Tuesday, June 11, 2013

The Go-Go's lawsuit: a Test of Band Agreements

After three decades of practicing entertainment law I have learned that all bands are dysfunctional - it is a fact and it has nothing to do with the genre of music.  Therefore one of a music lawyer's biggest challenges is to try and get band members to execute a partnership agreement (or Operating Agreement depending on their type of business entity) to define the parameters of their relationship and to consider such issues as ownership of the band name, division of royalties and dealing with leaving members. 

            It is an imperfect art.  For example, many bands in Tennessee set up limited liability companies without operating agreements only to find that the statute on limited liability companies offers very little help in dealing with disputes. 

            Sometimes even the best made arrangements can be thwarted.  I have been reading the complaint filed two weeks ago in California in the case of Kathryn Valentine v. Carlisle, Wiedlin, Caffey Schock and Gogoco Corp.  The 34‑page complaint is daunting but it basically lays out Kathy Valentine's claim that the other members of the Go‑Gos, used corporate chicanery to dilute her interest in the band's revenues after essentially filing her from their 2013 tour. 

            The complaint lays out the facts that the band had previously set up an LLC called Ladyhead, LLC which owned the trademark to their name and collected royalty income (other than other individual songwriting income) and a touring corporation called Smith-Pocket Industries, Inc. which collected touring income.  The five Go‑Gos were equal members of each entity. 

            Valentine alleges that unbeknownst to her, her band mates set up a new corporation Gogoco Corp. and licensed their trademark and  good will to it which (to quote from the complaint) "if successful would shrink Plaintiff's share of the group's revenues purportedly falling within this license from 20 percent to 2 percent, is a textbook example of breach of fiduciary duty and abuse of control and is illegal under California law and impermissible under the group's governing corporate documents".  The complaint goes on to state "This 'license' is nothing more than an attempt by a majority (of shareholders) to take corporate assets owned by all of the members of Ladyhead, LLC and the shareholders of Smith‑Pocket and assign them to an entity that these four defendants control for the sole purpose of excluding and diluting a minority shareholder and member from her ownership interest". 

            The complaint outlines causes of action for breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing and tortious interference with contractual relations. 

            Who knows if the allegations are true - if they are it seems like an imaginative if short-sighted way to deal with a band member you don't want to work with anymore.  The lawsuit makes it seem as if the Go‑Gos had a fairly sophisticated and equitable structure to run their business and that the band members went to great lengths to not have to honor it.  All of this is sad and it kind of proves a point that I have thought about for years.  If you are a minority member in any organization - be it a rock band or an accounting firm and the other folks don't want you around anymore you're probably going to get screwed, and a lot is going to depend  on the strength of your partnership agreement and the ultimate character of your partners.  It is never pretty.  The litigants in this case had no comment because their lips were sealed.

1 comment:

jef said...

...a friend/bandmate of mine once succinctly stated – "Bands are stupid."...very instructive, Trip...thanks for posting...