Hot Shot Kids Inc. v. Pervis (In re Pervis)
512 B.R. 348
Bankr. N.D. Ga.2014Background
- From 1999–2007 Joy Pervis (Debtor) and Brenda Pauley jointly referred child talent (notably Dakota Fanning) to Los Angeles agent Osbrink; Osbrink paid 3% "mother agency" commissions to Pervis/Pauley’s referral entity.
- In 2002 Pauley, Pervis and Rebecca Shrager formed Hot Shot Kids, Inc. (HSK); a Shareholder Agreement included a non-compete clause and listed Exhibit A Talent (including Fanning).
- Around 2005 Osbrink began paying amounts directly to Pervis or her company (JPI/JBE), later characterizing some payments as "management team" fees; Pauley alleges she was entitled to a 50/50 split of Exhibit A payments.
- Pervis resigned from HSK in July 2007; family members formed J. Pervis Talent Agency (JPTA); HSK alleges Pervis diverted talent/opportunities and used HSK funds for personal expenses.
- Plaintiffs sued; this bankruptcy proceeding determined liability and whether debts are nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6). The court tried remaining claims and issued findings and money judgments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Pauley’s right to 50% of Osbrink payments on Exhibit A Talent / fraud | Pauley: payments to Pervis/JPI were mother-agency commissions owed 50/50; Pervis misrepresented cessation of payments and concealed receipts | Pervis: payments were new "management team" fees for extra services; not subject to the old split; any expenses should offset | Court: payments after March 18, 2005 (but before limitations cut-off) fit parties’ original sharing expectation; Pervis liable for breach, conversion and fraud; $137,094.15 owed to Pauley; nondischargeable under §523(a)(2)(A) and §523(a)(4). |
| 2. HSK entitlement to Osbrink payments on Non‑Exhibit A Talent (corporate opportunity / conversion) | HSK: payments to Pervis/JPI on certain children were proceeds of HSK’s corporate opportunities and must be returned | Pervis: many kids had left HSK, moved to California, or were not HSK clients; payments were management fees to her personally | Court: reviewed child-by-child; found $8,644.56 (for specific pre‑resignation opportunities) belonged to HSK and constituted conversion; other post‑resignation claims failed. |
| 3. Conversion of HSK funds for Debtor’s personal expenses and dischargeability | HSK: Pervis used HSK bank/AmEx/debit card to pay personal items beyond any agreed allowance; seeks recovery and nondischargeability | Pervis: she was authorized an "allowance" and documented items on an allowance log; some charges were business-related | Court: allowance limited to actual business expenses; identified improper personal charges totaling $26,031.72; conversion proven and amount found nondischargeable under §523(a)(4). |
| 4. Enforceability of Shareholder Agreement non‑compete and JPTA interference claims | HSK/Pauley: Section 6.1 prohibited Pervis from competing locally for two years and supports claims against JPTA and for tortious interference | Pervis: provision unclear and overbroad; she did not actively solicit while employed; not shown to have run JPTA or to have caused the alleged losses | Court: non‑compete was vague, open‑ended and unenforceable under pre‑2011 Georgia law; insufficient proof tying Pervis to JPTA torts or damages; claims dismissed. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (nondischargeability exceptions construed narrowly; burden on creditor)
- Field v. Mans, 516 U.S. 59 (justifiable reliance standard in §523(a)(2)(A))
- Kawaauhau v. Geiger, 523 U.S. 57 (§523(a)(6) requires deliberate or intentional injury)
- SE Consultants, Inc. v. McCrary Eng’g Corp., 246 Ga. 503 (corporate opportunity / line‑of‑business test)
- Quinn v. Cardiovascular Physicians, P.C., 254 Ga. 216 (analysis of corporate opportunity and fiduciary duty)