Steely Dan: Can't Buy/Sell a Thrill

In my last blog post, I wrote about the sad developments which led to Donald Everly being in litigation with the Estate of his late brother Phil Everly.  No less depressing is the recent California lawsuit:  Steely Dan, Inc. and Donald Fagen v. the Estate of Walter Becker.  This case filed in November 2017 is interesting because it shows the complex interworkings of corporate law, probate law and band dynamics. 

All musical groups function as a business entity and music lawyers are always trying to get their clients to recognize this and take steps to organize themselves properly, be it as a partnership, corporation or limited liability company.  Apparently the original members of Steely Dan recognized this back in 1972 when they signed their first record contract.  At that time they formed a corporation, Steely Dan, Inc. with five shareholders (Fagan, Becker, James Hodder, Dennis Dias and Jeff Baxter).  The individual shareholders also entered into a Buy/Sell agreement which provided that upon the death or termination of the corporation's employment of a shareholder, the corporation would be entitled to purchase that shareholder's shares of stock in the corporation at book value (as opposed to fair market value)/  The Buy/Sell agreement is a widely used tool in closely-held business corporations used to maintain control amongst the original shareholders and avoid outsiders becoming shareholders. It allows the original shareholders the ability to purchase the interests from the estate of a deceased or terminated shareholder so that the business can continue without having to necessarily deal with relatives of former members.  The Buy/Sell agreement is a widely used tool for musical groups because it lays out a procedure to follow when a band member quits the band.  Departures can be contentious and it is helpful to have a procedure in place to navigate the split.  Clearly the Steely Dan Buy/Sell agreement was fairly successful in that it stayed in place for 45 years and weathered all of the various personnel changes resulting in  Becker and Fagen being the only remaining original members.  But few groups become as successful as Steely Dan.  The graver issue (but one which will sadly become more commonplace) is that more and more band members of these iconic bands of the 1960s and 1970s will die – triggering various corporate mechanisms designed to protect the entities but not necessarily designed to deal with dead rock stars and their estates. 

Daniel Scott,  writing in Forbes pointed out the problems with using the traditional corporate devices to deal with the unique situations of musical groups and their "legacy plans".  He states: 

While this may work for more traditional businesses, Buy/Sell agreements do not work well in a band setting.  First there is the issue of value.  Ordinarily a Buy/Sell agreement applies a formula to determine the fair market value of the deceased owner's interests.  The problem is, valuing what a band is worth is hardly a science and has been the subject of much debate in recent years, particularly when it comes to the value of rights such as likeness and image (as opposed to just sound recordings and publishing.)  This could result in a significant undervaluing of the deceased member's interests. 

Purely as an equitable  matter,  it would seem that Becker’s estate  would be entitled to something for the 45 years of work he put into the band (that is, in addition to record royalties and publishing royalties which we assume are not part of this agreement. On the other  hand, there was and is a good reason to create these kind of documents to deal with the mercurial natures of rock and roll bands.

I doubt that this case will go all the way to trial but I bet that one major result of the dispute will be to cause those who advise musical groups, especially those with long track records, to reevaluate their governing documents. 

The Everly Brothers, Cathy's Clown, Copyright and the Price of Love

I revere the Everly Brothers.  As any music fan knows, their unique style of harmony singing forms the basis for modern rock music and their albums are full of fabulous songs.  I was happy when they reunited in the 1980s after their acrimonious split and they made some more great records.  Sadly, Phil Everly passed away 4 years ago on January 3, 2014.  Now the Everly Brothers saga appears to be continuing  in a courtroom which is tragic but fascinating from a copyright standpoint.

 In November 2017, Don Everly filed suit against his late brother's widow and sons, seeking a declaratory judgment as to his sole authorship of the song "Cathy’s Clown".  The facts of the lawsuit are really complicated.

 In March 1960, Don and Phil signed an agreement transferring the copyright to the song "Cathy’s Clown" to their publisher Acuff-Rose.  According to the complaint, Don contacted Phil in 1979  (during their split) and asked him to recognize that he (Don) was the sole author of the song.  Phil apparently agreed to this request because in June 1980 he executed a "Release and Assignment" releasing any interest he had in the musical composition, among others.  Publishing records were changed and for the next 36 years Don Everly was recognized as the sole author of "Cathy’s Clown" (don't feel too bad for Phil, he was the sole author of "When Will I Be Loved".  On March 11, 2011 Don served a notice of termination of assignment of copyright on Sony/ATV seeking to terminate the assignment of copyright to "Cathy’s Clown", which under Sec. 304(c) of the Copyright Act, he is entitled to do as author.  However, Don learned that Phil's widow and one of his sons filed a similar notice of intention to terminate on November 17, 2014 and that on August 11, 2016 served a notice to terminate the 1980 release.

If I understand this correctly, Phil's heirs are now attempting to terminate not only the original 1960 grant as well as the 1980 document wherein Phil Everly  released "his claims as co‑composer".

 Predictably, Don's complaint has been met with an answer and a counterclaim.  Interestingly many of the defenses are equitable in nature – unclean hands, laches, failure of consideration.  As sad as all of this is, there are some really interesting issues being presented here.  For example, if Phil was not an author did he have the right to terminate the assignment to Sony/ATV?  On the other hand nowhere in the 1980 Release and Assignment does Phil admit that he was not the co-author of "Cathy’s Clown".  He simply released "his claim as co‑composer".  Can Phil's current claim withstand a statute of limitations defense?  Did the estate act with unclean hands?

 I can only imagine that if this case does not settle it will delve into some murky issues that need to be addressed under the termination provisions of the Copyright Act. Part of me wishes, though, that this dispute was being argued  by anyone other than the Everly Brothers.