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Wilson v. Walker (In re Walker)

Wilson v. Walker (In re Walker), 8th Cir. Bankruptcy Appellate Panel, No. 14-6032, April 7, 2015
The BAP for the 8th Circuit affirmed the bankruptcy court (W.D. Mo.-Springfield), which denied plaintiff's (1) requests for: (a) judgment of nondischargeability under 11 USC 523 against debtor; (b) enforcement of money judgment against debtor's non-filing spouse and entity; (2) request for denial of discharge under 11 USC 727; and (3) motions to alter or amend the judgment, for new trial, and to make additional findings of fact. BAP agreed with bankruptcy court that because underlying contracts were unconscionable, debtor did not owe a "debt" to plaintiff. Consequently, plaintiff had no cause of action against debtor under 11 USC 523, and no basis for denial of discharge under 11 USC 727. BAP agreed that debtor did not waive unconscionability defense, and that plaintiff had no other claim for lost investment, or otherwise. Debtor's failure to list unconscionability as affirmative defense was remedied because issue was tried by consent, in that unconscionabiilty was raised throughout proceeding, including at pre-trial conference and trial, briefed by plaintiff, and plaintiff did not object to issue. Similarly, plaintiff did not raise statute of limitations argument until postjudgment. Debtor proved unconscionability by clear and convincing evidence, showing that contracts "shocked the conscience," based on contracts' 20-28 year term, and unilateral adhesion provisions, including prohibition on termination by debtor, obligation for debtor to pay all expenses, inability to remove plaintiff, and excessive entitlement to gross income (50%).
Procedural context:
Plaintiff sued debtor, debtor's non-filing spouse, and spouse's entity to except debt from discharge and for denial of discharge; bankruptcy court entered judgment in favor of debtor and defendants and denied other motions for relief. Plaintiff appealed to the BAP for the 8th Circuit.
Plaintiff met debtor in 2002 when debtor was performing as karaoke singer and impressionist. A year or two later, plaintiff agreed to help manage debtor's career, and to provide advice and funds to assist in the development of debtor's career. The parties worked together, and then entered into the first of three written agreements in 2005. Plaintiff registered a trade name with the Missouri Secretary of State. The written agreement had a three year term with an option for plaintiff to renew for four one-year terms. The agreement included a buyout and termination option for debtor. In 2007, debtor entered into a new agreement with plaintiff for a 20 year term with four two-year extension options exercisable by plaintiff. The new agreement included a buyout option and arbitration clause. In 2008, the parties entered into a third agreement for a 25 year term, with four two-year options for extension exercisable only by plaintiff, and increasing plaintiff's compensation to 50% of debtor's gross revenues, removing the buyout option, eliminating any ability to remove plaintiff, requiring debtor to obtain plaintiff's written permission for accepting work, requiring debtor to pay all expenses, and providing additional protections exclusively for plaintiff, including upon plaintiff's death. In 2006-2007, plaintiff signed a five year performance agreement for debtor to perform in Branson, Missouri. Debtor performed in Branson in 2007 with success that was also lucrative for plaintiff. In 2008, plaintiff signed a letter of intent with "SMEC" to move debtor's act to Pigeon Forge, Tennessee. Plaintiff signed a subsequent contract with SMEC, then a subsequent amendment, and debtor moved to Tennessee in reliance. SMEC later terminated the agreements. After SMEC terminated its contract, plaintiff entered into a contract with boxing promoter Don King to manage debtor's career for 50% of debtor's gross revenues, while plaintiff still claimed the remaining 50% of debtor's gross revenues. After no work materialized, debtor returned to Branson. Plaintiff threatened to sue the theatre owner where debtor had previously worked if he paid debtor directly, instead of paying plaintiff. Debtor sought to terminate his contracts with plaintiff. Plaintiff refused. Debtor attempted to work for tips at a local mall, and performed sporadically in larger venues. Plaintiff persisted in contacting venues and demanding 50% of payments due debtor. In 2009, debtor's wife set up two companies to manage debtor's performances and receive funds from such performances. These entities pay debtor's living and performing expenses and pay debtor $50 per performance. In 2008, plaintiff filed bankruptcy, but did not schedule any claims against debtor or amounts owed to plaintiff's management entity. After debtor filed bankruptcy, plaintiff filed suit to except debts from discharge and to deny debtor's discharge. Plaintiff named debtor's non-filing spouse, and wife's non-filing entities, as co-defendants, seeking joint and several liability. Bankruptcy court ultimately ruled in favor of debtor on plaintiff's claims, and denied plaintiff's motion to alter judgment, and for other postjudgment relief.
KRESSEL, SCHERMER and NAIL, Bankruptcy Judges. Judge SCHERMER, authored the opinion

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