Monday, September 28, 2009

The Fray's Fray

I have been curious about the filing of a new lawsuit involving The Fray: King, Slade, Welsh and Wysocki v. Gregg Latterman and Gregg Alan Corp. in Federal Court in Colorado. The press reports made it seem as if the members of The Fray were suing their manager Gregg Latterman for somehow stealing all or part of their copyrights. However, after I reviewed the Complaint, I see that the cause of the action is much more subtle.

The manager in question is Gregg Latterman, a well-known entrepreneur, who, among other things, founded AWARE Records in 1993 and has been responsible for discovering and elevating a large number of talented artists over the past two decades. Apparently, Latterman had some sort of deal with EMI Music which gave him a share of EMI’s cut of income (and perhaps copyright interest) from any writer he brought to the company.

The suit alleges that Latterman entered into an oral management agreement with The Fray in November 2004 and helped sign the band to EMI in July of 2005. The suit claims that the oral management agreement was reduced to writing in 2007.

The suit DOES NOT claim that Latterman took any portion of the band’s publishing. Rather, it claims that as a manager, Latterman breached his fiduciary obligation to inform the band of his deal with EMI. The suit references a clause in the Management Agreement which prohibits the manager from commissioning any “engagement or agreement under which Artist is employed by or otherwise engaged by Manager or any firm or corporation owned by, controlled by or affiliated with Manager.”

As one would expect, the causes of action spelled out in the Complaint are fraud and misrepresentation, breach of fiduciary duty, unjust enrichment, fraud in the inducement and breach of contract.

As is often the case, I am sure the backstory is fascinating. It is rare that disputes break out in public involving people with profiles as high as this. I am sure that one of the real issues here is leverage. When The Fray entered into their agreement with Latterman in 2004, they had little bargaining power and were in need of someone connected enough to get them noticed by and then signed to a major label and major publisher. Once a certain level of success is reached, the dynamic often changes.

An interesting question raised by The Fray’s lawsuit is how much they really knew about the relationship between Latterman and EMI. In the pleadings, they claim they thought he was receiving a “finder’s fee” from the company, and that in fact may be the case, albeit a highly lucrative one. It does seem hard to believe that were not somehow on notice as to Latterman’s deal with EMI.

However, this is also a cautionary tale for managers who attempt to fill different roles in this new environment. Nearly every management agreement ever drafted contains the above-described language prohibiting “double dipping” and managers should not attempt to circumvent the effect of the clause; they should be upfront in disclosing these arrangements to their artists.

I am betting this case will settle quickly. But one never knows…

Wednesday, September 2, 2009

Songwriters and Bankruptcy

Back in June, Gary Roth, Head of Business Affairs at BMI, posted an article on the organization’s website explaining the potential ramifications of bankruptcy on songwriters and composers. This information is timely, especially in a state like Tennessee where we have the highest bankruptcy rates in the nation.

Many people do not realize that not only their copyright, but also their royalty income (i.e., public performance royalties, mechanical royalties, synchronization royalties, performance royalties, etc.) are considered “property” for bankruptcy purposes, just like any other piece of property, tangible or intangible. When a debtor files a Chapter 7 bankruptcy seeking liquidation of his debt, this property is subject to collection by the U.S. Bankruptcy Trustee, whose job is to try and use these assets to pay creditors. These assets can be sold by the Trustee, by auction or otherwise, to satisfy debts.

This is a very real probability.

I have represented both songwriters contemplating bankruptcy and publishers and other investors who have purchased these rights from the Trustee. In many cases I have learned that the songwriters were never even made aware that they could lose their copyrights and their rights to royalty income in bankruptcy. Either their bankruptcy attorneys never told them, or the writers never volunteered the information to their bankruptcy attorneys. Either way, they lost the rights to income from some significant copyrights and in some cases, the copyrights themselves.

One should always consider the risks of losing their rights to royalty income from their songs before filing a petition in bankruptcy.