In re Ace Sports Management, LLC.

• Decision Date: 28 November 2001
• Docket Number: Bankruptcy No. 00-43455M.,Adversary No. 00-4162M.,Bankruptcy No. 00-43456M.
• Citation: 271 B.R. 134
• Parties: In re ACE SPORTS MANAGEMENT, LLC. In re Elbert Crawford, III. River Valley Bank of Russellville, Arkansas, Plaintiff, v. Ace Sports Management, LLC; Elbert Crawford, III; Derek Fisher; Ansu Sesay; Steve Conley; Anthony Hicks; David Sanders; National Bank of Arkansas; Union Bank of Bryant; Merchants and Planters Bank of Sparkman; Bonnie Johnson, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

Page 134

271 B.R. 134

In re ACE SPORTS MANAGEMENT, LLC In re Elbert Crawford, III River Valley Bank of Russellville, Arkansas, Plaintiff, v. Ace Sports Management, LLC; Elbert Crawford, III; Derek Fisher; Ansu Sesay; Steve Conley; Anthony Hicks; David Sanders; National Bank of Arkansas; Union Bank of Bryant; Merchants and Planters Bank of Sparkman; Bonnie Johnson, Defendants.

Bankruptcy No. 00-43456M.

Bankruptcy No. 00-43455M.

Adversary No. 00-4162M.

United States Bankruptcy Court, E.D. Arkansas, Western Division.

November 28, 2001.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lance R. Miller, Mitchell Williams Selig Gates & Woodyard, Little Rock, AR.

Scott T. Vaughn, Hilburn Calhoon Harper Pruniski & Calhoun, Ltd., N. Little Rock, AR.

Darwin Davidson, Little Rock, AR.

Alex G. Streett, Russellville, AR.

James V. Coutts, Russellville, AR.

Isaac A. Scott, Jr., Wright Lindsey & Jennings, Little Rock, AR.

Randy Rice, Little Rock, AR, trustee.

Richard Ramsay, Grobmyer Ramsay & Ross, Little Rock, AR, trustee.

MEMORANDUM OPINION

JAMES G. MIXON, Bankruptcy Judge.

On September 25, 2000, Ace Sports Management, LLC ("Ace") and Elbert Crawford, III ("Crawford") were adjudicated Debtors under the provisions of Chapter 7 of the United States Bankruptcy Code by virtue of involuntary petitions filed against them by creditors. The majority owner of Ace is Crawford. Thereafter, various pending state court proceedings involving the two debtors were removed to this Court pursuant to 28 U.S.C. §§ 1334 & 1452 (1994) and Federal Rule of Bankruptcy Procedure 9027.

The removed actions became Adversary Proceedings 00-4162, -4163, -4164, and -4165. The four suits were consolidated for a trial on the merits before the Bankruptcy Court at Little Rock, Arkansas, on July 24, 2001, under AP Number 00-4162.

The proceedings before the Court are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A),(K) & (O)(1994), and the Court has jurisdiction to enter a final judgment in this case. The following shall constitute the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

FACTS

The issues raised by the various parties center on the disposition of commissions from a 1999 player/agent contract between Crawford, a sports agent, and Derek Fisher ("Fisher"), a professional basketball player for the Los Angeles Lakers ("Lakers"). Fisher hired Crawford as his sports agent prior to signing his first contract with the Lakers in 1996. Crawford and Fisher signed a standard player/agent contract on March 28, 1996.

Fisher was drafted by the Lakers in 1996 after he completed his last season at the University of Arkansas at Little Rock. He was picked 24th in the first round of the draft. A contract for a rookie player picked in the first round is for a term of three years, after which the player is free to negotiate a new contract. As a consequence of being picked in the first round, 80% of Fisher's compensation was fixed pursuant to applicable regulations issued by the National Basketball Association.

The NBA rules require a sports agent contracting with an NBA player to be an individual and not a business entity such as a corporation. Crawford formed Ace Sports Management, LLC ("Ace") in which to conduct his sports agent business, even though any player/agent contract he entered into would always be between the player and Crawford.

The NBA also regulates a player's contract with a sports agent. The fee a sports agent is entitled to receive is limited to 4 percent of the gross salary a player receives from the team. In the case of rookie players, the most an agent is entitled to is 4 percent of the additional 20% portion of the contract that is negotiable. For Fisher's rookie year in 1996, Crawford was successful in obtaining the maximum compensation Fisher could secure, which was $2.1 million, payable over three years.

Fisher played for the Lakers pursuant to his three-year contract and performed successfully. In the summer of 1999, Crawford negotiated a new contract with the Lakers on Fisher's behalf. The 1999 contract is for five years with an option in favor of Fisher to play two additional years for total compensation due Fisher of $21 million if he completes all seven years.

Fisher also signed a new standard player/agent contract with Crawford in July 1999. This contract provided that Crawford is entitled to a 4 percent commission payable annually from Fisher. The commission computes to $120,000.00 a year. By agreement between Fisher and Crawford, the first commission was to become payable in the summer following the 1999-2000 basketball season.

Prior to the consummation of the 1999 player/agent contract, Fisher received the proceeds of a loan made to him from National Bank of Arkansas ("NBA") on December 2, 1998, to start a clothing business. Fisher transferred the $85,000.00 in loan proceeds to Crawford, who then remitted $10,000.00 to Fisher for expenses already incurred. Crawford then deposited the remaining $75,000.00 into his accounts at Mercantile Bank on December 2, 1998. Apparently, Crawford did not use the $75,000.00 for the purpose intended because he testified that he still owes Fisher the money.

Meanwhile, Ace borrowed substantial sums of money during 1998 and 1999 from banks in Arkansas. Crawford had personally guaranteed all of Ace's obligations. By August 1999, Ace and Crawford were in financial difficulty.¹

During this period, Crawford had assigned his right to receive commissions from Fisher and other athletes to several banks. Crawford had also granted or attempted to grant security interests in his right to receive commissions from Fisher in order to secure his and Ace's debt to the banks. Crawford began to ask Fisher to advance some of the commissions on the 1999 contract, even though they were not yet due.

On August 13, 1999, Fisher paid Crawford $22,500.00, which Crawford testified was a payment on fees due to Crawford under the 1996 player/agent contract. On August 21, 1999, Fisher issued a check payable to Ace Sports Management in the sum of $120,000.00, which was the entire commission due Crawford for the 1999-2000 season.² The payment was directed to Ace at the instruction of Crawford. On November 14, 1999, Fisher paid Crawford a second advance on the commission due under the 1999 contract in the sum of $22,500.00 payable to Ace at Crawford's instruction.

In November 1999, Crawford met with Fisher in Los Angeles to discuss Crawford's financial problems. Crawford asked Fisher to introduce him to some contacts in Los Angeles who might help Crawford financially because he had exhausted his credit with banks in Arkansas.

Fisher thereafter introduced Crawford to Barry Garipedian ("Garipedian"), an employee of Salomon Smith Barney ("Smith Barney"), a large stock brokerage firm. Garipedian was Fisher's financial adviser and supervised Fisher's account at Smith Barney. The three discussed a proposal concerning a possible loan from Smith Barney to Crawford or Ace secured by Fisher's account at Smith Barney.

In anticipation of a possible agreement, Fisher executed, in blank, two letters of authorization to transfer funds, but with the specific understanding that nothing was to be transferred unless Fisher communicated his consent.³ Fisher stated that he had reservations about the proposal because he did not want to be obligated to pay Crawford's debt to Smith Barney if Crawford failed to pay.

However, in November 1999, Fisher's account at Smith Barney was debited in the sums of $50,000.00 and $130,000.00 without Fisher's knowledge or approval, according to Fisher's testimony. The sum of $50,000.00 was transferred to River Valley Bank in Russellville ("River Valley") and applied to Ace's obligation to River Valley. The sum of $130,000.00 was transferred to NBA and was disbursed to creditors of Ace.⁴

Fisher did not learn of the unauthorized transfers until several weeks later when the transfers were brought to his attention by his father. Fisher was upset by what had happened and turned the matter over to his father.

As a result, Fisher terminated Crawford as his agent in December 1999. Fisher does not, however, dispute his obligation to pay Crawford all commissions due under the 1999 player/agent contract. Crawford has never repaid any of the $180,000.00 that was transferred from Fisher's brokerage account, any advance on commissions under the 1999 contract, or the sum of $75,000.00 transferred to Crawford in 1998 to fund Fisher's proposed apparel business.

Crawford acknowledged that he was the person who instructed Smith Barney to transfer the $130,000.00 to NBA and the $50,000.00 to River Valley in November 1999. Crawford testified that Fisher gave him the authority to withdraw the money from Smith Barney, but Fisher denies that he did so.

As will be discussed in detail, River Valley, Bonnie Johnson, NBA, Merchants and Planters Bank of Sparkman ("M & P"), and Union Bank of Bryant ("Union Bank") all claim perfected security interests in the commissions due under the 1999 player/agent contract between Crawford and Fisher.

Under the terms of the contract, Fisher owes $120,000.00 each year beginning with the 1999-2000 season through the 2003-2004 season. Fisher will owe an additional $120,000.00 for the 2004-2005 season and $120,000.00 for the 2005-2006 season if Fisher does not exercise his option to terminate the contract. The least amount owed by Fisher to Crawford is $600,000.00 and the maximum owed is $840,000.00.

The claims of the banks and Bonnie Johnson are as follows:

1. River Valley — $288,893.52;

2. NBA — $647,031.56;

3. Bonnie Johnson — $370,161.98;

4. M &P — $171,693.03;

5. Union Bank — $451,451.26;

These claims total $1,929,231.35.

Fisher claims the right to setoff for the following sums:

1. $ 75,000.00 of the $85,000.00 loan proceeds Fisher transferred to Crawford in December 1998;

2. $ 22,500.00 transferred to Ace ...