17-11883-mg Doc 250 Filed 04/13/21 Entered 04/13/21 11:08:35 Main Document
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`Hearing Date: May 13, 2021 @
`10:00 a.m. (EST)
`Objection Deadline: May 7, 2021
`@ 5:00 p.m. (EST)
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`KLESTADT WINTERS JURELLER
`SOUTHARD & STEVENS, LLP
`200 West 41st Street, 17th Floor
`New York, New York 10036
`Tel: (212) 972-3000
`Fax: (212) 972-2245
`Fred Stevens
`Christopher J. Reilly
`
`Special Litigation Counsel to Gregory Messer, Chapter
`7 Trustee of the Estate of Fyre Festival LLC
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`UNITED STATES BANKRUPTCY COURT
`SOUTHERN DISTRICT OF NEW YORK
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`In re
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`FYRE FESTIVAL LLC,
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`Debtor.
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`TRUSTEE’S MOTION PURSUANT TO FED. R. BANKR. P. 9019 FOR AN
`ORDER APPROVING A STIPULATION OF SETTLEMENT BETWEEN
`THE TRUSTEE AND TICKETHOLDER CLAIMANTS
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` Chapter 7
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` Case No. 17-11883 (MG)
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`TO THE HONORABLE MARTIN GLENN,
`UNITED STATES BANKRUPTCY JUDGE:
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`Gregory M. Messer, the Chapter 7 Trustee (the “Trustee”) for the estate of Fyre Festival
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`LLC (the “Debtor”), by and through his counsel, Klestadt Winters Jureller Southard & Stevens,
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`LLP, as and for his motion (the “Motion”) for entry of an order pursuant to Rule 9019 of the
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`Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) approving a Stipulation of
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`Settlement (the “Agreement”) between himself and each of the claimant ticketholders (each a
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`“Ticketholder Claimant,” collectively, the “Ticketholder Claimants”), who filed Proofs of Claim
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`Nos. 4 to 281 (each a “Ticketholder Claim,” collectively, the “Ticketholder Claims”), a copy of
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`which is annexed hereto as Exhibit A. In support of the Motion the Trustee respectfully represents
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`as follows:
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`PRELIMINARY STATEMENT
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`William Z. McFarland, a/k/a Billy McFarland (“McFarland”) and his business partner, hip-
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`hop artist Jeffrey Atkins, a/k/a Ja Rule (“Ja Rule”), started Fyre Media Inc. (“Fyre Media”) in early
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`2016 with the intention of creating and promoting a software application for booking
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`entertainment. In or around late-summer 2016, the two conceived of the “Fyre Festival” (the
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`“Festival”), which was to be a unique destination concert experience in the Caribbean aimed at
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`young millennials and featuring a number of top musical acts. The Festival was scheduled over
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`two weekends in April and May 2017 in the Exumas, Bahamas, and was intended to, among other
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`things, promote Fyre Media’s booking application. The Festival was self-described in an offering
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`memorandum designed to solicit investments as follows:
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`OVERVIEW
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`Fyre Festival leverages our global access to talent and
`our understanding of the millennial demographic to create
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`THE CULTURAL EXPERIENCE OF THE DECADE.
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`Fyre Festival is a rich experience that emboldens
`our quest to connect to a diverse set of influencers.
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`For two weekends in April and May, the curious and adventurous come
`together on a private Exuma island:
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`Fyre Festival will feature music from the greatest talents in the world,
`immersive experiences through art, theater, and a weekend long treasure
`hunt; as well as informative discussions with some of the brightest minds
`in the world. Fyre will be defined by its ability to connect: the ultimate in
`a tasteful experience.
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`(emphasis in original).
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`The Festival was promoted on Instagram, Twitter and other social media outlets by
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`numerous “influencers” including socialite and model Kendall Jenner, as well as a number of other
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`famous models like Bella Hadid and Emily Ratajkowski. Ticket buyers were promised an exotic
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`island adventure with luxury accommodations, gourmet food, the hottest musical acts and celebrity
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`attendees. The unique social media marketing method employed by Fyre Festival tapped in on the
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`power of FOMO (short for “fear of missing out”) and was extraordinarily successful amongst
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`millennials, resulting in significant ticket sales.
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`When concertgoers arrived at the Festival on April 27, 2017, they “were met with total
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`disorganization and chaos.”1 None of the promised musical acts performed. The luxury
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`accommodations turned out to be FEMA disaster relief tents. The gourmet food consisted of the
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`now infamous cheese sandwich served in a Styrofoam container that was even joked about by Tina
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`Fey during her opening monologue at the 2019 Academy Awards.2 Feral dogs roamed the site
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`and no models or celebrities who promoted the Festival and/or told their social media followers
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`that they would be there, were in attendance. The disaster that became of the Festival is now
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`infamous, capturing the attention of popular culture and spawning two separate documentaries on
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`Hulu and Netflix.
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`The Ticketholder Claimants represent 277 individuals who purchased tickets to the
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`Festival. The Ticketholder Claimants are represented by the Geregos & Geragos law firm, which
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`filed the well-publicized $100 million class action lawsuit against the Debtor and its affiliates and
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`insiders. Pursuant to the Agreement, the Trustee and Ticketholder Claimants are agreeing to allow
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`the Ticketholders Claims as a collective general unsecured claim in the amount of $2 million. The
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`settlement results in allowing a claim of approximately $7,220 for each aggrieved Ticketholder
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`Claimant. This amount covers any and all damages associated with purchasing a ticket to a
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`Festival that never occurred, purchasing air and other travel to the Festival, plus incidental and
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`related damages that arose as a result of the experience. The Agreement also combines the
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`1 This description was given by the Bahamas Ministry of Tourism on April 28, 2017. The full statement is available
`at https://www.bahamas.com/article/bahamas-ministry-tourism-statement-fyre-festival.
`2 Ms. Fey said to the crowd, “hey everybody, look under your seats, you are all getting one of those cheese sandwiches
`from the Fyre Festival.”
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`3
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`Ticketholder Claims into a single claim requiring only one distribution by the Trustee, which
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`significantly streamlines administration and is of great value to the Trustee and estate.
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`For all the foregoing reasons as well as those set forth below, the Trustee respectfully
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`submits that the settlement and resolution of the Ticketholder Claims as set forth in the Agreement
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`is reasonable and in the best interests of the Debtor’s estate. Accordingly, the Trustee respectfully
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`requests that the Agreement be approved.
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`JURISDICTION AND VENUE
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`1.
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`This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334,
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`and the “Amended Standing Order of Reference” of the United States District Court for the
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`Southern District of New York (Preska, C.J.), dated January 31, 2012.
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`2.
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`3.
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`This is a core proceeding pursuant to 28 U.S.C. § 157(b).
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`Venue of this proceeding and this application is proper pursuant to 28 U.S.C. §§
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`1408 and 1409.
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`4.
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`The statutory predicate for the relief requested herein is Bankruptcy Rule 9019.
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`INTRODUCTION
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`5.
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`On July 7, 2017 (the “Petition Date”), an involuntary chapter 7 petition (the
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`“Involuntary Petition”) was filed by certain creditors of the Debtor.
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`6.
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`On August 29, 2017, the Court entered an order for relief that directed the Debtor
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`to file all schedules, statements, lists and creditors’ matrix with fourteen (14) days of its entry, or
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`September 12, 2017.
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`7.
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`On or around August 31, 2017, Gregory M. Messer was appointed interim trustee
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`of the Debtor’s estate and duly qualified and became the permanent trustee herein by operation of
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`section 702(d) of the Bankruptcy Code.
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`4
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`BACKGROUND
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`8.
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`The Ticketholder Claimants purchased tickets to the Festival to be put on by the
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`Debtor in the Exumas, Bahamas, over two weekends in April and May 2017. The Festival was a
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`well-publicized disaster where no musical act ever took the stage. The Debtor cancelled the
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`Festival on the morning it was scheduled to begin after many ticketholders had already arrived.
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`As a result, each of the Ticketholder Claimants asserted that they suffered significant damages as
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`a result of breach of contract, fraud, and other claims perpetrated by the Debtor, its management
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`and others.
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`9.
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`On or around January 20, 2018, the Ticketholder Claimants filed the Ticketholder
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`Claims against the Debtor’s bankruptcy estate as unliquidated, general unsecured claims.
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`10.
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`The Ticketholder Claims were filed by and through the Ticketholder Claimants’
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`attorneys, Geragos & Geragos, APC (the “Geragos Firm”).
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`11.
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`Prior to and during the pendency of this bankruptcy case, the Geragos Firm made a
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`diligent, good faith effort to find and invite any ticketholders to be part of the Ticketholder
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`Claimant group.
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`12.
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`The Geragos Firm has and is representing the Ticketholder Claimants in connection
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`with the prosecution of claims against non-debtors including the Debtor’s former management.
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`13.
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`The Parties have discussed the appropriate amount of the Ticketholder Claims and
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`entered into the Agreement to liquidate and fix the Ticketholder Claims.
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`THE SETTLEMENT
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`The settlement embodied in the Agreement was negotiated in good faith and at
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`14.
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`arms’ length between the parties. The Trustee submits that the Agreement is fair and equitable and
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`is in the best interests of the Debtor, its creditors and the estate and should therefore be approved.
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`The salient terms of the Agreement are as follows: 3
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`Fixing and Allowing the Ticketholder Claims. The Ticketholder Claims shall be
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`consolidated, fixed and allowed as a single, timely-filed general unsecured claim against
`the Debtor’s bankruptcy estate in the total amount of Two-Million Dollars ($2,000,000.00)
`(the “Allowed Consolidated Ticketholder Claim”).
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` Method of Distribution. When and if the Trustee makes any distribution on
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`account of the Allowed Consolidated Ticketholder Claim (a “Ticketholder Distribution”),
`it will be by single payment made to “Geragos & Geragos, APC, as attorneys.”
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`Geragos Firm Responsibility. The Geragos Firm shall take any and all
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`responsibility for the allocation of any Ticketholder Distribution amongst the Ticketholder
`Claimants and/or itself as counsel to the Ticketholder Claimants as may be permitted
`pursuant to any agreements between the Ticketholder Claimants and the Geragos Firm.
`The Trustee shall have no right or responsibility to make any distribution to individual
`Ticketholder Claimants, or to monitor or review what the Geragos Firm does following the
`Trustee’s making any Ticketholder Distribution.
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`RELIEF REQUESTED
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`By this Motion, the Trustee seeks entry of an order, pursuant to Bankruptcy Rule
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`15.
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`9019(a), approving the Agreement and the terms, conditions, and compromises contained therein
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`are fair and reasonable under the circumstances, and that approval of the Agreement is in the best
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`interest of the estate and its creditors.
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`16.
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`Bankruptcy Rule 9019 provides that “[o]n motion by the trustee and after notice
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`and a hearing, the court may approve a compromise or settlement.” FED. R. BANKR. P. 9019(a).
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`In ruling on a motion pursuant to Bankruptcy Rule 9019(a), the court must find that the proposed
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`settlement is fair and equitable and is in the best interests of the estates. Protective Comm. for
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`Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968);
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`Ionosphere Clubs, Inc. v. American National Bank and Trust Co. of Chicago (In re Ionosphere
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`Clubs, Inc.), 156 B.R. 414, 426 (S.D.N.Y. 1993), aff’d 17 F.3d 600 (2d Cir. 1994); In re Schneider,
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`3 The foregoing summary is qualified by the terms of the Agreement. To the extent of any inconsistency between
`this summary and the Agreement, the Agreement shall control.
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`2015 WL 1412364, *4-5, No. 14-CV-1166 (JMA) (E.D.N.Y. Mar. 26, 2015); Fjord v. AMR Corp.,
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`et al. (In re AMR Corp.), 502 B.R. 23, 42 (Bankr. S.D.N.Y. 2013).
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`17.
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`In order to reach such a decision, the Court must be apprised “of all facts necessary
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`for an intelligent and objective opinion” of whether the claim will be successful, the likely expense,
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`length and the degree of complexity of the litigation, the potential difficulties of collecting on a
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`judgment, “and all other factors relevant to a full and fair assessment of the wisdom of the proposed
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`compromise.” TMT Trailer Ferry, 390 U.S. at 424.
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`18.
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`To constitute a fair and equitable compromise or settlement, the Court must find
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`that the settlement does not “fall below the lowest point in the range of reasonableness.” Cosoff v.
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`Rodman (In re W.T. Grant Co.), 699 F. 2d 599, 608 (2d Cir. 1983); In re Drexel Burnham Lambert
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`Group, Inc., 138 B.R. 723, 758-59 (Bankr. S.D.N.Y. 1992); In re Int’l Distribution Centers, Inc.,
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`103 B.R. 420, 423 (Bankr. S.D.N.Y. 1989).
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`19.
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`The Court should also consider the fair and reasonable course of action for the
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`debtor’s estate, with the limited available assets, giving consideration to the interests of creditors
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`and the avoidance of burdening the estate with undue waste or needless or fruitless litigation. In re
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`Del Gross, 106 B.R. 165, 167-168 (Bankr. N.D. Ill. 1989); see also In re Culmtech, Ltd., 118 B.R.
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`237, 238 (Bankr. M.D. Pa. 1990); In re Lawrence & Erausguin, Inc., 124 B.R. 37, 38 (Bankr. N.D.
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`Ohio 1990); In re Bell & Beckwith, 93 B.R. 569, 574-75 (Bankr. N.D. Ohio 1988).
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`20.
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`The Court is not required to determine conclusively the merits of a claim subject to
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`compromise or to find that a proposed settlement constitutes the best results obtainable. Instead,
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`the Court should “canvass the issues and see whether the settlement falls below the lowest point
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`in the range of reasonableness.” In re Adelphia Communications Corp., 368 B.R. 140, 225 (Bankr.
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`S.D.N.Y. 2007); see also Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir.
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`1983); In re Schneider, 2015 WL 1412364 at *4 (E.D.N.Y. Mar. 26, 2015); In re Worldcom, Inc.,
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`347 B.R. 123, 137 (Bankr. S.D.N.Y. 2006); In re Drexel Burnham Lambert Group, Inc., 138 B.R.
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`723, 758-59 (Bankr. S.D.N.Y. 1992).
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`21.
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`Here, the Trustee considered numerous factors in determining that entry into the
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`Agreement was in the best interest of the estate.
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`22.
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`First, the Trustee considered the manner in which the Ticketholder Claimants were
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`damaged by the fraudulent acts of the Debtor and its management. Each purchased a ticket to a
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`Festival that never occurred. Many of them gave up work and other opportunities to travel to
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`Exuma for the failed Festival. Many loaded the prepaid “Fyre Bands” that were supposed to act
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`as currency at the Festival which ultimately became worthless. They were promised luxury
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`accommodations and were given FEMA disaster relief tents that were too small in number to
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`accommodate the number of concertgoers that showed up. They were promised gourmet food and
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`were fed the now infamous cheese sandwiches in Styrofoam containers. Some were locked in the
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`airport when they were unable to return to Miami. Based upon this, the Trustee determined that
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`permitting a claim for approximately $7,220 in damages per aggrieved Ticketholder Claimant
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`seemed fair and appropriate.
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`23.
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`Second, the Trustee considered the administrative benefits of the Agreement. The
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`Agreement leaves all reconciliations in and amongst the Ticketholder Claimants to the Geragos
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`Firm and its clients. The Trustee need only write a single distribution check to the Geragos Firm,
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`as attorneys. This permits the Trustee to avoid liquidating 277 separate claims and making 277
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`separate distributions on account of those claims. The relief of this administrative burden alone
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`could save the estate significant legal and other fees.
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`24.
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`Third, the Trustee considered the actual value of claims against the Debtor’s estate.
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`The Trustee believes that based upon the current amount of claims that creditors will receive a
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`maximum distribution of 4%, even with significant concessions by the Trustee’s professionals.
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`This means that the Ticketholder Claimants will only receive a maximum of $80,000 on account
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`of the $2 million claim. Any continued litigation would significantly reduce what is available for
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`creditors and would negatively impact not only the Ticketholder Claimants, but the Trustee’s
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`professionals who already intend to take a considerable fee cut, and the remaining general
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`unsecured creditors.
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`25.
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`Based upon the foregoing, the Trustee respectfully submits that the settlement
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`embodied by the Agreement is fair and equitable, is in the best interests of the Debtor’s estate, and
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`is well above the lowest point in the range of reasonableness. Accordingly, the Trustee respectfully
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`requests that the Court approve the Agreement.
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`NOTICE
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`26.
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`Notice of this Motion will be given in accordance with Bankruptcy Rule 2002. The
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`Trustee submits that such notice constitutes good and sufficient notice and that no other or further
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`notice need be given.
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`NO PRIOR REQUEST
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`27.
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`No previous application for the relief requested herein has been made to this or any
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`other court.
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`WHEREFORE, the Trustee respectfully requests that this Court enter an order,
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`substantially in the form of the proposed order annexed hereto as Exhibit B, and for such other and
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`further relief as the Court determines to be just and proper.
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`Dated: New York, New York
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`April 13, 2021
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`By:
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`KLESTADT WINTERS JURELLER
` SOUTHARD & STEVENS, LLP
`
`
`/s/ Fred Stevens
`Fred Stevens
`Christopher Reilly
`200 West 41st Street, 17th Floor
`New York, New York 10036
`Tel: (212) 972-3000
`Fax: (212) 972-2245
`Email: fstevens@klestadt.com
`creilly@klestadt.com
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`
`Special Litigation Counsel to Gregory M.
`Messer, Chapter 7 Trustee
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