Brooklyn Sports activities & Leisure Legislation Weblog

In March 2021, Miami-Dade County authorised a naming rights settlement with cryptocurrency platform FTX to rename the Miami Warmth’s dwelling enviornment “FTX Enviornment.”¹[1]Douglas Hanks, Miami Warmth to play in FTX Enviornment after county approves $135M take care of 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 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 authorised enthusiastically.³[3]Id.

In slightly 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 legal costs, together with fraud and conspiracy to commit cash laundering; Bankman-Fried was arrested within the Bahamas and extradited to america.⁵[5]Dominic Rushe, Kari Paul, Alex Hern, Edward Helmore, FTX founder Sam Bankman-Fried charged with defrauding traders, 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 presumably criminally liable government, adorned their enviornment. Regardless of FTX’s tarnished fame, the Miami Warmth have been caught enjoying in FTX Enviornment 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 enviornment, WPTV (Jan. 12, 2023).

Contemplating the high-profile failure of FTX, one might surprise 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 enviornment. Briefly, chapter legislation prevents collectors from emptying a bankrupt get together’s property earlier than it may undergo chapter proceedings, however well-crafted naming rights agreements might enable venue homeowners to get out of agreements with bankrupt events as rapidly as potential.

Chapter & The Computerized Keep

When an organization or particular person declares chapter, it normally signifies that one thing has gone horribly flawed. 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 lowering or eliminating unsecured money owed or making a timeline for the manageable compensation 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 resembling FTX declares chapter, there are undoubtedly a whole bunch, if not hundreds, of collectors wanting to safe their debt earlier than FTX runs out of cash. Events in an settlement with the bankrupt get together might wish to terminate these agreements, understanding the bankrupt get together is extremely unlikely to meet 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 which 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 might grant on the request of a celebration.¹¹[11]U.S.C. § 362 (d)(1). Whether or not somebody has satisfactory trigger for aid from the automated keep provision is usually 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 determine trigger, the get together searching for aid from the automated keep should present the “steadiness of hardships” from not acquiring aid from the automated keep “suggestions 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 cost to Miami-Dade County was due in a couple 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 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 may have elevated FTX’s liabilities in the midst of chapter proceedings. Moreover, the Naming Rights Settlement had a Compliance with Legal guidelines provision, through which FTX agreed to adjust to relevant statutes, ordinances, guidelines, and laws.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 Enviornment” on Miami-Dade County’s venue prompted reputational hurt contemplating the magnitude of FTX’s implosion, and any delay in searching for a brand new naming rights associate 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).

Finally, the chapter court docket was satisfied. It lifted the automated keep close 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 Enviornment 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 may Miami-Dade County have carried out in another way so the Miami Warmth weren’t caught enjoying in FTX Enviornment after the corporate’s collapse? It seems, Miami-Dade County positioned itself comparatively properly.

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 aid 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 may 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 raffle 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 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 associate. Sadly, irrespective of how thorough a naming rights settlement, a venue could have to attend for a chapter court docket to resolve chapter proceedings in an orderly style.

Naming rights agreements are a terrific software for up-and-coming firms to extend their model recognition. Nonetheless, up-and-coming firms are doubtless essentially the most vulnerable to implosions like FTX’s. Regardless of these dangers, venues are prone to associate with firms who wish to enhance model recognition, and prepared to pay the best worth potential. To guard themselves from firms failing and relationships deteriorating, venue homeowners ought to proceed to wield morality clauses and different provisions to provide 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 Faculty