Rollin’ In My Six-Fo: Dr. Dre’s Claim to ‘Chronic’ Royalties From Death Row Bankruptcy Estate Rejected

ChronicIt was part of my black 1993 Eagle Talon’s cassette player’s (and later my 2005 Chevy Cobalt’s CD player’s) rotation for well over a decade.

It also introduced me to a new and dangerous vocabulary.  Growing up in the somewhat sheltered confines of Wichita,  I’d never heard of nor seen a “Gat” a “tech 9 tronic”, a “Six-Fo”, “hollow points”, a “swap meet” or a “Desert Eagle”.  I’d never visited the “LBC”, made a “187” call, imbibed a “Remy Martin and Soda Pop” concoction and never ingested “Indo-nesia” (cough). 

‘It’, of course, is The Chronic, Dr. Dre’s (a/k/a Andre Young) 1992 Gangster Rap masterpiece that is rightly viewed as a watershed in the annals of hip-hop.

Dropping in the wake of the Rodney King tumult, Chronic’s musical, social and cultural influence can’t be overstated – especially for those of us in our early 20s in the early 90s.

Widely regarded as “the album that brought hardcore hip-hop to the Suburbs”, the Chronic put future hip-hop deities Snoop Dog, (the late) Nate Dogg and Warren G on the hardcore rap map as well as lesser-known acts Daz, Bushwick Bill, Kurupt, RBX and Lady of Rage.  More importantly, Chronic ushered in a new sensibility of incendiary rap complete with blisteringly graphic portrayals of the drugs, nihilism, violence, desperation and unadulterated Rage of the South Central (L.A.) cityscape – the setting for the album’s rabbit-punch lyrics and hypnotic, Parliament-infused grooves.

It’s for these reasons that I find post-worthy the recent California bankruptcy decision in In re Death Row Records, Inc. (May 9, 2014).  In Death Row, the U.S. Bankruptcy Court for the Central District of California (where else?) denied the hip-hop impresario Andre Young’s (“Dr. Dre” or “Dre”) administrative expense claim of over $3M in producer and artist royalties related to Chronic on-line sales.

Dre’s administrative claim was premised on several written and verbal agreements between him, Death Row Records (DRR) and Interscope – a key Chronic distributor – going back more than two decades. 

The agreements gave Dre artist, publishing and producer royalties totaling over 20% of the record’s total sales.  The agreements were silent on Internet sales of the record since digital music didn’t yet exist.                                                                         

Several years of acrimonious litigation ensued when DRR bought and sold the Chronic’s digital rights to another music company without Dre’s consent.

After DRR filed for bankruptcy protection, Dre filed an adversary claim and a separate state court suit alleging illegal digital distribution of The Chronic.  

Dre’s bankruptcy claim sought about 18 years worth of Chronic royalties from Internet sales, totaling over $3M.  The Trustee moved to dismiss Dre’s claim.

Held: motion granted.  Dre’s claim fails. 

Q: Why?

A: An administrative expense claimant (like Dre) must establish that (1) he entered into a transaction with or gave consideration to the debtor; and (2) that he conferred a substantial benefit on the estate.  Death Row, p. 10.

The bankruptcy court found Dre’s claim defective under Federal notice pleading rules.  Dre failed to allege the terms of any contract with DRR that entitled DRE to payments and he failed to sufficiently plead measurable money damages he suffered from the lost royalties.

The Bankruptcy Court also dismissed Dre’s royalties claim under res judicata and statute of limitations principles.  The court found that the court’s previous litigation of Dre’s adversary claim and state court action (which was partially successful) were conclusive on the issues raised in Dre’s administrative claim.                                                                                                                                                              

The Court also dismissed Dre’s claims on statute of limitations grounds.  Dre didn’t file his administrative expense claim until 2013 – long after the limitations periods expired for breach of contract under California law (4 years written; two for oral).

Afterwords: Despite the case’s dizzyingly convoluted facts and procedural history, its issues are pretty basic.  The case demonstrates how important it is under Federal pleading rules for an administrative expense claimant to sufficiently allege contractual specifics and to show that he did in fact benefit the bankruptcy estate.  Death Row also shows the gravity of a claimant offering damages evidence that has an adequate foundation and isn’t based on speculation.  Finally, Death Row signals that claim preclusion and issue preclusion apply with equal force in bankruptcy administrative expense proceedings.

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.