A Review of Legal Obligations Reps Owe Artists

Regardless of whether there is a formal contract, a representative who binds an artist in an exclusive capacity is likely to be found to be a fiduciary to that artist, and as such owes the artist the highest duty of care and loyalty. Such an obligation demands that the representative act in the artist's best interests and requires disclosure of any conflict of interest. The duty of loyalty requires that a fiduciary under no circumstances self-deal, or put his or her interests before that of the artist. The duty of care is implied in the role and commensurate with industry custom and practice. The duties of lawyers, agents and accountants are defined by the statutory, licensing or ethical requirements on a state-by-state basis. In all circumstances, each representative owes the artist a duty to act with reasonable care in performing his or her obligations. (The duties and responsibilities of an artist's representatives, or the remedies for breach of these, may vary from jurisdiction to jurisdiction.)

Following is a sampling of significant disputes between artists and their representatives.

Artist-Personal Manager Relationship

Even though the personal manager often plays the most significant role in an artist's career, the contractual obligations are typically only conclusorily defined. The exclusive personal manager is involved in all aspects of an artist's career, and is responsible for promoting the artist's career and providing advice and guidance consistent with the artist's long-term career goals. The personal manager typically owes the artist a fiduciary duty, but is not required to be licensed as a manager and is not subject to oversight by any licensing body. Frequently, the personal manager will obtain a commitment of exclusivity from the artist but be free to manage other artists. Personal managers can be compensated on a percentage/commission or a flat-fee basis, and the scope of management agreements range from being terminable at will with no interest in the artist's future earnings to those covering a term of years combined with a “sunset” clause, which is a post-term interest in some aspects of the artist's future earnings from deals done during the management term.

If the manager assumes additional responsibilities ' for instance, managing an artist's money ' the manager's duty is further heightened. Provisions in personal management agreements that authorize the manager to act as the artist's attorney-in-fact for various business transactions can impact a determination as to the scope of the manager's role and duties to the artist. When a manager works with other artists, his or her fiduciary duty prohibits the manager from favoring the interests of one artist over those of any other artist. Similarly, in evaluating any particular business transaction, the manager must look at how the transaction best benefits the artist, not the manager's own interests. Where self-dealing or fiduciary breach can be demonstrated, remedies include termination of the management agreement, forfeiture of future commissions and, in the most egregious of circumstances, rescission of the management contract, disgorgement of past commissions paid, as well as other damages. If the relationship is longstanding, the case will undoubtedly be highly fact intensive and involve many issues.

In a notable management dispute involving Nine Inch Nails' Trent Reznor and his manager, John Malm, Reznor sought remedies for the manager's alleged breach of fiduciary duty, for fraud and for negligence. Reznor v. J. Artist Management, 365 F.Supp.2d 565 (S.D.N.Y. 2005). After a lengthy battle, a jury ruled in Reznor's favor. He was awarded substantial damages and the right to control his trademarks. One of the issues revolved around the circumstances of the execution of the management agreement, under which Malm received a 20% commission of Reznor's gross earnings. Malm and Reznor did not discuss the specifics of the agreement; Malm informed Reznor as to the agreement's basic terms, advised that Reznor could have someone else look at the agreement and that it was “fair.” Reznor and Malm went on to form their own record label and other companies together, and Malm began to transfer money from Reznor's funds to keep the companies operating. These actions formed Reznor's claims for breach of the duty of loyalty.

Prior to the jury trial, both sides moved, without success, for summary judgment on Reznor's claim of breach of fiduciary duty. In its decision, the New York federal district judge held that fact issues existed as to whether the manager's relationship with Reznor was a “conventional business relationship,” rather than a fiduciary one, at the time the management agreement was signed ' given that the relationship was “informal” and Malm was as inexperienced as Reznor at that time. Alternately, the court considered that Malm may well be found to have owed a fiduciary duty to Reznor even at that time, based on his position as “trusted advisor” before the agreement was signed. While the judge noted that Malm's “fiduciary obligations were clearer” when he was transferring Reznor's money to the companies they jointly owned and otherwise acting on behalf of Reznor, the court also found that whether Reznor consented to this activity and benefitted from it were issues for the jury.

Another intensely fought litigation involved the band Mudvayne and its longstanding personal manger, Anger Management. In that case, Mudvayne terminated the management agreement before the expiration of its term on the grounds of, among other things, the manager's breach of fiduciary duties and self-dealing. After claims were filed by the manager to enforce the contract and for breach, Mudvayne filed numerous counterclaims, including that Anger Management, in exercising its power of attorney over the band's income, had failed to properly disclose the transactions it had taken or to keep proper records of them. In addition, Mudvayne claimed that Anger Management had improperly taken promissory notes secured by the band's intellectual property that purportedly were in consideration of loans advanced to the band that could not be documented.

After substantial litigation, on Mudvayne's motion for summary judgment, the court held in an unpublished decision that Mudvayne properly terminated the management agreement on the basis that the foregoing actions constituted breaches of Anger Management's fiduciary duties of disclosure and loyalty, which foreclosed Anger Management's ability to enforce the contract and obtain any further commissions. Anger Management v. Tribbett (p/k/a “Mudvayne”), 2004 L 2642 (Circuit Court of Cook County, Ill., Order and Transcript dated Dec. 17, 2010).

The Reznor and Mudvayne cases underscore the complex and highly fact-intensive issues that can arise when artists and managers with longstanding relationships “break up,” and when managers are involved in either financial businesses with the artist or in collecting the artist's income.

Artist-Talent Agent Relationship

A talent agent is responsible for procuring employment for the artist and is licensed in the state in which the agent operates. The duties owed by the talent agent are subsumed within the law of agency and the statutory framework of the respective jurisdiction.

California's Talent Agencies Act (TAA), the state's expansive statute regulating agents (see, Calif. Labor Code ”1700 et seq.), defines “talent agency” broadly as: “a person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist or artists. ' Talent agencies may, in addition, counsel or direct artists in the development of their professional careers.” (The California TAA can be found online at http://1.usa.gov/UzhWif.)

The TAA requires that a talent agent obtain a license from the California Labor Commissioner, which may be revoked if, among other things, the agent fails to comply with the TAA or if the agent “has ceased to be of good moral character.” The TAA extends to agencies located outside of California that solicit employment for artists in California. Under the TAA, talent agents must secure approval from the state Labor Commissioner of the contract forms the agent plans to use. Additionally, talent agents who receive funds on behalf of artists must deposit such funds into a trust fund and keep a separate record of those funds. Notably, there is an exception in the TAA for the procurement of recording contracts, exempting “the activities of procuring, offering, or promising to procure recording contracts for an artist or artists.”

The consequences of running afoul of the TAA are potentially severe, and may include being ordered to return any commissions paid by the artist for services rendered. Any disputes arising under the TAA must first be brought before the Labor Commissioner and are subject to a one-year statute of limitations.

The vast majority of litigations arising under the TAA involve the failure by someone acting as a talent agent to procure the requisite license. Frequently, that may be a party who is engaged as a personal manager of the artist. In Marathon Entertainment v. Blasi, 42 Cal.4th 974 (2008), the Supreme Court of California held that even “incidental procurement” of employment required licensure under the TAA. However, the court also held that while contracts illegal under the TAA may be fully voided, courts may also sever the offending provisions.

New York has its own statutory scheme governing talent agencies. Article 11 of the General Business Law, which regulates employment agencies generally, defines a “theatrical employment agency” as: “[A]ny person who procures or attempts to procure employment or engagements for” entertainers or persormers.

Such theatrical employment agencies are required to obtain a license from the State Commissioner of Labor (or, in New York City, the Commissioner of Consumer Affairs). But in stark contrast with California, New York managers whose “business only incidentally involves the seeking of employment therefor” are exempt from the licensing requirement. Artists invoke this statute to attempt to terminate management agreements when the managers exceed the scope of the exception.

Recently, however, in Rhodes v. Herz, 84 A.D.3d 1 (1st Dept. 2011), the state appellate court held that no private right of action exists under Article 11 of the General Business Law and that only the Commissioner of Labor or Commissioner of Consumer Affairs may enforce the statute. In Rhodes, the plaintiff, a radio talk show host, had entered into an agreement with the defendant to act in multiple capacities, including to book plaintiff's employment. Later, the talk show host claimed a right to terminate under Article 11 because the defendant was unlicensed. The court found no express or implied private cause of action under Article 11, and dismissed the plaintiff's claims.

Artist-Business Manager Relationship

A business manager provides various financial services to an artist, including management of the artist's money (often paying the rest of the artist's executive team), tax planning, and/or the provision of investment advice. In the United States, the positions of personal manager and business manager are usually separate, and the artist's business manager is often an accountant subject to the rules governing licensed accounting professionals.

Like a personal manager, a business manager can be found to have run afoul of the TAA. Thus, in Blanks v. Shaw, 171 Cal. App.4th 336 (Cal. Ct. App. 2009), Tae-Bo creator Billy Blanks recovered commissions paid to his former accountant, whom he had hired to “manage [his] business affairs, negotiate business deals and media appearances, and schedule [his] appearances,” for acting as an unlicensed agent.

Similarly, like a personal manager, a business manager can be charged with self-dealing, in violation of a duty of disclosure and loyalty. For example, in Black v. Sussman, M2010-01810-COA-R3-CV, (Tenn. Ct. App. 2011), country music artist Clint Black brought suit against his business manager and accountant for both breach of fiduciary duty and accounting malpractice. Black claimed the defendant gave bad advice by telling Black to invest in and sign an exclusive recording contract with a start-up record label ' of which the business manager was the chief financial officer ' rather than advising Black to pursue opportunities with two established labels. The defendant allegedly was self-dealing, and unbeknownst to Black, collecting more than $10,000 a month from the label. The Tennessee Court of Appeals held that the trial court erred in granting summary judgment on grounds of a time-barred cause of action for accounting malpractice, because the complaint also stated a cause of action for breach of the business manager's fiduciary duties, subject to a longer statute of limitations. The appeals court remanded the case to the trial court on factual disputes regarding “whether the duties [the defendant] provided were functions of an accountant or of a business manager.”

Lawyer-Client Relationship

An artist's transactional counsel can serve as the general counsel for the artist's various businesses and may oversee the executive team. All lawyers are fiduciaries to their clients and are governed by the applicable laws of the state in which they practice. (Lawyers might even owe a duty to other non-client parties to a transaction if they are held out as “the lawyer” of the deal, as was the case in Croce v. Kurnit, 565 F. Supp. 884 (S.D.N.Y. 1982), aff'd. 737 F.2d 229 (2d Cir. 1984).) Of course, a lawyer may not put his or her own personal or business interests before those of the artist in any transaction, and must disclose any conflict of interest.

In some instances, entertainment counsel are compensated on a commission basis and thus must be mindful of ethical rules on the subject of engaging in businesses with clients. Similarly, should the lawyer decide to wear multiple “hats,” and for example also act as a manager, the lawyer has potentially increased his or her duty to the artist, and must be particularly mindful of the same ethical rules. Finally, as in any context, the lawyer must adhere to the professional standards to which a lawyer in his or her field will be held.

Fabled stories, both real and fiction, abound about music artists (including record producers) being taken advantage of by their business representatives. On the other hand, there is no shortage of reports about artists' representatives being confronted with difficult situations brought on by “divas” or troubled artists. As the global entertainment industry both expands and contracts in new and demanding ways, with technological developments creating daily new challenges and opportunities, the last thing that artists and their representatives need is trouble between them.

Depending on the level of success of an artist, the various members of the artist's team who must work together on an executive level are, in no particular order: personal manager; business manager; talent agent; and transactional entertainment lawyer. No matter how vigilant both sides are in choosing each other and in creating this “team,” conflicts and disputes can arise between the artist and a team member or amongst the team members themselves.

In a dispute between the artist and a representative, the central issue typically revolves around the extent and nature of the legal duty owed to the artist by the particular representative, and whether that duty has been breached. In complicating instances, representatives may perform multiple functions and wear more than one hat. Generally, the claims that arise are for breach of contract, breach of fiduciary duty, failure to comply with statutory, licensing or ethical requirements, and/or negligence in failing to act within industry standards.

Regardless of whether there is a formal contract, a representative who binds an artist in an exclusive capacity is likely to be found to be a fiduciary to that artist, and as such owes the artist the highest duty of care and loyalty. Such an obligation demands that the representative act in the artist's best interests and requires disclosure of any conflict of interest. The duty of loyalty requires that a fiduciary under no circumstances self-deal, or put his or her interests before that of the artist. The duty of care is implied in the role and commensurate with industry custom and practice. The duties of lawyers, agents and accountants are defined by the statutory, licensing or ethical requirements on a state-by-state basis. In all circumstances, each representative owes the artist a duty to act with reasonable care in performing his or her obligations. (The duties and responsibilities of an artist's representatives, or the remedies for breach of these, may vary from jurisdiction to jurisdiction.)

Following is a sampling of significant disputes between artists and their representatives.

Artist-Personal Manager Relationship

Even though the personal manager often plays the most significant role in an artist's career, the contractual obligations are typically only conclusorily defined. The exclusive personal manager is involved in all aspects of an artist's career, and is responsible for promoting the artist's career and providing advice and guidance consistent with the artist's long-term career goals. The personal manager typically owes the artist a fiduciary duty, but is not required to be licensed as a manager and is not subject to oversight by any licensing body. Frequently, the personal manager will obtain a commitment of exclusivity from the artist but be free to manage other artists. Personal managers can be compensated on a percentage/commission or a flat-fee basis, and the scope of management agreements range from being terminable at will with no interest in the artist's future earnings to those covering a term of years combined with a “sunset” clause, which is a post-term interest in some aspects of the artist's future earnings from deals done during the management term.

If the manager assumes additional responsibilities ' for instance, managing an artist's money ' the manager's duty is further heightened. Provisions in personal management agreements that authorize the manager to act as the artist's attorney-in-fact for various business transactions can impact a determination as to the scope of the manager's role and duties to the artist. When a manager works with other artists, his or her fiduciary duty prohibits the manager from favoring the interests of one artist over those of any other artist. Similarly, in evaluating any particular business transaction, the manager must look at how the transaction best benefits the artist, not the manager's own interests. Where self-dealing or fiduciary breach can be demonstrated, remedies include termination of the management agreement, forfeiture of future commissions and, in the most egregious of circumstances, rescission of the management contract, disgorgement of past commissions paid, as well as other damages. If the relationship is longstanding, the case will undoubtedly be highly fact intensive and involve many issues.

In a notable management dispute involving Nine Inch Nails' Trent Reznor and his manager, John Malm, Reznor sought remedies for the manager's alleged breach of fiduciary duty, for fraud and for negligence. Reznor v. J. Artist Management, 365 F.Supp.2d 565 (S.D.N.Y. 2005). After a lengthy battle, a jury ruled in Reznor's favor. He was awarded substantial damages and the right to control his trademarks. One of the issues revolved around the circumstances of the execution of the management agreement, under which Malm received a 20% commission of Reznor's gross earnings. Malm and Reznor did not discuss the specifics of the agreement; Malm informed Reznor as to the agreement's basic terms, advised that Reznor could have someone else look at the agreement and that it was “fair.” Reznor and Malm went on to form their own record label and other companies together, and Malm began to transfer money from Reznor's funds to keep the companies operating. These actions formed Reznor's claims for breach of the duty of loyalty.

Prior to the jury trial, both sides moved, without success, for summary judgment on Reznor's claim of breach of fiduciary duty. In its decision, the New York federal district judge held that fact issues existed as to whether the manager's relationship with Reznor was a “conventional business relationship,” rather than a fiduciary one, at the time the management agreement was signed ' given that the relationship was “informal” and Malm was as inexperienced as Reznor at that time. Alternately, the court considered that Malm may well be found to have owed a fiduciary duty to Reznor even at that time, based on his position as “trusted advisor” before the agreement was signed. While the judge noted that Malm's “fiduciary obligations were clearer” when he was transferring Reznor's money to the companies they jointly owned and otherwise acting on behalf of Reznor, the court also found that whether Reznor consented to this activity and benefitted from it were issues for the jury.

Another intensely fought litigation involved the band Mudvayne and its longstanding personal manger, Anger Management. In that case, Mudvayne terminated the management agreement before the expiration of its term on the grounds of, among other things, the manager's breach of fiduciary duties and self-dealing. After claims were filed by the manager to enforce the contract and for breach, Mudvayne filed numerous counterclaims, including that Anger Management, in exercising its power of attorney over the band's income, had failed to properly disclose the transactions it had taken or to keep proper records of them. In addition, Mudvayne claimed that Anger Management had improperly taken promissory notes secured by the band's intellectual property that purportedly were in consideration of loans advanced to the band that could not be documented.

After substantial litigation, on Mudvayne's motion for summary judgment, the court held in an unpublished decision that Mudvayne properly terminated the management agreement on the basis that the foregoing actions constituted breaches of Anger Management's fiduciary duties of disclosure and loyalty, which foreclosed Anger Management's ability to enforce the contract and obtain any further commissions. Anger Management v. Tribbett (p/k/a “Mudvayne”), 2004 L 2642 (Circuit Court of Cook County, Ill., Order and Transcript dated Dec. 17, 2010).

The Reznor and Mudvayne cases underscore the complex and highly fact-intensive issues that can arise when artists and managers with longstanding relationships “break up,” and when managers are involved in either financial businesses with the artist or in collecting the artist's income.

Artist-Talent Agent Relationship

A talent agent is responsible for procuring employment for the artist and is licensed in the state in which the agent operates. The duties owed by the talent agent are subsumed within the law of agency and the statutory framework of the respective jurisdiction.

California's Talent Agencies Act (TAA), the state's expansive statute regulating agents (see, Calif. Labor Code ”1700 et seq.), defines “talent agency” broadly as: “a person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist or artists. ' Talent agencies may, in addition, counsel or direct artists in the development of their professional careers.” (The California TAA can be found online at http://1.usa.gov/UzhWif.)

The TAA requires that a talent agent obtain a license from the California Labor Commissioner, which may be revoked if, among other things, the agent fails to comply with the TAA or if the agent “has ceased to be of good moral character.” The TAA extends to agencies located outside of California that solicit employment for artists in California. Under the TAA, talent agents must secure approval from the state Labor Commissioner of the contract forms the agent plans to use. Additionally, talent agents who receive funds on behalf of artists must deposit such funds into a trust fund and keep a separate record of those funds. Notably, there is an exception in the TAA for the procurement of recording contracts, exempting “the activities of procuring, offering, or promising to procure recording contracts for an artist or artists.”

The consequences of running afoul of the TAA are potentially severe, and may include being ordered to return any commissions paid by the artist for services rendered. Any disputes arising under the TAA must first be brought before the Labor Commissioner and are subject to a one-year statute of limitations.

The vast majority of litigations arising under the TAA involve the failure by someone acting as a talent agent to procure the requisite license. Frequently, that may be a party who is engaged as a personal manager of the artist. In Marathon Entertainment v. Blasi, 42 Cal.4th 974 (2008), the Supreme Court of California held that even “incidental procurement” of employment required licensure under the TAA. However, the court also held that while contracts illegal under the TAA may be fully voided, courts may also sever the offending provisions.

New York has its own statutory scheme governing talent agencies. Article 11 of the General Business Law, which regulates employment agencies generally, defines a “theatrical employment agency” as: “[A]ny person who procures or attempts to procure employment or engagements for” entertainers or persormers.

Such theatrical employment agencies are required to obtain a license from the State Commissioner of Labor (or, in New York City, the Commissioner of Consumer Affairs). But in stark contrast with California, New York managers whose “business only incidentally involves the seeking of employment therefor” are exempt from the licensing requirement. Artists invoke this statute to attempt to terminate management agreements when the managers exceed the scope of the exception.

Recently, however, in Rhodes v. Herz, 84 A.D.3d 1 (1st Dept. 2011), the state appellate court held that no private right of action exists under Article 11 of the General Business Law and that only the Commissioner of Labor or Commissioner of Consumer Affairs may enforce the statute. In Rhodes, the plaintiff, a radio talk show host, had entered into an agreement with the defendant to act in multiple capacities, including to book plaintiff's employment. Later, the talk show host claimed a right to terminate under Article 11 because the defendant was unlicensed. The court found no express or implied private cause of action under Article 11, and dismissed the plaintiff's claims.

Artist-Business Manager Relationship

A business manager provides various financial services to an artist, including management of the artist's money (often paying the rest of the artist's executive team), tax planning, and/or the provision of investment advice. In the United States, the positions of personal manager and business manager are usually separate, and the artist's business manager is often an accountant subject to the rules governing licensed accounting professionals.

Like a personal manager, a business manager can be found to have run afoul of the TAA. Thus, in Blanks v. Shaw, 171 Cal. App.4th 336 (Cal. Ct. App. 2009), Tae-Bo creator Billy Blanks recovered commissions paid to his former accountant, whom he had hired to “manage [his] business affairs, negotiate business deals and media appearances, and schedule [his] appearances,” for acting as an unlicensed agent.

Similarly, like a personal manager, a business manager can be charged with self-dealing, in violation of a duty of disclosure and loyalty. For example, in Black v. Sussman, M2010-01810-COA-R3-CV, (Tenn. Ct. App. 2011), country music artist Clint Black brought suit against his business manager and accountant for both breach of fiduciary duty and accounting malpractice. Black claimed the defendant gave bad advice by telling Black to invest in and sign an exclusive recording contract with a start-up record label ' of which the business manager was the chief financial officer ' rather than advising Black to pursue opportunities with two established labels. The defendant allegedly was self-dealing, and unbeknownst to Black, collecting more than $10,000 a month from the label. The Tennessee Court of Appeals held that the trial court erred in granting summary judgment on grounds of a time-barred cause of action for accounting malpractice, because the complaint also stated a cause of action for breach of the business manager's fiduciary duties, subject to a longer statute of limitations. The appeals court remanded the case to the trial court on factual disputes regarding “whether the duties [the defendant] provided were functions of an accountant or of a business manager.”

Lawyer-Client Relationship

An artist's transactional counsel can serve as the general counsel for the artist's various businesses and may oversee the executive team. All lawyers are fiduciaries to their clients and are governed by the applicable laws of the state in which they practice. (Lawyers might even owe a duty to other non-client parties to a transaction if they are held out as “the lawyer” of the deal, as was the case in Croce v. Kurnit, 565 F. Supp. 884 (S.D.N.Y. 1982), aff'd. 737 F.2d 229 (2d Cir. 1984).) Of course, a lawyer may not put his or her own personal or business interests before those of the artist in any transaction, and must disclose any conflict of interest.

In some instances, entertainment counsel are compensated on a commission basis and thus must be mindful of ethical rules on the subject of engaging in businesses with clients. Similarly, should the lawyer decide to wear multiple “hats,” and for example also act as a manager, the lawyer has potentially increased his or her duty to the artist, and must be particularly mindful of the same ethical rules. Finally, as in any context, the lawyer must adhere to the professional standards to which a lawyer in his or her field will be held.