Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. La.: Musical artist management company liable for breach of fiduciary duties owed to client, (Aug 20, 2013)

By Jody Coultas, J.D.

Musical artist management company Highsteppin Productions, L.L.C. (HSP) violated the Massachusetts Unfair Trade Practices Act (UTPA) by failing to account for revenues it collected and expenditures it paid on behalf of its client, the federal district bankruptcy court in New Orleans has held (In the Matter of George Joseph Porter, Jr., August 16, 2013, Magner, E.). HSP was unable to state a UTPA claim against its client.

George Porter, Jr., David Russell Batiste, Jr., and Brian Stoltz formed musical group PBS and signed a personal management agreement with HSP. HSP alleged that PBS owed approximately $600,000.00 for funds advanced to pay tour, promotional, merchandise, music production, and living expenses. HSP argued that the PBS never intended to repay the expenses incurred, PBS induced HSP to incur losses through the deception, and PBS’s refusal to pay outstanding loans constitutes a UTPA violation. PBS counterclaimed that HSP failed to provide account detail on revenues received and expenses paid during the agreement in violation of the UTPA.

An act is unfair under the UTPA if it is within the penumbra of a common law, statutory, or other established concept of unfairness; is immoral, unethical, oppressive, or unscrupulous; or causes substantial injury to competitors or other business people. Courts look at the relative position and sophistication of the parties when considering whether a transaction was unfair. The fairness of an act in a commercial transaction is judged by the standards of a businessman rather than those of an average individual.

Deceptive acts under the UTPA are those which reasonably could be found to have caused a person to act differently from the way he otherwise would have acted. The standard is an objective test of whether the general public would be deceived. Reliance is not a prerequisite for recovery under the statute. There is no need to prove intention to deceive or that the unfair or deceptive act was intentional or willful.

PBS did not violate the UTPA by accepting money paid by HSP for expenses, according to the court. HSP argued that PBS knew of its obligation to reimburse HSP and, despite this knowledge, continued to incur debt that they had no intention to repay. Although HSP equated the receipt of funds with a promise of repayment, it omitted any evidence that PBS knew the funds were a loan rather than a distribution of profits. HSP failed to account or provide status reports on profitability, state that the expenses were “investments in HSP,” or characterize direct payments as “salaries.” Therefore, HSP could not prove that PBS knew that it was unprofitable and the payments were loans.

HSP’s conduct constituted a willful violation of the UTPA, according to the court. A fiduciary is a person to whom property or power is entrusted for the benefit of another. HSP became a fiduciary of PBS’s funds when it undertook the collection and disbursement of all revenues obtained by PBS. The court found that HSP violated its fiduciary duties by not keeping PBS apprised of their financial situation, failing to properly segregate PBS’s funds, commingling PBS’s funds with its own and that of other HSP clients, and failing to account in a timely and accurate manner for all revenues and expenditures. HSP’s actions fell so far below the standard of care required as to be actionable under the UTPA.

The court required HSP to account for any and all proceeds received from the sale, license, or use of merchandise or music of PBS after June 2012 and remit the gross proceeds within 14 days. HSP must also immediately notify all parties of the termination of its nonexclusive license. HSP will reimburse PBS for all fees and costs associated with the preparation of amended tax returns.

The case is No. 10-1130.

Attorneys: Derek M. Mercer (Mercer Law Firm, LLC) for Highsteppin Productions, L.L.C. Ronnie G. Penton for George Joseph Porter, Jr.

Companies: Porter, Batiste, Stoltz, L.L.C.; Highsteppin Productions, L.L.C.

Cases: StateUnfairTradePractices LouisianaNews