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USA GYMNASTICS,1 Debtor. Case No. 18-09

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USA GYMNASTICS,1 Debtor. Case No. 18-09 Case 19-50075 Doc 49 Filed 04/12/19 EOD 04/12/19 15:02:12 Pg 1 of 21 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION In Re: USA GYMNASTICS,1 Case No. 18-09108-RLM-11 Debtor. USA GYMNASTICS, Plaintiff, v. Adv. Proc. No. 19-50075 GEDDERTS’ TWISTARS USA GYMNASTICS CLUB, INC., TWISTARTS USA, INC., JOHN GEDDERT, KATHRYN GEDDERT, DONALD PETERS, SOUTHERN CALIFORNIA ACRO TEAM, INC., BMK PARTNERS LTD, BMK TRAINING FACILITIES, LTD., KAROLYI TRAINING CAMPLS, LLC, KAROLYI’S ELITE, KAROLYI WORLD GYMNASTICS INC., BELA KAROLYI, MARTHA KAROLYI, and RICHARD CARLSON, Defendants. THE KAROLYI PARTIES’ OBJECTION IN LIMITED OPPOSITION TO PLAINTIFF’S MOTION FOR A PRELIMINARY INJUNCTION Bela Karolyi, Martha Karolyi, Karolyi Training Camps, LLC, BMK Partners Ltd., BMK Training Facilities, Ltd. (collectively, the “Karolyi Parties”), by counsel, hereby object to the Motion for a Preliminary Injunction (the “Injunction Motion”) filed by plaintiff, 1 The last four digits of Debtor’s federal tax identification number are 78771. The location of Debtor’s principal offices is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204. Case 19-50075 Doc 49 Filed 04/12/19 EOD 04/12/19 15:02:12 Pg 2 of 21 USA Gymnastics (“Debtor” or “USAG”), and in support of their objection, the Karolyi Parties state as follows: PRELIMINARY STATEMENT The Karolyi Parties oppose Debtor’s Injunction Motion only to seek a narrow carve- out, which would enable the California Court (defined below) to decide the Karolyi Parties’ fully-briefed motion to dismiss for lack of personal jurisdiction. Debtor’s proposed injunction is overbroad and unsupported by applicable caselaw, and the articulated needs of Debtor can be met without subjecting the Karolyi Parties to such injunction. Based on the Injunction Motion, it appears that Debtor’s counsel would simply like this case to be a “Caesars II” where Debtor convinces everyone to bow to its will regardless of the consequences to third parties. See In re Caesars Entertainment Operating Co., Inc., 808 F.3d 1186 (7th Cir. 2015) and In re Caesars Entertainment Operating Co., Inc., 561 B.R. 441, 450 (Bankr. N.D. Ill. 2016). However, the facts and circumstances of this case with respect to the Karolyi Parties could not be any more distinct from those in Caesars, and they certainly dictate a different result than what occurred in Caesars. Rather than an insolvent debtor trying to stay litigation against its solvent parent, in this case, Debtor is trying to stay a piece of litigation that will have no impact on Debtor. Further, it has been noted that Caesars is an outlier in the universe of Seventh Circuit precedent concerning the use of equity in bankruptcy courts. In re Concepts America, Inc., 2018 WL2085615, at *5 (Bankr. N.D. Ill. May 3, 2018). In short, the scope of section 105(a) of the Bankruptcy Code is not broad enough to encompass the relief sought by Debtor against the Karolyi Parties in the Injunction Motion. 2 Case 19-50075 Doc 49 Filed 04/12/19 EOD 04/12/19 15:02:12 Pg 3 of 21 PROCEDURAL POSTURE 1. On December 5, 2018 (the “Petition Date”), Debtor filed its voluntary petition under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Indiana. 2. On March 29, 2019, Debtor filed its Complaint for Injunctive Relief under 11 U.S.C. § 105(a) (the “Complaint”) for injunctive relief to stay or enjoin the continued prosecution of certain prepetition lawsuit, for the duration of USAG’s chapter 11 case, against the above-captioned defendants, including the Karolyi Parties. (Adv. Proc. Dkt. No. 1). 3. A few days later, on April 4, 2019, the Karolyi Parties filed their Motion for Determination That Automatic Stay Does Not Apply or Alternatively, for Relief from Automatic Stay Without 30-Day Waiver (the “Stay Relief Motion”) seeking a determination that the automatic stay does not prevent an unrelated ruling on the Karolyi Parties’ pending motion to dismiss for lack of personal jurisdiction in the California Litigation (as defined below); or alternatively, if the stay applies, that the Karolyi Parties are entitled to narrow relief from the stay allowing the California Court (as defined below) to rule on that motion on the existing record. (Main Case Dkt. No. 385). FACTUAL BACKGROUND 4. Bela and Martha Karolyi are long-time residents of Texas. Both together and separately, they established a legacy through their roles in U.S. women’s gymnastics beginning in the 1980s. In the 1980s and ‘90s, Bela and Martha rose to prominence for coaching successful individual gymnasts, including gold medal winner Mary Lou Retton in 1984, and later each serving as Head Coach to the U.S. Women’s National Team. The 3 Case 19-50075 Doc 49 Filed 04/12/19 EOD 04/12/19 15:02:12 Pg 4 of 21 title of “Head Coach” is primarily an honorary title usually bestowed upon the coach with the top athletes competing. However, despite such title, all athletes still retain their own individual coaches who train them and oversee them. 5. In November of 1999, Bela was appointed as the first ever National Team Coordinator for USAG. USAG created the position of National Team Coordinator to facilitate the creation of a semi-centralized system of training for U.S. athletes to work alongside the largely autonomous structure currently in place.2 The National Team Coordinator had the responsibility for the creation of an overall training program and overseeing the preparation of the U.S. team heading into the 2000 Olympic Games in Sydney, Australia. The National Team Coordinator was not eligible to be named as a head coach of the women’s gymnastics team, was not a coach to any individual athletes, and the athletes retained their individual coaches as their primary coach. 6. When Bela retired at the end of his contract in 2000,3 Martha Karolyi took over and remained National Team Coordinator for USAG from 2001 to 2016. As National Team Coordinator, Martha served as an advisor to the individual coaches and directed the team’s preparation for world championships and Olympic games. After continuously 2 Gymnastics is conducted primarily on an individual basis with each gymnast spending most of their time with their individual coach in their home state and preparing for their individual events. Individual gymnasts choose which competitions they wish to complete in so as to qualify for the National Team. In many other countries, the entire process is far less de-centralized. 3 Bela’s contract with USAG expired at the end of December 2000, at which time Bela announced that he would not be placing himself as a candidate for the position of National Team Coordinator. When Bela left the National Team Coordinator position in 2000, it was not because of any type of improper conduct on his part but was instead due to a power struggle between the newly created position of National Team Coordinator and the individual coaches who had historically run the operations. 4 Case 19-50075 Doc 49 Filed 04/12/19 EOD 04/12/19 15:02:12 Pg 5 of 21 being elected by coaches to the position of National Team Coordinator, Martha retired in 2016 following the Olympics in Rio de Janeiro. 7. Subsequently, Bela and Martha were sued in several cases related to Larry Nassar’s sexual abuse during their tenure, though there is no evidence that they knew about the sexual abuse when it occurred.4 4 For those who wonder how such conduct could go unnoticed by the Karolyis for so many years, the nature of Larry Nassar’s crime made it extremely difficult to detect in the absence of complaints of inappropriate conduct ever being communicated to the Karolyi Parties. For example, multiple gymnasts have stated their parents were present when they were sexually assaulted, and the parents had no knowledge. See e.g. Schladebeck, Jessica, Mother Recalls How Former U.S. Gymnastics Doctor Larry Nassar Assaulted Daughter in Front of Her, N.Y. Daily News (Feb. 9, 2018); Evans, Tim, Former USAG Doctor Accused of Abuse, IndyStar (Sept. 12, 2016). Further, many gymnasts were not aware themselves they were sexually assaulted until years later when reports began to surface of Larry Nassar’s abuse. See Kimble, Lindsay, Elite Gymnast on How Dr. Larry Nassar Allegedly Preyed on Young Girls: 'I Thought He Was My Friend’, People Magazine (March 20, 2017). As one gymnast put it: “I didn’t know the abuse was happening to me until I was older, until I had time to process it and realised that Nassar was being investigated. If we don’t know you can’t expect our personal coaches to know.” Le Grand, Chip, New Gymnastics Coach ‘Knew Nothing’ of Nassar’s Abuse, The Australian (Feb. 21, 2018) (quote from Aly Raisman). Typically, the number of staff, coaches, and other adults present at the U.S. National Team Training Center (“NTTC”) outnumbered the number of gymnast. Gymnasts were accompanied by their individual coach (or coaches), most equipment in the gyms had a specialty coach, there were multiple trainers at the Ranch owned by the Karolyis, there were directors and other staff from USAG present, housekeeping and food service- companies and their employees, media on occasion, etc. Further, the training rooms are open and visible to these dozens of coaches and other adults who would be in the gyms during training and typically would have been staffed with a secondary USAG trainer. The Karolyis, understandably, did not attempt to oversee USAG’s hired doctor, at USAG events, on the premises which USAG held exclusive control over USAG agents and employees, and without a single warning as to the possible inappropriate behavior of the doctor during his medical procedures.
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