Landmark Decision in Favor of G&S Client

On February 13, 2018, in a decision that could have a large impact on bankruptcy litigation nationwide, the United States Bankruptcy Court for the District of Delaware granted the Motion to Dismiss filed by Gordon & Simmons on behalf of its client, David Schwartz (“Schwartz”), against Debtors Rent-A-Wreck of America, Inc. and Bundy American, LLC (collectively, “RAWA” or “Debtors”), two companies that are among several private companies owned by J.J.F Management Services, Inc. (“JJFMS”).  John J. Fitzgerald, Jr. is the owner, president, CEO and chairman of the board of directors of JJFMS, as well as the chairman of the board of RAWA.

In her opinion granting the dismissal of RAWA’s Chapter 11 petitions, U.S. Bankruptcy Judge Laurie Selber Silverstein concluded that RAWA’s bankruptcy petitions fell on “the dark side of the spectrum ranging from the clearly acceptable to the patently abusive,” determining that RAWA failed to demonstrate true financial distress worthy of bankruptcy protection, and that RAWA’s underlying purpose for the bankruptcy was to terminate Schwartz’s Los Angeles Rent-A-Wreck franchise.

Schwartz, the founder of the Rent-A-Wreck and Bundy names, has been in litigation with RAWA in the United States District Court for the District of Maryland and the United States Court of Appeals for the Fourth Circuit for more than ten years, beginning in June 2007. As Gordon & Simmons’ attorneys Roger Simmons and Jacob Weddle led Schwartz to victories in two jury trials and subsequent appeals, Schwartz has had to endure multiple attempts by RAWA to terminate his business. In court, Schwartz was found to own an exclusive, royalty-free Rent-A-Wreck franchise in Los Angeles California. Schwartz has endured attempts by RAWA to divert his customers to other Rent-A-Wreck franchises hundreds of miles away, and these efforts resulted in a civil contempt citation against RAWA in June 2017.

Less than one month later, in July 2017, RAWA filed for Chapter 11 bankruptcy protection in Delaware, openly seeking to reject Schwartz’s franchise under 11 U.S.C. § 365, aiming to achieve through bankruptcy what RAWA was unable to do during the course of more than a decade of litigation in the U.S. District Court for the District of Maryland and the U.S. Court of Appeals for the Fourth Circuit.  Gordon & Simmons’ members Simmons and Weddle, supported by associate Charles E. Remus II, sought to dismiss RAWA’s bankruptcy petitions as made in bad faith, and further opposed any attempt by RAWA to reject Schwartz’s exclusive Los Angeles franchise that he had defended through more than ten years of litigation.

After a two-day trial and multiple rounds of briefing, Judge Selber Silverstein entered her opinion, concluding that the “primary purpose of [RAWA’s] bankruptcy filing is to reject Mr. Schwartz’s franchise agreement so Debtors can open the Los Angeles territory to multiple royalty-paying franchisees,” and stating that “[i]t is easy to conclude that if Debtors did not think they could reject Mr. Schwartz’s franchise agreement (and gain the benefit of his territory), they would not have filed these bankruptcy cases.”

Judge Selber Silverstein concluded her opinion by stating, “. . . here, I have no doubt these petitions were just another chapter in the attempt to terminate Mr. Schwartz’s franchise and obtain the benefit for JJFMS.  These bankruptcy petitions fall on the dark side of the spectrum ranging from the clearly acceptable to the patently abusive.”

An additional summary of Judge Selber Silverstein’s Opinion granting Schwartz’s Motion to Dismiss can be found at: https://www.law360.com/articles/1012296/rent-a-wreck-ch-11-case-tossed-as-bad-faith-filing