Cinq Music Grp. v. Kabara (In re Kabara)

IN RE: JAREIQ AHMAD JOSEF KABARA, Debtor.

CINQ MUSIC GROUP, LLC, Plaintiff, v. JAREIQ AHMAD JOSEF KABARA an FTR ENTERTAINMENT, LLC,

No. 19-66374-JWC

ADVERSARY PROCEEDING No. 20-06009-JWC

United States Bankruptcy Court, N.D. Georgia, Atlanta Division

September 2, 2021

CHAPTER 7

MEMORANDUM OPINION AND ORDER

Jeffery W. Cavender U.S. Bankruptcy Court Judge

In 2018, Cinq Music Group, LLC and Jareiq Ahmad Josef Kabara entered an arrangement in which Cinq agreed to provide funding to FTR Entertainment, LLC, a new entity of which Kabara would be manager, to produce music recordings from four different artists. Upon completion and delivery, Cinq would have distribution rights to the recordings. Although the parties attempted to negotiate further terms, Cinq ultimately declined to continue funding FTR. After Cinq discontinued funding, Kabara funded FTR personally for a while, but he eventually terminated FTR in July 2019 without delivery of the recordings.

Cinq filed an action in California against Kabara and FTR ("Defendants") on August 30, 2019, and Kabara filed the above-captioned bankruptcy case as an individual on October 11, 2019, under Chapter 7 of the Bankruptcy Code.^[1] Cinq initiated this adversary proceeding seeking to pierce the corporate veil to hold Kabara personally liable for FTR's debt to Cinq, to except that debt from Kabara's discharge under 11 U.S.C. § 523(a), and to obtain a judgment against Defendants for the entirety of the debt owed to Cinq, including amounts loaned and lost revenue. Kabara filed a Motion for Summary Judgment (Doc. No. 65) seeking dismissal of the adversary proceeding in its entirety, to which Cinq responded (Doc No. 72) (the "Response"). For the reasons set forth below, the Motion will be GRANTED in part and DENIED in part.

I. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) and Fed.R.Bankr.P. 7056; see also Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918-19 (11^th Cir. 1993). A fact is material if it might affect the outcome of a proceeding under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (U.S. 1986). A dispute of fact is genuine "if the evidence is such that a reasonable jury [or finder of fact] could return a verdict for the nonmoving party." Id.

At the summary judgment stage of a proceeding, the Court's function is not to determine the truth of the matter by weighing the evidence, but rather to determine if there is a genuine issue for trial. Id. When making this determination, the Court must view the evidence in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Rosen v. Biscayne Yacht & Country Club, Inc., 766 F.2d 482, 484 (11^th Cir. 1985). "All reasonable doubts and inferences should be resolved in favor of the opponent." Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1502 (11th Cir. 1985).

The moving party bears the burden of establishing the right to summary judgment. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11^th Cir. 1991); Clark v. Union Mut. Life Ins. Co., 692 F.2d 1370, 1372 (11^th Cir. 1982). The moving party must identify those evidentiary materials listed in Federal Rule 56(c) that establish the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); see also Fed. R. Civ. P. 56(e). Where the moving party does not bear the burden of proof at trial,

the movant may satisfy its burden in one of two ways. First, it can put forward "affirmative evidence demonstrating that the [non-movant] will be unable to prove its case at trial." Second, it can "point[ ] out to the district court that there is an absence of evidence to support the [non-movant's] case."

Chambers v. Real Time Resols., Inc., No. 1:17-CV-5256-TWT, 2018 WL 5113056, at *2 (N.D.Ga. Oct. 19, 2018) (citing Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th Cir. 1993)).

Once the moving party makes a prima facie showing that it is entitled to judgment as a matter of law, the nonmoving party must go beyond the pleadings and demonstrate that there is a material issue of fact that precludes summary judgment. Celotex, 477 U.S. at 324; Martin v. Commercial Union Ins. Co., 935 F.2d 235, 238 (11^th Cir. 1991). "[A] party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248 (citations omitted). If the moving party presented affirmative evidence, then the nonmoving party "must respond with 'evidence sufficient to withstand a directed verdict at trial on the material fact sought to be negated.'" Chambers, 2018 WL 5113056, at *2. If the moving party instead pointed to an absence of evidence, then the non-moving "party must either identify evidence 'ignored or overlooked' by the movant or must come forward with evidence 'sufficient to withstand a directed verdict motion at trial based on the alleged evidentiary deficiency.'" Id.

II. FINDINGS OF FACT

As discussed below, several material facts are disputed or unclear in the record before the Court. The Court, however, finds the following material facts to be undisputed for purposes of the Motion except where specifically indicated otherwise:

At some point prior to FTR's formation, Cinq and Kabara agreed to work together to produce recordings from four different artists, though the parties dispute who initiated the relationship. At some point thereafter it was decided that FTR, a new entity to be owned by Kabara, would produce the recordings, and Cinq would provide funding to FTR for the production. FTR was formed as a limited liability company in the State of Georgia on May 11, 2018, with the assistance of GoDigital Media Group, LLC ("GoDigital"), Cinq's parent company. (Doc. No. 65 [Def., Ex A.]) At the time of formation, Kabara was the only member of FTR, and Kabara executed an Operating Agreement for the LLC. On May 22, 2018, Kabara, on behalf of FTR, ^[2] also executed a Note to Cinq to memorialize the loan agreement to produce the records. (Doc. No. 72 [Peterson Decl., Ex. 1.]) The Note allowed Cinq to convert all or part of its debt to a controlling equity interest in FTR, but it gave Cinq no equity in FTR prior to exercising the conversion right. [Id.] On June 4, 2018, Kamal Moo was granted 50, 000 Class C shares of FTR. [Def., Ex. D.] On August 28, 2018, and February 5, 2019, FTR's annual registration was renewed with Moo listed as manager of FTR.

The specifics are murky, but it appears undisputed that in June of 2018 Cinq and FTR came to some form of agreement or approval of a 5-month budget totaling $335, 750. [Peterson Decl., Ex. 2.] The budget included specific line items for expenditures, but it is not clear from the record whether the budget was binding, whether it was subject to change, or whether it was even required by any document. In short, while a budget certainly existed, how the budget governed the parties' dealings is unclear.

For the months of June through September, Kabara requested funding via email or writing, which Cinq would review and approve. Though the exact dates are not certain, Cinq advanced approximately $335, 000 between June and September 2018. [Peterson Decl.] In September 2018, Kabara provided financial information to Cinq and requested additional funding in October of 2018. Instead of advancing additional funds, on October 8, 2018, Jason Peterson, Manager of Cinq and GoDigital, sent an email to FTR, including Kabara and Moo, informing of Cinq's decision to convert its debt to a 51% equity ownership of FTR. The email also dictated the terms Cinq required to continue funding FTR. Although the specific date on which Cinq provided its final advance to FTR is unclear from the record, Cinq advanced no funds after the October 8 email from Jason Peterson. Cinq also had no equity interest in FTR prior to the October 8 email, though, as discussed below, Kabara disputes whether Cinq's attempt to convert its debt to equity by the October 8 email was valid.

Although the specific circumstances after October 2018 are disputed, the parties agree they then attempted to negotiate future funding terms for the project, but the negotiations failed. Kabara personally paid more than $80, 000 of FTR's expenses from October 2018 to July 2019. Kabara did not hold annual meetings for FTR, and no board of managers was selected as set out in FTR's Operating Agreement during the company's existence from May 2018 to when Kabara terminated it in July 2019. (Doc. No. 72 [Cinq Resp., Ex. B.])

The undisputed facts end there. The following material factual issues are either unclear or disputed. First, as noted above, how the budget governed the parties' dealings remains unclear. The only thing certain from the record is that a budget existed. Likewise, it is disputed whether Kabara admitted to Peterson that Kabara knew the budget was falsely deflated and would not be sufficient to produce the agreed upon recordings and whether Kabara continued with that budget to induce Cinq into investing additional capital to protect its initial investment. This fact from Peterson's Declaration is material to Cinq's claims, but Cinq presents it as disputed in their response to Kabara's Statement of Material Facts. [Cinq Resp., p. 151.] Further, Kabara's Declaration states that he had no intent to injure or mislead Cinq and that Cinq simply made a bad business judgment.

Next the parties dispute whether the Note was signed by Cinq. Kabara asserts the Note was never signed by Cinq,...