Our Litigators of the Week are Gibson, Dunn & Crutcher partners Scott Edelman and Deborah Stein and associate Nathaniel Bach. The trio extinguished a $100 million suit against Universal Music Group after a 2008 warehouse fire reportedly destroyed master recordings by music legends including Louis Armstrong, Duke Ellington, Chuck Berry, Aretha Franklin, Buddy Holly, Sammy Davis Jr., Joni Mitchell, the Police and Nirvana.

On April 6, U.S. District Judge John Kronstadt in the Central District of California tossed the entire six-count amended complaint, which was originally brought by or on behalf of recording artists Tom Petty, Tupac Shakur, Soundgarden, Steve Earle, and Hole.

Edelman, Stein and Bach discussed the case with Lit Daily.

Lit Daily:  Who were the plaintiffs pursuing the case?   

Scott 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. 

Lit Daily:  Let me stop you there—what is an original master recording, and why is it important?

Nathaniel 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.

Scott Edelman:  Importantly, recordings can be made, sold, licensed, and rereleased 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.

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

Deborah 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 plaintiffs were basically arguing (incorrectly) that the settlements implicated the royalty provisions of their recording agreements.

But plaintiffs began dropping out of the case.  Hole was not included as a plaintiff in the first amended complaint. 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.

Lit Daily:  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"?  

Nathaniel 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.

Lit Daily:  Who is opposing counsel?

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

Lit Daily:  Who were the other key members of your team and what contributions did they make to the representation?

Scott Edelman: The nine-month effort to obtain this result was a team effort. First, our client was very closely involved in everything we did and played an integral role. We had key contributions from Gibson Dunn associates Jonathan Soleimani and Daniel Rubin. We all worked together to best position UMG to win dismissal of Jane Petty's claims and demonstrate that the lawsuit was not worth the fight for those artists who voluntarily dismissed. 

Lit Daily: 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? 

Deborah 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.

Lit Daily: 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? 

Deborah 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.

Scott 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. 

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

Nathaniel 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.

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

Scott Edelman: Beyond the headwinds created by a breathless, but factually inaccurate article, so 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.  

Lit Daily: What was the most interesting thing you learned litigating this case?  

Deborah Stein: It shouldn't come as a surprise, but the level of technical expertise at UMG—and attention to detail (including in archiving) is tremendous. In addition, learning about the recording process, and the use and role of master recordings in the artist-record company relationship, has been fascinating.

Lit Daily: What do you expect for the remainder of the case?  

Scott 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 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."

Lit Daily: You must have had all manner of terrific music-related puns ready to unleash in your briefs.  Did you sneak any in?

Scott Edelman: Believe me, it was tempting! And there are so many that would fit here, including from the plaintiffs' catalogs. Tom Petty's is particularly fertile ground, including many of my favorite songs. Look, are the plaintiffs' claims "Free Fallin'"?  Yes, of course. UMG "Won't Back Down" in the face of these frivolous claims? You bet. But would we put those in a brief? Only against my better judgment.