HONORABLE VINCENT F. PAPALIA, Bankruptcy Judge.
This matter comes before the Court on the Motion for Reconsideration filed by Debtor-defendant Keith Barksdale (the "Debtor"), under FED. R. BANKR. P. 9024, of the Order Granting Motion of Ledgemont International Media Holdings, LLC, and Media Entertainment Communication Holding for (I) Relief from the Automatic Stay under 11 U.S.C. § 362 to Continue the Delaware Chancery Court Matter through to Judgment and/or (II) an Extension of the Discovery Deadline herein entered on July 2, 2015 (the "Order") (Dkt. No. 19).
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Orders of Reference entered by the United States District Court on July 10, 1984 and amended on October 17, 2013. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (I) and (O). Venue is proper in this Court under 28 U.S.C. § 1408. The Court issues the following findings of fact and conclusions of law pursuant to FED. R. BANKR. P. 7052. To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.
FED. R. BANKR. P. 8002(b)(1)(D) and (2) provide that a Motion filed under FED. R. BANKR. P. 9024 within fourteen (14) days of the entry of the targeted Order makes the Notice of Appeal of that Order effective when the Bankruptcy Court disposes of the Motion. The District Court docket indicates that on September 25, 2015, Debtor through counsel asked the District Court to stay the appeal until the Bankruptcy Court decides this Motion (Dist. Ct. Dkt. No. 5). The District Court entered an Order to that effect on September 29, 2015 (Dist. Ct. Dkt. No. 6), and the District Court has scheduled a telephonic status conference on the appeal for November 16, 2015.
For the reasons that follow, the Motion is denied.
The Debtor filed a voluntary Chapter 7 bankruptcy petition on July 15, 2013 at 9:40 p.m. (Main Dkt. No. 1). That filing stayed the trial of the Delaware Chancery Court Action entitled Ledgemont International Media Holdings, LLC, et al v. Keith Barksdale, et al (Dkt. No. CA 7563-VCL) (the "Delaware Action") that was fully pretried and set to begin the next morning, July 16, 2013.
On October 18, 2013, Ledgemont filed a timely four-count adversary proceeding against the Debtor to except from discharge under 11 U.S.C. § 523(a)(2)(A), (2)(B), (4) or (6) Ledgemont's claim in the amount of $3,172,598.17 (the "523 Action"). The Debtor answered on January 6, 2014. The claims against the Debtor in the Delaware Action and the 523 Action are substantially similar, as both allege that the Debtor committed fraud, breach of fiduciary duty and conversion in operating Ledgemont Capital Group, LLC, ("LCG"), Ledgemont Asset Management, LLC ("LAM"), and Ledgemont Global Media Holding, LLC ("Ledgemont Global"). Cf. Delaware Complaint (Dkt. No. 12-2, Haney Cert., Ex. A) and 523 Complaint (Dkt No. 1). LCG, LAM and Ledgemont Global are all defendants in the Delaware Action, along with the Debtor and Edward Neugeboren. LCG and LAM are Chapter 7 Debtors whose cases are pending in the Bankruptcy Court for the District of Delaware.
The Trustee in this case filed a timely adversary complaint on October 17, 2014 under 11 U.S.C. §§ 727(a)(2), (4)(A), 544, 548, 550 to deny Debtor his discharge for concealing assets from the Trustee and to recover assets transferred between Debtor and his spouse (the "727 Action"). The Trustee ultimately settled the 727 Action with the Debtor and his spouse on April 24, 2015 for $163,975 paid by the Debtor to the Trustee with no denial of Debtor's discharge. (See Order Approving Settlement, Main Dkt. No. 103).
During the pendency of the Trustee's 727 Action, the Plaintiffs requested (with the Debtor's consent) that the pretrial conference and setting of discovery deadlines in the 523 Action be adjourned, as the resolution of the 727 Action by the Trustee would likely have a significant (and possibly dispositive) impact on the 523 Action. 6/23/15 Hr'g Tr. 11:4-13. The Court granted those requests. The consensual adjournments (totaling four in number) continued until November of 2014, when the Debtor objected to further adjournments. As a result, the Court conducted a hearing and Ledgemont and Debtor entered into their first Joint Scheduling Order in the 523 Action on December 2, 2014, setting June 1, 2015 as the discovery end date and scheduling trial for August 21, 2015. (Dkt. No. 10). Plaintiff filed the Stay Relief Motion on May 29, 2015, after the resolution of the Trustee's adversary proceeding, and just before the discovery end date, to redirect the proceedings to the Delaware Chancery Court.
In its Stay Relief Motion (Dkt. No. 12), Ledgemont relied on the Certification of Robert P. Haney, Esq., counsel to Ledgemont in the Delaware Action, dated May 29, 2015 ("Haney Cert."), for the history and status of the Delaware Action. Ledgemont argued in relevant part that the Bankruptcy Court should grant stay relief to allow the Delaware Action to continue through liquidation of damages because:
The Debtor, then pro se in this Bankruptcy Court, objected on the grounds that he was prejudiced by returning to Delaware, where he did not think he would get a fair trial, and would incur the cost of engaging new counsel, who would need to become familiar with the case. The Debtor further argued that the counsel whom he shared with Mr. Neugeboren had declared a conflict and could not represent him in the Delaware Action (Dkt. No. 14, p.2). However, as is noted below in more detail, the record on the Stay Relief Motion reflected that the Debtor's Delaware counsel advised the Delaware Court that the conflict issue had been resolved before trial was to begin in July of 2013.
Debtor also charged Ledgemont with delay in the Bankruptcy Case, pointing to the multiple consensual adjournments of the pretrial hearing (Dkt. No. 14, p.2). However, this Court finds that Ledgemont and the Debtor prudently delayed the prosecution of the 523 Action (with the approval of this Court) because the result of the Trustee's 727 Action might have mooted the 523 Action. The Court also finds that the Debtor's complaints about delay are at least inconsistent with his consent to the repeated adjournments of the 523 Action and the benefits he and Plaintiffs derived from those adjournments, both in terms of effort and expense.
Ledgemont's reply relied in part on the Supplemental Certification of Robert P. Haney, Esq. (Dkt. No. 15-1) ("Haney Supp. Cert."). Ledgemont advised that although Seth J. Reidenberg, Esq., Debtor's counsel, had reported a conflict to the Delaware Court shortly before the July 2013 trial, Mr. Neugeboren had executed a conflict waiver, so that Mr. Reidenberg was free to represent all the Delaware defendants and was ready for trial (Dkt. No. 15-1, Haney Supp. Cert., ¶¶ 3-6 and Exs. A-D; Notice of Appearance and correspondence from Mr. Reidenberg to Judge Laster). Ledgemont, in support of its motion for relief from stay, emphasized the burden on the parties (particularly Ledgemont) of relitigating in Bankruptcy Court matters already litigated in the Delaware Action and the effect of the Delaware Confidentiality Order to hinder rather than to assist discovery in this Bankruptcy Court (Dkt. No. 15, Martin Reply, p.2).
Following oral argument on the Stay Relief Motion on June 23, 2015, the Court ruled on the record and granted stay relief to Ledgemont to continue the Delaware Action through entry of judgment. The Court based its decision on the established, twelve-factor standard set forth in In re Mid-Atlantic Handling Sys., LLC, 304 B.R. 111, 130 (D.N.J. Bankr. 2003) and In re Sonnax Indus., Inc., 907 F.2d 1280, 1286 (2nd Cir. 1990) for determining when to grant relief from the automatic stay under 11 U.S.C. § 362(d)(1) to allow litigation to proceed in another court:
In re Mid-Atlantic Handling Sys., Inc., 304 B.R. 111, 130 (Bankr. D.N.J. 2003) (quoted, paragraphing added) (citing In re Ice Cream Liquidation, Inc., 281 B.R. 154, 165 (Bankr. D. Conn. 2002); accord In re Sonnax Indus., Inc., 907 F.2d. Cir. 1280, 1286 (2d Cir. 1990). "[A] court need not rely on any plurality of factors in deciding whether to lift the automatic stay." In re Mid-Atlantic Handling Sys., 304 B.R. at 130.
On the record on June 23, 2015, the Court analyzed the following Mid-Atlantic factors and determined that, overall, they militated strongly in favor of stay relief in the context of this adversary proceeding and bankruptcy case:
On July 2, 2015, the Court entered the Order which granted Ledgemont stay relief to proceed in Delaware Chancery Court "through to entry of final judgment but not for execution or any further proceeding with respect to the judgment except upon further order of this Court" and stayed the adversary proceeding until further order of the Bankruptcy Court (Dkt. No. 19, ¶¶ 2-3).
The Debtor filed the instant Motion for Reconsideration (the "Motion") on July 7, 2015 simultaneously with a Notice of Appeal to District Court.
Debtor and his counsel argue that Mr. Reidenberg's declining to represent the Debtor in the Delaware Action constitutes "new evidence" which demonstrates that the Delaware Action is not trial ready and therefore undermines the Bankruptcy Court's decision, under the Mid-Atlantic factors, to grant stay relief in order to allow the case to proceed in Delaware (Dkt. No. 20-2, Debtor's Cert., ¶¶ 11-13; Dkt. No. 20-1, Brief of Scott J. Goldstein, Esq., pp. 5-6) ("Goldstein Br."). Debtor does not dispute that the Court's "reli[ance] on the balancing test set forth in" Mid-Atlantic was the correct test for stay relief (Dkt. No. 20-1, Goldstein Br., p.5).
With respect to the conflict issue, the Court notes that the undisputed record on the Stay Relief Motion indicates that this issue was resolved before the scheduled July 16, 2013 trial date in the Delaware Action to the satisfaction of Debtor's Delaware counsel, Mr. Reidenberg. Mr. Reidenberg advised the Delaware Court that the Debtor's co-defendant had executed a conflict waiver and that he therefore "did not need to withdraw as counsel for Mr. Barksdale" and others. (Haney Supp. Cert., Reidenberg letters of June 18 and 20, 2013, Dkt. No. 15-1, Exs. C and D, respectively). In other words, Debtor's counsel was ready to proceed, but the trial was stayed by Mr. Barksdale's bankruptcy filing at 9:20 p.m. the prior evening.
In opposition, Ledgemont argued that the June 24, 2015 email from Mr. Reidenberg did not constitute "newly discovered evidence"; that a party cannot raise as newly discovered evidence for the purpose of reconsideration, information which it could, by its own diligence, have obtained before the original hearing; that this information does not in any event upset the Court's application of the Mid-Atlantic factors and the balancing of harms; and that Debtor was free to proceed pro se in Delaware as he had been in the adversary proceeding (Dkt. 26, Brief of Warren J. Martin, Jr., Esq., ¶¶ 15-18) ("Martin Br.").
The Court heard oral argument on the reconsideration motion on August 18, 2015. As a result of that hearing, the Court asked both Ledgemont and Debtor to respond to four (4) questions on or before September 15, 2015, as memorialized in a letter from the Court dated August 21, 2015 (Dkt. No. 29, the "August 21, 2015 Letter"):
(Dkt. No. 29, August 21, 2015 Letter) (emphasis supplied).
Both Ledgemont and the Debtor responded by letter in a timely manner on September 15, 2015 to the Court's questions:
(Dkt. No. 34, Ledgemont's 9/15/15 Letter; Dkt. No. 35, Debtor's 9/15/15 Letter). Based on the lack of consent of both parties, and the establishment of the new trial dates, this Court did not believe it necessary to consult with the Delaware Court.
FED. R. BANKR. P. 9024 fully incorporates FED. R. CIV. P. 60 which provides in relevant part at R. 60(b)(1) and (6) that the Court may vacate an Order for (1) "mistake, inadvertence, surprise, or excusable neglect" or (6) "any other reason justifying relief." These clauses are mutually exclusive. Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 863 and n.11 (1988). D.N.J. LBR 9013-1(h) in effect when the Debtor filed the Motion also provided, "The motion shall be filed with a memorandum setting forth concisely the matters or controlling decisions which the movant believes constitute cause for reconsideration." D.N.J. LBR 9013-1(h) (deleted in revised local rules effective August 1, 2015). In applying this standard, the Court is guided by the following principles:
In re Patriot Contracting Corp., 2008 WL 934402, at *2 (Bankr. D.N.J. 2008) (emphasis supplied) (internal citations and quotations omitted).
The "newly discovered evidence" on which the Debtor's motion hinges — that his Delaware counsel was not willing to represent him, at least without a retainer of $100,000 — was ascertainable by the Debtor before the June 23, 2015 hearing. In fact, the email attached as Exhibit B to Mr. Barksdale's Certification (Dkt. No. 20-3) is dated June 24, 2015 and reflects that he contacted Delaware counsel immediately after the June 23 hearing and received that response the very next day. As noted, a motion for reconsideration cannot be used as a "vehicle to . . . present evidence which should have been raised before." In re Patriot Contracting Corp., 2008 WL 934402 at *2 (Bank. D.N.J. 2008).
Additionally, as is acknowledged by the Debtor, "the failure to learn [of the newly discovered evidence] must not have been caused by a lack of diligence." (Del. Br., p.7). The Debtor could have easily obtained the information regarding the Delaware counsel's willingness to proceed before the Stay Relief Motion was heard. Thus, the Reconsideration Motion may be denied on this ground alone.
Even considering the "newly discovered evidence," the Court will not reconsider its decision. The Court based its prior decision on (among other things) the extensive pretrial proceedings in this Delaware Action, judicial economy and expertise, the lack of interference with the bankruptcy case, the readiness of the Delaware Court to proceed with trial, and the apparent absence of any debilitating conflict on the part of Mr. Barksdale's Delaware counsel in continuing to proceed with the Delaware trial, based on the uncontroverted correspondence from Delaware counsel cited above. In this respect, it is accurate that the Court also believed that counsel for both sides were ready to proceed with trial. That is apparently no longer the case as Mr. Barksdale's counsel has indicated that he will not be able to proceed without $100,000 retainer (a situation which the Court notes could be remedied if, for example, Mr. Barksdale were able to negotiate a lower retainer with his old firm or a different one).
The readiness of counsel for both sides was, however, only one of the matters the Court considered in determining one of the twelve factors under the Mid-Atlantic analysis — the impact of the stay and the balancing of harms to the parties (factor 12). In considering this factor, the Court did recognize that it may be "a little bit more difficult for [Mr. Barksdale to proceed in Delaware] in terms of logistics and preparation for whatever new trial is had." The Court did not, however, believe or assume that Mr. Barksdale's Delaware counsel would proceed without being paid or asking for a retainer. To the contrary, the Court believed then and believes now that any counsel retained by Mr. Barksdale, either in this Court or in Delaware, would be likely to require a retainer to represent him at trial in either the Delaware Action or the 523 Action before this Court. Thus, the retention of new counsel is not an impossibility, but rather one of the difficulties that Mr. Barksdale may encounter in proceeding with the Delaware Action.
Those difficulties are ameliorated or answered by several factors. First, Mr. Barksdale appeared pro se on the original lift stay motion and indicated that he would continue to proceed pro se in the adversary proceeding. (6/23/15 Hr'g Tr., 2:12-3:2 and 17:21-18:1). He could, of course, also proceed pro se in the Delaware Action, which will involve precisely identical plaintiffs, the same or substantially similar discovery and evidence and very similar legal and factual issues. Second, Mr. Barksdale could retain other counsel, as he has done here in New Jersey, and as he did previously in the Delaware Action. Third, his newly retained New Jersey counsel could also represent him in the Delaware Action, with pro hac vice admission and the assistance of local counsel. New counsel is apparently ready to represent Mr. Barksdale here in New Jersey on substantially similar claims and therefore could also do so in Delaware.
Additionally, Plaintiffs argue that they will be prejudiced by proceeding here against Mr. Barksdale because this Court's judgment would not have preclusive effect on his co-defendant, Mr. Neugeboren, as he would not be a party to the 523 Action, but is a party to the Delaware Action. Martin Letter (Dkt. No. 34, p.2). As a result, if the case is tried here, Plaintiffs would have to return to the Delaware Court for final relief to be granted in any event. This is another inefficiency that counsels in favor of stay relief.
Finally, as noted above, the balance of harms was only one of the factors considered by this Court's granting stay relief. While it is true that the Court found this single factor to be the "closest one" (though still in favor of Plaintiffs), the Court also found that each of the other factors in the Mid-Atlantic analysis tipped "decidedly in favor of stay relief." (6/23/15 Hr'g Tr., 25:21-22).
In balancing those harms and considering the current unavailability of the Debtor's former Delaware counsel, this Court reaffirms its determination that the difficulties that Mr. Barksdale will face in proceeding with the Delaware Action do make this factor the "closest one," but still slightly in favor of Plaintiffs, for all the reasons previously stated. Further, as was also noted, this single factor is not dispositive and the other Mid-Atlantic factors — which were not directly or indirectly addressed by the Debtor — still weigh heavily in favor of Plaintiffs and relief from the automatic stay.
As to the other Mid-Atlantic factors, nothing has changed — with one significant exception. The Delaware Court has set trial dates for late January 2016. In doing so, the Delaware Court specifically noted that these new dates will allow either new counsel and/or Mr. Barksdale (if proceeding pro se) sufficient time to prepare for trial. See Martin Letter (Dkt. No. 34, p.2). The fact that new trial dates have been set further confirms that the Delaware Court is the most efficient and effective forum to expeditiously resolve Plaintiff's fraud, breach of fiduciary duty and conversion claims against the Debtor and is another factor that supports stay relief. See, e.g., In re The SCO Group, 395 B.R. 852, 859-60 (Bankr. D. Del. 2007) (judicial economy favored lifting the stay based on specialized knowledge developed by District Court in presiding over case four years and case was ready for trial); In re Mid-Atlantic Handling Sys., LLC, 304 B.R. at 130-31 (applying similar reasoning in lifting stay). Thus, there is no basis for the Court to reconsider its prior decision.
For the foregoing reasons, the Motion for Reconsideration is denied, with consideration of the "newly discovered evidence." A separate Order accompanies this Opinion.
(Dkt. 20-3, Debtor Cert., Ex. B).
