Brooklyn Sports activities & Leisure Legislation Weblog

In March 2021, Miami-Dade County accepted a naming rights settlement with cryptocurrency platform FTX to rename the Miami Warmth’s residence area “FTX Area.”¹[1]Douglas Hanks, Miami Warmth to play in FTX Area after county approves $135M cope with crypto trade, MIAMI HERALD (Up to date June 24, 2022); see additionally Naming Rights Settlement. The chance of partnering with a cryptocurrency platform was evident to some: cryptocurrency is an especially unstable trade, and Miami-Dade County’s chief operations officer famous on the time “[w]e acknowledge there’s a danger on this deal, notably with a comparatively new firm in a comparatively new trade.”²[2]Id. Nonetheless, with an consideration grabbing partnership in a brand new trade and a deal at $135 million over 19 years, Miami-Dade County accepted enthusiastically.³[3]Id.

In just below two years, the settlement performed out about as poorly as potential. In November 2022, FTX filed for chapter in New York following a dangerous enterprise relationship with buying and selling agency Alameda Analysis and an alleged misuse of buyer deposits.⁴[4]Suvashree Ghosh, FTX Bahamas Unit Information for Chapter 15 Chapter in New York, BLOOMBERG (Nov. 16, 2022); David Yaffe-Bellany, How Sam Bankman-Fried’s Crypto Empire Collapsed, N.Y. TIMES (Nov. 14, 2022). In December 2022, the Securities and Alternate Fee charged FTX’s founder and CEO Sam Bankman-Fried with eight prison expenses, together with fraud and conspiracy to commit cash laundering; Bankman-Fried was arrested within the Bahamas and extradited to the US.⁵[5]Dominic Rushe, Kari Paul, Alex Hern, Edward Helmore, FTX founder Sam Bankman-Fried charged with defrauding buyers, THE GUARDIAN (Dec. 13, 2022). The implosion of FTX left the Miami Warmth and Miami-Dade County in an uncomfortable place: the title of a bankrupt firm, led by a probably criminally liable government, adorned their area. Regardless of FTX’s tarnished status, the Miami Warmth have been caught enjoying in FTX Area for a number of months till a federal chapter court docket terminated the naming rights settlement between Miami-Dade County and FTX.⁶[6]Tim Reynolds, Miami-Dade County wins proper to strip FTX title off Warmth area, WPTV (Jan. 12, 2023).

Contemplating the high-profile failure of FTX, one could marvel the why Miami-Dade County needed to run to a chapter court docket in any respect. Why couldn’t Miami-Dade County terminate its settlement with FTX instantly? To reply that query, this text will discover the intersection of naming rights agreements and chapter and clarify why it took months for Miami-Dade County to get FTX’s title off its area. In brief, chapter legislation prevents collectors from emptying a bankrupt get together’s property earlier than it may possibly undergo chapter proceedings, however well-crafted naming rights agreements could enable venue homeowners to get out of agreements with bankrupt events as shortly as potential.

Chapter & The Computerized Keep

When an organization or particular person declares chapter, it normally signifies that one thing has gone horribly unsuitable. A bankrupt get together is unable to pay all their money owed and must undergo chapter proceedings to both restructure their debt or dissolve their property to payout collectors. A chapter court docket facilitates the method of decreasing or eliminating unsecured money owed or making a timeline for the manageable reimbursement of secured money owed of bankrupt events.⁷[7]Sensible Legislation Chapter & Restructuring and Sensible Legislation Finance, The Computerized Keep in Chapter: An Overview, AMERICAN BAR ASSOCIATION (Sep. 22, 2022).

When somebody declares chapter, collectors have each incentive to search for the primary door out. When a big firm reminiscent of FTX declares chapter, there are undoubtedly lots of, if not hundreds, of collectors desperate to safe their debt earlier than FTX runs out of cash. Events in an settlement with the bankrupt get together could wish to terminate these agreements, realizing the bankrupt get together is very unlikely to satisfy its phrases.

United States chapter legislation contemplates this creditor feeding frenzy. To that finish, the automated keep provision, triggered instantly when somebody declares chapter, stops all proceedings towards a debtor’s property till chapter performs out.⁸[8]See 11 U.S.C. § 362 (West 2023); Sensible Legislation Chapter & Restructuring and Sensible Legislation Finance, The Computerized Keep in Chapter: An Overview, AMERICAN BAR ASSOCIATION (Sep. 22, 2022). The aim of the automated keep provision is to make sure collectors, of their race to safe their very own debt, don’t empty the bankrupt get together’s property earlier than chapter proceedings can play out.⁹[9]United States v. Inslaw, Inc., 932 F.second 1467, 1473 (D.C. Cir. 1991). As a result of collectors have each incentive to safe their very own debt on the expense of different collectors, the automated keep prevents all actions towards the bankrupt get together that will deplete their property, broadly together with acts to gather claims towards the bankrupt get together that arose earlier than they declared chapter.¹⁰[10]11 U.S.C. § 362 (a)(6).

Evading the Computerized Keep

The automated keep provision appears formidable to anybody making an attempt to gather or get out of their relationship with a bankrupt get together. So how did Miami-Dade County terminate its naming rights settlement? The automated keep provision has a “for trigger” exception, which the court docket could grant on the request of a celebration.¹¹[11]U.S.C. § 362 (d)(1). Whether or not somebody has sufficient trigger for reduction from the automated keep provision is mostly on the discretion of the chapter court docket, contemplating the totality of the circumstances in every continuing.¹²[12]In re Heine, 2022 WL 883938 (3d Cir. 2022). Usually, to ascertain trigger, the get together searching for reduction from the automated keep should present the “steadiness of hardships” from not acquiring reduction from the automated keep “ideas considerably in its favor.”¹³[13]In re American Traditional Voyages, 298 B.R. 222, 225 (D. Del. 2003).

Miami-Dade County made a compelling trigger that the steadiness of hardships tipped in its favor. First, underneath the naming rights settlement, FTX’s subsequent fee to Miami-Dade County was due in just a few months, and Miami-Dade County would have been entitled to damages for FTX’s failure to pay.¹⁴[14]See Movement of Miami Dade County, Florida, For Reduction From The Computerized Keep To Terminate The Naming Rights Settlement, In re FTX Buying and selling, LTD., Case 22-11068-JTD (D. Del. Bankr. Nov. 22, 2022). This is able to have elevated FTX’s liabilities in the midst of chapter proceedings. Moreover, the Naming Rights Settlement had a Compliance with Legal guidelines provision, wherein FTX agreed to adjust to relevant statutes, ordinances, guidelines, and rules.¹⁵[15]See Naming Rights Settlement § 35. The breach of this provision constituted default underneath the Naming Rights Settlement, and entitled Miami-Dade County to termination.¹⁶[16]See Naming Rights Settlement §§ 9.2.2, 9.2.3. Lastly, the title “FTX Area” on Miami-Dade County’s venue induced reputational hurt contemplating the magnitude of FTX’s implosion, and any delay in searching for a brand new naming rights companion for the sector would price Miami-Dade County income within the short- and medium-term.¹⁷[17]Movement of Miami Dade County, Florida, For Reduction From The Computerized Keep To Terminate The Naming Rights Settlement, In re FTX Buying and selling, LTD., Case 22-11068-JTD at 5–6. (D. Del. Bankr. Nov. 22, 2022).

In the end, the chapter court docket was satisfied. It lifted the automated keep as regards to Miami-Dade County, and permitted Miami-Dade County to terminate its Naming Rights Settlement with FTX.¹⁸[18]Christina Vasquez, Decide guidelines Miami Dade County can take away FTX Area title from downtown venue, LOCAL 10 (Jan. 12, 2023 7:58 AM).

Escaping Naming Rights Agreements

Going ahead, venue homeowners can greatest place themselves to get out of naming rights agreements by giving themselves clear exits for unlawful or immoral habits by companions. The FTX implosion was an embarrassing episode for Miami-Dade County and the Miami Warmth. What might Miami-Dade County have carried out otherwise so the Miami Warmth weren’t caught enjoying in FTX Area after the corporate’s collapse? It seems, Miami-Dade County positioned itself comparatively effectively.

Maybe Miami-Dade County didn’t even have to hunt an exemption from the automated keep to terminate its Naming Rights Settlement with FTX within the first place. Of their movement, Miami-Dade County said they sought reduction from the automated keep provision “[i]n an abundance of warning.”¹⁹[19]Movement of Miami Dade County, Florida, For Reduction From The Computerized Keep To Terminate The Naming Rights Settlement, In re FTX Buying and selling, LTD., Case 22-11068-JTD at 2 (D. Del. Bankr. Nov. 22, 2022). In different phrases, the venue proprietor might throw warning to the wind, and gamble that the automated keep wouldn’t apply to a default on a naming rights settlement as extreme as FTX’s wouldn’t require an exemption from the automated keep. Such of venture carries the draw back danger of sanctions for violating the automated keep.

The best choice could also be to do precisely what Miami-Dade County did and pursue contractual treatments in court docket as shortly as potential. Provisions requiring compliance with legislation and different morality clauses, paired with a proper to terminate for violation of such provisions, present a fast path out of an settlement with an undesirable companion. Sadly, regardless of how thorough a naming rights settlement, a venue may have to attend for a chapter court docket to resolve chapter proceedings in an orderly trend.

Naming rights agreements are an amazing software for up-and-coming corporations to extend their model recognition. Nevertheless, up-and-coming corporations are seemingly probably the most prone to implosions like FTX’s. Regardless of these dangers, venues are prone to companion with corporations who want to enhance model recognition, and keen to pay the very best value potential. To guard themselves from corporations failing and relationships deteriorating, venue homeowners ought to proceed to wield morality clauses and different provisions to present them as fast an out as potential when partnerships flip bitter.

Written By: Mathew Santoyo
Mathew is a 2024 J.D. Candidate at Brooklyn Legislation College