Earlier this week, The Scotts Valley Press Banner received a letter from a New York law firm demanding the newspaper send the law firm representing the Metro Newspaper Ad Services in a bankruptcy proceeding all amounts received from the ad agency this year.
There is a concern that the same form letter will be sent to other California newspapers who have done business with the agency that handled advertising for Dignity Health hospitals and potentially other large advertisers as well.
The unusual demand stems from a provision in bankruptcy law that prohibits a debtor from transferring any assets 90 days before filing the bankruptcy petition with the court. The public policy served by prohibiting what are known as “preferential transfers,” is to prevent the debtor from paying creditors or others that the debtor favors before the bankruptcy court can distribute the assets pursuant to bankruptcy law.
The letter, however, demands payment the newspaper received for publishing ads on behalf of Dignity Health hospitals that were placed by the agency in 2017. There is a question whether the payments represent actual assets of the ad agency, and there is no accompanying order from the court to the newspaper directing it to return the money.
What is also unusual about the letter, according to Co-Publisher Ralph Alldredge, is that the lawyer sending the demand requests that the payment be sent directly to the law firm rather than the court.
If CNPA members receive similar letters they are advised to seek legal counsel before making any payments. If you have any questions, contact CNPA General Counsel , 916-288-6013 or CNPA Legal Counsel Nikki Moore, 916-288-6006.