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Fyre Class Actions Look Toward New York as Company Faces Chapter 7

Fyre Media class action lawsuits in four states appear destined for consolidation in New York based on the indication of a panel of federal judges who heard geographical arguments Thursday in Los Angeles. The case is moving on dual criminal and civil tracks as aggrieved parties pursue remedy from promoters of the ill-fated Bahamian concert series, which was to have begun in April.

Meanwhile, a trio of investors earlier this month filed to force the beleaguered Fyre Media into involuntary Chapter 7 bankruptcy, which was of interest to the multi-district litigation judges in L.A., as was the fact that none of the central defendants – Fyre principals Billy McFarland and Jeffrey Atkins (Ja Rule) nor the Fyre corporation – have responded to any of the class action suits, putting them at risk for entry of default judgments against them.

McFarland, who on June 30 was arrested in New York on criminal wire fraud charges and was represented by a public defender at his bond hearing pending release, has retained the pricey Boies Schiller Flexner LLP to defend him in the criminal case.

Representatives for the defense did not appear at Thursday’s civil hearing in Federal Court for the Southern District of California, where a panel of six judges heard arguments for why the six separate class action cases should be consolidated in either New York, California, or Florida.

The majority interested parties argued in favor of a Manhattan venue – Federal Court for the Southern District of New York. Based on the fact that the defendants and potential investor defendants are based in Manhattan, the judicial panel also seemed to lean to Gotham, but will issue a formal decision in the coming weeks. The court can either order the class actions consolidated to a specific venue, or direct the plaintiffs to decide among themselves, in which case majority opinion also favors New York.

Representing plaintiff Daniel Jung in a $100 million class action suit, Geragos & Geragos argued to keep the federal class actions in Los Angeles where the firm is headquartered, based on the fact that they represent the majority of plaintiffs, at about 500, and which they project will swell to more than 1,000 and possibly as many as 3,000, since clients have contacted the firm on behalf of themselves and friends.

The law firm of Levy & Levy argued to consolidate in Florida, which gained no traction and made for some comic relief. Asked by Judge Charles R. Breyer – a silver-haired jurist who bears a striking resemblance to his brother, Supreme Court Justice Stephen Breyer, “Why Florida?,” attorney Chad Levy said, “Because everything happened in the Bahamas,” prompting Breyer to quip, “I think the point is nothing happened in the Bahamas,” sparking laughter and the additional rejoinder, “But if the case is transferred there, I’m willing to sit.” And Judge David Proctor jumped in with, “We have a Fire Island in New York, too.”

For the defendants, the situation is no laughing matter, though it was much remarked upon in the hallways that McFarland, whose finances appear to be in disarray, managed to come up with the funds to secure the Boies firm, best known for David Boies’ representing Al Gore in the 2000 presidential election vote recount case argued before the Supreme Court. It is believed attorney Randall Jackson has been assigned to McFarland.

In addition to other civil investor lawsuits totaling millions, the trio of financiers who pressed the Chapter 7 bankruptcy claim on Fyre Media in New York on July 7 — John Nemeth, Raul Jimenez, and Andrew Newman – said they sunk $530,000 into the company based on fraudulent misrepresentations of adequate capitalization and rosy financial forecasts.

Talk of the Chapter 7 petition prompted discussion of the fact that if Fyre is bankrupt there will be no spoils for the beleaguered plaintiffs, raising the “doe” defendants, or Fyre Media “participant investors,” some of whom appear to have deep pockets. Judge Sarah Vance, panel chair, asked, “Why would investors invest in something they knew wasn’t ready for primetime?,” adding, “I don’t know how they’re going to be defendants.”

While that casually tossed-off opinion has no legal weight, as insight into bench-think it could bode ill for plaintiffs trying to squeeze funds from a stone. Geragos counsel Ben Meiselas said Vance wasn’t taking into account the standard of “recklessness,” which could potentially expose participant investors to liability.

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