Tag: royalties

Paul Versus the Rapper: How YouTube Tutorials and Creative Lawyering Played Key Roles in Recovering Judgment Against Elusive Defendant

In almost two decades of practicing in the post-judgment arena, My clients and I have run the emotional gamut from near-intoxicating highs (the “unicorn” fact patterns where the debtor pays up immediately or, even better, the debtor forgets to empty his bank account and when we freeze it, there’s more than enough funds to satisfy the judgment) to disappointment (when the debtor files bankruptcy and there is a long line of prior creditors) to abject frustration (the debtor appears to have no physical ties anywhere yet profusely broadcasts his life of luxury on all social media channels – think Instagram selfie in tropical locale) to the unnerving (a debtor or two have threatened bodily harm).

But occasionally, I’m faced with a fact pattern that requires both tenacity (they all do) and creative collection efforts. Here’s an example of a recent case that fell into this category. The facts are simple: the debtor – a well-known rapper – failed to show for a scheduled concert in another state and gave no notice. The club promoter filed suit in that state and ultimately got a money judgment for his deposit along with some incidental expenses and attorneys fees.

After I registered the judgment here in Illinois, I began hitting snags in rapid succession. I quickly realized this debtor didn’t fit the normal template: meaning, he didn’t have an official job from which he received regularly scheduled payments, had no bank account and owned no real estate. While the debtor’s social media pages were replete with concert videos and robust YouTube channel offerings, the debtor seemed a ghost.

Add to that, the debtor and his record company used UPS stores as its corporate registered office and the debtor’s entourage ran interference and covered for him at every turn.

Here’s what I did:

(1) Source of Funds: Concerts and Merchandise

I looked at the debtor’s website and social media pages to determine where he would be performing over the next several weeks. Then, I researched the business entities that owned the concert venues and prepared subpoenas to them. For the out-of-state venues, I lined up attorneys there to (1) register the Illinois registration of the foreign judgment, and (2) subpoena the venue owners for contracts with the debtor so I could see what percentage of the “gate” would flow to debtor. My plan was to eventually seek the turnover of funds funneling from venue – to management company – to debtor.

On another front, I tried to identify who was in charge of the debtor’s T-shirt and merchandise sales. Since the website was vague on this, I requested this information from the debtor’s management company through an omnibus citation Rider.

(2) Creating Buzz and a Discovery Dragnet: Getting Others Involved

I then served citations to discover assets on debtor’s management company and booking agent. (I was able to locate these companies through the debtor’s social media pages.) This allowed me to cast a wide net and involve third parties whom I surmised the debtor wasn’t keen on getting dragged into this.

From the management company and booking agent, I sought documents showing payments to the debtor including licensing and royalty fees, tax returns, pay stubs, bank records and any other documents reflecting company-to-debtor payments over the past 12 months.

(3) Licensing and Royalties: Zeroing In On Industry Behemoths

In reviewing the management company’s subpoena response, I noted the debtor was receiving regular royalty payments from ASCAP – the national clearinghouse that distributes public performance royalties to songwriters. Based in New York, ASCAP likely wasn’t going to respond to an Illinois subpoena. So I would have to register the judgment in New York. I lined up a New York attorney to do this and notified debtor’s counsel (by this time, debtor, management company and booking agent hired a lawyer) of my plans to register the judgment in NY and subpoena ASCAP for royalty data. They didn’t like that.

Sensing I may be onto something with the ASCAP angle, I dove deep into the byzantine (to me, at least) world of music licensing law. I learned that while ASCAP (BMI is another public performance royalty conduit) handles performance rights licensing, the pre-eminent agent for “mechanical” licenses (licenses that allow you to put music in CD, record, cassette and digital formats) is the Harry Fox Agency, Inc. or HFA – also based in New York. Maybe I shouldn’t admit this but I found YouTube a treasure trove of music licensing law building blocks.

Armed with my published and video licensing law research, I alerted debtor’s counsel of my plans to subpoena HFA for mechanical royalties in lockstep with my ASCAP subpoena once I registered the judgment in New York.

(4) Settlement: Persistence Pays Off

The combined threat of liening the debtor’s concert and merchandise monies and subpoenaing his public performance and mechanical license royalties was enough to motivate debtor to finally – after months of fighting – come to the table with an acceptable settlement offer. While another creditor beat me to the punch and got to the concert venue owners first, our aggressive actions planted enough of a psychological seed in the debtor that his royalties might be imperiled. This proved critical in getting the debtor’s management company (again, without their involvement, this never would settle) to pay almost the whole judgment amount.

Afterwords: My Younger Self May Have Given Up

This case cemented the lesson I’ve learned repeatedly through the years that as a judgment creditor, you have to be persistent, aggressive and creative – particularly with judgment debtors that don’t neatly fit the 9-to-5-salaried-employee paradigm.

Through persistence, out-of-the-box thinking, internet research and wide use of social media, my client got almost all of its judgment under circumstances where the “old me” (i.e. my less experienced self) may have folded.

 

 

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.