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These remedies include "punitive damages, rescission of contract, and establishing the basis for a claim of conversion or constructive trusts. A fiduciary duty arises as a matter of law in formal relationships; however, the court has been less definitive when distinguishing the type of special circumstances that give rise to fiduciary duties in a contractual relationship.

360 deals - Getting the Best Out of Them

See Reuben H. Donnely Corp. Mark I Mktg. A "simple contract" does not create a fiduciary relationship giving rise to special duties. Additionally, the mere assertion that an artist's relationship with their label was one of trust and confidence, absent any evidence of specific conduct or circumstances upon which "trust elements are implicated," is not alone sufficient to prove the existence of a fiduciary relationship.

Riva Music Ltd. New York courts have characterized the relationship between record companies and their artists as purely commercial, arms-length business transactions. See Sony Music Entm't, Inc. Robison , No. However, these courts have found the existence of a fiduciary duty in cases where there was evidence of a special relationship beyond that which normally exists between contracting parties in an arms-length business transaction. See CBS, Inc. Ahern , F. Capital Records Inc.

For instance, in Ahern , a record company filed a breach of contract claim against a rock band for failing to deliver the last three records agreed upon in their recording contract. See F. The rock band filed a counterclaim on the basis of a breach of fiduciary duty and claimed, among other claims, that they reposed trust and confidence in the record label with respect to the royalties.

The court held that a fiduciary relationship existed based on evidence that the record company took royalties for itself that it had contracted to hold separately in a special account for the group's benefit. The court reasoned that a special relationship arose where one party had a duty to handle money for another. Additionally, in Apple Records Inc. See A. The group asserted that the record company breached a fiduciary duty by selling an excessive amount of promotional records for personal gain, which diluted the legitimate market sale of their recordings.

The court held that a fiduciary relationship existed based on evidence of extensive business dealings between the group and record company that began before they were acclaimed, and continued on after the group attained great success. The court reasoned that the long and enduring relationship between the label and artist created a special relationship of trust and confidence that existed independent of the contract.

As deals rapidly begin to replace traditional recording contracts as the new standard contract in the music industry, the court must determine whether this new recording contract structure creates legal implications that give rise to the existence of a fiduciary relationship. In particular, active interest deals allow record companies to "participate in previously untapped areas" that in effect grant a greater disparity of control over the artist than ever before.

Courts must now consider whether a recording contract that permits a record label to receive a percentage of the net income generated from an artist's record and non-record sales, as well as active rights governing the development of that artist's career -is considered more than just a "simple contract. A finding that the legal implications surrounding active interest deals, as a result of the record label's in depth participation and control under these contracts, give rise to a special circumstance warranting the existence of fiduciary duties.

Essentially, under an active interest deal, the record label and their artist have a special relationship that goes beyond basic contract obligations when the record label actively assumes the duty of controlling and managing every aspect of the artist's career. Under this type of recording contract, record labels retain complete control over an artist's publishing rights, touring rights, as well as merchandising rights, which greatly differs from the traditional recording contract that only gave the record label the right to share in the income from their artist's record sales.

See Pierson, supra , at 4; see also Okorocha, supra , at 11 stating that labels are contractually unable to share non-record sales income under a traditional record deal. For instance, rights that belonged to the artist under traditional recording contracts, such as the hiring and firing of employees, contracting with third parties, and decision-making involved with booking tours and merchandising products, are being assigned and compromised under this type of deals.

In effect, upon the signing of an active interest deal, an artist is entrusting a record label with their entire livelihood - so to speak - "by putting all of their eggs in one basket.

Understanding Record Deals For Independent Rappers – Stop The Breaks | Independent Music Grind

One argument may be that record labels tend to contract away any affirmative obligation to assist the artist with promotion, instead opting to merely reject or approve artist activities. At least one court in California has addressed this issue in a case where the court ultimately refuses to find the existence of a fiduciary relationship.

See Wolf v. Superior Court , Cal. However, the case includes a noteworthy dissent that may suggest a new direction for courts - ultimately leading to the recognition of a fiduciary relationship in this type of recording contract. In Wolf , a novelist filed a breach of fiduciary duty claim against Walt Disney, asserting that Disney breached a contract relating to contractual assignment of rights to a novel, under which Disney was required to pay the novelist contingent compensation based on future gross receipts earned from merchandising and other exploitation rights after the release of a movie based on the novel.

What happens when you sign a Music Contract? Ep. 1 - Rules to this Sh!t

The novelist asserted that a fiduciary relationship existed because he reposed trust and confidence in the integrity of Disney due to their "exclusive control over the books, records and information concerning the exploitation of the novel;" however, Disney failed to provide access to such records. Moreover, the court rejected the existence of a fiduciary relationship based on evidence that the studio had complete control over financial books and records concerning the exploitation of a novel.

The court held that such evidence did not create a fiduciary relationship where one would otherwise not exist. Nevertheless, in the dissent, an appellate justice argued that evidence of the record label's contractual duty to maintain the books and records did in fact characterize a relationship that was fiduciary in nature; stating that, "because fiduciaries manage or have some control over very substantial property interests of others, they have the potential to inflict great losses on those property owners.

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As a result, fiduciaries have unusually great opportunities to cheat without detection and they have unusually great incentives to do so. The dissent also argued that there is a great need to impose fiduciary duties in relationships that involve an "inherent conflict of interest," in order to prevent one from "from taking unfair advantage of their special position. The dissent paralleled this "special position" to partners who manage a partnership business, and trustees who keep the books for a beneficiary's property interests.

The reasoning applied in Wolf's dissent supports the notion that record companies operating under active interest deals undertake an extensive role in the management and control of all artist activities that create revenue; therefore, the record label is placed in a "special position" that may create the potential for opportunism - possibly resulting in the exploitation of the artist for the record label's personal gain.

Note what percentage of your revenue the label will be keeping. Over the years, some artists have fought for their copyrights, publishing royalties, and other assets. The support of a label is appealing to the extent that they help and take care of you and advance your career. Again, it depends on the exact nature of the contract, but in some cases, you might give up the copyright to your music. Certainly, you can still raise your profile as an artist in this situation, and that can work to your advantage down the line. You may even be able to fight to get your copyrights back later.

The exact nature of your contract may require you to give up creative control to the label, who will determine how your music should sound, what length each song should be, what production methods to use, and so forth.

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At the very least, they usually want someone from their team involved in the production process. The best thing to do is negotiate the marketing. But what happens when a label approaches you in this situation? You may be right, but you could also be wrong. I know I may have painted a bleak picture for deals. These types of contracts are skewed heavily in favor of the label and not the artist. In some cases, a deal might be the perfect opportunity for you to take your career to the next level. It has worked out for some notable artists, and I could never rule out that possibility for you.

But I would suggest treading with care. This type of agreement should not be taken lightly under any circumstance. Get everything out on the table before you sign a contract.


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