Capitol Records, Inc. et al v. MP3TUNES, LLC et al
Filing
308
MEMORANDUM & ORDER: In conclusion, Robertson's application for a stay is denied. The parties are directed to submit a joint proposed case management schedule by July 6, 2012. Counsel for the parties are further directed to participate in a telep hone conference with the Court on July 9, 2012 at 12:00 p.m., to discuss the proposed case management schedule and set a trial date. Plaintiffs are directed to circulate a call-in number and a list of participants prior to the call. (Signed by Judge William H. Pauley, III on 6/25/2012) (lmb)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDC SONY
DOCUMENT
ELECTRONICALLY FILED
DOC'
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DATE FILED: &12. >IlL
CAPITOL RECORDS, INC. et ai.,
Plaintiffs,
07 Civ. 9931 (WHP)
MEMORANDUM & ORDER
-againstMP3TUNES, LLC et aI.,
Defendants.
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WILLIAM H. PAULEY III, District Judge:
Defendant Michael Robertson ("Robertson") seeks a stay of this copyright
infringement action in view of the filing of a bankruptcy petition by co-defendant MP3 tunes,
LLC ("MP3tunes"). For the following reasons, Robertson's application for a stay is denied.
On April 27, 2012, MP3tunes filed a Chapter 7 petition for liquidation before the
United States Bankruptcy Court for the Southern District of California. See In re MP3tunes,
LLC, No. 12-06037-MM7, ECF No.1 (Bankr. S.D. Cal. Apr. 27, 2012) (the "Petition"). In the
Petition, MP3tunes lists assets of$7,754 and liabilities totaling $2,108,966.37. According to
defense counsel, Robertson is MP3tunes' chief executive officer and sole current employee. By
operation of section 362 of Title 11 of the United States Code (the "Bankruptcy Code"), all
matters against MP3tunes, including this action, are automatically stayed as to MP3tunes.
Robertson argues that the automatic stay of this action should be extended to him for three
reasons: (1) MP3tunes is a necessary party and this action cannot proceed without it, (2) the
Bankruptcy Trustee should have an opportunity to assess the claims made against Robertson and
their impact on the bankruptcy estate, and (3) sections 362(a) and 105 of the Bankruptcy Code
authorize this Court to stay this action. None of Robertson's arguments are persuasive.
In general, automatic stays under the Bankruptcy Code are limited to debtors and
do not extend to officers and principals of the debtor. See Teachers Ins. & Annuity Ass'n v.
Butler, 803 F.2d 61, 65 (2d Cir.1986); see also Gucci Am., Inc. v. Duty Free Apparel, Ltd., 328
F. Supp. 2d 439,441-42 (S.D.N.Y. 2004). A limited exception to this rule exists under sections
362(a) and 105 of the Bankruptcy Code, which authorize courts to enter a stay as to non-debtorÂ
defendants "when a claim against the non-debtor will have an immediate adverse economic
consequence for the debtor's estate." Queenie, Ltd. v. Nygard Int'l, 321 F.3d 282,287 (2d Cir.
2003). Extending a stay under either section 362(a) or 105 requires a showing of a "danger of
imminent, irreparable harm to the estate or the debtor's ability to reorganize" and "a reasonable
likelihood ofa successful reorganization." In re United Health Care Org., 210 B.R 228,233
(S.D.N.Y. 1997).
Here, Robertson has not shown any immediate adverse economic effect or
irreparable harm to the MP3tunes estate if this action continues against him. As evidenced by
the Petition, MP3tunes is a shell corporation with almost no assets and will be liquidated in
short-order. Indeed, because MP3tunes seeks liquidation under Chapter 7, and not
reorganization under Chapter 11, Robertson cannot articulate how continuing this action against
him could affect MP3 tunes' ability to reorganize.
Thomas Kernaghan & Co. v. Global
Intellicom, Inc., No. 99 Civ. 3005 (DLC), 2000 WL 640653, at * 15 (S.D.N.Y. May 17, 2000)
(refusing to extend stay in Chapter 7 case where "there are no reorganization efforts that might
be jeopardized by allowing the present litigation to proceed"). Robertson has not shown how the
supposed "crushing litigation demands" of this action would interfere with MP3tunes'
liquidation. And his argument that the Bankruptcy Trustee should have time to assess the impact
of Plaintiffs' claims on the estate is unavailing. To extend the stay to claims against Robertson,
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there must be a danger of imminent irreparable harm to the estate. See United Health, 210 RR.
at 233.
Nor is MP3tunes a necessary party to the claims against Robertson. "All persons
and corporations who participate in, exercise control over, or benefit from ... infringement are
jointly and severally liable as copyright infringers." Sygma Photo News, Inc. v. High Society
Magazine, Inc., 778 F.2d 89, 92 (2d Cir. 1985); see also Screen Gems-Colombia Music, Inc. v.
Metlis & Lebow Corp., 453 F.2d 552, 554 (2d Cir. 1972). And it is well settled that a plaintiff
may sue as few joint tortfeasor copyright infringers as he chooses, and "those left out of the
lawsuit ... are not indispensable parties." Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343,
358 (2d Cir. 2000).
Similarly, Robertson argues that MP3tunes will be collaterally estopped from
challenging any adverse ruling while the automatic stay is in place and denied the right to
participate in its defense of Plaintiffs' claims. But that concern is overblown. MP3tunes is in
liquidation and has limited assets. While Plaintiffs' claims against MP3tunes may survive
Chapter 7 by operation oflaw, see 11 U.S.C. 727(a)(I), as a practical matter, MP3tunes is no
longer a going concern. Accordingly, this action should not be halted over the academic
question of whether the soon-defunct MP3tunes will be prejudiced if Plaintiffs' claims against
Robertson proceed.
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In conclusion, Robertson's application for a stay is denied. The parties are
directed to submit a joint proposed case management schedule by July 6,2012. Counsel for the
parties are further directed to participate in a telephone conference with the Court on July 9,
2012 at 12:00 p.m., to discuss the proposed case management schedule and set a trial date.
Plaintiffs are directed to circulate a call-in number and a list of participants prior to the call.
Dated: June 25, 2012
New York, New York
SO ORDERED:
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wIiiIAMH. PAULEY ITI
"J
U.S.DJ.
Counsel ofrecord:
Andrew H. Bart, Esq.
Jenner & Block LLP
919 Third Avenue, 37th Floor
New York, NY 10022
Frank P. Scibilia, Esq.
Pryor Cashman LLP
7 Times Square
New York, NY 10036-6569
Counselfor Plaintiffs
Gregory P. Gulia, Esq.
Duane Morris, LLP
1540 Broadway
New York, NY 10036-4086
Counsel for Defendants
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