Skajem

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) Ch. 7

CHICKEN SOUP FOR THE SOUL )

ENTERTAINMENT, INC., et al., ) Case No. 24-11442 (MFW)

Debtors. )

) (Jointly Administered)

BRIAN SKAJEM, LISA PAPATZIMAS, )

ERIN TUTTLE, DAVID ELLENDER, DARA )

COHEN, MATT LOZE, JESSICA )

STOECKELER, HEATHER BUNDY, CAREY )

CAMPBELL, KELLY BURKE HOPKINS, )

COURTNEY SMITH, on behalf of )

themselves and on behalf of all )

others similarly situated, ) Adv. No. 24-50128 (MFW)

)

Plaintiffs, )

)

v. )

)

CHICKEN SOUP FOR THE SOUL )

ENTERTAINMENT, INC.; REDBOX )

AUTOMATED RETAIL, LLC; WILLIAM J. )

ROUHANA, JR., AMY NEWMARK, JOHN T. )

YOUNG, ROBERT H. WARSHAUER, BART )

SCHWARTZ, and DOES 1-500, )

inclusive, )

Defendants. ) Rel Adv. D.I. 35, 36, 37,

) 38, 43, 44, 47, 48, 49,

) 50

MEMORANDUM OPINION1

Before the Court are Motions filed by Defendants William J.

Rouhana Jr. (“Rouhana”) and Amy L. Newmark (“Newmark”) to Dismiss

the First Amended Complaint (“FAC”) filed by several former

employees (the “Plaintiffs”) of Chicken Soup for the Soul

1 The Court is not required to state findings of fact or

conclusions of law pursuant to Rule 7052 of the Federal Rules of

Bankruptcy Procedure. Instead, the facts recited are those

averred in the First Amended Complaint, which must be accepted as

true for the purposes of these Motions to Dismiss. Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009).

Entertainment, Inc. (the “Debtor”). For the reasons stated

below, the Court will grant the Motions to Dismiss with leave for

the Plaintiffs to amend.

I. PROCEDURAL BACKGROUND

The Debtor was an entertainment content company that

provided advertising-supported video-on-demand products. Its

three flagship services were Redbox, Crackle, and Chicken Soup

for the Soul.2 In connection with the Debtor’s acquisition of

the Redbox business in 2022, the Debtor and its subsidiaries

assumed and became co-obligors on additional debt. Thereafter,

the Debtor was unable to service its larger debt load. As a

result, the Debtor was unable to secure or maintain rights to new

video content, resulting in declining revenue, insufficient cash

flow, and liquidity challenges.

The Debtor and several subsidiaries filed for relief under

chapter 11 of the Bankruptcy Code on June 28, 2024. The cases

were converted to chapter 7 on July 10, 2024.3 On September 6,

2024, the Plaintiffs commenced this adversary proceeding on

behalf of themselves and other similarly situated employees of

2 D.I. 7 ¶ 6. References to the docket in this adversary

proceeding are to “Adv. D.I. #” while references to the docket in

the main case are to “D.I. #.” The Debtor is an indirect

subsidiary of Chicken Soup for the Soul, LLC, which publishes the

Chicken Soup for the Soul book series.

3 D.I. 120.

2

the Debtor asserting claims related to the failure to pay their

wages and benefits.4 The Plaintiffs sued, inter alia, the

Debtor, its subsidiary and co-debtor Redbox Automated Retail, LLC

(“Redbox”), the Debtor’s chairman of the board and former CEO

(Rouhana), and an officer and/or member of the board (Newmark).5

Though initially named as Defendants, the Debtor’s pre-

petition administrative and collateral agent HPS [Investment]

Partners, LLC (“HPS”) and healthcare company Anthem Blue Cross

were voluntarily dismissed by the Plaintiffs.6 The Plaintiffs

then sought leave to amend the complaint to add back HPS and to

add additional officers and/or members of the board (John T.

Young, Robert H. Warshauer, and Bart Schwartz).7 The Court

granted the motion as to the new officers and/or board members

and denied the motion as to HPS.8

The Plaintiffs filed their FAC on May 8, 2025, which added

those parties but did not otherwise amend the causes of action or

4 Adv. D.I. 1.

5 The Complaint also included as Defendants “Does 1-500” who

are alleged to be “in some manner responsible, liable, and/or

obligated to Plaintiffs and the Class in connection with the acts

alleged herein.” Id. ¶ 12.

6 Adv. D.I. 8 & 15.

7 Adv. D.I. 18.

8 Adv. D.I. 29.

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relief requested.9 On June 20, 2025, Rouhana and Newmark filed

Motions to Dismiss the FAC as to them for failure to plead

adequately under Rules 8 and 9 and for failure to state a claim

under Rule 12(b)(6).10 On July 7, 2025, the Plaintiffs filed

their response.11 Rouhana and Newmark filed replies on July 14,

2025.12 The Motions are now ripe for decision.

II. FACTUAL ALLEGATIONS

The Plaintiffs’ FAC asserts claims for fraud, conversion,

failure to pay wages, violation of various sections of the

California Labor Code, and a violation of the Fair Labor

Standards Act (“FLSA”). Essentially, the Plaintiffs allege that

as the Debtor began to develop liquidity issues, the Defendants

failed to timely and accurately pay employee wages, failed to

reimburse employee expenses, made unauthorized deductions from

employee pay, failed to provide promised employee benefits, made

misrepresentations to employees about their health insurance

9 Adv. D.I. 30.

10 Adv. D.I. 35, 37. Rules 8, 9, and 12(b)(6) of the Federal

Rules of Civil Procedure are incorporated by the Federal Rules of

Bankruptcy Procedure. Therefore, citations herein are to the

Federal Rules of Civil Procedure.

11 Adv. D.I. 43, 44.

12 Adv. D.I. 47, 48.

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coverage, and failed to maintain accurate employee records.13

III. JURISDICTION

The Bankruptcy Court has subject matter jurisdiction over

all “proceedings arising under title 11 or arising in or related

to a case under title 11.”14 The Court has “related to”

jurisdiction over this adversary proceeding, which asserts claims

based on non-core state and federal labor laws and common law

fraud and conversion. The Plaintiffs consent to the entry of a

final order or judgment by the Court.15 Although Rouhana and

Newmark do not consent to the entry of a final order,16 it is not

necessary for the Court to decide that issue at this time. Even

if the Court does not have constitutional authority to enter a

final order, the Court does have the authority to enter orders on

preliminary matters to the extent they do not constitute a final

adjudication.17

13 Adv. D.I. 30 ¶ 65.

14 28 U.S.C. §§ 157(a), 157(b)(1) & 1334(b).

15 Adv. D.I. 1 ¶ 15.

16 Adv. D.I. 35 at 2, 37 at 2.

17 See O’Toole v. McTaggart (In re Trinsum Grp., Inc.), 467

B.R. 734, 738 (Bankr. S.D.N.Y. 2012) (holding that “both before

and after Stern v. Marshall, it is clear that the bankruptcy

court may handle all pretrial proceedings, including the entry of

an interlocutory order dismissing fewer than all of the claims in

an adversary complaint.”) (citations omitted). See also Borelli

v. City of Reading, 532 F.2d 950, 951-52 (3d Cir. 1976)

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IV. DISCUSSION

A. Standard of Review

1. Rule 12(b)(6)

Rule 12(b)(6) provides for dismissal for “failure to state a

claim upon which relief can be granted.”18 Rule 8(a)(2) requires

that a pleading contain “a short and plain statement of the claim

showing that the pleader is entitled to relief.”19 When a

complaint is challenged by a motion to dismiss under Rule

12(b)(6), the complaint “does not need detailed factual

allegations, [but] a plaintiff’s obligation to provide the

‘grounds’ of [their] ‘entitle[ment] to relief’ requires more than

labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do.”20 Two “working

principles” underlie this pleading standard:

First, the tenet that a court must accept as true all

of the allegations contained in a complaint is

inapplicable to legal conclusions. Threadbare recitals

of the elements of a cause of action, supported by mere

conclusory statements, do not suffice. . . . Second,

only a complaint that states a plausible claim for

relief survives a motion to dismiss. Determining

(“Generally, an order which dismisses a complaint without

prejudice is neither final nor appealable because the deficiency

may be corrected by the plaintiff without affecting the cause of

action.”).

18 Fed. R. Civ. P. 12(b)(6).

19 Fed. R. Civ. P. 8(a)(2).

20 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

(citations omitted).

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whether a complaint states a plausible claim for relief

will, as the Court of Appeals observed, be a

context-specific task that requires the reviewing court

to draw on its judicial experience and common sense.’!

Under this standard, a complaint must nudge claims “across the

line from conceivable to plausible.”** The movant carries the

burden of showing that dismissal is appropriate.*?

Interpreting this pleading standard, the Third Circuit

instructs courts to follow a multi-step analysis. “First, the

court must ‘tak[e] note of the elements a plaintiff must plead to

state a claim.’”** Second, the court must separate the factual

and legal elements of the claim, accepting all of the complaint’s

well-pleaded facts as true and disregarding any legal

conclusions.*°? Third, the court must determine whether the facts

alleged in the complaint are sufficient to show that the

plaintiff has a plausible claim for relief.*®° After conducting

this analysis, the court may conclude that “[a] claim has facial

at Igbal, 556 U.S. at 678-79 (citations omitted).

ae Twombly, 550 U.S. at 570.

28 Paul v. Intel Corp. (In re Intel Corp. Microprocessor

Antitrust Litig.), 496 F. Supp. 2d 404, 408 (D. Del. 2007).

24 Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir.

2010) (quoting Igbal, 556 U.S. at 675).

Santiago, 629 F.3d at 130. See also Fowler v. UPMC

Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (citing Igbal, 556

U.S. at 679).

26 Santiago, 629 F.3d at 130.

plausibility when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.”*’

2. Rule 9(b)

In addition, there is a heightened pleading standard for

allegations of fraud under Rule 9(b), which provides:

In alleging fraud or mistake, a party must state with

particularity the circumstances constituting fraud or

mistake. Malice, intent, knowledge, and other

conditions of a person’s mind may be alleged

generally.”

Rule 9(b) requires that plaintiffs plead the “who, what, where,

when, how, and why” when alleging fraud.*? The Third Circuit has

stated that the purpose of Rule 9(b) is to “place the defendants

on notice of the precise misconduct with which they are charged,

and to safeguard defendants against spurious charges of immoral

and fraudulent behavior.”*°

B. Arguments

In their Motions to Dismiss, Rouhana and Newmark argue that

the FAC fails to state a claim against them because it lumps all

27 Igbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

28 Fed. R. Civ. P. Q9(b).

See Gerbitz v. ING Bank, FSB, 967 F. Supp. 2d 1072, 1078 (D.

Del. 2013). But see Seville Indus. Mach. Corp. v. Southmost

Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984) (“Plaintiffs are

free to use alternative means of injecting precision and some

measure of substantiation into their allegations of fraud.”).

30 Seville Indus., 742 F.2d at 791.

the Defendants together and casts allegations at them

collectively, rather than identifying what each Defendant did

that was improper.31 They argue that such “group pleadings” are

insufficient to state a claim for individual liability against

them.32

The Plaintiffs argue that the Motions to Dismiss fail

because the allegations in the FAC all pertain to Rouhana and

Newmark. The Plaintiffs point to factual allegations in the FAC

that do allege specific conduct by Rouhana33 and by Newmark.34

They contend that those allegations and the more general

allegations regarding actions by all Defendants (which they

31 See, e.g., Adv. D.I. 30 ¶¶ 45-59, 76-80.

32 See, e.g., Swartz v. KPMG LLP, 476 F.3d 756, 764-65 (9th

Cir. 2007) (holding that “Rule 9(b) does not allow a complaint to

merely lump multiple defendants together but requires plaintiffs

to differentiate their allegations . . . and inform each

defendant separately of the allegations surrounding his alleged

participation in the fraud”) (internal quotations omitted); Hawk

Mountain LLC v. Mirra, Civ. No. 13-2083, 2016 WL 3182778, at *16

(D. Del. June 3, 2016), report and recommendation adopted, Civ.

No. 13-2083, 2016 WL 4541032 (D. Del. Aug. 31, 2016) (same);

Burtch v. Zachem (In re TZEW Holdco LLC), Adv. Proc. No.

22-50255, 2023 WL 6140247, at *3 (Bankr. D. Del. 2023)

(recognizing that lumping defendants together “without supplying

specific facts as to each defendant’s wrongdoing” is grounds to

dismiss for failure to state a claim).

33 See, e.g., Adv. D.I. 30 ¶¶ 21-22 (alleging that as an

officer Rouhana was responsible for violations of the state and

federal labor statutes), ¶ 56 (alleging that Rouhana recommended

that employees avoid using non-emergency medical services).

34 See, e.g., id. ¶ 23 (alleging that as an officer Newmark was

responsible for violations of the state and federal labor

statutes).

9

contend apply to Rouhana and Newmark specifically) are

sufficiently detailed to support their claims against Rouhana and

Newmark.

The Court disagrees with the Plaintiffs. The FAC largely

alleges that the Defendants collectively acted to deduct amounts

from employees’ wages but failed to remit them to pay for health

benefits or contributions to 401(k) and HSA plans.35 Those

allegations fail to state with any detail the specific actions

Rouhana or Newmark took with respect to those deductions or

services, with only one exception. In paragraph 56, it is

alleged that Rouhana recommended that employees avoid using non-

emergency medical services.36 The Court concludes, however, that

this allegation alone is insufficient to state a claim for fraud

against Rouhana.

Similarly, the other allegations of the FAC contain no

specifics of any actions Rouhana or Newmark took, as opposed to

the other Defendants, that were fraudulent.37 Because the FAC

35 See, e.g., id. ¶¶ 51-54 (alleging that Defendants continued

to deduct amounts from employees’ wages for nonexistent health

benefits), ¶ 58 (alleging that the Defendants continued to deduct

401(k) and HSA funds from employees’ wages but failed to remit

them).

36 Id. ¶ 56.

37 See, e.g., id. ¶ 9 (“Plaintiffs are informed and believe

that at all times material hereto, each of the Defendants named

herein was the agent, employee, alter ego and/or joint venturer

of, or working in concert with each of the other Co-Defendants. .

. . To the extent said acts, conduct, and omissions were

10

fails to differentiate the specific actions taken or the capacity

in which the individual Defendants were acting, the Court finds

that it is impossible for Rouhana and Newmark to know what

allegations apply to them.38 Such general “group pleadings” are

insufficient to state a claim against Rouhana or Newmark.39

Further, the FAC alleges only generally in an introductory

perpetrated by certain Defendants, each of the remaining

Defendants confirmed and ratified said acts, conduct, and

omissions of the acting Defendants”), ¶ 11 (“At all times herein

mentioned, the acts and omissions of the Defendants contributed

to the various acts and omissions of each and all of the other

Defendants in proximately causing the injuries and damages as

herein alleged. At all times herein mentioned, each Defendant

ratified each and every act or omission alleged below. At all

times herein mentioned, each Defendant aided and abetted the acts

and omissions of each and all of the other Defendants in

proximately causing the damages as herein alleged.”).

38 See, e.g., Swartz, 476 F.3d at 764-65 (holding that Rule

9(b) does not allow a complaint to assert broad allegations

against multiple defendants without informing each defendant of

the alleged actions it took in furtherance of the fraud); Hawk

Mountain, 2016 WL 3182778, at *16 (holding that a pleading that

fails to differentiate precisely the alleged conduct of each

defendant in a forgery ring constitutes an improper group

pleading pursuant to Rule 9(b)); Burtch v. Zachem, 2023 WL

6140247, at *3 (holding that group pleadings fail to meet the

pleading standards of Rules 8(a)(2) and 12(b)(6) because it

“forc[es] both the Defendants and the Court to guess who did what

to whom and when. Such speculation is anathema to contemporary

pleading standards.”) (citing Baldeo v. City of Paterson, No.

18-5359, 2019 WL 277600, at *4 (D.N.J. Jan. 18, 2019)).

39 See Agudelo v. Recovo Mortg. Mgmt. LLC, 22-cv-4004, 2025 WL

1674486, at *9 (E.D.N.Y. June 13, 2025) (“It is well-settled that

Rule 8(a)(2) ‘is violated where a plaintiff, by engaging in group

pleading, fails to give each defendant fair notice of the claims

against it.’”) (citation omitted).

11

paragraph that the Defendants were engaged in a Ponzi scheme.40

However, the FAC makes no additional factual or legal assertions

that would support a claim that Rouhana or Newmark were operating

a Ponzi scheme. A Ponzi scheme is a specific type of fraud where

earlier investors are paid, not from the profits of any

legitimate business but from funds paid in by later investors.41

There are no such allegations in the FAC and a bald allegation

that the Defendants were running a Ponzi scheme is insufficient.

With respect to the claims for violations of the FLSA and

California labor laws, the Plaintiffs allege that Rouhana and

Newmark are liable for the Debtor’s failure to pay employees’

wages and benefits by virtue of their status as officers and

directors of the Debtor.42 However, Plaintiffs admit in the FAC

that officers and directors can be held liable under the FLSA and

California Labor Code only if they “are actively involved in the

decision-making/operational control that leads to those

violations.”43

40 Adv. D.I. ¶ 2.

41 In re Bernard L. Madoff Investment Securities LLC, 12 F.4th

171, 179 (2d Cir. 2021); In re Bonham, 229 F.3d 750, 759 n. 1

(9th Cir. 2000).

42 Adv. D.I. 30 ¶¶ 21-23.

43 See, e.g., id. ¶ 21 (“Essentially, corporate officers,

directors, and managing agents can be held personally liable for

FLSA violations if they are actively involved in the decision-

making/operational control that leads to those violations.”)

(emphasis added).

12

Under California law, something beyond merely being an

officer or director is necessary to state a claim for violation

of the California Labor Code.

[I]n order to ‘cause’ a violation of the Labor Code, an

individual must have engaged in some affirmative action

beyond his or her status as an owner, officer or

director of the corporation. However, that does not

necessarily mean the individual must have had

involvement in the day-to-day operations of the

company, nor is it required the individual authored the

challenged employment policies or specifically approved

their implementation. But to be held personally liable

he or she must have had some oversight of the company’s

operations or some influence on corporate policy that

resulted in Labor Code violations.44

The Plaintiffs contend that they have met the pleading standards

under the FLSA and the California Labor Code with the allegations

of the FAC.

The Court disagrees. Many of the allegations are merely

assertions of legal theories and statutory liability45 which the

Court must disregard at this stage.46 For example, in support of

their claims against Rouhana and Newmark for violation of the

FLSA and California Labor Code, the Plaintiffs simply state that

44 Espinoza v. Hepta Run, Inc., 74 Cal. App. 5th 44, 59 (Cal.

Ct. App. 2022).

45 See, e.g., Cal. Lab. Code § 558.1 (“Any employer or other

person acting on behalf of an employer, who violates, or causes

to be violated, any provision regulating minimum wages or hours

and days of work in any order of the Industrial Welfare

Commission, or violates, or causes to be violated, Sections 203,

226, 226.7, 1193.6, 1194, or 2802, may be held liable as the

employer for such violation.”) (emphasis added).

46 Santiago, 629 F.3d at 130; Fowler, 578 F.3d at 210–11.

13

they “are further informed and believe that Defendant Rouhana

[Newmark] had a direct and/or active role that caused the legal

violations alleged herein, including but not limited to: the

unauthorized withdrawals from employees’ pay for benefits that

were not received; unpaid wages, bonuses, and/or commissions;

and/or other losses to employees.”47 Such bare bones conclusory

allegations that Rouhana and Newmark had a direct or active role

are insufficient to state a plausible claim for relief. Instead,

the Plaintiffs must provide the factual foundation for those

claims in the FAC.

The FAC also raises temporal issues as to Count VIII:

Failure to Pay Wages at Time of Termination (California Labor

Code §§ 201-203).48 The FAC does not specify when the employees

were terminated by the Debtor or that Rouhana and Newmark were in

control of the Debtor at that time.49 Therefore, the Court

cannot conclude that the Plaintiffs have pleaded sufficient

“factual content that allows the court to draw the reasonable

inference that the defendant[s] [are] liable for the misconduct

alleged.”50

47 Adv. D.I. 30 ¶¶ 22-23.

48 Id. ¶¶ 112-15.

49 See, e.g., id. ¶ 61 (alleging that Rouhana stepped down as

CEO of the Debtor in June 2024).

50 Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

14

For the reasons stated above, the Court will grant the

Motions to Dismiss filed by Rouhana and Newmark.

C. Leave to Amend

In their response to the Motions to Dismiss, the Plaintiffs

request leave to amend if the Court grants the Motions. Under

Rule 15, leave to amend “shall be freely given when justice so

requires.”51 “The Third Circuit has adopted a liberal approach

to the amendment of pleadings”52 with a goal of resolving matters

on their merits, not on technicalities. While the Plaintiffs

have previously amended their complaint, they have not done so to

address substantive deficiencies. Therefore, the Court will

grant them leave to amend to do so now.

V. CONCLUSION

For the foregoing reasons, the Court will grant the

Defendants’ Motions to Dismiss without prejudice. The Plaintiffs

are granted leave to file a second amended complaint within 30

days.

An appropriate Order is attached.

51 OHC Liquidation Trust v. Nucor Corp. (In re Oakwood Homes

Corp.), 325 B.R. 696, 699 (Bankr. D. Del. 2005) (quoting Fed. R.

Civ. P. 15).

52 Arneault v. Diamondhead Casino Corp., 277 F. Supp. 3d 671,

674 (D. Del. 2017); Burtch v. Zachem, 2023 WL 6140247, at *4.

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Dated: December 9, 2025 BY THE COURT:

Mary F.-Walrath

United States Bankruptcy Judge

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