Soon after Kane Russell Coleman Logan won the job to represent a group of unsecured creditors in the Chapter 11 bankruptcy of a company owned by Carl Icahn, Auto Plus, the firm realized the clients, who were owed between $175 million and $250 million, could very well walk away with nothing.
“There was no doubt it was going to be an exceedingly difficult case,” Joe Coleman said in a recent interview with The Texas Lawbook, recounting how the legal team had to, in six weeks, plow through 20,000 documents and take three corporate depositions, and strategically agreed to participate in an expedited, two-day mediation in New York overseen by U.S. Bankruptcy Judge David R. Jones.
The outlook at the beginning was grim.
It appeared from the pleadings that the company was in a state of administrative insolvency and the likelihood of recouping any funds for the unsecured creditors seemed low.
“From a litigation perspective, essentially because of the timing and the issues with the lack of cash and assets to administer this bankruptcy, there was an agreement to an extremely early mediation,” Hail said. “We did six to nine months of work in about six weeks. … It was nothing short of extraordinary.”
It was a slog.
“I can say, unequivocally, in the two weeks leading up to mediation, I worked more hours in that period of time than in any other similar period of time in my career,” Kane said. “We wanted to ensure we were as well prepared as possible and could present the best case to our opponents and the judge overseeing the mediation.”
And it required significant teamwork.
“I’ll put it this way,” Coleman said. “There were a whole bunch of Kane Russell Coleman Logan attorneys who did not have a free weekend for six weeks.”
Another key, according to the KRCL team, was the professionalism of debtor’s counsel, Matthew Cavenaugh of Jackson Walker in Houston. At a June 16 confirmation hearing of the Chapter 11 plan before U.S. Bankruptcy Judge Christopher M. Lopez, Cavenaugh praised the work of all counsel involved, calling the result “nothing short of extraordinary,” according to a transcript.
“And we’re all very proud of it,” he said at the hearing. “It would not have been possible for sure without the committed professionals from the [debtor-in-possession] lender, the [unsecured creditors committee], the debtors. And, yes, even Judge Jones who … did a masterful job in his mediation. The word ‘savior’ gets thrown around way too much so I’ll just say that he was instrumental in facilitating — the resolution that’s embodied in the plan.”
Cavenaugh also recounted for the court at the confirmation hearing a phone call he had with Coleman soon after the unsecured creditors committee was formed. It was the first time Cavenaugh and Coleman worked together and they were trying to “feel each other out,” he said.
“And, you know, at the end of a very tough conversation but a productive conversation, I thanked Mr. Coleman for his approach and his tone and that I was confident that we would be able to continue to work together constructively,” he said. “And Mr. Coleman, I can’t forget this, but he said, well, you know, Matt, you don’t know me, but I fight when I need to fight and I talk when I need to talk. And I promise you this, if I end up having to hit you, I won’t hit you in the back, I’ll hit you right between the eyes.”
“He was true to his word there,” Cavenaugh said. “And the efforts from the Committee here were much appreciated. They did their job and we’re very appreciative of that.”
The result of the work, Coleman said, was that the unsecured creditors obtained between $40 million and $60 million of administrative and priority claims to be paid in full and another $17 million that will go to pre-petition unsecured creditors.
“It looked at the beginning of the case like the unsecured creditors would get nothing,” Coleman said.
In 2015 Icahn Enterprises entity Icahn Automotive Group purchased retail and distribution auto parts company Auto Plus that had more than 300 locations nationwide, and in 2016 acquired Pep Boys, an auto service company with about 500 locations nationwide. The plan was to merge the businesses but after the financial picture came into clearer focus, and the benefits of the merger failed to materialize, Icahn Automotive Group started trying to unwind the union just a few years later.
In January, Auto Plus filed for bankruptcy.
“Since acquiring Auto Plus, [Icahn Enterprises] has invested significantly in transformation and restructuring initiatives and has loaned significant amounts to Auto Plus but has obviously been disappointed in the results of these investments and the continued losses that Auto Plus has experienced,” a January press release announcing the bankruptcy reads. “As a result, IEP has determined that it would no longer be prudent to continue to loan money to Auto Plus at this juncture unless done in connection with a restructuring process.”
“Auto Plus expects to continue to operate its business in the ordinary course and also plans to run a sale process for substantially all of its assets during the Chapter 11 case.”
On Valentine’s Day, Judge Lopez appointed an official committee of unsecured creditors in the case.
Coleman said his midsized firm — which has represented 48 creditors’ committees in 19 states — was asked by some of the unsecured creditors selected to be on the committee to put together a proposal to be hired on this case.
“Once they contacted us, we studied the case and put together a PowerPoint with our strategic suggestions, and we were one of, I think, seven or eight firms asked to pitch,” he said. “My understanding was we were the smallest firm asked to pitch. Most of the firms were international or national firms.”
A month later, on March 14, an application was filed with the court to hire Kane Russell Coleman Logan.
“From a review of the pleadings, it was very clear that there were insufficient assets and money to administer this bankruptcy case,” Coleman said. “So, there was a big question about how post-petition creditors — professionals and everyone who administers a bankruptcy case — were even going to get paid, never mind getting additional money to prepetition unsecured creditors.”
A second difficulty to overcome in representing the committee, Coleman said, was that the assets of the debtor had already been set up for “a fast-tracked sale.”
“And number three was the specter of the fact that Carl Icahn was the ultimate owner,” he said. “Obviously, Mr. Icahn has an enormous reputation, he’s a very shrewd businessman.”
In response to concerns raised by the Kane Russell team about administrative insolvency, Cavenaugh proposed an “expedited mediation,” which the parties agreed to, and also suggested Judge Jones as mediator.
“That was a difficult decision by the committee because we had to do six months of work in six weeks,” Coleman said. “And frankly, I don’t think there’s anyone who could have done a better job mediating this dispute than Judge David Jones. He has the respect, the big case experience. When he walks in a room everybody listens. He’s intelligent, creative and demanding.”
During a May 24 hearing to approve the sale of the debtors’ assets, Judge Lopez was complimentary to all parties involved and called Coleman “one of the best lawyers in the state” and said Coleman’s comments that he was present at the auction and “fully support[s]” it adds credibility to the process.
“And so, it gives the court comfort that there’s been transparency in the process and that there’s been — that essentially this is the highest and best offer that’s here on the table today, and that’s what I’m being asked to do, to approve something today as the highest and best offer,” Judge Lopez said.
“So, I am comfortable,” he said. “I’ve reviewed the proposed order that has been filed … and I will approve the proposed order and I will approve the sale.”
Judge Lopez confirmed the Chapter 11 plan in an order issued June 16.
The case number is 23-90054.