Brooklyn Sports activities & Leisure Regulation Weblog

In March 2021, Miami-Dade County permitted a naming rights settlement with cryptocurrency platform FTX to rename the Miami Warmth’s residence enviornment “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 danger of partnering with a cryptocurrency platform was evident to some: cryptocurrency is an especially unstable business, and Miami-Dade County’s chief operations officer famous on the time “[w]e acknowledge there’s a danger on this deal, significantly with a comparatively new firm in a comparatively new business.”²[2]Id. Nonetheless, with an consideration grabbing partnership in a brand new business and a deal at $135 million over 19 years, Miami-Dade County permitted enthusiastically.³[3]Id.

In just below two years, the settlement performed out about as poorly as doable. 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 Recordsdata 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 Trade Fee charged FTX’s founder and CEO Sam Bankman-Fried with eight felony costs, 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 identify of a bankrupt firm, led by a probably criminally liable government, adorned their enviornment. Regardless of FTX’s tarnished fame, the Miami Warmth have been caught taking part in 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 identify off Warmth enviornment, WPTV (Jan. 12, 2023).

Contemplating the high-profile failure of FTX, one might 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 identify off its enviornment. Briefly, chapter regulation prevents collectors from emptying a bankrupt occasion’s property earlier than it could possibly undergo chapter proceedings, however well-crafted naming rights agreements might enable venue house owners to get out of agreements with bankrupt events as rapidly as doable.

Chapter & The Automated Keep

When an organization or particular person declares chapter, it normally signifies that one thing has gone horribly incorrect. A bankrupt occasion 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 compensation of secured money owed of bankrupt events.⁷[7]Sensible Regulation Chapter & Restructuring and Sensible Regulation Finance, The Automated 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 equivalent to FTX declares chapter, there are undoubtedly a whole lot, if not 1000’s, of collectors desperate to safe their debt earlier than FTX runs out of cash. Events in an settlement with the bankrupt occasion might need to terminate these agreements, realizing the bankrupt occasion is extremely unlikely to meet its phrases.

United States chapter regulation contemplates this creditor feeding frenzy. To that finish, the automated keep provision, triggered instantly when somebody declares chapter, stops all proceedings in opposition to a debtor’s property till chapter performs out.⁸[8]See 11 U.S.C. § 362 (West 2023); Sensible Regulation Chapter & Restructuring and Sensible Regulation Finance, The Automated 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 occasion’s property earlier than chapter proceedings can play out.⁹[9]United States v. Inslaw, Inc., 932 F.2nd 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 in opposition to the bankrupt occasion which will deplete their property, broadly together with acts to gather claims in opposition to the bankrupt occasion that arose earlier than they declared chapter.¹⁰[10]11 U.S.C. § 362 (a)(6).

Evading the Automated Keep

The automated keep provision appears formidable to anybody making an attempt to gather or get out of their relationship with a bankrupt occasion. So how did Miami-Dade County terminate its naming rights settlement? The automated keep provision has a “for trigger” exception, which the court docket might grant on the request of a celebration.¹¹[11]U.S.C. § 362 (d)(1). Whether or not somebody has enough 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). Typically, to determine trigger, the occasion in search of reduction from the automated keep should present the “stability of hardships” from not acquiring reduction from the automated keep “ideas considerably in its favor.”¹³[13]In re American Basic Voyages, 298 B.R. 222, 225 (D. Del. 2003).

Miami-Dade County made a compelling trigger that the stability of hardships tipped in its favor. First, below the naming rights settlement, FTX’s subsequent fee to Miami-Dade County was due in a number of 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 Aid From The Automated 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 might have elevated FTX’s liabilities in the course of chapter proceedings. Moreover, the Naming Rights Settlement had a Compliance with Legal guidelines provision, by which 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 below 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 identify “FTX Area” on Miami-Dade County’s venue triggered reputational hurt contemplating the magnitude of FTX’s implosion, and any delay in in search of a brand new naming rights accomplice for the world would value Miami-Dade County income within the short- and medium-term.¹⁷[17]Movement of Miami Dade County, Florida, For Aid From The Automated 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).

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

Escaping Naming Rights Agreements

Going ahead, venue house owners 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 completed in a different way so the Miami Warmth weren’t caught taking part in 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 acknowledged they sought reduction from the automated keep provision “[i]n an abundance of warning.”¹⁹[19]Movement of Miami Dade County, Florida, For Aid From The Automated 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 a chance carries the draw back danger of sanctions for violating the automated keep.

The most suitable choice could also be to do precisely what Miami-Dade County did and pursue contractual treatments in court docket as rapidly as doable. Provisions requiring compliance with regulation 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 accomplice. Sadly, irrespective 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 a fantastic instrument for up-and-coming firms to extend their model recognition. Nonetheless, up-and-coming firms are possible probably the most vulnerable to implosions like FTX’s. Regardless of these dangers, venues are more likely to accomplice with firms who wish to enhance model recognition, and keen to pay the best worth doable. To guard themselves from firms failing and relationships deteriorating, venue house owners ought to proceed to wield morality clauses and different provisions to present them as fast an out as doable when partnerships flip bitter.

Written By: Mathew Santoyo
Mathew is a 2024 J.D. Candidate at Brooklyn Regulation Faculty