Case pwb Doc 281 Filed 10/28/16 Entered 10/28/16 13:58:15 Desc Main Document Page 1 of 12

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1 Document Page 1 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF GEORGIA ROME DIVISION In re: ) Chapter 11 ) ASTROTURF, LLC, ) Case No PWB ) ) Debtor. ) ) DEBTOR S OBJECTION TO FIELDTURF USA, INC. AND TARKETT, INC. S MOTION FOR RELIEF FROM THE STAY AstroTurf, LLC (the Debtor ) hereby files this objection (this Objection ) to FieldTurf USA, Inc. and Tarkett, Inc. s Motion for Relief from the Stay [Docket No. 260] (the Motion ). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Motion. In support of this Objection, the Debtor respectfully shows the Court as follows: Preliminary Statement 1. Without any objection or opposition from FieldTurf USA, Inc. and Tarkett, Inc. (collectively, FieldTurf ), this Court entered an order establishing procedures that provide the exclusive means for estimating FieldTurf s claim against the Debtor (the Estimation Proceeding ). Notwithstanding the fact that the Estimation Proceeding is fully underway, FieldTurf now seeks to reopen separate litigation in another forum directly against the Debtor. The Patent Case (as defined below) that FieldTurf seeks to continue is administratively closed, and the Debtor is the only defendant that has ever been a party to that litigation. Because FieldTurf s claim against the Debtor is to be fixed pursuant to the Estimation Proceeding, permitting the Patent Case to proceed would effectively allow FieldTurf to litigate its claim against the Debtor on two fronts this would be a significant waste of the estate s resources.

2 Document Page 2 of FieldTurf argues that the Debtor s only motivation for opposing the Motion is to protect its equityholders. This is not the case, and FieldTurf s argument is belied by the fact that the Committee (which has no relationship to the Debtor s equityholders) vigorously opposes the Motion. The Debtor s opposition to the Motion has nothing to do with protecting the interests of its equityholders. It is inappropriate and contrary to the purposes of the Estimation Proceeding for the Patent Case against the Debtor to continue. To the extent FieldTurf has valid claims against the Debtor s equityholders, FieldTurf can pursue such claims in litigation directly against these non-debtor parties in a separate lawsuit, not the pending Patent Case. The Debtor notes, however, that it believes that the alleged alter-ego claims that FieldTurf seeks to assert in the Motion to Reopen (as defined below) are general alter-ego claims that are property of the Debtor s estate and have been released. 3. FieldTurf further argues that lifting the stay will aid the Estimation Proceeding because a judgment will be entered at no cost to the Debtor s estate. This argument is misplaced. FieldTurf is correct that a ruling on pending motions in the Patent Case may influence Judge Birch s report, but that is precisely why the Debtor would be compelled to vigorously defend itself if the Patent Case were reopened. The Debtor cannot be expected to stand idly by and not defend itself in the Patent Case. The Motion suggests that there is no further briefing needed before the District Court enters a judgment, but that is not accurate. Shortly before the Petition Date, the Supreme Court issued a ruling that all parties agree has direct relevance to FieldTurf s claim. The Debtor requested an opportunity to submit briefing on that opinion, but this bankruptcy case was commenced and the Patent Case was closed before the District Court ruled on that request. 2

3 Document Page 3 of The Estimation Proceeding is on a very tight timeline opening briefs have already been submitted to Judge Birch by each party, and Judge Birch is required to file his report on or before January 3, Lifting the stay to permit the Patent Case to proceed will interfere with the Estimation Proceeding, not aid it. The Debtor and its litigation counsel are and should remain focused on presenting the Debtor s arguments to Judge Birch in the Estimation Proceeding. 5. Both the Debtor and the Committee agree that the relief sought in the Motion (including the alternative limited relief proposed by the Motion) is inappropriate and prejudicial to the Debtor s estate and should be denied. Background A. The Bankruptcy Case 6. On June 28, 2016 (the Petition Date ), the Debtor filed a voluntary petition with the Court under chapter 11 of the Bankruptcy Code. 7. The Debtor has continued to operate as a debtor-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. 8. On July 7, 2016, the United States Trustee appointed the Official Committee of Unsecured Creditors (the Committee ). 9. Additional information about the Debtor s business and events leading up to the Petition Date may be found in the Declaration of Sean M. Harding in Support of First Day Motions and Applications [Docket No. 14]. B. The Patent Case 10. In June 2010, FieldTurf commenced an action against the Debtor in the United States District Court for the Eastern District of Michigan (the District Court ), styled FieldTurf 3

4 Document Page 4 of 12 USA, Inc., et al. v. AstroTurf, LLC, Civ. Action No. 2:10-CV SJM-MJH (the Patent Case ). FieldTurf s complaint asserted that the Debtor infringed patent number 6,723,412 (the 412 Patent ) held by FieldTurf for synthetic grass meeting certain specifications and requested: (i) royalties and lost profits as compensation for previously installed turf surfaces; and (ii) temporary and permanent injunctive relief. 11. On October 9, 2015, the jury in the Patent Case rendered a verdict finding that the Debtor willfully infringed the 412 Patent and that FieldTurf is entitled to recover damages in the amount of $30,000,000. On October 30, 2015, FieldTurf filed motions requesting enhanced damages and pre-judgment interest, which the Debtor opposed. 12. On June 14, 2016, FieldTurf submitted a letter to the District Court notifying the District Court that on June 13, 2016, the Supreme Court of the United States issued an opinion in Halo Electronics, Inc. v. Pulse Electronics, Inc. FieldTurf s letter acknowledged that the Supreme Court s opinion was directly relevant to FieldTurf s pending motion for enhanced damages. 13. On June 16, 2016, the Debtor filed a motion with the District Court seeking leave to file additional briefing regarding the standards articulated by the Halo Electronics opinion. As of the Petition Date, this motion had not been ruled upon and various pre-judgment motions were pending before the District Court. 14. On the Petition Date, the Debtor filed a Suggestion of Bankruptcy with the District Court, and on July 6, 2016, the District Court entered an order staying and administratively closing the Patent Case. The District Court s order closing the Patent Case is attached hereto as Exhibit A. 4

5 Document Page 5 of On August 8, 2016 just three days before the contested sale hearing in this bankruptcy case FieldTurf filed a motion in the District Court to reopen the Patent Case and file an amended complaint (the Motion to Reopen ). 16. The Motion to Reopen constituted an intentional and willful violation of the automatic stay because it was an action to continue pending litigation against the Debtor. Accordingly, on August 10, 2016, the Debtor filed an emergency motion in this bankruptcy case seeking entry of an order enforcing the automatic stay and imposing sanctions [Docket No. 185]. C. Claim Estimation Proceeding 17. On September 12, 2016, the Debtor and the Committee filed a joint motion seeking entry of an order requiring the estimation of FieldTurf s claim pursuant to Section 502 of the Bankruptcy Code [Docket No. 229] (the Estimation Motion ). 18. FieldTurf did not object to the Estimation Motion, and on September 22, 2016, the Court entered an Order Appointing a Special Purpose Examiner to Conduct and Make Recommendations Regarding the Estimation of the Claim of FieldTurf USA, Inc. and Tarkett, Inc. and Establishing Other Related Procedures, which appointed the Honorable Stanley Birch as a Special Purpose Examiner to estimate FieldTurf s claim [Docket No. 241]. Legal Standard 19. When a debtor files a bankruptcy petition, an automatic stay applies to prevent, among other things, the continuation of a judicial action or proceeding that was commenced before the filing of the bankruptcy petition. 11 U.S.C. 362(a)(1). The stay also applies to any attempt to obtain possession of estate property or exercise control over estate property, as well as to attempts to... assess... a claim against the debtor that arose before the bankruptcy case 5

6 Document Page 6 of 12 commenced. See The Disciplinary Board of the Sup. Ct. of Pennsylvania v. Fiengold (In re Fiengold), 730 F.3d 1268, 1276 (11th Cir. 2013) (citing 11 U.S.C. 362(a)(3) and (6)). 20. A bankruptcy court may grant relief from the automatic stay for cause (see 11 U.S.C. 362(d)); the term cause is neither defined in Section 362(d) nor in other provisions of the Bankruptcy Code. In re Fiengold, 730 F.3d at There is no set list of circumstances that a bankruptcy court is required to consider in evaluating whether 362(d)(1) cause exists to lift the automatic stay. Id. at Courts look to a variety of case-specific factors, including (1) whether the debtor has acted in bad faith; (2) the hardships imposed on the parties with an eye towards the overall goals of the Bankruptcy Code ; and (3) pending state court proceedings. Id. (internal citations omitted); see also In re Brown, 311 B.R. 409, (E.D. Pa. 2004) ( Unsecured creditors are generally entitled to relief from an automatic stay only in extraordinary circumstances. ). 22. Where a non-debtor party seeks to modify the automatic stay to permit the continuation of pending litigation against the debtor, courts in this jurisdiction typically consider: (a) [whether] any great prejudice to either the bankruptcy estate or the debtor will result from continuation of a civil suit, (b) [whether] the hardship to the [non-bankruptcy party] by maintenance of the stay considerably outweighs the hardship of the debtor, and (c) [whether] the creditor has a probability of prevailing on the merits of his case. In re Video Cassette Games, Inc., 108 B.R. 347, 349 (Bankr. N.D. Ga. 1989) (Drake, J.) (citing In re Pro Football Weekly, 50 Bankr. 824, 826 (N.D. Ill. 1986)). 1 1 In its Motion, FieldTurf cites factors articulated by the United States Bankruptcy Court for the Southern District of Georgia. (See Motion at 7.) However, these factors do not appear to have been used by bankruptcy courts in the Northern District of Georgia. Even applying the factors cited by FieldTurf, the Motion should be denied for the reasons set forth in this Objection. 6

7 Document Page 7 of 12 the Motion. ARGUMENT 23. The three factors articulated in the Video Cassette Games case all support denying A. The Debtor and its Estate will be Substantially Prejudiced by the Continuation of the Patent Case. 24. The Debtor will be substantially prejudiced by the reopening and continuation of the Patent Case. If FieldTurf wanted to continue litigating against the Debtor in the Patent Case, it should have raised this issue in the context of the Estimation Motion. The primary purpose of the Estimation Proceeding is to provide a less time-consuming and less expensive process to establish the value of FieldTurf s claim. FieldTurf s attempt to reopen the Patent Case and pursue its claim against the Debtor in the District Court is completely at odds with that purpose. 25. If the Patent Case is reopened, the Debtor will have to litigate FieldTurf s claims on two fronts. FieldTurf argues that the Debtor should sit idly by and let the Patent Case continue because the ultimate amount of FieldTurf s claim against the Debtor will be decided by the Estimation Proceeding, not the District Court. But this argument is directly contrary to FieldTurf s argument that allowing the Patent Case to play out will aid the Estimation Proceeding. This is precisely why the Debtor would be compelled to defend itself in the Patent Case developments in a reopened Patent Case could directly influence the Estimation Proceeding. 26. Moreover, contrary to FieldTurf s assertions there is material briefing that will likely be necessary before the District Court can enter a judgment in the Patent Case. As noted above, shortly before the Petition Date, the Supreme Court of the United States issued an opinion that is directly relevant to FieldTurf s claim. Prior to the Petition Date, AstroTurf requested an opportunity to submit a brief addressing the newly-issued opinion and, had the Patent Case not 7

8 Document Page 8 of 12 been administratively closed due to the filing of this bankruptcy case, the District Court likely would have granted that request. If the Patent Case is reopened, the Debtor will need to present arguments on this and other issues pending in the litigation. 27. Permitting the Patent Case to be reopened will substantially interfere with the Estimation Proceeding. The Estimation Proceeding is on a very short time frame, and the Debtor and its litigation counsel are focused on presenting the Debtor s arguments regarding the invalidity of FieldTurf s claim to the Special Purpose Examiner. The Debtor should not be compelled to expend the energy and resources litigating these issues on two fronts. The automatic stay exists for exactly this type of situation. See In re Video Cassette Games, Inc., 108 B.R. at 349 ( [T]he automatic stay protects Debtor from expending energy and resources litigating claims in other forums, and this protection should not be casually set aside. (citation omitted)). For the foregoing reasons, the Debtor will be substantially prejudiced if the stay is lifted in order to permit the Patent Case to proceed. B. Any Hardship to FieldTurf from Maintaining the Automatic Stay Will Not Considerably Outweigh the Prejudice to the Debtor. 28. FieldTurf will not suffer any material hardship if the automatic stay remains in place. If FieldTurf believes that it holds valid claims against the Debtor s equityholders, it is absolutely free to pursue such claims in a separate lawsuit, not the pending Patent Case. The Debtor is not trying to extend the automatic stay to protect its equityholders. Rather, the Debtor is simply asking that the stay be maintained to prohibit the continuation of any litigation directly against the Debtor. FieldTurf s claim against the Debtor is being litigated pursuant to the Estimation Proceeding (which FieldTurf did not object to). Accordingly, any hardship to FieldTurf from the maintenance of the automatic stay is minimal and certainly does not considerably outweigh the prejudice to the Debtor. 8

9 Document Page 9 of 12 C. FieldTurf does not have a Probability of Prevailing on the Merits in the Patent Case. 29. FieldTurf does not have any probability of ultimately prevailing on the merits in the Patent Case. The Debtor believes that FieldTurf s claim against the Debtor is invalid and will ultimately be valued at $0.00. If the stay is lifted and the District Court enters a judgment against the Debtor, the Debtor has several meritorious grounds for judgment as a matter of law, new trial, or appeal that either will eliminate any claim for damages or will substantially reduce such damages. The Debtor s contentions (which are all currently being presented in connection with the Estimation Proceeding) include, among other things: a. The District Court failed to complete the claim construction process, but instead left key claim construction issues to the jury, contrary to governing precedent. b. The asserted claim of the 412 Patent is invalid because it is indefinite and/or not enabled. c. FieldTurf s infringement and damages theories were insufficiently proved because, among other things, FieldTurf relied on excluded evidence and presented no reliable measurements of the infill depths of the allegedly infringing fields. d. FieldTurf USA, Inc. (the FieldTurf entity that sells turf installations) did not have an exclusive license to the 412 Patent and thus lost profits cannot be awarded. e. No plaintiff in the case had standing to commence the Patent Case when it was filed. 30. Moreover, based on the Debtor s review of the proposed amended complaint that was included with FieldTurf s Motion to Reopen, it appears that all of the additional claims that FieldTurf seeks to assert against the Debtor s equityholders are general alter-ego claims that are property of the Debtor s estate and were released by the Debtor in connection with the Order 9

10 Document Page 10 of 12 Authorizing and Approving Settlement Agreement entered by this Court on August 31, Accordingly, for this additional reason, FieldTurf will not prevail in the Patent Case. Conclusion For the foregoing reasons, the Debtor respectfully requests that the Court deny the Motion and grant such further and other relief as the Court deems just and proper. [Remainder of the page intentionally blank.] 2 The Debtor understands that its majority equityholder, Textile Management Associates, Inc. ( TMA ), intends to file an objection to the Motion fully outlining why the additional claims asserted in FieldTurf s proposed amended complaint constitute released claims. If FieldTurf is intent upon seeking stay relief on the grounds that it should be able to pursue alter-ego claims against TMA, then it is necessary and appropriate that this Court determine whether these purported claims have in fact been released by the Debtor s estate. 10

11 Document Page 11 of 12 Dated: October 28, 2016 Atlanta, Georgia Respectfully submitted, KING & SPALDING LLP /s/ Paul K. Ferdinands Paul K. Ferdinands Georgia Bar No Mark. M. Maloney Georgia Bar No Jeffrey R. Dutson Georgia Bar No Peachtree Street Atlanta, Georgia Telephone: (404) Facsimile: (404) COUNSEL FOR THE DEBTOR IN POSSESSION

12 Document Page 12 of 12 EXHIBIT A ORDER CLOSING PATENT CASE

13 2:10-cv SJM-MJH Doc # 477 Filed 07/06/16 Pg 1 of 1 Pg ID Case pwb Doc Filed 10/28/16 Entered 10/28/16 13:58:15 Desc Exhibit Page 1 of 1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION FIELDTURF USA, INC. and TARKETT, INC., v. Plaintiff, Case No. 10-cv HONORABLE STEPHEN J. MURPHY, III ASTROTURF LLC, Defendant. / ORDER STAYING AND ADMINISTRATIVELY CLOSING CASE Defendant AstroTurf LLC has filed a Suggestion of Bankruptcy under 11 U.S.C. 101, et seq. Separately, 11 U.S.C. 362 mandates that a Suggestion of Bankruptcy stays the continuation of judicial proceedings. Accordingly, the Court ORDERS that the proceedings in the case are STAYED, and directs the Clerk of the Court to ADMINISTRATIVELY CLOSE the case. SO ORDERED. Dated: July 6, 2016 s/stephen J. Murphy, III STEPHEN J. MURPHY, III United States District Judge I hereby certify that a copy of the foregoing document was served upon the parties and/or counsel of record on July 6, 2016, by electronic and/or ordinary mail. s/carol Cohron Case Manager