As the demand for entertainment content expands, an increasing number of old audio and video masters are resurfacing. Often there are clashes over the rights. As evidenced by recent litigation over master tapes to Judy Garland performances, disputes can easily arise when such disputes are settled by a verbal agreement entered on the court record.

In the 1960's Judy Garland did a musical variety television series on CBS called "The Judy Garland Show". The TV series ran for only 26 episodes but included rare footage of duets by Judy Garland with guests like Frank Sinatra, Dean Martin, Barbra Streisand, Tony Bennett, and many other major stars. Most of the episodes remained under lock and key in the possession of Sid Luft (ex-husband of Judy Garland and father of Lorna Luft) and had not been seen by the public for more than 30 years.

By contract dated July 7, 1997, my client, music producer Darryl Payne, through his company, Classic World, Inc., purchased the worldwide audio/visual rights to The Judy Garland TV Shows from Luft for $1.65 million. Classic World then sold the U.S. rights to Cakewalk d/b/a 32 Records, a company owned by producer Joel Dorn and his partner, Robert Miller, for $3 million under a separate agreement dated as of October 29, 1997.

Luft failed to delivered all of the original master recordings to Classic World so Classic World, having made partial payment, did not pay the balance of the $1.65 million purchase price. Later Classic World did attempt to tender payments to Luft several times, but upon hearing of the lucrative deal Classic World made with 32 Records, Luft refused to accept payment from Classic World and sought to rescind the Classic World contract which then precipitated the legal action in Federal Court.

Luft, seeking to unilaterally rescind the contract with Classic World, brought an action against Classic World and Cakewalk/32 Records in July 1998 alleging, inter alia, copyright infringement. On July 30, 1998, at a pre-motion conference, once it became apparent that it would not be a case of copyright infringement because the Classic World contract could not be rescinded once at least partial performance and partial payment had occurred and the deal could not be unraveled once the rights had subsequently been transferred from Classic World to Cakewalk/32 Records, the parties agreed to discuss settlement of the matter.

The basic terms of a settlement between the three parties was worked out on the spot and read into the record and "So Ordered" by the Court on July 30, 1998. The arrangement between the parties covered numerous matters. Most significantly, Luft agreed to deliver the original masters and appropriate copyright assignments conveying the rights to Cakewalk on September 8, 1998, and Classic World agreed to pay the balance of the purchase price plus accrued interest as follows: $900,000 on July 30th for the U.S. rights and the balance plus interest on September 8. Most notably, plaintiff had insisted on an extreme penalty for failure to pay: if the second payment was not made then Classic World's "non-U.S. rights" would revert to Luft. The overall effect of plaintiff's penalty proposal was to separate the U.S. rights from the non-U.S. rights.

The initial $900,000.00 payment was made on July 30, 1998.

However, Classic World elected not to make the second payment of more than $800,000.00 on September 8th thereby allowing the

"non-U.S." rights to revert to Luft. Since various questions arose regarding whether there were prior encumbrances on the foreign rights, it was decided that exploiting the "non-U.S." rights could turn out to be more trouble than it was worth. Since those rights were probably less valuable than the U.S. rights for which Classic World had already made a lucrative deal with Cakewalk, Classic World decided it could save a great deal of money with little consequence by electing not to make the second payment. It suddenly became apparent that the forfeiture which plaintiff had proposed as an extreme penalty for the failure by my client to make the second payment was, in fact, a way to reduce the purchase price (and increase the profit) on the rights Classic World had already sold to Cakewalk.

After Classic World elected not to make the second payment on September 8, 1998, although the "non-U.S" rights reverted to Luft, Luft refused to deliver the original masters and the copyright assignments to Cakewalk/32 Records. Luft also began to contact several large retailers and other vendors in the United States alleging that there were questions as to ownership of the rights.

Cakewalk filed an Order to Show Cause seeking to compel performance of the terms of the settlement and require Luft to deliver the master tapes and assignments. Luft argued that the Court had no jurisdiction to enforce the settlement and that since the second payment was not made he did not have to perform. Classic World and Cakewalk argued that a "So Ordered" settlement has the full force and effect of a judgment and is binding on the parties and that the Court had jurisdiction to enforce it. In addition, since the specific wording of the settlement provided only for the forfeiture of the "non-U.S." rights for failure to make the second payment, Classic World and Cakewalk argued that the settlement could not be rewritten to permit Luft to avoid his delivery requirement once the $900,000.00 covering the U.S. rights had been paid.

On October 13, 1998, Judge Loretta Preska issued her ruling from the bench after an all day hearing. Holding that, as defendants had argued, the specific terms of the settlement did not make delivery of the original Masters and assignments by Luft contingent on the second payment by Classic World. Since Luft had received $900,000.00 and reversion of the "non-US" rights, he was ordered to deliver the masters to Cakewalk within 5 days or be subject to sanctions. In addition, a permanent injunction was granted barring any further statements by Luft to the effect that anyone other than Cakewalk owned the U.S. rights in the subject Judy Garland tapes.

Due to the volatility of the parties in this case, expedience called for getting a statement on the record promptly otherwise the settlement may have collapsed. However, the specific wording of a settlement stated on the record is as important as the wording of a written agreement. Here, Luft's request that the non-US rights were forfeited for failure to make the second payment had the effect of implying that there was no penalty or forfeiture of the U.S. rights once the first payment was made, which allowed the defendants to divide and separate the rights making for a better deal than they had originally expected. My client was more than happy with the result because he saved more than $800,000.00 and gave back the non-U.S. rights (which he believed were far less valuable than the U.S. rights he already had purchased).


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