Phillip Phillips' Bombshell Talent Dispute Moves Forward Despite 'American Idol' Producer's Bankruptcy

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Nick Walker

In the complicated, high-stakes legal battle between American Idol star Phillip Phillips and the show's producer, the latest round is a win for the artist.

U.S. Bankruptcy Judge Stuart Bernstein is putting an adversary proceeding between Phillips and producer 19 Entertainment on hold, pending a decision by the California Labor Commission on a dispute involving the Talent Agencies Act.

In January 2015, Phillips filed a bombshell petition with the labor commissioner alleging that Idol producer 19 Entertainment and its affiliated companies have "manipulated" him into accepting jobs. His petition centers on California's Talent Agencies Act, which holds that only licensed talent agents can procure employment. Phillips also claims 19 breached its fiduciary duty to him by failing to disclose material facts and engaging in self-dealing.

If Phillips is successful in voiding his deals as a violation of the TAA, it would send shockwaves through the industry, potentially impacting not only other Idol stars but also other reality TV competition shows.

Since that petition was filed, several more layers of legal issues have been folded into the dispute.

In September 2015, 19 sued music manager Michael McDonald and Mick Management, claiming McDonald "unceremoniously duped" Phillips into attempting to sever his relationship with 19, and that eventually led to the CLC action.

This year brought a fresh round of complications. Following Idol's decline in ratings and cancellation, 19 Entertainment filed for bankruptcy in April and filed an adversary proceeding against Phillips in June. It claims Phillips owes 19 money, that he breached his agreements by refusing to perform. The producer is seeking $6 million in damages and a declaration that the agreements between 19 and Phillips remain in effect.

The CLC matter was stayed in April "until further notice" based on the assumption that the issues raised in the petition would be adjudicated in or discharged by the bankruptcy court. Phillips asked the bankruptcy court to exercise its discretion to abstain from the adversary proceeding because it is intertwined with the TAA issues and the labor commissioner has "exclusive and original jurisdiction." Alternatively, he asked the court to stay the adversary proceeding pending the resolution of the CLC petition.

Bernstein on Friday found that Phillips failed to prove that mandatory abstention is required but that the applicable factors weigh in favor of permissive abstention.

"The difficult state law issues regarding whether the Plaintiffs violated the TAA, and if so, what the appropriate remedy should be are predominant," writes Bernstein. "The Labor Commissioner is a specialized tribunal used to dealing with these issues, and although his findings are subject to de novo review, his interpretation of the TAA as applied to his factual findings in this case may be entitled to substantial weight and assist the ultimate arbiter of the issues."

Bernstein will abstain in favor of the labor commissioner, but will not allow any monetary award to Phillips in that proceeding "because any claims, other than possible cure payments, have been discharged."

Phillips is represented by King, Holmes, Paterno & Soriano and by Weil, Gotshal & Manges. 19 Entertainment is represented by Willkie Farr & Gallagher and by Kendall Brill & Kelly.

Bernstein's full order is below.