MCA FILES MULTI-MILLION DOLLAR LAWSUIT AGAINST POLYGRAM
MCA FILES MULTI-MILLION DOLLAR LAWSUIT AGAINST POLYGRAM
UNIVERSAL CITY, Calif., Nov. 14 /PRNewswire/ -- The following was released today by MCA Music Entertainment Group:
The MCA Music Entertainment Group announced today that it has filed a lawsuit against Polygram for inducing Motown to breach its agreement with MCA. The suit claims MCA's damages are in excess of $50 million.
The lawsuit alleges a conspiracy among Polygram, Motown and Boston Ventures to move distribution of Motown's product from MCA to Polygram. According to the lawsuit, Polygram engaged in a series of secret meetings and communications with Motown offering favorable terms if Motown would break its contract with MCA.
Concerned with potential liability to MCA for its wrongdoing, Polygram required Motown to indemnify it for all of its actions in connection with the inducement of Motown to jump to Polygram.
The suit also points out how, even before taking over distribution of Motown product, Polygram wrongfully engaged in a calculated campaign to destroy MCA's attempts to sell Motown product to record retailers.
The lawsuit also claims that Polygram intentionally interfered with MCA's rights under its contract to obtain licensing rights to Motown product in certain territories overseas.
In addition, the lawsuit alleges that Polygram and Motown tried to disguise and conceal a loan transaction that was part of the new Polygram distribution arrangement. Under the MCA/Boston Ventures partnership agreement, MCA has the right to approve Motown's loans and other indebtedness.
MCA has distributed Motown product since 1983. In 1988, MCA and Boston Ventures purchased Motown and MCA entered into a new 10-year distribution and services agreement. MCA artists Johnny Gill, The Boys and Diana Ross were transferred to Motown by MCA as part of the new distribution agreement with the understanding that MCA would continue to distribute those artists for the entire 10-year term. Motown purported to terminate the MCA distribution agreement in September of this year. MCA has pending a multi-million dollar lawsuit against Motown and Boston Ventures for their actions in breaking that agreement.
Despite Motown's claims of problems in MCA's distribution system, Motown has experienced gold and platinum sales success through that system since 1988, and particularly in the recent past, with such artists as Johnny Gill, Another Bad Creation, Boyz II Men and The Boys.
Highlights of MCA's Complaint
MCA's complaint against Polygram alleges, upon information and belief, the following:
1) Intentional Interference with Contractual Relations
-- Polygram, in spite of its knowledge of a valid and binding distribution agreement between MCA and Motown, induced Motown to breach the MCA/Motown distribution agreement and to enter a Polygram/Motown agreement by the following conduct:
-- Motown and Polygram met secretly, prior to any decision
by the Motown Operating Committee to terminate the
MCA/Motown distribution agreement;
-- Polygram provided Motown, prior to any decision by the
Motown Operating Committee to terminate the MCA/Motown
distribution agreement, with specific terms upon which
Polygram would be willing to distribute Motown product;
-- Polygram insisted on being indemnified by Motown for its
conduct in negotiating and entering into a new
distribution agreement with Motown, and even insisted upon
being indemnified against an award of punitive damages.
-- Despite requests by MCA and its counsel that Polygram and
its counsel communicate with it on the issue of the
binding nature of the MCA/Motown distribution agreement
and other issues, Polygram never complied with these
-- The suit further alleges that Polygram, without the authorization of the Motown Operating Committee, insisted on obtaining the international licensing rights to Motown product, even though Polygram knew that under the MCA/Motown distribution agreement, MCA had the right to negotiate such international licensing rights on a first negotiation/last refusal basis in certain countries upon the expiration of Motown's international agreement with BMG.
2) Intentional Interference with Economic Advantage
-- Upon being informed by Motown that it intended to terminate the distribution agreement, MCA attempted to sell, to existing and new customers, Motown records that MCA had purchased from Motown under the distribution agreement. In an effort to close out this inventory and mitigate its damages, MCA offered discounts to customers. MCA alleges that, upon learning of MCA's sales program, Polygram took actions to induce potential and actual MCA customers not to purchase MCA's Motown label inventory. This conduct occurred even though Polygram knew on that day that MCA was the sole and exclusive distributor of Motown product. The complaint details how:
-- Polygram threatened customers that it would withdraw or
refuse to offer its promised or anticipated advertising
and promotional support to those customers if those
customers purchased Motown product from MCA;
-- Polygram offered customers discounts on Motown product
that were identical to and in some instances greater than
the discounts offered by MCA. Polygram even offered to
sell to consumers such product that it knew it did not
have in inventory and that it would not have in inventory
for a substantial period of time because of manufacturing
3) Conspiracy to Breach Fiduciary Duty
-- The claim for conspiracy to breach fiduciary duty alleges that Polygram acted jointly with Motown and Boston Ventures in accord with a preconceived plan mutually agreed to by all defendants with the intent to deprive MCA Record Ventures of its partnership rights and to appropriate to Polygram MCA's profits under the distribution agreement by structuring the Polygram/Motown distribution agreement in such a way as to conceal the true nature of a substantial line of credit from Polygram that Motown could draw upon.
/CONTACT: Paula Batson, 818-777-8961, or Ron Shapiro, 818-777-8992, both of MCA/ CO: MCA Music Entertainment Group; Motown; Polygram; Boston Ventures ST: California IN: ENT SU: KJ -- LA013 -- 1154 11/14/91 14:22 EST