EMI Group Plc., the world's third- largest music company, and affiliate Capitol Records, Inc. must face a suit by representatives of the Beatles claiming the companies improperly "pocketed millions of dollars'' in music royalties from the band.
New York State Supreme Court Justice Karla Moskowitz denied EMI's request that the suit for fraud and breach of contract be thrown out. The complaint seeks to reclaim rights to all of the master recordings by the defunct British rock band, said Beatles lawyer Paul LiCalsi.
"It's a great win for us,'' said LiCalsi, a lawyer with Sonnenschein Nath & Rosenthal in New York. "It's been a very complicated and long-standing relationship between them. We're now being allowed to have a chance to show that there's a higher than simple contractual duty.'' The dispute between the Beatles, Capitol and London-based EMI dates back three decades, Moskowitz said in a Aug. 23 ruling, to when the Beatles alleged in a 1979 suit that the companies underpaid the band by more than $20 million. The Beatles' company Apple Corps Ltd. is also a plaintiff.
A settlement was reached in that case in 1989, LiCalsi said, granting the band and Apple increased royalty rates and requiring EMI and Capitol to follow more stringent auditing requirements. The lawyer said a recent audit uncovered fraud, triggering the filing of the new lawsuit in December.
The Beatles, including the estate of the late George Harrison and John Lennon's widow Yoko Ono, claimed that EMI and Capitol wrongly classified copies of Beatles recordings as destroyed or damaged, and secretly sold them for more than $19 million, retaining the proceeds.
The suit also claimed the music company underreported the number of units sold. The Beatles are seeking at least $25 million in damages and unspecified punitive damages, LiCalsi said. The band's representatives said the record companies had exercised a "half-century exclusive right to exploit commercially the Beatles' recordings on a worldwide basis,'' Judge Moskowitz said today.
EMI argued in court papers that the suit is an attempt to "dress up a contract claim,'' and that it should be dismissed as untimely and because a fiduciary relationship no longer exists between the company and the band.
Anthony Diana, a lawyer for EMI and Capitol with the law firm of Mayer Brown Rose & Maw in New York, didn't return a call seeking comment. A spokesman for EMI wasn't immediately available for comment.
The company abandoned last month a third effort to buy Warner Music Group and form the world's second-biggest music company after a European Union court decision dimmed the prospects for regulatory approval.
EMI and New York-based Warner Music each offered about $4.6 billion for the other in June. EMI had been trying since 2000 to buy Warner. The combined company would have had a quarter of the market, moving ahead of Sony BMG to rank behind Vivendi SA's Universal Music Group.
EMI, with artists including Coldplay, has long been strong in the U.K., while Warner is known for U.S. acts including Madonna and the Red Hot Chili Peppers. In the U.S. last year, Warner had a 17.3 percent market share to EMI's 10.4 percent, according to Nielsen Soundscan.
The case is: Apple Corps Ltd, Apple Records et al v. Capitol Records Inc. and EMI Records Limited, No. 05-604385, New York Supreme Court, New York County.
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