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Old Aug 28, 2006, 08:04 PM   #1
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Default Beatles Reunite to Sue Record Companies for $25M

Beatles Reunite to Sue Record Companies for $25M
Mark Fass
New York Law Journal
August 29, 2006

The Beatles have reunited, though only to sue their record companies.

A lawsuit filed by the Beatles, their representatives and their recording label Apple Records against Capitol Records and EMI Records will go forward following a Manhattan judge's denial of a motion to dismiss.

Capitol and its affiliate EMI concealed their use of the band's recordings "in an effort to pocket millions of dollars" in royalties, according to the complaint. The plaintiffs are seeking at least $25 million, asserting causes of action for fraud, breach of contract and -- in a difficult and unusual claim against a record company -- breach of fiduciary duty.

The defense moved to dismiss the causes of action for fraud and breach of fiduciary duty, as well as the plaintiffs' requests for punitive damages and to reclaim the rights to their recordings, perhaps the most valuable catalog of music in existence.

Manhattan Supreme Court Justice Karla Moskowitz last week denied the defense's motion in its entirety.

Most significantly, because the fiduciary duty claim survived the motion, the defendants may be subject to tort liability's broader damages, additional causes of action and additional remedies.

The dispute dates back nearly 30 years, to a similar suit initiated by the Beatles against Capitol/EMI, Apple Records, Inc. v. Capitol Records, Inc., 137 AD2d 50.

Filed in 1979, Apple I, as the present decision refers to it, alleged that Capitol/EMI underpaid the Beatles more than $20 million, which the record companies hid through improper accounting practices. That case resulted in an Appellate Division, 1st Department, decision allowing the breach-of-fiduciary claim to go forward and, in 1989, the parties reached a settlement agreement.

"The business dealings between Capitol Records and the Beatles date back to 1962," the First Department noted in Apple I. "It is alleged that this relationship proved so profitable to defendant that at one point the Beatles constituted 20 to 30 percent of its business…It can be said that from such a long enduring relation was born a special relationship of trust and confidence."

The settlement agreement that followed that decision granted the Beatles and Apple increased royalty rates and required Capitol/EMI to abide by more stringent auditing and reporting requirements.

A second charge of under-reporting led to another settlement agreement in 1995, as well as a $35 million payment to the Beatles and Apple and an additional increase in royalty rates.

Pursuant to that agreement, the plaintiffs conducted an examination of Capitol/EMI's books, which allegedly once again uncovered fraud and, in turn, spawned the present lawsuit.

The plaintiffs -- the surviving Beatles Richard "Ringo Starr" Starkey and Sir James Paul McCartney; Yoko Ono Lennon; George Harrison's estate; Apple Corps and Apple Records; and McCartney's company MPL Communications -- claimed that Capitol/EMI under-reported sales, concealed "lucrative" music-video deals and conducted "secret" transactions with record clubs, among other misdeeds. As in Apple I, a primary accusation was that the record company designated millions of dollars of merchandise as discardable "scrap," then resold the items without forwarding royalties.


Capitol/EMI moved to dismiss the breach of fiduciary claim, arguing that after a decade of litigation and a long history of distrust, the plaintiffs could hardly claim a relationship of trust and confidence.

The 1st Department's original finding of a potential fiduciary relationship between the parties does not apply to "the time in question here," the defendants contended. Indeed, since Apple I the First Department has repeatedly rejected claims of fiduciary duty by artists against record companies, they noted in their memo in support of the motion. Moskowitz nonetheless found for the plaintiffs.

"Because of the allegation plaintiffs make here and the Apple I decision, I cannot hold, as a matter of law, that the parties no longer have a fiduciary relationship," Moskowitz ruled. "[P]laintiff has pled a viable, continuing fiduciary relationship. Whether or not the level of contentiousness and distrust was so great as to destroy the fiduciary relationship the parties had is an issue that must await development of the factual record."

On similar grounds, the court allowed the fraud claim to go forward as well. "The First Department, in Apple I, on virtually identical facts, already held that plaintiffs adequately stated a valid cause of action for fraud and that the conduct plaintiff pleaded was collateral to the contract," Moskowitz wrote.

She also allowed the plaintiffs' request for an order terminating Capitol/EMI's rights to the plaintiffs' recordings, dismissing the companies' argument that the plaintiffs were making an impermissible demand for partial recision.

"[P]laintiffs…do not seek partial recision, but rather seek to exercise their right to terminate the parties' agreements based on EMI/Capitol's alleged breach of contract, breach of fiduciary duties and fraud."

Paul V. LiCalsi, Howard H. Weller and Joshua S. Akbar of Sonnenschein Nath & Rosenthal represented the plaintiffs.

"The attempt to knock this claim out at the pleading stages was significant because of how conservative New York law is regarding fiduciary duties," LiCalsi said. "In New York, unless you fit into the traditional fiduciary relationships, like attorney-client or trustee-beneficiary or doctor-patient, the law is very reluctant to find that a fiduciary relationship arises in commercial transactions. It has to be very unique circumstances for that."

EMI spokeswoman Jeanne Meyer said the defense will likely appeal.

"Artists do from time to time request an audit of record labels' accounts," she said. "It's not unusual. We don't have a problem with it. But sometimes there are differences of opinion, particularly when you are dealing with a contract that is complex."

Steven Wolowitz, Hector Gonzalez and Anthony Diana of Mayer, Brown, Rowe & Maw represented the defense. Diana did not a return a call seeking comment. Wolowitz declined to comment.
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Old Aug 30, 2006, 04:53 AM   #2
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Default Beatles, Apple Corps Suit May Proceed Against EMI and Capitol

Beatles, Apple Corps Suit May Proceed Against EMI and Capitol

By Patricia Hurtado

Aug. 29 (Bloomberg) -- EMI Group Plc., the world's third- largest music company, and affiliate Capitol Records, Inc. must face a suit by representatives of the Beatles claiming the companies improperly ``pocketed millions of dollars'' in music royalties from the band.

New York State Supreme Court Justice Karla Moskowitz denied EMI's request that the suit for fraud and breach of contract be thrown out. The complaint seeks to reclaim rights to all of the master recordings by the defunct British rock band, said Beatles lawyer Paul LiCalsi.

``It's a great win for us,'' said LiCalsi, a lawyer with Sonnenschein Nath & Rosenthal in New York. ``It's been a very complicated and long-standing relationship between them. We're now being allowed to have a chance to show that there's a higher than simple contractual duty.''

The dispute between the Beatles, Capitol and London-based EMI dates back three decades, Moskowitz said in a Aug. 23 ruling, to when the Beatles alleged in a 1979 suit that the companies underpaid the band by more than $20 million. The Beatles' company Apple Corps Ltd. is also a plaintiff.

A settlement was reached in that case in 1989, LiCalsi said, granting the band and Apple increased royalty rates and requiring EMI and Capitol to follow more stringent auditing requirements. The lawyer said a recent audit uncovered fraud, triggering the filing of the new lawsuit in December.


The Beatles, including the estate of the late George Harrison and John Lennon's widow Yoko Ono, claimed that EMI and Capitol wrongly classified copies of Beatles recordings as destroyed or damaged, and secretly sold them for more than $19 million, retaining the proceeds.

The suit also claimed the music company underreported the number of units sold. The Beatles are seeking at least $25 million in damages and unspecified punitive damages, LiCalsi said. The band's representatives said the record companies had exercised a ``half-century exclusive right to exploit commercially the Beatles' recordings on a worldwide basis,'' Judge Moskowitz said today.

EMI argued in court papers that the suit is an attempt to ``dress up a contract claim,'' and that it should be dismissed as untimely and because a fiduciary relationship no longer exists between the company and the band.

Anthony Diana, a lawyer for EMI and Capitol with the law firm of Mayer Brown Rose & Maw in New York, didn't return a call seeking comment. A spokesman for EMI wasn't immediately available for comment.

The company abandoned last month a third effort to buy Warner Music Group and form the world's second-biggest music company after a European Union court decision dimmed the prospects for regulatory approval.

No Deal

EMI and New York-based Warner Music each offered about $4.6 billion for the other in June. EMI had been trying since 2000 to buy Warner. The combined company would have had a quarter of the market, moving ahead of Sony BMG to rank behind Vivendi SA's Universal Music Group.

EMI, with artists including Coldplay, has long been strong in the U.K., while Warner is known for U.S. acts including Madonna and the Red Hot Chili Peppers. In the U.S. last year, Warner had a 17.3 percent market share to EMI's 10.4 percent, according to Nielsen Soundscan.

The case is: Apple Corps Ltd, Apple Records et al v. Capitol Records Inc. and EMI Records Limited, No. 05-604385, New York Supreme Court, New York County.

To contact the reporter on this story: Patricia Hurtado in New York State Courthouse at .
Last Updated: August 29, 2006 19:19 EDT
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Old Aug 30, 2006, 06:02 PM   #3
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I hate cheating businesses.
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Old Aug 31, 2006, 04:13 AM   #4
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It is nice to see the the folks at Apple continuing to do what they have done best for over thirty-five years: generating litigation.


P.S. I am not defending EMI by any means, but another lawsuit? Ugh.
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Old Sep 09, 2006, 04:22 AM   #5
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LATEST: THE BEATLES have a secret weapon that could be vital in their bid to sue record label EMI - a top secret document showing how the label distributes its income. The band have filed a GBP10.5 million ($19 million) lawsuit in Britain for alleged lost earnings and are planning to sue the company in the US courts also. The Beatles' legal team are believed to have access to a document that details how EMI and its sister companies distribute worldwide income between each other. The Inter-company matrix agreement (MEA) will reveal how the band's revenues are distributed and the profits are shared. It will play a vital part of The Beatles' case, as the legendary group claim a recent audit showed that EMI reneged on its deal to grant increased royalty rates in 1989. According to the band, EMI and Capitol falsely classified many copies of Beatles recordings as destroyed or damaged, before selling them in secret. The dispute around the audit relates to the period 1994 to 1999, a time that would have been particularly lucrative to both parties because it included the CD release of Greatest Hits albums 1962-1966 and 1967-1970 and the release of the three double ANTHOLOGY albums. The Beatles and company Apple Corps are also now suing - in the US court - for the return of their master recordings. The record company will file its defence, providing there is no appeal, before the end of the year (06) in the US action, while the legal process in Britain has already begun, with an amended defence to be lodged on 3 November (06).
07/09/2006 17:53
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