UPDATED: Court extends Reagor-Dykes employment of CRO; officer discusses potential dealership buyers
updated 5:56 p.m. - The court order following today's hearing is at the bottom of this page.
updated 5:02 p.m.
This is a statement released by the Reagor-Dykes Auto Group:
The Reagor Dykes Auto Group would like to thank everyone involved in today's
Federal Court Hearing. We appreciate everyone involved working together to provide the best solutions for everyone involved.
We appreciate the opportunity to continue our relationship with our (CRO) Corporate Restructuring Officer and BlackBriar Advisors as we strive every day to serve our customers, our employees and our communities in the best way possible. The BlackBriar team is doing a great job for us.
We want to earn the opportunity to put our team back together and to serve our customers and the West Texas communities at the highest level possible. We know we have a lot of support and we appreciate that. We also know that we have let some people down and we are doing everything we can to get ourselves in a position to earn your trust back.
Thank you for your support and understanding during this time. U.S. Bankruptcy Judge Robert Jones Thursday granted a request for Reagor-Dykes to continue to employ BlackBriar Advisors as chief restructuring officer. The judge previously approved an interim order to employ the CRO, which is handling operations of the Reagor-Dykes Auto Group.
posted earlier Thursday
BlackBriar Advisors managing partner Bob Schleizer testified the focus has been stabilization of the Reagor-Dykes Auto Group and to take actions to maintain the value of the company, dealerships and inventory as well as resolve customer problems. BlackBriar is not taking orders from co-owners Bart Reagor or Rick Dykes on how to operate. An attorney with the U.S. Trustee's office objected to the CRO, saying the role should be handled by a chapter 11 trustee.
Schleizer said there have been discussions with three prospective buyers of dealerships. This did not detail whether the buyers are interested in some or all dealerships, though a letters of intent are expected soon.
Some, but not all, Reagor-Dykes companies filed for chapter 11 bankruptcy protection Aug. 1, a day after Ford Motor Credit filed suit claiming it is owed around $116 million. Ford later claimed Reagor-Dykes may have conducted one of the largest cases of floor-plan-financing fraud in U.S. history.
Schleizer said in the coming days and weeks there will be vetting of potential buyers. Any purchaser of a dealership must be approved by manufacturers. Potential bids will likely be presented to the court before Sept. 18.
Bart Reagor was not present at Thursday's hearing, though his personal attorney was. On Monday attorney David Langston of Mullin Hoard & Brown subpoenaed Reagor to appear; Langston served the subpoena at Reagor's home on 19th Street. Langston served as attorney for the Reagor-Dykes Auto Group in this case earlier this month. More regarding the law firm's employment is further below on this page. A RDAG spokesperson clarified Thursday afternoon the subpoena was for testimony supporting Mullin Hoard & Brown's motion to get paid, but it was later decided Reagor's testimony would not be needed. A filing from Ford Credit Wednesday states Mullin Hoard & Brown has previously represented Rick Dykes individually in legal matters. Dykes was at Thursday's hearing. Reagor also did not appear at an Aug. 16 hearing.
BlackBriar has a team of five assigned to Reagor-Dykes, with a sixth person soon to join. Schleizer said the dealership's sales and accounting functions were essentially shut down with the bankruptcy filing, with further complication from the fact that not all Reagor-Dykes dealerships filed for bankruptcy protection. BlackBriar started work on accounting and implementing sales.
Right now Reagor-Dykes is only able to complete vehicle sales when a customer brings cash or arranges outside financing; no lenders are working with the dealerships currently, though discussions are ongoing to find lenders to sell existing inventory. 30 lenders have previously worked with RDAG. 36 vehicles have been sold the past few weeks. Schleizer said, by maintaining minimal operations, the budget forecasts sales of 19 vehicles per week going forward, most on a cash basis.
Schleizer said Reagor-Dykes had around 700 employees a month ago. The team dropped to 200 and is now at 117, describing this as a mass exodus of key personnel. With no senior leadership when BlackBriar arrived he said there was "a lot of tired and misdirected people" with no focus on what needed to be done.
There is a major effort ongoing to identify vehicle transactions in process, for customers who purchased or leased from Reagor-Dykes around or just before the time of the bankruptcy filing. Schleizer said there are about 900 such transactions across nine dealerships including problems of titles not being processed, trade-ins not being paid off, or new cars in customers' possession without titles. "It was a very chaotic situation," Schleizer testified. The total value of vehicles in this kind of processing limbo exceeds $6 million.
Schleizer said BlackBriar is making sure information is secure, and computer records are backed up. His team sees that nothing is being destroyed and most assets have been secured.
During testimony Schleizer said the BlackBriar team is working to determine the value of vehicles sold out of trust. Ford Credit's initial suit claimed it was in excess of $41 million. Schlezier said it's now believed around $39 million of vehicles were sold out of trust.
Ford Credit did not object to a bare-bones budget presented that will allow Reagor-Dykes to continue basic operations, similar to what was presented Aug. 16 and Aug. 3. Schleizer said no rent has been paid since Aug. 1. International Bank of Commerce Wednesday filed notice it wants to be paid. Also, landlords for lots in Lubbock and Plainview want rent payment.
Attorneys for the following entities were also present at Thursday's hearing, listed in order they addressed the judge: Liberty Capital Bank, International Bank of Commerce, Gulf States Toyota, Online Vehicle Exchange/Manheim, Universal Underwriters, Midland County, Midland County Central Appraisal District, Floyd Central Appraisal District, Vista Bank, Texas Lone Star Auto Auction, Mullin Hoard & Brown. Additional representatives listened by phone, though they did not identify themselves during the hearing.
Legal team questions
As we reported Wednesday, Ford Motor Credit objects to Reagor-Dykes' employment of Mullin Hoard & Brown because Bart Reagor and Rick Dykes individually paid a combined $500,000 for retainer. The CRO has since hired a different legal team. The issue at hand is the employment for the first three weeks of August.
Ford Credit's attorney wrote in Wednesday's filing "While payment of a retainer by any third party may divert the loyalty of the attorney to the third party creating a disqualifying adverse interest, payment by partners of a debtor is especially likely to cause the attorney to have an adverse interest due to the inherent conflict of interests between a debtor and its partners in bankruptcy."
As mentioned above, another conflict is claimed because Mullin Hoard & Brown represented Dykes individually previously.
During Thursday's hearing Ford Motor Credit did not object to Langston with Mullin Hoard & Brown withdrawing from this case. Left unresolved is the period Langston served as attorney. Judge Jones noted Langston has appeared in his court many times. The judge also said it's concerning the R-D legal team changed three weeks into this case.
Langston said his team is working 16 to 18 hours a day. He wants to know now whether the law firm can be paid before spending more time on the case, work that will not be compensated. Langston cited ongoing expenses for depositions. Fee applications have not yet been filed with the court.
The judge said a hearing will be scheduled at a later time to determine whether Mullin Hoard & Brown can be paid for its work, allowing all parties to further investigate.
Several other issues that have been filed in this case were not addressed Thursday. They will likely be heard Sept. 18 or Sept. 19.
This is the court's order detailing today's hearing:
This is the subpoena to Bart Reagor:
WED: International Bank of Commerce asks for loan payment in Reagor-Dykes case
WED: Ford Credit objects to Reagor-Dykes earlier legal team
MON: Vista Bank doubles relief request in new federal suit against FirstCapital Bank
AUG. 25: Reagor-Dykes chief restructuring officer hires new legal team
AUG. 25: GM proceeding with termination of Reagor-Dykes Floydada
AUG 23: Landlords demand rent for Reagor-Dykes dealerships in Lubbock, Plainview
AUG. 20: Ford Credit moves ahead with suit against Reagor, Dykes, some R-D companies
AUG. 18: Reagor-Dykes bankruptcy case: Read court order following Aug. 16 hearing
AUG. 17: Auto dealer claims Reagor-Dykes owes $513,000, vehicles may be in consumers' possession
AUG. 16: Vista Bank sues FirstCapital for $6 million, claims Dykes helped perpetrate check kiting scheme
AUG. 16: Bankruptcy court allows Reagor-Dykes continued use of cash collateral, hiring of CRO
AUG. 15: Reagor-Dykes Auto Group issues written apology
AUG. 14: Loss of Reagor-Dykes Chevrolet in Floydada a potential financial pitfall for city
AUG. 14: Vehicle auction company claims Reagor-Dykes owes it $687,000
AUG. 14: Ford Credit claims Reagor-Dykes is not following court orders; court grants extension to file docs
AUG. 13: U.S. Trustee opposes Reagor-Dykes request to hire chief restructuring officer
AUG. 10: Ford Credit: Reagor-Dykes fraud may be among largest of its type in U.S. history; GM files to terminate Floydada dealership
AUG. 9: Reagor-Dykes questions former CFO’s actions; Contractor claims $700,000 due now
AUG. 7: Former Reagor-Dykes employees claim they were not paid
AUG. 6: Customers concerned over Reagor-Dykes 'unwinding' process
AUG. 6: Ford suit against Reagor-Dykes on hold while bankruptcy case proceeds
AUG. 3: Judge approves Reagor-Dykes employee pay
AUG. 2: Mayor: Downtown Lubbock growth to remain strong regardless of Reagor-Dykes future
INITIAL STORY: Ford Motor Credit sues Reagor-Dykes; R-D files for chapter 11 bankruptcy