SIGNATURE APPAREL GROUP LLC v. Studio IP Holdings LLC et al

OCR transcription for search; preserved printed pages are authoritative

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 1of9

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

in re
Chapter 11
SIGNATURE APPAREL GROUP, LLC, Case No. 09-15378-reg
Debtor
- ee a a *
SIGNATURE APPAREL GROUP, LLC, Adv. Proc. No. 11-02800-reg
Plaintiff

v.

JOESEPH LAURITA, CHRISTOPHER LAURITA,
NEW STAR GROUP, LLC, ROC FASHIONS, LLC,
RVC ENTERPRISES, LLC, RUBEN AZRAK,
VICTOR AZRAK, CHARALES AZARAK,
ICONIX BRAND GROUP, INC., and

STUDIO IP HOLDINGS, LLC,

Defendants

ROC FASHIONS, LLC,

Third-Party Plaintiff
v.

STUDIO IP HOLDINGS, LLC,

Third-Party Defendant

MEMORANDUM DECISION DENYING MOTION
BY CHRISTOPHER LAURITA FOR A PRELIMINARY INJUNCTION

Through his motion (the ‘“Motion), Christopher Laurita seeks a preliminary

injunction enjoining Signature Apparel Group, LLC (the “Debtor” or “Signature”) and

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 2 0f9

Anthony Labrosciano (the “Responsible Person”) from paying any further post-
confirmation professional fees and expenses until the conclusion of this adversary
proceeding and until any potential claim of Laurita for indemnification for expenses
incurred in connection with this action is adjudicated. See Motion for Preliminary
Injunction, ECF Doc. # 221.!

In support of the Motion, Laurita includes certifications by Christopher Laurita
(the “Laurita Certification”), ECF Doc. #221 Part 2, and Andrew Pincus (the “Laurita
Certification.), ECF Doc. #221 Part 2, and various supporting exhibits. [ECF Doc. #221,
Exhs. A-L.]

The Debtor opposed the Motion (“Objection”). ECF Doc. #228. Third-party
defendant Studio IP Holdings, LLC, an affiliate of Iconix Brand Group, (“Iconix”) filed a
reply to the Motion, jointing in the request for an injunction but taking no position on the
validity of any prospective claim of Laurita for indemnification by Signature for fees
connected to this adversary proceeding (the “ Iconix Reply”). ECF. Doc. #227. In
response to the Objection, Laurita submitted a reply in further support (the “Reply
Memorandum of Law”). ECF Doc. # 231.

The matters raised in the Motion do not satisfy the “case or controversy”
requirement under Article Ii] of the United States Constitution, as they are not ripe for
consideration by the Court. The Responsible Person’s law firm has agreed to maintain
the status quo absent leave of the Court, and Laurita will not suffer any hardship if the
Court does not entertain the issues raised in the Motion. Therefore, and for the reasons
more fully set forth below, the Motion is denied.

JURISDICTION

‘Except as otherwise noted, references to the docket refer to the adversary proceeding.

Page 2 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 30f9

The United States District Court for the Southern District of New York has
subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334.
This Court exercises authority over the proceeding pursuant to 28 U.S.C. § 157 and the
amended standing order of reference signed by Chief District Judge Loretta A. Preska on
January 31, 2012. This matter is a core proceeding. See AHT Corp. v. Bioshield
Technologies, Ine. (In re AHT Corp.), 265 B.R. 379, 386 (Bankr. S.D.N.Y. 2001) (causes
of action based upon postpetition conduct are “necessarily and by definition” core
proceedings).

BACKGROUND
The Underlying Bankruptcy Case

On September 4, 2009 (the “Petition Date”), an involuntary chapter 7 petition
brought was filed against the Debtor by Olshan Frome Wolosky, LLP (““Olshan”) on
behalf of Havestway (China) Limited, Talful Ltd. and Hitch and Trail, Inc. (the
“Petitioning Creditors”), Case No. 09-15378-jmp, ECF No. 1.

On November 13, 2009, the Court granted the Debtor’s motion to convert the case
to chapter 11. Case No. 09-15378-jmp, ECF No. 30. On December 3, 2009, the United
States Trustee noticed the appointment of the Official Committee of Unsecured Creditors
(the “Committee”). Case No. 09-15378-jmp, ECF No. 45.

A joint plan of liquidation proposed by the Debtor and the Committee was
confirmed by order dated July 1, 2010 effective as of August 5, 2010 (the “Plan”). Case
No. 09-15378-jmp, ECF Nos. 131 & 138. The Plan provided that Anthony Labrosciano

serve as Responsible Person, acting as the sole officer and director of the Debtor and

Page 3 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 40f9

authorized, inter alia, to pursue litigation claims for the benefit of the unsecured

creditors. Case No. 09-15378, ECF No. 107 Art. VI.

This Adversary Proceeding

As set forth in the Plan, The Responsible Party represented by Olshan
commenced litigation against a number of parties, including the subject actions. In
November, 2010, Signature brought this adversary proceeding against ROC Fashions,
RVC Enterprises, LLC, Ruben Azrak, Victor Azrak and Charles Azrak. The complaint
alleged a variety of causes of action relating to the termination and transfer of rights
under a license agreement between Signature and Iconix (the “Rocawear License”) and
challenged payments made by the ROC Defendants to Signature’s former executives,
Joseph Laurita and Christopher Laurita. ECF No. 1. Subsequently, ROC Fashions
named Iconix as a third-party defendant. ECF No. 23. Signature had also commenced a
separate adversary proceeding against Joseph Laurita and Christopher Laurita alleging
misappropriation and dissipation of corporate assets (the “Laurita Adversary
Proceeding”). Case No. 10-04207, ECF No. 1.

In March, 2010, Signature amended the ROC Complaint to combine claims from
the Laurita Adversary Proceeding and the ROC Adversary Proceeding and to make direct
claims against Iconix and related parties to recover damages associated with the loss of

the Rocawear License. See First Amended Complaint [ECF No. 89}.

The Motion for a Preliminary Injunction
In his papers Laurita acknowledges that the Court has already directed the

Responsible Person not to pay any fees to Olshan, pending further application to the

Page 4 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 50f9

Court. Despite this direction and Olshan’s on-the-record agreement, Laurita asserts that
the future prospect of a fee application would work an irreparable harm if the application
is made either prior to the adjudication of this proceeding or if Laurita, at some future
point in time, seeks indemnification by Signature for the legal fees. According to
Laurita, the elements necessary for a preliminary injunction—the prospect of irreparable
harm and both a likelihood of success on the merits and meritorious grounds for litigation
combined with a balance of the equities in favor of Laurita questions—are all presently
extant.

Laurita argues that Signature’s Operating Agreement survived plan confirmation
and entitles him, as a former officer of the Debtor, to indemnification of his present and
future legal expenses in connection with this proceeding. Acknowledging the rule that a
bare entitlement to a money judgment is insufficient to demonstrate irreparable harm,
Laurita argues that the finite nature of the Signature’s estate—funded by a liquidating
plan and currently holding only funds of $1,183,594.20 against approximately $55
million in claims—establishes an exception to the rule, in the prospect of irreparable
harm from any further payment of legal fees by the Responsible Person.

In his argument that such a future indemnification claim would succeed—meeting
the Operating Agreement’s requirements that Laurita’s conduct be “without reckless
disregard and without commission of willful misconduct” and Limited Liability
Company Law of New York § 420’s requirements that the conduct not be in “bad faith”
and not result in an unjustified personal gain—Laurita recaps the relevant, intent-related

portions of his arguments made thus far in the proceedings.

Page 5 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 6 of 9

As for the balance-of-hardship argument, Laurita asserts that the potential claim
for indemnification will be a “post-effective date” claim, entitled to payment on par with
all other post-effective date estate expenses, including Olshan’s fees, and, as a result
Laurita faces the hardship that significant post-effective date funds have already been

paid without provision for Laurita’s potential claim.

Signature 's Response

Signature argues in response that because Laurita has yet to assert a claim for
indemnification, the Motion fails to present a justiciable controversy. Signature asserts
that, even if Laurita brought a formal claim for indemnification, he would be unable to
meet the requirement for a preliminary injunction because of a failure to demonstrate
irreparable harm, a likelihood of success on the merits or a favorable balance of
hardships, a supporting public policy argument, or the satisfaction of Fed. R. Civ. P. 65’s
bonding requirement. Finally, Signature implies that the Court could not grant an
injunction barring the payment of post-effective date fees because the Plan provides that
the authority to pay Signature’s post-effective date professional fees lies solely in the

discretion of the Responsible Person and is not subject to review by the Court.

Discussion

Because the Motion is based on a hypothetical indemnification interest and
Laurita concedes that the status quo essentially includes the relief sought—the Court’s
prior direction that Signature not pay professional fees without Court approval—the

Motion fails to properly present a case or controversy for proper judicial review.

Page 6 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 7 of 9

“Federal Courts are courts of limited jurisdiction... and Article III of the United States
Constitution limits our jurisdiction to actual cases or controversies.” Marvel Worldwide,
Inc. v. Kirby, 736 F. Supp.2d 461, 468 (S.D.N.Y. 2010 (citing Marcella v. Capital Dist.
Physicians’ Health Plan, Inc., 293 F.2d 42, 46 (2d Cir. 2002) and Valley Forge Christian

Coll. v. Americans United for Separation, 545 U.S. 464, 471 (1982)).

Article I] standing requires 1) that the plaintiff ‘ha[s] suffered an injury in fact -
an invasion of a legally protected interest which is (a) concrete and particularized and (b)
actual or imminent, not conjectural or hypothetical,” (2) the injury be “’ fairly traceable

349

to the challenged action of the defendant,’” and (3) it “’be likely, as opposed to merely
speculative, that the injury will be redressed by a favorable decision.’” Hedges v. Obama,
724 F.3d 170, 188 (2d Cir. 2013) (other citations omitted).

The ripeness doctrine precludes a court “from entertaining claims based on
‘contingent future events’ that may not occur as anticipated or at all.” Marvel
Worldwide, Inc. v. Kirby, 756 F. Supp.2d at 468 (citing City of New Rochelle v. Town of
Mamaroneck, 111 F. Supp.2d 353, 359 (S.D.N.Y. 2000) (other citations omitted}. The
test for determining whether a matter is ripe for adjudication was set forth by the
Supreme Court in Nat'l Park Hospitality Ass’n v. Dept. of the Interior, 538 U.S. 803, 808
(2003), as follows: (1) whether the issues are fit for judicial decision, and (2) the
hardship of the parties of withholding court consideration.

The first prong focuses on whether the issues to be adjudicated are contingent on
future events or on events that may never occur. Simmonds v. Immigration &

Naturalization Serv., 326 F.3d 351, 356-57 (2d Cir. 2003). In this case, there are a series

of events that have yet to take place before the issues raised by Laurita require

Page 7 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 8 of 9

adjudication. First, Olshan has not taken a distribution, and has agreed not to take any
distribution unless the Court permits Olshan to do so. In addition, Laurita has yet to file a
claim for indemnification for the legal fees he has incurred in this proceeding. These
events are all in the future, and therefore the first prong is not satisfied.

The second prong focuses on the hardship the parties will face if the Court does
not rule on the issues raised in the Motion. Because there is no imminent prospect of
Olshan breaching its agreement, there will be no hardship to Laurita if no injunctive relief
is granted. The status quo currently in place gives Laurita the same protections that

injunctive relief would provide at this point, as no funds are about to distributed.

Because the Motion is denied due to lack of case or controversy, the Court shall
not rule on whether Olshan’s fees are subject to the supervision of the Court or whether
the matter should be resolved by considering entry of a preliminary injunction.
Signature’s authority to pay post-effective date fees will not be addressed until, as the
Court directed previously, Olshan files a fee application, the Responsible Person files
detailed operating reports containing matter entries and other details traditionally
included in fee applications, or a hearing is held directly on the issue of the Court’s
jurisdiction to review Olshan’s fees for reasonableness.’
Conclusion

The Motion does not present a case or controversy for the Court to decide, as the

issues raised in the Motion are not ripe for adjudication.

? The Court will note that the Plan, which resulted in the Confirmation Order under which the Responsible
Person claims an unfettered right to make payments in its sole discretion, was subject to § 1129(a)(4}’s
confirmation requirement that a plan proponent certify that all fees related to the case will be subject to a
reasonableness review by the court. Since Olshan, now counsel to the Responsible Person, was formally
counsel to the Official Committee of Unsecured Creditors, who was a joint plan sponsor along with the
debtor, they are assumed to be familiar with this requirement, Matter of Cajun Elec, Power Co-op., Inc.,
150 F.3d 503 (Sth Cir. 1998) (discussing § !129(a)(4)’s payment disclosure and review requirement).

Page 8 of 9

11-02800-rg Doc 239 Filed 08/04/16 Entered 08/04/16 14:14:39 Main Document
Pg 9 of 9

Accordingly, the Motion is denied without prejudice. The Court shall enter an order
consistent with this Memorandum Decision.

Dated: New York, New York E& Yirnene
August 4, 2016 BY:

Robert E. Grossman
United States Bankruptcy Judge

Page 9 of 9