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Straight-Out Promotions, LLC and Chris Webb v. Frank Warren

February 6, 2012

STRAIGHT-OUT PROMOTIONS, LLC AND CHRIS WEBB, APPELLANTS,
v.
FRANK WARREN, EDWARD SIMONS, AND R. TODD NEILSON, APPELLEES.
IN RE MICHAEL G. TYSON,
DEBTOR.



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

OPINION & ORDER

Straight-Out Promotions, LLC ("Straight-Out") and its owner Chris Webb ("Webb") (collectively, the "Kentucky Defendants") appeal from a decision of the Honorable Allan L. Gropper, United States Bankruptcy Judge, denying their cross-claims against Frank Warren and Edwards Simons (collectively, the "UK Defendants"). See In re Michael G. Tyson, 2011 WL 1841881 (Bankr. S.D.N.Y. 2011) (the "Decision"). For the following reasons, the Decision is affirmed.

BACKGROUND

This is the second time that this Court has had occasion to weigh in on this long-running dispute over the disposition of proceeds from a boxing match featuring bankruptcy debtor Mike Tyson ("Tyson"). See In re Michael G. Tyson, 433 B.R. 68 (S.D.N.Y. 2010). Familiarity with the relevant facts and procedural history is presumed.

The Bankruptcy Court made the following three rulings, amongst others, in its Decision of May 13, 2011:

1. The Kentucky Defendants' could not sustain a fraudulent inducement or fraudulent contracting claim against the UK Defendants because the Kentucky Defendants did not establish by clear or convincing evidence that their reliance was reasonable or justifiable. In re Tyson, 2011 WL 1841881, at *6.

2. The Kentucky Defendants could not amend their pleadings pursuant to Fed. R. Civ. P. 15(b)(2) and 54 to add a claim for fraudulent inducement because they elected to sue for breach of contract and because amendment would be futile. Id. at *7.

3. Under principles of res judicata, the UK Defendants were not personally liable on a default judgment entered in favor of Straight-Out against Brearly International Ltd. ("Brearly") in the United States District Court for the Western District of Kentucky on December 16, 2008 (the "Kentucky Default Judgment"). Id. at *8. See Straight-Out Promotions, LLC. V. Brearly (International) Ltd., No. 3:04-CV-473-H (W.D. Ky. filed Dec. 16, 2008).

Appellants filed their notice of appeal on August 5, 2011, objecting to each of these rulings. The parties' briefs were fully submitted on November 15.

DISCUSSION

The standard of review applicable to matters within core bankruptcy jurisdiction is governed by the Federal Rules of Bankruptcy Procedure. It is undisputed that the proceedings at issue in this appeal fall within the core of the Bankruptcy Court's jurisdiction. On appeal, the court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr. P. 8013.

"Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous."

Id.; see Solow v. Kalikow (In re Kalikow), 602 F.3d 82, 91 (2d Cir. 2010) (noting that "[f]indings of fact are reviewed for clear error"). Although the Bankruptcy Court's findings of fact "are not conclusive on appeal, the party that seeks to overturn them bears a heavy burden," H & C Dev. Grp., Inc. v. Miner (In re Miner), 229 B.R. 561, 565 (B.A.P. 2d Cir. 1999), and the reviewing court must be "left with the definite and firm conviction that a mistake has been made." ASM Capital, LP v. Ames Dep't Stores, Inc., 582 F.3d 422, 426 (2d Cir. 2009). Legal conclusions of the Bankruptcy Court, however, are "reviewed de novo." Id.

I. Viability of Appellants' Fraud Claims The appellants cannot bring a viable claim of fraudulent inducement or fraudulent contracting because the Bankruptcy Court's factual determinations with respect to these claims were not clearly erroneous. The parties agree that Kentucky law applies to these claims. To succeed on a claim of fraudulent inducement or fraudulent contracting under Kentucky law, a party must prove by clear and convincing evidence that, among other things, he or she relied on a material misrepresentation of the defendant. Flegles, Inc. v. Truserve Corp., 289 S.W.3d 544, ...


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