Faced with pending trials to establish liability for defamation, another Alex Jones entity has decided to test the waters of bankruptcy. On Friday July 29, 2022, Free Speech Systems, LLC, the company which actually produces the Alex Jones Show and his other programming, filed a petition under Subchapter V of Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Victoria Division. Case No. 22-60043. In April, three minor entities within the Jones organization filed bankruptcy in an attempt to channel liability away from Jones and Free Speech Solutions. Those cases met substantial resistance and were voluntarily dismissed.
The prior cases were filed in an apparent effort to shield Jones from having to face multiple juries. This was shown by the fact that the Jones entities filed on the eve of trial and then removed the cases to bankruptcy court. The current case was filed after a jury trial had already started in Austin. However, this time Free Speech Systems immediately filed a motion to allow the trial to go forward. This suggests a more modest goal. Rather than pre-empting the jury trials, Free Speech Systems has filed while the state court lawsuits remain as unliquidated liabilities.
Eligibility for Subchapter V
Filing while the claims were still unliquidated was necessary to gain access to Subchapter V. Subchapter V is the small business reorganization provision of the Bankruptcy Code which first became effective in February 2020. It allows a small business to confirm a plan which provides for payment of "projected disposable income" to creditors over a five year period. 11 U.S.C. Sec. 1191(c)(2). Unlike regular Chapter 11, creditor voting does not determine whether the plan may be confirmed.
Subchapter V is limited to entities with qualifying debts of $7.5 million or less. However, there are two exceptions which may allow Free Speech Systems to file with much greater liabilities. According to published accounts, the plaintiffs in the Travis County suit are seeking damages of $150 million. However, unliquidated claims are excluded from the eligibility calculation. 11 U.S.C. Sec. 1182(1)(A). Because the case was filed before the juries awarded damages, they didn't count toward eligibility.
Free Speech Systems may also benefit from another exclusion. Debts owed to insiders or affiliates are not counted. 11 U.S.C. Sec. 1182(1)(A). According to documents filed in the case, Free Speech Systems owes over $70 million to an entity known as PQPR. According to a declaration filed in the case, PQPR is beneficially owned by Alex Jones's parents, David and Carol Jones. Dr. David Jones is an Austin dentist. According to a declaration filed in the case, he was the first advertiser on one of Alex Jones's predecessor shows. PQPR sells nutritional supplements which are advertised on the Alex Jones Show.
If PQPR qualifies as an "affiliate" or "insider" of Free Speech Systems, its debts will not be counted toward eligibility. According to 11 U.S.C. Sec., 101(2), an "affiliate" means (1) an entity that controls 20% of the voting securities of an entity, (2) a corporation 20% of whose securities are controlled by the debtor, (3) a person whose business is is operated under a lease or operating agreement with the debtor or (4) an entity that operates the business of the debtor under a lease or operating agreement. This definition does not seem to apply.
However, the definition of insider may be a better fit. One type of "insider" is a "relative of . . . a person in control of the debtor." 11 U.S.C. Sec. 101(31)(b)(vi). Alex Jones is the person in control of Free Speech Solutions since he is its sole member. David and Carol Jones are Alex Jones's parents and therefore are his relatives. It could be argued that PQPR itself is not a "relative" of Alex Jones. However, the definition of insider says that it "includes" the stated categories, which means that it can include other unstated categories. In U.S. Bank, N.A. v. Village at Lakeridge, LLC, 138 U.S. 960 (2018), the Supreme Court did not provide a clear answer to who qualifies as a non-statutory insider, but suggested that it did not include persons who did business at arms length. Thus, any examination into whether PQPR is a non-statutory insider will likely look at whether its business dealings with Free Speech Systems were done on an arms length basis. The Court would also likely look at the close relationship between PQPR and Alex Jones's parents.
Venue Abuse?
As with the previous Alex Jones entity filings, Free Speech System, LLC filed its case in Victoria, Texas. This seems to be an apparent case of judge shopping. Judge Christopher Lopez is the sole judge assigned to the Victoria Division of the Southern District of Texas. Thus, by filing the case in Victoria, Free Speech Solutions ensured that Judge Lopez would be assigned to the case as opposed to one of the two judges in the Austin Division of the Western District of Texas.
According to the bankruptcy petition, Free Speech System, LLC had its "domicile, principal place of business, or principal assets in this district for 180 days immediately preceding the date of this petition or for a longer part of such 180 days than in any other district." However, the address listed on the petition is 3019 Alvin Devane Blvd., Suite 301, Austin, TX 78741. The initial declaration filed by Marc Schwartz, the proposed Chief Restructuring Officer, mentions Austin at least ten times in connection with the business and references Victoria only as the place where the case was filed.
What Comes Next?
Will this case be more successful than the prior ones? At least this time, Jones has placed his primary business into bankruptcy. To use a chess analogy, in the prior cases, Jones placed three of his pawns into bankruptcy, while this time, he has filed his queen. However, Jones himself has not filed. This leaves both Mr. Jones and his membership interest in Free Speech Systems, LLC vulnerable to claims of creditors.
One consequence of filing under Subchapter V is that the case will move quickly. Free Speech Systems will be required to file its plan of reorganization within 90 days. Thus, unless FSS obtains an extension, the plan confirmation process will begin before Halloween.
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