Wilson v. Walker (In re Walker)

528 B.R. 418

In re Michael Aubrey WALKER, also known as Mike Aubrey Walker, Debtor.

Joseph R. Wilson, Plaintiff–Appellant

v.Michael Aubrey Walker; Tamar Walker; Precious Princess Productions, LLC, Defendants–Appellees.

BAP No. 14–6032.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: Feb. 25, 2015.

Filed: April 7, 2015.

Lee J. Viorel, III, argued, Springfield, MO (Kyle Harmon, Springfield, MO, on the brief), for Plaintiff–Appellant.

Jon M. Gold, argued, Springfield, MO, (David E. Schroeder, Springfield, MO, on the brief), for Defendants–Appellees.

Before KRESSEL, SCHERMER and NAIL, Bankruptcy Judges.

Opinion

SCHERMER, Bankruptcy Judge.

Joseph R. Wilson (Wilson) appeals the bankruptcy court's¹ rulings denying his: (1) requests for: (a) a judgment of nondischargeability under 11 U.S.C. § 523 against Michael Aubrey Walker (Debtor), together with a money judgment, and (b) enforcement of a money judgment against Debtor's non-filing spouse or her company; (2) request for denial of the Debtor's discharge under 11 U.S.C. § 727 ; and (3) motions to alter or amend the judgment and for a new trial and making additional findings of fact. We have jurisdiction over this appeal. See 28 U.S.C. § 158(b). For the reasons that follow, we affirm.

ISSUES

This appeal concerns Wilson's assertions that debt owed to him by the Debtor should be excepted from the Debtor's discharge under § 523 of Title 11 of the United States Code (Bankruptcy Code) or the Debtor's discharge should be denied under Bankruptcy Code § 727. Therefore, we consider whether the Debtor owes a debt to Wilson. To determine whether a debt exists, we must decide whether: (1) two contracts between the Debtor and Wilson were void as unconscionable; (2) Wilson lost an investment he made in the Debtor or his career; and (3) Wilson has asserted any other basis for a debt. We consider Wilson's arguments that: (1) the Debtor waived an unconscionability argument for failure to raise it as an affirmative defense; and (2) assertion of unconscionability is barred by the Virginia statute of limitations. In addition, we consider the propriety of the bankruptcy court's ruling that the Debtor's discharge should not be denied under § 727(a)(2), (a)(3) and (a)(4). We hold that there is no basis upon which to rule that the Debtor owed a debt to Wilson. The bankruptcy court properly decided that Wilson had no cause of action under § 523. Likewise, there was no basis upon which to deny the Debtor's discharge under § 727.

BACKGROUND

The bankruptcy court made extensive factual findings in its written decisions. Those findings were supported by the record, and we see no error with them. Therefore, where practical, we set forth the findings relevant to our decision in a summary fashion.

The Debtor and Wilson first met in 2002 while the Debtor was performing in Nashville, Tennessee. The Debtor was only twenty-six years-old, while Wilson was approximately forty-five years-old. When the two men met, the Debtor had been working as a karaoke singer and an impressionist. It is undisputed that the Debtor is a talented singer.

In late 2003 or early 2004, Wilson agreed (verbally) to help manage the Debtor's career. Wilson agreed to provide advice, counsel and funds to help with the Debtor's career.

The written Artist Management Agreements

The parties continued to work together, but they did not enter into their first of three written agreement until 2005. The bankruptcy court found that the Debtor and Wilson acted through a sole proprietorship arrangement, not as a partnership as the Debtor believed was intended. Wilson had registered “W & W Enterprises” (W & W) as a fictitious name with the Missouri Secretary of State. The bankruptcy court found that Wilson acted as the Debtor's manager in the name of W & W, a sole proprietorship of Wilson who was effectively the employer and the Debtor was the employee.

In April 2005, Wilson retained an attorney to draft the first Artist Management Agreement (2005 AMA). The 2005 AMA obligated Wilson to advise and counsel the Debtor in all matters concerning development of his act, publicizing himself, selection of venues, and terms of contracts. Notwithstanding the obligations taken on by Wilson, Wilson was inexperienced in the area. Previously he had worked in the wallpaper business and then in construction where he was a business owner and operator. Before Wilson met the Debtor, he had only managed a couple of music acts.

The 2005 AMA had a three-year term, with an option for Wilson to renew the agreement for four one-year terms. Therefore, the total term of the agreement could reach seven years at Wilson's option. The 2005 AMA obligated the Debtor to pay Wilson fees of 15% of the Debtor's gross compensation and publishing revenue, and 25% of voice impression work performed by the Debtor. An individual or corporation could buy out the right to manage the Debtor's affairs for $2 million. Under the 2005 AMA, the Debtor had the option to terminate the agreement upon thirty days written notice if Wilson was not able to personally render services.

The parties entered into two subsequent Artist Management Agreements (AMAs). Like the 2005 AMA, these agreements obligated Wilson to advise and counsel the Debtor in all matters concerning development of his act, publicizing himself, selection of venues, and terms of contracts. Each of these subsequent AMAs was drafted by Wilson without the advice of counsel. According to Wilson, he used the 2005 AMA as a template for the later AMAs. The changes from the 2005 AMA were drastic.

On April 30, 2007, the Debtor and Wilson entered into a new Artist Management Agreement (2007 AMA). The 2007 AMA was for a twenty-year term with four two-year extension options exercisable only by Wilson. At Wilson's option, the total term of the agreement could now reach twenty-eight years. Wilson had the Debtor initial the paragraph extending the agreements term. Under this new agreement, the Debtor was now obligated to pay Wilson a fee of 25% on all receipts. The buyout cost for another organization or individual was increased to $10 million. And, Paragraph 10 of the 2007 AMA states that “[i]t is understood by ARTIST that MANAGER cannot be replaced or fired for any reasons or circumstances during this ... Agreement, exception [sic ] specified in paragraph (12).” The Debtor was allowed to purchase the remainder of the twenty-year term for $8 million. In turn, Paragraph 12 provided a cure period for any claimed breach. If there was no cure, Paragraph 12 also stated that “[i]n the event of any dispute under or relating to the terms of this Agreement, or breach thereof, it is agreed that the same shall be submitted for arbitration to the American Arbitration Association (“AAA”) in the State of Virginia.” The provision from the 2005 AMA allowing the Debtor to terminate on thirty days written notice if Wilson was unable to perform was removed. Now, the 2007 AMA stated:

If MANAGER is not personally available to render the services of MANAGER as described herein (except for limited periods not to exceed one hundred eighty (180) days because of illness), MANAGER will have the right to secure temporary replacement management for the remaining period of this Agreement.

A year later, the parties also signed a new Artist Management Agreement on April 28, 2008 (2008 AMA). Wilson contends that changes he made to the 2008 AMA were made at the Debtor's request. The bankruptcy court found this to be lacking in credibility. The 2008 AMA stated that the term was “for a period of time twenty (25) [sic ] years.” Wilson exclusively had the option to extend the term for four periods of two years (eight years total).² Under this new agreement, Wilson's compensation was increased to 50% of Walker's gross revenues. Paragraph 10 of the 2007 AMA stating that Wilson could not be replaced or fired for any reason stayed as part of the 2008 AMA. However, the provision in the 2007 AMA that allowed the Debtor to buy out the remaining term of Wilson's contract was removed. The provisions in Paragraph 12 of the 2007 AMA concerning a cure for any claimed breach and the submission of disputes to arbitration in Virginia remained in the 2008 AMA. Wilson retained the right to secure a replacement manager for the balance of the agreement's term if Walker should become unavailable to perform. In addition, the 2008 AMA added a new term stating:

In the event MANAGER pass's [sic ] away, ARTIST will allow MANAGER'S benefactor the right to hire at benefactor['s] cost, a replacement MANAGER (ACCEPTABLE TO ARTIST) for the remainder period of contract with no options. Payments will be paid at same existing rate to benefactor and will be paid monthly by ARTIST or new MANAGER less MANAGERS['s] prior arranged fee from benefactor with a detailed account of monthly receipts.

The bankruptcy court found that this: (1) appears to require the Debtor to pay the benefactor the same payment the Debtor would have paid to Wilson, even if the benefactor did not obtain an acceptable replacement, and that, (2) if the benefactor obtained a replacement who was compensated at a lesser rate, the benefactor would receive the difference.

Under all three AMAs, the Debtor was solely responsible for his expenses. The AMAs expressly stated that Wilson had no liability for such expenses. In addition, under all three AMAs, the Debtor was only to work at such times and places as were approved in writing by Wilson.

The Mickey Gilley Theater deal and Al Embry agreement

In July 2006, Wilson signed, on behalf of the Debtor, a two-year Exclusive Booking Agreement with Al Embry International, LLC. The agreement included a provision to extend its term for two years at Al Embry International, LLC's option.

On April 1, 2007, approximately one month before the parties entered into the 2007 AMA, Wilson signed a five-year Performance Agreement for the Debtor to perform at the Mickey Gilley Theater in Branson, Missouri. Under the...