STRATEGIC PARTNERS
MarCap Vendor Finance, a leasing company holding contracts with approximately 1,400 of the 16,000 merchants who purchased ATMs from CCC, wants to rewrite those leases, in most cases reducing merchants' monthly payments. Approval of a settlement is on hold, however.
September 26, 2002
The bankruptcy case of Credit Card Center (CCC), the failed ISO that filed for Chapter 11 protection in U.S. Bankruptcy Court's eastern Pennsylvania district in June of 2001, continues to drag on. Recent developments in the case, which in April was reclassified as a Chapter 7 liquidation, indicate no end in sight.
Charles Golden, an attorney for Obermayer Rebmann Maxwell & Hipple LLP, a Philadelphia law firm representing court-appointed trustee Frederick J. Cohen, characterized the proceedings as "mass confusion."
"There's no light at the end of the tunnel," Golden said.
While the courts continue to sort out the details, the bottom line for merchants who signed agreements to operate ATMs sold by CCC is that they have seen their last penny from the former ISO heavyweight.
There seems to be only a glimmer of hope for more than 60 vendors and suppliers who are classified as secured creditors, while the merchants are considered unsecured and at the bottom of the list to be paid. Golden said he believes the chances of any money trickling down to the merchant level are "zero to none."
According to atmclassactioninfo.com, a Web site maintained by David Cleaver, David Fitzsimons and Thomas Will, a group of Pennsylvania attorneys representing several CCC merchants in two separate class action lawsuits, "We do understand that secured creditors' debt greatly outweighs any actual estate of CCC, Inc. Any merchant who has not received payments from CCC, Inc. … is an unsecured creditor and falls last among the list of priority persons in a bankruptcy proceeding. It is, therefore, our view that it is very unlikely that any merchant will ever receive any significant recovery on a Proof of Claim filed with the Bankruptcy Court."
Offer on the table
MarCap Vendor Finance, a leasing company holding contracts with approximately 1,400 of the 16,000 merchants who purchased ATMs from CCC, wants to rewrite those leases, reducing monthly ATM payments in most cases to $189 a month. Most CCC merchants originally agreed to pay about $269 a month for a term of 60 months, with a guarantee from CCC that they would receive all or most of that amount back via advertising revenues. Little if any ad revenue ever materialized.
"Last year we examined the going market rates for the kinds of machines sold by CCC, and we offered what we believed was a fair market rate," said Ellen Lim, MarCap Vendor Finance's chief financial officer. "Essentially, most merchants will end up owing about $3,000 less on the principal amount."
No late charges would be assessed for merchants who accept MarCap's offer, even if they missed payments, Lim added.
In early 2002, MarCap presented those terms to the Pennsylvania attorneys representing CCC merchants in the two class action suits. MarCap is a defendant in one of the suits, both of which name several leasing companies that provided financing for CCC ATMs.
One of the suits, filed in Franklin County, Pa., in June of 2001, seeks damages. The other, filed in August 2001, seeks no damages but asks the court to void the lease agreements or, alternatively, allow merchants to put their payments into escrow until all of the allegations against CCC and the leasing companies have been resolved.
Not final
Dave Rownd, an attorney with Fagel Haber LLC, the Chicago firm that is representing MarCap, said that the attorneys representing the merchants in the class action have agreed to the terms of MarCap's offer. However, a formal settlement cannot be finalized because attorneys for other leasing companies removed the case to federal court and sought to transfer the case to the CCC bankruptcy proceedings.
Although the bankruptcy court ordered the case remanded to state court, its ruling is under appeal in U.S. District Court for Pennsylvania's middle district. The state court has ruled that it does not have jurisdiction while the case is under appeal; the settlement cannot be approved until the jurisdictional issue is resolved.
Notice of the settlement offer has been sent to all of the merchants informing them of the proposed deal, which would remove MarCap from the class action. Any merchants who do not want to accept the offer have an opportunity to opt out. "They have the right to pursue their own individual action" against MarCap, Rownd said.
His company believes its offer is the best possible resolution to a situation he describes as "painful all around," said John Wellhausen, vice president of MarCap Holdings Inc., the parent of MarCap Vendor Finance. "We want to be fair, but we want to get paid too. This is something we believe can be settled."
Possible consequences
The consequences for CCC merchants who quit making lease payments may be harsh. Lynn Baker, owner of Twin Bagels in North Arlington, N.J., said she tried to make direct contact with her leasing company, Preferred Capital, several times. She had hoped to negotiate a resolution similar to MarCap's proposal, Baker said.
"They've probably already paid CCC for those machines. I don't expect them to forgive me and say just forget about making those payments," Baker said. "But I wanted to reduce my exposure. They take a little bit of a hit, I take a little bit of a hit."
Baker turned the matter over to her attorney when she received notice that Preferred Capital was suing her in an attempt to recover the balance of her lease. "Now my attorney is talking to their attorney. I've lost sight of the communication at this point."
Baker said she unplugged her ATM and stopped making lease payments about a year ago. She's not sure how much she owes on her lease but believes it is "several thousand dollars."
According to the atmclassactioninfo.com Web site, "If a merchant ceases making payments under his lease at this time, there is no Court Order protecting the merchant from collections by the leasing company. Many leasing company leases have acceleration clauses and penalty clauses … Merchants have received abusive telephone calls to them and their employees and have had negative references and filings made against their credit ratings."
MarCap Vendor Finance did not originate the agreements with the CCC merchants. Rather, it purchased them from QL Capital, a practice that Wellhausen said is common in the leasing business.
Wellhausen said that MarCap Holdings, which has assets of more than $500 million, established MarCap Vendor Finance in September of 1998 with hopes of creating customized programs for vendors. MarCap Vendor Finance stopped originating loans in early 2001.
"We were taking more of a risk than we expected on (ATM loans)," he said.
