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RECORD LABEL AS MANAGER: AN UNINTENDED AGENCY

Kellen Brockman



At the turn of the 21st century, the online file sharing service Napster shook

the foundation of the recorded music industry by providing music for free over

the Internet. In order to survive, Record Labels had to find new sources of

revenue to replace the loss of revenue from physical music sales. One of those

new sources affected how Labels earned revenue by expanding Labels’ contrac-

tual relationships with their artists. Standard Label agreements now give La-

bels an active or passive interest in nearly every aspect of an artist’s career in-

stead of only in their sound recordings.

This new relationship transforms the role of a Label in an artist’s career into

something similar to the traditional relationship between a personal manager

and artist. This Article examines whether this relationship could be one of

agency, which includes a fiduciary relationship. If a court were to find that

such a relationship exists, this Article argues that it should give deference to the

terms to which the parties agreed, including the shaping or disclaiming of any

fiduciary duties. Additionally, a court should follow the cases that have eval-

uated a potential breach of a fiduciary duty through the lens of the unique

nature of the music industry and its customs, which serve to benefit the artist,

Label, and music listeners.

I. Introduction ............................................................................................. 2

A. The Internet and Online Music ........................................................... 3

B. Record Label Response to the Shift in Music Consumption ..................... 4

C. Other Arguments for a Fiduciary Relationship ...................................... 4

II. Historical Relationship Between Labels and Artists ................................... 6

A. Instances Where a Court Found a Fiduciary Relationship ...................... 7

III. Agency Law and Personal Managers ........................................................ 10

Kellen Brockman received her J.D., cum laude, in May 2019. She would like to thank

Professor Lydia Loren for her questions and feedback while writing this Article, as well as James

Molyneux-Elliot and the entire Lewis & Clark Law Review staff for their hard work in preparing

this Article for publication. Kellen would also like to thank her music industry colleagues for the

lively and informative conversations on this and the many issues that face the music industry.

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2 LEWIS & CLARK LAW REVIEW [Vol. 23:3

A. Distinction Between Agency, Managers, and Agents ............................ 10

B. Agency Under New York Law ........................................................... 10

1. Element of Consent ..................................................................... 11

2. Element of Control ..................................................................... 11

C. Duties that Arise Out of an Agency Relationship ................................. 12

D. Waivers of an Agency Relationship and Fiduciary Duties ..................... 12

E. Traditional Relationship and Duties Between Managers and Artists ..... 14

IV. 360 Deals and the Formation of an Agency Relationship ........................ 16

A. Passive 360 Deals ............................................................................. 17

B. Active 360 Deals .............................................................................. 17

C. Record Labels as Managers: An Unintended Agency ............................ 19

D. Shaping Fiduciary Duties and Giving Effect to Waivers in

Recording Agreements ....................................................................... 21

V. Conclusion ............................................................................................. 23

I. INTRODUCTION

At the turn of the 21st century, the online file sharing service Napster shook

the foundation of the recorded music industry by providing music for free over the

Internet.

In order to survive, Record Labels

had to find new sources of revenue to

replace the loss of revenue from physical music sales. One of those new sources that

affects how Labels earn revenue is the 360 agreement, which expands Labels’ con-

tractual relationships with their artists. Typical Label agreements now give Labels

an active or passive interest in nearly every aspect of an artist’s career instead of only

in the sound recordings. With this new relationship, the parties are confronted with

new legal questions, including whether a fiduciary relationship arises.

This new relationship between Labels and artists transforms the role of the La-

bel in an artist’s career into something similar to the traditional relationship between

a personal manager and an artist. This relationship could be fiduciary in nature be-

cause the relationship is one of agency. Courts evaluating a fiduciary relationship

should do so in light of the terms in the agreement and industry norms and follow

the cases that honor a waiver of agency and associated fiduciary duties.

Tom Lamont, Napster, the Day the Music was Set Free, GUARDIAN (Feb. 23, 2013), https:

//www.theguardian.com/music/2013/feb/24/napster-music-free-file-sharing.

In this Article, “Record Label” or “Label” refers to a type of label such as one of three major

record labels (Universal Music Group, Sony Music Entertainment, or Warner Music Group).

There are many independent record labels, but whether those types of independent labels follow

the contracting practices discussed herein is outside the scope of this Article.

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2019] RECORD LABELS: UNINTENDED AGENCY 3

A. The Internet and Online Music

In the decades leading up to the 21st century, most people learned of new mu-

sic by listening to the radio, watching MTV, or talking with friends. If a person

wanted an album, she headed to her local record store to pick up that record, cas-

sette, or CD. Maybe she had only heard the hit single on the radio, but she likely

still bought the full album. She would do that every time there was a new band she

wanted to check out or when a band she liked released a new album. The Internet

changed that. Smartphones changed it even more. Gone are the days when teenagers

(and lucky adults) spent hours in record stores looking at physical copies of albums,

admiring cover art, and purchasing new music.

In 1999, Napster brought file sharing to the masses.

Napster made it ex-

tremely easy for users to upload, share, and subsequently find music—all for free.

Instead of paying $10 to $20 for an album in a record store, users could download

the same album in a few minutes for free and from the comfort of their homes.

While Napster did not survive the Record Labels,

it did forever change the land-

scape of how we acquire and listen to recorded music. Physical record sales never

recovered

and online services now dominate the industry.

Services such as Spotify,

Pandora, iTunes, GooglePlay, YouTube, Amazon’s Prime Music and Music Unlim-

ited, and many others provide various ways to consume music from free streaming

to paid downloads. Additionally, the unit that is purchased has changed; music fans

now purchase or stream music by track rather than by album.

While this change in technology has brought more music to many more listen-

ers, it has had a detrimental effect on the companies responsible for getting music

Richard Nieva, Ashes to Ashes, Peer to Peer: An Oral History of Napster, FORTUNE (Sept. 5,

2013), http://fortune.com/2013/09/05/ashes-to-ashes-peer-to-peer-an-oral-history-of-napster/.

Jessica Hu et al., Copyright vs. Napster: The File Sharing Revolution, 2 U.C. IRVINE L.F.J.

53, 55 (2004).

Corey Rayburn, After Napster, 6 VA. J.L. & TECH. 16, 18–19 (2001).

In 2001, a court ordered Napster to shut down or start charging for music. Napster opted

to charge for music and was purchased by Rhapsody in 2013. Lamont, supra note 1. Currently, it

is not a major player in the streaming music market. See Steve Olenski, The Battle for Supremacy

in the Music Streaming Space and What It Means for Marketers, F

ORBES (Dec. 13, 2017), https://

www.forbes.com/sites/steveolenski/2017/12/13/the-battle-for-supremacy-in-the-music-streaming-

space-and-what-it-means-for-marketers/#7ead195d574e

Total industry revenues in 2017 were less than 70% of what they were in 1999.

An Explosion in Global Music Consumption Supported by Multiple Platforms, IFPI, http://www.ifpi.

org/facts-and-stats.php (last visited Apr. 5, 2019).

In 2017, physical sales of record music accounted for 30% of global music industry

revenue, while streaming and digital revenue accounted for 54%. Id.

2014 Nielsen Music U.S. Report, NIELSEN, https://www.nielsen.com/content/dam/

corporate/us/en/public%20factsheets/Soundscan/nielsen-2014-year-end-music-report-us.pdf

(last visited Apr. 5, 2019).

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4 LEWIS & CLARK LAW REVIEW [Vol. 23:3

to listeners: Record Labels. Historically, Labels’ revenue came from the sale of phys-

ical albums on vinyl, 8-tracks, cassettes, and CDs.

When consumers were no

longer buying those things, Record Labels had to quickly find new revenue sources

if they were to stay in business.

B. Record Label Response to the Shift in Music Consumption

Facing a sharp decline in physical music sales, Labels needed to find other rev-

enue sources. One alternative revenue source is the 360 deal, sometimes called a

multiple rights agreement.

In these deals, Record Labels no longer limit their rev-

enue streams to an artist’s recorded music; they also contract for a passive or active

stake in the artist’s other, usually non-musical activities.

These activities can in-

clude acting in television and film, writing books or other published materials (usu-

ally other than music publishing), games, merchandising, cartoons, and endorse-

ments or sponsorships.

Record Labels justified the move to the 360 deal with their

investment in the artist’s recording career.

The Record Labels’ point of view is that

the artist is popular and in demand because of the investment the Label made in

developing and promoting the artist, and it should share in the fruits of that invest-

ment.

The 360 deal fundamentally changed the relationship between artists and La-

bels, and it specifically changed the role Labels have in artists’ careers. That contrac-

tual relationship has grown from a relatively narrow grant of rights in sound record-

ings to a broad grant of rights in nearly every aspect of an artist’s career. This change

in relationship has the potential to transform what was seen as an ordinary business

relationship into one of agency resulting in fiduciary duties.

C. Other Arguments for a Fiduciary Relationship

Some academics argue that the 360 deal could give rise to a fiduciary relation-

ship under partnership law.

Douglas Okorocha argues that a fiduciary relationship

Michael Margiotta, Influence of Social Media on the Management of Music Star Image, 3

ELON J. UNDERGRADUATE RES. COMMS. 5, 5 (2012).

Tiffany Simmons-Rufus, An Overview of the 360 Deal, A.B.A. PRACTICE SERIES (June 5,

2012),

https://www.americanbar.org/groups/young_lawyers/publications/the_101_201_practice_

series/an_overview_of_the_360_deal/.

Douglas Okorocha, A Full 360: How the 360 Deal Challenges the Historical Resistance to

Establishing a Fiduciary Duty Between Artist and Label, 18 UCLA

ENT. L. REV. 1, 12–13 (2011).

DONALD S. PASSMAN, ALL YOU NEED TO KNOW ABOUT THE MUSIC BUSINESS 102 (9th

ed. 2015).

Id.

Partnership is a legal relationship which is fiduciary in nature. WILLIAM A. GREGORY, THE

LAW OF AGENCY AND PARTNERSHIP § 188 (3d ed. 2001).

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2019] RECORD LABELS: UNINTENDED AGENCY 5

arises between Labels and artists through partnership law in a 360 deal because the

parties “operate more like a partnership than two parties bound by contract.”

Okorocha argues that under a 360 deal, the artist and Label share profits and jointly

control the artist’s career decisions as co-owners with the parties demonstrating their

intent to do so in the language of their contract.

By sharing profits and control,

and manifesting their intent to do so, the parties meet the elements of a partnership

relationship and thus certain fiduciary duties attach to that relationship.

In a similar argument, Bryan Lesser asserts that 360 deals expand the profits

and losses that artists and Labels already agree to share, the parties share control over

the business (the artist’s career), and the parties contribute to the enterprise (the

Label via advances and promotion and the artist through the time and effort of

recording and touring).

Lesser argues that these facts give rise to a partnership

relationship and the associated fiduciary duties.

While compelling in some circumstances, those arguments are not sufficient

primarily because in an active 360 deal the relationship would likely fail on the “joint

control” requirement necessary for the formation of a partnership.

In active 360

deals, artists may be able to make some decisions or have some approval authority,

but the Record Labels retain final approval for most decisions.

Additionally, a partnership is more likely to be found when the parties share

net profits, so that they have shared not only the profits but also the expenses of the

business.

While the specific terms of each agreement will be different in active and

passive 360 deals,

Labels most likely will share in each revenue stream differently,

which further complicates a finding of partnership. Indeed, as Okorocha notes, a

partnership argument would not be persuasive in active 360 deals.

Okorocha, supra note 12, at 3.

Id. at 25.

Id. at 25–26.

Bryan Lesser, Record Labels Shot the Artists, but They Did Not Share the Equity, 16 GEO.

J.L. & PUB. POL’Y 289, 309–10 (2018).

Id.

Okorocha, supra note 12, at 23.

Id. at 24.

Id. at 22.

In passive 360 deals, Labels only take an interest in the revenue of certain rights. In active

360 deals, Labels take an interest in the revenue and control of the rights. For a discussion of the

differences between the two types of 360 deals, see infra Sections IV.A, IV.B.

Okorocha, supra note 12, at 22 (explaining that, historically, sound recording profits are

typically defined as “net” profits, while music publishing proceeds are typically defined as “gross”

profits). See generally P

ASSMAN, supra note 13 (covering the various accounting methods for sound

recording, music publishing, touring, and merchandising proceeds, which include gross and net

profit accounting).

Okorocha, supra note 12, at 24.

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6 LEWIS & CLARK LAW REVIEW [Vol. 23:3

There is another area of law that may give rise to a fiduciary relationship be-

tween artists and Labels. Agency, a close cousin to partnership, may provide grounds

for a fiduciary relationship. This Article argues that a principal-agent relationship

can arise between an artist and Label when they enter an active 360 deal. Such a

relationship would be a fiduciary relationship and is similar in nature to a traditional

manager-artist relationship.

Part II of this Article discusses the historical relationship between artists and

Labels and the changes in the music industry that caused that relationship to expand

and specifically focuses on the creation of active 360 deals. Part III provides an over-

view of agency law, the fiduciary duties that arise in an agency relationship, and the

historical relationship between personal managers and artists.

Part IV argues that an active 360 deal can transform the relationship between

the Label and an artist into a fiduciary one through agency principles. Part IV also

argues that if a court finds that an agency relationship is present, the court should

give deference to any terms the parties have used to shape their relationship, includ-

ing the fiduciary duties and waivers of those duties, as the courts have done in similar

circumstances. Additionally, Part IV argues that if a court finds any fiduciary duties,

it should evaluate any potential breach of those duties in light of the customs and

norms of the music industry like courts do in other areas of the music industry.

II. HISTORICAL RELATIONSHIP BETWEEN LABELS AND ARTISTS

In the decades preceding the 21st century, the relationship between Labels and

artists has been centered on sound recording rights. New York courts have repeat-

edly refused to find a fiduciary relationship between the parties to a recording agree-

ment when the parties had primarily contracted for an agreement for the Record

Label to collect and pay royalties on the artists’ behalf.

The courts repeatedly find

recording agreements to be “garden variety” arms-length transactions that do not

give rise to a fiduciary relationship, even when one party has superior bargaining

power.

E.g., Cooper v. Sony Records Int’l, No. 00 CIV. 233(RMB), 2001 WL 1223492, at *5

(S.D.N.Y. Oct. 15, 2002) (“Courts in this district have routinely failed to find a fiduciary duty

between a recording artist and a record company.”); Cafferty v. Scotti Bros. Records, Inc., 969 F.

Supp. 193, 205–06 (S.D.N.Y. 1997); Carter v. Goodman Grp. Music Pub., 848 F. Supp. 438,

445 (S.D.N.Y. 1994); Rodgers v. Roulette Records, Inc., 677 F. Supp. 731, 739 (S.D.N.Y. 1988).

E.g., Faulkner v. Arista Records LLC, 602 F. Supp. 2d 470, 484 (S.D.N.Y. 2009); Sony

Music Entm’t, Inc. v. Robison, No. 01 CIV.6415(LMM), 2002 WL 272406, at *3 (S.D.N.Y.

Feb. 26, 2002).

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Prior to the Internet, record deals typically only involved the rights to the rec-

orded music of an artist.

The Label would sign an artist, produce a record, and sell

it to the public. The Label would own the rights in the sound recording, and the

artist (or other songwriter) would own the rights to the music publishing. The Label

would pay the artist an advance against future earnings and would cover the costs

of producing and selling the album. The Label would commit to marketing and

promoting the album. Typically, the Label would include an option right, permit-

ting the Label to extend the deal for another album.

If the album flopped and did not make enough money to pay for itself, Labels

would not usually ask the artist to repay any advances. If the album was a success,

the Label would be repaid its advance, and the artist would receive royalty payments

from the sound recording rights.

While sometimes described as one-sided,

courts

have repeatedly found this arrangement to be an ordinary business transaction which

does not give rise to a fiduciary duty.

While recognizing that Labels owe fiduciary duties to artists may seem appeal-

ing to artists,

it is likely that some of those duties are benign or already addressed

in recording agreements (such as the duty to account), or are at odds with the cur-

rent structure of the music industry (such as the duty of loyalty). Labels are large

and successful because they have a large roster of (sometimes competing) artists.

The relationships that Labels have established over the years give them the reputa-

tion and skills to market and promote newer, unknown artists.

Acknowledgement of these unique industry practices and customs is apparent

in the case law. Courts have only found a fiduciary duty between Labels and artists

when confronted with the most extreme of facts.

A. Instances Where a Court Found a Fiduciary Relationship

In the rare circumstance where a court has found a fiduciary relationship be-

tween a Label and artist, they have found special circumstances rooted in “trust or

confidence.”

Courts have found such trust and confidence between a Label and

What follows is a simplified discussion of recording agreements, which are notoriously

long and complex. For a detailed presentation of a record deal and its many components, see

PASSMAN, supra note 13.

Despite the contractual changes discussed in this Article, this portion of a recording

agreement—regarding sound recording rights—still functions in this same manner.

Okorocha, supra note 12, at 2.

Id. at 3.

Fiduciary duties could give artists more leverage in legal disputes, id. at 2, and also prevent

self-dealing by the Label. See generally Lesser, supra note 20.

See Lesser, supra note 20, at 294.

PASSMAN, supra note 13, at 73.

E.g., ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 995 (2d. Cir. 1983)

(noting the “special trust” that attaches as manager or agent (quoting Meinhard v. Salmon, 249

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8 LEWIS & CLARK LAW REVIEW [Vol. 23:3

artist when the Label commits to make financial investments on the artist’s behalf,

when a “long enduring relationship” between the Label and artist spans decades,

or when the artist is also an executive at the Label and holds multiple roles in the

agreement at issue.

In Apple Records, Inc. v. Capitol Records, Inc., the Beatles sued their record label,

Capitol Records, for breach of fiduciary duty.

The Beatles alleged that Capitol

sold records that it had claimed as scrap and excessively distributed promotional

copies of the Beatles’ albums.

The Beatles claimed that such actions diluted the

market for their goods and that distributing so many promotional copies was for the

benefit of Capitol, not the Beatles.

The court noted that at one point the Beatles

made up “25 to 30 percent” of Capitol’s business and the parties had worked to-

gether since 1962 (over two decades at the time of the suit).

These facts contrib-

uted to a “long enduring” relationship of “trust and confidence” and resulted in a

fiduciary relationship.

In CBS v. Ahern, defendant Scholz, a member of the band Boston, brought a

counterclaim alleging that CBS (a record label at the time) breached its fiduciary

duty to him in how it handled his royalties.

In its agreement with Boston (and

Scholz), CBS agreed to hold royalties in “special accounts” that it would invest on

behalf of Scholz.

Scholz alleged that CBS did just that for some time but at some

point began appropriating the royalties for its own accounts.

The court noted that

a fiduciary relationship is “founded on trust or confidence reposed by one person in

the integrity and fidelity of another” and found Scholz’s allegations sufficient to give

N.Y. 458, 467 (1928))); CBS, Inc. v. Ahern, 108 F.R.D. 14, 25 (S.D.N.Y. 1985) (“‘[A] fiduciary

relationship is one founded on trust or confidence . . . .” (quoting United States v. Reed, 601 F.

Supp. 685, 707 (S.D.N.Y. 1985))); Universal-MCA Music Publ’g v. Bad Boy Entm’t, Inc., No.

601935/02, 2003 WL 21497318, at *5 (N.Y. Sup. Ct. June 18, 2003) (“[S]pecial trust or

confidence reposed between parties may create a fiduciary relationship.”).

CBS, Inc., 108 F.R.D. at 25.

Apple Records, Inc. v. Capitol Records, Inc., 529 N.Y.S.2d 279, 283 (N.Y. App. Div.

1988). But see Faulkner v. Arista Records LLC, 602 F. Supp. 2d 470, 483 (S.D.N.Y. 2009); Sony

Music Entm’t, Inc. v. Robison, No. 01 CIV.6415(LMM), 2002 WL 272406, at *3 (S.D.N.Y.

Feb. 26, 2002) (recording artist’s six-year relationship with the Label was not sufficient to show a

long and lasting relationship to establish a fiduciary relationship).

Bad Boy, 2003 WL 21497318, at *6.

Apple Records, 529 N.Y.S.2d at 279.

Id. at 283.

Id.

CBS, Inc. v. Ahern, 108 F.R.D. 14, 24 (S.D.N.Y. 1985).

Id.

Id. at 25 (quoting United States v. Reed, 601 F. Supp. 685, 707 (S.D.N.Y. 1985)).

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rise to a fiduciary relationship between CBS and Scholz.

In Universal-MCA Music Publishing v. Bad Boy Entertainment, the court found

that songwriters had pled sufficient facts to allege “special circumstances” where the

defendant held several positions in relation to the songwriters.

In Bad Boy, the

defendant, Sean Combs,

was a co-writer of the compositions, co-author of the

sound recordings, and President and CEO of the record label that released the re-

cordings, Bad Boy Entertainment.

Combs allegedly put his personal finances—

and the finances of Bad Boy—above those of the plaintiff songwriters in deals con-

cerning the co-authored material.

Combs was able to take such actions because of

his role as President of Bad Boy.

The court found such allegations sufficient to

support a fiduciary relationship.

The court went on to state that due to Combs’s

role as an executive at Bad Boy, his actions made not only him liable for breach of

fiduciary duty, but also Bad Boy.

Bad Boy is notable because it recognizes a “special circumstance” that trans-

forms the relationship between the Label (Bad Boy) and artist through the interests

and involvement of the president of that Label. There is no question that Bad Boy

is unique in its facts; there are few major artists who also run record labels.

How-

ever, it is notable that holding multiple roles in a recording relationship could trans-

form what courts have previously seen as an ordinary business relationship into a

fiduciary relationship.

Id.

Universal-MCA Music Publ’g v. Bad Boy Entm’t, Inc., No. 601935/02, 2003 WL

21497318, at *5 (N.Y. Sup. Ct. June 18, 2003).

A.k.a. Puff Daddy/P. Diddy/Puff/Puffy/Diddy/Love/Brother Love/B. Love. Hilary

Weaver, Sean Combs Says He Was “Only Joking” About Changing His Name, V

ANITY FAIR (Nov.

7, 2017), https://www.vanityfair.com/style/2017/11/sean-combs-changed-his-name-again.

Puff Daddy’s Bad Boy Entertainment Partners with Epic Records, BILLBOARD (Oct. 15,

2015), https://www.billboard.com/articles/news/6715464/puff-daddy-bad-boy-partnership-epic-

records.

Bad Boy, 2003 WL 21497318, at *5.

Id.

Id. at *6.

Id.

See, e.g., Rose Wythe, 20 Musicians Who Started Their Own Record Labels,

IHEARTRADIO (Mar. 23, 2018), https://www.iheart.com/content/2018-03-23-20-musicians-

who-started-their-own-record-labels/ (listing major artists with their own music Labels, such as

Kanye West, JAY-Z, and Eminem). But see Tom Flint, Running Your Own Record Label: Part I,

OUND ON SOUND (Sept. 2002), https://www.soundonsound.com/music-business/running-

your-own-record-Label-part-1 (discussing the legal challenges for artists who run their own

Record Labels).

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10 LEWIS & CLARK LAW REVIEW [Vol. 23:3

III. AGENCY LAW AND PERSONAL MANAGERS

A. Distinction Between Agency, Managers, and Agents

The terminology used when discussing agency, managers, and agents can be

confusing. These terms have specific and sometimes legal meanings in the entertain-

ment industry. Agency is a legal relationship that individuals may enter into and

appears in many industries.

In the entertainment industry, an artist hires a man-

ager to develop his or her career and hires an agent to obtain employment.

While

there may be some functional overlap in these two roles, the difference in the mon-

ikers is well understood.

In relationships with the artists they are representing,

agents and managers will likely always meet the elements of an agency relationship.

This Article focuses on agency under New York law

due to the presence of

choice-of-law clauses in most recording agreements,

and because two of the three

major Record Labels are headquartered in New York.

B. Agency Under New York Law

Agency is a relationship between two parties who have agreed that one will act

on behalf of the other.

It is a relationship of trust and confidence and gives rise to

fiduciary duties.

Under New York law, it seems the parties are able to waive their

fiduciary duties to one another, but that waiver will not extend to agreements with

GREGORY, supra note 16, § 1.

Hal I. Gilenson, Badlands: Artist-Personal Manager Conflicts of Interest in the Music

Industry, 9

CARDOZO ARTS & ENT. L.J. 501, 507–08 (1991).

Id. at 507.

An agency relationship is created when the principal manifests consent to the agent that

the agent may act on his or her behalf, and the agent agrees to do so. See infra Section III.C for a

more detailed discussion of the creation of an agency relationship.

New York law is somewhat more lenient than California law regarding procuring

employment. Under California law, anyone procuring employment must be a licensed agent,

whereas New York law allows for “incidental” procurement of employment. Gilenson, supra note

59 at 511, 514. Under California law, a principal-artist may terminate the agreement with his or

her agent if the agent is procuring employment without a license, while New York law would

allow for at least some procurement. Id. at 511. Because of this difference, the consequences of

the contracts discussed herein may be different if analyzed under California law.

Lesser, supra note 20, at 303; see, e.g., Radioactive, J.V. v. Manson, 153 F. Supp. 2d 462,

471 (S.D.N.Y. 2001).

The three major Record Labels are Sony Music Entertainment, Universal Music Group,

and Warner Music Group. Sony and Warner are headquartered in New York, New York and

Universal is headquartered in Santa Monica, California. However, Universal “regularly put[s]

New York choice of law provisions in recording contracts.” Radioactive, J.V., 153 F. Supp. 2d at

471.

2A C.J.S. Agency § 1 (2019).

RESTATEMENT (THIRD) OF AGENCY § 8.01 (AM. LAW INST. 2006).

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third parties. New York courts have defined agency as:

[A] legal relationship between a principal and an agent. It is a fiduciary

relationship which results from the manifestation of consent of one person

to allow another to act on his or her behalf and subject to his or her con-

trol, and consent by the other so to act. The agent is a party who acts on

behalf of the principal with the latter’s express, implied, or apparent au-

thority.

Whether a relationship is one of agency is a “mixed question of law and fact.”

If the material facts regarding an agency relationship are not in dispute, the court

should determine agency. If the facts are in dispute, the question should be submit-

ted to a jury.

Additionally, it does not matter if the parties understand their relationship to

be one of agency. If the parties’ words and conduct imply a relationship of agency,

it is not significant that they do not understand the nature of their relationship.

1. Element of Consent

Consent may be given in writing, orally, or by actions which a reasonable per-

son would understand to be giving consent.

A principal may give consent directly

to the agent (actual authority) or give consent directly to a third party with whom

the agent will work on behalf of the principal (apparent authority).

A principal

must have the actual power it confers on the agent for consent to be valid.

Unless

the parties agree otherwise, incidental authority may be inferred when acts to an

authorized transaction “are incidental to it, . . . accompany it, or are reasonably nec-

essary to accomplish” an authorized transaction.

2. Element of Control

Integral to the agency relationship is the ability of the principal to control the

agent. The relationship gives the principal the right to control the agent

within

the scope of the agency, and the principal may not act against the directions of the

Maurillo v. Park Slope U–Haul, 606 N.Y.S.2d 243, 246 (N.Y. App. Div. 1993) (citations

omitted).

Mouawad Nat’l Co. v. Lazare Kaplan Int’l Inc., 476 F. Supp. 2d 414, 420–21 (S.D.N.Y.

2007) (quoting Lumbermens Mut. Cas. Co. v. Franey Muha Alliant Ins. Servs., 388 F. Supp. 2d

292, 301 (S.D.N.Y. 2005)).

Id. at 421.

Cerp Constr. Co. v. J.J. Cleary Inc., 299 N.Y.S.2d 560, 563 (N.Y. Sup. Ct. 1968).

Mouawad, 476 F. Supp. 2d at 422.

RESTATEMENT (SECOND) OF AGENCY § 27 (AM. LAW INST. 1958).

Mouawad, 476 F. Supp. 2d at 423 (finding that a company could not be the principal in

the sale of a diamond because it never owned the diamond in the first place).

RESTATEMENT (SECOND) OF AGENCY § 35.

Id. § 14.

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12 LEWIS & CLARK LAW REVIEW [Vol. 23:3

agent.

C. Duties that Arise out of an Agency Relationship

A number of fiduciary duties arise out of an agency relationship, many of which

the agent owes to the principal.

The duties that are particularly relevant to 360

deals include the duties of care and skill,

to keep and render accounts,

to act only

as authorized,

and the duties of loyalty.

The element of consent plays an important role in determining how those du-

ties attach and how they are shaped.

Because agency relationships are often

(though not necessarily) made through contract, parties have the opportunity to

agree what certain duties look like or choose to waive certain duties.

For instance, imagine an agent and principal have agreed for the agent to act

on behalf of the principal on a particular matter. The agent discloses to the principal

that the agent has no skill in that particular matter. If the agent subsequently mis-

manages the principal’s business in that area, he has not violated his duty to the

principal so long as he has made that disclosure and has exercised as much skill as

he possesses.

In the absence of an agreement stating otherwise, the default duties would ap-

ply.

The duties are applied in light of what reasonable people in the positions of

the principal and agent would expect them to be.

The principal has duties to the

agent, but they are fewer in number and are centered on the principal’s duty to not

interfere with the agent’s work.

D. Waivers of an Agency Relationship and Fiduciary Duties

There are two important consequences that arise from an agency relationship:

Id. § 14 cmt. a.

See generally id. §§ 376–398 (describing duties of obedience and loyalty).

This requires the agent to act with the standard of care and skill of the particular locality

for the kind of work he is to perform, including using any special skill he has. Id. § 379.

This requires the agent to keep and render an account of the money he has received or

paid out for his principal. Id. § 382.

This requires that the agent only act on behalf of the principal to the extent that the

principal has consented. Id. § 383.

The duties of loyalty generally require that the agent “act solely for the benefit of the

principal in all matters connected with his agency.” Id. § 387.

Id. § 376 (“The existence and extent of the duties of the agent to the principal are

determined by the terms of the agreement between the parties, interpreted in light of the

circumstances under which it is made . . . .”).

Id. § 376 cmt. a.

Id.

Id. §§ 432–437.

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the attachment of fiduciary duties to the relationship and the ability of the agent to

bind the principal in contracts with third parties.

Cases over the past 100 years show that it is not clear in the New York courts

whether disclaimers of an agency relationship (or other fiduciary relationship)

should extend to the entire agency relationship or to just the fiduciary duties that

arise from the relationship.

In recent history, New York courts have enforced disclaimers of fiduciary duties

as well as disclaimers of the fiduciary relationship itself such as agency.

This means

that even if the factual characteristics of a relationship would give rise to an agency

relationship, the parties can claim that their relationship is not one of agency or that

certain or all of the associated fiduciary duties of such an acknowledged relationship

do not attach.

However, earlier cases indicate that New York courts would not allow the dis-

claimer of the agency relationship—the ability of the agent to act on behalf of the

principal.

While it is not clear whether the New York courts would allow parties

to disclaim an entire agency relationship, it does seem clear that they will give great

deference to the parties’ choice to waive their fiduciary duties to one another within

an agency relationship.

RESTATEMENT (THIRD) OF AGENCY §§ 3.05, 8.01 (AM. LAW INST. 2006).

Even if enforced, such a disclaimer would not extend to claims made by a third party. Bd.

of Trade of Chi. v. Hammond Elevator Co., 198 U.S. 424, 437 (1905) (“The fact, however, that

the relations between the defendant and its correspondents are, as between themselves, expressly

disclaimed to be those of principal and agent, is not decisive of their relations so far as third parties

dealing with them upon the basis of their being agents are concerned.”). If the rights of a third

party are involved, “the relationship between contracting parties [the principal and agent] must

be determined by its real character rather than by the form and color that the parties have given

it.” In re Shulman Transp. Enters., Inc., 744 F.2d 293, 295 (2d Cir. 1984).

E.g., Spinelli v. Nat’l Football League, 96 F. Supp. 3d 81, 133 (S.D.N.Y. 2015) (“[P]arties

are bound by a contractual agreement that their relationship is not one of agency.”) (emphasis

added); BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 866 F. Supp. 2d 257, 269 (S.D.N.Y.

2012) (finding that disclaimers “preclude a finding of a fiduciary or other special relationship . . .

.”) (emphasis added); Seippel v. Jenkens & Gilchrist, P.C., 341 F. Supp. 2d 363, 381–82

(S.D.N.Y. 2004) (enforcing a disclaimer of fiduciary duty).

E.g., Martin v. Peyton, 158 N.E. 77, 78 (N.Y. 1927) (setting aside a disclaimer that a

relationship was not a partnership and instead looking at the actual characteristics of the

relationship); Rubenstein v. Small, 75 N.Y.S.2d 483, 485 (N.Y. App. Div. 1947) (“The court is

not bound by the disclaimer of partnership, joint venture or agency between the parties in

determining their true relationship.”); Gulf Ins. Co. v. Transatlantic Reinsurance Co., 886

N.Y.S.2d 133, 151–52 (N.Y. App. Div. 2009) (restating the holding in Rubenstein when declining

to enforce a disclaimer).

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14 LEWIS & CLARK LAW REVIEW [Vol. 23:3

E. Traditional Relationship and Duties Between Managers and Artists

Personal managers are agents for their artists (the principal), and thus the rela-

tionship between the parties is a fiduciary one. Artists hire managers primarily to

help them develop their careers.

Historically, personal managers (sometimes re-

ferred to as “managers”) have been the most significant players in developing artists’

careers.

Personal managers are typically one of the first people an artist will hire

and he or she will become involved in nearly every aspect of an artist’s career.

Managers will help an artist decide whether to enter into an agreement with a record

label, schedule concert tours, work with the artist’s record label to ensure the Label

fulfills its obligations (such as marketing commitments), and be the face of the artist

with third parties—such as those offering endorsement deals, charitable requests,

and personal appearances.

Managers provide advice and counseling to the artist, but also develop the art-

ist’s career by working with third parties in the entertainment industry and other

industries.

Especially for young, undeveloped artists, managers play a key role in

developing an artist to the level where a Record Label will be interested in signing

that artist.

The manager’s responsibilities in developing and promoting an artist

may result in significant personal financial investment of the manager.

Managers

may also play a role in managing the business side of the artist’s career.

Because of their agency relationship, managers are subject to various fiduciary

duties, including the duty of loyalty, the duty of good faith and fair dealing, the

duty to use their best efforts to effect the purpose of the agency, and the duty to act

only for the benefit of the principal.

Even so, personal management is a largely

unregulated field.

100

There is no statutory guidance, though some trade organiza-

tions have attempted to provide ethics and standards for manager conduct.

101

There are few cases of artists suing their managers.

102

Frequently, those cases

Gilenson, supra note 59, at 507.

PASSMAN, supra note 13, at 28.

Id.

Id. at 28–29.

See Gilenson, supra note 59, at 509–10.

Id. at 509.

Id.

Id. at 509–10.

Id. at 520.

100

Id. at 515 (“The absence of legislation directly governing personal managers, along with

the loopholes in the current legislation, opens the door to unethical behavior by personal

managers.”).

101

About Managers, NAT’L CONF. OF PERS. MANAGERS, http://ncopm.com/personal-

manager/ (last visited Sept. 10, 2018).

102

See Gilenson, supra note 59, at 505 (noting the lack of cases).

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settle before a court can wade through the legal issues.

103

In the cases that have pro-

ceeded to trial, or at least beyond a motion to dismiss, courts have acknowledged

that managers have fiduciary duties to the artists they represent, but the bar to

breach those duties is very high.

104

In Cagle v. Hybner, Cagle, a musician, entered into a management contract

with Hybner.

105

The agreement provided that Hybner would be Cagle’s manager,

advise him on his career, and otherwise supervise his artistic endeavors.

106

The agree-

ment allowed Hybner to conduct business that could conflict with Cagle’s career,

but required that Hybner consent before Cagle enter into any agreement related to

“recording, production, merchandising, songwriting or music publishing.”

107

The

court noted that agency is a relationship of trust where one party agrees to effect

some business of the other.

108

When it examined the nature of the relationship be-

tween Cagle and Hybner, the court found that Hybner was an agent of Cagle.

109

In ABKCO Music, Inc. v. Harrisongs Music, Inc., the court found that a business

manager breached his duties as a former fiduciary.

110

In that case, Klein, after he had

ceased to serve as the artist’s manager, purchased an infringement claim against the

artist, George Harrison.

111

Klein had intimate knowledge of the claim because he

103

See, e.g., Geraldine Fabrikant, The Media Business; A Tangled Tale of a Suit, a Lawyer and

Billy Joel, N.Y.

TIMES (May 3, 1995), https://www.nytimes.com/1995/05/03/business/the-

media-business-a-tangled-tale-of-a-suit-a-lawyer-and-billy-joel.html (noting that Joel withdrew

his case against his manager and that there were public rumors of a settlement deal); Kory Grow,

Johnny Depp Settles Multi-Million Dollar Lawsuit Against Managers, R

OLLING STONE (July 16,

2018), https://www.rollingstone.com/movies/movie-news/johnny-depp-settles-multi-million-

dollar-lawsuit-against-managers-699770/; David McGee, Bruce Springsteen Reclaims the Future,

OLLING STONE (Aug. 11, 1977), https://www.rollingstone.com/music/music-news/bruce-

springsteen-reclaims-the-future-179300/ (reporting that Springsteen settled his dispute with

longtime manager).

104

See infra text accompanying notes 105–121.

105

Cagle v. Hyber, No. M2006-02073-COA-R3-CV, 2008 WL 2649643, at *1 (Tenn. Ct.

App. July 3, 2008).

106

Id. at *2.

107

Id.

108

Id. at *6 (quoting Gilenson, supra note 59, at 519).

109

Id. at *7.

110

ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 995 (2d. Cir. 1983). But

see Vigoda v. DCA Prods. Plus Inc., 741 N.Y.S.2d 20, 23 (N.Y. App. Div. 2002) (holding that

there was no reason to impose a fiduciary duty on the plaintiff’s band’s former personal manager

after she had been terminated). Vigoda underscores the effort made by the court in ABKCO Music

to only impose such a duty under extreme facts. It is a reminder that “[a]s in other branches of

the law, a question of degree is often the determining factor.” Martin v. Peyton, 158 N.E. 77, 80

(N.Y. 1927).

111

ABKCO Music, 722 F.2d at 992–93.

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had tried to negotiate a deal to settle that claim while serving as Harrison’s man-

ager.

112

The court found that because of Klein’s knowledge obtained as Harrison’s

former manager, his actions were a breach of his duties as a former fiduciary.

113

The

court found that he breached his duty not to compete and not to use confidential

information against his principal.

114

However, the court took pains to note that they

were not creating a “general ‘appearance of impropriety’ rule,” noting the extreme

facts of this case.

115

The court thought such a rule would not be workable in light

of the “realities of the business world.”

116

In Croce v. Kurnit, Croce, a musician, signed multiple agreements with the

defendants that provided that Croce would “perform and record exclusively” for the

defendants and the defendants would provide all music publishing and management

services.

117

The agreements also assigned all of Croce’s rights in his sound recordings

and compositions to the defendants.

118

The agreements did not require any action

by the defendants, except to make an annual payment of $600 to Croce and to

distribute royalties at an agreed upon rate which was based on sales of records.

119

In evaluating the contracts, the court noted that they were free of fraud, and

while one-sided, they were one-sided due to “the uncertainty involved in the music

business and the high risk of failure of new performers.”

120

The court found that

the defendants associated with the management contracts did not breach a fiduciary

duty.

121

These cases illustrate that courts find the relationship of “trust and confidence”

between a manager and entertainer is one of agency because of the responsibilities

the manager undertakes on behalf of the entertainer. However, due to the nature of

the entertainment industry, the bar to breach the fiduciary duties that attach is high.

IV. 360 DEALS AND THE FORMATION OF AN AGENCY

RELATIONSHIP

The primary focus of a Label agreement, even in a 360 deal, is the sound re-

cordings of the artist.

122

A 360 deal expands on that arrangement by including other

112

Id. at 993.

113

Id.

114

Id. at 994.

115

Id. at 995.

116

Id.

117

Croce v. Kurnit, 565 F. Supp. 884, 887 (S.D.N.Y. 1982).

118

Id.

119

Id.

120

Id. at 893.

121

Id.

122

See generally PASSMAN, supra note 13 (detailing the various parts of a Label deal, primarily

the sound recording rights).

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rights in the artist’s revenue-generating activities such as merchandising, music pub-

lishing, endorsements, sponsorships, and film and television appearances.

123

Gener-

ally speaking, there are two types of 360 deals: active and passive.

124

Sometimes an

agreement will be a combination of active and passive rights.

125

In 360 deals, the

Label takes a different role depending on whether it obtains passive rights, or active

and passive rights. Active deals change the role of the Label in an artist’s career.

A. Passive 360 Deals

In passive 360 deals, the artist undertakes revenue-generating activities unre-

lated to the sound recordings that are the primary concern of the contract, and the

Label takes a percentage of the revenue the artist earns.

126

The Label does not take

control of rights to those opportunities, nor participate in procuring those opportu-

nities; its only involvement is passively receiving a percentage of income from the

artist’s activities.

127

B. Active 360 Deals

In active 360 deals, the Label not only takes a percentage of income in those

non-recording activities, but it also takes some level of control of the artist’s rights

to those activities.

128

For instance, the Label may require that an artist sign with a

merchandise or music publishing company owned by the Label (or the Label’s par-

ent company).

129

Or it may require the artist to provide the Label with a first nego-

tiation or matching right for those rights.

130

An active 360 deal can be described as

an artist giving over control of most of the rights associated with her career.

131

giving these rights to the Label, the Label becomes the key player in maximizing the

revenue streams from those rights.

Historically, one of the major draws of a Record Label was its ability to get an

artist’s music heard—this is still a Label’s major function and appeal. Labels have

large marketing and promotional departments that are skilled at getting music into

123

Id. at 102.

124

Id. at 105.

125

See id. at 106 (advising artists on how to negotiate a contract with a Label that holds

both active and passive rights).

126

Id. at 105.

127

Id.

128

Id.; see also Edward Pierson, Negotiating a 360 Deal: Considerations on the Promises and

Perils of a New Music Business Model, E

NT. & SPORTS L., Winter 2010, at 34.

129

PASSMAN, supra note 13, at 105.

130

A first negotiation right means the artist must first try to enter into a deal with the Label.

A matching right gives the artist the opportunity to negotiate with third parties, but requires the

artist to allow the Label to match any deal offered so that it—not the third party—gets the deal.

Id.

131

Pierson, supra note 128, at 34.

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18 LEWIS & CLARK LAW REVIEW [Vol. 23:3

the marketplace and the ears of consumers.

132

If a Label acquires additional rights

from an artist, it is likely that it would use its industry power and knowledge to

market those rights not only to build the artist’s career, but also to maximize the

additional revenue streams it has acquired through the active 360 deal.

In active 360 deals, the Label has the ability to increase its financial interest in

an artist’s career by having both a passive and an active interest in any given right.

133

For example, the Label could acquire a passive interest in an artist’s merchandising

rights (meaning, it gets a percentage of the merchandising income regardless of who

the artist grants merchandising rights to), but also have an active interest in the

merchandising rights by requiring the artist to sign with its merchandising company

or at least negotiate with it first. In this scenario, the Label receives its percentage of

the merchandising income through a passive interest and through the Label’s own-

ership of the merchandise company.

134

The 360 deal is becoming the industry norm for established artists as well as

undeveloped artists.

135

Labels use 360 deals when developing a then-unknown artist

with the hopes of a bigger payoff down the road.

136

With a promise of a greater

return, a Label arguably has more incentive to promote the artist and ensure they

are a success.

137

Active and passive 360 agreements each give the Label a financial interest in an

artist’s career beyond typical sound recording rights. The significant difference be-

tween active and passive agreements is that in active agreements, the Label is the key

player in obtaining revenue streams for its artists by retaining control over those

additional rights. With these rights, the Label takes on a role where it develops and

promotes an artist much like how managers have historically been the key players in

developing and promoting artists.

To phrase it another way, an artist makes her living primarily off her music,

her likeness, and incidental products of her music and her likeness (touring, mer-

chandise, endorsements, fan clubs, etc.). Historically, she has turned over the rights

to her sound recordings to a record label to exploit, but has kept the rights to exploit

her own likeness, written words, and music. Thus, if she turns over control of those

rights to the same entity, she has essentially turned over control of her entire career

to one entity.

138

132

PASSMAN, supra note 13, at 73.

133

Id. at 105–06.

134

Arguably, a Label might not directly benefit if it is the parent organization instead of the

Label that owns the merchandise company.

135

Pierson, supra note 128, at 31–32.

136

Jeff Leeds, The New Deal: Band as Brand, N.Y. TIMES, (Nov. 11, 2007), https://www.

nytimes.com/2007/11/11/arts/music/11leed.html.

137

PASSMAN, supra note 13, at 102.

138

Pierson, supra note 128, at 31.

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C. Record Labels as Managers: An Unintended Agency

Active 360 deals have the ability to turn the previously ordinary business rela-

tionship between Labels and artists into one of agency—a fiduciary relationship.

Active 360 deals give Labels rights and a financial interest in nearly every revenue-

generating aspect of an artist’s career.

139

This type of arrangement is similar to how

management agreements have typically been structured.

140

As discussed in Part

III.E, management relationships are ones of agency and thus fiduciary in nature.

Opponents to an agency relationship may point to the fact that artists still hire

managers,

141

and thus a Label could not be a manager. No doubt some artists do

still hire managers, but the role a manager plays may be changing.

142

Indeed, courts

have noted in the past that the involvement of a manager in an artist’s career is along

a spectrum, depending on the needs of the artist.

143

If a Label takes rights tradition-

ally left to an artist (and his or her manager) to exploit, the manager’s role may be

transforming to focus more on advising the artist and hounding the Label to max-

imize the rights it has obtained and less on development and marketing. Regardless,

management deals can be non-exclusive by allowing both the manager and the Label

to perform traditional managerial duties.

144

Courts have been reluctant to find a fiduciary relationship between a Label and

an artist when what is contracted for is a “garden-variety arm’s length transaction”

to collect royalties on behalf of the artist.

145

An active 360 deal changes that garden-

variety relationship into something quite different.

146

That relationship begins to

look more like modern-day management deals, or even deals from the 1970s. In

139

Simmons-Rufus, supra note 11.

140

Justin M. Jacobson, Part 1: The Artist & Manager Relationship - A Look at Recording

Industry Management Agreements, T

UNECORE (Mar. 28, 2017), https://www.tunecore.com/blog/

2017/03/part-1-artist-manager-relationship-look-recording-industry-management-agreements.html

141

PASSMAN, supra note 13, at 16.

142

For an overview of a manager’s role, see id. at 28–42.

143

Croce v. Kurnit, 565 F. Supp. 884, 893 (S.D.N.Y. 1982) (“The significance of

management contracts depends on the needs of artists, some of whom are entirely capable of

performing all the business and promotion duties while others seek to concentrate solely on their

artistic efforts.”).

144

Tyson v. Cayton, 784 F. Supp. 69, 71–72 (S.D.N.Y. 1992).

145

E.g., Faulkner v. Arista Records LLC, 602 F. Supp. 2d 470, 484 (S.D.N.Y. 2009); see

also Cooper v. Sony Records Int’l, No. 00 CIV. 233(RMB), 2001 WL 1223492, at *5 (S.D.N.Y.

Oct. 15, 2002); Sony Music Entm’t, Inc. v. Robison, No. 01 CIV.6415(LMM), 2002 WL

272406, at *3 (S.D.N.Y. Feb. 26, 2002); Rodgers v. Roulette Records, Inc., 677 F. Supp. 731,

739 (S.D.N.Y. 1988).

146

Additionally, the Third Restatement of Agency provides that agency may only attach to

part of an overall relationship and not others. R

ESTATEMENT (THIRD) OF AGENCY § 1.01 cmt. b.

M. LAW. INST. 2006). It is feasible that a court could evaluate the relationship involving the

“new” rights found in a 360 agreement independently from the “old” (the sound recording rights)

relationship.

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20 LEWIS & CLARK LAW REVIEW [Vol. 23:3

those deals, managers took recording, publishing, and management rights.

147

When

given the opportunity, courts found a fiduciary relationship in those types of

deals.

148

In active 360 deals, the Label can acquire all the rights traditionally left for an

artist to exploit, such as the rights associated with their likeness (e.g., merchandise,

fan clubs, endorsements) and music publishing. When the artist signs those rights

over to the Label, it could be said that the artist is consenting for the Label to act on

his or her behalf to exploit those rights, and that the Label is agreeing to do so. With

such a strong financial incentive for the artist to succeed, it is reasonable to believe

that a Label will use its vast resources to promote and market the artist to the best

of its abilities in all mediums in which it has rights to do so.

In Croce, the managers took recording, publishing, and managerial rights.

149

That relationship was a fiduciary relationship.

150

In Cagle, the manager was hired to

develop Cagle’s career, but also required Cagle to sign to his publishing company.

Hybner was paid a percentage of the income from Cagle’s earnings.

151

This rela-

tionship was also a fiduciary relationship.

152

The factual scenarios in Croce and Cagle are very similar to terms in active 360

deals where the Label takes many of the rights associated with an artist’s career,

exploits them for the benefit of the artist and the Label, and also takes a percentage

of the overall income.

153

The artist consents to this relationship in order to get the

benefit of the experience and financial resources of the Label, and the Label agrees

to act on behalf of the artist. These actions appear to meet the elements of an agency

relationship of consent and control.

The finding of an agency relationship is a factual inquiry and the specific terms

of any two record agreements will not be the same. Typically, these agreements are

heavily negotiated by learned attorneys on both sides. It is impossible to predict if

any one agreement would give rise to an agency relationship without knowing the

specifics of the particular deal. Case law shows that these relationships turn on “a

147

In 1972, Bruce Springsteen infamously signed a deal with Mike Appel on the hood of a

car. Pierson, supra note 128, at 33. The deal not only made Appel Springsteen’s manager, but also

made him the Label and publisher, which included the right to share in those and other revenue

streams. Id. The Boss’s boss enjoyed this ride until 1977, when Springsteen sued and the parties

settled out of court. Id; see also Croce, 565 F. Supp. at 887 (Croce’s managers took recording,

management, and publishing rights).

148

See, e.g., Croce, 565 F. Supp. at 893 (finding that the defendant did not breach a fiduciary

duty, but not that there was no fiduciary duty).

149

Id. at 887.

150

Id. at 893.

151

Cagle v. Hyber, No. M2006-02073-COA-R3-CV, 2008 WL 2649643, at *2 (Tenn. Ct.

App. July 3, 2008).

152

Id. at *6–7.

153

Compare id. at *2, with Okorocha, supra note 12, at 2.

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question of degree.”

154

In the entertainment industry, because of the nature of the

business and the associated industry norms, courts have been reluctant to set any

hard and fast rules or find a breach of fiduciary duties except in the most extreme of

circumstances.

155

D. Shaping Fiduciary Duties and Giving Effect to Waivers in Recording Agreements

If a court were to find that an agency relationship exists between a Label and

an artist, it should give deference to the terms of the agreement, including any effort

by the parties to shape the fiduciary duties, and any waiver of duties that the parties

have agreed to. It is likely that Labels, as large and savvy corporations with robust

legal departments, will include in their 360 agreements a clear statement that the

relationship between the Label and artist is not an agency, partnership, or other

special relationship that is fiduciary and will likely further disclaim any fiduciary

duties that may arise.

The Label, presumably, will also take steps to manage what would be fiduciary

duties, such as specifying accounting responsibilities (addressing the duty to keep

and render accounts), spelling out steps that it will or will not take in marketing or

promoting an album and the other rights it has obtained under an active 360 deal

(addressing the duties of skill and care), agreeing to only act as agreed in the contract

(addressing the duty to act only as authorized), and agreeing that the Label may,

and will, represent competing artists (addressing the duty of loyalty).

If a court finds an agency relationship, and such relationship and accompany-

ing fiduciary duties are disclaimed, the court should give effect to that waiver insofar

as it applies to any fiduciary duties that would have attached. By doing this, the

court will honor the parties’ contractual intentions and protect third-party interests

with whom the principal or agent has done business within the scope of the agency.

This also allows the music industry to continue to operate in a manner that would

otherwise be significantly hindered if Labels owed traditional fiduciary duties to

each of their artists.

Indeed, that manner is beneficial to artists. By having a large roster of (some-

times competing) artists, Labels are able to grow and maintain important relation-

ships throughout the industry, increase their bargaining power, and influence third

154

Martin v. Peyton, 158 N.E. 77, 80 (N.Y. 1927).

155

See, e.g., ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 995 (2d. Cir.

1983); Apple Records, Inc. v. Capitol Records, Inc., 529 N.Y.S.2d 279, 283 (N.Y. App. Div.

1988); Universal-MCA Music Publ’g v. Bad Boy Entm’t, Inc., No. 601935/02, 2003 WL

21497318, at *5 (N.Y. Sup. Ct. June 18, 2003). But see Faulkner v. Arista Records LLC, 602 F.

Supp. 2d 470, 483 (S.D.N.Y. 2009) (disapproving of the precedential value of Apple).

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22 LEWIS & CLARK LAW REVIEW [Vol. 23:3

parties in ways that benefit their artists.

156

Through these relationships, Labels are

able to get songs on the radio or television shows or secure a spot for the artist as an

opener on a big tour.

157

By having so many artists, Labels have been able to develop

extensive experience in and knowledge of effectively promoting an artist in an envi-

ronment saturated with those attempting to be the next YouTube or Spotify star.

There is the additional argument that fiduciary duties between Labels and art-

ists are just unworkable in the music industry. Record Labels are successful precisely

because they have competing artists.

158

They could never honor the duty of loyalty

to any one artist because they would have a competing artist that they also must

promote and support. Indeed, in finding a manager breached one of the duties of

loyalty he owed his artist, a court plainly stated that it was not “establish[ing] a

general ‘appearance of impropriety’ rule with respect to the artist/manager relation-

ship.”

159

The court further explained that such a strict application of the rule would

not “suit the realities of the business world.”

160

The court took care to note that it

only found a breach in that case because of the specific “extreme” facts of that situ-

ation.

161

Courts have supported one-sided agreements in the recording industry because

of the nature of the business. In denying a claim for breach of fiduciary duty, a court

noted that while returns on a successful record are “unbelievably high,” there is also

a high risk (on the Label’s side) of failure.

162

The recording industry is a high-risk

industry where one party (the Label) invests large sums of money and knowledge in

another party (the artist) in the hopes that the party will succeed without ultimately

demanding a repayment of the money if the artist does not. If the artist is successful

and his or her music takes off, the Label will be repaid its initial investment and

then some. If the album is a dud and does not even pay for itself, the Label will not

ask the artist for any unrecouped advance and the parties will likely just part ways.

If a court were to find an agency relationship between a Label and one of its

artists, it should follow the reasoning in prior cases, which only acknowledges a

breach of fiduciary duties when the facts are so extreme as to be outside industry

norms.

163

This would still protect artists from extreme behavior by their Labels, but

156

Heather McDonald, Understanding the Pros and Cons of Label Record Deals, BALANCE

CAREERS (Jan. 7, 2019), https://www.thebalancecareers.com/major-Label-record-deals-

understanding-the-pros-and-cons-2460377.

157

Id.

158

See Lesser, supra note 20, at 294 (“Occasionally an artist becomes popular enough to

pay for the financial losses of all the other artists.”).

159

ABKCO Music, 722 F.2d at 995.

160

Id.

161

Id.

162

Croce v. Kurnit, 565 F. Supp. 884, 889 (S.D.N.Y. 1982).

163

See, e.g., ABKCO Music, 722 F.2d at 995 (finding impropriety when a business manager

purchased a known claim against his former client); Apple Records, Inc. v. Capitol Records,

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2019] RECORD LABELS: UNINTENDED AGENCY 23

would allow the music industry to continue operating in a mutually beneficial man-

ner.

V. CONCLUSION

Technology has drastically changed the way Record Labels do business. A sig-

nificant change is the rise of active 360 deals which increase the Record Labels’ role

in artists’ careers and change how Labels contract with artists. The nature of that

increased role changes the legal relationship between the parties to one that appears

to result in an agency relationship similar to that between a personal manager and

an artist. Because the finding of an agency relationship is a factual question, there is

no sure way to predict whether any active 360 deal will give rise to such a relation-

ship. The nature and structure of 360 deals provide the environment for all the

elements of an agency relationship to be found. It is likely that the more rights and

control a Label has—and the more trust and confidence an artist has placed with

the Label—the more likely it is that an agency relationship will be found.

If a court were to find such a relationship exists, it should give deference to the

terms the parties have agreed to, including the shaping or disclaiming of any fiduci-

ary duties. Additionally, a court should follow the cases that have evaluated a poten-

tial breach of a fiduciary duty through the lens of the unique nature of the music

industry and its customs, which serve to benefit the artists, Record Labels, and music

listeners.

Inc., 529 N.Y.S.2d 279, 283 (N.Y. App. Div. 1988) (finding a breach of duty based on an

informal fiduciary relationship involving one party placing trust in the integrity of another party

based on friendship or previous business dealings); Universal-MCA Music Publ’g v. Bad Boy

Entm’t, Inc., Index No. 601935/02, 2003 WL 21497318, at *5 (N.Y. Sup. Ct. June 18, 2003)

(finding breach of fiduciary duty when Combs sacrificed royalty income due to all artists by

invoking the cap in his Recording Agreement on Compositions that he co-wrote with them).