Choppy Waters: Pacific Sun Files for Chapter 11 Bankruptcy

What This Could Mean for Retail Landlords


Surfer Riding a Wave

Pacific Sun, commonly referred to as “PacSun” by California surfers and 90’s kids, is in financial distress. The trendy skate and surf shop with 600 stores nationwide is just one of many retailers that overestimated consumer demand and expanded too quickly. While PacSun’s President and CEO, Gary Schoenfeld, noted that the private equity firm Golden Gate Capital will help make it possible to keep operating as usual, our commercial real estate group asks – what can our commercial real estate clients learn from PacSun’s mistake?


In light of the current tightening of credit markets, it is increasingly important for commercial landlords and their attorneys to be prepared for an upswing in bankruptcy filings by distressed retail tenants.

There are three typical outcomes for landlords in the case of these large Chapter 11 retail bankruptcy filings. The debtor (a) terminates (“rejects”) the lease, (b) tries to sell the lease to a financial or strategic buyer, or (c) makes an effort to reorganize and remain in the store.  Each of these alternatives have their own risks, challenges and options, and we can present you with choices and guidance as the bankruptcy process unfolds.  If you suspect a tenant is in trouble, or if a tenant has filed bankruptcy, we can quickly advise you concerning how to effectively manage the situation. We will advise you concerning slow or missed rental payments, termination claims, lease assignments, how to react to a new tenant that may purchase the location and other issues.


The retail sector is witnessing an increased amount of multi-location retail tenant filings in the bankruptcy courts. Haggen, Quiksilver and Sports Authority have filed Chapter 11 just in the last six months.  In light of several other large name companies like American Apparel and Wet Seal having filed for bankruptcy, PacSun is surely not be the last to join their ranks.


CH&’s real estate group has extensive experience guiding landlords in minimizing exposure for preferential transfers and preparing them to deal with the possible insolvency of their tenants. We have worked on these issues in several cases in multiple states, including Washington, Illinois, California and Delaware. We are ready to provide you with targeted legal support and we’re on your team to help you make the best choices to avoid the riptides, whirlpools and risks lurking beneath the surface.


If you have questions about this or any other bankruptcy law issue, please contact Ben Ellison by email at  or by phone at 206.254.4402.

Ninth Circuit Validates USDOL Tip Pool Rules

In a surprising decision, on Tuesday, February 23, 2016, the United States Court of Appeals for the Ninth Circuit validated the 2011 Rule by the United States Department of Labor (DOL) prohibiting tip pooling programs that include “back of the house” employees and other workers who are not customarily and regularly tipped (e.g., cooks, dishwashers).  The Ninth Circuit decision confirms the DOL’s position that the 2011 Rule applies even to restaurants that do not take a tip credit.  This decision is binding in the following jurisdictions that previously relied on a different ruling:  Washington, Oregon, Alaska, Idaho, Montana, Nevada, California, Arizona, Hawai’i, Guam, and Northern Mariana Islands.


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Noncompete Agreements Becoming Obsolete?

The state House of Representatives may soon send noncompete agreements down the way of the dodo bird . . . toward extinction.


The House Labor and Workplace Committee voted 4-2 on Tuesday in favor of House Bill (HB) 2931, which would ban noncompete provisions from employment agreements in all but a few instances. The bill is now headed for a full House vote.


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It’s an “Economic Reality”: Your Independent Contractors May Actually Be Employees

  • The U.S. DOL clarifies how businesses should determine whether workers are independent contractors or employees
  • Classifying as independent contractor or employee is based on “economic realities” of relationship, not “control” of the worker by the employer
  • “Economic Realities” test looks at six broad factors

The federal Department of Labor (“DOL”), the agency charged with enforcing the Fair Labor Standards Act (“FLSA”), recently published an Administrative Interpretation clarifying the test businesses must apply to determine whether workers are properly classified as independent contractors or if they are, in fact, employees. The Interpretation makes clear that “control” of the worker by the employer is not the name of the game. Rather, proper worker classification is determined by the “economic realities” of the relationship.

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