Hot Shot Kids Inc. v. Pervis (In re Pervis), Bankruptcy No. 10–75270–WLH.

• Decision Date: 29 May 2014
• Docket Number: Bankruptcy No. 10–75270–WLH.,Adversary No. 10–9061.
• Citation: 512 B.R. 348
• Parties: In re Joy A. PERVIS, Debtor. Hot Shot Kids Inc. and Brenda Pauley, Plaintiffs, v. Joy A. Pervis, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

512 B.R. 348

In re Joy A. PERVIS, Debtor.
Hot Shot Kids Inc. and Brenda Pauley, Plaintiffs,
v.
Joy A. Pervis, Defendant.

Bankruptcy No. 10–75270–WLH.
Adversary No. 10–9061.

United States Bankruptcy Court,
N.D. Georgia,
Atlanta Division.

Signed May 29, 2014.

[512 B.R. 357]

Quynh–Huong Nguyen Davis, Law Offices of Betty Nguyen Davis LLC, William A. Pannell, William A. Pannell, P.C., Kevin T. Moore, Atlanta, GA, for Plaintiffs.

G. Frank Nason, IV, Lamberth, Cifelli, Stokes Ellis & Nason, Atlanta, GA, for Defendant.

ORDER AFTER TRIAL ON DISCHARGEABILITY OF DEBT
WENDY L. HAGENAU, Bankruptcy Judge.

[T]he jealousy, the greed is the unraveling

It's the unraveling

And it undoes all the joy that could be ¹

This is a story of three women whose jealousy and greed not only unraveled “Joy” (the Debtor), but unraveled what was and could have continued to be a valuable friendship and successful business discovering some of the best child talent in television and movies. Instead, jealousy over the Debtor's success with Dakota Fanning and greed on the part of all three women for money and notoriety have led them to fight for almost seven years, destroying friendships and weakening their businesses.

Over five days of trial, the Court heard the complaint of Hot Shot Kids, Inc. (“HSK”) and Brenda Pauley (“Pauley”) against the Debtor on the dischargeability of their claims remaining after the Court entered an order on July 24, 2013 on the Debtor's Motion for Summary Judgment (“Summary Judgment Order”). Since this is a request for judgment on a complaint to determine the dischargeability of certain debts, this is a core proceeding under 28 U.S.C. § 157(b)(2)(I), which the Court has authority to hear and finally determine under 28 U.S.C. § 157(b)(1). The parties have agreed that this Court may enter a final judgment on the merits of the claims and dischargeability thereof.

The claims remaining for trial and on which the parties presented evidence can be grouped into four main categories:

1. Pauley's Exhibit A Talent claim;

2. HSK's claim for payments made by Osbrink Talent Agency (“Osbrink”) to Joy Pervis (“Pervis” or “Debtor” or “Defendant”) on Non–Exhibit A Talent;

3. HSK's claims arising from Pervis' resignation from HSK and the formation of J. Pervis Talent Agency (“JPTA”); and

4. HSK's claims for conversion of HSK funds resulting from Pervis paying various personal expenses from HSK funds.

FINDINGS OF FACT²

At its core, the dispute among the parties arises from the failed business relationship among Pervis, Pauley and Rebecca Shrager (“Shrager”) while they worked in the child and teen talent industry. To fully appreciate the dispute among the parties, factual findings regarding the witnesses' understanding of the workings of the industry must be made. The Court does not profess to be an expert in the talent industry, but makes these findings based on the testimony in this case.

Suffice it to say, there are many people involved in making a child a star, and many of their duties overlap. First, the child must be “discovered”. This is frequently accomplished through open calls, where auditions are held for anyone interested

[512 B.R. 358]

in appearing in television, movies, or commercials, or in modeling. The open calls are run by agents or talent scouts. The child is interviewed, photographed, filmed, etc. If the child looks promising, the parents are contacted for further photos and interviews. Next, the child needs an agent. An agent's job is to find work for the child (also called the “talent”) and negotiate a contract for the child. Agents get to know casting directors and others in the industry to facilitate the flow of information. The agent receives various industry announcements and e-mails of casting calls for all types of acting and modeling roles. Then, the agent sends her clients who fit the description to the casting calls (maybe in person or maybe via tape or photo). If the child is cast, the contract is negotiated and the child receives payment. The agent receives a commission on that work. The agent typically signs an agreement with the child. While the parties dispute whether the agreement is usually exclusive, they all agree, and the Court finds the agreements are terminable at will, either by their terms or because, as a practical matter, the agent is unlikely to hold a child to such an agreement, even through a parent or a guardian.

There are unions in this industry, including the Screen Actors Guild (“SAG”) and the American Federation of Television and Radio Artists (“AFTRA”). SAG and AFTRA regulate the activities of agents, among others. Some jobs are union jobs and the amount and method of payment to the child and the agent is set by union rules. If the job is non-union, then all items are negotiable by the agent, although the standard commission to an agent is 10%.

Some states also regulate the activities of agents. In California, one must be licensed by the state to act as an agent. If a Georgia agent has a client who wants to work in California, the Georgia agent can introduce the clients to a California agent (the parties disputed the use of the word “refer”). Not only is this required by law, but it makes good business sense. A California agent is much more likely to know California casting directors and be aware of California opportunities than a Georgia agent. A California agent, of course, wants to encourage out-of-state agents to refer its clients to the California agent. It is therefore typical for an arrangement to be made between the referring agent and the California agent to split the 10% commission the California agent receives. The agreement can be whatever the parties decide, but most commonly, the agreement is called a mother agency agreement or split commission agreement. Typically, the referring agency receives 30%–40% of the commission (or 3%–4% of the talent's earnings) and the California agency receives the balance. The term of the agreement is negotiable: it could be open-ended—paying the referring agency for as long as the California agency represents the child; it could be limited to a number of years—three to five years is a frequent term; or it could be limited to the initial term of the California agency's agreement with the child.

Often, the referring agent has little work to do while the child is working in California with a California agent. The California agent handles all agency duties in California. The referring agent, however, can be called upon to read scripts, attend premieres, help out and hold the child's (and parent's) hand. The referring agent does this not necessarily because she is required by the mother agency agreement to do so, but so the child will be successful and generate commissions in which the referring agency shares and so the relationship between the child and the referring agent remains cemented.

[512 B.R. 359]

As a child becomes more successful, she may also hire a manager. A manager oversees the child's career generally, helping with decisions on which project to accept (in conjunction with the agent). A manager also reads scripts, attends premieres, holds hands and generally helps out. A person cannot be both an agent and a manager.

It is in this talent industry that the Debtor and the Plaintiffs worked. In 1997, Pauley, Pervis and Shay Griffin met and formed the talent agency, TG Inc. At the time, Pauley and Pervis each had their own businesses, with Pauley focusing on adult talent and Pervis focusing on child talent and child beauty pageants through her company, Hot Shot Kids. In 1998, the original Hot Shot Kids was administratively dissolved, but Pervis continued using the name as a division of TG Inc.

In 1999, TG Inc. held an open call for child talent, which was attended by Pervis. At the open call, Pervis “discovered” Dakota Fanning. In February 2000, Pauley and Pervis sent Miss Fanning's audition tape to several talent agencies in Los Angeles, including Osbrink. Osbrink is owned equally by Cindy Osbrink, and its vice president, Scott Wine. Osbrink expressed an interest in representing Miss Fanning, so Pervis and Pauley visited Osbrink in Los Angeles to finalize the arrangements. Osbrink, Pervis and Pauley entered into a mother agency agreement for Dakota Fanning whereby Osbrink agreed to share commissions received on work performed by Miss Fanning. Pursuant to this agreement, Osbrink paid a 3% commission to Pervis and Pauley for the work done by Miss Fanning. Anticipating commissions from Miss Fanning's work as well as from additional child talent they expected to refer to Osbrink, Pauley and Pervis established JB Entertainment (“JBE”, which stood for “Joy” and “Brenda”). They owned JBE equally, and Osbrink was instructed to make the checks previously payable to TG Inc., to JBE. Neither the agreement with Osbrink nor the agreement between Pauley and Pervis was in writing. Miss Fanning continued to succeed. Other talent was referred to Osbrink, and it paid the same 3% mother agency commission on the talent, so JBE received commissions on a regular basis. Pervis and Pauley split the commissions 50/50, both using their portions for personal expenses.

In October 2002, Pauley and Pervis entered into a transaction with Shrager whereby the following occurred: (1) HSK was incorporated with Pauley and Pervis each holding 40% of the company and Shrager holding 20%; (2) all adult talent of TG Inc. was transferred to the People Store (owned 100% by Shrager); and (3) any child talent from the People Store was transferred to HSK. Pervis was the president of HSK and received a salary and an allowance for certain items, which is discussed more fully below. At the same time, the parties entered into a shareholder agreement dated October 31, 2002, among HSK, Pervis, Pauley and Shrager (“Shareholder Agreement”). Section 6.1 of the Shareholder Agreement is labeled “NonCompetition” and prohibits Pervis and Pauley (but not Shrager) from “representing clients or...