Counsel Concerns

The U.S. Bankruptcy Court for the Western District of Texas assessed actual and exemplary damages against a former attorney who the court ruled had fraudulently transferred the assets of a music royalties collection company. In Re: Galaz, 07-53287. Music producer Julian Jackson and California entertainment attorney Raul Galaz obtained the rights to the Ohio Players music and in 1998 formed Artist Rights Foundation (ARF) to collect the related royalties. In a 2002 divorce decree, Galaz assigned half of his 50% share of ARF to his then ex-wife Lisa Ann, who after filing for bankruptcy in 2007, pursued an adversary proceeding against Raul. The adversary proceeding was based on Raul's transfer of ARF's assets in 2005 to the Texas LLC Segundo Suenos. Chief Bankruptcy Judge Ronald B. King found that, as a managing member of ARF, “Galaz breached his fiduciary duties of loyalty and care through his failure to account for the property and profits derived from the business of ARF, the perpetration of an intentional fraud in an effort to secure the Royalties for his own benefit, and the wrongful dissolution of ARF after making the transfer. In breaching his fiduciary duties of loyalty and care, Galaz acted with malice.” Chief Bankruptcy Judge King thus awarded Lisa Ann $241,309 in actual damages for the value of her economic interest in the music royalties and $250,000 in exemplary damages for “gross negligence, malice, and fraud” by Raul Galaz and his father, an adversary proceeding co-defendant whom Raul had helped form Segundo Suenos. In addition, the bankruptcy judge awarded Julian Jackson $479,217 in actual damages and $500,000 in exemplary damages.