Turtles move to block $210 million Sirius deal with record labels

July 9, 2015

(Reuters) – On the night of June 15, Harvey Geller and Henry Gradstein of Gradstein & Marzano had dinner in New York City with lawyers representing five major record labels and the Recording Industry Association of America. Based on a declaration Gradstein filed Wednesday, it didn’t go well.

Geller and Gradstein are counsel to Flo & Eddie, which owns the rights to songs by The Turtles and, since 2013, has been waging a fight for royalties on pre-1972 songs against the satellite and Internet radio company Sirius XM. In May, Flo & Eddie won certification of a class of owners of pre-1972 songs in federal court in Los Angeles – an especially momentous ruling because the company had already succeeded in holding Sirius XM liable for playing old Turtles’ songs.

Sirius XM and its lawyers at O’Melveny & Myers had agreed to hold a mediation session in New York with Geller and Gradstein on June 17. But O’Melveny and the radio company had also scheduled a separate mediation with the record labels, which had filed their own royalties case against Sirius XM in California state court. Geller and Gradstein, according to a declaration from Geller, believed they should have been included in the record labels’ talks with Sirius since the labels are actually part of the class they represent. Sirius XM lawyer Daniel Petrocelli of O’Melveny repeatedly told Geller that talks with the record companies would focus on future royalties, not the past damages the class wanted.

But at that dinner on June 15, Gradstein and Geller learned Sirius XM and the record labels intended to reach a sweeping settlement. According to Gradstein’s declaration, he asked Peter Ostroff of Sidley Austin, who represents the recording companies, how the mediation with Sirius XM had gone that day. Ostroff said the talks were confidential but added, jokingly, “They are not going to leave much” for the class.

By the time Sirius XM sat down with Geller and Gradstein on June 17, the company was already documenting a $210 million settlement with the record labels. And according to an injunction motion Flo & Eddie filed on Wednesday with U.S. District Judge Philip Gutierrez of Los Angeles, that settlement purports to resolve claims belonging to class members other than the five record labels – yet excludes those owners of pre-1972 songs from sharing settlement proceeds.

Sirius XM’s deal with the record companies, according to the injunction motion, would “dramatically impact the rights of the entire class and class counsel, completely usurping this court’s role in managing the class.” According to Geller and Gradstein, the record companies’ agreement with Sirius XM, as described in Sirius XM’s June 26 filing at Securities and Exchange Commission, covers not just pre-1972 songs the major labels own but also those they “control” or “otherwise have the right to contract with.” That language, their injunction motion said, cuts song owners out of any recovery. It also excludes class counsel from recovering fees despite their success in establishing liability and certifying a class against Sirius XM.

Geller and Gradstein asked the judge to stop Sirius XM from funding the settlement, claiming the radio company violated the rules of professional conduct by excluding them from settlement talks and “marginalized” the judge himself by evading the rule that class settlements must be approved by the court.

You may recall a similar scuffle earlier this year in which class counsel representing financial institutions in a data breach case against Target tried to block the retail company from moving forward with a $19 million settlement with MasterCard. In that case, as in the Flo & Eddie litigation, lawyers for the class claimed the defendant was trying to shortchange class members by circumventing the Rule 23 process. The judge in the Target case agreed the proposed settlement wasn’t fair, but held that he couldn’t enjoin it, partly because the class had not yet been certified when Target made a deal with MasterCard. (The settlement ended up falling apart because not enough banks agreed to accept its terms.)

Flo & Eddie, by contrast, has already won class certification, which means, under California state appellate precedent in Hernandez v. Vitamin Shoppe and a slew of decisions by trial judges in the 9th U.S. Circuit, that class counsel must be included in talks to resolve class claims.

The RIAA sent an email statement about the injunction motion: “We have great respect for the Turtles and the work they have done to help secure payment for pre-1972 recordings,” it said. “However, their application is without merit and could force the delay of long-awaited payments to artists and labels who created iconic music for generations of fans.”

Sirius XM counsel Petrocelli said in an email statement that Flo & Eddie’s lawyers are looking out for themselves. “This is a maneuver to extract unwarranted attorneys’ fees, and it has no substance or credibility,” the statement said.  Record company lawyer Ostroff did not respond to requests for comment. Neither did Flo & Eddie counsel Geller.

(This story has been updated to include comment from Sirius XM’s lawyer.)

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