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In re Direct Media Power, Inc.

United States District Court, N.D. Illinois, Eastern Division

September 23, 2019

RADIO ONE, INC., Appellee.


          John Z. Lee United States District Judge

         Direct Media Power, Inc. (“DMP”) filed for Chapter 11 bankruptcy in 2016. The case was converted to a Chapter 7 bankruptcy in 2017 and subsequently dismissed. At the time of dismissal, the bankruptcy court retained jurisdiction to rule on a pending motion for civil contempt that had been filed by creditor Radio One, Inc. (“Radio One”). The bankruptcy court granted the motion in 2018 and later awarded Radio One its attorneys’ fees and costs associated with the contempt proceedings. DMP and its president, Dean Tucci, now appeal the bankruptcy court’s contempt ruling and award of fees and costs. For the reasons stated herein, the Court affirms the decisions of the bankruptcy court.

         Factual and Procedural Background [1]

         I. The Cash Collateral Orders

         DMP filed for Chapter 11 bankruptcy in November 2016. SA 1. The following month, the bankruptcy court entered an order (“the First Interim Order”) authorizing DMP to use cash collateral during the bankruptcy on an interim basis, subject to certain conditions. SA 9–10. Namely, the First Interim Order permitted the use of cash collateral for “only those categories of expenses listed on” a budget provided with the order. SA 9–13.

         Pursuant to § 341 of the Bankruptcy Code, a meeting of DMP’s creditors was held on January 5, 2017. SA 1339. At the meeting, Tucci testified that DMP had not filed tax returns for 2014 or 2015. SA 1356 at 18:13–20. Based on this and other concerns, creditor Radio One filed an objection to DMP’s motion seeking a second interim order authorizing the use of cash collateral (“the Second Interim Order”). SA 14–18. The bankruptcy court granted DMP’s motion on January 12, 2017, but imposed certain additional conditions. SA 19–20. Specifically, the bankruptcy court required DMP to submit to Radio One “bank statements for any bank account that it utilized within [the] past twelve months, ” “reports from its accounting software to include weekly income statements and detailed transactional reports for the post-filing period, ” and “all invoices and receipts in its possession or control that substantiate the post-filing transactions.” SA 19. In addition, DMP was ordered to submit to an examination pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure. SA 19.

         As directed by the Second Interim Order, Tucci testified at the Rule 2004 examination on January 31, 2017. SA 1558–1681. Tucci stated that he “didn’t set up [any] safeguards” to ensure that the budget approved by the bankruptcy court was being followed, and that the way he operated the company had not changed since the filing of the bankruptcy petition. SA 1630 at 73:12–17, 1631 at 74:8–10. He also testified as to a number of transfers made between himself, DMP, and the affiliated companies he owned, both before and after the entry of the First and Second Interim Orders. SA 1601–04, 1607–11, 1619, 1621–24, 1631–38.

         The following week, on February 6, 2017, the bankruptcy court issued a third cash collateral order (“the Third Interim Order”), placing additional restrictions on DMP. SA 24–25. The Third Interim Order prohibited DMP from using any bank account owned by DMP, DMP Teleservices (a d/b/a of DMP), or Teledebt Solutions, Inc. (another entity in which Tucci had an ownership interest), other than “the Bank of America account ending in #6530.” SA 24. The Third Interim Order also prohibited DMP from “making any transfers to affiliate companies or companies owned in whole or in part (directly or indirectly) by Dean Tucci.” SA 24. Finally, the Third Interim Order provided that DMP “shall not pay any expense or otherwise use, transfer, or expend any of [its] funds without prior written approval from” Radio One’s counsel. SA 24–25.

         A week later, on February 13, 2017, the bankruptcy court issued a fourth cash collateral order (“the Fourth Interim Order”), further limiting DMP’s ability to use cash collateral. SA 29– 30. The Fourth Interim Order included the restrictions from the previous three orders and added that DMP must attest under oath that its funds were being transferred to and from only the #6530 account. SA 30. Additionally, it required DMP to provide Radio One’s counsel with weekly reports showing all transactions from the preceding two weeks involving the #6530 account and another account ending in #7452. SA 30. DMP was also required to close another bank account and “transfer all remaining [DMP] funds into the #6530 account.” SA 30.

         The bankruptcy court expressly “retain[ed] jurisdiction to hear and determine all matters arising from or related to the implementation, interpretation, and/or enforcement of” the First Interim Order, Second Interim Order, Third Interim Order, and Fourth Interim Order (collectively, “the Cash Collateral Orders”). SA 9, 20, 25, 30.

         II. The Contempt Proceedings

         Radio One filed a motion for civil contempt on March 8, 2017, seeking dismissal of the bankruptcy case due to DMP’s and Tucci’s alleged violations of the Cash Collateral Orders. See No. 16-36934 (Bankr. N.D. Ill.), ECF No. 95. The bankruptcy court set a hearing for March 9, 2017, which was then continued to April 19, 2017. SA 34. In the meantime, the bankruptcy court entered an order imposing restrictions on the use of cash collateral in accordance with the Fourth Interim Order, and prohibiting DMP from expending any assets or diverting sales to other entities. SA 35–36.

         DMP objected to the motion for contempt on March 24, 2017, arguing that it had been in substantial compliance with the Third Cash Collateral Order and that dismissal would be inappropriate. SA 59–66. Based upon the parties’ agreed motion, the bankruptcy court again continued the hearing on the motion for contempt until May 3, 2017. SA 136.

         Tucci appeared for a second Rule 2004 examination on April 27, 2017. SA 296–414. He testified that there were certain inaccuracies in the monthly operating reports he had provided to the bankruptcy court, and that he had signed the reports even though he did not believe them to be accurate. SA 327–34.

         Several days later, on May 2, 2017––the night before the hearing on Radio One’s motion for contempt––DMP filed a motion to convert the case to a Chapter 7 bankruptcy. SA 149. The bankruptcy court granted the motion, and a Chapter 7 trustee was appointed. No. 16-36934 (Bankr. N.D. Ill.), ECF Nos. 131, 132.

         On June 28, 2017, the bankruptcy court granted Radio One leave to file an amended contempt motion. No. 16-36934 (Bankr. N.D. Ill.), ECF No. 151. Before the motion was filed, the trustee filed a motion to dismiss the bankruptcy case on July 11, 2017, stating that the bankruptcy estate was “administratively insolvent.” SA 152–57. Radio One then filed its amended motion for contempt on July 14, 2017. SA 159–71.

         DMP and Tucci filed a brief in opposition to the motion for contempt, arguing that if the bankruptcy court were to grant the trustee’s motion to dismiss, it would no longer have jurisdiction over the motion for contempt. SA 430. The bankruptcy court disagreed and dismissed the Chapter 7 case on September 20, 2017, expressly “retain[ing] jurisdiction over the request by Radio One, Inc. for contempt against [DMP] and Dean Tucci.” SA 444.

         Radio One was again granted leave to file an amended motion for contempt, which it did on October 10, 2017. SA 446–59. After the motion was fully briefed, the bankruptcy court held a hearing on December 5, 2017. No. 16-36934 (Bankr. N.D. Ill.), ECF Nos. 188, 190. Subsequently, on March 29, 2018, the bankruptcy court granted the motion. SA 730–45.

         Radio One filed an application for attorneys’ fees and costs on April 12, 2018, seeking $221, 102.50 in fees and $35, 050.62 in costs. SA 746. DMP responded, opposing any award but, alternatively, arguing that Radio One was at most entitled to a total award of $3, 801.56. SA 758. Radio One then revised its request to $207, 287.50 in fees and $35, 030.34 in costs. SA 1319. The bankruptcy court ruled on the fee ...

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