Momentum legal troubles may shift to Florida courtroom

Federal bankruptcy proceedings put a freeze on other pending lawsuits, which likely includes the civil actions involving Hassanally and Momentum.

A pair of affiliated companies filed an adversarial action Friday in their bankruptcy case that began in July in a Fort Lauderdale, Florida, courthouse. Bankruptcy records reflect that bankruptcy includes 195 unpaid creditors claiming they are owed nearly $17 million by the two affiliated Florida companies, 1 Global Capital LLC and 1 West Capital LLC.

Cash advances

Lawyers for the two companies describe them as businesses that provides merchants “cash advances offering a variety of fast and flexible financing options.” The federal Securities and Exchange Commission describes the companies as providers of financing to small- and medium-sized businesses “as an alternative to traditional bank loans and other financial methods.”

In exchange for the cash advances, their customers agree to funnel a chunk of future revenue and receivables back to the lenders.

Court records reflect the Momentum cash advances came at a steep price with Momentum agreeing to 10 of them starting in July 2017 through April 2018. For example, an eight-month loan of $1 million in 2017 entailed payments adding up to $1.3 million, an annual interest rate of 45 percent. Six of the cash advances, each for $2.6 million, required repayments of $3.9 million.

Altogether, the 10 cash advances of $34.2 million over a nine-month period would have, with interest, been repaid with nearly $50 million.

The lawyers for 1 Global Capital point out that in 2017 the Momentum dealerships reported combined sales of $565 million and claimed to be the 124th largest automotive dealership group in the United States.

The companies’ bankruptcy action claims that Momentum by early 2018 was more than $7.5 million overdue in loan payments and had accumulated about $8 million in unpaid state sales and payroll taxes.

A lie?

Lawyers claim the subsequent loans were made partly with the expectation that the dealerships might be sold off. One of the bidders in a potential buyout said last week that an agent brokering the potential deal “advertised the (auto) business as being hugely profitable, which is now known to be a lie.”

The bankruptcy action claims the lender companies should get first claim on all of the vehicles and other assets on the eight dealership properties they want to foreclose. They also want Hassanally’s home off Bayridge Drive in Fairfield that recently went up for sale with an asking price of $2.8 million.

Hassanally, 39, bought his first local car dealership when he was 28.

Impact on Fairfield?

The local lawsuits are being consolidated into a single civil action to be overseen by Judge D. Scott Daniels. A court referee was appointed last week for one of the lawsuits. That lawsuit is set to return to court Jan. 11.

More than a month after the closure of the dealerships in Fairfield and Vallejo, Fairfield Mayor Harry Price said city staff were working to get specific information.

“At this point, I don’t have very much information,” Price said Dec. 5, adding, “This is a very convoluted case, apparently. It came out of nowhere.”

City Manager David White and the city’s public information officer Gale Spears have yet to respond to inquiries about the projected impact on the city’s revenue.

Price and Spears as of two weeks ago did not know if staff members had been crunching the numbers and tracking the impact the potential loss of sales tax revenue will be to the city. Another attempt to get that information Tuesday was not successful.

White said shortly after the closures that auto dealerships provide roughly 20 percent of the city’s total sales tax revenue. That could add up to a potential loss to the city of millions or dollars a year should a significant number of Fairfield residents opt not to purchase vehicles due to a limited selection along the Auto Mall.