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  • What Does The New Facebook Personalized URLs Mean For Trademark Owners

    By Robert C. Cumbow 
    June 15, 2009

    On June 12, 2009, Facebook, the online social networking site, began allowing its millions of users to create personalized URLs for their Facebook pages. These personalized "usernames" may incorporate trademarks that are already in use.

    Allowing your trademark to be used as a Facebook username could dilute the value of the mark and your ability to protect it.  Facebook has recognized this, and is providing a method by which trademark owners can call their registered trademarks to Facebook's attention. While it is not yet clear how Facebook decides which trademarks are to be entitled to protection, the aim of the program is for qualifying trademarks to be protected from being registered as usernames by Facebook users.  Facebook also has a mechanism whereby a trademark owner who mark does get registered as a Facebook username can request that Facebook take corrective action.

    Click here to view the Facebook trademark registration form.

    For more information on protecting your trademark, contact one of our trademark attorneys: Robert Cumbow (rcumbow@grahamdunn.com); Kathleen Petrich (kpetrich@grahamdunn.com); and Michael Atkins (matkins@grahamdunn.com).

  • Hotel Owners, Lenders and Stakeholders Square Off: Equitable Subordination

    By Irvin W. Sandman and Russell C. Savrann
    Graham & Dunn HART Force
    May 27, 2009

    The hotel industry's year-over-year declines continued in the second quarter of 2009. Demand is leveling out at a lower baseline, and the hotel industry is adjusting to a new reality.

    Hotel owners, lenders and stakeholders are now beginning to square off to determine who will take a haircut and who will be squeezed out altogether. This process will not be quick or easy. As this process lurches through its early stages, an issue has temporarily taken center stage: equitable subordination.

    Earlier this month, In In re Yellowstone Mountain Club, the bankruptcy court subordinated Credit Suisse's $375 million secured loan. How did this happen? Will it happen again in other cases? What are the lessons?

    The Yellowstone Mountain Club LLC

    The Yellowstone Club development began in late 1999, touted as the world's only private ski and golf community. In 2005, Credit Suisse made a secured loan of $375 million to the then-owner of the development, Yellowstone Mountain Club, LLC (the “Debtor”). Credit Suisse made the loan under a “new loan product” referred to as a “syndicated term loan.” A Credit Suisse loan officer described it as akin to a “home-equity loan” for commercial real estate owners.

    Last November the Debtor filed a Chapter 11 bankruptcy. The unsecured creditors committee and others faced off against Credit Suisse, attacking its secured claim on a number of grounds. Then, after motions and hearings, the bankruptcy court on May 13 entered an interim order subordinating Credit Suisse's $375 million loan to the claims of unsecured creditors. In other words, the unsecured creditors and post-petition lenders will be paid ahead of Credit Suisse, even though Credit Suisse has a first lien mortgage on the development.

    A New Loan Product Built on Shaky Ground

    Credit Suisse's “new loan product” did work much like a home equity loan. it allowed development owners to take equity out of their developments and use the proceeds freely for other purposes. As the Yellowstone bankruptcy court described it:

    “[The product allowed] owners of luxury second-home developments the opportunity to take their profits up front by mortgaging their development projects to the hilt. Credit Suisse would loan the money on a non-recourse basis, earn a substantial fee, and sell most of the credit to loan participants. The development owners would take most of the money out as a profit dividend, leaving their developments saddled with enormous debt. Credit Suisse and the development owners would benefit, while their developments. and especially the creditors of their developments. bore all the risk of loss.”

    The court believed that, like some securitized home equity loans in recent years, the Credit Suisse product was based on inflated and manipulated property valuations. The court noted that Credit Suisse, to support the product, had developed “a new form of appraisal methodology,” termed “Total Net Value” methodology. This new methodology “relied almost exclusively on the Debtors' future financial projections, even though such projections bore no relation to the Debtors' historical or present reality.” The court stated that the methodology did not comply with FIRREA, and then pointedly remarked that this fact “was not important to Credit Suisse because Credit Suisse was seeking to sell its syndicated loans ‘to non bank institutions'.” The court concluded that the product “enriched Credit Suisse, its employees and more than one luxury development owner, but it left the developments too thinly capitalized to survive…. [T]hey were doomed to failure once they received their loans from Credit Suisse.”

    “Let the Chips Fall Where They May”

    The Yellowstone court found that the Credit Suisse product had this same “dooming” effect on the Yellowstone Club development. Of the $375 million loan proceeds, “approximately $209 million was transferred out of the Yellowstone Club” to the Debtor's primary equity owner. The court obviously believed that Credit Suisse callously disregarded that the loan and the expected disbursements would leave the project without sufficient capital to survive. Credit Suisse “had not a single care how [the developer] used a majority of the loan proceeds.” It turned “a blind eye to Debtors' financial statements,” and its due diligence was “all but non-existent.” The only plausible explanation for Credit Suisse's actions, the court said, was that it “was simply driven by the fees it was extracting from the loans it was selling, and letting the chips fall where they may.”

    Building to a crescendo, the court concluded:

    “Unfortunately for Credit Suisse, those chips fell in this Court with respect to the Yellowstone Club loan. The naked greed in this case combined with Credit Suisse's complete disregard for the Debtors or any other person or entity who was subordinated to Credit Suisse's first lien position, shocks the conscience of this Court. While Credit Suisse's new loan product resulted in enormous fees to Credit Suisse in 2005, it resulted in financial ruin for several residential resort communities. Credit Suisse lined its pockets on the backs of the unsecured creditors. The only equitable remedy to compensate for Credit Suisse's overreaching and predatory lending practices in this instance is to subordinate Credit Suisse's first lien position to that of CrossHarbor's superpriority debtor-in-possession financing and to subordinate such lien to that of the allowed claims of unsecured creditors.”

    Why “Equitable Subordination?”

    Section 510(c) of the Bankruptcy Code states:

    [T]he court may - (1) under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim… ; or (2) order that any lien securing such a subordinated claim be transferred to the estate.

    The subordination of a claim based on equitable considerations generally requires three findings: “(1) that the claimant engaged in some type of inequitable conduct, (2) that the misconduct injured creditors or conferred unfair advantage on the claimant, and (3) that subordination would not be inconsistent with the Bankruptcy Code.” Benjamin v. Diamond (In re Mobile Steel Co.) 563 F.2d 692, 699-700 (5th Cir. 1977).

    Although the general theory of equitable subordination appears to have a broad reach, its use has been rare and reserved for extraordinary circumstances. Normally, before a non-insider claim is subordinated, “egregious conduct” must be “proven with particularity.” Sharp dealings aren't enough. one must prove that the claimant “is guilty of gross misconduct tantamount to fraud, overreaching or spoliation to the detriment of others.” In re First Alliance Mortg. Co., 497 F.3d 977, 1006 (9th Cir. 2006).

    The Yellowstone court obviously felt that Credit Suisse's conduct was egregious enough, finding that