In re Porter, 10–1130.

• Decision Date: 16 August 2013
• Docket Number: No. 10–1130.,10–1130.
• Citation: 498 B.R. 609
• Parties: In the Matter of George Joseph PORTER, Jr., Aralean H. Porter.
• Court: U.S. Bankruptcy Court — Eastern District of Louisiana

498 B.R. 609

In the Matter of George Joseph PORTER, Jr., Aralean H. Porter.

No. 10–1130.

United States Bankruptcy Court, E.D. Louisiana.

Aug. 16, 2013.

Pierre V. Miller, II, Patrick, Miller, Burnside, & Belleau L.L.C., New Orleans, LA, Derek M. Mercer, Mercer Law Firm, LLC, New Orleans, LA, Jeffrey S. Baker, Baker & Associates, P.C., Boston, MA, for Plaintiffs Highsteppin Productions, LLC, Phil Stepanian.

Ronnie G. Penton, Bogalusa, LA, John O. Pieksen, Jr., John Pieksen & Associates, LLC, New Orleans, LA, for Defendants Porter, Batiste, Stoltz, LLC, Brian Stoltz, David Russell Batiste, Jr., George Joseph Porter, Jr.

Joseph R. Valle, Jr., Riemer & Braunstein, LLP, Boston, MA, for Bugaloo Music, Defendant.

OPINION

ELIZABETH W. MAGNER, Bankruptcy Judge.

I. Procedural HistoryA. Highsteppin Productions, L.L.C. v. George Porter, Jr., et al.¹

Highsteppin Productions, L.L.C. (“HSP”) filed suit against Porter, Batiste, Stoltz, L.L.C. (“PBS”) and its individual members on December 29, 2009, in the United States District Court for the Eastern District of Massachusetts. In its Complaint, HSP demanded reimbursement in the amount of $527,000.00.² The Massachusetts court entered a prejudgment writ of attachment requiring each defendant to escrow portions of their income. ³ George Porter, Jr. (“Porter”) and Brian Stoltz (“Stoltz”) escrowed money in connection with the Massachusetts proceeding prior to seeking Chapter 7 relief.⁴

B. Bankruptcy Filings, HSP's Proof of Claim and Adversary Proceedings

Porter, Stoltz and their wives filed Chapter 7 bankruptcy petitions on September 27, 2010.⁵ They scheduled HSP as an unsecured creditor with a disputed debt of $504,040.06.⁶ On December 17, 2010, HSP filed a proof of claim for $608,878.28 in both cases.⁷ On December 29, 2010, HSP filed a Complaint to Determine Dischargeability of Debt against Porter and Stoltz.⁸

David R. Batiste, Jr. (“Batiste”) filed a Chapter 7 petition on September 28, 2011 also scheduling HSP as an unsecured creditor holding a disputed claim of $504,040.06.⁹ HSP did not file a proof of claim in Batiste's bankruptcy but did file a Complaint to Determine Dischargeability of Debt on December 30, 2011.¹⁰ The two (2) Complaints filed by HSP were substantively consolidated by this Court on February 23, 2011.¹¹

Porter, Stoltz and Batiste filed Counterclaims against HSP. They asserted claims for breach of contract and fiduciary duties, unfair and deceptive trade practices in violation of M.G.L. c. 93A §§ 2 and 11, copyright infringement and alter ego.¹²

HSP's Complaint seeks $527,000 for personal advances made to Porter, Stoltz or Batiste, deferred commissions earned on the Artists' Gross Earnings (as defined below) and PBS expenses paid by HSP during the term of their Personal Management Agreement (“PMA”).¹³ It also alleges the debt is nondischargeable.¹⁴

Trial on the merits of this matter began on June 13, 2012 and ended on September 27, 2012. Post-trial briefs were filed on January 31, 2013. ¹⁵ After submission of post-trial briefs, the Court took the matter under advisement.

II. Findings of FactA. The PMA

On June 2, 2003, Porter, Stoltz and Batiste formed PBS (collectively Porter, Stoltz, Batiste and PBS are referred to as “Artists”). For three (3) years, PBS handled its financial and business arrangements, paying expenses from performance revenue, then splitting the net profit in equal one-third shares. ¹⁶ PBS had no outstanding debt prior to May of 2006.¹⁷

In 2005, Phillip Stepanian (“Stepanian”) owned a direct marketing company, Resort Discovery, which marketed travel packages.¹⁸ Although not involved in the entertainment business, in January 2005, Stepanian emailed Porter to discuss a merchandising and marketing proposal for Porter's music and image.¹⁹

The Artists met with Stepanian on or about April 20, 2005, at Porter's house in New Orleans.²⁰ Stepanian presented a basicconcept for producing and selling merchandise, including a rough outline of different products he wanted to sell.²¹ Throughout 2005, Stepanian continued to discuss a merchandising and marketing deal with the Artists, circulating merchandising agreements in June and July 2005.²² Although the Artists never executed a merchandising agreement, Stepanian followed PBS through its tour schedule, attending performances and selling mainly Porter-related T-shirts and merchandise Stepanian had purchased.²³

Occasionally, music CDs owned, produced and paid for by Porter, Stoltz or Batiste were also placed on Stepanian's merchandise table and sold.²⁴ Stepanian gave the artist any amounts he collected from sales of their individual merchandise but kept any revenues from the sale of the merchandise Stepanian personally purchased.²⁵ The Artists were neither paid a share of Stepanian's sales, nor were they given any costs to satisfy.²⁶

As Stepanian became comfortable with the Artists, he suggested becoming PBS' personal manager.²⁷ Stepanian believed his company, HSP, would free the Artists from having to exercise day to day management duties, thereby allowing PBS to focus on its music.²⁸ HSP offered to create an “artist-controlled environment,” allowing the musicians to decide when and where they played, as well as the content of their music.²⁹ Although PBS was operating at a profit, Stepanian argued that with professional management, PBS could increase its exposure, play more venues for higher fees and make significantly more money.³⁰

The Artists signed the PMA with HSP on May 8, 2006.³¹ The PMA had an initial 2–year term with an automatic 18–month renewal, after which PBS or its members could terminate the PMA without cause.³² The PMA was governed by Massachusetts law.³³

Under the PMA, HSP is entitled to a commission on all “Gross Earnings” received by the Artists during its term with some exceptions. Paragraph 4 of the PMA defines “Gross Earnings” and sets forth the formula for calculating commissions:

(a) Except as otherwise provided herein, as compensation for Highsteppin's covenants and services, ... [HSP will receive] fifteen (15%) percent (hereinafter “Commission”) of Artists's Gross Earnings (as hereinafter defined) .... in the event Artist's Gross Earnings during any consecutive twelve (12) month period during the Term increase by at least fifty percent (50%) above the Gross Earnings Baseline (i.e., increasing to a total amount of money equal to $108,000.00 (one hundred eight thousand dollars) during such twelve month period), the Commission shall increase to seventeen and one half percent (17.5%) of Artist's Gross Earnings ... in the event Artist's Gross Earnings during any consecutive twelve (12) month period during the Term increase by at least sixty five percent (65%) above the Gross Earnings Baseline (i.e., increasing to a total amount of money equal to $118,800.00 (one hundred eighteen thousand eight hundred dollars) during such twelve month period), the Commission shall increase to twenty percent (20%) of Artist's Gross Earnings.

(b) The term “Gross Earnings,” as used herein, shall mean and include the total of all earnings ... provided however all monies derived from the preexisting compositions ... shall only be deemed Gross Earnings to the extent that such monies are derived from exploitation of the preexisting compositions pursuant to agreements entered into and/or licenses granted during the Term.

(c) Notwithstanding anything to the contrary contained herein, Artist and Highsteppin hereby agree that Gross Earnings shall specifically exclude monies ... advanced by third parties and actually expended on audio and video recordings ..., reasonable “tour expenses” actually paid to third parties in connection with Artist's concerts and other live engagements, namely booking agency fees, the costs of self-produced merchandise, reasonable so-called “sounds and lights” reimbursement and/or the costs of opening acts.³⁴

With regard to expenses, HSP was allowed to incur expenses for performances and to promote or further the career of an individual artist or PBS. Specifically, the PMA states in relevant part:

(a) Artist shall be solely responsible for payment of all booking, theatrical or employment agency fees, union dues, publicity costs, promotion or exploitation costs, traveling expenses and/or wardrobe expenses and all other expenses, fees and costs incurred by Artist. Highsteppin is not required to make any loans or advances hereunder to Artists or for Artist's account nor to incur any expenses on Artist's behalf ... (including, without limitation, all long distance telephone charges, cellular phone charges, charges for couriers, messengers, facsimile and telex transmissions, accountants fees, attorney's fees and costs incurred on the Artist's behalf (excluding the fees and costs associated with the preparation and negotiation of this Agreement), photocopying and postage expenses, air and ground transportation, lodging, meals and other living expenses for Highsteppin while traveling), ... ³⁵

HSP's authority to incur expenses without the Artists' approval was limited by the amount of any individual charge or aggregate monthly expenses. The PMA provides in relevant part:

(b) Artist (or Business Manager) will reimburse Highsteppin for any and all expenses incurred by Highsteppin on Artist's behalf in connection with Highsteppin's services performed hereunder, provided that: (i) Artist will not be responsible for any portion of Highsteppin's overhead expenses; (ii) subject to paragraph 6(b)(iii) of this Agreement, if Highsteppin incurs travel expenses on behalf of both Artist and other of Highsteppin's clients, Artist shall be responsible only for Artist's pro rata share of such expenses; and (iii) Highsteppin shall not incur without Artist's prior consent (A) any single expense in excess of Seven Hundred Fifty ($750) Dollars or (B) aggregate monthly expenses in excess of Two Thousand ($2,000) Dollars. ³⁶

The PMA contemplates that Artists' revenue would be collected by a business...