Can a blogger bankrupt his blog, claim indemnity, stay the lawsuit against him, and get paid $500,000 for writing defamatory blog posts and infringing copyright? You decide . . . or Judge Katharine Samson will . . .

On January 11, 2016, U.S. Bankruptcy Judge Katharine M. Samson in Gulfport, Mississippi, denied Slabbed New Media, LLC's motion to extend "exclusivity" in its Chapter 11 case, but granted the sole-proprietorship of blogger Douglas Handshoe more time to file a plan of "reorganization."

"denied as to an extension of exclusivity"

He's going to need it

This may be the first step in the bankruptcy court scrutinizing this most bizarre and tactical of bankruptcy filings done by homophobic blogger Douglas Handshoe. Though Handshoe is the sole member of the company, and though he is the publisher and nearly sole author of his blog, Handshoe now claims that because he is being or has been sued, his company is bankrupt, and he, personally, has been damaged, with the bankruptcy as proof. In fact, he has used the LLC's bankruptcy he initiated as evidence of personal damages in court briefs filed in some of his numerous lawsuits against those going after him in various courts for defamation.

The company has, for the past few years, made less than $1000 in annual "profits," which all went to Handshoe. According to the bankruptcy entries, it has no means of existence besides "contributions" from readers. It sells no advertising. "Slabbed New Media" has no sustainable way to make money, because it is essentially Mr. Handshoe's personal hobby (when he's not filing new legal actions). In its last financial report, Slabbed lost over $400 for the month of November, 2015, with an income of $100. I wonder how much the federal courts and the Department of Justice are spending on Slabbed's "bankruptcy"?

As is well known, Handshoe has a $180,000 copyright infringement judgmeent against him; is currently being sued for defamation in two Louisiana courts; and owes hefty attorney's fee awards in both those cases; all personally. In one of those cases, court records show he's used the automatic stay procedures of federal bankruptcy law to stop Chris Yount's lawsuit against him (b/c it also names Slabbed), while he went on to pursue Yount in Mississippi federal court. Fortunately for Mr. Yount, that lawsuit was just thrown out by the federal court. So, was reason number one for putting Slabbed into bankruptcy to stall out the Yount lawsuit?

That's not all. Of course, when he put Slabbed into bankruptcy Handshoe did not appear on the list of creditors filed with the court. Perhaps that would have raised some eyebrows at the U.S. Trustee's Office. In fact, all the creditors he did list in that mandatory filing made under penalty of perjury never filed (probably because really Handshoe owes them money, not Slabbed), except for one teeny tiny one.

So, lo and behold, this past October only two people filed papers as creditors of Slabbed: a guy who Handshoe uses as a process server, with a claim of $80.00; and Handshoe, with a claim of $500,000.00!

Handshoe says there is an indemnity agreement between Slabbed and him personally. Huh?

Bankruptcy Court document claiming Handshoe is owed $500,000 by Slabbed

So, Handshoe's logic seemingly goes like this: When he attracts liability on his blog by infringing others' copyright or publishing defamatory material, it's really the company that's at fault because he's merely acting as an official of the company. In addition, he must be indemnified against those legal judgments against him personally by the company, 'cause he was just doing his job. So, he's "loaned" Slabbed over $11,000 so it could hire a bankruptcy lawyer in Jackson, and declare bankruptcy. In yet, he's also given Slabbed a $48,000 judgment debt owed to him personally, which he previously also transferred to his lawyer Bobby Truitt, where it's enrolled in three Louisiana court cases by Truitt. So he's owed $500,000, but in spite of that, he's given Slabbed $48,000 that at the same time he's given to someone else, and he's loaned the sole-proprietorship that make a few hundred dollars a year in profit $11k of his own money as well. Wow, you might need a "forensic accountant" like Handshoe to figure that one out.

As noted by the National Geographic Society in its brief on dismissal of the lawsuit against it filed by Handshoe, he's getting confused, to be Slabbed or not to be Slabbed?

 to establish standing to bring the claims he has asserted against NGS, Plaintiff would need to plausibly allege both (1) a concrete injury in fact that is fairly traceable to the actions of the defendant and (2) that he is asserting his own legal rights and interests, not the legal rights or interests of third parties. See, e.g., United States v. Johnson, 632 F.3d 912, 919 (5th Cir. 2011); Superior MRI Servs., Inc. v. All. Healthcare Servs., Inc., 778 F.3d 502, 504 (5th Cir. 2015). Plaintiff has not alleged – and is foreclosed as a matter of law from alleging – that he meets either requirement, for his own allegations conclusively demonstrate that (1) he has not suffered an injury that is fairly traceable to any act of NGS, and (2) he is impermissibly seeking to prosecute claims that – if they were viable at all – belong to Slabbed.

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 Plaintiff cannot manufacture standing by purporting to bring this action “in his individual capacity and as publisher of Slabbed New Media, LLC.” Am. Compl. at 1. This conclusory allegation is directly contradicted by the allegations in the Amended Complaint noted above that deny any personal involvement of Plaintiff in these events. It is well settled that where a complaint’s allegations are contradicted by facts pled in the complaint or its exhibits, the court is under no obligation to accept the contradicted allegations as true. See, e.g., United States ex rel Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 377 (5th Cir. 2004); Simmons v. Peavy- Welsh Lumber Co., 113 F.2d 812, 813 (5th Cir. 1940). Nor can Plaintiff bring a claim on behalf of Slabbed, because it is a company with a separate and distinct legal interest from Plaintiff, and “as a fictional legal person can only be represented by licensed counsel.” In re K. M. A., Inc., 652 F.2d 398, 399 (5th Cir. 1981).

Also, there's an interesting part of bankruptcy law that one hopes Judge Samson might consider in looking at the mess Handshoe has made in her court. As explained in "Intentional Torts & Bankruptcy":

Section 523 of the Bankruptcy Code  sets forth exceptions for discharge which "strikes at the very heart of an individual debtor's fresh start."  Recent attention has focused particularly on Section 523(a)(6) of the Code, which limits discharge for debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." Simply stated, Section 523(a)(6) attempts to incorporate intentional tort principles into bankruptcy law, thereby excepting from discharge any debts the petitioner incurred as a result of their intentional wrongdoings.

In addition, bankruptcy courts have the duty to scrutinize things like "indemnification agreements" under the same part of the Code:

 Dischargeability is determined by the substance of the liability, not the form, and inquiry must be made into the true and essential nature of the debt. Pepper v. Litton, 308 U.S. 295, 305-306, 60 S.Ct. 238, 244-245, 84 L.Ed. 281 (1939); Brown v. Felsen, 442 U.S. 127, 139, 99 S.Ct. 2205, 2213, 60 L.Ed.2d 767 (1979); Pauley v. Spong (In re Spong), 661 F.2d 6, 9 (2d Cir.1981). A debt that originates from the debtor's fraud should not be discharged simply because the debtor has entered into a settlement or indemnification agreement, and the debt now arises from a contract rather than a tort. See Greenberg v. Schools, 21 B.R. 1011 (S.D.Fla.1982), aff'd. 711 F.2d 152 (11th Cir.1983); Fireman's Fund Ins. Co. v. Covino (In re Covino), 12 B.R. 876 (Bankr.M.D.Fla.1981).

How will Judge Samson deal with these issues? Stay tuned . . .