In re Michael G. Tyson
| Decision Date | 13 May 2011 |
| Docket Number | Case No. 03-41900 (ALG),Adv. No. 05-02210 (ALG) |
| Court | U.S. Bankruptcy Court — Southern District of New York |
| Parties | In re: MICHAEL G. TYSON, et al., Debtors. R. TODD NEILSON, Plan Administrator of the MGT Chapter 11 Liquidating Trust, on behalf of the MGT Chapter 11 Liquidating Trust and on behalf of Michael G. Tyson, an individual, Plaintiff, v. STRAIGHT-OUT PROMOTIONS, LLC, a Kentucky limited liability company; CHRIS WEBB, an individual; BREARLY (INTERNATIONAL) LIMITED, a Gibraltar corporation; FRANK WARREN, an individual; SPORTS NETWORK, PLC, a United Kingdom corporation; SPORTS & LEISURE, BOXING, LTD., a United Kingdom corporation, and EDWARD SIMONS, an individual, Defendants. STRAIGHT-OUT PROMOTIONS, LLC, a Kentucky limited liability company and CHRIS WEBB, an individual , Cross-Claim Plaintiffs, v. BREARLY (INTERNATIONAL) LIMITED, a Gibraltar corporation; FRANK WARREN, an individual; SPORTS NETWORK, PLC, a United Kingdom corporation; MARINETRACK HOLDINGS, PLC, a United Kingdom corporation; SPORTS & LEISURE, BOXING, LTD., a United Kingdom corporation, and EDWARD SIMONS, an individual, Cross-Claim Defendants. |
(Jointly Administered)
APPEARANCES:
PACHULSKI, STANG, ZIEHL & JONES LLP
By: Robert J. Feinstein
Alan J. Kornfeld
J. BRUCE MILLER LAW GROUP
By: J. Bruce Miller
SHERMAN, CITRON & KARASIK, PC.
By: Howard Karasik
PROFETA & EISENSTEIN
By: Jethro M. Eisenstein
On remand from the District Court, In re Michael G. Tyson, 433 B.R. 68 (S.D.N.Y. 2010), we consider the following issues: (i) whether R. Todd Neilson acting on behalf of the MGT Chapter 11 Liquidating Trust and former debtor Michael G. Tyson ("Tyson"), 1 has established a claim of fraudulent inducement against Frank Warren ("Warren") and Edward Simons ("Simons" and together with Warren, the "UK Defendants"); (ii) reconsideration of the post-trial motions of defendants Straight-Out Promotions, LLC ("Straight-Out") and Chris Webb("Webb" and together with Straight-Out, the "Kentucky Defendants") to amend their pleadings pursuant to FED. R. CIV. P. 15(b)(2) and 54 to include a cross-claim for fraudulent inducement against the UK Defendants; (iii) whether liability on the part of the UK Defendants can be based on a default judgment obtained against Brearly (International) Ltd. ("Brearly") in Kentucky Federal Court on December 16, 2008 (the "Kentucky Default Judgment"); and (iv) whether and to what extent, Warren should recover attorney's fees premised on a successful defense of veil-piercing claims that the District Court found are not sustainable under English law.
The relevant facts of this case have been addressed in the decision of the District Court cited above and in this Court's decision in Neilson v. Straight-Out Promotions, LLC (In re Tyson), 412 B.R. 623 (Bankr. S.D.N.Y. 2009). The parties have agreed to rest on the existing record, and this Court decides the above-described issues based on the facts established at the trial held on March 23-27, 2009. There has been further briefing, which was argued at a hearing on February 10, 2011 (the "Hearing"). We assume familiarity with the existing record and do not repeat the facts herein.
Plaintiff's amended complaint (Dkt. No. 57) contained (i) a breach of contract claim against the Kentucky Defendants; (ii) a breach of contract claim against Brearly and, based on piercing the corporate veil, against the UK Defendants, Sports Network PLC ("Sports Network"), Sports & Leisure, Boxing Ltd. (collectively, the "Sports Network Defendants"); (iii) an unjust enrichment claim against Brearly, Sports Network, and the UK Defendants; and (iv) a fraud claim against Webb and the UK Defendants. Plaintiff received a judgment in his favor against Straight-Out for $1.9 million, which Straight-Out did not contest in the first instance oron appeal. Plaintiff also received a judgment in his favor against the Sports Network Defendants, based primarily on a piercing of Brearly's corporate veil, but the District Court reversed. Plaintiff subsequently withdrew his unjust enrichment claim. Therefore, the only claim of Plaintiff that remains at issue on remand is his fraud claim against the UK Defendants.2
The Kentucky Defendants, in turn, brought a cross-claim against Brearly and the Sports Network Defendants for, among other things, a judgment that such parties were required to indemnify the Kentucky Defendants for any amounts that were found to be owed by them to Tyson. This claim was based on a Distribution Agreement and a Notice of Irrevocable Authority and Assignment (the "Assignment Agreement").3 In our previous decision, this Court found that Straight-Out had sustained its breach of contract claim against Brearly.4 The Kentucky Defendants did not allege fraud against the UK Defendants in their cross-claim, but attempted to add such claims by way of a motion to amend pursuant to Fed. R. Civ. P. 15(b)(2) and 54.
We first consider the fraudulent inducement claim that Plaintiff asserted against the UK Defendants in his amended complaint and that the Kentucky Defendants seek to assert. In this Court's prior decision, we concluded that "the only damages that Plaintiff could assert from [his] fraud claim are the same contract damages that are being imposed on the UK Defendants byvirtue of the piercing of Brearly's corporate veil." In re Tyson, 412 B.R. at 645. Because we awarded Plaintiff damages based on his veil-piercing theory, we declined to rule in the alternative on whether Tyson could recover on his fraudulent inducement claim. Our previous determination having been set aside, we have been directed to consider the fraudulent inducement issue anew. There is no dispute that Kentucky law applies to the fraudulent inducement claims.
Kentucky courts have almost uniformly held that if a party misrepresents its future intention to perform and such performance is promised in the form of a contract, failure to perform such promise gives rise to an action for breach of contract, not an action for fraud. See Brooks v. Williams, 268 S.W.2d 650, 652 (Ky. 1954). Moreover, the near universal view in Kentucky, as elsewhere, is that a party claiming fraudulent inducement normally "has an option either to disaffirm the contract and seek its recision [sic] or to affirm the contract and seek his remedy by an action for damages." Sanford Const. Co. v. S & H Contractors, Inc., 443 S.W.2d 227, 236 (Ky. 1969); see also, Sallee v. Fort Knox Nat'l Bank (In re Sallee), 286 F.3d 878, 900 (6th Cir. 2002) (applying Kentucky law). Similarly, in Hanson v. American Nat'l Bank & Trust Co., 865 S.W.2d 302, 306 (Ky. 1993), rev'd on other grounds, 509 U.S. 918 (1993), the Kentucky Court said, "Where a fraud has been perpetrated to induce a party to enter into a contract, the injured party may elect to affirm the contract and recover damages in tort for the fraud or disaffirm the contract and recover the consideration with which he has parted." More recently, in Dodd v. Dyke Indus., Inc., Civil Action No. 04-226 (JGH), 2008 WL 1884081, at *4 (W.D. Ky. 2008), the Court explained that the "doctrine of election of remedies... means that when a person has at his disposal two modes of redress, which are contradictory and inconsistent with each other, his deliberate and settled choice and pursuit of one will preclude his later choiceand pursuit of the other." If the contract is affirmed, the election is normally irrevocable and the fraud is effectively condoned. Id. Thus, Kentucky law generally prohibits a party from bringing both a contract claim and a claim for fraudulent inducement in the same lawsuit. This is consistent with law in other jurisdictions. Restatement (Second) of Torts § 525.
The Kentucky Defendants argue that the authority in Kentucky is not uniform, citing one unreported case in which the Kentucky District Court found that an election of remedies is not required in every instance. In Corporex Realty & Inv. Corp. v. Raymond James & Assoc., Inc., Civil Action No. 98-14 (E.D. Ky June 19, 2000), the Court on a motion for entry of Trial Order, Verdict and Judgment explicitly declined to follow Hanson, stating:
this court does not believe such an election [between bringing a breach of contract claim and a fraud claim] would be required in every case. It would make no sense to require it here since the jury, having found the fraud consisted of entering into the contract with an intent not to perform it, the damages for breach of contract and the compensatory element of the fraud damages would be identical. Therefore, there was no need for an election and instructing on one would have been confusing.
However, Corporex is distinguishable because of the Court's concern regarding jury confusion, and because it is obvious that the parties proceeded to trial on a dual theory.
The Court is persuaded that the majority Kentucky view is the correct one to apply in the case at bar. Not only did the parties elect a remedy when they sued under the contract, but Tyson and the Kentucky Defendants obviously elected that remedy because they were seeking damages based on the contract. It will be recalled that Brearly—or the UK Defendants through Brearly— agreed to administer certain of the international sales for the Fight. Although allegations were made that the UK Defendants had failed to account for substantial proceeds of the internationalpay-per-view sales, the existence of any such damages was unproven at trial.5 In addition, there was no allegation that the UK Defendants had failed to make reasonable efforts to sell the international rights, or that they had subverted the Fight, or caused Tyson to lose to his opponent. The basis for the recovery...
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