keep what it has, instead of an effort by the Lender to get what it doesn’t. And although the Trustee’s avoidance suit took place in a “bankruptcy proceeding,” the Trustee’s suit was not part of the Lender’s “enforcement” of its rights (and the word “enforcement” modified all subsequent phrasing in the loan documents). As such, the Bankruptcy Court struggled with whether the Lender was entitled to add its $350,000 in attorneys’ fees to its claim amount, despite the Lender’s defeat of the Trustee’s avoidance action.

The Ruling: After surveying the case law, including the many cases where attorneys’ fees provisions were not sufficiently broad, the Court ruled in the Lender’s favor. But it was only due to California case law, which (for the most part) does not narrowly construe fee clauses in contracts.[6] And the ruling was despite another Ninth Circuit ruling that a preference suit challenging the creation of a security agreement was not an action regarding the “enforcement” of the security agreement – in that case, the Lender won the suit, but got $0 added to its claim for fees or costs.[7] Indeed, the impartial reader may think the Mac-Go Court was struggling to find a way to rule in the Lender’s favor, despite other cases holding that “enforcement” and “collection” have nothing to do with fighting off an effort to claw back what a lender or other creditor has already received.

The Solution: Revise your form note and security agreement. Make sure the attorneys’ fees provision covers fighting off efforts to reclaim or avoid prior payments. Your authors suggest a provision such as the below; the bolded language may be an unusual thing to add at the start of a lending relationship, but could indeed be helpful on the back end, when debtors or trustees try their worst:

Borrower agrees to pay, upon demand, all of Lender’s costs and expenses,[8] including Lenders’ reasonable attorneys’ fees, legal expenses, court costs, and any other costs of any type or kind incurred by Lender: (i) to enforce this Agreement, (ii) to collect any amounts owed to Lender, (iii) in any bankruptcy, insolvency, assignment for the benefit of creditors, receivership, or other similar proceeding relating to Borrower or its assets, (iv) in any actual or threatened suit, action, proceeding, or adversary proceeding (including all appeals) by, against, or in any way involving Lender and Borrower, or in any way arising from this Agreement or Lender’s dealings with Borrower, and (v) to retain any payments or transfers of any kind made to Lender by or on account of this Agreement, including the granting of liens, collateral rights, security interests, or payment protection of any type. Lender may hire or pay someone else to enforce this Agreement or protect Lender’s rights under this Agreement, the costs of which are included in the amounts set forth above and are part of Lender’s right to payment by Borrower.



[1]           See 11 U.S.C. § 506(b).

[2]           See, e.g., 11 U.S.C. § 547(b), 548(a)(1).

[3]           In re Mac-Go Corp., Case No. 14-44181, Memorandum Decision at Docket No. 235 (Bankr. N.D. Cal. March 20, 2015).

[4]           Id. at p. 1; see also Poonja v. First National Bank (In re Mac-Go-Corp.), Adv. Proc. No. 14-04148, Order on Summary Judgment at Docket No. 80 (Bankr. N.D. Cal. May 23, 2014).

[5]           In re Mac-Go, Docket No. 235, at pp. 2-3.

[6]           Id. at pp. 6-8.

[7]           Id. at p. 11 (citing Williams v. Official Unsecured Creditors’ Comm. (In re Connolly), 238 B.R. 475 (9th Cir. B.A.P. 1999)).

[8]           Revised drafting may be needed if the applicable state law allows the recovery of a set percentage of the loan as “reasonable attorneys’ fees.” See, e.g., O.C.G.A. § 13-1-11(a)(2) (providing that “reasonable attorneys’ fees” in a note automatically means 15% of the first $500 owed and 10% of the amount owed that is greater than $500). But even in that situation, you should make sure the events giving rise to a fee claim include a trustee’s or debtor’s subsequent avoidance action, and not just the more generic “enforcement” or “collection.”

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