Articles Posted in Exception to bankruptcy discharge

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sheet musicEvery time a restaurant, nightclub or other performance venue permits performance of a song (such as by radio (with certain exceptions), CD or live performance), the venue owes to the rights holder of the song a royalty for playing that song. In order to collect and administer these royalties, membership organizations known as “PROs” (Performance Rights Organizations) have evolved. The PRO membership is composed of songwriters, composers and music publishers. The PROs charge the clubs a licensing fee, which they then collect and distribute to their membership rights holders as royalty payments. By compliance with this rights licensing system, a night club is assured that it is complying with U.S. copyright law, which protects the rights holders’ right to perform the song.

In the United States there are three principal PROs: SESAC (“Society of European Stage Authors and Composers”, the smallest), BMI (“Broadcast Music, Inc.,” the middle bear), and ASCAP (“American Society of Composers, Authors and Publishers,” Papa Bear). When a performance venue fails to pay its royalties to a PRO, the PRO will come after the club to exact its pound of flesh.

Twister’s Iron Horse Saloon was a bar in suburban St. Louis. It failed to pay public performance licensing fees to ASCAP for a number of years. Over this period, ASCAP made numerous efforts to collect the licensing fee, even offering to settle the claim before suing. Finally, unable to collect the fees voluntarily, ASCAP sued the club and its managing members, including one Doug Walker, for copyright infringement and obtained a judgment for $41,000. The club eventually failed, and Mister Walker sought to discharge the ASCAP judgment against him through a chapter 7 bankruptcy.

A fundamental concept of chapter 7 bankruptcy is that an honest debtor will receive a discharge (extinguishment) of virtually all his debts upon completion of the bankruptcy process. He’ll walk away with a ‘fresh start’. I assume Mister Walker believed he would discharge the ASCAP debt in his bankruptcy. Mister Walker was wrong. Continue reading