Ninth Circuit's Novel Ruling that Copyrights In Masters Can Be Sold to Satisfy Legal Fees

When the U.S. District Court for the Western District of Washington faced the issue, District Judge Robert Lasnik noted that “the court has not found any reported case authorizing” a receiver to sell an artist's sound recording masters to pay off a judgment assessed against an artist. Affirming last month ' that a court-appointed receiver could sell funkmeister George Clinton's master recordings to pay off legal fees he owed the Seattle law firm Hendricks & Lewis ' the U.S. Court of Appeals for the Ninth Circuit added: “We know of no federal statutory law directly addressing whether copyrights are subject to execution to satisfy a judgment.” Hendricks & Lewis PLLC v. Clinton, 13-35010.

Chasing clients for legal fees can be a complex matter, and the Clinton recording masters dispute has as many twists and turns as the polyrhythms on a funk track. The fee dispute arose out of litigation work Hendricks & Lewis handled for Clinton against Universal Music. In 2009, after the law firm stopped representing Clinton, it obtained an arbitration ruling that Clinton owed Hendricks & Lewis more than $1.5 million in unpaid legal fees. The Western District of Washington confirmed the award in 2010.

But in 2011, Clinton sued Hendrick & Lewis for alleged malpractice. The suit claimed Hendricks & Lewis should have sued Universal Music for fraud, instead of breach of contract, in representing Clinton. Clinton v. Hendricks & Lewis, 11-1142 (W.D.Wash.). In 2012, District Judge Lasnick dismissed the malpractice suit by applying the one-year statute of limitations for such claims in California, where the record company litigation took place. In 2014, the Ninth Circuit affirmed, in Clinton v. Hendricks & Lewis, 12-35791.

Meanwhile, Hendricks & Lewis had sued Clinton over the legal fees and obtained a Western District court order in November 2012 that a receiver be appointed to make sure the firm recovered the fees from Clinton. Western District Judge Lasnik stated: “Notwithstanding the Court's preference for returning the recordings and copyrights to [Clinton] after his debts are satisfied, the Receiver has the authority to sell or permanently dispose of any or all of the master sound recordings.” Hendricks & Lewis v. Clinton, 12-0841 (W.D.Wash. 2012).

The district judge thus ordered Clinton to turn over the copyrights in master recordings that Clinton had previously won back from Warner Bros. ' in yet another dispute ' in four albums by Clinton's music group Funkadelic: Hardcore Jollies, One Nation Under a Groove, Uncle Jam Wants You and The Electric Spanking of War Babies .

In issuing his ruling, Judge Lasnik examined the “involuntary transfer” provision in '201(e) of the Copyright Act, which states: “When an individual author's ownership of a copyright, or of any of the exclusive rights under a copyright, has not previously been transferred voluntarily by that individual author, no action by any governmental body or other official or organization purporting to seize, expropriate, transfer, or exercise rights of ownership with respect to the copyright, or any of the exclusive rights under a copyright, shall be given effect under this title, except as provided” by bankruptcy law.

The district judge determined that, under Clinton's 1975 and 1979 production agreements with Warner Bros., the record label, rather Clinton, was the '201(e) “author” of the four albums at issue.

In its recent ruling, the Ninth Circuit explained in affirming this point: “The district court noted that the initial agreements between Warner Bros. and Clinton, ' specifically granted the copyrights in the sound recordings to Warner Bros. The court concluded that Warner Bros. was the original 'author' of the Masters under both the Copyright Act and the parties' contract, and that Clinton was not eligible for protection under '201(e) of the Copyright Act. The district court reasoned that Clinton ' is an assignee, not the author for purposes of the Act. In the alternative, the court reasoned that even if it found Clinton was the original author, he voluntarily transferred the copyrights to Warner Bros., thus making himself ineligible for protection under '201(e).”

But the Ninth Circuit disagreed with Judge Lasnik's analogizing the Clinton case to patent law, specifically a U.S. Supreme Court case from the 1800s, Ager v. Murray, 105 U.S. 126 (1881). There, the Supreme Court decided that a trustee could execute an assignment on behalf of a patent holder who declined to do so to pay a judgment.

The Ninth Circuit acknowledged that it has held patent law can be used as a guide in copyright cases. (See, Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984).) But Rule 69(a) of the Federal Rules of Civil Procedure mandates: “The procedure on execution ' and in proceedings supplementary to and in aid of a judgment or execution ' must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.” Noting that federal law doesn't address the issue as to copyrights, the Ninth Circuit relied on Wash. Rev. Code '6.17.090, which states: “All property, real and personal, of the judgment debtor that is not [in narrow instances] exempted by law is liable to execution.” Under this, the Ninth Circuit found the court-appointed receiver could sell the Clinton master-recording copyrights.

But that isn't where this legal fee dispute ends. Entertainment firms are more likely to seek unpaid legal fees out of a client's royalties stream and, in appointing the receiver, Judge Lasnik indeed had stated: “Receiver shall, to the greatest extent possible, maximize the income stream from the Funkadelic master sound recordings without selling or otherwise permanently disposing of the copyrights. Ideally, the Receiver will utilize the copyright and sound recordings over a one or two year period to satisfy the judgments and pay the expenses of the receivership before returning the copyrights and master sound recordings to” Clinton.

But Hendricks & Lewis had already pursued the royalty stream angle. In fact, there is a separate federal suit by Hendricks & Lewis against George Clinton pending in the Central District of California that seeks to attach the royalty streams. Clinton v. Hendricks & Lewis, 2:10-cv-0992. The case is currently before the California federal district court under order from the Ninth Circuit to explain why the district judge previously denied the law firm's bid to attach the Funkadelic albums' royalties.

Stan Soocher is Editor-in-Chief of Entertainment Law & Finance and a tenured Associate Professor of Music & Entertainment Industry Studies at the University of Colorado's Denver Campus. He can be reached at [email protected] or via www.stansoocher.com.

When the U.S. District Court for the Western District of Washington faced the issue, District Judge Robert Lasnik noted that “the court has not found any reported case authorizing” a receiver to sell an artist's sound recording masters to pay off a judgment assessed against an artist. Affirming last month ' that a court-appointed receiver could sell funkmeister George Clinton's master recordings to pay off legal fees he owed the Seattle law firm Hendricks & Lewis ' the U.S. Court of Appeals for the Ninth Circuit added: “We know of no federal statutory law directly addressing whether copyrights are subject to execution to satisfy a judgment.” Hendricks & Lewis PLLC v. Clinton, 13-35010.

Chasing clients for legal fees can be a complex matter, and the Clinton recording masters dispute has as many twists and turns as the polyrhythms on a funk track. The fee dispute arose out of litigation work Hendricks & Lewis handled for Clinton against Universal Music. In 2009, after the law firm stopped representing Clinton, it obtained an arbitration ruling that Clinton owed Hendricks & Lewis more than $1.5 million in unpaid legal fees. The Western District of Washington confirmed the award in 2010.

But in 2011, Clinton sued Hendrick & Lewis for alleged malpractice. The suit claimed Hendricks & Lewis should have sued Universal Music for fraud, instead of breach of contract, in representing Clinton. Clinton v. Hendricks & Lewis, 11-1142 (W.D.Wash.). In 2012, District Judge Lasnick dismissed the malpractice suit by applying the one-year statute of limitations for such claims in California, where the record company litigation took place. In 2014, the Ninth Circuit affirmed, in Clinton v. Hendricks & Lewis, 12-35791.

Meanwhile, Hendricks & Lewis had sued Clinton over the legal fees and obtained a Western District court order in November 2012 that a receiver be appointed to make sure the firm recovered the fees from Clinton. Western District Judge Lasnik stated: “Notwithstanding the Court's preference for returning the recordings and copyrights to [Clinton] after his debts are satisfied, the Receiver has the authority to sell or permanently dispose of any or all of the master sound recordings.” Hendricks & Lewis v. Clinton, 12-0841 (W.D.Wash. 2012).

The district judge thus ordered Clinton to turn over the copyrights in master recordings that Clinton had previously won back from Warner Bros. ' in yet another dispute ' in four albums by Clinton's music group Funkadelic: Hardcore Jollies, One Nation Under a Groove, Uncle Jam Wants You and The Electric Spanking of War Babies .

In issuing his ruling, Judge Lasnik examined the “involuntary transfer” provision in '201(e) of the Copyright Act, which states: “When an individual author's ownership of a copyright, or of any of the exclusive rights under a copyright, has not previously been transferred voluntarily by that individual author, no action by any governmental body or other official or organization purporting to seize, expropriate, transfer, or exercise rights of ownership with respect to the copyright, or any of the exclusive rights under a copyright, shall be given effect under this title, except as provided” by bankruptcy law.

The district judge determined that, under Clinton's 1975 and 1979 production agreements with Warner Bros., the record label, rather Clinton, was the '201(e) “author” of the four albums at issue.

In its recent ruling, the Ninth Circuit explained in affirming this point: “The district court noted that the initial agreements between Warner Bros. and Clinton, ' specifically granted the copyrights in the sound recordings to Warner Bros. The court concluded that Warner Bros. was the original 'author' of the Masters under both the Copyright Act and the parties' contract, and that Clinton was not eligible for protection under '201(e) of the Copyright Act. The district court reasoned that Clinton ' is an assignee, not the author for purposes of the Act. In the alternative, the court reasoned that even if it found Clinton was the original author, he voluntarily transferred the copyrights to Warner Bros., thus making himself ineligible for protection under '201(e).”

But the Ninth Circuit disagreed with Judge Lasnik's analogizing the Clinton case to patent law, specifically a U.S. Supreme Court case from the 1800s, Ager v. Murray, 105 U.S. 126 (1881). There, the Supreme Court decided that a trustee could execute an assignment on behalf of a patent holder who declined to do so to pay a judgment.

The Ninth Circuit acknowledged that it has held patent law can be used as a guide in copyright cases. (See, Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984).) But Rule 69(a) of the Federal Rules of Civil Procedure mandates: “The procedure on execution ' and in proceedings supplementary to and in aid of a judgment or execution ' must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.” Noting that federal law doesn't address the issue as to copyrights, the Ninth Circuit relied on Wash. Rev. Code '6.17.090, which states: “All property, real and personal, of the judgment debtor that is not [in narrow instances] exempted by law is liable to execution.” Under this, the Ninth Circuit found the court-appointed receiver could sell the Clinton master-recording copyrights.

But that isn't where this legal fee dispute ends. Entertainment firms are more likely to seek unpaid legal fees out of a client's royalties stream and, in appointing the receiver, Judge Lasnik indeed had stated: “Receiver shall, to the greatest extent possible, maximize the income stream from the Funkadelic master sound recordings without selling or otherwise permanently disposing of the copyrights. Ideally, the Receiver will utilize the copyright and sound recordings over a one or two year period to satisfy the judgments and pay the expenses of the receivership before returning the copyrights and master sound recordings to” Clinton.

But Hendricks & Lewis had already pursued the royalty stream angle. In fact, there is a separate federal suit by Hendricks & Lewis against George Clinton pending in the Central District of California that seeks to attach the royalty streams. Clinton v. Hendricks & Lewis, 2:10-cv-0992. The case is currently before the California federal district court under order from the Ninth Circuit to explain why the district judge previously denied the law firm's bid to attach the Funkadelic albums' royalties.

Stan Soocher is Editor-in-Chief of Entertainment Law & Finance and a tenured Associate Professor of Music & Entertainment Industry Studies at the University of Colorado's Denver Campus. He can be reached at [email protected] or via www.stansoocher.com.