9th Circ. Revives Case Against Capitol Over Digital Royalties

A Ninth Circuit panel on Tuesday revived a proposed class action against Capitol Records LLC filed by former 1980s rocker Dale Bozzio over alleged underpayments of royalties for digital music.

Bozzio, the lead singer of 80s new wave band Missing Persons, accused Capitol Records back in 2012 of improperly classifying digital sales of the band’s music to pay out royalties at a lower rate — a common and often successful claim artists have brought against record labels in the last five years.

But her suit was tossed in 2013, when a federal judge ruled that she lacked standing to sue. Bozzio was only a third-party beneficiary of a deal struck by the band’s corporate entity — Missing Persons Inc. — and since the corporation had been deemed “suspended” by the state of California, the judge said she had no standing to bring claims.

But on Tuesday, the Ninth Circuit says there was no case law that supported the idea that someone in Bozzio’s position was barred from filing suit.

“The parties have not cited, and we have not found, any California case holding that a third-party beneficiary cannot sue the promisor for breach of contract when the promisee is a suspended corporation,” the appeals court said. “Further, the California case most closely on point supports Bozzio’s argument that Missing Persons Inc.’s incapacity does not bar her third-party beneficiary suit.”

The appeals court also rejected Capitol’s argument that, regardless of whether Missing Persons Inc. was active, Bozzio had categorically waived her right to sue as a third-party. The court said this was “a fact-bound inquiry ill-suited to resolution at the motion to dismiss stage,” and remanded the issue back to the trial court.

An attorney for Capitol didn’t immediately return a request for comment on Tuesday.

The ruling revives a type of claim that has been repeatedly litigated in recent years: That a record label improperly counted a band’s digital sales as physical record sales, when they should have been treating them as “licensing” revenue. In many old record deals, the latter type of provision came paid out significantly higher royalty payments for artists.

Eminem’s production company won a key ruling on the issue at the Ninth Circuit in 2010, when the appeals court ruled that sales on iTunes were, in fact, covered by that type of “licensing” provision. That set off a slew of suits from Sister Sledge, Kenny Rogers, Peter Frampton, members of the Temptations, Weird Al Yankovic, Toto and others.

Sony settled such a class action in 2012, and Warner Music Group reached a similar deal in 2013. Universal, which owns Capitol, signed a similar settlement in April.

Circuit Judges Morgan Christen, Sandra Segal Ikuta and Mary M. Schroeder sat on the panel for the Ninth Circuit.

The plaintiffs are represented by Robert J. Bonsignore of Bonsignore & Brewer, Joseph W. Cotchett, Steven N. Williams and Aron Kang-Hawa Liang of Cotchett Pitre & McCarthy LLP, and Carl Nils Hammarskjold, Travis Luke Manfredi, Guido Saveri, R. Alexander Saveri and Cadio Zirpoli of Saveri & Saveri Inc.

Capitol is represented by Sean Ashley Commons, Rollin Ransom and Michelle Beth Goodman of Sidley Austin LLP.

The case is Dale Bozzio v. EMI Group Ltd. et al., case number 13-15685, in the U.S. Court of Appeals for the Ninth Circuit.

–Editing by John Quinn.For a reprint of this article, please contact [email protected]

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