M. Douglas Flahaut

M. Douglas Flahaut represents Chapter 7 and Chapter 11 trustees and creditors in bankruptcy preference litigation and related business matters. He performs out-of-court workouts, business reorganizations, bankruptcy sales and creditor rights litigation.

"Often the idea is that there's more value in keeping a distressed business running to generate funds for creditors than to simply sell everything," said Flahaut.

Custom Blinds and Components Inc., a Chino-based venetian blind maker, turned to Flahaut when it faced a multimillion-dollar judgment in a patent infringement case.

"They operate on low margins and they didn't have the cash to pay. You're faced with the need to be proactive," he said. "You want to get into court quickly."

He filed the company's reorganization plan in January 2018 and won approval a little over eight months later after a contested confirmation trial. The confirmed plan paid unsecured creditors ten percent of their allowed claims over time and successfully lightened the client's balance sheet by more than $4 million. It allowed the company to remain in business and save many regional jobs.

It was one of the Riverside division's largest business reorganizations of 2018. "That was a very successful timeline, especially because it was contested. Phoenix rose from the ashes," Flahaut said. In re Custom Blinds and Components Inc., 6:18-bk-10621 (Cal. Central Bankruptcy Ct., filed Jan. 26, 2018).

Flahaut represents bankruptcy trustee Richard J. Laski in two matters. As lead appellate counsel, Flahaut briefed and argued before the 9th U.S. Circuit Court of Appeals a case about whether a bankruptcy settlement agreement should be approved. The circuit panel affirmed a lower court's judgment in Flahaut's client's favor, finding that law firms seeking to object to the settlement failed to follow proper procedure in the bankruptcy court. In re Wrightwood Guest Ranch LLC, 16-56856 (9th Cir., affirmance filed July 7, 2018).

"It was a very narrow but important bankruptcy question about who has standing to appeal a bankruptcy order," Flahaut said. The case has been cited in subsequent litigation by other counsel. "I'm writing about the case now and how it shifts the burden to the appellee to demonstrate standing," he added.

Flahaut also successfully represented Laski in a going concern bankruptcy sale that closed in April 2018. The sale provided for $850,000 in new cash and assumption of nearly $1 million in debt and is expected to result in a meaningful distribution to unsecured creditors. Flahaut called it an excellent result because the debtor initially appeared likely to be administratively insolvent prior to the sale. In re Vitargo Global Sciences, 8:17-bk-10988 (Central Cal. Bankruptcy Ct., filed March 15, 2017).

"I think of bankruptcies as structured mediations that can last a year or more," Flahaut said. "There are elements of game theory here, because the value of the company diminishes over time. Because I represent various parties in bankruptcies, I benefit clients by knowing how each party approaches the case."

-- John Roemer