Jackson v. GSO Bus. Mgmt., LLC (In re Jackson)

• Decision Date: 29 August 2022
• Docket Number: CASE NO.: 15-21233 (AMN),Adv. Proc. No. 17-2068 (AMN)
• Citation: 643 B.R. 664
• Parties: IN RE: Curtis James JACKSON, III, Debtor Curtis James Jackson, III, Plaintiff v. GSO Business Management, LLC, Jonathan Schwartz, Michael Oppenheim, Bernard Gudvi, Nicholas Brown, and William Braunstein, Defendants GSO Business Management, LLC, Third-Party Plaintiff v. Boulevard Management, Inc., Third-Party Defendant
• Court: U.S. Bankruptcy Court — District of Connecticut

643 B.R. 664

IN RE: Curtis James JACKSON, III, Debtor

Curtis James Jackson, III, Plaintiff

v.GSO Business Management, LLC, Jonathan Schwartz, Michael Oppenheim, Bernard Gudvi, Nicholas Brown, and William Braunstein, Defendants

GSO Business Management, LLC, Third-Party Plaintiff

v.Boulevard Management, Inc., Third-Party Defendant

CASE NO.: 15-21233 (AMN)

Adv. Proc. No. 17-2068 (AMN)

United States Bankruptcy Court, D. Connecticut.

Signed August 29, 2022

Imran H. Ansari, Esq., Joseph P. Baratta, Esq., Baratta, Baratta & Aidala, LLP, 546 Fifth Avenue, 6^th Floor, New York, NY 10036, Counsel for Curtis James Jackson, III, Plaintiff and Debtor

John L. Cesaroni, Esq., James Berman, Esq., Christopher H. Blau, Esq., Zeisler and Zeisler, 10 Middle Street, 15^th Floor, Bridgeport, CT 06604, Local Counsel for Curtis James Jackson, III, Plaintiff and Debtor

Thomas K. McCraw, Esq., Freeman, Mathis & Gary, LLP, 60 State Street, Suite 600, Boston, MA 02109-1800, Counsel for GSO Business Management, LLC, Defendant and Third-Party Plaintiff

Ilan Markus, Esq., Barclay Damon LLP, 545 Long Wharf Drive, 9^th Floor, New Haven, CT 06511, Local Counsel for GSO Business Management, LLC, Defendant and Third-Party Plaintiff

Robert W. Cassot, Esq., Timothy J. Holzman, Esq., Morrison Mahoney LLP, One Constitution Plaza, 10^th Floor, Hartford, CT 06103, Counsel for Boulevard Management, Inc. Third-Party Defendant

MEMORANDUM OF DECISION AND ORDER AFTER TRIAL

Ann M. Nevins, Chief United States Bankruptcy Judge

I. NATURE OF THE PROCEEDINGS¹

The plaintiff here – Curtis James Jackson, III ("Mr. Jackson" or "Plaintiff"), known professionally as "50 Cent" – is a world-renowned musician, actor, producer, and entertainer. Mr. Jackson has also been involved in numerous business ventures for many years. In 2013, in order to manage these ventures, Mr. Jackson retained the defendant, GSO Business Management, LLC ("Accountants" or "GSO"), as business managers and accountants for himself and the numerous business entities he controlled.

In July of 2015, Mr. Jackson filed an individual Chapter 11 bankruptcy petition and retained GSO in the bankruptcy case to provide him with bankruptcy litigation services, including accounting services regarding monthly operating reports to be filed with the court, assistance in preparation of bankruptcy schedules and statements, and litigation support relating to the meeting of creditors and other bankruptcy matters. The work for which GSO was retained in the Chapter 11 case was in addition to the work already performed pre-petition on a regular and on-going basis for Mr. Jackson's various business entities.^{2 ,3} It was agreed that payment to GSO for bankruptcy-related work for Mr. Jackson individually would be paid to GSO after application and allowance of GSO's fees pursuant to 11 U.S.C. § 330.⁴

Things did not go well for unknown reasons. Within several months after the Chapter 11 case commenced Mr. Jackson terminated GSO and hired the third-party defendant, Boulevard Management, Inc. ("Boulevard") to replace GSO as his accountants in the Chapter 11 case. Boulevard was also hired to replace GSO as business managers and accountants for Mr. Jackson's business ventures outside of the Chapter 11 case.

At trial, Mr. Jackson broadly asserted claims against GSO as follows:⁵

1. GSO improperly paid itself $90,000 from G-Unit Records, Inc.’s ("G-Unit Records") account without court approval pursuant to Bankruptcy Code § 330 in the amount of $30,000.00, for each of the post-petition months of August, September, and October 2015 (the "$90,000 Monthly Fee Claim");

2. GSO improperly paid itself $88,692.51 from Mr. Jackson's debtor-in-possession ("DIP") account for bankruptcy-related services and expenses incurred in July and August 2015 (post-petition) without court approval pursuant to Bankruptcy Code § 330 (the "Bankruptcy Related Fee Claim")⁶ ; and

3. GSO negligently (a) failed to advise Mr. Jackson about the option of making a short-year tax election pursuant to 26 U.S.C. § 1398 (" IRC § 1398") and (b) failed to make a timely short-year tax election (the " IRC § 1398 Claim"), causing Mr. Jackson to pay more in taxes than he would have if the election had been made. AP-ECF No. 1.

Mr. Jackson seeks a judgment requiring GSO to: (1) disgorge to Mr. Jackson a total of $178,692.51 ($90,000 + $88,692.51); (2) pay $174,156.00 to Mr. Jackson as actual damages incurred as a result of GSO's failure to make the IRC § 1398 election; and (3) pay Mr. Jackson interest, attorney's fees, costs and punitive damages. AP-ECF No. 354.

GSO denies all liability. AP-ECF No. 10. GSO further asserts any damages stemming from the failure to make the IRC § 1398 election is the fault of Boulevard, because Mr. Jackson terminated GSO before the deadline to make the short-year tax election. AP-ECF No. 21. A seven (7) day bench trial was held on July 19, 20, 21, 23 and August 2, 3, 9, 2021.

II. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over this adversary proceeding by virtue of 28 U.S.C. § 1334(b). This court derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1), and the District Court's General Order of Reference dated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (O). This memorandum constitutes the court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable here pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. All parties consent to this court entering a final order or judgment in this adversary proceeding. AP-ECF Nos. 49, p. 3-4; AP-ECF No. 352. Should it be determined this court does not have jurisdiction and consent to enter a final order and judgment, this decision constitutes the court's proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c)(1).

III. RELEVANT PROCEDURAL BACKGROUND

This adversary proceeding was filed in connection with Mr. Jackson's voluntary Chapter 11 bankruptcy case commenced on July 13, 2015 ("Petition Date"), bearing case number 15-21233 (the "Main Case"). ECF No. 1. The court confirmed Mr. Jackson's Chapter 11 plan of reorganization (the "Plan") on July 7, 2016. ECF No. 552. Mr. Jackson made all payments required under his Plan, earning a Chapter 11 discharge on February 2, 2017. ECF No. 764. Pursuant to the terms of the Plan, Mr. Jackson owns the claims asserted in this adversary proceeding. This decision addresses events surrounding GSO's employment application in the Main Case and relevant facts from the Main Case are included as needed.

Approximately five months after the discharge order entered, on September 12, 2017, Mr. Jackson commenced this adversary proceeding by filing a verified complaint against the defendants, GSO, Jonathan Schwartz, Michael Oppenheim, Bernard Gudvi, Nicholas Brown, and William Braunstein ("Complaint"). AP-ECF No. 1. The Complaint is not a model of clarity often lumping allegations and causes of action together, but the following chart sets forth the general allegations.

Count	Allegation
I	GSO breached its fiduciary duty and/or committed negligence causing damages in excess of $200,000 by failing to make the IRC § 1398 election.
II	GSO breached its fiduciary duty, engaged in conversion, and/or was unjustly enriched when it paid itself $90,000 from the G-Unit Records account without bankruptcy court approval.
III	GSO's conduct constituted a breach of its fiduciary duty, negligence, and/or gross negligence entitling the debtor to compensatory and punitive damages.

AP-ECF No. 1.

During trial, Mr. Jackson's counsel orally moved to amend the Complaint to conform to the evidence presented by adding the allegation that GSO wrongfully paid itself, not only the $90,000 paid from the G-Unit Records account, but also $88,692.51 in fees paid from Mr. Jackson's DIP account for bankruptcy related services.⁷ GSO consented, and the court granted the oral request.⁸ Mr. Jackson's counsel additionally clarified the damages sought regarding the failure to make the IRC § 1398 election totaled $174,156.00 based upon the evidence, rather than the approximated figure of $200,000 as averred in the Complaint.⁹ As to damages for GSO's wrongful taking of fees, Mr. Jackson clarified he sought disgorgement, attorney's fees, interest and other relief.¹⁰

The Complaint did not include any specific allegations against the individual defendants (Jonathan Schwartz, Michael Oppenheim, Bernard Gudvi, Nicholas Brown, and William Braunstein). Rather, the Complaint alleged the individual defendants were liable based upon their status as "owners, partners, managers and/or officers of GSO." AP-ECF No. 1, ¶11.

[E]ach Defendant was an agent and/or employee of the other Defendants, acting within the scope of such agency or employment, directing ratifying or condoning the acts or omissions of the these Defendants alleged herein, and with the knowledge of any Defendant attributable to all Defendants, and Defendants conspired, condoned, acquiesced, and/or exhibited professional negligence, in furtherance of one another's conduct, and committing the actions as alleged herein, thereby making the actions of any Defendant attributable to all Defendants.

AP-ECF No. 1, ¶12.

On December 22, 2017, GSO filed a third-party complaint against Boulevard and Neligan, LLP¹¹ (the "GSO v. Boulevard Complaint"). AP-ECF No. 21. In the GSO v. Boulevard Complaint, GSO asserted claims for contribution and indemnification against Boulevard in Counts I and II and similarly against Neligan in Counts III and IV. AP-ECF No. 21. As against Neligan, the court dismissed Count III (contribution) as not ripe and granted Neligan's motion to dismiss as to Count IV (indemnification) concluding GSO failed to sufficiently allege Neligan owed any duty to GSO. AP-ECF Nos. 59, 60. GSO withdrew Count I (contribution) against Boulevard after...