♫ “Girl, it’s easy to love me now.
Would you love me if I was down and out?
Would you still have love for me?” ♫
-50 Cent, 21 Questions
The July 2015 filing of a chapter 11 bankruptcy petition that put Curtis James Jackson III (aka “50 Cent”) in the club of bankruptcy-filing rappers that counts DMX (twice), Xzibit (twice), and MC Hammer as its VIP members, has been widely covered in hip-hop and bankruptcy circles. Now, nearly six months after the bankruptcy filing, we’d like to check the pulse of the bankruptcy case of the notorious Queens, New York rapper/actor who rose to prominence in 2003 behind his first major-label album, “Get Rich or Die Tryin’.”
As we previously detailed in the Weil Bankruptcy Blog, Jackson’s balance sheet spun out of control in July 2015 when a New York State Supreme Court jury awarded a $5 million judgement to a Ms. Lastonia Leviston after Jackson released a crudely narrated sex tape featuring Ms. Leviston and a third party in an effort to get the upper hand in a “rap beef” with Miami rapper Rick Ross, who is the father of Ms. Leviston’s child. That judgment represented salt on 50’s existing litigation wounds, stemming from a 2014 arbitration award of $17 million against Jackson in favor of Sleek Audio, of whom Jackson was a director, and from whom Jackson was found to have misappropriated trade secrets for the benefit of SMS Audio, a headphone company in which he owns a majority stake.
Jackson was due to testify in the punitive damages phase of the Leviston trial the morning he filed for chapter 11 protection. While the automatic bankruptcy stay prohibited the continuation of the lawsuit, Leviston didn’t back down, claiming that Jackson filed for bankruptcy to evade trial, and brought a motion for relief from the automatic stay to continue litigating her punitive damages claim in state court.
In objecting to Leviston’s motion to continue the suit in New York state court, Jackson argued that he intended to shift the punitive damages portion of the trial to the bankruptcy court due to its expertise in addressing issues of an individual’s net worth, as well as serving as a fact finder in punitive damages claims. Judge Nevins of the United States Bankruptcy Court for the District of Connecticut acknowledged that one of the main purposes of the chapter 11 process is to consolidate litigation concerning a debtor’s financial matters within one forum, but she drew a negative inference from repeated efforts by Jackson to move the Leviston lawsuit from state to federal court, insinuating that Jackson might be a forum shopper.
Judge Nevins applied the 12-factor test laid down by the Second Circuit in In re Sonnax Indus., Inc. for determining whether there is cause to modify the automatic stay to permit the continuation of litigation in another forum. Judge Nevins found that on balance, Ms. Leviston would suffer more harm from the enforcement of the automatic stay than Jackson would from the continuation of the sex tape trial through the punitive damages phase. As a result, Judge Nevins modified the stay to allow Ms. Leviston to continue her claim against Jackson, resulting in a further $2 million in punitive damages being awarded against Jackson in late July.
Creditors File Plan of Reorganization
Other interested stakeholders trying to get a dollar out of Fifty, including the mortgagee on his $8.2 million Farmington, Connecticut mansion, the New York State Department of Taxation and Finance, the IRS, a number of law firms, the mother of his child, and Bentley Financial Services (uh), filed claims with the court before the November 3, 2015 claims bar date.
Since then, Jackson’s creditors have been patiently waiting for him to negotiate the settlement of their claims and propose a plan to reorganize his financial affairs. Jackson, who, under section 1121 of the Bankruptcy Code, had the exclusive right to propose a plan of reorganization in the first 120 days following his chapter 11 petition, allowed this “exclusivity period” to expire without seeking an extension. As a result, on January 14, 2016, a group of creditors, including Sleek Audio and Ms. Leviston, tired of Jackson wasting time while allegedly “continuing to live an extravagant lifestyle at the expense of creditors,” filed their own disclosure statement and plan for the reorganization of Jackson’s financial affairs.
The proposed plan of reorganization provides for the turnover of all of Jackson’s property to a bankruptcy trustee, who would supervise all of Jackson’s business dealings and restrict Jackson from engaging in further business activities without the review, consent and approval of the trustee. The trustee would then liquidate Jackson’s existing marketable securities and personal property and distribute the proceeds to creditors based on their priority status under the plan. The creditors’ proposal further provides that after confirmation of the plan, Jackson would continue to make distributions based on his disposable income for a period of five years, or until creditors are paid in full (plus interest), whichever comes first.
The court has set a hearing date of February 18, 2016 to consider approving the disclosure statement filed by Jackson’s creditors. If the disclosure statement is approved by the court, creditors will be entitled to vote to approve the plan that would see Jackson’s personal expenditures, as well as his music, acting, endorsement and investment career, become subject to substantial oversight.
Concerns About 50’s Financial Disclosure
In the meantime, creditors have taken aim at alleged deficiencies in Jackson’s required financial disclosure to creditors and the court. For example, creditors allege that Jackson has provided little information in his monthly operating reports about postpetition income from live performances, product endorsements, television appearances, and the sale of his music, among other potential income streams.
Despite his musical pronouncement that “he gets money,” Jackson claims he’s earning not a lot, just a little bit, disclosing that he only earned approximately $30,000 in November 2015. Furthermore, Jackson admits that while he goes to the dealership, he says he never cops nothing (he claims his Bentley automobile is leased), and although he’s been hustling a long time, he don’t got nothing (Jackson’s balance sheet shows “only” approximately $16.5 million in assets, while questions continue to swirl about the reported $100 million in proceeds he received from the sale of his minority interest in Vitamin Water to Coca-Cola in 2007).
Jackson’s disclosure has raised skepticism as, in the same time period, his Instagram profile highlights him performing a concert for which remuneration was not disclosed, enjoying a Popsicle on a pile of money, opening up his fridge to find cold hard cash, and perhaps most unabashedly, spelling out the word “broke” in stacks of hundred-dollar bills.
The disclosure statement filed by Jackson’s creditors suggests that they will seek to uncover the true value of Jackson’s business interests, personal assets, postpetition revenues, potential litigation claims, and potential avoidance actions for payments allegedly made to insiders (including $250,000 in payments to G-Unit Records, Inc.) in the 90 days leading-up to bankruptcy.
Hate it or love it, Jackson’s antics have us continuing to pay close attention to his bankruptcy case. Stay tuned for further developments.
David J. Cohen is an Associate at Weil Gotshal & Manges, LLP in New York.