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Steefel, Levitt & Weiss v. Astor Holdings

May 31, 2005


The opinion of the court was delivered by: Joseph C. Spero United States Magistrate Judge



On Friday, May 6, 2005, the following motions came on for hearing: 1) Steefel Levitt & Weiss' Motion for Summary Judgment ("Steefel Motion"); and 2) William R. Pascoe and Pascoe & Rafton's Joinder in Motion and Motion for Summary Judgment ("Pascoe Motion").*fn1 For the reasons stated below, the Motions are GRANTED in part and DENIED in part.*fn2


A. Facts*fn3

In 1994, Marc Thorpe entered into a joint venture with Profile Records, a company owned by Steven Plotnicki. Plaintiff Steefel Levitt & Weiss' Appendix of Exhibits in Support of Motion for Summary Judgment ("Steefel's Appendix"), Ex. 1 (Complaint, Robot Wars LLC v. Thorpe et al., Case No. 97 CIV 5536) at 3. Profile Records later became Profile Holdings and then Astor Holdings, Inc. (hereinafter, all three companies will be referred to collectively as "Astor"). Id. Thorpe was a designer who, prior to the creation of the joint venture, had the idea of creating radio-controlled robots and conducting sporting events in which the robots would compete called "Robot Wars." Id. at 2-3. The purpose of the joint venture was to promote "activities relating to Robot Wars, including the staging of Robot War Events," with Thorpe providing the ideas and Astor providing the financing. Id.

On July 25, 1997, Astor sued Thorpe in the United States District Court for the Southern District of New York (Roski I) for injunctive relief and damages. Id. Astor alleged that Thorpe had secretly planned a Robot Wars event, scheduled to occur in August 1997, in violation of the joint venture agreement and that he had used the Robot Wars mark without authorization. Id. Fran Jacobs, of the firm Duane, Morris & Heckscher (hereinafter, "DM"), represented Astor. Id.

On May 27, 1998, Thorpe filed for bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. Steefel's Appendix, Ex. 21 (Chandler Depo.) at 127. The bankruptcy proceeding stayed the New York action against Thorpe (Roski I) under 11 U.S.C. §§ 362 et seq. On June 10, 1998, Astor retained William Pascoe to obtain relief from the stay. Declaration of William Pascoe ("Pascoe Decl."), & 3 & Ex. B (Fee Agreement). In an amended complaint filed in 1998 in Roski I, Astor alleged that the bankruptcy proceeding was brought to "freeze the Robot Wars Business and keep [Astor] from realizing any return on its investment." Steefel's Appendix, Ex. 2 at 26. However, no explicit finding of bad faith was made by Judge Jaroslavsky in the bankruptcy proceeding.

Eventually, in 1999, Astor and Thorpe reached a settlement in the bankruptcy proceeding, under which Astor agreed to pay Thorpe $250,000 and 10 % of future Robot Wars royalties and Thorpe agreed to promote one final Robot Wars event, assist in "rehabilitating" Astor owner Plotnicki's reputation with "roboteers" and refrain from direct competition with Robot Wars. Steefel's Appendix, Ex. 5 (February 3, 1999 Settlement Agreement).

Meanwhile, in Roski I, Astor filed an "Amended and Supplemental Complaint" adding Edward Roski as well as several other individuals as defendants. Steefel's Appendix, Ex. 2 (Amended and Supplemental Complaint, Filed August 4, 1998). Astor alleged that Roski and Thorpe (and others unrelated to this action) were involved in a conspiracy against Robot Wars and Astor. Because the stay was still in place as to Thorpe, the Amended and Supplemental Complaint stated that "no relief is now sought against Thorpe, the complaint has not been amended to add any new claims directed against him, and no action will be taken against Thorpe without permission of the Bankruptcy Court while his case is pending if such action invokes the automatic stay." Id.

On April 22, 1999, Astor filed a separate action against Roski in which Thorpe was not named as a Defendant (Roski II). Steefel's Appendix, Ex. 6 (Complaint, Robot Wars LLC v. Roski, et al., Case No. 99 CV 2953).

Sometime in 1999, Astor and Thorpe began to accuse each other of violating the Settlement Agreement in the bankruptcy proceeding and an adversary proceeding ("the First Adversary Proceeding") before Judge Jaroslavsky ensued. Steefel's Appendix, Ex. 4 (Memorandum and Decision, Filed August 8, 2000 ("the August 8, 2000 Order")). In the First Adversary Proceeding, Thorpe sought to recover the $250,000.00 Astor agreed to pay under the Settlement Agreement and Astor sought damages in excess of $600,000.00 from Thorpe, alleging that he had failed to use best efforts to rehabilitate Astor's reputation, as required under the Settlement Agreement. Id. at 2, 4. Judge Jaroslavsky conducted a trial on the merits and concluded that Thorpe had breached the Settlement Agreement while Astor had not. Id. However, Judge Jaroslavsky limited Astor's damages to approximately $225,000.00 on the basis that the damage to its reputation had resulted in part, from its own conduct. Id. at 4. Judge Jaroslavsky then offset the $225,000.00 in damages with Astor's obligation to pay Thorpe $250,000.00 under the Settlement Agreement, resulting in a judgment in favor of Thorpe in the amount of approximately $25,000.00. Id. at 4.

Astor appealed the August 8, 2000 Order, retaining Steefel shareholder Harvey Schochet to prosecute the appeal. Steefel's Appendix, Ex. 22 (Schochet Depo.) at 94. Plotnicki testified in his deposition that Schochet had been retained because both he and Fran Jacobs had been dissatisfied with Pascoe's representation in the First Adversary Proceeding. Steefel's Appendix, Ex. 23 (Plotnicki Depo.) at 39.*fn4 After Plotnicki, Schochet and Jacobs conducted initial discussions, Astor also agreed to retain Schochet's firm, Steefel, on an hourly basis to prosecute the appeal. Steefel's Appendix, Ex. 23 (Plotnicki Depo.) at 71-72; Steefel's Appendix, Ex. 25 (Engagement Letter). Plotnicki signed the Engagement Letter after his in-house counsel had reviewed it and made some revisions. Steefel's Appendix, Ex. 25 (August 20, 2001 Letter from Plotnicki to Schochet).

In February 2001, while the appeal in the First Adversary Proceeding was still pending, Thorpe filed a proposed reorganization plan ("the Reorganization Plan" or "the Plan") in the underlying bankruptcy action. Steefel's Appendix, Ex. 22 (Schochet Depo.) at 106. Because the proposed plan had implications for the appeal in the First Adversary Proceeding and a contemplated action against Roski in New York (discussed below), this development in the bankruptcy led to "an entirely new kind of conversation" between Plotnicki, Pascoe, Schochet and Jacobs. Steefel's Appendix, Ex. 22 (Schochet Depo.) at 107; see also id. at 129 (Schochet describes himself, Pascoe and Jacobs as "the advisory team" in testifying about advice that was given to Plotnicki in connection with filing of the New York Action). Plotnicki concluded that the Plan was not in Astor's interests. Id. at 116. However, on April 30, 2001, following a confirmation hearing, the Plan was confirmed by Judge Jaroslavsky. Steefel's Appendix, Ex. 19 (Order Confirming Chapter 11 Plan).

The parties appear to dispute whether the Plan was confirmed over Astor's objection or, alternatively, whether Pascoe failed to object to the Plan on Astor's behalf. In his declaration, Plotnicki states that "[i]f Mr. Pascoe had not compromised [Astor's] position at the bankruptcy plan confirmation, Astor would have appealed any confirmation of Thorpe's plan." Plotnicki Decl., & 7. Steefel, on the other hand, states in its brief, that the Plan was confirmed "over Astor's objections." Steefel Motion at 11. Similarly, Pascoe states in his Reply that he "strongly disputes that he acted without Astor's authority in any respect at the confirmation hearing in April 2001." Pascoe Reply at 7.

In an order dated June 11, 2001, the bankruptcy court described Astor's position at the confirmation hearing as follows:

After a full trial, the court determined that creditor Astor Holdings, Inc., has no claim against debtors Marc and Denise Thorpe. Astor was given the opportunity to stay the court's judgment pending appeal, but elected not to do so. Nonetheless, Astor objected to the debtor's Chapter 11 plan of reorganization using the argument that if it prevailed on appeal, and if it was thereafter found to have a priority claim, there would not be enough money in the estate to pay it.

The court was disinclined to permit Astor to block confirmation based on the possibility that an unstayed judgment against it might be reversed on appeal. Seeing this, and with the court's active participation, the parties seemed to reach an agreement in open court whereby the plan would be confirmed but the proceeds of a $150,000.00 loan being used to fund a plan would be held pending appeal. In return, Astor agreed that if those funds were not sufficient then any unpaid balance would be discharged.

It now appears that there was no meeting of the minds, as can often happen when a settlement is reached in court when each side is thinking on its feet and the court it not fully aware of all the possibilities. Astor points out that in addition to the contemplated funds of about $150,000.00, there could possibly be additional royalty money coming into the estate some time in the future. [Footnote omitted].

Whatever the parties were thinking, in the court's mind the quid pro quo was that Astor, in return for waiving any unpaid administrative claim it might some time in the future acquire, would share in whatever was in the estate, and not just the $150,000.00 loan proceeds. Therefore, if it felt free to do so, it would either amend the order confirming the plan to reflect this or, much more likely, simply overrule Astor's objection and confirm the plan as originally proposed. However, the court notes that Astor has appealed the order confirming the plan, thereby depriving the court of jurisdiction to make the changes Astor seeks. In re Padilla, 222 F.3d 1184, 1190 (9th Cir. 2000).

Accordingly, the motion to reconsider confirmation will be denied without prejudice. Counsel for the debtors shall submit the appropriate form of order.

William R. Pascoe and Pascoe & Rafton's Request for Judicial Notice in Support of Joinder in Motion and Motion for Summary Judgment ("Pascoe Request for Judicial Notice"), Ex. B (June 11, 2001 order of bankruptcy court denying motion to reconsider confirmation of Reorganization Plan without prejudice).

Prior to the confirmation of the Reorganization Plan by the bankruptcy court, Astor filed two actions in New York. The first action, against Roski and his company, Battlebots, but not against Thorpe, was filed on March 5, 2001 (Roski III). Steefel's Appendix, Ex. 7 (Complaint, Astor Holdings, Inc. v. Rosky, Case No. 01 CV 1905). In that action, Astor alleged two causes of action for tortious interference, a cause of action for aiding and abetting Thorpe's breach of his fiduciary duty to Robot Wars and a cause of action for unjust enrichment. Id. The complaint in Roski III was drafted and signed by Fran Jacobs. Steefel's Appendix, Ex. 27 (Jacobs Depo.) at 46 (testimony that in early 2001, Jacobs was researching and drafting the complaint in Roski III). Jacobs testified in her deposition that she sent copies of the draft complaint in Roski III to both Schochet and Pascoe. Opposition to Pascoe & Rafton's Motion for Summary Judgment ("Opposition (Pascoe)"), Ex. G (Jacobs Depo.) at 161. In particular, she testified as follows:

A: Both of them were sent drafts of the complaint against Roski and asked to consider the bankruptcy ramifications and impact it would have on the claims against Thorpe and whether there were any bankruptcy issues we should consider . . .

Q: When you say any bankruptcy issues to be considered, what specifically did you ask Mr. Schochet or Mr. Pascoe to do in that regard?

A: I think what I was asking them to do was look at it as bankruptcy lawyers and consider the things that would be something that bankruptcy lawyers would understand.

Q: Did either Mr. Pascoe or Mr. Schochet make any specific suggestions to you about the substance of particular claims that you proposed to assert against Mr. Roski?

A: I don't recall that.

Id. Elsewhere in her deposition, Jacobs testified that the complaint in Roski III was "reviewed by" both Pascoe and Schochet. Reply Declaration of David W. Evans in Support of Plaintiff Steefel Levitt & Weiss' Motion for Summary Judgment ("Evans Reply Decl."), Ex. 39 (Jacobs Depo.) at 259.

In an e-mail to Schochet dated March 1, 2001 - four days before the complaint was filed in Roski III - Jacobs wrote as follows:

Harvey -

Steve is now anxious to file the complaint tomorrow. Let me know if you will have time to look at it before then. Although I don't think there's anything in there we haven't said before, I want to be sure we don't say anything that would hurt us in the bankruptcy case.

I've also forwarded the complaint to Bill.

A copy of the latest draft is ...

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