In re Vice Grp. Holding
| Docket Number | 23-10738 (JPM) |
| Decision Date | 07 July 2023 |
| Parties | In re: VICE GROUP HOLDING INC., et al., [1] Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
(Jointly Administered)
TOGUT SEGAL & SEGAL LLP Proposed Counsel for Debtors By: Kyle J. Ortiz, Esq., Brian F. Moore, Esq., John C. Gallego, Esq.
SHEARMAN & STERLING Proposed Counsel for Debtors By: Ian Roberts, Esq., Noah Bloom, Esq. GIBSON, DUNN & CRUTCHER LLP Counsel for DIP Lenders and Proposed Purch By: David M. Feldman, Esq., Tommy Scheffer Esq., Michael S. Neumeister, Esq.
STROOCK & STROOCK & LAVAN LLP Counsel for Paramount Global and Affiliates, By: Stephan E. Hornung, Esq. Alex Talesnick, Esq.
DOSHI LEGAL GROUP Counsel for Oracle America, Inc., By: Amish R. Doshi, Esq.
PACHULSKI STANG ZIEHL & JONES LLP Counsel for Official Committee of Unsecured Creditors, By: Robert J. Feinstein, Esq. Bradford J. Sandler, Esq. Cia H. Mackle, Esq.
SIMPSON THACHER & BARTLETT LLP Counsel for A&E Television Networks, LLC By: Nicholas E. Baker, Esq. Sunny Singh, Esq. SPIVAK LIPTON LLP Counsel for Writers Guild of America, East By: Eric R. Greene, Esq. STARK & STARK Counsel for Conopco, Inc. d/b/a Unilever United States, Inc. By: Joseph H. Lemkin, Esq.
BROWN & CONNERY, LLP Counsel for Concur Technologies, Inc. By: Donald K. Ludman, Esq.
CONNOLLY GALLAGHER LLP Counsel for Cigna Health and Life Insurance Company By: Jeffrey C. Wisler, Esq.
SHIPMAN GOODWIN, LLP Counsel for Wilmington Trust, N.A. By: Marie C. Pollio, Esq., Latonia C. Williams, Esq.
VORYS, SATER, SEYMOUR AND PEASE LLP Counsel for CNN Productions, Inc. and Home Box Office, Inc. By: Tiffany Strelow Cobb, Esq.
HOLLAND & HART LLP Counsel for Entertainment Industry Employers Association By: Robert Faucher, Esq.
MCGRAIL & BENSINGER LLP Counsel for Entertainment Industry Employers Association By: Veronique Urban, Esq. WHITE AND WILLIAMS LLP Counsel for Fastly, Inc. By: James C. Vandermark, Esq.
THE LAW OFFICE OF MAGDALENA ZALEWSKI PLLC Counsel for Datasite, LLC By: Magdalena Zalewski, Esq.
UNITED STATES DEPARTMENT OF JUSTICE Office of the United States Trustee By: Andrea Schwartz, Esq., Daniel Rudewicz, Esq.
INTRODUCTION[2]
Before the Court is the motion (the "Motion") [Docket No. 16] of Debtors Vice Group Holding Inc., et al. (the "Debtors") seeking an order approving the assumption of certain leases and assigning those leases to Vice Acquisition Holdco, LLC, the purchaser of substantially all of the Debtors' assets (the "Purchaser"). Debtors also filed four supplemental notices of the contracts to be assumed by Debtors and assigned to Purchaser [Docket Nos. 109, 179, 240, 254]. As of June 29, 2023, the objections of Web Holdings, LLC [Docket No. 117], 49 South Second Street LLC [Docket No. 118], Cigna Health and Life Insurance Company [Docket No. 140], Entertainment Industry Employers Association [Docket No. 141], American Broadcast Companies, Inc. [Docket No. 149], Fastly, Inc. [Docket No. 159], Datasite, LLC [Docket No. 164], GMN Cayman Holdco LLC [Docket No. 167], Concur Technologies, Inc. [Docket No. 169] and A&E Television Networks, LLC [Docket No. 180] and CNN Productions, Inc. [Docket No. 186] have been settled. The objections of Oracle America Inc. ("Oracle") [Docket No. 160] and Showtime Networks Inc. ("Showtime") [Docket No. 174] remained outstanding.
Debtors filed a response to Showtime on June 29, 2023 [Docket No. 234], along with the Declaration of Frank A. Pometti in Support of Debtors' Reply to Objection and Reservation of Rights of Showtime to Debtors' Sale Motion (the "Pometti Declaration") [Docket No. 238] and the Declaration of Jay Weinberger (the "Weinberger Declaration") [Docket No. 236]. Frank A. Pometti is the Chief Restructuring Officer for Debtors and a partner and managing director of AlixPartners, LLP, and Jay Weinberger is a Managing Director in the Financial Restructuring Group of Houlihan Lokey Capital, Inc., financial advisor to Purchaser's owners. The Court approved the sale of substantially all of Debtors' assets on June 23, 2023 [Docket No. 214] and scheduled a hearing on the outstanding objections for June 29, 2023.
The Court held a hearing on the Motion on June 29, 2023 (the "Hearing"). At the Hearing, Debtors sought to admit the Pometti Declaration and the Weinberger Declaration. Although Showtime did not object to the entry of the declarations into evidence and did not seek to cross-examine the witnesses, it did object to statements made in paragraphs nine and ten of the Pometti Declaration and paragraph thirteen of the Weinberger Declaration. [Hr'g Tr. 39-40, 45-46.] The Court overruled both objections and admitted both the Pometti Declaration and the Weinberger Declaration into evidence in full. [Id. at 18, 42: 12-17, 56: 10-14.] At the hearing, Debtors asserted, and Oracle agreed, that the parties' outstanding issues were likely to be resolved, and the Court adjourned the matter to a future date. [Id. at 14-15.] Therefore, the only dispute concerns the objection of Showtime (the "Showtime Objection").
Based on the filings before the Court and the record made at the Hearing, the Court GRANTS the Motion and overrules the Showtime Objection.
Debtors and Showtime are parties to an agreement (the "Showtime Contract") for the production and licensing of a television documentary series (the "Vice Series"), which Debtors seek to assume and assign to Purchaser. Purchaser is an acquisition vehicle formed by three asset management companies: Fortress Credit Advisors LLC, Monroe Capital LLC and Soros Fund Management LLC (the "Prepetition Secured Lenders"). [Weinberger Declaration ¶ 6.] Combined, the Prepetition Secured Lenders had over $60 billion in assets under management as of March 31, 2023. [Id. at ¶¶ 7-9.] The Prepetition Secured Lenders lent Debtors $474.6 million under a prepetition secured debt facility, $57 million in new money loans to fund Debtors' operations and $10 million of new money debtor in possession financing. [Id. at ¶ 10.] Purchaser is acquiring Debtors' assets as a going concern and anticipates retaining management and key employees. [Id. at ¶¶ 11-13.]
The Vice Series is a "weekly newsmagazine docuseries featur[ing] award-winning journalists delivering on-the-ground-reporting on a wide range of pressing global issues." [Showtime Objection ¶ 10.] At the time the parties signed the Showtime Contract, Debtors had already become a notable creator of documentary series, including winning two Emmys. [Id.] The Vice Series has continued to win awards since airing on Showtime. [Id.]
Under the terms of the Showtime Contract, Debtors were to "produce, deliver, and license . . . a documentary series" up to eight seasons[3] for exhibition on Showtime's premium television network. Showtime agreed to pay Debtors certain, specified amounts for each season of the Vice Series as long as Debtors met the episode minimums. [Id.] The Showtime Contract provides that "timely Delivery and the first-class technical quality of the [Vice] Series are of the essence of the [Showtime Contract]." [Id.] In performance of their duties under the Showtime Contract, Debtors oversee production activities, "writ[e] and assist[] in the development of ideas and concepts," supply personnel and administer licenses, releases and contracts. [Showtime Objection ¶ 11.] Showtime has approval rights over creative elements and key personnel involved in creating the Vice Series, including "talent, executive producers, showrunner, director, line producer, production accountant, production counsel and department heads." Showtime also has takeover rights if the "approved director of the [Vice] Series shall be incapacitated from performing directing services." [Id.] However, the Showtime Contract does not identify specific individuals required to produce the Vice Series. [Pometti Declaration ¶ 4.] Showtime is currently airing the first part of season 4 of the Vice Series, with the second part of season 4 planned to air later this year. [Hr'g Tr. 24: 8-15.]
Under 11 U.S.C. § 365(a), a debtor in possession may "subject to the court's approval . . . assume or reject any executory contract or unexpired lease of the debtor." In determining whether a contract is executory, most courts look to the Countryman test, which defines an executory contract as "a contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other." In re Times Square JV LLC, 648 B.R. 277, 284 (Bankr. S.D.N.Y. 2023) (citing In re Penn Traffic Co., 524 F.3d 373, 379 (2d Cir. 2008) (quoting Vern Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973))). However, if performance only remains due on one side, the contract is not executory. In re Hawker Beechcraft, Inc., 486 B.R. 264, 276 (Bankr. S.D.N.Y. 2013). According to the legislative history of 11 U.S.C. § 365, executory contracts "generally include[] contracts on which performance remains due to some extent on both sides." H.R. Rep. No. 95-595, at 347 (1977), 1978 U.S.C.C.A.N. 5963, 6303; S. Rep. No. 95-989, at 58 (1978), 1978 U.S.C.C.A.N. 5787, 5844; accord NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n.6 (1984).
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