Article courtesy of Michael Robson (Greenberg Traurig, LLP)
In re Franklin, No. 21 20657 DOB, 2022 WL 903735 (Bankr. E.D. Mich. Mar. 28, 2022)
In a dispute between Jermaine Franklin Jr., the debtor, and Mark Haak, Mr. Franklin looked to have the court determine if he must continue performing the tasks required under a personal services contract with Mr. Haak.
Mr. Franklin is a professional boxer and signed a Boxer Manager Contract (the “Contract”) with Mr. Haak pursuant to which Mr. Haak would act as Mr. Franklin’s manager. The Contract required Mr. Franklin to fight in professional bouts arranged by Mr. Haak. Mr. Haak was to promote Mr. Franklin’s career and arrange these bouts. In return, Mr. Haak was to receive 30% of any fight proceeds. Both parties operated under the Contract for many years but the relationship ultimately deteriorated and Mr. Franklin sought a judgment from the District Court for the Eastern District of Michigan to terminate the Contract. The Contract allowed Mr. Haak to extend the contract by paying $25,000 to Mr. Franklin. Mr. Haak exercised this right, but the $25,000 was held in escrow in case Mr. Franklin appealed. The District Court ruled in favor of Mr. Haak and calculated the remaining days left on the Contract. Mr. Haak believed that this calculation was incorrect and appealed to the Sixth Circuit Court of Appeals (the “Court”). Pending the appeal, Mr. Franklin petitioned the District Court to have a $25,000 deposit released to him because he did not appeal the District Court’s opinion. The District Court entered an indicative ruling releasing these funds and the parties entered into a stipulation that allowed for the release of these funds. Mr. Franklin received the $25,000 and subsequently filed a Chapter 7 case.
Mr. Franklin filed a motion with the District Court seeking a determination that the contract was an executory contract and was rejected as a matter of law because neither Mr. Franklin nor the Chapter 7 Trustee elected to assume the Contract. Mr. Haak objected, but after oral argument, the District Court held that Contract was rejected, but reserving a determination of the effect of the rejection. Mr. Franklin then filed a motion to address the effect of the rejection of the Contract. In connection therewith, Mr. Franklin argued that the effect of the rejection of an executory contract is that he need not perform the Contract. In support, Mr. Franklin cited Mission Prod. Holdings, Inc. v. Tempnology, LLC (“Tempnology”), FERC v. FirstEnergy Sols., Corp. (“FirstEnergy”) and Caliber N.D., LLC v. Nine Point Energy Holdings, Inc. (“Nine Point Energy”). Mr. Franklin argued that the effect of the rejection is to excuse performance. Mr. Haak took the opposite view and argued that relevant case law does not excuse performance.
In addressing the argument of Mr. Haak, the Court went through case law precedent, including Tempnology, FirstEnergy and Nine Point Energy. Applying the principles of those cases to the facts at hand, the Court noted that (i) the dispute is a Chapter 7 case and the imposition of performance under the Contract would frustrate the purposes of Mr. Franklin seeking a fresh start, (ii) Mr. Haak’s request to prohibit Mr. Franklin from boxing unless Mr. Haak arranged and promoted Mr. Franklin would seem to accomplish no meaningful end for Mr. Haak in that he will receive no money whatsoever if Mr. Franklin merely sits out the remaining term of the Contract, which he would have the right to do and (iii) the use of an exclusivity provision for the benefit of Mr. Haak would have no serious adverse consequences Mr. Franklin. As a result, the Court held that the Contract was rejected and Mr. Franklin should not be required to continue to box at the behest of Mr. Haak.