Client had two companies involved in the production and sale of adult videos. Client had a full-time job as a marketing vice president for a consumer product firm. So, he depended on his industrial partner to run his business. The partners knew each other since high school. His partner had spent seven years in the porno business and was familiar with the industry. Client sold his house and used $250,000 from the net sale proceeds to capitalize the porno business. The business involved producing adult videos using well-known stars in the porno industry, and selling them wholesale to retailers. First year business was good. Total sales were more than $1.0 million. Second year sales almost reached $3.0 million. But retailers relied on 60 to 90 days of credit for purchase of videos. Thus, capitalization was short and financing was drastically needed. His partner contacted several factoring companies and started doing business with smaller factoring company. Bigger amounts of financing were required to continue operations, so the partner started to get larger financing from another factoring company. Then things started to get messed up. The latest factoring company noticed that buyers were paying factored bills directly to the business and their checks were being cashed by partner.
Eventually, client put in another $50,000, which was used up very quickly and got ill requiring a triple heart bypass operation. Before his open-heart surgery, he transferred all his shares to partner and gave him the business. After surgery client sees me for a Chapter 7 case to get rid of all personal and business debts amounting to more than $1.0 million. Partner also files his own Chapter 7 case with another lawyer. Client subsequently gets a discharge of all his debts. Partner is not so lucky. The factor company files an adversarial complaint objecting to the discharge of $500,000 based on fraud and misrepresentation. Partner turns around and files an adversarial complaint against client for indemnity based on fraud claiming that client defrauded him and saying that if he is found to be liable to factor company, client should indemnify him or pay him back for the $500,000 that he is made liable for. Client retains me to defend him from partner’s adversarial complaint.
I could not believe that partner would turn around and file an adversarial complaint against client because partner ran the business, and client’s role was to provide capital for the business and had in fact put in $270,000 of his own funds into the business and relied on partner to run all aspects of the business. I filed a Motion for Summary Judgment asking for a judgment in favor of client on the ground that partner’s right to file his adversarial case against client had lapsed. The court denied the Motion for Summary Judgment saying the cause of action for indemnity was excepted from the 60-day deadline because partner did not know that factor company would sue him, thus, there was no reason for partner to file an adversarial case earlier. The court held that "to grant the motion would amount to denying plaintiff the due process of law." (In re Krull)
Trial was set, and I had prepared all of the exhibits to show that client had nothing to do with running the business other than investing $270,000 in it, and that partner had control of and ran the entire business. Client and I appeared for trial ready to proceed with convincing the court that client did not defraud partner and that his claim for indemnity should be discharged. Fortunately, partner and factor company had settled an hour before trial where partner admitted that he owed factor company $400,000. Factor company allowed him to sell the entire inventory of porno videos, which had a wholesale value of $300,000. Sale proceeds were to be transferred to factor company within 120 days. Partner was gracious enough to dismiss his adversarial case against client, and that is the happy ending for my porno partner client.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published on January 31, 2009 in Asian Journal Los Angeles p. C4 )
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