Thomas v. Lytle

• Decision Date: 18 July 2000
• Docket Number: No. 3:95-0347.,3:95-0347.
• Citation: 104 F.Supp.2d 906
• Parties: B.J. THOMAS, Gene F. Pitney, Shirley Owens Alston Reeves, Beverly Lee, Doris Coley Jackson, Vernon McFadden, and Hank Ballard, Plaintiffs, v. Gayron M. ("Moe") LYTLE, Gusto Records, Inc., GML, Inc., Marshall E. Sehorn, White Dog, Ltd., and Red Dog Express, Inc., Defendants.
• Court: U.S. District Court — Middle District of Tennessee

104 F.Supp.2d 906

B.J. THOMAS, Gene F. Pitney, Shirley Owens Alston Reeves, Beverly Lee, Doris Coley Jackson, Vernon McFadden, and Hank Ballard, Plaintiffs, v. Gayron M. ("Moe") LYTLE, Gusto Records, Inc., GML, Inc., Marshall E. Sehorn, White Dog, Ltd., and Red Dog Express, Inc., Defendants.

No. 3:95-0347.

United States District Court, M.D. Tennessee, Nashville Division.

July 18, 2000.

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Scott Kendall Haynes, Boult, Cummings, Conners & Berry, Nashville, TN, Ira G. Greenberg, Edwards & Angell, New York City, for plaintiffs.

David W. Showalter, Law Offices of David W. Showalter, PC, Bellaire, TX, for Donald M. Daily, Harold w. Daily, Jr., intervenors.

Nader Baydoun, Baydoun & Reese, Nashville, TN, Jay Scott Bowen, Bowen, Riley, Warnock & Jacobson, PLC, Nashville, TN, for Gayron Moe Lytle, Gusto Records, Inc., GML, Inc., defendants.

S. Ralph Gordon, Gordon, Martin, Jones & Harris, Nashville, TN, for Marshall E. Sehorn, White Dog, Ltd., Red Dog Express, Inc., defendants.

MEMORANDUM

TRAUGER, District Judge.

This bench trial was on a claim by the plaintiffs for unpaid royalties over an eight-year period. In accordance with Rule 52 of the Federal Rules of Civil Procedure, the court enters judgment for the plaintiffs and sets forth the following findings and conclusions.

FINDINGS OF FACT

All of the plaintiffs, except for Plaintiff Vernon McFadden, Jr.,¹ are recording artists and entertainers. (Trial Transcript ("Tr.") at 53, 121, 318, 333, 687) Plaintiffs Shirley Owens Alston Reeves, Beverly Lee, and Doris Coley Jackson² are the remaining members of the musical group known as "The Shirelles." (Tr. at 122) Defendant Gayron M. Lytle is the president and sole shareholder of Defendants Gusto Records Inc. and GML Inc. (Tr. at 443) Gusto is a Tennessee corporation with its principal place of business at 1900 Elm Hill Pike in Nashville, Tennessee. (Tr. at 442) GML is a Missouri corporation with its principal place of business at 1900 Elm Hill Pike in Nashville, Tennessee. (Tr. at 442)

All plaintiffs except Hank Ballard previously litigated claims against GML and Gusto in this district in Thomas, et al. v. Gusto Records, Inc. and GML, Inc., 3:87-0975 (Higgins, J.). In that action, the plaintiffs were awarded a judgment, later affirmed by the Sixth Circuit Court of Appeals in Thomas v. Gusto Records, Inc., 939 F.2d 395 (6th Cir.1991). The parties in that action then entered into an agreement in February 1992 concerning the payment of the judgment entered by Judge Higgins and the defendants' future obligations to the plaintiffs (the "Thomas Agreement"). (Trial Ex. 3)

With respect to future royalty obligations, the Thomas Agreement provides:

[Record Company]³ is obligated to pay artists' royalties to the applicable recording Artist ...; and that that obligation is five percent of ninety percent of retail suggested list price times quantity sold for product manufactured by or for Record Company, and one-half (50%) of such amount with respect to product manufactured or sold by or for Record Company outside the United States and/or Canada, or sold through record clubs....

With respect to all third party mechanical and synchronization licensing income (other than motion picture and/or commercial synchronization licensing fees, all Artists will be paid by Record Company one-half (50%) of all income computed at the source;).... There may be a deduction from the Artists' share of any such income of one-half of any bona-fide third party agent costs paid by Record Company in connection with securing any particular license, not to exceed six (6%) percent of the licensing income computed at the source (with a maximum agency commission deduction chargeable against the license fees payable by Record Company to Artists therefore to be six (6%) percent of the total license fees payable at the source).

(Trial Ex. 3 at 5-6)

Plaintiff Hank Ballard previously litigated claims against Defendants Gusto and GML in this district in Ballard v. Gusto Records, Inc. and GML, Inc., 3:89-1019. Before trial, the parties to that action entered into an agreement in January 1993 concerning the settlement of Ballard's claims and the defendants' payments of future obligations to Ballard (the "Ballard Agreement"). (Trial Ex. 4)

With respect to future royalty obligations, the Ballard Agreement provides:

With respect to any revenues collected by the Record Company⁴ or its affiliates on or after January 1, 1993 resulting from the exploitation of the Artist's master recordings through product directly manufactured by the Record Company or any entity owned or controlled by Moe Lytle or any of his designees, the Record Company shall pay the Artist royalties at the rate of six and one-half percent of retail suggested list price times ninety percent (90%) of the quantity of product manufactured and distributed for sale by or for the Record Company in the U.S.A. and Canada, and paid for; and one-half (50%) of such amount with respect to ninety percent (90%) of the product manufactured and distributed for sale by or for Record Company outside the United States and/or Canada, and paid for.

With respect to all third party licensing income, including, but not limited to, synchronization licensing income, the Artist shall be paid by the Record Company one-half (50%) of the total of such licensing income. The total license income is to be computed from the source, less only the administrative costs or fees, which costs or fees shall not exceed 20% of the total of such licensing income.

(Trial Ex. 4 at 2-3)

On March 6, 1995, Plaintiffs filed this action against, among others,⁵ Gusto, GML, and Lytle, alleging breaches of the Thomas Agreement and the Ballard Agreement. (Docket No. 1)

Plaintiffs' Master Recordings

At issue in this case are the royalties allegedly owed for the exploitation by the defendants of certain master recordings. Plaintiff Gene Pitney recorded certain masters at issue in this case for Musicor Records. (Tr. at 54) Plaintiffs B.J. Thomas and The Shirelles recorded certain master recordings at issue in this case for Scepter Records. (Tr. at 123, 336) Plaintiff Ballard recorded certain master recordings at issue in this case for King Records. (Tr. at 444)

The master recordings that Plaintiff Ballard recorded for King Records were purchased from Tennessee Recording and Publishing by Lytle's companies in the 1970s. (Tr. at 447-48) The master recordings that Plaintiffs Thomas and The Shirelles recorded for Scepter Records and the master recordings that Plaintiff Pitney recorded for Musicor Records are part of the Springboard Catalogue. (Tr. at 444) In the early 1980s, the Springboard Catalogue was sold through bankruptcy court to CBS Special Products. Shortly thereafter, CBS Special Products sold the Springboard Catalogue to Jey Production Co., Inc. Jey Production then sold the Springboard catalogue to Koala Records, Inc. GML purchased the Springboard Catalogue from Koala Records. (Tr. at 448)

Exploitation by Stephen Hawkins' Entities

In order to exploit the Springboard Catalogue and the King Masters, GML entered into license agreements with two companies now owned by Stephen Hawkins, Highland Music, Inc. and Nestshare, Ltd. In its License Agreement with Highland Music, entered into on or about October 28, 1992, GML granted Highland Music the exclusive right to exploit these master recordings in the United States. (Trial Ex. 5; Tr. at 783-84) On or about January 1, 1986, GML entered into a License Agreement with Nestshare⁶ for a five-year term, granting Nestshare the exclusive right to exploit the master recordings at issue in this case outside the United States. This license agreement was renewed in 1989, 1992 and in 1995. (Trial Ex. 37)

Exploitation by Sehorn Defendants

The Sehorn defendants claimed rights to the Springboard Catalogue under a 1982 agreement with Jey Production. (Trial Ex. 5B) In the agreement, Jey Production conveyed to Mr. Sehorn non-exclusive rights in the plaintiffs' master recordings, not including those of Hank Ballard. (Trial Ex. 5B) On April 1, 1987, Sehorn's company, Red Dog Express, Inc., entered into an agreement with San Juan Music Group, Inc., giving San Juan the non-exclusive right to exploit the Springboard Masters in perpetuity. (Sehorn Dep. (11/10/1999) at 50, Ex. 9) On February 19, 1988, Red Dog Express entered into an agreement with Musicrent, Inc., giving Musicrent the non-exclusive right to exploit the Springboard Masters in perpetuity. (Chernow Dep. (12/12/1999), Ex. 8)

On March 29, 1988, GML filed suit against the Sehorn defendants in GML, Inc. v. Marshall E. Sehorn, et al., Case No. 3:88-0287 (M.D.Tenn.) (Nixon, J.), seeking a declaratory judgment that Sehorn had no right to exploit the Springboard Masters and injunctive relief prohibiting the Sehorn defendants and Sehorn's licensees from continuing to exploit the Springboard Masters. On November 29, 1988, Judge Nixon granted GML's motion for a preliminary injunction, enjoining the Sehorn defendants and licensees from continuing to exploit the Springboard Masters. (Trial Ex. 92) After the entry of the preliminary injunction, the Sehorn licensees ceased exploitation of the Springboard Masters. (Chernow Dep. (12/12/1999) at 12-13)

On December 27, 1990, while the injunction was still in effect, GML entered into a Settlement Agreement with the Sehorn defendants in which GML "reserved" its rights to challenge the validity of the Sehorn/Jey Production agreement. (Trial Ex. 1C at ¶ 7) With respect to the Sehorn defendants' ability to exploit the Springboard Masters, the agreement stated:

However, as to the `Jey Masters', the parties hereto agree as follows:

a. Sehorn may continue to exploit the `Jey Masters' in accordance with the provisions ... of this Agreement until midnight December 31, 2000 (`the Term') at which time Sehorn will surrender to GML all right, title and interest in and to the ...