Matter of American Media Distributors, LLC

• Decision Date: 05 February 1998
• Docket Number: Bankruptcy No. 97-20760-575.
• Citation: 216 BR 486
• Parties: In the Matter of AMERICAN MEDIA DISTRIBUTORS, LLC, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

216 B.R. 486 (1998)

In the Matter of AMERICAN MEDIA DISTRIBUTORS, LLC, Debtor.

Bankruptcy No. 97-20760-575.

United States Bankruptcy Court, E.D. New York.

February 5, 1998.

Parker Chapin Flattau & Klimpl, LLP by Henry Condell, New York City, for Pelham News Co., Inc., Pellham/American Periodical Distributors, Inc., Vincent Orlando and Joseph Orlando.

Shaw Licitra Asernio & Schwartz, P.C. by Stuart I. Gordon, Garden City, NY, for American Media Distr., LLC.

Sylvor & Richman, LLP by Iris S. Richman, New York City, for Media American

Distributors, Inc., Anthony Orlacchio, Michael Pouchie and Matthew Peres.

Hahn & Hessen, LLP by David I. Blejwas, New York City, for Official Committee of Unsecured Creditors of American Media Distributors, LLC.

Office of U.S. Trustee by Alfred Dimino, Garden City, NY.

MEMORANDUM OPINION AND ORDER

LAURA TAYLOR SWAIN, Bankruptcy Judge.

This case comes before the Court on the motion of Pelham News Company, Inc., Pelham/American Periodical Distributors, Inc., Vincent Orlando and Joseph Orlando (collectively, "Movants" or "Pelham/American Group") for an order lifting the automatic stay, to the extent that it is applicable, to permit the arbitration of certain claims arising under an operating agreement relating to the conduct of business of the debtor herein, American Media Distributors, LLC (the "Debtor"). The counter parties to the operating agreement, and the respondents in the instant motion, are non-debtors Media American Distributors, Inc., Anthony Orlacchio, Michael Pouchie and Matthew Peres (collectively, "Respondents" or "Media Group"). Debtor is not a party to the operating agreement and would not be a respondent in the arbitration proceeding.

The Court has considered thoroughly all submissions and argument in support of and in opposition to Movants' request for relief. For the following reasons, the Court finds that the automatic stay does not apply to the subject dispute and that the provisions of 11 U.S.C. § 362(a) therefore do not preclude Movants from commencing or continuing their action against Respondents in an arbitral forum.

This Memorandum Opinion and Order constitutes the Court's findings of fact and conclusions of law in accordance with Fed. R.Bankr.P. 7052 with respect to this contested matter. The Court has jurisdiction of these core proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(G), and the Order of Reference of the United States District Court for the Eastern District of New York dated August 28, 1986.

Findings of Fact

The Court makes the following findings of fact based upon the undisputed evidence proffered by the parties. To the extent such findings incorporate conclusions of law they shall constitute conclusions of law for purposes of Fed.R.Bankr.P. 7052 as fully as if denominated as such.

1. Movants Pelham News Company, Inc. ("Pelham") and Pelham/American Periodical Distributors, Inc. ("American") are member companies of the Debtor, each holding a 24.75% membership interest and having a collective equity ownership interest of 49.5%. Movants Vincent Orlando and Joseph Orlando are the shareholder/owners of Pelham and American.

2. Respondent Media American Distributors, Inc. ("Media") is a member company of the Debtor, holding a 49.5% equity interest. The remaining Respondents are shareholder/owners of Media.

3. The respective member companies of the Debtor were competitors prior to joining forces in 1996 to create the Debtor.

4. Movants and Respondents are parties to a written operating agreement, dated December 27, 1996 (the "Operating Agreement"). The Operating Agreement governs the management of the Debtor and sets forth certain powers and responsibilities of its members, managers and employees. As noted above, the Debtor is not a party to the Operating Agreement.

5. The Operating Agreement contemplates joint control over the Debtor by the Pelham/American Group and the Media Group. The Operating Agreement provides in pertinent part:

¶ 3. Members/Managers.

a. Management of this Company shall be vested in the managers . . ., and all decisions will be made in accordance with the annexed Decision Matrix and Organization Chart g. The Articles of Organization shall provide that the management of the Company shall be vested in the managers . . . There will be seven (7) managers. The members must vote to elect two (2) managers nominated by Media, one (1) manager nominated by Pelham, one (1) manager by American, and two (2) managers, not affiliated with or related to any of the members, the Media shareholders, or the Pelham or American shareholders, to be mutually agreed upon by the members. The Chairman will be the seventh manager, who will have no vote unless there is a tie. All the votes will be broken by vote of the Chairman. For so long as he is a manager, V. Orlando will have the titles Chief Executive Manager ("CEM") and Chairman; Orlacchio will have the titles President and Chief Operating Manager ("COM"). Notwithstanding the foregoing, all decisions will be made in accordance with the annexed Decision Matrix and Organization Chart.

6. The Operating Agreement contains a broad arbitration clause that provides:

¶ 17. Resolution of Disputes.

a. Any dispute arising from this Agreement or any agreement among the parties referred to herein shall be determined before a single arbitrator in sic the American Arbitration Association, New York, New York. In any such proceeding, the prevailing party shall be entitled to reasonable attorneys\' fees and costs in addition to any amounts awarded. Such arbitrator shall have authority to grant equitable relief and money damages.

7. Respondents caused Debtor to file its Chapter 11 bankruptcy petition in this case on September 24, 1997.

8. Movants commenced an arbitration proceeding against Respondents on October 2, 1997, alleging numerous breaches of the Operating Agreement and other misconduct on the part of Respondents. Respondents asserted a counterclaim based on fraud in the inducement.

9. The bulk of Movants\' causes of action were withdrawn or dismissed without prejudice in December 1997. At that time, the arbitrator informed the parties that he would take no further action in respect of Movants\' efforts to secure specific performance of the corporate governance provisions of the Operating Agreement unless the Movants obtained an order from this Court modifying the automatic stay imposed by 11 U.S.C. § 362(a) to permit the arbitration proceeding to go forward. The instant motion followed.

The Parties' Contentions

Movants allege that Respondents have breached the Operating Agreement by engaging in a "coup" to take control of the Debtor and that Respondents have effectively ousted Movants from the management of the Debtor. Movants allege that Respondents have, inter alia, barred Movants' access to Debtor's physical premises, books, records and computer system and have engaged in decision making processes inconsistent with the terms of the Operating Agreement.

In this motion, Movants seek permission to invoke the arbitration provisions of the Operating Agreement to resolve their claims of breach of contract. Movants represent that the relief sought through arbitration will be limited to specific enforcement of the Operating Agreement by: (a) a declaration (i) restoring the status quo of management (particularly restoring Vincent Orlando to his position in management) and (ii) that the decisions of the Debtor shall be made jointly by Movants and Respondents; and (b) an award of attorneys fees as provided under the Operating Agreement.

Movants disclaim the applicability of the automatic stay to their efforts to enforce the arbitration clause and governance...