In re Reading Broadcasting, Inc.
| Decision Date | 12 May 2008 |
| Docket Number | Bankruptcy No. 05-26563bif.,Adversary No. 06-0643. |
| Parties | In re READING BROADCASTING, INC., Debtor. George L. Miller, trustee, Plaintiff, v. Michael L. Parker, Sr.; Partel, Inc.; Irvin Cohen; Robert E. Reith; Jack A. Linton; George A. Mattmiller; Leonard B. Stevens; Sot, Inc.; Swob, Inc.; Bernard R. Gerber; Helene Associates, L.P.; Roger N. Longenecker; and Estate of Robert H. Clymer, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
The chapter 11 trustee, George L. Miller, commenced an adversary proceeding by filing an amended complaint consisting of 345 paragraphs, asserting 19 counts against 13 defendants, and seeking in excess of $20 million in damages. As will be discussed, the trustee alleges that these defendants participated in, or were the beneficiaries of, improper actions by the directors of Reading Broadcasting, Inc. over a period of almost 20 years.
Six of those defendants have filed motions to dismiss numerous counts of the amended complaint, and one defendant has filed a motion for judgment on the pleadings. These defendants all maintain, inter alia, that the statute of limitations has expired for many of the claims, that the business judgment rule insulates their actions from challenge, and that in many instances the trustee has failed to state any cause of action against them.
The trustee opposes dismissal of any claim against any of these seven defendants. He argues, that his amended complaint complies with the liberal notice-pleading requirements of Fed.R.Civ.P. 8. Furthermore, the trustee maintains that he sufficiently invoked the doctrine of adverse domination in his amended complaint, which would toll any applicable statute of limitation that may have otherwise expired. Finally, he takes issue with the application of the business judgment rule and with the assertion that the debtor's bylaws preclude relief.
The parties have submitted memoranda in support of their respective positions and have orally argued their contentions. Thereafter, the trustee filed a motion to approve a settlement of this proceeding, as required by Fed. R. Bankr.P. 9019. Certain objections to the proposed settlement were filed. Just prior to the continued hearing on this settlement motion, the trustee withdrew his request for approval of the settlement explaining that certain preconditions to settlement had not been met.1
In addition, certain defendants have demanded a right to trial by jury in this proceeding and did not consent to my presiding over that trial. See 28 U.S.C. § 157(e). Consistent with this position, they filed a motion with the district court to withdraw the reference in this adversary proceeding, pursuant to 28 U.S.C. § 157(d) and Beard v. Braunstein, 914 F.2d 434 (3d Cir.1990). The district court thereafter denied that motion without prejudice, directing that this bankruptcy court oversee all pretrial matters. Accordingly, as authorized by the district court, I shall determine the various pending motions.2
While these dismissal motions were pending, the trustee was able to confirm a chapter 11 plan of liquidation,3 which plan is highly unlikely to provide for any distribution to RBI's shareholders (unless the trustee prevails in this litigation and is able to recover the amount of damages sought in his complaint). Under the terms of the confirmed plan and confirmation order, parties in interest were given a deadline to file requests for payment of administrative expenses under 11 U.S.C. § 503(a). SOT, Inc. has made such a request, to which the trustee has filed an objection. The trustee's objection to this administrative expense request raises many of the same claims as are asserted against SOT, Inc. in this adversary proceeding. As an evidentiary hearing involving SOT's request for an administrative expense has commenced and SOT's administrative expense rights will be adjudicated therein, I shall defer ruling on SOT's motion to dismiss the claims against it to the extent its dismissal motion in this proceeding may be resolved by preclusion principles. See In re Downing, 2005 WL 3299797, at *1 n. 1 (Bankr.D.Kan.2005); see also In re North Mandalay Investment Group, Inc., 342 B.R. 846, 847 (Bankr.M.D.Fla.2005).
I shall first attempt to summarize the allegations of the trustee's lengthy amended complaint, as he incorporates them all into his 19 causes of action. The trustee makes the following assertions:
The debtor, Reading Broadcasting, Inc. ("RBI"), is a Pennsylvania corporation located in Reading, Pennsylvania. RBI owns and operates WTVE-TV 51, an independent commercial television station serving the city of Reading, as well as Philadelphia, Pennsylvania; Wilmington, Delaware; and the Delaware River Valley. Complaint, at ¶ 2. RBI filed a voluntary petition for bankruptcy on October 7, 2005. The chapter 11 trustee was appointed on January 17, 2006.
In accordance with FCC regulations, RBI entered into a lease agreement with the City of Reading on July 25, 1979. Amended Complaint, at ¶¶ 85-87. Under this agreement, the debtor leased land, which included a building for RBI operations as well as a cement tower platform, and is referred to as the Mt. Penn site in the amended complaint. Id. The initial term of the lease was 15 years, commencing on April 1, 1980, at an annual rent of $500/year adjusted annually in an amount equal to the increase in cost of living. Id., at ¶ 90. RBI entered into this Mt. Penn lease agreement in order to obtain a site to transmit its analog television signal. Id, at ¶ 91. A transmission tower was constructed on this site.
On September 25, 1986, an involuntary bankruptcy petition was filed against RBI, which resulted in the issuance of an order for relief under chapter 11 of the Bankruptcy Code on October 28, 1986. Id. at ¶ 92. During those previous bankruptcy proceedings, RBI entered into a management services agreement ("MSA") with Partel, Inc. Id., at ¶ 93. Partel, Inc. is a corporation wholly owned by defendant Micheal Parker, and from time to time it was a shareholder of RBI. Id., at ¶¶ 21-22. Mr. Parker serves as Partel's president. Id. Under the MSA, Mr. Parker and Partel were given full authority to conduct the operations of RBI for a period of 31 months, ending on December 31, 1991. Id., at ¶ 94. The MSA provided that Partel would receive 25% equity interest in RBI upon confirmation of a plan of reorganization and 25% of RBI's monthly net revenues. RBI's obligation to pay Partel 25% of its monthly net revenues was contingent upon RBI being "current in its payments of principal and interest to Meridian Bank as required in the Loan Documents." Id., at ¶ 97.
Shortly after the MSA was executed, Mr. Parker became executive vice president and chief operating officer of RBI, and still later, president, an RBI director, and an RBI shareholder. Id., at ¶ 95. The MSA provided that neither Partel nor Mr. Parker was entitled to additional compensation as a result of Mr. Parker being an officer of RBI; however, RBI was obligated to reimburse Partel for reasonable expenses incurred or paid by Partel in performance of Partel's obligations under the MSA. Id., at ¶ 99-100.
On or about January 20, 1991, the bankruptcy court approved RBI's Fourth Amended Plan of Reorganization. Id., at ¶ 102. Pursuant to the confirmed plan, Partel received 124,042 shares of RBI stock, with an alleged value of approximately $3.7 million. The trustee further alleges that sometime thereafter Mr. Parker received an additional 269,278 shares of stock, with an alleged value exceeding $2.5 million. Id., at 103-104. The trustee asserts that all of the stock received by Partel was subsequently transferred to Mr. Parker. Id., at ¶ 105. It is further averred that none of the defendants took steps to ensure that these stock transfers were recorded on RBI's corporate books. Id., at ¶ 106.
The trustee contends that, notwithstanding the MSA, Mr. Parker received at least $400,000 from RBI in consulting fees, $309,000 in reimbursement fees for travel and entertainment expenses, and $232,000 in reimbursement fees for other expenses, through the end of 2005. Id., at ¶ 107. Further, the amended complaint asserts that at all times when payment was made to Partel under the MSA, RBI experienced a negative cash flow, and was delinquent in its loan payments to Meridian Bank. Id., at ¶ 109.
On May 1, 1991, RBI and the City of Reading executed a second lease agreement for the Mt. Penn site. The second agreement was for a term of 19 years and commenced on May 1, 1991. Id., at ¶ 110. Under this second lease, RBI was to pay an annual rental fee of 5% of the gross revenues it realized from various licensing agreements for space on Mt. Penn Tower. Id., at ¶ 111. RBI's projected gross income from its licensing agreements was $30,490 for 1990 and $40,080 for 1991. Id., at ¶ 112.
In August of 1991, RBI assigned its interest in the Mt. Penn lease with the City of Reading to SOT, Inc. SOT, Inc. is a Pennsylvania sub-chapter S corporation with its principal office located at 152 North Sixth Street, Reading, PA. Id., at ¶ 13. SOT's shareholders are defendants Jack A. Linton, Irwin Cohen, Mr. Parker, the Estate of Robert H. Clymer, Bernard R. Gerber, and Roger N. Longenecker. Id., at ¶ 14. By October 1991, SOT's shareholders made up a majority of the RBI board of directors. Id., at ¶ 139. The assignment agreement between RBI and SOT also called for the execution of a Tower Site license agreement, under which RBI would assign to SOT RBI's right to use the Mt. Penn Tower.
As a consequence of the Tower Site license agreement, RBI would pay SOT a monthly rental fee for RBI to use the Mt. Penn Tower beginning on March 1, 1992. Id., at ¶ 116. The assignment...
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