The End of Emerald City?

This past Christmas Eve Johnny Chisholm got a large lump of coal in his stocking, in the form of motion by a Trustee in one of his ongoing bankruptcy cases...a motion that could very well spell doom for his Pensacola-based nightclub, Emerald City.

We haven't talked about this particular Chisholm business bankruptcy case here yet (there are a total of four out there, including CPCE...my eventual plan is to weave them into the upcoming timeline Part II project), so guess I should back up a bit and explain what it's all about. Filed on May 21, 2008, Emerald City of Pensacola, Inc. (the parent company of Emerald City) sought Chapter 11 bankruptcy protection against three large creditors: McBride Construction (has a lawsuit judgment lien for $351,964.99), Garrison Trust (made a loan collateralized by the club's very valuable liquor license, $95,466.31 is owed), and the Small Business Administration (made an SBA loan, $461,416.59 is owed). So, this was an attempt by Chisholm to restructure $908,847.89 worth of debt on his Pensacola nightclub.

And it doesn't seem to have worked out. Chisholm proposed a restructuring plan that involved Garrison Trust and the SBA getting paid more or less as originally agreed, and McBride Construction getting it's $350,000+ judgment debt paid at a rate of $5000 a month.

Not surprisingly, McBride Construction thought a plan that had them waiting almost 3 years after the end of the Mayan calendar to get paid in full was a sucky plan, and they rejected it outright on March 19, 2009:


This alone was enough to kill the deal, but to add insult to injury Garrison Trust objected that same day as well; they pointed out the plan did not compensate them for missed payments, as well as attorney fees, late fees, and interest called for by their loan agreement.

Anyways, fast forward to today, and it looks now like Emerald City may never be able to save itself. Citing the continuing plan rejection (among other reasons), on December 24th the Trustee in the case slid down the metaphorical chimney, and motioned for the court to either terminate the Chapter 11, or convert it to a Chapter 7 liquidation:



If this dismissal/conversion to a Chapter 7 is approved, Emerald City will likely be foreclosed upon/liquidated, respectively. Of course, a last minute sale and/or capital infusion is possible too, I suppose; but as the business is currently operating as a loss, this seems unlikely:


What effect Emerald City's demise will have on the closely related annual Memorial Weekend in Pensacola circuit event in May is unclear; I believe that's technically run by a completely different Chisholm entity: Chisholm Properties of Pensacola, LLC.

However, Chisholm Properties of Pensacola is also now in Chapter 11 bankruptcy (as of April 21, 2009).

Addendum 12/28/09: There will be a telephonic hearing on this motion January 22, 2010 (but now rescheduled to January 25, 2010).

Addendum 12/30/09: There is actually a similar motion pending to convert another Chisholm bankruptcy case, that of 800 Bourbon Street, LLC, from a Chapter 11 to a Chapter 7 liquidation.

800 Bourbon Street is the company that owns the building which houses the New Orleans nightclub Oz. So, it's basically "Oz the building," and it's been in Chapter 11 bankruptcy since June 11, 2008. It's not to be confused with another company (Louisiana Interests, Inc.) which actually owns "Oz the business," although both companies are controlled by Chisholm. Chisholm essentially pays himself rent in this arrangement. And "Oz the business" is not currently in bankruptcy (it actually emerged from Chapter 11 bankruptcy in December of 2007).

The 800 Bourbon Street bankruptcy is an interesting one which seems to have played a role the 2009 OMW disaster in a few key respects. So, it too will be incorporated into the upcoming timeline. I'll probably have more to say about it in a separate post as well.

Anyways, back to the news of today...as with Emerald City, 800 Bourbon's Chapter 11 seems to be unravelling now as well. A former Chisholm lawyer in the case and a court appointed accountant are not being paid according to the approved restructuring plan, so they've motioned the court for either their money, OR for the case to be converted to a Chapter 7 liquidation.

If 800 Bourbon is liquidated as a result of this latest crisis, this will not necessarily mean the closure of Oz. It will mean that the building will probably be sold to pay off it's creditors, and Chisholm will no longer be his own landlord.

A hearing on this motion is set for January 12, in New Orleans.




Addendum 12/31/09: Chisholm filed a response to the trustee's motion in the Emerald City bankruptcy case today:



The major problem here, it seems to me, is the continuing failure (for nearly nine months) to resolve all the issues with McBride Construction and Garrison Trust. It'll be tough to oppose this motion if those creditors arn't both somehow brought on board by the time of the telephonic hearing on the 25th. We'll see what happens then...

Addendum 1/5/10: The Emerald City telephonic hearing has been rescheduled to Monday, January 25.

Addendum 5/15/10: Chisholm has successfully appeased both of those two objecting Emerald City creditors, as on Thursday they each officially voted to approve the Chapter 11 plan. And yesterday the plan was approved by the judge at a telephonic hearing.

At the same time, however, rather serious problems have cropped up in yet another Chisholm Chapter 11 bankruptcy case, that of Chisholm Properties of Pensacola. That one was filed back on April 21, 2009 (right during the chaos of the OMW collapse...see timeline post here) and concerns a Chisholm company that owns a cluster of adjacent commercial properties on East Garden Street in Pensacola, Florida. One of the secured creditors in that case, Coastal Bank and Trust, won approval to lift the automatic stay in that case, so it could begin foreclosure on it's secured property:



Meanwhile, the Internal Revenue Service has not been happy about this case for a variety of reasons (failure to file delinquent returns, etc...), and as such, is motioning to have it either dismissed, or converted to a Chapter 7 bankruptcy:



A telephonic hearing on the IRS motion is scheduled for May 27.

Addendum 7/26/10: Chisholm filed the missing tax returns, and this seems to have been good enough for the IRS...they withdrew their motion:


So, barring any new surprises, it would appear that this Chapter 11 case will be approved by the creditors and the court.

Johnny Chisholm Sued For Music Copyright Infringement

Last week in the US District Court for the Eastern District of Louisiana, Louisiana Interests, LLC (the parent company of Oz Nightclub in New Orleans), and it's co-owners Johnny Chisholm and Doyle Yeager, were sued for music copyright infringement by Sony/ATV Tunes, Red Giant, Universal Music Corporation, and Chappell & Co.:




OK, in a nutshell, what we have here is this: Chisholm (and his partner Yeager) have been behind in their annual music licence fees for Oz to "The American Society of Composers, Authors and Publishers" (aka ASCAP) as of December of 2006. ASCAP fees are paid in advance, so this would have been the first month they stopped paying.


(BTW, for those not familiar with ASCAP licence fees, what they're for, and who has to pay them, see here; it's more or less a standard cost of doing business that a music-playing establishment has to incur to operate legitimately)


And after a couple years of unsuccessful collection attempts, it looks like ASCAP decided "no more Mr. Nice Guy" in a manner of speaking, and sent in an investigator to gather evidence of music copyright infringement. And he/she caught Oz red handed playing three songs out of the ASCAP repertory: Girls Just Want To Have Fun, Do It Again, and I Want Your Sex:


As a result, Oz, Chisholm and Yeager now face statutory damages in the range of $750.00 to $30,000.00 per song, or a total of $2,250 to $90,000 in damages.


And this will probably be the one and only post you'll see here on this particular Chisholm lawsuit. Reason being, IMO, it doesn't really have anything to do with the OMW calamity of 2009, EXCEPT in one respect: It does tend to show the financial rot which began to beset the Chisholm party empire around the time of the Paris disaster of 2007, and beyond. These ASCAP fees are not terribly burdensome for large nightclubs like Oz. They are based on a rather arcane fee schedule, but as near as I've been able to determine, fees for a dance club like Oz would have run only about $1000 to $2000 a year. So, there is really no logical excuse for a club the size of Oz to run the risk of not paying it except perhaps for financial problems.


And that point has been adequately made by the mere existence of this new lawsuit, I think. Interesting though this case is, unless there is a hue and cry from my readership, we'll leave this one be from here on out.

Objection Sustained, and a Service Quashed

The magistrate judge in the DeForest case sustained Ray DeForest's objection to the stay on the entire case, and lifted the stay as to Johnny Chisholm individually, and Bobby Warner individually:



So, the case is now reactivated as to those two individual defendants. A stay remains in place on the bankrupt Chisholm Properties Circuit Events LLC, and for some reason (an oversight?) the not-bankrupt Johnny Chisholm Global Events LLC. Although, since Global Events is empty shell with no assets, (probably) lots of debt, and negative goodwill from the OMP Paris fiasco, I wonder if it even matters to anyone if that stay is lifted or not?

Anyways, the other interesting ruling in this order is that Bobby Warner's Motion to Quash her defective service of process was granted as well. I kinda predicted this would happen. So, she is now officially un-served...but the magistrate judge has indicated she's not going to put up with this tomfoolery forever. DeForest's motion for additional time to correctly serve Warner was granted; in addition, Bobby Warner is required to provide her actual residential address to the court by December 29, or she'll reconsider the motion to consider her effectively served regardless.

Also in this order is a brief road map as to what'll happen next...I would call it the first glimmering of the light at the end of the tunnel:

"The pending amended motion for entry of default judgment against Defendant Johnny Chisholm (Doc. 100) shall be reinstated. The undersigned shall address this motion separately at a later date in a Report and Recommendation to the district court."

As I indicated in the previous post, this motion for default (as well as the similar motion in the Bardfield case) has been sitting around since October 5. So, after over two months of delay, what'll happen next is, "at a later date" the magistrate judge will write a "Report and Recommendation," then presumably at a still later date from that, the district court judge will read the Report and Recommendation, and finally make a ruling.

Addendum 12/29/09: Bobby Warner successfully filed a notice today with the court, listing an address purporting to be her current residential address.

The Personal Financial Statement Revisited

During their initial solicitation by a JustCircuit "representative" of Chisholm in January of 2009, the plaintiffs in the Bardfield case rather prudently requested more information about the state of Chisholm's finances before investing. In response to this request, JustCircuit arranged for a "Personal Financial Statement" (PFS) of Johnny Chisholm to be sent to the victims on January 31, 2009. Naturally, Bardfield and Carver relied heavily on this Chisholm PFS, "certifying himself to be a person of means with a net worth of 11.6 million dollars," when they made their fatal decision to loan him $200,000 to fund One Mighty Weekend 2009.

We've seen this PFS before; it was an Exhibit to the initial court filings back on June 1, 2009, and it was one of the first documents I posted to Facebook way back when I started following all this on June 2. Here it is again:



One obvious falsity in the PFS, which we all immediately noticed back in June, was that the line under "Liabilities" for "Legal Claims" was left blank; in addition, in the box with the question "Are you a defendant in any suits or legal action?" was written "NO."

Now right there we had evidence of fraud...both criminal and civil. Because as we all know (thanks to Tony Hayden at The Circuit Dog), Chisholm was indeed embroiled in at least one lawsuit back then: DeForest vs. Chisholm. But was there any other fraudulent information in this PFS as well?

Well, it turns out, there was. On October 5, 2009 the plaintiffs in the Bardfield case filed a voluminous amount of documents, in support of new motions for default against both Chisholm and CPCE. And contained therein were some new revelations about the accuracy of this PFS, gleaned from a deposition of Chisholm accountant Robert Hayslette in late June:


Now, it was my intention to bring this new info to everyone's attention back on October 5; indeed on October 6 I had written a brief preview post on Facebook announcing the discovery, and that a more full report was on the way. But then, later that day on October 6, something else happened, which, kind of stole the spotlight, I guess you could say...bankruptcy.

Anyways, fast forward to today, and as I'm working on finishing up the timeline, in order to make it complete I realize that I really need to get some of this neglected October 5 information out. Hence, this revisitation.

So, with apologies for being a couple months tardy, here's the totality of what was known wrong with the "Personal Financial Statement" as of October 5, 2009:

1) "Defendant Chisholm claimed not to have been a defendant in any lawsuits or legal actions. When in fact, at the time, Defendant Chisholm was a defendant in the related case of Ray DeForest v. Johnny Chisholm Global Events, LLC and Johnny Chisholm, individually, Case No. 3:08cv498-MRC/EMT, and he had post-judgment recovery proceedings pending against him in McBride Construction Inc. v. Johnny Chisholm, Doyle G. Yeager, Emerald City of Pensacola, Inc., Chisholm Properties of Pensacola, LLC, Chisholm Properties Circuit Events, LLC, Case No. 2005-CA-002063. (DE 1-Verified Complaint at para. 24; Exh. C)."

2) "Certain related entities, which were listed as assets on the Personal Financial Statement, were involved in at least two pending bankruptcy filings and a third was filed soon thereafter...(Hayslette Depo. 125-26);"

3) "Additionally, other false statements on the Financial Statement would have been known by Defendant Chisholm at the time include but are not limited to: listing false assets, including assets that transferred to his minor daughter (Hayslette Depo. at p. 156-57);"

4) "failing to list a series of notes for loans in the amount of 1.2 million dollars (Hayslette Depo. at 78, 80, 81, 85)...as set forth, Defendant Chisholm failed to identify the bankruptcy of 800 Bourbon LLC. Not only did he forget to identify the filing, in the Statement he listed more than one million dollars in equity on the property when in fact, it was in bankruptcy because he was in default of his mortgage...debts Defendant Chisholm obtained when he purchased the parties."

5) "not identifying second mortgages; unsubstantiated out of date valuations (Hayslette Depo. at p. 141);

6) "for the properties owned by Chisholm Properties of Pensacola, Mr. Chisholm listed himself as 100% owner when in fact, he had sold half of his interest to Bobby Warner;"

7) "He also knew of sizable credit card debts which he failed to list (Hayslette Depo. at p. 156-57)"

Once again, all of the October 5 documents, including the referenced portions of the Hayslette deposition, can be found here.

One Night On New York Street

Universal City Development Partners, Ltd., aka "Universal Orlando," filed it's claim yesterday in the Chisholm Properties Circuit Events (CPCE) bankruptcy case:


Their total claim comes to $277,209.36, which is a bit higher than the $249,007.00 CPCE listed on it's initial bankruptcy filing.

Attached to the claim form are some interesting supporting documents, such as the contract between Universal Orlando and CPCE for the 2008 "Universe" party for which this debt was incurred. If you've ever wondered what a contract to rent a major American theme park for a night looks like, well, here's your chance! As someone who has been going to these parties for years as a consumer, getting a glimpse of how the sausage is made is actually kind of fascinating, I think. Of course, YMMV.

Also attached is a copy of the state court lawsuit filed by Universal Orlando against CPCE, for nonpayment of the contract mentioned above. Even though we've talked about the suit here before, this is the first time I've seen the actual complaint. Five pages long, what Universal Orlando is saying is pretty cut and dry: Chisholm was invoiced $221,779.47, he only paid $4,000, therefore, he now owes us $217,779.47 (plus interest).

Then there's the invoice itself:



Here's a summary of how the charges broke down:

Cost to rent the "New York Street Set" at UO (plus tax): $159,217.50
Food and Beverage at same (plus tax): $16,553.77
Aerial acts at same: $38,600.00
Bar service at same: $1,200.00
Audio/Lighting/Lasers at same: $135,000.00
"8 Dancers for Finnegans": $4,720.00
Miscellaneous taxes: $10,488.00
------------------------------------------------
TOTAL comes to: $365,778.77

But from that we subtract the pre-event deposits paid by Chisholm in three installments: CR $144,000.00

...which leaves us with a bill to CPCE for $221,778.77, which was due and payable in full five days after the event on June 13, 2008, as per the contract. But was not; even though Universal "provided several notices to Chisholm of it's breach of the Agreement" he "only made payments of $4,000.00 towards the $221,778.77 balance owed."

Then rounding out this bankruptcy claim we have accumulated interest, which as per the contract accrued at a rate of 1.5% a month:


...which as you can see, brought the total to $276,635.36 by the date of the bankruptcy filing. In addition, Universal Orlando is seeking recovery of the $417.00 it paid in Florida state court filing fees:


...as well as $157.00 in process server fees:


...which if you notice, interestingly, also includes a $100 "LOCATE" charge.

So, $276,635.36 plus $417.00 plus $157.00 comes to $277,209.36, which his how Universal Orlando calculated it's claim yesterday.