In re DeRosa-Grund

• Decision Date: 22 January 2016
• Docket Number: Case No. 09–33264
• Citation: 544 B.R. 339
• Parties: In re: Tony DeRosa-Grund aka Pro Jo Poker Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

544 B.R. 339

In re: Tony DeRosa-Grund aka Pro Jo Poker Debtor.

Case No. 09–33264

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed January 22, 2016

Nelson Thomas Hensley, Attorney at Law, Johnie J. Patterson, Walker & Patterson, P.C., Houston, TX, for Debtor.

MEMORANDUM OPINION ON THE DEBTOR'S MOTION TO REOPEN CHAPTER 7 CASE PURSUANT TO 11 U.S.C. § 350 [Doc. No. 92]

Jeff Bohm, Chief United States Bankruptcy Judge

I. INTRODUCTION

At bar is a dispute between Hollywood insiders and a Texas outsider concerning certain rights involving a blockbuster movie from 2013 entitled "The Conjuring." In the 1982 movie entitled "The Verdict," Paul Newman, who had the starring role as a solo practitioner suing a hospital for medical malpractice, delivers a brief closing to the jury which includes the following line: "We become tired of hearing people lie." This Court feels the same way about the debtor here.

The resolution of the dispute at bar requires a walk down memory lane. On May 7, 2009, (the "Petition Date "), an involuntary Chapter 7 bankruptcy petition was filed against Tony DeRosa–Grund aka Pro Jo Poker (the "Debtor "). [Doc. No. 1], and on June 8, 2009, this Court entered an order for relief. [Doc. No. 11]. The Debtor received a discharge on July 26, 2010, [Doc. No. 54]; the case was administered, and pro rata distributions were made to creditors, [Doc. No. 88]; and on May 8, 2014, this Court signed a final degree closing this case. [Doc. No. 90]. As of that date, it appeared that this case was over.

However, a second act began on September 23, 2015, when the Debtor, pursuant to 11 U.S.C. § 350(b),¹ filed a motion to reopen his Chapter 7 case (the "Motion to Reopen "). Two objections were lodged to the Motion to Reopen. The first was filed by PSG Poker, LLC ("PSG ") and Phil Gordon ("Gordon ") on October 14, 2015, [Doc. No. 93], but was later withdrawn on November 25, 2015, [Doc. No. 97]. A second objection was also filed on October 14, 2015 by New Line Productions, Inc. ("New Line "), a subsidiary and affiliate of Warner Brothers Entertainment ("Warner Brothers "), [Doc. No. 94]. Since the filing of its objection, New Line, unlike PSG and Gordon, has vigorously prosecuted its objection.

This Court held a multi-day hearing on the Motion to Reopen on December 1, 2015, December 2, 2015, December 3, 2015, and December 7, 2015, on which date the parties delivered closing arguments and the Court took the matter under advisement (hereinafter, the multi-day hearing is referred to the "Hearing "). During the Hearing, the Debtor presented his case-in-chief by calling one witness—himself—and by introducing six exhibits. New Line presented its case-in-chief by calling two witnesses—the Debtor and Michael J. O'Connor ("O'Connor ")—and by introducing fifteen exhibits.²

The Debtor contends that his case should be reopened on the basis that he failed to list a particular asset on his original schedules that he now believes should have been scheduled. Specifically, the Debtor, who is a movie and television producer and writer, asserts that he should have scheduled an asset that, in the movie business, is known as a "treatment." A "treatment" is an "abridged script; longer than a synopsis. It consists of a summary of each major scene of a proposed movie, and may even include snippets of dialogue."³ Here, the Debtor contends that he should have scheduled the "treatment" for what subsequently became the screenplay for "The Conjuring" (hereinafter this particular treatment will be referred to as the "Treatment. " and the movie itself will be referred to as "The Conjuring "). The Debtor now wants this Court to reopen his case so that: (1) he can amend his schedules to include the Treatment, for which he believes has value; (2) the Chapter 7 trustee can then investigate and determine the value of the Treatment; (3) the trustee can then sell or otherwise dispose of the Treatment in order to bring in needed cash to the estate; and (4) the trustee can then distribute these proceeds to pay off the two remaining allowed claims in this case, which total approximately $185,000.00.⁴ Left unsaid by the Debtor is his hope—indeed, his strong belief—that the Treatment is so valuable that the trustee, after administering this asset, will generate so much cash for the estate that after payment of the two remaining claims, as well as the Trustee's fee, there will be a substantial amount of cash remaining to be distributed to the Debtor himself.See e.g. 11 U.S.C. § 726(a)(6) ; In re Solomon, 129 F.3d 608, n. 10 (5th Cir.1997) (under the statutory distribution of property of the Chapter 7 estate, once all the claims are paid in full, the debtor generally receives the remaining proceeds).

New Line, which is in the movie-making business and is an affiliate of Warner Brothers, strongly opposes reopening the Debtor's case. It asserts that the only reason that the Debtor now seeks to reopen his case is because an arbitrator recently ruled against the Debtor in his dispute with New Line over the extent of any rights that he has to revenues generated by "The Conjuring" and any sequels to be made to this movie. New Line asserts that: (1) it acquired the Treatment several years ago from one of the Debtor's wholly-owned entities; (2) the Debtor himself has never owned the Treatment; (3) the Debtor has fabricated the story that he personally owned the Treatment on the Petition Date; and (4) the Debtor, angry that New Line has been unwilling to pay him a dime to settle the various lawsuits that he and his privately-held entities have brought against New Line, is now attempting to bring in the Chapter 7 trustee to do his bidding for him. Essentially, New Line's argument is that the Debtor believes that there is strength in numbers, and by having to fend off not only the Debtor, but also the trustee, New Line will cave in and pay good money to the trustee for the rights to the Treatment, much of which will wind up in the Debtor's pockets after payment of the two remaining claims and the Trustee's fees. Under these circumstances, New Line contends that the Debtor is gaming the bankruptcy system and therefore that this Court should not reopen his case.

Alternatively, New Line argues that even if this Court concludes that the Debtor, as opposed to one of his companies, owned the Treatment on the Petition Date—and that therefore the case should be reopened so that the Debtor can schedule the Treatment—the Debtor should be judicially estopped from receiving any benefits from the Trustee's eventual disposition of the Treatment because the Debtor's initial failure to disclose the Treatment was not inadvertent. See e.g., In r e Jackson, 2012 WL 3071218, aff'd per curiam by the Fifth Circuit on direct appeal at In r e Jackson, 574 Fed.Appx. 317 (5th Cir.2014) (Where debtor's failure to disclose his interest in a patent was not inadvertent, the court, although allowing the debtor to schedule the patent, nevertheless held that the debtor was estopped from receiving any funds remaining after the trustee administered the patent and paid claims in full, with any excess funds to either escheat to the United States or be made available to public interest, charitable, educational, and other public service organizations).

This Court now issues findings of fact and conclusions of law pursuant to Rules 9014 and 7052. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as it deems appropriate, or as the parties may request. For the reasons set forth herein, this Court will grant the Motion to Reopen; however, because the Court finds that the Debtor's failure to schedule the Treatment was not inadvertent, the Debtor will be estopped from receiving any proceeds from the Trustee's administration of the Treatment.

II. FINDINGS OF FACT

The relevant facts—as established by the pleadings, the admitted exhibits, the testimony of the witnesses, the stipulations and admissions of the parties, and the judicial notice that this Court takes of four complaints filed by the Debtor in the United States District Court for the Southern District of Texas—are as follows:

A. Entities Owned and Controlled by the Debtor

1. The Debtor owns, or has owned, various entities, all of which have been corporations except one entity that was initially a dba (but became a LLC). The Debtor formed these entities to help him in his career as a movie producer and writer. For example, the Debtor testified that he used one entity "for marketing purposes." [Hr'g Tr. 104:5–6, Dec. 1, 2015].⁵

2. One of the entities owned by the Debtor is named Silverbird Media Group, LLC ("Silverbird ").

3. A second entity owned by the Debtor is named Evergreen Media Group, LLC ("Evergreen "). Originally, this entity was a dba known as Evergreen Media Group (the "DBA ").

4. A third entity owned by the Debtor is Gallows Hill Pictures, LLC ("Gallows Hill ").

B. Entity Owned by the Debtor's Family Trust

5. Aside from the above described entities which the Debtor has controlled, and still controls, there exists another entity named Evergreen Media Holdings, LLC ("Holdings "). [Hr'g Tr. 96:19–24, Dec. 1, 2015]. This entity, which was formed in 2009, is controlled by what the Debtor has referred to as the family-owned trust. [Id. ]. The name of this trust is the DeRosa–Grund Family Trust (the "Family Trust "), and the trustee of the Family Trust is the Debtor's step-daughter. [Hr'g Tr. 98:7–9, Dec. 1, 2015]. It is unclear as to whether the Family Trust owns 100% of Holdings, or whether the Debtor also has a direct stock interest in Holdings. The Debtor is, however, an employee of Holdings. [Hr'g Tr. 83:3–4, Dec. 1, 2015]. Indeed, the Debtor is more than a mere "employee" of Holdings; he signed two key contracts (to be

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