In re Direct Media Power, Inc.

• Decision Date: 29 March 2018
• Docket Number: Case No. 16bk36934
• Citation: 582 B.R. 739
• Parties: IN RE: DIRECT MEDIA POWER, INC., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

582 B.R. 739

IN RE: DIRECT MEDIA POWER, INC., Debtor.

Case No. 16bk36934

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed March 29, 2018

Attorneys for Radio One, Inc.: Stephen J. Rosenfeld and Danielle N. Twait, Mandell Menkes LLC, Chicago, IL

Attorney for Direct Media Power, Inc., and Dean Tucci: John H. Ray, Ray Legal Consulting Group, P.C., Chicago, IL

MEMORANDUM DECISION

Timothy A. Barnes, United States Bankruptcy Judge

Before the court is Creditor Radio One, Inc.'s Second Amended Motion for Civil Contempt [Dkt. No. 179] (the "Motion") brought by Radio One, Inc. ("Radio One"), in the above-captioned bankruptcy case. The Motion is opposed by the debtor, Direct Media Power, Inc. ("DMP"), and its president Dean Tucci ("Tucci").

The Motion raises serious concerns regarding postpetition treatment of bankruptcy estate property by DMP and Tucci in managing DMP. For the reasons set forth more fully below, upon review of the parties' respective filings and after conducting a hearing on the matter, the court finds that DMP and Tucci violated court orders in this case. Such violations give rise to civil contempt. Radio One is therefore entitled to contempt damages, which the court determines to be the attorneys' fees Radio One incurred as a result of DMP's and Tucci's contempt. The Motion should be, therefore, and by a separate order entered concurrently herewith is, granted.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1) & (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

The court must also consider its constitutional authority. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). The court's section 105 powers arise only in bankruptcy and are essential to the administration of bankruptcy matters. In re Caesars Entm't Operating Co., Inc. , 808 F.3d 1186, 1188 (7th Cir. 2015) ( section 105"grants the extensive equitable powers that bankruptcy courts need in order to be able to perform their statutory duties"). As such, the exercise of those powers is squarely within the court's constitutional authority. In the matter at bar, DMP and Tucci have contested the court's authority and jurisdiction to hear and determine violations of this court's orders during the bankruptcy case after the case itself was dismissed. That is a different question.

While the court will consider in greater detail below its contempt powers, there is no question that a bankruptcy court ordinarily has authority to enforce its own prior orders. Travelers Indem. Co. v. Bailey , 557 U.S. 137, 138, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) ; Cox v. Zale Del., Inc. , 239 F.3d 910, 917 (7th Cir. 2001). Congress expressly conferred enforcement powers to the bankruptcy courts in section 105 of the Bankruptcy Code, which authorizes the court to take "any action ... necessary or appropriate to enforce or implement court orders or rules." 11 U.S.C. § 105(a) ; Owens v. LVNV Funding, LLC , 832 F.3d 726, 732 n.5 (7th Cir. 2016), cert. denied , ––– U.S. ––––, 137 S.Ct. 2157, 198 L.Ed.2d 231 (2017) ; In re Bryson , 131 F.3d 601, 603 (7th Cir. 1997) ; In re Volpert , 110 F.3d 494, 500 (7th Cir. 1997).

Although the bankruptcy case was dismissed on September 20, 2017, that authority remained. "A court loses jurisdiction over a case when it issues a final judgment, which is to say a judgment that resolves the controversy between the parties. The order dismissing the bankruptcy didn't do that." In re Sweports, Ltd. , 777 F.3d 364, 367 (7th Cir. 2015). After the dismissal of the underlying bankruptcy case, the bankruptcy court may retain jurisdiction to consider collateral issues, such as the imposition of sanctions. In re Dental Profile, Inc. , 446 B.R. 885, 890 (Bankr. N.D. Ill. 2011) (Cox, J.) (citing In re Kitchin , 327 B.R. 337, 359 (Bankr. N.D. Ill. 2005) (Schmetterer, J.) ). As in Sweports , a court may have continuing jurisdiction to resolve the controversy between parties despite the court's prior order dismissing the bankruptcy.

Here, in addition to the foregoing, at the dismissal hearing the court expressly retained jurisdiction to resolve the issue at bar. Accordingly, the court has jurisdiction and constitutional authority to enter final orders with respect to the Motion.

BACKGROUND AND PROCEDURAL HISTORY

The debtor in this bankruptcy case, DMP, is wholly-owned by DMP Holdings, Inc. ("Holdings"), also an Illinois corporation. In turn, Tucci owns ninety percent of Holdings. In addition to his control of DMP through Holdings, Tucci serves as the president of DMP. Tucci also owned a majority interest of other business entities that he managed during the bankruptcy case, including Teldebt Solutions, Inc. ("Teldebt"), FDATR, Inc. ("FDATR"), Dang Enterprises LLC ("Dang") and The Media Liquidators, Inc. ("Liquidators" and collectively with Holdings, Teldebt, FDATR and Dang, the "Affiliated Entities").

On November 21, 2016 (the "Petition Date"), DMP filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code (the "Petition") through the assistance of its initial bankruptcy counsel, Adam S. Tracy ("Tracy"), commencing the above-captioned case.

DMP failed to perform many of the requirements of a debtor within 14 days of filing the Petition. For example, the Petition did not include many of the required documents and those that were filed were deficient (e.g. , Form B4—the List of Creditors Holding 20 Largest Unsecured Claims—omitted most of DMP's significant creditors).

On December 2, 2016, the United States Trustee (the "U.S. Trustee") filed a motion to dismiss this case under section 1112(b) of the Bankruptcy Code for these failures and the failure to timely provide information reasonably requested by the U.S. Trustee. Shortly thereafter, Tracy withdrew his request for authority to represent DMP, leaving DMP unrepresented in the case. At the hearing on the U.S. Trustee's motion to dismiss, attorney Neal L. Wolf ("Wolf") stepped in as DMP's counsel and requested and was granted time to address the deficiencies. Also at the hearing, Radio One appeared and voiced preliminary concerns regarding the case.

A. The First Interim Cash Collateral Order

Through Wolf's efforts, a number of the deficiencies were corrected and, in response, the U.S. Trustee withdrew its motion to dismiss. Among the new filings was an overdue request for authority to use cash collateral. See Debtor's Motion for Entry of Order (A) Authorizing Use of Cash Collateral on an Interim Basis, and Providing for Adequate Protection, and (B) Setting a Final Hearing on the Use of Cash Collateral dated December 15, 2016 [Dkt. No. 36] (the "Cash Collateral Motion"). On December 19, 2016, the court granted the Cash Collateral Motion on an interim basis. See Interim Order Authorizing Use of Cash Collateral and Approving Grant of Adequate Protection and Setting Final Hearing on the Use of Cash Collateral [Dkt. No 52] (the "First Interim Order").¹ The First Interim Order set January 11, 2017, as a further hearing on the Cash Collateral Motion.

Thereafter, authority to use cash collateral was ordered periodically on a further interim basis as follows:

(1) January 12, 2017—Interim Order Authorizing Use of Cash Collateral [Dkt. No. 75] (the "Second Interim Order");²

(2) February 6, 2017—Interim Order Authorizing Use of Cash Collateral [Dkt. No. 85] (the "Third Interim Order"); and(3) February 13, 2017—Interim Order Authorizing Use of Cash Collateral [Dkt. No. 90] (the "Fourth Interim Order"³ and collectively with First Interim Order, the Second Interim Order and the Third Interim Order, the "Cash Collateral Orders").

During this same period, DMP took steps to challenge Radio One's secured claim, including engaging special counsel and commencing an adversary proceeding. At the same time, over the course of the Cash Collateral Orders, Radio One's requests and efforts to protect its interests increased in scope and specificity. Each successive Cash Collateral Order increased the extent to which DMP must disclose information and increased the restraint on DMP's ability to transfer funds.

B. The Second Interim Cash Collateral Order and Tucci Examinations

1. The Second Interim Cash Collateral Order

While the First Interim Order was fairly unadorned, after the entry of First Interim Order, on January...