Why Sony Music can’t easily cancel Kesha’s contract

by

Bloomberg

After a New York judge refused to release pop star Kesha Sebert from a recording contract with producer Lukasz “Dr. Luke” Gottwald, a quarter-million fans signed a petition calling for a boycott of Sony Music Entertainment Inc. And while the ruling last week was a setback for the singer, it wasn’t that great for Sony, either.

Sebert, 28, who in 2014 sued Gottwald for sexual assault, has received an outpouring of support on social media, where the #FreeKesha hashtag was trending nationally, Grammy winner Taylor Swift offered $250,000 for her legal bills, and rapper Snoop Dogg’s encouragement on Twitter got 10,000 retweets. As it turns out, though, Sebert’s link to Sony Music, as with many commercial agreements, involves more than two parties. Regardless of the public outcry and the mounting public relations disaster for Sony Music, the entertainment giant can’t unilaterally cancel her contract. It’s also up to Gottwald.

At the age of 18, Sebert says she dropped out of high school and moved to Los Angeles to record music, at Gottwald’s urging. Soon, she was legally intertwined with three of his music companies: Prescription Songs LLC, Kasz Money Inc., and Kemosabe Records LLC. Though Kemosabe is owned by Sony Music, Gottwald serves as its chief executive officer. He owns the other two firms. Sebert alleged in her lawsuit that, starting in 2005, Gottwald began physically and emotionally abusing her.

“After forcing Ms. Sebert to drink with him, Dr. Luke instructed Ms. Sebert to take what he described as ‘sober pills’ in order for her to sober up,” according to the complaint, filed in October 2014 in California state court in Los Angeles. “Ms. Sebert took the pills and woke up the following afternoon, naked in Dr. Luke’s bed, sore and sick, with no memory of how she got there.”

Sebert didn’t go to the police after the alleged assault, which isn’t unusual. According to the Rape, Abuse, and Incest National Network, 68 percent of sexual assaults aren’t reported to authorities. In a move she says was driven by her experience with the producer, the singer entered a rehabilitation facility in 2014 to recover from bulimia while remaining under legal obligation to Gottwald’s businesses. Gottwald has repeatedly denied the assault allegations, and he filed a defamation lawsuit against Sebert. Both lawsuits are pending.

Sebert is linked to Sony Music through a music furnishing agreement negotiated by Gottwald’s company, rather than an outright recording contract. The agreement was established four years after she entered a professional relationship with Gottwald’s firm, Kasz Money.

“On Jan. 27, 2009, Kasz Money negotiated an agreement with RCA/Jive, a label group of Sony, to furnish Sebert’s recording artist services to Sony,” according to court filings. With Gottwald in the middle, Sebert and Sony Music weren’t negotiating directly, meaning that the company couldn’t drop Sebert if it wanted to. After the success of Kesha’s “Animal,” a platinum album, she sought to renegotiate her contract. It was Gottwald, not Sony Music, who declined.

Seeking to have the contract thrown out, Sebert sought an injunction in New York (where the contract says such a request must be made). Gottwald’s sway over Sebert’s musical career is made even clearer by a contract between Kasz Money and Kemosabe, the Sony Music subsidiary led by the producer. An affidavit from a Sony executive, obtained by Bloomberg, notes that the two companies “will mutually determine the producer of Kesha’s recordings,” a point of contention during Friday’s court proceedings in Manhattan.

So while much public animosity has been directed at Sony Music since New York State Supreme Court Justice Shirley Werner Kornreich rejected Sebert’s request, the agreements binding Sebert to the record label — and to Gottwald — may leave Sony’s hands tied.

Kornreich is known for her deft handling of some of the most heated commercial contract fights in New York State and is “well-regarded for dealing with sophisticated business disputes,” said Shawn Patrick Regan, a litigator who has appeared before her. That said, Regan noted that the issues in this case, as far as contract law is concerned, are fairly clear: “As much as this case has some notoriety — and certainly, some scandalous allegations, as this judge said in her opinion — it is a case seeking to not have enforced compliance with a commercial contract.”

From the judge’s perspective, granting the injunction would set a troubling precedent for the music industry. Kornreich asked Sebert’s attorney, Mark Geragos: “If a court blindly went in and did what you asked of me, what would that do to the industry?” Geragos, who has represented Michael Jackson on child molestation charges and personal trainer Greg Anderson in the perjury trial of baseball slugger Barry Bonds, replied that it would cause Sebert irreparable harm if her request were denied.

“You’re asking for the court to decimate a contract, which was heavily negotiated and signed by two parties, in an industry where these kinds of contracts are typical,” Kornreich said on Friday, according to a transcript. “It’s no different from all other contracts which require a certain number of records and require exclusivity and have copyrights.”

Citing documents filed by Sony Music and Kemosabe, Kornreich pointed out that both companies were open to having Sebert record without Gottwald. Geragos dismissed that as an “illusory promise,” adding, “When he says, ‘I’m going to have no involvement,’ all of the people who would do the things that are essential to putting out a record, all of those people report to Dr. Luke.”

Under Sebert’s contracts, two of Gottwald’s companies would profit from her music, even if he didn’t directly produce her songs. Geragos requested that Sebert be able to record directly with Sony, cutting out Gottwald and his companies. “Her only condition is that she be allowed to record with a record label that is not affiliated with someone who has emotionally and sexually abused her,” Geragos argued in court filings. He told the judge: “There is no way that they are going to promote her, that they are going to do anything else except set her up for failure.”

Kornreich rejected Geragos’ statements as “conclusions and speculation.” Sony Music, for its part, agreed with the judge. “Our interest is in her success, our interest is in Dr. Luke’s success; they are not in the least bit mutually exclusive,” said Scott A. Edelman, an attorney for the company with Gibson, Dunn & Crutcher LLP.

Still, defeating Kesha’s motion for a preliminary injunction may have come as a Pyrrhic victory.

“Even if a judge says ‘you’re right,’ the public, the market and many others can say you are terribly wrong,” said Ronn Torossian, chief executive officer of 5WPR, a public relations firm that deals in crisis management. “This is a terrible nightmare for Sony. This is absolutely a PR nightmare.”

Sony Music and Geragos declined to comment on Kornreich’s ruling. Gottwald didn’t address his ability to release Sebert from her contract, though a statement released by his attorney touched on the matter. The court “found that Kesha is already ‘free’ to record and release music without working with Dr. Luke as a producer, if she doesn’t want to,” attorney Christine Lepera said. “Any claim that she isn’t ‘free’ is a myth.”