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In re Tyson

July 26, 2010

IN RE: MICHAEL G. TYSON, DEBTOR.
IN RE: MICHAEL G. TYSON, DEBTOR.
IN RE: MICHAEL G. TYSON, DEBTOR.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

TABLE OF CONTENTS

BACKGROUND..................................................... 3

I. Tyson's Bankruptcy Petition ............................. 3

II. Pre-Fight Contract Negotiations ......................... 4

III.The July 26 Assignment .................................. 8

IV. Breach of the July 26 Assignment ........................ 9

V. Procedural History ..................................... 10

DISCUSSION.................................................... 12

I. Jurisdiction and Standard of Review .................... 12

II. Warren's and Simons' Appeal ............................ 17

A. Principles of Determining Foreign Law................18

B. Piercing the Veil Under English Law..................19

1. The Veil of Incorporation ....................... 19

2. Survey of English Law ........................... 25

3. Principles of English Law ....................... 35

C. Factual Findings on Veil-Piercing Claim..............46

D. Application of English Law...........................52

E. Plaintiff's Fraud and Unjust Enrichment Claims.......57

F. Warren's Claim for Attorney's Fees...................59

III. Kentucky Defendants' Appeal ........................... 62

A. Kentucky Default Judgment............................63

1. Facts and Procedural History .................... 63

2. Analysis ........................................ 67

B. Rule 15(b)(2) & Rule 54 Motions......................71

C. Attorney's Fees......................................73

CONCLUSION.................................................... 73

These three bankruptcy appeals arise out of a professional boxing match featuring bankruptcy debtor Mike Tyson ("Tyson"), a former world heavyweight champion. The principal issue on appeal is whether English law permits piercing the veil of a Gibraltar corporation, Brearly (International) Ltd. ("Brearly"), which breached its contracts with Tyson and Straight-Out Promotions, LLC ("Straight-Out") in connection with a boxing match held in Louisville, Kentucky on July 30, 2004 (the "Fight"). Following trial, the Honorable Allan L. Gropper, United States Bankruptcy Judge, concluded that appellants Frank Warren ("Warren") and Edward Simons ("Simons"), two British boxing promoters, were liable under English law for Brearly's breaches of contract. For the following reasons, the Bankruptcy Court's holding of liability on the veil-piercing claims is reversed, the judgment of the Bankruptcy Court is vacated in part, and the case is remanded for further proceedings.

BACKGROUND

The following facts, which are undisputed unless otherwise indicated, are taken from the record on appeal, the submissions of the parties, and the Bankruptcy Court's August 19, 2009 opinion. See Neilson v. Straight-Out Promotions, LLC (In re Tyson), 412 B.R. 623 (Bankr. S.D.N.Y. Aug. 19, 2009) ("In re Tyson" or the "August 2009 Opinion"). Only those facts relevant to the issues on appeal are discussed below.

I. Tyson's Bankruptcy Petition

On August 1, 2003, Tyson and his wholly owned corporation, Michael Mike Tyson Enterprises Inc., each filed a voluntary petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). Their joint bankruptcy reorganization plan (the "Chapter 11 Plan") -- which was filed in June 2004, confirmed in September 2004, and made effective in November 2004 -- created a liquidating trust (the "Liquidating Trust") and named R. Todd Neilson as plan administrator (the "Plaintiff").*fn1

The Chapter 11 Plan contemplated that Tyson would pay his creditors, in part, by participating in a series of boxing matches and evenly splitting the proceeds with his creditors.

II. Pre-Fight Contract Negotiations

In May 2004, while the Chapter 11 Plan was taking shape, Tyson's manager reached agreement with Chris Webb ("Webb") to have Tyson fight in a boxing match in Kentucky that Webb and his company, Straight-Out (collectively, the "Kentucky Defendants"), would arrange and promote. This match, the Fight, was the first in a series of bouts in which Tyson fought pursuant to his Chapter 11 Plan.

On June 10, 2004, Webb's friend, the matchmaker Sampson Lewkowicz ("Lewkowicz"), attended a promotional event in Manchester, England hosted by Sports Network, PLC ("Sports Network"), a partnership between Warren and his minority partner, Sports & Leisure Boxing, Ltd. ("Sports & Leisure").*fn2 At the Manchester event, Lewkowicz ran into Stephen Heath ("Heath"), an attorney for Sports Network, and began talking business. In particular, Lewkowicz asked Heath whether Warren would be interested in acquiring the international pay-per-view rights to the Fight (the "International Rights") from Straight-Out and then selling the International Rights to distributors or business partners on a country-by-country basis.

Heath got Warren on the phone, and Warren said that he was not interested in selling the International Rights.*fn3 After this conversation, however, Warren instructed his business partner, Simons,*fn4 to follow up with Lewkowicz about the possibility of arranging for Danny Williams ("Williams"), an English boxer for whom Warren acted as an agent, to be Tyson's opponent in the Fight. After Simons, Heath, and Lewkowicz met in person, Simons called Webb to propose that Tyson fight Williams and that the Kentucky Defendants sell the International Rights for $2 million.

Webb was receptive to this proposal. Direct negotiations then ensued between Webb, acting for Straight-Out, and Heath, purportedly acting for Sports & Leisure. After several weeks of negotiation, the parties reached an agreement (the "Distribution Agreement") along the following lines: (1) Tyson's opponent in the Fight would be Williams; (2) the International Rights would be assigned to Brearly, which would then coordinate the sale of the International Rights in foreign countries; (3) before the Fight, Brearly would pay Straight-Out a "minimum guaranteed compensation" of $2.7 million as an advance against Straight-Out's negotiated share of Brearly's proceeds (the "International Proceeds") from selling the International Rights; and (4) after payment of commissions and overhead, all International Proceeds above $2.7 million would be split 45/45/10 among Brearly, Straight-Out, and Lewkowicz. Brearly was a Gibraltar shell company incorporated by Peter Abbey ("Abbey"), an English investor acquainted with Simons.*fn5 The decision to introduce Brearly into the transaction, filling the role that the parties had previously contemplated for Sports & Leisure, lies at the heart of these appeals.

On or about June 30, Heath flew to Louisville to meet with Webb and reduce the Distribution Agreement to written form. Final agreement could not be reached, however, on whether the $2.7 million minimum guarantee was to be secured by a letter of credit or deposited in an escrow account, nor on whether the forum for litigating any disputes arising under the contract would be Kentucky or Gibraltar. Nevertheless, the parties proceeded to carry out their respective tasks under the Distribution Agreement as it then existed. Beginning in mid-June and continuing until the end of July, Simons and others, acting on Brearly's behalf, sold the International Rights to distributors, broadcasters, or business partners in some three dozen countries or groups of countries throughout Europe, Asia, and Latin America.

On July 16, two weeks before the Fight, Straight-Out and Tyson signed a contract (the "Event Agreement") under which Straight-Out agreed to pay Tyson a total purse of $7.2 million and to secure that purse with a series of letters of credit before the Fight. Also on July 16, Straight-Out reached an agreement with Showtime, a premium television network, under which Showtime would broadcast the Fight in the United States and Straight-Out would pay Showtime's marketing expenses. Straight-Out was required to immediately post a $1.3 million letter of credit to secure that obligation.

III. The July 26 Assignment

Only five days later, on July 21, the Fight was put in jeopardy when Straight-Out failed to meet certain deadlines with respect to its payment obligations. In particular, Straight-Out failed to provide Showtime its $1.3 million letter of credit and failed to provide Tyson a letter of credit for the final $1.975 million installment of his purse. According to the Kentucky Defendants, they experienced a funding shortfall only because Brearly had not yet paid Straight-Out its $2.7 million minimum guarantee under the Distribution Agreement.

On July 26, four days before the Fight, Straight-Out and Brearly reached an assignment agreement (the "July 26 Assignment") that enabled the Fight to proceed.*fn6 The July 26 Assignment provided that the first $1.3 million of the International Proceeds would be paid to Showtime on Straight-Out's behalf, and Warren also provided a personal guarantee that Showtime would be paid. The July 26 Assignment also assigned to Tyson certain rights to payment held by Straight-Out under the latter's Distribution Agreement with Brearly. Specifically, Tyson was guaranteed to receive at least $1.4 million (less certain "Recoupable Expenses") from Brearly in lieu of Brearly's payment to Straight-Out, but Tyson would receive up to $1.9 million, assuming available proceeds.*fn7 The July 26 Assignment specifically contemplated, however, that Straight-Out remained liable to Tyson for the final $1.9 million of his purse in the event that Brearly did not pay or in the event that the International Proceeds were insufficient.

IV. Breach of the July 26 Assignment

The Fight was held as planned on July 30. Williams scored a major upset by knocking out Tyson in the fourth round. The international pay-per-view sales of the Fight, however, were disappointing. An income statement prepared by Sports Network on Brearly's behalf (the "Income Statement") showed that the International Proceeds amounted to only about $1.9 million in gross revenue, which was not enough to satisfy all of Brearly's contractual obligations. Indeed, after all overhead and fees were paid,*fn8 only $135,795 was available to satisfy Tyson's claim, far short of the amount guaranteed by the July 26 Assignment.*fn9

Brearly then failed to fulfill its obligations under the July 26 Assignment, and its counsel, Marrache, reserved Brearly's rights to object to any obligations that the July 26 Assignment purportedly placed on Brearly. Thereafter, Tyson was not paid any portion of the remaining $1.9 million of his purse by either Brearly or Straight-Out.

V. Procedural History

On June 15, 2005, the Plaintiff initiated an adversary proceeding (the "Adversary Proceeding") in the Bankruptcy Court to pursue claims of breach of contract, unjust enrichment, and fraudulent inducement against Brearly, Warren, Straight-Out, and Webb. Warren answered the complaint on October ...


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