The Alex Jones Bankruptcy Gambit

 In a widely misunderstood move, Alex Jones and his legal team have put three of his entities that own intellectual property assets into SubChapter V of Chapter 11. The move, if successful, will protect the domain name, infowars.com, and will delay entry of judgments against Jones personally. The move involves apparent forum shopping and clever use of SubChapter V. The cases are jointly administered under Case. No. 22-60020 in the Southern District of Texas, Victoria Division.

Who Are the Debtors?

The Debtors are InfoW, LLC, IWHealth, LLC and Prison Planet TV, LLC. Contrary to much of the reporting, the InfoWars internet program did not file bankruptcy.  According to early filings in the case,  InfoW, LLC owns copyrights and domain names related to "InfoWars.com," IWHealth owns cash flow from royalties from an entity called Youngevity and Prison Planet TV owns copyrights and domain names related to prisonplanet.tv. 

According to the early filings:

"Infowars"--a conspiracy-oriented website and media company--is operated by Free Speech Solutions, LLC ("FSS"), which does business under a registered trademark for that name. InfoW and Prison Planet TV license their intellectual property and domain names to FSS for use in its business but the Debtors do not produce or have any control over the content of Inforwars. FSS maintains and operates the website https://infowars.com.

Debtors' Emergency Motion for Order Authorizing Appointment of Russell F. Nelms and Richard S. Schmidt as Trustees of the 2022 Litigation Settlement Trust and Granting Related Relief, para. 8.

What Are They Trying to Do?

The filings appear to be aimed at taking the intellectual property which makes Infowars.com possible, as well as the revenue from certain health products and protect those assets by funding payments to creditors from a trust created by Jones and FSS. According to a Plan Support Agreement, Jones and FSS have already funded the trusts with $725,000 and agree to contribute an additional $7 million over five years if their reorganization plan is approved. The trustees of the trust will be two retired bankruptcy judges, Richard S. Schmidt and Russell Nelms. 

A secondary effect of the filings is that a trial scheduled in Travis County District Court for April 25 to assess damages against Jones and others will likely be delayed. It is still possible that the automatic stay will be lifted to allow the case to go forward but the number of days in which that can happen are running out. If the current trial setting is delayed, it just means that the trial will happen at a later date. It doesn't make the case or cases go away.

Apparent Forum Shopping

According to documents on file with the Texas Secretary of State, the three debtors are located at 3005 S. Lamar, Suite D109 317, Austin, TX 78701 or P.O. Box 19549, Austin, TX 78760. However, when they filed bankruptcy, they told the court that their address was 5606 N. Navarro, Suite 300-W, Victoria, TX 77904.  5606 N. Navarro is an office building in Victoria, Texas.  Victoria is a small city located in South Texas known for its oil and ranching wealth and was an early locus for immigration to Texas.  An internet search shows an Edward D. Jones agent, The Summit Realty Company, a Goosehead Insurance Agent, APS Personnel Services and AmCap Home Loans Mortgage Lender are all located 5606 N. Navarro, Suite 300, but none of them is located at Suite 300-W.  This suggests (although I don't have confirmation for this) that 5606 N. Navarro, Suite 300 is an executive office suite, a place where many businesses can share office space. However, it doesn't answer the question of what connection these debtors have to this address.

When a debtor files for bankruptcy in a location different from its home office, this is known as forum shopping. Forum shopping is generally done to obtain a perceived benefit or avoid a perceived detriment. It is hard to see how filing in Victoria, Texas would be an advantage over Austin, Texas. Filing in Victoria assures that the judge appointed to the case would be Judge Christopher Lopez. Judge Lopez is really smart and is a straight shooter. If the case had been filed in Austin, it would have been assigned to Judge Tony Davis or Judge Christopher Mott, both of whom are really smart and are straight shooters. I don't see the benefit in filing in Victoria.. However, there are some really clever lawyers involved in the case and I assume they had a reason. 

Interesting Issues Under SubChapter V

These three cases were filed under SubChapter V, the small business subchapter for reorganization. One feature of SubChapter V is that voting by creditors is much less important. A Plan can be confirmed under SubChapter V even if every creditor votes against the plan. Given that the creditors are all or mostly plaintiffs who are suing Alex Jones in connection with InfoWars, it is hard to see how many of them would have voted for a plan that allows one corner of the Alex Jones empire to remain intact. 

To qualify for SubChapter V, a debtor or group of debtors cannot have over $2.7 million in debt. However, in making this determination, contingent and unliquidated debts are not included. Since damages have not been awarded in the suits against Jones, et al, all of the litigation debt is likely unliquidated and thus not counted for eligibility purposes.  As a result, the timing of the filings prior to any claims being liquidated was crucial.

 

Of course, being eligible to file does not mean that the debtors will be able to confirm a plan. In another contentious SubChapter V case, a different judge in the Southern District of Texas recently denied confirmation and converted the case to Chapter 7. In re Ozelebi, 2022 Bankr. LEXIS 854 (Bankr. S.D. Tex. 2022).

 

An Impressive Cast of Characters

Whatever you think about Alex Jones, these cases will furnish some high stakes legal drama. It is clear (at least to me) that this was a well thought out strategy involving a cast of highly qualified Texas bankruptcy professionals. These include Kyung Lee and R.J. Shannon who represent the debtors, Ray Battaglia who represents FSS and Shelby Jordan who represents Alex Jones.  Bringing in two retired bankruptcy judges, Richard Schmidt and Russell Nelms, to serve as litigation trustees also increases the cases' star power.  These are all household names among the Texas bankruptcy community.

They have also brought in Marc Schwartz to serve as Chief Restructuring Officer. A Chief Restructuring Officer or CRO is a role not found in the Bankruptcy Code but one which has been used in cases where existing management needs to step to the side but the parties don't want a full-blown Chapter 11 trustee. The benefit to having a CRO is that Alex Jones can continue to be Alex Jones while a professional restructuring professional runs the cases. 

Melissa Haselden has been appointed as SubChapter V trustee. The role of a SubChapter V trustee is to attempt to facilitate a consensual reorganization. The role is one closer to a mediator than a conventional trustee. Ms. Haselden will have her work cut out for her.

Final Thought (For Now)

There is one more interesting aspect to the strategy that I want to discuss. Under the Plan Support Agreement, $725,000 has been funded to the litigation trust so far and an additional $7 million will be funded. Alex Jones and FSS are committed to provide that funding if the plan is confirmed. For this strategy to work, Alex Jones and FSS need to be left with $7 million that they can pay out over five years. However, the plan in these cases, if successful, would only resolve one piece of the larger legal drama. This suggests that the bankruptcy filings here are just the opening gambit in a strategy to reach a larger resolution.

Disclaimer:  Everything I have written is based on my review of the initial filings and my knowledge of bankruptcy law. I have not spoken to any of the participants (even though I know many of them) and do not have any insight into what they might be thinking other than what they have put into their filings so far. I don't know what is going to happen here and will be watching with interest to find out.