Core Litig. Trust v. Apollo Global Mgmt., LLC (In re AOG Entm't, Inc.)

569 B.R. 563

IN RE: AOG ENTERTAINMENT, INC., et al., Debtors.

Core Litigation Trust, by and through its duly appointed trustee, Peter Kravitz, Plaintiff,

v.Apollo Global Management, LLC; Apollo Global Securities, LLC ; Apollo Management Holdings GP, LLC ; Apollo Management Holdings, L.P. ; Apollo Management GP, LLC ; Apollo Management, L.P.; Apollo Core Holdings GP, LLC; Apollo Core Holdings, L.P.; Apollo Capital Management VII, LLC ; Apollo Advisors VII, L.P. ; Apollo Investment Fund VII, L.P. ; Apollo Overseas Partners VII, L.P. ; Apollo Overseas Partners (Delaware) VII, L.P.; Apollo Overseas Partners VII (Delaware 892), L.P.; Apollo Investment Fund (PB) VII, L.P. ; MediArena Holding B.V. ; AP NMT Coöperatief U.A.; AP NMT JV Newco B.V. d/b/a Endemol Shine Group; Endemol Shine North America ; Endemol USA Holding Inc. ; Twenty–First Century Fox, Inc.; 21st Century Fox Europe and Asia ; and Does 1–100, Defendants.

Case No. 16–11090 (SMB) (Jointly Administered)

Adv. Pro. No. 17–01053 (SMB)

United States Bankruptcy Court, S.D. New York.

Signed July 17, 2017

QUINN EMANUEL URQUHART QUINN, EMANUEL URQUHART & SULLIVAN, LLP, 51 Madison Avenue, 22nd Floor, New York, New York 10010, Michael Carlinsky, Esq., Scott C. Shelley, Esq., James C. Tecce, Esq., Eric D. Winston, Esq., Of Counsel, Attorneys for Plaintiff

O'MELVENY & MYERS LLP, 7 Times Square, New York, New York 10036, Jonathan Rosenberg, Esq., Peter Friedman, Esq., Asher L. Rivner, Esq., Daniel S. Shamah, Esq., Of Counsel, Attorneys for Apollo Defendants

MEMORANDUM DECISION GRANTING MOTION FOR REMAND BASED ON MANDATORY ABSTENTION

STUART M. BERNSTEIN, United States Bankruptcy Judge:

The CORE Litigation Trust ("Trust") brought this proceeding in the Superior Court of the State of California for the County of Los Angeles ("California State Court"), as assignee of the Debtors' prepetition secured lenders, alleging that the Defendants induced a breach of contract between the lenders and certain Debtor entities and intentionally interfered with those contracts. The Defendants removed the action to the United States District Court for the Central District of California ("California Federal Court"), the California Federal Court transferred the case to the United States District Court for the Southern District of New York ("New York Federal Court"), and the latter Court referred the proceeding to this Court.

The Trust has now moved for abstention and remand to the California State Court. (See Memorandum of Law in Support of CORE Litigation Trust's Motion for Mandatory Abstention, Permissive Abstention, and Remand to California State Court , dated Apr. 27, 2017 ("Motion ") (ECF Doc. # 7).)¹ For the reasons that follow, the Motion is granted.

BACKGROUND

The background discussion is derived from the Complaint , dated Dec. 12, 2016,² initially filed in the California State Court, proceedings before the California State Court and the California Federal Court and documents filed with this Court as part of the bankruptcy cases.

A. The Loan Agreements

At all relevant times, CORE Media Group, Inc. ("CORE Media") was engaged in the business of producing scripted and unscripted television shows, including "American Idol" and "So You Think You Can Dance." (Complaint at ¶ 3.) CORE Entertainment Holdings, Inc. ("CORE Holdings") owned the stock of CORE Entertainment, Inc. ("CORE Entertainment"), which in turn owned its U.S. operating subsidiary, CORE Media (collectively with CORE Holdings and CORE Entertainment, "CORE").³ (Complaint at ¶ 49.)

On June 21, 2011, Apollo⁴ acquired control of CORE through a leveraged buy-out. (Complaint at ¶ 52.) The purchase price exceeded $500 million, $360 million of which was financed through a bridge loan. (Complaint at ¶ 52.) In December 2011, Apollo refinanced the $360 million bridge loan through two separate secured loans—a $200 million loan pursuant to a First Lien Term Loan Agreement ("First Loan Agreement"), and $160 million loan pursuant to a Second Lien Term Loan Agreement (the "Second Loan Agreement," and collectively with First Loan Agreement, the "Loan Agreements"). (Complaint at ¶¶ 53–55.) CORE Entertainment was the borrower, the obligations were guaranteed by CORE Holdings, CORE Media and several other CORE affiliates, and the lenders under the First Loan Agreement and the Second Loan Agreement (collectively, the "Lenders") received first and second liens, respectively, on substantially all of the assets of CORE and its affiliates. (Complaint at ¶¶ 54–55.)

Important to the claims at issue, the Loan Agreements included a "successor obligor" clause and a "change of control" clause. (Complaint at ¶¶ 56–57.) Section 6.05(a)(1) of each Loan Agreement provided that CORE would not merge with, or sell substantially all of its assets to, another company unless the successor entity expressly assumed all of CORE's obligations under the Loan Agreements (the "Successor Obligor Clause"). (Complaint at ¶ 56 & Appendix A at 35.) Section 2.08(f) of each Loan Agreement stated that in the event of a "Change of Control," CORE would prepay all outstanding loans plus a premium within 30 days of the Change of Control (the "Change of Control Clause"). (Complaint at ¶ 57 & Appendix A at 34–35.) A "Change of Control" was defined as an acquisition by any person or group of more than 50% of the total voting power of the Voting Stock of the Borrower. (Complaint at ¶ 57 & Appendix A at 34.)

The Complaint describes in detail a series of transactions, mergers and agreements orchestrated by the Defendants that resulted in breaches of the Successor Obligor and Change of Control Clauses, (see Complaint at ¶¶ 60–89), and CORE Entertainment and the guarantors defaulted under the Loan Agreements by failing to pay the principal, interest and premiums. (Complaint at ¶¶ 90–95.) In addition, the various actions drained CORE of liquidity, impaired its ability to perform its obligations under the Loan Agreements, interfered with the rights of the creditors under the Loan Agreements, prevented CORE from exploiting opportunities and made the exercise of the Lenders' rights more costly and burdensome. (Complaint at ¶¶ 96–99.)

B. The Bankruptcy

The Debtors, including CORE, filed their chapter 11 cases on April 28, 2016, and confirmed their joint plan, (see Second Amended Joint Chapter 11 Plan of Reorganization for AOG Entertainment, Inc. and Its Affiliated Debtors , dated Aug. 4, 2016 ("Plan ") (ECF Main Case Doc. # 294)), on September 22, 2016. (See Findings of Fact, Conclusions of Law and Order Confirming Second Amended Joint Chapter 11 Plan of Reorganization for AOG Entertainment, Inc. and Its Affiliated Debtors , dated Sept. 22, 2016 (ECF Main Case Doc. # 436).) The Plan provided for the creation of the Trust, and stated that "[t]he Litigation Trust shall succeed to and constitute the assignee of all rights, powers and privileges that, before the Effective Date of the Plan, could be exercised by ... the First Lien Lenders [and] the Second Lien Lenders ... with respect to any suits, proceedings or Causes of Action that constitute Litigation Trust Assets against any party not released under the Plan." (Plan at § 7.1(a).) The proceeds of any litigation commenced by the Trust would be distributed to the Lenders and the unsecured creditors in accordance with the Plan . (See Plan at §§ 5.3–5.5). The Plan became effective on October 17, 2016. (Notice of: (I) Entry of Order Confirming Second Amended Joint Chapter 11 Plan of Reorganization for AOG Entertainment, Inc. and Its Affiliated Debtors; (II) Occurrence of Effective Date; and (III) Deadline for Filing Fee Claims, Administrative Expense Claims and Claims Arising from Rejection of Executory Contracts or Unexpired Leases , dated Oct. 17, 2017 (ECF Main Case Doc. # 453).) It is undisputed that the Defendants were not released under the Plan , and the claims asserted by the Trust are among those assigned by the Lenders.

C. The California Proceedings

As noted, the Trust commenced the lawsuit in California State Court on December 12, 2016, asserting claims of inducing a breach of contract, (Complaint at ¶¶ 110–25), and tortiously interfering with contract. (Complaint at ¶¶ 126–39.) There followed a series of procedural maneuvers by the Defendants. On January 17, 2017, they filed an objection to the California State Court's order designating the action as "non-complex." (Declaration of Eric Winston in Support of CORE Litigation Trust's Motion for Mandatory Abstention, Permissive Abstention, and Remand to California State Court , dated Apr. 27, 2017 ("Winston Declaration "), at Ex. 1 (ECF Doc. # 8).) "A ‘complex case’ is an action that requires exceptional judicial management to avoid placing unnecessary burdens on the court or the litigants and to expedite the case, keep costs reasonable, and promote effective decision making by the court, the parties, and counsel." CAL. RULES OF COURT , Rule 3.400(a). Judges are selected for complex litigation assignments based on "the needs of the court and the judge's ability, interest, training, experience (including experience with complex civil cases), and willingness to participate in educational programs related to the management of complex cases." CAL. RULES OF COURT , Standard 3.10(c). Designation as a complex case would have caused the case to be reassigned to the Los Angeles Superior Court Complex Civil Litigation Program. The California State Court overruled the objection on January 26, 2017. (Winston Declaration , Ex. 2.)

A few days later, the defendant Endemol USA Holding, Inc. filed a "Peremptory Challenge to Judicial Officer," asserting that Superior Court Judge Meiers, to whom the case was assigned, "is prejudiced against the party (or his or her attorney) or the interest of the party (or his or her attorney), so that the declarant cannot, or believes that he or she cannot, have a fair or impartial trial or hearing before the judicial officer." (Id. , Ex. 3.) The challenge automatically resulted in the...