UMG Defense Lawyers Discuss Ruling in Artists' Suit Over Warehouse Fire

Edelman: The case was filed in June 2019 by five recording artists (or their purported representatives): Soundgarden; Hole; Steve Earle; Tom Whalley (for the trust representing Tupac Shakur's heir); and Jane Petty (the late Tom Petty's first wife). These plaintiffs alleged that a June 1, 2008, fire on the Universal Studios backlot that burned a UMG warehouse destroyed UMG's original master recordings related to these artists. Their allegations were based largely (if not exclusively) on a June 11, 2019, cover story in The New York Times Magazine, which inaccurately reported and exaggerated the extent of UMG's fire losses.

Q: Let me stop you there — [how do you define] an original master recording, and why is it important?

Bach: In short, original masters are the original media on which the sound recording of an artist's performance is first captured in a recording session. Original master recordings can mean either the original multi-tracks (the individual tracks that comprise a sound recording) or the flat masters (the first, original mix of the multi-tracks).

Beyond "original" master recordings, there are "production" masters, "safeties," or other high-quality copies or clones of those recordings, in either digital or analog media. Confirming our understanding of what an original master recording is and its role in the recording process and under the recording agreements was critical in order to correct the mistaken and misleading reporting in the Times story, and to bring clarity to the vague allegations in the plaintiffs' complaint.

Edelman: Importantly, recordings can be made, sold, licensed, and re-released from several other sources, including high-quality safeties, production masters, or (as in the case of Soundgarden's Badmotorfinger) from a DAT.

In other words, the loss of an original master recording does not mean that a company like UMG cannot exploit a sound recording and generate royalties for the associated artist. In fact, because analog tape masters degrade over time, any "loss" of audio fidelity from the original master to a next-best replacement would be imperceptible to even the most devoted music fan listening on high-fidelity equipment.

Q: So if no original master recordings were lost for most of the plaintiffs, what were they seeking?  

Stein: Even after four of the five named plaintiffs learned that no original masters featuring their performances were lost, they were still angling for a cut of UMG's settlement recovery from its fire-related litigation with its landlord and insurer.

Plaintiffs' theories were a bit of a moving target because they were just looking for ways to demand 50% of UMG's recoveries, but the plaintiffs were basically arguing (incorrectly) that the settlements implicated the royalty provisions of their recording agreements. But plaintiffs began dropping out of the case. [Courtney Love's band] Hole was not included as a plaintiff in the first amended complaint [FAC]. And while our motion to dismiss was under submission, Soundgarden, Shakur and Earle also voluntarily dismissed their claims, leaving Jane Petty as the lone plaintiff.

[Judge Kronstadt decided about Jane Petty's right to proceed with most of her claims: "The FAC alleges that Tom Petty 'assigned and transferred to Jane [Petty] by written assignment [as a result of their 1996 divorce proceedings] an undivided 50% interest to his then-existing intellectual property, including his copyrights and rights to receive proceeds [from] Petty's agreements with Defendant. As a result of these transfers, Jane [Petty] is the owner, assignee, and successor in interest to 50% of many of the contractual rights of [Tom] Petty at issue in this action.' … The FAC does not attach a copy of the written assignment. …

"The FAC alleges an assignment of contract rights related to the 'agreements with Defendant.' This is sufficient to allege plausibly that Jane Petty was assigned 50% of the interest in the recording agreements between Tom Petty and UMG, or its predecessors that are at issue here."]

Q: The artists are entitled to royalties from specified licensing under their contracts with UMG. What did the court say about whether settlements with UMG's landlord (NBCU) and its insurer can constitute "royalties"?  

Bach: Under the artists' contracts with UMG (or its predecessors), in order to even try to state a claim for licensing royalties, plaintiffs had to try to characterize UMG's litigation settlement recoveries as the proceeds of "licenses" to which the artists would be entitled.

Specifically, in an attempt to characterize UMG's settlements as licenses, plaintiffs claimed that "[w]hen UMG entered agreements with warehouse owners and insurance companies, it retroactively permitted a specific, and otherwise prohibited 'use' of the masters — their destruction — in exchange for flat fee payments." We highlighted the implausibility of this theory, and how it did not fit with any industry-accepted definition of licensing, and the court agreed.

[Judge Kronstadt wrote on this: "UMG argues that, as used in the [Tom] Petty ]1984] Contract, the term 'license' has a meaning that is specific to the music industry. Consequently, UMG claims that 'to license' means granting a right to manufacture, distribute, sell and/or perform recordings. … UMG argues that 'to license' is limited to permission to use Master Recordings as intended, i.e., for music and entertainment. …"

"Because the FAC fails to allege plausibly that the Master Recordings were licensed on a flat-fee basis, a requirement for an entitlement to revenue shares, the FAC fails to state a claim for breach of contract on that claim."]

Q: Who is opposing counsel?

Stein: Soundgarden, Hole, Steve Earle, Tom Whalley and Jane Petty were represented by three firms: King, Holmes, Paterno & Soriano; McPherson LLP; and Susman Godfrey LLP.

Q: This case was based on a publicly reported fire that occurred more than a decade ago, followed by two public lawsuits between UMG, and its landlord and insurer. What challenges or benefits did that prior history present? 

Stein: The history certainly presented a challenge, particularly when that history was largely misreported by the Times article, which described the vault fire as "the biggest disaster in the history of the music business." So we were battling against that inaccurate public perception of UMG's losses, and a lot of understandable artist confusion and questions in the wake of that piece.

Beyond that, though, the passage of time and prior lawsuits present a logistical challenge, because it has meant digging back into the facts and records of those prior cases, and also learning new information based on UMG's current investigations in response to artist inquiries.

Q: UMG allegedly recovered $150 million in litigation and insurance claims related to the fire. Is the company taking steps to do right by its artists? 

Stein: To be clear, UMG did not recover anything even close to $150 million. Plaintiffs seized on that number from the error-riddled New York Times Magazine piece, which suggested that was the value of what UMG had lost, not what UMG had recovered. And the money from the insurers was intended to reimburse UMG for its significant out-of-pocket costs to replace certain assets after the fire.

Edelman: Doing right by our artists has been paramount for UMG throughout this litigation. We detailed in our briefing — just as UMG has done publicly — the company's commitment to the artist community and the steps it is taking (and significant resources it has devoted) to investigating artist inquiries regarding the impact of the fire.

Q: Record companies typically own master recordings, with the general exception of some high-profile artists. How does that affect the plaintiffs' claims? 

Bach: We made certain to draw the court's attention to similar language that is present in all of the original five plaintiffs' recording agreements: that UMG owns the master recordings "free of any claims whatsoever by" the artist.  Plaintiffs' bailment claim (seeking damages or the return of the master recordings) is predicated on ownership, and as a result was doomed to fail.

[Judge Kronstadt noted about the bailment claim: "Because the Petty Contract states that Tom Petty did not retain title to the Master Recordings, it cannot reasonably be interpreted as a bailment contract, i.e., a deposit for keeping. In addition, UMG's publications about 'obligations to preserve master recordings,' do not create an express or implied bailment contract where Tom Petty had already conveyed ownership and title to the Master Recordings to UMG or its predecessors. [Jane] Petty maintains that alleged reversionary interests exist under copyright law — 17 U.S.C. §203. Plaintiffs cite to no authority that supports the position that a possible future copyright interest reflects a bailment relationship as to the physical Master Recordings."]

Q: What were the biggest challenges you faced in preparing your client's defense?  

Edelman: [S]o much of what was contained in the plaintiffs' complaint was factually incorrect or underdeveloped, and reflected radical expansions of standard practice in the music industry. Plaintiffs had an ostensibly sympathetic narrative, but it was based on inaccurate facts and misrepresentations about what the recording agreements actually provided.

Q: What do you expect for the remainder of the case?  

Edelman: Judge Kronstadt wrote a lengthy decision that thoughtfully analyzed the plaintiffs' wide-ranging claims — for breach of contract, bailment and the implied covenant, negligence, recklessness, conversion and concealment — and rejected each of them.

Based on his reasoning, we do not believe that there is any realistic way for the remaining plaintiff Jane Petty (or any other plaintiff that the lawyers might try to add) to state a viable claim, much less one on behalf of a class. The artist recording agreements simply do not support these counterfactual theories of recovery. Even beyond that, the premise of this case as a class action is fundamentally flawed given the inherently individualized nature of the recording agreements and the special knowledge that each artist has regarding the backlot fire and whether any of UMG's original master recordings affiliated with that artist was even affected by the fire. While we don't know [yet] whether plaintiffs will amend, it seems that it is just a matter of time before the court says "Don't Come Around Here No More."