On March 19, 2014, Stan Lee Media, Inc., a bankruptcy debtor, filed a petition for writ of certiorari in the U.S. Supreme Court. The debtor sought to protect the rights of its shareholders. It alleged that a portion of its stock that related to the copyrights and intellectual property of “Conan the Barbarian” was transferred out of the bankruptcy estate without the required notice to its shareholders.
The debtor claimed that due process required notice to be given by 11 USCS § 363(b)(1) because the transaction in question was a sale that was outside the ordinary course of business. It asserted that even though the sale was a part of a settlement agreement that resolved a claim by the buyer against the debtor, the shareholders were entitled to notice and an opportunity for them to oppose the transaction.
The Ninth Circuit, in Stan Lee Media, Inc. v. Conan Sales Co. LLC., 542 Fed. Appx. 666 (9th Cir. Cal. 2013), disagreed and held that the due process rights of the shareholders were satisfied because notice was not required when the unsecured creditors of the debtor helped to negotiate the settlement as they were highly motivated to get the best value. The Ninth Circuit also determined that the District Court’s judgment was not void under USCS Fed Rules Civ Proc R 60(b)(4) because there was no such violation of due process.
The debtor contended that the Ninth Circuit’s ruling directly conflicted with that of the Second Circuit in In re Lionel Corp., 722 F.2d 1063 (2d Cir. N.Y. 1983). In Lionel, the Second Circuit held that unsecured creditors can’t adequately represent the rights of shareholders in a sale of the debtor’s assets. The debtor maintained that the Ninth Circuit’s ruling in this case caused a conflict that required Supreme Court review and therefore certiorari should be granted.
The response is due April 21, 2014.
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