Highsteppin' Prods., LLC v. Porter (In re Porter)

511 B.R. 785

In re George Joseph PORTER, Jr., Aralean H. Porter, Debtors.

Highsteppin' Productions, LLC, Plaintiff

v.George Joseph Porter, Jr., et al., Defendants.

Highsteppin' Productions, LLC, Plaintiff

v.Brian Herbert Stoltz, et al., Defendants.

Bankruptcy No. 10–13553.

Adversary Nos. 10–1130, 10–1131.

United States Bankruptcy Court, E.D. Louisiana.

Signed June 24, 2014.

Andrew D. Mendez, Pierre V. Miller, II, Patrick Miller LLC, New Orleans, LA, Jeffrey S. Baker, Baker & Associates, P.C., Boston, MA, for Plaintiff.

George Joseph Porter, Jr., pro se.

Ronnie G. Penton, Bogalusa, LA, John O. Pieksen, Jr., John Pieksen & Associates, LLC, New Orleans, LA, Joseph R. Valle, Jr., Riemer & Braunstein, LLP, Pierre V. Miller, II, Patrick Miller LLC, Boston, MA, for Defendants.

Screen Gems–EMI Music, Inc., pro se.

Bug Music, pro se.

Cabbage Alley Music, pro se.

Funky Meters, Inc., pro se.

Elevation Group, Inc., pro se.

REASONS FOR ORDER

ELIZABETH W. MAGNER, Bankruptcy Judge.

I. PROCEDURAL HISTORY

Highsteppin' Productions, L.L.C. (“HSP”) filed suit against Porter, Batiste, Stoltz, L.L.C. (“PBS”) and its individual members, George Porter, Jr. (“Porter”), Brian Stoltz (“Stoltz”), and David Russell Batiste (“Batiste”) on December 29, 2009, in the United States District Court for the Eastern District of Massachusetts (the litigation is referred to as the “Massachusetts Suit” and the Court as the “Massachusetts Court”). The Massachusetts Court entered a prejudgment writ of attachment requiring each defendant to escrow portions of their income. Porter and Stoltz escrowed money in connection with the Massachusetts Suit prior to seeking Chapter 7 bankruptcy relief.

Porter, Stoltz, and their wives filed voluntary petitions for relief under chapter 7 of the Bankruptcy Code on September 27, 2010.¹ They both scheduled HSP as an unsecured creditor with a disputed debt of $504,040.06. Batiste filed a chapter 7 bankruptcy petition on September 28, 2011,² also scheduling HSP as an unsecured creditor holding a disputed claim of $504,040.06. (Collectively Porter, Stoltz, and Batiste are referred to as “Debtors” and with PBS as “Artists.”)

On or about December 6, 2010, the Massachusetts Suit was removed to the United States District Court for the Eastern District of Louisiana due to the pending bankruptcy proceedings.³ The Louisiana District Court referred the matter to this Court.⁴

HSP filed a Motion to Remand the Massachusetts Suit back to the Massachusetts Court on December 21, 2010.⁵ Debtors opposed remand,⁶ and after a hearing, this Court denied remand.⁷ In response to the Massachusetts Suit, Debtors filed a Third Party Complaint and Counterclaims against David Herlihy (“Herlihy”), Phillip Stepanian (“Stepanian”), and HSP. ⁸

On December 29, 2010, HSP filed a Complaint to Determine Dischargeability of Debt against Porter and Stoltz.⁹ HSP's Complaint to Determine Dischargeability of Debt was filed against Batiste on December 30, 2011. ¹⁰ In addition, HSP filed proofs of claim in the Porter and Stoltz cases.¹¹ HSP's Dischargeability actions, Massachusetts Suit, all third party demands, and all counterclaims were substantively consolidated on February 23, 2011.¹² On October 18, 2011, Debtors filed a Second Amended and Superseding Counterclaim.¹³ On October 20, 2011, the Complaints were set for trial on February 13, 2012.¹⁴

What followed can only be described as contentious pretrial litigation. Seventeen (17) motions to compel discovery, for sanctions, to strike, to extend deadlines, or for protective relief were filed, opposed and heard. Seven (7) additional motions for summary judgment, in limine, and to exclude experts were heard immediately before trial. The pretrial litigation forced the resetting of the case for trial on the merits four (4) times. The merits were heard on July 13 through 22 and September 13 through 28, 2012. All parties affirmatively consented to trial on the merits and entry of a final judgment as to all issues before this Court.¹⁵

At trial, counsel for Porter, Stoltz, Batiste, and PBS requested severance of the hearing on attorneys' fees and costs should Debtors be successful on the merits of their counterclaims. Severance was granted without opposition by HSP or Stepanian.

After nineteen (19) trial days, the post-trial motions and briefing were completed on January 31, 2013, and the matter was taken under advisement. Partial Judgment was rendered on August 16, 2013, reserving for later trial the issues related to attorneys' fees and costs recoverable by Debtors under the Massachusetts Unfair Trade Practices Act (“MUTPA”), M.G.L.A. c. 93A, § 11, and attorneys' fees and costs incurred by HSP in defending the copyright action.¹⁶ A pretrial conference to set the hearing on damages was scheduled and continued twice due to HSP and Stepanian's failure to attend or their firing of counsel. The hearing on the merits of the damage claims was heard on January 15, 2014, and post-hearing briefs and amendments to evidence delayed this Court's ruling until February 14, 2014.¹⁷

Following entry of the judgment on attorneys' fees and costs, HSP and Stepanian appealed and filed this Motion for Stay Pending Appeal (“Motion”). ¹⁸ After hearing on the Motion and additional briefing, the Court took the matter under advisement.

II. ANALYSISA. Substantive Merits of Stay Request

Granting a stay pending appeal requires consideration of four (4) well-established factors:

1. Is the applicant likely to succeed on the merits?

2. Will the applicant be irreparably injured absent a stay?

3. Will the issuance of a stay substantially injure the other parties? and

4. Is granting the stay in the public interest.¹⁹

The first two (2) factors are the most important.²⁰

1. Likelihood of Success on the Merits

In considering the appellants' likelihood of success on the merits, appellants need not establish that they will be successful on appeal as long as the issues on appeal are serious, of first impression, or necessary to preserve the status quo.²¹ Movers claim they have a likelihood of success on the merits because they will assert this Court's lack of constitutional authority to enter final judgment on the counterclaims against them citing Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), as authority.²² Movers contend that the instant case is indistinguishable from Stern as the resolutionof Movers' claims did not require the resolution of Debtors' counterclaims.²³

a. Lack of Constitutional Authority To Adjudicate Counterclaims

HSP and Stepanian have raised a challenge to this Court's constitutional authority to hear and render judgment on the claims asserted by Debtors against each of them. An analysis of the likelihood of success of Movants' appeal begins with an analysis of the claims filed against them and to which they complain.

HSP's Complaint sought repayment of personal advances allegedly made to Debtors; deferred commissions earned on Artists' earnings; and reimbursement for expenses incurred and paid by HSP on behalf of Artists. HSP's claims arose out of a Personal Management Agreement (“PMA”) between HSP and Artists dated May 8, 2006. HSP requested a joint and several money judgment on its demands and a declaration that the judgment was nondischargeable.

HSP also filed proofs of claim in the Porter and Stoltz bankruptcy proceedings claiming $608,878.28 in each case. No proof of claim was filed in the Batiste case, but the Court notes that HSP's adversary complaint against Batiste sought recognition of its claim against him.²⁴

Many of Debtors' counterclaims are actually defenses to HSP's claims. For example, Debtors' breach of contract and breach of fiduciary duties claims are both independent counterclaims and defenses to payment on the PMA.²⁵ While Debtors' MUTPA claim was an independent cause of action, it also arose out of HSP's conduct and duties under the PMA. Finally, Debtors' copyright infringement claim was a separate and distinct cause of action based on conduct unrelated to the PMA but which could have offset any potential award under the PMA. In addition, Debtors alleged various claims against Stepanian, individually.

b. Claims Allowance, Bankruptcy Court Jurisdiction, and Constitutional Authority—Claims of HSP

The primary purpose of bankruptcy is to afford a debtor a fresh start. ²⁶ This is accomplished through the administration and distribution of a debtor's estate to allowed claimants. The allowance of claims or the resolution of disputes to claims is a fundamental part of a bankruptcy court's power.²⁷ Because claimants elect to participate in distributions from the estate through the filing of claims or adversary matters, they subject themselves to the jurisdiction of the bankruptcy court at least as to the validity of their claims. There is no question that both core jurisdiction and constitutional authority exist in a bankruptcy court over issues surrounding the allowance of demands against a debtor's estate.²⁸ As a result, this Court had jurisdiction and constitutional authority over the claims asserted by HSP against Debtors.

Once a claimant has made a claim, the debtor may raise an objection to its allowance either through affirmative defenses or counterclaims. The resolution of defensive positions, whether by offsetting offensive claims or affirmative defenses, will ultimately determine the amount a claimant may receive in distributions from the estate. Because a claim may be challenged not only on its merits but also by setoff, resolution over ancillary or separate counterclaims to the creditor's demand falls under the bankruptcy court's “related to jurisdiction.” The challenge raised by HSP and Stepanian involves this Court's authority to render judgment on Debtors' counterclaims even if conducted in accordance with the claims allowance process.

(1) Jurisdiction: Law versus Equity Courts

The predecessor to the Bankruptcy Code is the Bankruptcy Act (“the Act”) initially enacted in 1898 to...