Photographer's agent cornered in bankruptcy filing!

July 15, 2009 9:17 AM

I am an agent representing a group of professional photographers and, among other things, am responsible for billing on their behalf as well as collecting and dispersing the moneys upon receipt. I just received a notice regarding a job that took place 3+ years ago informing me that, because the client filed for bankruptcy shortly after I was paid, I have been judged as having been given preferred treatment and therefore I owe the trustee handling the bankruptcy the full amount paid, nearly $10,000.00! To make matters worse the invoice in question was nothing but the photographer's expenses. In other words, the minute I received the payment I simply turned it around and paid it all to the photographer who has long since gone his own way and isn't responding to my calls or e-mails. What, if any, are my options at this point?
posted by tangyraspberry to law & government (18 comments total)

Get a lawyer. Nothing anybody will say here will be as useful as an hour with a good attorney that has ALL the details of this.

Good luck.
posted by hal_c_on at 9:20 AM on July 15 [2 favorites]

Tangyraspberry, it would be very helpful for you to mention what country and jurisdiction you are in, as well as whether your business is incorporated.
That said, I read this over twice and it makes no sense to me. I would like someone to inform us all of the legal system in which one can have a $10K judgement entered against you without having been informed of being sued.
This sounds scammy but I'm sure everyone here will tell you to talk to an attorney.
posted by BigLankyBastard at 9:24 AM on July 15

Who was the notice from? What is your jurisidiction?
posted by Pants! at 9:26 AM on July 15

This sounds a bit fishy, and whether it is or not, you need an attorney yesterday.
posted by Inspector.Gadget at 9:28 AM on July 15

Lawyer up.
posted by muirne81 at 9:32 AM on July 15

That said, I read this over twice and it makes no sense to me. I would like someone to inform us all of the legal system in which one can have a $10K judgement entered against you without having been informed of being sued.

From what I'd read of the Madoff swindle, US bankruptcy law says that anyone paid within 90 days of the date of bankruptcy needs to return the money to the trustee. The money goes into the pot with all the rest of the assets, which are then paid out to creditors (possibly including the person who had to return the money in the first place). It isn't a judgement or a lawsuit, and it really isn't even about the person who got paid. Here's an article from the NY Times about it.
posted by NotMyselfRightNow at 9:39 AM on July 15

Talk to the trustee, either directly or through an advocate (in other words, don't ignore this). They'll often go after any assets which were disposed of in the immediate pre-bankruptcy period (the period varies by jurisdiction) and I've never seen a bankruptcy law yet that doesn't allow them to chase any money "paid in preference", but they rarely seem to do so in practice for smaller bankruptcies. It may be one of those technical procedures the trustee is required to follow for all payments over $X during the pre-bankruptcy period in that particular jurisdiction.

You used the word "judged" - which implies that the matter has already been legally determined. Seek legal advice without passing go if that's the case. It's unlikely that you wouldn't have been served some kind of notice of those proceedings, though. It sounds like they're investigating the payment at this stage but you do need to know whether they'll be proceeding against you and/or the photographer who provided the services.

Most of the credit messageboards have forums on bankruptcy issues. They might be able to offer information more specifically related to the jurisdiction in which the bankruptcy is proceeding.
posted by Lolie at 9:40 AM on July 15

I'm based in NYC while the bankruptcy is being done out of Atlanta, GA.

I've retained a NYC based attorney who's conferred with the trustee's lawyer and he's basically telling me that, since the check was made out to me, I'm liable.

My lawyer is further suggesting that, since the amount is so small (easy for him to say) that it wouldn't make sense to hire an Atlanta lawyer to fight it and that, in his opinion, the best approach would be to simply offer a $1000.00 and see what they say.

As I write this it's becoming apparent to me that he might correct.
posted by tangyraspberry at 9:48 AM on July 15

You might want to check with your lawyer whether the trustee voiding the transaction will have any effect on any contract with the bankrupt regarding the IP rights for the photos.
posted by Lolie at 9:55 AM on July 15

Were you ever even notified that this client went bankrupt? If you weren't, couldn't you plead that "look, no one ever told me anything, if you'd told me this three years ago I'd have given the money back to you then, can't I just give you just that amount now"?

(Granted, this is a question you should be asking your lawyer if you should do. But it just seems sensible to me, the layperson.)
posted by EmpressCallipygos at 9:56 AM on July 15

You should be able to recover whatever you pay to the trustee from the photographer who actually got the money. So it's a lot now, but you should eventually recover it. Your lawyer will give you more details.
posted by ohio at 9:56 AM on July 15

Bankruptcy law is primarily statutory, and often changes. You should consult a bankruptcy lawyer who will be able to figure this out pretty quickly. Assuming the law supports you, the lawyer will write the trustee a letter explaining that you were only the conduit (the "initial transferee") and should not be the target of their efforts to recoup a "voidable preference."

* * * *

In Brinig v. American Credit Bureau, 439 F.2d 43 (1971), under a prior version of the bankruptcy code, the Ninth Circuit ruled:

We adopt the interpretation of the emphasized language stated by Judge Cardozo as follows:

"One who accepts a preference not for his own account but as agent for a principal is not `the person receiving it or to be benefited thereby.' To be sure, the principal is chargeable with notice imparted to the agent as to the financial condition of the debtor and the tendency of the payment to effect a preference. To be sure, also, the agent may be sued directly if the title is in his name and the subject of the transfer intact in his possession, just as suit might be brought in like conditions against any other trustee holding money or other property the fruits of an unlawful sale. The one who receives a preference, however, within the meaning of the statute, is the one who is preferred, and the one who is preferred is not the mere custodian or intermediary, but the creditor, present or contingent, who receives by virtue of the preference an excessive share of the estate. * * * The person to be charged with liability, if he has parted before the bankruptcy with title and possession, must have been more than a mere custodian, an intermediary or conduit between the bankrupt and the creditor. Directly or indirectly he must have had a beneficial interest in the preference to be avoided, the thing to be reclaimed." 254 N.Y. at 235-236, 172 N.E. at 482.

There remains the characterization of Credit Bureau's relationship to the assignor-creditors and its relationship to Esskay to decide whether Credit Bureau was essentially a conduit, as the district court decided, or was an owner-creditor, as the trustee contends.

* * * *

Later, the bankruptcy code was amended, so the rule in Brinig is considered modified. In re Mill Street, Inc., 96 B.R. 268 (1989) ("Brinig does not stand as a bar to recovery from CRI since CRI is the initial transferee at least to the extent that it retained sums paid by the debtor as fees and the parties have stipulated that the transfer is preferential.").
posted by ClaudiaCenter at 10:11 AM on July 15 [3 favorites]

Sorry, didn't see that you already have consulted with a lawyer (I hope a bankruptcy lawyer and not a friend who is not a bankruptcy lawyer).
posted by ClaudiaCenter at 10:14 AM on July 15 [1 favorite]

Okay, here's an interesting blog on Georgia bankruptcy law with a recent case on voidable preferences and initial transferees (with a holding that the initial transferee in that case *was* liable for the preference). The case is In re Pony Exp. Delivery Services, Inc., 440 F.3d 1296 (11th Cir. 2006), and distinguishes between different kinds of recipients of funds (an "initial transferee" who is liable, or a "conduit" who is not liable, which is all dependent upon the facts):

"Most circuit courts to have considered the issue, including the Eleventh Circuit, have adopted a “control” or “conduit” test to determine whether the recipient of an avoidable transfer of assets is the initial transferee. Under this test, a recipient of an avoidable transfer is an initial transferee only if they exercise legal control over the assets received, such that they have the right to use the assets for their own purposes, and not if they merely served as a conduit for assets that were under the actual control of the debtor-transferor or the real initial transferee. This test takes on special significance where the recipients of avoidable transfers are agents or fiduciaries of the debtor-transferor, such as banks or, in this case, *1301 insurance brokers, who are duty-bound to take only limited actions with respect to the funds received. Often these fiduciaries or agents are not considered initial transferees because their legal control over the assets received is circumscribed by their legal duties to their clients."
posted by ClaudiaCenter at 10:28 AM on July 15 [1 favorite]

You need to lawyer up. Call a bankruptcy attorney yourself. Explain that you are not going bankrupt but that a bankruptcy trustee is going after you. It will cost you money, but less than the $10,000 that is being asked for.
posted by Ironmouth at 11:06 AM on July 15

Ask the lawyer you've retained to represent you. Not just tell you what to do, but actively represent you in negotiations. Pull your bank records from the period to show an outflow of the exact amount you got and find other photographers who you worked with to testify as to how the billing worked.
posted by Ironmouth at 11:09 AM on July 15

If I were you, I'd bring the contract or signed agreement you had with the photographer to your lawyer.

As you were the middle-man, it seems reasonable to me that you would owe your client (the person who is bankrupt). However, it also seems reasonable to me that you could collect the amount from the photographer, per your contract.

So, three years ago it was like this:
Photographer -> You -> Client

Reversing that would be like this:
Client -> You -> Photographer

But, this might just be the "cost of doing business" as the middle-man. Your lawyer, with your signed contract in hand, will be able to tell you.
posted by Houstonian at 12:31 PM on July 15

you need to ask ClaudiaCenter for a referral to the right lawyer.
posted by krautland at 1:02 PM on July 15 [1 favorite]