Friday, April 1, 2011

Serving Dick Tracy: Warren Beatty vs. Tribune Media Services Lawsuit Raises Interesting Personal Jurisdiction, First-Filed Rule Issues

I would like to thank RobinCynthia, and Adam for having me as a guest blogger this month. My goal in teaching Civil Procedure has been to try to liven up the class with cases involving interesting fact patterns and interesting issues. This month, I will be blogging about some of these cases.    

You may have read recently that Warren Beatty won a lawsuit against Tribune Media Services (TMS) in the United States District Court for the Central District of California and retained the right to make movies and TV shows using the comic book crime fighter Dick Tracy. Specifically,

Beatty had sued Tribune Media, a unit of Tribune Co., back in 2008, claiming Tribune acted wrongly in trying to retrieve the character's rights, which it had assigned to Beatty.

Under the original 1985 agreement between Beatty and Tribune, the rights would revert to Tribune if "a certain period of time" lapsed without Beatty having produced another Dick Tracy movie, TV series or TV special.

Tribune sent Beatty a letter on November 17, 2006, that gave him two years to begin production on Dick Tracy programming. Beatty said he began a Dick Tracy TV special on November 8, 2008, and gave Tribune written notice.

But Tribune responded by asserting that it still had the right to terminate Beatty's rights, which sparked Beatty's lawsuit.

What you might not have heard is that after Beatty filed his lawsuit, TMS filed voluntary petitions for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware, which stayed the California action pursuant to Bankruptcy Code Section 362(a). This then led to interesting rulings relating to personal jurisdiction and the "first-filed" rule after Beatty moved to dismiss and for relief from the automatic stay.

The court's opinion can be found at In re Tribune Co., 418 B.R. 116 (Bkrtcy.D.Del. 2009).

Personal Jurisdiction

Beatty's motion to dismiss was partially based upon the argument that Delaware lacked personal jurisdiction over him. Specifically, he claimed that "the Court lack[ed] personal jurisdiction over him due to a lack of minimum contacts with this Court or the State of Delaware, and because he has not consented to personal jurisdiction in this Court." If Beatty indeed did lack minimum contacts with Delaware, the court ordinarily would have been required to dismiss for lack of personal jurisdiction pursuant to International Shoe and its progeny. The problem for Beatty, however, was that the case was governed by Part VII of the Federal Rules of Bankruptcy Procedure, and Rule 7004(d) of those Rules provides that "[t]he summons and complaint and all other process except a subpoena may be served anywhere in the United States." And, according to the court,

Under Bankruptcy Rule 7004, "a court has personal jurisdiction over a defendant if three requirements are met: (1) service of process has been made in accordance with Bankruptcy Rule 7004 or Civil Rule 4; (2) the court has subject matter jurisdiction under section 1334 of the [Judicial] Code [28 U.S.C. § 1334]; and (3) exercise of jurisdiction is consistent with the Constitution and the laws of the United States."

After finding that these first two requirements were satisfied, the court then noted that Federal Rule of Civil Procedure 4(k)(1)(C) provides that "[s]erving a summons or filing a waiver of service establishes personal jurisdiction over a defendant...when authorized by a federal statute." The court concluded that even though Rule 7004(d) is not a federal statute, its reasoning applied and that the exercise of jurisdiction was consistent with the Constitution because

The "forum" in bankruptcy cases is "the United States in general, not the particular forum state."...State minimum contacts are not dispositive; instead, the sufficiency of the defendant's contacts with the United States are reviewed to determine the fairness of a court's exercise of personal jurisdiction in a bankruptcy related proceeding....This reasoning has been followed consistently by bankruptcy courts in this district....I discern no reason to depart from the reasoning of those cases.

Does this reasoning make sense? I don't know, but I now have my go-to case for teaching Federal Rule of Civil Procedure 4(k)(1)(C) to students. And, for an argument claiming that Rule 7004(d) and the liberal venue provisions in bankruptcy cases are unconstitutional, you can check out Jeffrey T. FerriellThe Perils of Nationwide Service of Process in a Bankruptcy Context, 48 Wash. & Lee L. Rev. 1199 (1991).

"First-Filed Rule"

Beatty's motion to dismiss was also partially based upon venue being improper, but the court found that this argument was "more appropriately considered as part of his argument for dismissal based on the 'first-filed rule,' rather than dismissal for improper venue." The court noted that "[t]he 'first-filed rule' gives a court discretion 'to enjoin the subsequent prosecution of proceedings involving the same parties and the same issues already before another district court.'" That said, the court chose not to exercise that discretion, instead citing to the Fourth Circuit's opinion in Gilchrist v. General Elec. Capital Corp., 262 F.3d 295, 303-04 (4th Cir. 2001), which held that:

Our examination of the Bankruptcy Code reveals that Congress intended that the bankruptcy process be favored in circumstances such as these. Section 1334(e) of title 28 is unequivocal in its grant of exclusive jurisdiction [of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate] to the bankruptcy court, and § 362(a) imposes an automatic stay on all proceedings merely upon the filing of a bankruptcy petition. If we were to frustrate these express provisions to further a first-filed policy, we would have to deny bankruptcy jurisdiction to every bankruptcy court in which foreclosure proceedings had already commenced against the debtor's property, on the grounds that the in rem nature of the foreclosure proceeding precludes the bankruptcy court from taking custody of the res. Such a jurisdictional limitation on bankruptcy proceedings would severely limit the efficacy of bankruptcy. In the absence of express language suggesting that Congress intended for bankruptcy jurisdiction to be so limited, we believe it would frustrate Congressional intent to imply such a limitation based solely on consideration of a first-filed policy.

Relief from the Automatic Stay

Ultimately, however, the United States Bankruptcy Court for the District of Delaware granted Beatty relief from the automatic stay by applying a three-pronged balancing test to determine whether "cause" exists for granting relief from the stay to continue litigation:

(1) Whether any great prejudice to either the bankrupt estate or the debtor will result from continuation of the civil suit;
(2) Whether the hardship to the non-bankrupt party by maintenance of the stay considerably outweighs the hardship to the debtor, and
(3) Whether the creditor has a probability of prevailing on the merits.

Finding that these factors favored Beatty, the court granted him relief from the automatic stay, allowing Beatty's action to proceed in the United States District Court for the Central District of California.

-Colin Miller

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