The Girls Gone Wild Chronicles — Episode 1

Joe Francis built his Girls Gone Wild (GGW) empire (and the ego of an emperor) filming intoxicated college girls in various states of undress, putting that footage on VHS (and later DVDs and branded websites), and selling them to eager consumers across the globe.  If you were alive and watching TV in the late 1990s and early aughts, those late-night infomercials undoubtedly made their way across your TV screen at some point, or you may have even purchased such classics as Girls Gone Wild: Mardi Gras Madness or Girls Gone Wild: Ultimate Spring Break.

After more than 15 years of persuading drunken girls to take off their clothes for the camera, a legal dispute between Francis and casino mogul Steve Wynn caused the company behind GGW, along with two affiliates, to file chapter 11 bankruptcy petitions in U.S. Bankruptcy Court in Los Angeles on February 27, 2013.At the time of the filings, Francis boasted to TMZ that the bankruptcy wouldn’t impact his personal wealth.  GGW separately issued this statement:

“This Chapter 11 filing will not affect any of Girls Gone Wild’s domestic or international operations.  Just like American Airlines and General Motors, it will be business as usual for Girls Gone Wild.”

The comparison of GGW to General Motors and American Airlines is, to say the least, head-scratching.  After all, a bankruptcy filing doesn’t exactly confer titan-of-industry status—or make soft-core porn as American as apple pie.

More importantly, it has not been “business as usual” for GGW or Francis since the bankruptcy filings.  Instead, the GGW bankruptcy may prove to be the biggest legal and financial blunder that Francis has ever made.  Thus far, the long arm of the Bankruptcy Code has been used to bar the porn mogul from his own business, resurrect a corporate entity from the dead, and recover valuable assets that Francis thought would be excluded from the bankruptcy case.

This is the first in a series of blog posts that examines the wacky saga of the GGW bankruptcy and the tough justice administered to Francis in the case.  As the story shows, several unique statutory features of the Bankruptcy Code have made chapter 11 very unwelcoming for a “boy gone wild” like Francis.

Francis Loves Trouble

Francis is no stranger to legal trouble.  In 2007, he was convicted of tax evasion in Nevada and served 301 days in prison, and he also served 35 days in a Florida prison for contempt of court.  A St. Louis woman, Tamara Favazza, also obtained a $5.8 million judgment against Francis for use of naked images of her without her consent.

In May 2013, Francis was convicted of something even more unsavory—assaulting women in his Bel Air mansion—for which he was sentenced to 270 days in a California prison, 3 years of probation, and an anger management course.  After the trial, Francis told The Hollywood Reporter that members of the jury were “retarded,” and said “they should all be lined up and shot,” though he later apologized for the comments.

Don’t Mess With Wynn

The specific legal woes that precipitated the GGW bankruptcy filing began when Francis refused to pay a $2 million gambling debt owed to Steve Wynn’s eponymous casino in Las Vegas.  A criminal case filed against Francis over his gambling marker was dismissed, but a civil suit brought by the Wynn Las Vegas casino to recover the debt ended with a summary judgment against Francis for $2 million-plus interest.  The Nevada State Supreme Court upheld that award on appeal.

The marker dispute spawned a defamation lawsuit by Wynn after Francis publicly alleged that he planned on “exposing how exactly Mr. Wynn deceives his high-end customers.”  In February 2012, a Nevada state judge entered a $7.5 million judgment in favor of Wynn in the defamation lawsuit, which includes $2.5 million punitive damages.

The legal feud between Wynn and Francis continued after Francis publicly stated that Wynn threatened to kill him and bury him in a hole in the desert.

Wynn filed suit against Francis in Los Angeles superior court for slander and defamation, claiming that Francis’ allegations could negatively impact his business and draw scrutiny from regulatory authorities.   Quincy Jones, the famed record producer, testified on Wynn’s behalf.  In September 2012, a jury awarded Wynn $40 million in the lawsuit, including $20 million of punitive damages.  A judge later set aside the punitive damages but upheld the verdict amount of $19 million.

The GGW bankruptcy petitions did not mention Francis or the $19 million verdict against him, and the petitions were signed by a company manager Chris Gale.  The lead petition did list (as disputed claims) the $10.3 million debt owed to Wynn Las Vegas and the $5.8 million debt owed to Tamara Favazza.

Control Given to Chapter 11 Trustee

Less than a month after the bankruptcy cases were filed, Wynn Las Vegas moved to appoint a chapter 11 trustee, asserting that GGW paid Francis almost unlimited amounts of compensation, without oversight, and that GGW had been improperly paying Francis’s credit card bills, legal fees, and other personal expenses.  Company executives argued that these were business expenses crucial to protecting his “bad boy” image and the GGW brand.

Wynn Las Vegas also presented evidence that Francis exercised de facto control over the GGW debtor entities and was the “ultimate sole owner” of GGW, even though at the time of the bankruptcy he was not an officer or official individual owner of the debtor entities.

For those of you that aren’t familiar with the chapter 11 process, the appointment of a chapter 11 trustee is generally considered to be extraordinary relief.  The norm in chapter 11 is that the “debtor-in-possession” continues its normal business operations during the case, with existing management.

However, under Bankruptcy Code section 1104(a), the Bankruptcy Court is required to appoint a chapter 11 trustee at the request of a party in interest if the court finds that there is “(1) cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case, or similar cause... .; or (2) if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate . . . .”

While the decision to appoint a chapter 11 trustee turns on the facts and circumstances of each case, poor business judgment or failure to comply with the technical requirements of the Bankruptcy Code is unlikely to justify the appointment of a trustee.  In a case where the debtor commits fraud, depletes the company’s cash reserves, or transfers valuable assets to other companies under common control and away from the creditors, the appointment of a chapter 11 trustee is much more likely.

If a chapter 11 trustee is appointed, the trustee becomes the de facto CEO of the debtor and exercises control over the debtor’s business affairs and the chapter 11 case.  In short, the trustee replaces the management that got the debtor in its financial or legal predicament.

After hearing the casino’s motion on an expedited basis (and reviewing the voluminous evidence submitted by both sides), the Bankruptcy Court entered an order on April 11, 2013, finding that cause existed to appoint a chapter 11 trustee and that the appointment of a chapter 11 trustee was in the best interests of creditors.

R. Todd Neilson, a former FBI agent, was appointed as the Chapter 11 Trustee on April 12, 2013.

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Stay tuned for the next installment in the GGW Chronicles, to hear how the Trustee managed to ban Francis from coming within 100 feet of GGW and its employees.