United States District Court, S.D. New York
LE METIER BEAUTY INVESTMENT PARTNERS LLC, and UNATTAINABLE BEAUTY, LLC, Plaintiffs,
METIER TRIBECA, LLC, and RICHARD Blanch, Defendants.
Evan T. Raciti, Vincent Roger Cappucci, ENTWISTLE & CAPPUCCI LLP, FOR LE METIER BEAUTY INVESTMENT PARTNERS LLC; UNATTAINABLE BEAUTY, LLC
Jordan Michael Kam, Richard Alan Roth, THE ROTH LAW FIRM, PLLC., FOR METIER TRIBECA, LLC; RICHARD BLANCH.
OPINION & ORDER
JOHN F. KEENAN, District Judge.
This case was automatically stayed as against Defendant Metier Tribeca, LLC (hereinafter "Metier Tribeca" or "Debtor") in accordance with Section 362(a) of the Bankruptcy Code by the filing of Metier Tribeca's petition for relief in the United States Bankruptcy Court for the Southern District of New York on February 14, 2014. See 11 U.S.C. § 362(a)(1). Plaintiffs subsequently sought discovery in this litigation from Defendant Richard Blanch ("Blanch") and other nonparties. Blanch, the former CEO of Metier Tribeca, now moves to stay the instant action against him, claiming that (1) an identity of interest exists between Defendants such that the prosecution of the action against Blanch would create an immediate liability to the Debtor; (2) Plaintiffs' discovery requests attempt to inappropriately circumvent the automatic stay and the intention of the bankruptcy court; and (3) Blanch would suffer severe prejudice if the stay is denied, because he will be unable to obtain documents from the Debtor needed for his defense. For the reasons that follow, Blanch's motion is denied.
A. The Parties
Plaintiffs Le Metier Beauty Investment Partners LLC ("Le Metier") and Unattainable Beauty LLC ("Unattainable") commenced this action on July 3, 2013, when they filed a complaint alleging securities fraud under section 10(b) of the Exchange Act and Rule 10b-5, common law fraud, and fraudulent inducement with respect to both Defendants; violation of section 20(a) of the Exchange Act and breach fiduciary duties against Blanch; and breach of contract against Metier Tribeca.
The complaint states that Le Metier invested $3.05 million and Unattainable invested $2.175 million in Metier Tribeca in October 2012. Plaintiffs allege that they based their investments on contractual agreements and explicit representations by Blanch and Metier Tribeca that Metier Tribeca had millions of dollars in projected sales and anticipated orders and that the money would be used for the sole purpose of funding Metier Tribeca's capital requirements and would not be used to repay existing company debt. (Compl. ¶¶ 1, 26.) Despite these representations, Plaintiffs allege that Defendants used over 80 percent of the investment to pay, inter alia, aged debt and back salary, including $395, 000 transferred to Blanch's and other insiders' bank accounts; that Blanch altered Metier Tribeca's books and records to conceal the fraud; and that Metier Tribeca took out a loan without fulfilling the conditions required by Plaintiffs in exchange for their consent. (Id. ¶¶ 6, 33-35.)
B. Procedural History
Defendants filed a motion to dismiss the Complaint on September 17, 2013, which was fully briefed and filed with the Court on November 15, 2013. (ECF No. 12.) On February 14, 2014, while the motion to dismiss was pending, Metier Tribeca filed their petition for relief under Chapter 11. (ECF No. 18.) A Notice of Bankruptcy Filing and Automatic Stay was subsequently filed in this litigation on February 18, 2014. (Id.)
Plaintiffs filed a notice of appearance in the bankruptcy court on February 24, 2014 and subsequently made several unsuccessful attempts to compel the production of documents by the Debtor, Blanch, and other nonparties as part of the bankruptcy proceeding. (ECF No. 24 at 4.) On March 14, 2014 the bankruptcy court ordered the appointment of a Trustee, who replaced Blanch as manager of Debtor, and on May 22, 2014 the court approved the sale of substantially all of Debtor's assets. (Id. at 4; ECF No. 27 at 7.) In its May 22 order, the bankruptcy court explicitly noted that "nothing herein grants [Plaintiffs] or any other party relief from the automatic stay to pursue claims against the Trustee or the [Debtor's] estate." (ECF No. 24 at 5.) That same day, Plaintiffs served document requests on Blanch and other nonparties in this action. (Id.)
On June 6, 2014, the Trustee sent a letter to Plaintiffs, stating his position that the documents sought "are exclusively the property of the Debtor's estate, " and that further attempts to obtain the Debtor's records or property would "be met with a motion by the Trustee in the Bankruptcy Court to hold plaintiffs in contempt of the automatic stay." (Id. at 6; ECF No. 27 at 7.) On June 17, 2014, Plaintiffs sent a letter to this Court requesting that the Court continue its consideration of the motion to dismiss with respect to Blanch. (ECF No. 27 at 9.) Finally, on June 19, 2014, Blanch responded with a letter to the Court requesting leave to file a motion to stay these proceedings.
A. Legal ...