In re General American Communications Corp., M-47B.

Citation130 BR 136
Decision Date25 April 1991
Docket NumberNo. M-47B.,M-47B.
PartiesIn re GENERAL AMERICAN COMMUNICATIONS CORP., Debtor. GENERAL AMERICAN COMMUNICATIONS CORP., Plaintiff, v. George M. LANDSELL, Defendant. GENERAL AMERICAN COMMUNICATIONS CORP., Plaintiff, v. Ronald C. PRATI, Defendant. GENERAL AMERICAN COMMUNICATIONS CORP., Plaintiff, v. D. Brock LYNN, Jr., Defendant.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

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E. Martin, of Patterson, Belknap, Webb & Tyler, New York City (local counsel) and M. O'Neill, of O'Neill Banowsky & McClure, Dallas, Tex. (pro hac vice) for Ronald C. Prati, George M. Lansell, and D. Brock Lynn, Jr. (Defendants).1

K. Miller, of Robson & Miller, New York City, for General American Communications Corp., (GACC).

ORDER

RICHARD OWEN, District Judge:

No objections having been received, and upon a review by me in accordance with Rule 9033 of the Rules of Practice and Procedure in Bankruptcy, the decision of the United States Bankruptcy Court in the above-captioned matter and the findings of fact and conclusions of law therein are accepted by this Court. So ordered.

RECOMMENDATION TO DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK ON ABSTENTION.2 MEMORANDUM OF DECISION ON DENIAL OF STAY UNDER BANKRUPTCY RULE 5011(C); DENIAL OF RELIEF FROM § 362 AUTOMATIC STAY; AND GRANTING OF SUMMARY JUDGMENT IN PART AND DENIAL OF SUMMARY JUDGMENT IN PART.

FRANCIS G. CONRAD, Bankruptcy Judge, Sitting by Special Designation.

INTRODUCTION
A. Abstention; Rule 5011(c) Stay; and, Relief From § 362 Automatic Stay.

Defendants move3 for: discretionary abstention from hearing the above referenced adversary proceedings under 28 U.S.C. § 1334(c)(1)4 and Rules of Practice and Procedure in Bankruptcy Rule 5011(b);5 a stay of the adversary proceedings under Rule 5011(c);6 and, relief from automatic stay under 11 U.S.C. § 362(d).7

We recommend the District Court for the Southern District of New York deny abstention because, inter alia, Defendants' state court action against GACC was commenced in violation of 11 U.S.C. § 362 and is void ab initio. Thus, there is no pending state court action to abstain from. We deny Defendants' request for a Rule 5011(c) stay because continued delay of these adversary proceedings prejudices the administration of GACC's bankruptcy estate. We also deny Defendants' request for relief from the automatic stay under 11 U.S.C. § 362(d) because they failed to sustain their burden of proof of entitlement.

B. Summary Judgment.

GACC seeks summary judgment on Defendants' affirmative defenses and counterclaims on seven points: this Court has subject matter jurisdiction over these adversary proceedings and Defendants' counterclaims; an interlocutory default judgment rendered by a Texas State Court in Defendants' post-petition lawsuit against GACC does not bar these adversary proceedings; the judgment entered in a Federal District Court action against the partnerships also binds Defendants as limited partners; Defendants' fraud counterclaims must be dismissed; Defendants' counterclaims of breach of contract, defective merchantability and declaratory judgment are barred by res judicata; and, GACC is entitled to summary judgment on its claims against Defendants.

Generally, we are not inclined to address summary judgment motion when there is a pending recommendation to the District Court to deny abstention because the rejection of our recommendation may render the summary judgment decision advisory. In the proceeding sub judice, however, we reach the summary judgment issue on our subject matter jurisdiction, in personam jurisdiction, and whether these proceedings may be "core" or "related to" because we are required to make such determinations under 28 U.S.C. § 157(b)(3) and because our experience has been that the District Court usually requests our comments.

We grant GACC summary judgment against Defendants' affirmative defense of lack of subject matter and in personam jurisdiction over GACC's proceedings because we have subject matter jurisdiction and nationwide in personam jurisdiction over Defendants.

We determine GACC's proceedings against Defendants are "core" because GACC's causes of action against Defendants accrued post-petition, thus we have the power to enter a final Order. Defendants have not filed proof of claims, thus, we will honor Defendants' jury demands in these proceedings. We accept Defendants' position that we have subject matter jurisdiction and core powers to enter a final Order on their counterclaim and we likewise determine a trial by jury is appropriate on Defendants' counterclaims.

As an alternative to our "core" determination, GACC's and Defendants' proceedings are "related to" GACC's bankruptcy because the outcome has a significant impact on GACC's ability to pay its creditors. In this event, we recommend the District Court withdraw our reference over these proceedings because of Defendants' jury demand and try these proceedings in the District Court before a jury.

We do not reach summary judgment on the following issues until, and unless, the District Court accepts our recommendation to deny abstention and determine these proceedings are "core": whether the judgment entered in a Federal District Court action against the partnerships also binds Defendants as limited partners; whether Defendants' counterclaims of fraud and breach of contract, defective merchantability, and declaratory judgment are barred by res judicata; or, whether GACC is entitled to summary judgment on its cause of action against Defendants.

BACKGROUND8

Prior to bankruptcy, GACC was engaged in the business of structuring, packaging, and promoting tax advantaged investments. In 1982, GACC packaged and promoted private placement offerings of interests in three limited partnerships engaged in television programing to produce and market certain "Felix the Cat" videotape programs; namely, 1982 GAC Video Production Series — Texcat Associates (Texcat); 1982 GAC Video Production Series — Texcat Associates II (Texcat II); and, 1982 GAC Video Production Series — Astrocat Associates (Astrocat) (Texcat, Texcat II and Astrocat are collectively referred to as Partnerships).

The limited partnership interests were securities sold by the distribution of a document titled "Private Placement Memorandum." The Private Placement Memorandum was provided to the limited partnerships. The limited partnerships (Defendants) purchased their interests by executing a subscription agreement together with a payment of cash that was approximately 40% of the total price of the securities each was purchasing.

After the Partnerships were fully subscribed, GACC entered into agreements with the Partnerships whereby the Partnerships would acquire from First Performance Television Corp. the rights to produce the video programs ("Rights Acquisition Agreements") and Viewtek Corp. would produce the Video Programs for the Partnerships on a turnkey basis ("Production Facilities Agreement"). Upon completion of the video programs, each of the Partnerships would enter into an agreement with Telefeatures Corp. granting Telefeatures the right to distribute the video programs for free and pay television.

Under the terms of the Rights Acquisition Agreements and Production Facilities Agreements, the Partnerships agreed to pay for the rights to produce the video programs by making a cash payment upon the closing of the Partnerships, with the balance made by the execution of three promissory notes payable to GACC.

The first two notes were to be paid within one or two years, respectively, of the closing of the Partnerships ("Short Term Notes"). The Short Term Notes made by Texcat were in the amounts of $188,900 due April 30, 1983 and $165,700 due on April 30, 1984. The Short Term Notes were to be paid by the Partnerships from capital contributions of the Limited Partners.

The third promissory note ("Production Note"),9 was due on December 31, 1999 in the amount of $2,847,750. The Production Note was to be paid by the Partnerships by paying GACC a percentage of any gross receipts from the distribution of the video programs. The Production Note was secured by an "Assignment of Gross Receipts" and "Irrevocable Authority" in favor of GACC and an "Assignment and Security Agreement" granting GACC a security interest in, and general lien upon, the video program, together with copyrights and products derived from the use and exploitation of the video program. The Production Note was a recourse obligation which had to be paid even if revenues derived from video program distributions were insufficient to satisfy the obligations.

As each of the Defendants became limited partners, they executed an assumption agreement whereby each personally assumed, severally, a primary obligor status to pay when due their portion of the unpaid principal amount of the Production Note. The limited partners' share was calculated according to each limited partner's pro rata ownership share in the Partnership, together with 12% interest per annum over three years from the date of the Production Note.

After the Partnerships were fully subscribed and closed, a dispute arose among the general partners, GACC's president and GACC's affiliates concerning, inter alia, the Partnerships' refusal to enter into the distribution agreements with Telefeatures. Defendants' claim GACC never intended to fully perform, the tapes were not produced timely, and their quality was below that represented by GACC. Additionally, patent infringement litigation ensued over the rights of distribution.

Thereafter, the Partnerships failed and refused to honor demand for payment on the Short Term Notes. Texcat failed to pay the second Short Term Note ($165,700 due on April 30, 1984). GACC exercised it option under the Assignment and Security Agreement and accelerated the payment of the Texcat Production Note.

On April 1, 1983, GACC sued the Partnerships and...

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