In In re Rent-A-Wreck of America, Case No. 17-11592 (LSS) (Bankr. D. Del. Feb. 13, 2018), U.S. Bankruptcy Judge Laurie Silverstein of the District of Delaware dismissed voluntarily filed bankruptcy cases on the grounds they were not filed in good faith, finding that the privately owned debtors had not proven they were in financial distress and had sought to use 11 U.S.C. Section 365 to redistribute value from a long-time adversary to their ultimate stockholder.

The debtors, Rent-A-Wreck of America Inc., and its wholly owned subsidiary, Bundy American LLC, were in the business of selling and administering franchises for “Rent-A-Wreck.” Both debtors were part of a much larger group of private companies owned by JJF Management Services Inc. The debtors had been locked in litigation with David Schwartz, one of the co-founders of a predecessor to Rent-A-Wreck. Schwartz assigned the Rent-A-Wreck trademark to Bundy, but excluded the Los Angeles County territory where Schwartz operated an auto sales business and used the Rent-A-Wreck trademark himself. As a result of prior litigation between Schwartz and the debtors, a court had determined that Schwartz had an implied-in-fact, royalty-free and fee-free franchise agreement to operate a Rent-A-Wreck used car rental business in Los Angeles for his lifetime. The exact terms of the implied franchise agreement had not been determined, and Rent-A-Wreck and Schwartz continued to fight, with Rent-A-Wreck’s ultimate goal being to oust Schwartz from the Los Angeles territory.

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