In re Major Model Mgmt. Inc.

641 B.R. 302

IN RE: MAJOR MODEL MANAGEMENT INC., Debtor.

Case No. 22-10169 (MG)

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

Signed June 21, 2022

THE DUGGER LAW FIRM, PLLC, Attorneys for Jasmine Burgess, et. al., Gotham Center, 28-07 Jackson Avenue, 5th Floor, Long Island City, NY 11101, By: Cyrus E. Dugger, Esq.

NORRIS MCLAUGHLIN, P.A., Attorneys for the Debtor, 400 Crossing Boulevard, 8th Floor, Bridgewater, NJ 08807, By: Melissa A. Pena, Esq., Anthony D'Elia, Esq.

HEIDI J. SORVINO, ESQ., Subchapter V Trustee, Whiter & Williams LLP, 7 Times Square, Suite 1900, New York, NY 10036, By: Heidi J. Sorvino, Esq.

Subchapter V

MEMORANDUM OPINION AND ORDER DENYING MOTION TO FILE A CLASS PROOF OF CLAIM

MARTIN GLENN, CHIEF UNITED STATES BANKRUPTCY JUDGE

The issue pending before the Court is whether to permit a creditor to file a class proof of claim under Rule 7023 ("Rule 7023") of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"). Class proofs of claim in bankruptcy cases are an exception to the normal procedures in bankruptcy cases that require individual creditors to file separate proofs of claim. If a creditor agrees with the scheduled amount of a claim and it is not listed as disputed, contingent, or unliquidated, no proof of claim needs to be filed; the claim is deemed allowed and will be entitled to a distribution in any confirmed plan of reorganization. See FED. R. BANKR . P 3003(c)(2) (detailing who must file a proof of claim).

Bankruptcy courts retain discretion to permit class proofs of claim pursuant to Rule 7023. But applying Rule 7023 to permit class proofs of claim is not an absolute right; many of the policy factors supporting class actions are absent in bankruptcy proceedings—specifically, the costly barriers to litigation are reduced in the claims allowance process (i.e., proof-of-claim forms are accessible, free and easy to fill out, and a claimant does not need to obtain counsel to submit a proof of claim). Many courts have observed that class certification may be less desirable in bankruptcy than in ordinary civil litigation. See In re Bally Total Fitness of Greater New York, Inc. , 402 B.R. 616, 621 (Bankr. S.D.N.Y. 2009), aff'd , 411 B.R. 142 (S.D.N.Y. 2009) (quoting FED. R. CIV . P. 23(b)(3) ) (finding that plaintiffs could not show that "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy"); see also In re Ephedra Prods. Liab. Litig. , 329 B.R. 1, 9 (S.D.N.Y. 2005) (noting that "superiority of the class action vanishes when the other available method is bankruptcy, which consolidates all claims in one forum and allows claimants to file proofs of claim without counsel and at virtually no cost") (quotation marks omitted). The bankruptcy claims resolution process allows creditors to assert claims cheaply and efficiently in a single forum without the expense of retaining counsel unless the creditor chooses to do so. A bankruptcy court must decide in the exercise of discretion whether a class proof of claim would be superior to the claims allowance process.

In this case, the Court concludes for the reasons explained below that the creditors holding disputed, contingent or unliquidated claims must file separate proofs of claim and, unless consensually resolved, any contested issues regarding their claims must be resolved in the claims allowance process. As explained below, the Court DENIES the pending motion.

I. BACKGROUND

A. The Motion for Leave to File a Class Proof of Claim

Pending before the Court is the motion ("Motion," ECF Doc. # 74-1) of Jasmine Burgess ("Burgess"), seeking entry of an order pursuant to Rule 7023 and Rule 9014 of the Bankruptcy Rules, and Rule 23 of the Federal Rules of Civil Procedure (" Rule 23"), authorizing Burgess to file a class proof of claim against Major Model Management, Inc. ("Major Model" or the "Debtor") with respect to her late payment claim and her breach of fiduciary duty claim against the Debtor. Burgess asserted those claims in a prepetition lawsuit, Burgess v. Major Model Management , No. 20-cv-2816 (the "Burgess Litigation"), currently pending in the District Court for the Southern District of New York ("District Court"). The Burgess Litigation names Major Model and its President, Guido Dolci ("Dolci"), as defendants. In support of the Motion, Burgess filed a declaration by her attorney Cyrus E. Dugger ("Dugger"). ("Dugger Declaration," ECF Doc. # 75.) The operative second amended complaint from the Burgess Litigation is annexed to the Dugger Declaration. ("Second Amended Complaint," ECF Doc. # 75-1, Ex. A.)

On May 5, 2022, the Debtor filed an objection. ("Objection," ECF Doc. # 79.) In support of the Objection, the Debtor filed two declarations: (i) a declaration by Anthony P. D'Elia (the "D'Elia Declaration," ECF Doc. # 80), which includes the second amended complaint from the case Stephanie Hoffman v. Major Model Management Inc. , No. 20-cv-06941 (the "Hoffman Proceeding") pending in the District Court (ECF Doc. # 80-1, Ex. A); and (ii) a declaration by Debtor's president, Dolci ("Dolci Declaration," ECF Doc. # 81). Burgess's contract with the Debtor is attached to the Dolci Declaration as Exhibit F ("Burgess Contract," ECF Doc. # 85-6, Ex. F) and a form modeling contract used by the Debtor for women models as Exhibit G ("Women Form Modeling Contract," ECF Doc. # 85-7, Ex. G).

On May 9, 2022, Burgess filed a reply to the Objection ("Reply," ECF Doc. # 84), and an additional declaration of Dugger. ("Supplemental Dugger Declaration," ECF Doc. # 85.) The following relevant exhibits were annexed to the Supplemental Dugger Declaration: a unisex form modeling contract used by the Debtor during the class period ("Unisex Form Modeling Contract," ECF Doc. # 85-2, Ex. B), emails produced to Burgess discussing the release of her contract from the Debtor ("Burgess Contract Email," ECF Doc. # 85-4, Ex. D), damages calculations concerning amounts owed to models based on a Quickbooks Open Balance Report produced in the Burgess Litigation ("Open Balance Report," ECF Doc. # 85-5, Ex. E), a list concerning the number of models with foreign addresses (ECF Doc. # 85-6, Ex. F), a table of dates on which the Debtor received payment for several invoices (ECF Doc. # 85-6, Ex. G), affidavits of other models complaining about the Debtor's non-payment ("Model Affidavits," ECF Doc. # 85-7, Ex. H), the CV of Burgess's accounting expert (ECF Doc. # 85-9, Ex. J), and an example of the "model statements" the Debtor provided to Burgess (ECF Doc. # 85-10, Ex. K).

The Court held a hearing on the Motion on May 12, 2022. ("Transcript," ECF Doc. # 88.) During the hearing, the Court directed Debtor's counsel to provide supplemental declarations addressing the service of the Bar Date Order to putative members of the proposed class. ( Transcript at 36:21–24; 37:4–9.) On May 20, 2022, the Debtor filed the following supplemental declarations: (i) a supplemental Dolci declaration ("Supplemental Dolci Declaration," ECF Doc. # 90), (ii) a declaration of Jessica G. Berman, a director of Kroll Restructuring Administration LLC ("Kroll") ("Berman Declaration," ECF Doc. # 90-1), which contained a list of creditors whose mailed packages were returned as undeliverable; and (iii) a supplemental declaration of Anthony P. D'Elia ("Supplemental D'Elia Declaration," ECF Doc. # 90-2).

After receiving the Berman Declaration and the Supplemental D'Elia Declaration, the Court directed Debtor's counsel to provide further supplemental declarations addressing additional questions the Court had regarding notice and the claims of putative class members. ("May 27 Order," ECF Doc. # 92.) In response, the Debtor filed the third Dolci declaration ("Third Dolci Declaration," ECF Doc. # 94) and the third D'Elia declaration ("Third D'Elia Declaration," ECF Doc. # 95).

B. Procedural Background and the Burgess Litigation

On February 11, 2022 (the "Petition Date"), the Debtor filed a voluntary petition for chapter 11 relief under Subchapter V. (ECF Doc. # 1.) On March 10, 2022, the Court granted the Debtor's motion to assume 35 of its current models’ modeling contracts, along with the cure amounts in order to assume the contracts. (ECF Doc. # 37.) On April 20, 2022, the Court entered: (i) an order ("Bar Date Order," ECF Doc. # 67) setting the bar date as June 6, 2022 ("Bar Date"), and (ii) an order appointing Kroll as the Debtor's claims agent to administer service (ECF Doc. # 68). The Bar Date Order specifies that "a copy of the notice ... shall be deemed adequate and sufficient if served by first-class mail at least thirty-five (35) days prior to the Bar Date." (Bar Date Order at 4.) The Bar Date Order did not require publication notice of the Bar Date in a major newspaper or trade publication.

On February 26, 2022, the Debtor filed its schedules of creditors who have unsecured claims. (ECF Doc. # 30.) This was amended several times (see ECF Doc. ## 34, 51, 57, 64) with the most recently amended version filed on April 21, 2022. ("Amended Schedules," ECF Doc. # 70.)

On April 3, 2020, prior to the Petition Date, Burgess commenced the Burgess Litigation against the Debtor and Dolci in the District Court. (Motion at 8.) Burgess amended the complaint twice to include (i) class-wide claims alleging independent contractor misclassification under the Fair Labor Standards Act ("FLSA") and New York Labor Law ("NYLL"), (ii) individual retaliation claims under FLSA and NYLL for a retaliatory lawsuit, and (iii) a class-wide breach of fiduciary duty claim under New York common law. (Id. )

On March 16, 2022, Burgess moved this Court to lift the stay to permit her to prosecute the Burgess Litigation in the District Court against the Debtor, thereby bypassing the bankruptcy claims allowance process. ("Lift Stay Motion," ECF Doc. # 40.) Burgess asserted that the Burgess Litigation was ready for a motion for summary judgment and would have been ready for trial but for the Debtor...