In re General Media, Inc.

• Decision Date: 27 December 2005
• Docket Number: Adversary No. 05-2414.,Bankruptcy No. 03-15078(SMB).
• Citation: 335 B.R. 66
• Parties: In re GENERAL MEDIA, INC., Debtor. Penthouse Media Group, as successor-in-interest to General Media, Inc. and General Media Communications, Reorganized Debtors, Plaintiff, v. Robert C. Guccione, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

335 B.R. 66

In re GENERAL MEDIA, INC., Debtor.

Penthouse Media Group, as successor-in-interest to General Media, Inc. and General Media Communications, Reorganized Debtors, Plaintiff, v. Robert C. Guccione, Defendant.

Bankruptcy No. 03-15078(SMB).

Adversary No. 05-2414.

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

December 27, 2005.

COPYRIGHT MATERIAL OMITTED

Berkman, Henoch, Peterson & Peddy, P.C., Ronald M. Terenzi, Bruce D. Mael, of Counsel, Garden City, NY, for Plaintiff.

Pryor Cashman Sherman & Flynn LLP, Jamie M. Brickell, Richard Levy, Jr., Ronald Giller, of Counsel, New York City, for Defendant.

OPINION AND ORDER GRANTING MOTION TO DISMISS COMPLAINT

STUART M. BERNSTEIN, Chief Judge.

The plaintiff filed this adversary proceeding against the reorganized debtors' former Chairman, Chief Executive Officer and director, Robert C. Guccione, to recover money damages and other relief. Guccione moved to dismiss, contending, inter alia, that the claims fell outside of the Court's limited post-confirmation subject matter jurisdiction. For the reasons that follow, the motion is granted.

BACKGROUND

The plaintiff is the successor-in-interest to General Media, Inc. and General Media Communications, Inc. (collectively, "General Media"). (¶ 2.)¹ General Media filed a chapter 11 petition on August 12, 2003, (¶ 6), and confirmed the Fourth Amended Plan of Reorganization (the "Plan") on August 13, 2004.² (¶ 7.) PET Capital Partners ("PET") acquired General Media under the Plan, and now owns a majority interest in and manages the plaintiff. (¶ 36.) At all relevant times prior to the confirmation date, Guccione served as a director, Chairman and Chief Executive Officer of General Media. (¶ 11.) His employment with General Media ended on October 5, 2004, the effective date of the Plan. (¶¶ 12, 19.)

A. The Specific Property Sought By The Plaintiff

1. Townhouse Property

At all relevant times, Guccione has resided at 14-16 East 67th Street, New York, New York (the "Townhouse"). (¶ 13.) He also used the Townhouse as an office and studio for General Media's business. (¶ 14.) Numerous pieces of artwork, furniture and decorations located at the Townhouse (the "Townhouse Property") were owned by General Media and are presently owned by the plaintiff. (See ¶ 15.)

In late 2003, the Townhouse Owner (the "Owner") sought relief from the automatic stay to evict General Media and Guccione. General Media and the Owner disputed each other's rights in some of the Townhouse Property, and in particular, whether certain items were fixtures or personal property under applicable non-bankruptcy law. General Media and the Owner entered into a stipulation, "so ordered" on January 15, 2004 (the "January 15 Stipulation")( ECF Doc. # 223, in Chapter 11 Case No. 03-15078(SMB)), which provided for an interim resolution of the ownership question.³

The January 15 Stipulation divided the Townhouse Property into two categories. "Unresolved Property," which consisted of ten items and was in dispute, would not be removed from the Townhouse or disturbed absent further order of the Court or the agreement of the parties. The remainder, "Removable Personal Property," had to be removed by General Media no later than 12:01 a.m. on February 7, 2004. If it was not removed by the deadline, it became "Abandoned Property." The Owner could then remove and dispose of the "Abandoned Property" without prejudice to the rights, if any, of General Media's secured creditors in the "Abandoned Property." The January 15 Stipulation also provided that it could not be modified or affected by any plan or confirmation order. Pursuant to an order dated February 13, 2004, the Court extended the February 7th deadline to February 17th.⁴

Upon information and belief, Guccione subsequently entered into an agreement with the Owner which permitted him to continue to reside at the Townhouse. (¶¶ 17-18.) Upon information and belief, the Townhouse Property is still located at the Townhouse, but Guccione has refused to turn the property over to the plaintiff despite due demand. (¶¶ 20-21.)

2. The Trademark Property

Upon information and belief, certain trademarks in the United Kingdom (the "UK Trademarks") are owned by Penthouse Publications Limited ("PPL"), a British company wholly owned by Guccione.⁵ (¶ 22.) By letter agreements dated July 9, 2004 and July 12, 2004 between Guccione and Charles Samel (the "Trademark Agreements"), Guccione agreed to cause PPL to sell the UK Trademarks to Samel. Alternatively, he agreed to sell all of the shares of PPL stock to Samel.⁶ In either case, the purchase price was $250,000, payable in $50,000 increments per year for five years, provided that General Media's Second Amended Plan of Reorganization was not confirmed, which it was not. (¶¶ 23, 26.) Samel made an initial payment of $50,000 to Guccione, leaving a balance of $200,000. (¶ 25.)

By agreement dated August 10, 2005, Samel assigned his rights under the Trademark Agreements to the plaintiff. (¶ 27.) Approximately five days later, the plaintiff wired $200,000 to Guccione's counsel, and asked for the transfer of the PPL stock in accordance with the Trademark Agreements. (¶ 28.) Guccione refused to transfer either the UK Trademarks or the PPL stock to the plaintiff despite due demand. (¶ 29.)

3. The Domain Name

Upon information and belief, General Media used the domain name "penthouse.com.au" ( the "Domain Name") as of the filing date in connection with its business operations in Australia. (¶ 30.) Upon information and belief, the Domain Name was created solely for General Media's use, and is owned by Penthouse Australia Pty, Ltd., an Australian company wholly-owned by General Media International, Inc.("GMII"), which, in turn, is a non-debtor entity wholly-owned by Guccione. (¶¶ 30-32.) During the bankruptcy case, Guccione breached his duty to disclose the existence of the Domain Name, the identity of the true owner, and the conditions under which General Media was allowed to use it. (¶¶ 33-34.) Furthermore, Guccione knowingly continued to conceal the existence of the Domain Name after his employment was terminated. (¶ 37.)

Upon information and belief, General Media paid all of the service, maintenance and other charges in connection with the Domain Name prior to the confirmation date. (¶ 35.) The plaintiff learned about the existence of the Domain Name some time after the effective date of the Plan, and since then, has paid the charges for the use, maintenance and other charges in connection with the Domain Name. (¶¶ 38-39.) The plaintiff cannot operate its business without the ability to use the Domain Name, and this severely hampers its ability to fulfill its obligations under the Plan. (¶ 40.) Guccione has refused to surrender the Domain Name to the plaintiff despite due demand. (¶ 82.)

B. The NTS Offsets

On or about October 3, 1997, General Media entered into certain Service Agreements with Network Telephone Services, Inc. ("NTS") pursuant to which NTS provided various telephone-related services. (¶ 41.) Each Service Agreement provided that if General Media failed to make a payment, NTS could offset any money that it owed General Media under any other agreements between the parties. (¶ 42.) NTS was not authorized to offset any other obligations against the amounts due to General Media. (¶ 43.)

At about the same time, Guccione personally borrowed $1,212,000 from NTS. The loan was evidenced by a promissory note (the "Note"), and Guccione's debt was guaranteed by GMII. (¶¶ 44-45.) In addition, Guccione and GMII guaranteed General Media's obligations under the Service Agreements. (¶ 46.)

Also at the same time, General Media delivered a letter to NTS explaining that it could not grant security interests to NTS or guaranty Guccione's obligations under the Note because of restrictive covenants in an indenture between General Media and IBJ Schroder Bank & Trust Co. (¶ 47.) Notwithstanding the restrictive covenant, Guccione, GMII and NTS entered into a Side Agreement which provided that if the Note remained unpaid on January 1, 2001, NTS could offset the funds due and owing to General Media under the Service Agreements against the amount due under the Note. (¶¶ 48-49.) General Media was not a party to the Side Agreement, and never consented to be bound by it. (¶ 50.)

The Note went into default, and NTS sued the defendant, GMII and General Media in December 2001. (¶ 52.) The parties entered into a Settlement Agreement in November 2002, which confirmed NTS's right of offset against amounts due under the Note. (¶¶ 53-54.) Guccione made General Media a party to the Settlement Agreement, even though he knew that NTS had no right of offset against General Media, and even though the offset was not permitted under the indenture. (¶¶ 55-56.)

Between December 2000 and August 2003, Guccione allowed NTS to offset $1,659,996.65 owed to General Media against the unpaid balance of the Note and the GMII guarantee. (¶ 57.) After General Media filed its petition on August 12, 2003, Guccione continued to allow the unauthorized offsets, and NTS offset an additional $666,040.26. (¶¶ 60-63.) General Media did not receive any consideration on account of the offsets. (¶ 59.) The plaintiff (or General Media) has recovered only $550,000 from NTS on account of the offsets. (¶ 64.)

C. This Litigation

The plaintiff filed its five count Complaint against Guccione on or about August 30, 2005. The first three causes of action seek the turnover under 11 U.S.C. § 542(a), respectively, of the Townhouse Property (¶¶ 65-69), Trademark Property (¶¶ 70-75) and the Domain Name (¶¶ 76-83). The Fourth and Fifth Causes of Action are based on the NTS offsets, and assert damage claims sounding, respectively, in conversion (¶¶ 84-89) and breach of fiduciary duty (¶¶ 90-94).

Guccione moved to dismiss the Complaint under FED.R.CIV.P. 12(b)(1) for lack of subject matter jurisdiction and FED.R.CIV.P. 12(b)(6) for failure to...