In re Watkins

210 B.R. 394 (1997)

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In re Watkins

United States Bankruptcy Court for the Northern District of Georgia
210 B.R. 394 (1997)

Facts

Tionne Watkins, Lisa Lopes, and Rozonda Thomas (debtors), were members of the successful pop group TLC. In 1991, Watkins and Lopes entered into an agreement with Pebbitone, Inc. (creditor). Pebbitone then entered into an agreement with LaFace Records (creditor) granting exclusive rights to distribute and promote TLC’s recordings. Watkins, Lopes, and Thomas then signed an inducement letter with LaFace, guarantying their personal obligation to deliver seven albums. Watkins, Lopes, and Thomas eventually became dissatisfied with the terms of the agreements with Pebbitone and LaFace. Thus, Watkins, Lopes, and Thomas hired an attorney, Stephen Barnes, to renegotiate their contracts. The negotiations reached an impasse, but LaFace extended personal loans to all three members of TLC to help ease their respective financial problems. Soon thereafter, counsel for Pebbitone and LaFace learned that Watkins, Lopes, and Thomas were planning on filing bankruptcy petitions that would seek to reject their contracts. Eventually, Watkins, Lopes, and Thomas each filed individual Chapter 11 cases in federal court, stating that they found it difficult to meet their financial obligations such as car payments, credit card payments, house payments, and other debts. All three TLC members moved for the court to reject their contractual obligations to Pebbitone and LaFace. Pebbitone and LaFace filed a motion to dismiss or abstain, arguing that the Chapter 11 petitions were not filed in good faith. To support their assertion of a lack of good faith, Pebbitone and LaFace claimed that the members of TLC did not face serious creditor pressure, misled the court as to their true assets, overstated their liabilities to appear insolvent, failed to adjust their extravagant lifestyles, and that their true motive was to avoid their legitimate contractual obligations.

Rule of Law

Issue

Holding and Reasoning (Cotton, C.J.)

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