throbber
Case 15-21233 Doc 19 Filed 07/16/15 Entered 07/16/15 20:00:47 Desc Main
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`IN THE UNITED STATES BANKRUPTCY COURT
`FOR THE DISTRICT OF CONNECTICUT
`HARTFORD DIVISION
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`IN RE:

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`CURTIS JAMES JACKSON, III,

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`DEBTOR.
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`______________________________________________________________________________
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`CHAPTER 11
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`CASE NO. 15-21233
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`DEBTOR’S OBJECTION TO MOTION FOR RELIEF FROM STAY
`FILED BY LASTONIA LEVISTON
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`Curtis James Jackson, III (“Jackson” or the “Debtor”), files this objection (the
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`“Objection”) to the motion for relief from automatic stay (the “Motion”) [Docket No. 7] filed
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`by Lastonia Leviston (the “Movant”), and in support states as follows:
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`I. PRELIMINARY STATEMENT
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`1.
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`The Debtor filed his Chapter 11 petition to obtain the full protections of the
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`bankruptcy laws, including the benefit of the automatic stay, in order to reorganize his financial
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`affairs in a reasonable and timely manner and in accordance with an approved plan for the
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`benefit of his estate and all of his creditors. In connection with this bankruptcy proceeding, this
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`Court will determine the extent and value of the Debtor’s assets and liabilities – and, thus, the
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`Debtor’s net worth.
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`2.
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`Movant seeks to lift the stay to proceed with the punitive damages phase of a state
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`court lawsuit. Significantly, that jury has already completed its work with respect to its findings
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`of liability and compensatory damages. That part of the bifurcated state court trial has ended.
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`What remains for determination (by whatever fact-finder this Court ultimately deems
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`appropriate) is the amount of punitive damages, if any, to be awarded. Such damages, if
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`awarded, would constitute a penalty claim that would then be subject to subordination and/or
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`disallowance under the Bankruptcy Code.
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`3.
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`Consequently, Movant has not, and indeed cannot, demonstrate “cause” to lift the
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`stay less than one week into the Debtor’s Chapter 11 case, with essentially no notice to other
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`creditors whose rights are effected, to allow her to prosecute what would at best be a
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`subordinated claim against the Debtor’s estate. Instead, it is in the best interests of the estate and
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`all of the Debtor’s creditors, and in the interests of judicial economy, that the stay should remain
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`in effect.
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`A.
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`The Debtor
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`II. FACTUAL & PROCEDURAL BACKGROUND
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`4.
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`Curtis James “50 Cent” Jackson, III is an internationally recognized recording
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`artist, an actor, an entrepreneur and a philanthropist. Since his entrance onto the music scene in
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`2003 with his multi-platinum debut album, Mr. Jackson has sold more than 22 million albums
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`worldwide, and has received numerous awards and Grammy nominations throughout his career.
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`5.
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`Given the publicity that Mr. Jackson’s Chapter 11 filing has triggered, it is easy to
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`forget that Mr. Jackson grew up in proverty in South Jamaica, a rough neighborhood of Queens,
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`New York. His single mother was murdered when Mr. Jackson was only 8 years old. After her
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`death, he was raised by his grandparents. As a boy, Mr. Jackson dreamed of being a boxer, but
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`by the time he was a teenager, he was caught up in a life of crime. The consequences of that
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`lifestyle were realized in 2000 when Mr. Jackson was shot nine times outside of his
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`grandmother’s house. After recovering from his injuries, Mr. Jackson determined to improve his
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`life and focused on his music, and the rest is music history. In many respects, Mr. Jackson
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`typifies the American dream.
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`6.
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`Mr. Jackson has leveraged his fame as a recording artist into brand extensions
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`encompassing a broad spectrum of businesses including music ownership, artist management,
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`film production, footwear and apparel, fragrance, video games, publishing, headphones and
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`health drinks and supplements. It has also allowed Mr. Jackson to follow through with his dream
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`of giving back to the community.
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`7.
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`In 2012, Mr. Jackson’s audio brand, SMS Audio, launched a partnership with
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`Feeding America, the nation’s largest domestic hunger-relief organization. That partnership
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`continues today. Over the next year, SMS Audio will provide the equivalent of half a million
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`meals to Feeding America. In addition, Mr. Jackson serves on the Feeding America
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`Entertainment Council, volunteers at numerous organization events, is a proud supporter of
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`Tuesday’s Children, a nonprofit organization founded by family and friends of the 9/11 victims,
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`and has provided thousands of dollars in scholarships to students at Queensborough Community
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`College in New York.
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`8.
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`As a result of Mr. Jackson’s success, he has been fortunate to acquire a significant
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`amount of assets. Like many other celebrity entertainers that make their living in full view of the
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`public eye, however, Mr. Jackson has accumulated a substantial amount of liabilities as well.
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`Notwithstanding this fact, Mr. Jackson’s bankruptcy filing is not primarily a result of excessive
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`current expenses exceeding Mr. Jackson’s current revenues, but rather the substantial costs of
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`litigation and resulting awards against Mr. Jackson in the past year which total in excess of $20
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`million, and which are discussed in more detail below. While Mr. Jackson has substantial assets,
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`he does not have the ability to pay the full amount of these litigation claims and all other asserted
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`claims at the present time, thereby necessitating this Chapter 11 filing.
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`B.
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`The Sleek Audio Litigation
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`9.
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`One of Mr. Jackson’s prior business investments was in a business venture
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`involving Sleek Audio, LLC (“Sleek”), pursuant to which Sleek was to develop headphone
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`products to be marketed under Mr. Jackson’s professional name, “50 Cent.” In connection
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`therewith, Sleek entered into a Brand License Agreement with G-Unit Brands, Mr. Jackson’s
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`brand licensing company, that authorized Sleek to use Mr. Jackson’s trademarks in the marketing
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`of certain headphone products.
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`10.
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`The collaboration between Sleek Audio and Mr. Jackson involved both the design
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`and marketing of “Sleek by 50” over-the-ear headphones. The Brand License Agreement
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`required Sleek to use best efforts to launch retail sales of the headphones by February 15, 2011.
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`11.
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`Unfortunately, the headphones were never released because Sleek failed to have
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`the headphones ready for commercial production by the February 15, 2011 deadline, and G-Unit
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`Brands terminated its licensing agreement with Sleek. After Sleek’s efforts to produce
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`headphones failed, Mr. Jackson formed a new company, SMS Audio, to develop a new
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`headphone.
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`12.
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`In August 2011, Sleek Audio and certain individuals filed an arbitration
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`proceeding against Mr. Jackson, alleging that Mr. Jackson had stolen the design of the “Sleek by
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`50” headphones to produce his new headphones. An arbitration hearing was held over the course
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`of several days during February and March 2013. The arbitrator issued an Interim Award on
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`May 2, 2013, and a Final Award on July 13, 2013.
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`13. Mr. Jackson moved the circuit court to vacate the arbitration award, and Sleek
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`asked the circuit court to confirm the award. The circuit court issued an order denying Mr.
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`Jackson’s motion to vacate the arbitration award on September 30, 2014. The order confirming
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`the arbitration award and judgment was issued on October 16, 2014 (the “Sleek Order and
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`Judgment”). Pursuant to the Sleek Order and Judgment: (i) Sleek was awarded $17,247,426.11
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`against Mr. Jackson, plus post-judgment interest at the rate of 4.75%; (ii) three other parties were
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`awarded $125,728.40 against Mr. Jackson, plus post-judgment interest at the rate of 4.75%; and
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`(iii) a fourth individual was awarded $53,853.72 against Mr. Jackson, plus post-judgment interest
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`at the rate of 4.75% per annum. A copy of the Sleek Order and Final Judgment is attached
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`hereto as Exhibit “A”.
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`14. Mr. Jackson has appealed the Sleek Order and Judgment.
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`C.
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`The Leviston Litigation
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`15.
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`On or about February 24, 2010, Ms. Lastonia Leviston (“Ms. Leviston”)
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`commenced an action against Mr. Jackson in the Supreme Court of the State of New York,
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`County of New York (the “Leviston Litigation”), alleging that Mr. Jackson: (1) violated N.Y.
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`Civil Rights Law sections 50-51 by using her name and/or picture without her consent for
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`advertising purposes or for the purposes of trade; (2) intentionally caused her to suffer emotional
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`distress by posting a videotape of her and another man on the internet; and (3) defamed her. Ms.
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`Leviston subsequently withdrew her claim for defamation.
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`16. Ms. Leviston had previously been in a relationship with William Leonard
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`Roberts, a rap musician that was better none by his stage name “Rick Ross”, and she bore Mr.
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`Ross’s child, who was Ms. Leviston’s second daughter. Sometime after separating from Mr.
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`Ross, Ms. Leviston began a long- distance relationship with Maurice Murray in 2008. In or
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`around May 2008, Ms. Leviston and Maurice Murray created a videotape that showed the couple
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`engaging in sexually explicit acts. Ms. Leviston created this videotape (the “Videotape”)
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`willingly, and she agreed to leave it in Mr. Murray’s possession.
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`17.
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`In March 2009, Mr. Murray provided the Videotape to Mr. Jackson. Mr. Murray
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`told Mr. Jackson that he was free to use the tape in any manner that he chose, and that Ms.
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`Leviston would concur in that permission. At the time, Mr. Jackson was involved in a “rap war”
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`with Mr. Ross, and Mr. Murray apparently thought that Mr. Jackson could use the Videotape as a
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`way of responding to Mr. Ross’s disrespectful comments about him. Mr. Murray allowed Mr.
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`Jackson’s employees to make a digital copy of the Videotape, to which Mr. Jackson then added
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`narration mocking Mr. Ross.
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`18. Mr. Jackson contended that before the edited Videotape was ever placed on the
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`internet by Mr. Jackson, the edited Videotape was leaked to someone outside of Mr. Jackson’s
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`control. Mr. Jackson did not cause the Video’s initial publication on the internet, and no website
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`he owns, controls, or operates did so.
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`19.
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`The parties to this lawsuit engaged in discovery beginning in mid-2010 and
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`ending in September 2012. The trial of the Leviston Litigation was initially scheduled to begin
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`on January 21, 2015. However, the weekend before the trial was scheduled to begin, Ms.
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`Leviston’s counsel sent a series of emails disclosing additional documents which Ms. Leviston
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`had not previously disclosed but which counsel stated they intended to introduce at trial. On
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`January 18, 2015, Ms. Leviston’s counsel served an “Amended Exhibit List” which included
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`four such documents, and which provided links to the websites hosting those documents.
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`20.
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`The Supreme Court adjourned the trial date to address the new documents
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`produced by Leviston, as well as any other motions in limine. The court subsequently re-
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`scheduled the trial.
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`21.
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`On Sunday, May 31, 2015, Ms. Leviston’s counsel requested leave to file an
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`Amended Complaint. After a conference with the court on June 1, 2015, the parties entered into
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`a so-ordered stipulation to allow Ms. Leviston to amend her Complaint and Mr. Jackson was
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`given until 9:30 a.m. on June 2, 2015, to file his Answer. Mr. Jackson duly submitted and served
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`his Answer at that time, together with certain other pleadings related to the amended Complaint
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`and Answer.
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`22.
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`A jury was sworn in on June 10, 2015, and the presentation of evidence began on
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`June 15, 2015. On July 10, 2015, the jury returned a verdict $2.5 million for Ms. Leviston’s
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`emotional distress based on a claim of violating the New York Civil Rights Law Sections 50 and
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`51 by posting the Videotape online and a verdict of $2.5 million for Ms. Leviston’s emotional
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`distress based on a claim for Intentional Infliction of Emotional Distress from posting the
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`Videotape online. The jury found that Ms. Leviston was entitled to punitive damages and the
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`punitive damage phase was scheduled to begin on July 13, 2015. Because of the requirements of
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`New York and constitutional law as it pertains to limits on punitive damages, the punitive
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`damages phase is expected to focus heavily on Mr. Jackson’s net worth. As a result of Mr.
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`Jackson’s bankruptcy filing, the punitive damages phase has not yet begun, and the jury has not
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`heard any evidence regarding Mr. Jackson’s assets or liabilities.
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`D.
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`Bankruptcy of SMS Promotions LLC
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`23.
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`On May 26, 2015, one of Mr. Jackson’s companies, SMS Promotions, LLC
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`(“SMS Promotions”) filed for bankruptcy under chapter 11 of the Bankruptcy Code with this
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`Court (the “SMS Bankruptcy Case”), as a result of liquidity concerns and the need to restructure
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`(or reject) certain contracts. Mr. Jackson is the managing member of SMS Promotions and is the
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`individual who capitalized SMS Promotions during its early years of operations. SMS
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`Promotions has previously promoted boxing events in Nevada, New York, Florida, Texas and
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`Connecticut, and currently has 8 boxers under contract, including former featherweight
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`champion, Yurikis Gamboa.
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`24.
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`On July 13, 2015 (the “Petition Date”), the Debtor filed a voluntary petition for
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`relief under Chapter 11 of the Bankruptcy Code.
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`25.
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`As a result of the commencement of his Chapter 11 case, all of the litigation has
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`been stayed pursuant to Section 362 of the Bankruptcy Code.
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`III. ARGUMENT & AUTHORITIES
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`A.
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`The Automatic Stay Protects Creditors By Preserving Estate Assets
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`26.
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`The automatic stay imposed by Section 362 of the Bankruptcy Code is one of the
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`most fundamental protections to a debtor under the bankruptcy laws, a principal purpose of
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`which is to permit a debtor to focus its energies on the reorganization without facing diversions
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`and litigation brought on by its creditors. See, e.g., Eastern Refractories Co. v. Forty Eight
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`Insulations, Inc., 157 F.3d 169, 172 (2d Cir. 1998). The automatic stay protects both creditors
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`and debtors since, without the stay, creditors might scramble to obtain as much property of the
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`debtor’s limited estate as possible. See Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 207
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`(2d Cir. 2014). The automatic stay prevents such a scramble by providing a “’breathing spell’”
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`for a debtor and the bankruptcy court to institute an organized repayment plan which provides
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`for the equitable disbursement of estate property among creditors. United States v. Colasuonno,
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`697 F.3d 164, 172 (2d Cir. 2012) (quoting Eastern Refractories Co. v. Forty Eight Insulations,
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`Inc., 157 F.3d 169, 172 (2d Cir. 1998)) (citing SEC v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000)).
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`27.
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`Pursuant to Section 362(d)(1) of the Bankruptcy Code, the automatic stay may
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`only be lifted upon a showing of “cause” by the Movant. In a request for stay relief based upon
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`“cause,” the moving party bears the initial burden to demonstrate that cause exists for lifting the
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`stay, and the court may deny the motion if the movant fails to make an initial showing of
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`“cause.” In re Busch, 294 B.R. 137, 140-141 (10th Cir. BAP 2003); In re Pioneer Commercial
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`Funding Corp., 114 B.R. 45, 48 (Bankr. S.D.N.Y. 1990).
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`28.
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`In determining whether “cause” exists to lift the automatic stay to allow litigation
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`to proceed in another forum, courts generally consider the following twelve factors, which are
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`commonly referred to as the “Sonnax factors”:
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`(1) whether relief would result in a partial or complete resolution of the issues;
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`(2) lack of any connection with or interference with the bankruptcy case;
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`(3) whether the other proceeding involves the debtor as a fiduciary;
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`(4) whether a specialized tribunal with the necessary expertise has been established to
`hear the cause of action;
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`(5) whether the debtor’s insurer has assumed full responsibility for defending it;
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`(6) whether the action primarily involves third parties;
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`(7) whether litigation in another forum would prejudice the interests of other creditors;
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`(8) whether the judgment claim arising from the other action is subject to equitable
`subordination;
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`(9) whether movant's success in the other proceeding would result in a judicial lien
`avoidable by the debtor;
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`(10) the interests of judicial economy and the expeditious and economical resolution of
`litigation;
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`(11) whether the parties are ready for trial in the other proceeding; and
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`(12) impact of the stay on the parties and the balance of harms.
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`See, e.g., In re Sonnax Indus., Inc., 907 F.2d 1280, 1286 (2d Cir. 1990). Not all of the Sonnax
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`factors are relevant in every case, and “cause” is a broad and flexible concept that must be
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`determined on a case-by-case basis. Spencer v. Bogdanovich ( In re Bogdanovich), 292 F.3d
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`104, 110 (2d Cir.2002) (citing Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 143 (2d
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`Cir.1999)).
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`29.
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`In this case, a substantial majority of the Sonnax factors (including those most
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`relevant) weigh in favor of the continuation of the automatic stay as it relates to the Leviston
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`Litigation. As noted, the liability phase of Leviston Litigation has concluded and the jury has
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`rendered a verdict in favor of Leviston and fixed the amount of compensatory damages.
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`Leviston seeks to lift the stay to proceed to the punitive damages phase of the trial.
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`30.
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`However, unlike compensatory damages which are intended to make the injured
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`party whole for their loss, the purpose of punitive damages is to punish tortfeasors and deter
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`them from their wrongful conduct. In re Johns-Manville Corp., 68 B.R. 618, 627 (Bankr.
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`S.D.N.Y. 1986). Neither purpose is typically served by permitting such a recovery against a
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`bankrupt’s estate, as the burden is placed on innocent creditors that are looking to the same estate
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`(and limited assets) to satisfy their claims.
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`31.
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`As a result, punitive damages are penalty claims that are routinely subordinated or
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`disallowed by bankruptcy courts pursuant to Section 510(c) of the Bankruptcy Code. See, e.g.,
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`In re Motors Liquidation Company, 2012 WL 10864205, *10-11 (Bankr. S.D.N.Y. August 6,
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`2012) (disallowing claim for punitive damages); In re Merwede, 84 B.R. 11 (Bankr. D. Conn.
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`1988) (subordinating IRS penalty claim to claims of other general unsecured creditors); In re
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`Colin, 44 B.R. 806 (Bankr. S.D.N.Y. 1984) (subordinating punitive damages portion of claim to
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`unsecured creditors).
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`32.
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`Because the Motion relates solely to a claim for punitive damages, the first,
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`second, eighth and twelfth factors are the most relevant Sonnax factors to this analysis, and all
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`weigh in favor of denying the Motion and maintaining the automatic stay. In an abundance of
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`caution, however, the Debtor will address each of the other factors as well (substantially all of
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`which mandate the same result).
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`B.
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`The Automatic Stay Should Not be Lifted
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`The First Factor: Whether Relief Would Result in Partial or Complete Resolution of
`the Issues
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`33.
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`Should the Court lift the stay to allow Leviston to proceed with the punitive
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`damages phase of the trial; and even if Leviston obtains a favorable outcome, the result would
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`only be a partial resolution of that issue. In addition to a probable appeal that would follow,
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`Leviston would still need to file a proof of claim with respect to any punitive damages award,
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`which will prompt an objection to the allowance and/or subordination of Leviston’s claim on
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`Section 510(c) grounds. Thus, the first factor warrants denying the Motion. See In re Drexel
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`Burnham Lambert Group, Inc., 1990 WL 302177, *7 (Bankr. S.D.N.Y., Dec. 14, 1990)
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`(declining to modify stay to permit NYSE to conclude disciplinary proceedings against debtor
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`where resulting penalty claim would be subject to 510(c) objection, even though disciplinary
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`proceeding was substantially complete at time bankruptcy was filed).
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`The Second Factor: Lack of Any Connection or Interference with the Bankruptcy
`Case.
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`34.
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`Lifting the automatic stay to permit the punitive damages phase of the Leviston
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`Litigation to go forward at this time would substantially interfere with the Debtor’s bankruptcy
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`case. This Chapter 11 case is only a few days old, and the Debtor and his professionals will be
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`required to spend a significant amount of time in the coming days and weeks preparing and filing
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`the necessary documents (including the Debtor’s schedules and statement of financial affairs),
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`and preparing for and attending associated hearings and meetings related to this bankruptcy case.
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`35.
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`Should the Court lift the stay, a principal issue in the punitive damages phase is a
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`determination of the Debtor’s net worth, and that issue is expected to be the subject of substantial
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`disagreement between the parties. See, e.g., Rose v. Brown & Williamson Tobacco Corp., 809
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`N.Y.S.2d 784, 808-809 (N.Y. Sup. Ct. 2005), rev’d on other grounds, 53 A.D.3d80(2008) (“In
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`New York, the relevant financial information on the question of the amount of a punitive
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`damage award is defendant’s net worth”); Thoreson v. Penthouse Int’l, Ltd., 149 Misc. 2d 150,
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`164 (N.Y. Sup. Ct. 1990) (“To ensure that the size of a [punitive] damages award is reasonable
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`as punishment and effective as a deterrent, a final inquiry must be made concerning the net worth
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`of each defendant.”); see also Pattern Jury Instructions (Civil) 2:278 Damages – Punitive (2015).
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`36.
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`Should the stay be lifted, the Debtor will need to immediately employ both special
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`litigation counsel to litigate the claim, as well as other professionals to provide expert testimony
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`on the value of the Debtor’s assets, including his numerous, privately-held interests in various
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`business ventures. Additionally, the state court has compelled the Debtor to appear and testify at
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`the punitive damages phase, which will require a significant amount of his time and detract from
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`his bankruptcy responsibilities during the early stages of this bankruptcy case. And for what?
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`To fix the amount of a penalty claim that will be subject to subordination or disallowance?
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`37.
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`Forcing the Debtor to expend a substantial amount of his time and estate
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`resources litigating a claim that, even if awarded, would be subject to subordination or
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`disallowance in this bankruptcy case would constitute substantial interference with this
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`bankruptcy case. See generally, In re Drexel Burnham, 1990 WL 302177 at *7. Accordingly,
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`the second Sonnax factor strongly weighs in favor of keeping the stay in place, as lifting the stay
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`will interfere with the Debtor’s Chapter 11 case.
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`The Third Factor: Whether the Other Proceeding Involves the Debtor as a Fiduciary.
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`38.
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`The Leviston Litigation does not involve the Debtor as a fiduciary, and no such
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`claim is made in the Motion. Consequently, the third Sonnax factor weighs against lifting the
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`stay.
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`The Fourth Factor: Whether a Specialized Tribunal with the Necessary Expertise has
`Been Established to Hear the Cause of Action.
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`39.
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`The state court overseeing the Leviston Litigation has no special expertise in
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`determining the Debtor’s net worth. To the contrary, a determination of the Debtor’s assets and
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`liabilities is at the core of bankruptcy administration, and of paramount interest to all of the
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`Debtor’s creditors. Consequently, the fourth Sonnax factor does not weigh in favor of lifting the
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`stay at this stage of this bankruptcy case.
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`The Fifth Factor: Whether the Debtor’s Insurer has Assumed Full Responsibility for
`Defending the Debtor.
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`40.
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`No insurer has assumed responsibility for defending the Levison Litigation. To
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`the contrary, all expenses associated with continuing to litigate the lawsuit will be borne by the
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`bankruptcy estate. Requiring the estate to expend funds in connection with the litigation of a
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`claim that, at best, would be subordinated to general unsecured claims, is an unnecessary and
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`unwarranted burden on the estate and innocent creditors at this early stage of this bankruptcy
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`case. As a result, the fifth Sonnax factor does not support relief from the stay.
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`The Sixth Factor: Whether the Action Primarily Involves Third Parties.
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`41.
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`The punitive damages phase does not involve third parties. Instead, it is solely
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`focused on the Debtor and his conduct. Consequently, the sixth Sonnax Factor does not warrant
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`13
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`relief from stay.
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`The Seventh Factor: Whether Litigation in Another Forum Would Prejudice the
`Interests of Other Creditors.
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`42.
`
`The seventh Sonnax factor also weighs against lifting the stay. Lifting the stay to
`
`allow the punitive damages phase to go forward will deplete estate assets and divert resources
`
`and attention away from the bankruptcy case, to the detriment of innocent creditors.
`
`The Eight Factor: Whether the Judgment Claim Arising from the Other Action is
`Subject to Equitable Subordination
`
`43.
`
`The eighth Sonnax factor is the most important factor in this case, and also weighs
`
`strongly against lifting the stay. As discussed in more detail above, punitive damages are
`
`intended to punish a tortfeasor and deter future conduct and are penalty claims. Because neither
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`of those objectives are satisfied in a bankruptcy case where the burden falls on innocent
`
`creditors, any award of punitive damages would be subject to equitable subordination or
`
`disallowance in this bankruptcy case. See, e.g., In re Motors Liquidation Company, 2012 WL
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`10864205, *10-11 (disallowing claim for punitive damages); In re Merwede, 84 B.R. 11 (Bankr.
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`D. Conn. 1988) (subordinating IRS penalty claim to claims of other general unsecured creditors);
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`In re Colin, 44 B.R. 806 (Bankr. S.D.N.Y. 1984) (subordinating punitive damages portion of
`
`claim to unsecured creditors).
`
`The Ninth Factor: Whether Movant’s Success in the Other Proceeding Would Result
`in a Judicial Lien Avoidable by the Debtor
`
`44.
`
`The Debtor does not believe that any judgment entered in the Leviston Litigation
`
`would result in a judicial lien avoidable by the Debtor. Consequently, this factor weighs in favor
`
`of lifting the stay, but is outweighed by the application of the other Sonnax factors which are
`
`more relevant in this case and, in particular, the eight factor (equitable subordination).
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`The Tenth Factor: The Interests of Judicial Economy and the Expeditious and
`Economical Resolution of Litigation
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`45.
`
`The tenth factor also weighs in favor of denying the Motion. This court will
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`necessarily have to determine the Debtor’s assets and liabilities (and, by extension, his net worth)
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`as part of the administration of this Chapter 11 case and the plan process. While any findings by
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`a jury in the Leviston Litigation in this regard may not be binding on this Court, lifting the stay
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`to allow the punitive damages phase to go forward will require the Debtor to litigate those issues
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`twice at the estate’s expense. It would be far more efficient for this Court to first determine the
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`Debtors’ assets, liabilities and net worth as an initial matter, before any consideration is given to
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`moving forward with the punitive damages phase of the Leviston Litigation..
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`46.
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`Consequently, this factor weighs in favor of maintaining the stay. Compare In re
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`Roman Catholic Archbishop of Portland in Oregon, 338 B.R. 414, 422 (Bankr. D. Or. 2006)
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`(denying stay relief for claimants who were seeking punitive damages and granting stay relief to
`
`those seeking only compensatory damages).
`
`The Eleventh Factor: Whether the Parties are Ready for Trial in the Other Proceeding
`
`47. While the current procedural posture of the Leviston Litigation suggests that this
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`factor weighs in favor of lifting the stay, there are several distinguishing facts applicable here.
`
`First, if the stay is lifted the Debtor must first obtain this Court’s approval to retain his litigation
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`counsel and expert witness to defend him in the punitive damages phase of the trial, which must
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`be done on notice to all creditors and in accordance with the Bankruptcy Rules. Consequently,
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`the parties (and the Debtor in particular) cannot immediately proceed to trial on the question of
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`punitive damages. Second, this case differs from the cases cited by the movant in that this case
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`solely relates to the punitive damages phase of the trial whereas the liability and compensatory
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`damages phase of the trial have been completed. Furthermore, the citation to one of the cases
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`relied upon by the movant (In re Kangadis Food, Inc. d/b/a The Gourmet Factor, 2014 WL
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`4164627 (Bankr. E.D.N.Y. 2014)) appears to be a citation to the pleading filed by the party
`
`seeking relief from stay, and not an order of the Court. In that case, the court actually denied the
`
`motion to lift the stay. Copies of the foregoing are attached hereto as Exhibits “B” and “C”,
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`respectively. Finally, this factor is outweighed by the application of the other Sonnax factors
`
`which are more relevant in this case.
`
`The Twelfth Factor: Impact of the Stay on the Parties and the Balance of Harms.
`
`48.
`
`For many of the reasons stated above, the twelfth Sonnax factor, the balance of
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`the harms, weighs in favor of continuing the stay of the Leviston Litigation. Lifting the stay
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`would unnecessary drive up the administrative expenses of this estate in forcing the Debtor to
`
`appear at, and defend against, the punitive damages phase of the Leviston Litigation. Forcing the
`
`Debtor to return to a state court to litigate a penalty claim that would likely be subject to
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`subordination and/or disallowance at this stage of this Chapter 11 case is unwarranted and
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`needlessly burdensome on the Debtor’s estate and innocent third-party creditors.
`
`49.
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`Conversely, delaying the punitive damages phase of the Leviston Litigation will
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`not prejudice the movant. Under New York law, trials for liability and damages are often
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`bifurcated. See, e.g., Martinez v. Town of Babylon, 191 A.D.2d 483, 483-84, 594 N.Y.S.2d 357,
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`358 (1993) (the Supreme Court affirmed the interlocutory judgment that applied the general rule
`
`that issues of liability and damages in a negligence action are distinct and severable issues which
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`should be tried and determined separately); Barrera v. Skaggs-Walsh, Inc., 279 A.D.2d 442, 442,
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`719 N.Y.S.2d 90, 91 (2001) (the Supreme Court affirmed the lower court’s denial of plaintiff's
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`motion for a unified trial on the issues of liability and damages). In fact, courts are encouraged
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`Case 15-21233 Doc 19 Filed 07/16/15 Entered 07/16/15 20:00:47 Desc Main

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