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Bankrupt Festival Organizer Can Recover Buyout Payment It Made to Co-Founder

The U.S. Bankruptcy Court for the Northern District of California decided that the bankrupt organizer of the Bottlerock music festival could recover a prior payment it made to buy out one of the principals of the company. In re BR Festivals LLC, 14-10175.

BR Festivals formed to present a May 2013 music festival in Napa, CA. Confident of success and with funds from new investors, in April 2013 BR Festivals paid original manager and co-founder Jason Johnson $3,025,849 to purchase his share of the company. But as Bankruptcy Judge Alan Jaroslovksy described it, the inaugural edition of Bottlerock 'was doomed to be a financial failure from the very start, due to the lack of experience of the managers and undercapitalization. ' However, the ultimate failure of the concert was masked for a considerable time by advance ticket sales, optimistic projections and wishful thinking.'

After losing $6 million from staging the event, the remaining owners of BR Festivals filed for Chapter 11 bankruptcy. Under '1107(a) of the U.S. Bankruptcy Code, BR sought to recover its payment to Johnson. Ruling for BR, Judge Jaroslovksy observed: 'The payment allowed Johnson to be paid in full while ordinary creditors stand to recover very little.' The bankruptcy judge added: 'The payment to Johnson was not, as he styles, in substance just a buyout of his ownership by new investors. The assets of BR Festivals were leveraged in order to finance the buyout; so the funds of the new investors needed to come through BR Festivals rather than be paid directly to Johnson.'

No Safe Harbor Protection for Grooveshark

The U.S. District Court for the Southern District of New York adopted a federal magistrate's recommendation that Escape Media's file sharing service Grooveshark be denied safe harbor protection under 17 U.S.C. '512 of the Digital Millennium Copyright Act (DMCA). This ruling grants summary judgment to Capitol Records on this claim. Capitol Records LLC v. Escape Media Group Inc., 12-CV-6646.

District Judge Alison J. Nathan noted that Magistrate Judge Sarah Netburn had determined about Grooveshark's 'one strike' repeat infringer policy: 'Escape purports to 'disable[] account holders' upload privileges in response to DMCA notifications, but does not delete all data or audio files associated with their account or bar them from signing in to simply and passively use the Grooveshark website.' Judge Netburn concluded that this policy of only barring uploading privileges while retaining accounts does not satisfy the repeat infringer policy requirement because it does not actually 'implement' a repeat infringer policy within the meaning of '512(i), and, even assuming it did, Escape does not reasonably implement the policy, i.e., Escape does not terminate user's uploading privileges in appropriate circumstances.'

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 was the 2014 recipient of the State Bar of Texas Entertainment & Sports Law Section's 'Texas Star Award.' Stan's new book on Beatles legal issues will be published in September 2015. He can be reached at [email protected] or via www.stansoocher.com.

Bankrupt Festival Organizer Can Recover Buyout Payment It Made to Co-Founder

The U.S. Bankruptcy Court for the Northern District of California decided that the bankrupt organizer of the Bottlerock music festival could recover a prior payment it made to buy out one of the principals of the company. In re BR Festivals LLC, 14-10175.

BR Festivals formed to present a May 2013 music festival in Napa, CA. Confident of success and with funds from new investors, in April 2013 BR Festivals paid original manager and co-founder Jason Johnson $3,025,849 to purchase his share of the company. But as Bankruptcy Judge Alan Jaroslovksy described it, the inaugural edition of Bottlerock 'was doomed to be a financial failure from the very start, due to the lack of experience of the managers and undercapitalization. ' However, the ultimate failure of the concert was masked for a considerable time by advance ticket sales, optimistic projections and wishful thinking.'

After losing $6 million from staging the event, the remaining owners of BR Festivals filed for Chapter 11 bankruptcy. Under '1107(a) of the U.S. Bankruptcy Code, BR sought to recover its payment to Johnson. Ruling for BR, Judge Jaroslovksy observed: 'The payment allowed Johnson to be paid in full while ordinary creditors stand to recover very little.' The bankruptcy judge added: 'The payment to Johnson was not, as he styles, in substance just a buyout of his ownership by new investors. The assets of BR Festivals were leveraged in order to finance the buyout; so the funds of the new investors needed to come through BR Festivals rather than be paid directly to Johnson.'

No Safe Harbor Protection for Grooveshark

The U.S. District Court for the Southern District of New York adopted a federal magistrate's recommendation that Escape Media's file sharing service Grooveshark be denied safe harbor protection under 17 U.S.C. '512 of the Digital Millennium Copyright Act (DMCA). This ruling grants summary judgment to Capitol Records on this claim. Capitol Records LLC v. Escape Media Group Inc., 12-CV-6646.

District Judge Alison J. Nathan noted that Magistrate Judge Sarah Netburn had determined about Grooveshark's 'one strike' repeat infringer policy: 'Escape purports to 'disable[] account holders' upload privileges in response to DMCA notifications, but does not delete all data or audio files associated with their account or bar them from signing in to simply and passively use the Grooveshark website.' Judge Netburn concluded that this policy of only barring uploading privileges while retaining accounts does not satisfy the repeat infringer policy requirement because it does not actually 'implement' a repeat infringer policy within the meaning of '512(i), and, even assuming it did, Escape does not reasonably implement the policy, i.e., Escape does not terminate user's uploading privileges in appropriate circumstances.'

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 was the 2014 recipient of the State Bar of Texas Entertainment & Sports Law Section's 'Texas Star Award.' Stan's new book on Beatles legal issues will be published in September 2015. He can be reached at [email protected] or via www.stansoocher.com.