Music Mix Mobile LLC v. Newman (In re Stage Presence, Inc.)

592 B.R. 292

IN RE STAGE PRESENCE, INC., Debtor.

Music Mix Mobile LLC, et al., Plaintiffs,

v.Allen Newman, Defendant.

Case No. 12-10525 (MEW)

Adv. Pro. No. 15-1392 (MEW)

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

Signed October 26, 2018

CONNOLLY LAW, Attorneys for the Plaintiffs, One Battery Park Place, New York, New York, By: Kerry E. Connolly, Esq.

JOHN CARLSON, Attorney for Allen Newman, 5 Winifred Drive, Winnick, New York, By: John Carlson, Esq.

BENCH DECISION AFTER TRIAL REGARDING ALTER EGO CLAIMS

MICHAEL E. WILES, UNITED STATES BANKRUPTCY JUDGE

This is the final version of a bench decision that was read into the record on October 24, 2018. It contains my rulings and findings following a trial in the adversary proceeding commenced by Music Mix Mobile, LLC and nine other plaintiffs, which is adversary proceeding number 15-01392.

Background

This proceeding was filed in connection with the bankruptcy case of Stage Presence, Inc. The claims arise out of a televised benefit concert in Washington, D.C. that was held on April 13, 2010 for the benefit of a charity known as Childhelp, Inc. Plaintiffs provided services in connection with that concert for which they claim they were not paid.

The named defendants originally included Stage Presence; plus three individuals named Allen Newman, Matthew Weiner and Gregory Marquette; plus an entity named One for Each Island Ltd. Stage Presence is the entity that hired plaintiffs to provide services in connection with the Childhelp concert. Mr. Newman is the sole owner of Stage Presence. Mr. Newman, Mr. Weiner and Mr. Marquette were producers of the benefit concert (the "Producers"). One for Each Island was the entity that contracted with Childhelp to put the benefit concert together. However, the parties agreed at trial that the formation of One for Each Island, though contemplated at one time, never actually was completed. As a result, the entity has never existed. As a non-existent entity it cannot be and is not a party to these proceedings.

Stage Presence does not dispute that it owes money to the plaintiffs, and its trustee did not participate in the trial. As the result of prior motions I dismissed all of the claims against Mr. Weiner and Mr. Marquette, and all but one of the claims against Mr. Newman. The only remaining claim against Mr. Newman is the plaintiffs' claim that Mr. Newman should be held liable for the debts owed by Stage Presence based on "alter ego" or "piercing the corporate veil" theories. These contentions were the subject of a trial that was conducted on October 11 and 12, 2018.

Jurisdiction and Power to Render a Final Decision

At an earlier stage of these proceedings the parties agreed that all of the relevant claims were at least "related to" the Stage Presence bankruptcy case, and the parties consented to a final determination of all claims by this Court. See Statement Consenting to Jurisdiction, Docket No. 39; Statement Consenting to Jurisdiction, Docket No. 40; Statement Regarding Consent to Entry of Orders or Judgment in Core Proceeding, Docket No. 41; Statement Regarding the Ct's Jurisdiction, Docket No. 43. Mr. Newman nevertheless argued at a later time, when summary judgment motions were filed, that this court lacked jurisdiction. It is plain, though, that the claims asserted here are "related to" the Stage Presence bankruptcy and to the claims asserted in the Stage Presence bankruptcy case.

As I will explain in a few moments, the New York courts have held that the "alter ego" theories that are being pursued here are not independent causes of action, but instead are remedies that may be pursued against a company's owners (or perhaps other people) in the collection of debts owed by a company. In that respect Mr. Newman's alleged liability depends entirely on the existence of a liability owed by Stage Presence itself. There is no allegation here that Mr. Newman personally guaranteed any of Stage Presence's obligations, or that plaintiffs contracted with Mr. Newman personally.

In addition, it is well-settled that "a civil proceeding is related to a title 11 case if the action's outcome might have any conceivable effect on the bankrupt estate." Residential Funding Co., LLC v. UBS Real Estate Secs. Inc. (In re Residential Capital, LLC) , 515 B.R. 52, 63 n.12 (Bankr. S.D.N.Y. 2014) (citing Parmalat Capital Fin. Ltd. v. Bank of Am. Corp. , 639 F.3d 572, 579 (2d Cir. 2011) ). Here, of course, if Mr. Newman were to be held liable, and if he were to satisfy the underlying debts, that would directly affect the bankruptcy estate, as the payments by Mr. Newman would satisfy the obligations and cancel the debts. I therefore hold, just as the parties initially conceded, that there is subject matter jurisdiction over this proceeding.

I also hold that I have the power to make a final determination by virtue of the express written consents that the parties originally filed. A consent to a final determination by the bankruptcy court may not be withdrawn except upon a showing of good cause. See Capuccio v. Capuccio (In re Capuccio) , 558 B.R. 461, 464-65 (Bankr. W.D. Okla. 2016), and cases cited therein. Here, the consents that were filed expressly committed the parties' disputes to final resolution by the bankruptcy court. This court then proceeded to make final rulings as to a number of claims and a number of parties, including as to certain of the claims against Mr. Newman. I denied the motion to dismiss as to the alter ego claims, and the parties then completed their discovery. It was only at the time that trial approached, and during summary judgment arguments, that Mr. Newman suddenly objected to a final decision in this court.

It would not have been just to allow Mr. Newman to revoke his prior consent, at a late stage in the case and after other final rulings had been made on other claims, just because Mr. Newman had second thoughts as to where and when he would like the remaining claim to be decided. Consents to final determinations by this Court would be rendered meaningless if they could be withdrawn because a party does not like the way a litigation is progressing, or because the party's tactical judgments have changed, or because the party has changed its mind. "Good cause" to revoke a consent requires something much more than a mere change of heart, and that is all that we had in this case.

The Evidence at Trial

The parties offered the live testimony of three witnesses. The first witness was Mitch Maketansky of Music Mix Mobile, which is one of the plaintiffs. The second witness was Alan Kelman, who was employed by Stage Presence to help organize the production of the benefit concert and who arranged for other plaintiffs to provide services. The third witness was Mr. Newman himself. I also received a number of exhibits in evidence, including some portions of prior deposition testimony.

I have listened carefully to the testimony, and reviewed all of the exhibits in evidence, in making the decisions I am announcing today. I want to make clear that while the three witnesses who appeared at trial certainly have different outlooks on the underlying events, and while the outcome of the trial can only favor one side and not the other, I nevertheless believe that each witness testified honestly as to what he recalls and what he believes about the underlying circumstances, without attempting to be evasive or misleading. I commend the witnesses for that, and I appreciate how they conducted themselves.

I also want to make clear that counsel made well-organized presentations, and that my decision today is based on the merits of the evidence that I have heard and on the requirements of the applicable law, and it is not in any way to be taken as a comment on the performance of the attorneys.

For the reasons I will explain, I have decided that plaintiffs have failed to prove their claims, and that Mr. Newman is not personally liable for the debts that Stage Presence owes to the plaintiffs.

Applicable Law

Before discussing the evidence I will first review the elements of the plaintiffs' claim. The first step is to identify the law that is applicable to this proceeding.

Stage Presence is a New York corporation. However, the benefit concert took place in Washington, D.C. I have previously held that at least some of the original claims that were asserted (namely, statutory claims by employees for failure to pay wages) were governed by the laws of the District of Columbia, because that is where the employees provided their services.

The claims before me now are based on Stage Presence's failure to meet contractual obligations. The contracts at issue, pursuant to which plaintiffs agreed to provide services to Stage Presence, apparently were not in writing. There was no evidence at trial that would allow me to determine whether the contracts were made in New York or elsewhere.

Nevertheless, in their prior submissions the parties have relied entirely on New York law in discussing the issues that are to be decided here. See, e.g. , Pls.' Mem. of Law in Support of Pls.' Mot. for Summ. J., Docket No. 86; see also Def's Mem. of Law in Support of Def's Mot. for Summ. J., Docket No. 89-4. Since the parties agree on the application of New York law, I will apply New York law in making my rulings.

Plaintiffs' Right to Pursue Alter Ego Remedies

The theories on which a corporation's owner may be held liable for the corporation's debts are sometimes referred to as "alter ego" theories or as "piercing the corporate veil" theories. There is some disagreement among courts as to whether these actually are two distinct theories. See, e.g. , Bd. of Trustees, Sheet Metal Workers' Nat. Pension Fund v. Elite Erectors, Inc. , 212 F.3d 1031, 1038 (7th Cir. 2000). In Sheet Metal Workers' National Pension Fund , the Seventh Circuit Court of Appeals held that "alter ego" theories are premised on direct liability, whereas "veil piercing" theories are equitable in nature and are a form of vicarious liability....