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In re Manley Toys Ltd.

United States District Court, D. New Jersey, Camden Vicinage

July 17, 2019

IN RE MANLEY TOYS LIMITED, Debtor in a Foreign Proceeding.
v.
ASI, INC., Appellee/Cross-Appellant. TOY QUEST LTD., Appellant/Cross-Appellee,

         APPEARANCES:

          WASSERMAN, JURISTA & STOLZ By: Donald W. Clarke, Esq. and NOVACK AND MACEY LLP By: Monte L. Mann, Esq. Counsel for Appellant / Cross-Appellee

          HELLRING LINDEMAN GOLDSTEIN & SIEGAL LLP By: Richard B. Honig, Esq. Matthew E. Moloshok, Esq. and WEISBROD MATTEIS & COPLEY PLLC By: Stephen A. Weisbrod, Esq. Counsel for Appellee / Cross-Appellant

          OPINION

          RENÉE MARIE BUMB, UNITED STATES DISTRICT JUDGE

         Presently before the Court are the cross-appeals of ASI, Inc. (“Aviva”), a pre-petition judgment creditor of the Debtor, Manley Toys Limited (“Manley Toys”)[1], and Toy Quest Ltd. (“Toy Quest”), which Aviva contends-- over Toy Quest's vigorous objections-- is an alter ego and / or a trade name of the Debtor. On February 14, 2018 the Bankruptcy Court granted Aviva's Motion for Sanctions upon a finding that Toy Quest had violated the stay imposed by the Bankruptcy Court shortly after the filing of the Debtor's Chapter 15 petition in March 2016[2], and granted Aviva leave to file an additional submission seeking reasonable attorney's fees (hereafter “the Sanctions Order”). On June 21, 2018, the Bankruptcy Court granted in part, and denied in part, the fee petition, awarding Aviva $25, 651.00 of its $282, 966.49 fee request (hereafter “the Fee Order”).

         For the reasons stated herein, the Court affirms both the Sanctions Order and the Fee Order.

         I. BACKGROUND

         A. The Garnishment Action

         In 2015, before Manley Toys filed its Chapter 15 petition, Aviva registered its judgment against Manley Toys in the United States District Court for the Middle District of Tennessee. Then, seeking to collect on the judgment, Aviva filed an application for writ of execution asserting that “Manley does business in the United States under the trade name Toy Quest Ltd.” and, additionally, “[t]here is also an entity in Hong Kong called Toy Quest Ltd., with the same address as Manley, the same owners as Manley, the same directors as Manley, and that acts through the same employees with ‘manley.com' email addresses, and uses the same website as Manley.” [Bankr. Docket 16-15374, Doc. 235-2] Based on these allegations, Aviva sought to recover, through garnishment, $97, 654.31 which Dollar General stated it owed to Toy Quest. To that end, Aviva filed a formal Motion for Judgment and Execution. Dollar General deposited the funds with the Court, and those funds remained in the Tennessee District Court's registry awaiting a ruling as to the funds' rightful recipient at the time Manley Toys filed its Chapter 15 petition in March 2016. Toy Quest had filed a Motion to Intervene in the garnishment action, but the Court had not ruled on the motion by the petition date.

         In late December 2016, after the petition date, the Tennessee District Court granted Toy Quest's Motion to Intervene. Shortly thereafter, Toy Quest filed a lengthy opposition to Aviva's Motion for Judgment and Execution. The opposition asserted that Toy Quest is neither a trade name of Manley Toys, nor an alter ego of Manley Toys, and therefore Aviva-- which holds a judgment against Manley Toys only-- was not entitled to the Dollar General funds. [M.D. Tenn. Docket 3:15-mc-00015, Doc. 54] Rather, Toy Quest asserted that the funds belonged to it (not the Debtor, Manely Toys, nor Aviva) as Dollar General's documents reflected. [Id.] It is the filing of this opposition by Toy Quest, in which Toy Quest asserted the right to the funds, which the Bankruptcy Court held violated the Stay Order.

         B. Proceedings in New Jersey Bankruptcy Court

         As stated above, Manley Toys filed its Chapter 15 case and motion on March 22, 2016. On April 1, 2016 the Bankruptcy Court entered the Stay Order which incorporated the automatic stay provisions of 11 U.S.C. § 326.

         On September 13, 2016-- before the Tennessee District Court ruled on Toy Quest's Motion to Intervene-- Aviva sought relief from the Stay Order, so as to pursue, among other things, “alter ego, fraudulent transfer, or other claims against Toy Quest Ltd. or other nondebtor affiliates or agents of Manley and Toy Quest Ltd.” [Bankr. Docket 16-15374, Doc. 144-1] On October 25, 2016-- also before the Tennessee District Court ruled on the Motion to Intervene-- the Bankruptcy Court, addressing Aviva's Motion for Stay Relief, modified the Stay Order to state, in relevant part,

2. The provisional stay entered by this Court on March 24, 2016 and set forth in the Court's April 1, 2016 Order Granting Provisional Relief and Setting Date for Further Hearing (the “Provisional Stay”) does not apply to any actions taken with respect to persons or entities other than Debtor Manley Toys Limited (“Manley”), except that, as set forth below, the Court reserves judgment on whether the assertion of non-independent claims such as alter ego or fraudulent transfer claims against such persons or entities is subject to the Provisional Stay, and, if so, whether cause exists to lift the Provisional Stay as to such claims.
* * *
10. The Court reserves judgment on all relief requested in Aviva's Motion for Relief from Provisional Stay not specifically addressed herein, including: . . .
f. Whether Aviva . . . may assert non-independent claims, including but not limited to fraudulent transfer, unjust enrichment, conversion, and money had and received claims, in any appropriate forum against Toy Quest Ltd., and/or other affiliates or agents of Manley, Manley Toy Direct, or Toy Quest Ltd.

[Bankr. Docket 16-15374, Doc. 159] (emphasis added).

         After Toy Quest filed its opposition in the garnishment action, Aviva filed the Motion for Sanctions asserting that Toy Quest had willfully violated the Stay Order as modified. The Bankruptcy Court granted the motion. Importantly, in the Opinion granting Aviva's Sanctions Motion, the Bankruptcy Court specifically stated, “[t]he Court cautions that only those fees reasonably necessary to establishing the elements of this Motion will be awarded.” In re Manley Toys Ltd., 2018 WL 1033426, at *8 (Bankr. D.N.J. Feb. 14, 2018). Aviva, however, apparently did not heed the Court's warning; it subsequently filed a fee application seeking an extraordinary amount-- $282, 966.49-- in fees and costs incurred in connection with the sanctions motion. The Bankruptcy Court found Aviva's Fee Application “wholly unreasonable, and shock[ing to] the Court, ” explaining,

[t]he Fee Application requests $282, 966.49 for 518 hours of work on the Sanctions Motion. The Court finds this beyond all reason. Not only is the Fee Application far beyond any comparable amount of fees granted in cases of similar complexity, but considering only proportionality, there is nothing reasonable about this. Aviva has requested attorney fees that are nearly three-times the amount in controversy; and the Court notes that these fees relate exclusively to the Sanctions Motion, they do not include the fees Aviva is claiming it expended on actually litigating the merits of the Garnishment Action as a whole. The Court shudders at the amount of money Aviva's Counsel claims to have expended in an effort to retrieve $97, 654.31 for its client.

In re Manley Toys Ltd., 2018 WL 3213710 at *6-7 (Bankr. D.N.J. June 21, 2018).

         II. ...


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