May 12, 2014 1:14pm PT by Eriq Gardner
Dr. Dre Loses $3 Million Royalty Claim on Debut Album
Dr. Dre is riding high on news that Apple is prepared to buy Beats Electronics, a potential deal that allowed the hip-hop star to proclaim himself as the "first billionaire in hip-hop." That could be some solace to word from a California bankruptcy court that a $3 million claim concerning royalties on his breakthrough album, The Chronic, has been denied.
The administrative claim in bankruptcy court came after a couple decades of unusual deal-making. In 1991, the artist born as Andre Young co-founded Death Row Records along with Marion "Suge" Knight. The following year, he released The Chronic and made an oral agreement with the label that entitled him to 18 percent of retail sales. The royalty rate bumped to 20 percent with sales over a million units, and additionally, Dre got producer royalties of 4 percent.
But in 1996, Dre and Knight had a falling out, and the artist split the label to set up a new shop at Interscope Records. Dre bought his freedom by disclaiming his ownership interest in both Death Row and the sound recordings he had produced there, but the deal left unaffected his royalties and limited Death Row from distributing The Chronic to "the manners heretofore distributed."
A few years later, Death Row hit hard times, and after filing for bankruptcy, was sold for $18 million to a new company called WIDEawake Death Row Entertainment. In 2012, an entity controlled by Koch Entertainment acquired the catalog of Death Row.
As Death Row's assets were being shuffled around, its owners attempted to exploit the goods, and perhaps the most valuable was The Chronic. When a new digital release was put out, Dre sued, and in 2011, a judge ruled that the agreement not to distribute Dre's songs except "in the manners heretofore distributed" unambiguously prohibited Death Row from reissuing it as digital downloads.
Going before a bankruptcy judge administering the Death Row estate, Dre looked to recover money made on The Chronic between 2006 and 2009. He sought $676,444 of mechanical royalties, $1.2 million of artist and producer royalties and nearly another $1.2 million in gross sale proceeds from unauthorized digital sales. "The Trustee sold Young’s records for three years and never paid Young a single dime," Dre's lawyers told the judge. Pushing the point, they added, "Were it not for the Estate’s contracts with Young and other artists, the Trustee would not have had anything to sell WIDEawake."
All that might be true, but in a decision Friday, U.S. bankruptcy judge Vincent Zurzolo gives two reasons why Dre's administrative claims fail.
First, attorneys for the star failed to allege some necessary facts to support their claim. After 1996, Dre dealt exclusively with Interscope. The judge says the artist needed to go beyond album sales spreadsheets to show Interscope's withholdings and payments. As for digital sales, Dre spoke about a deal between Death Row and third-party Musicmaker, but needed to -- and didn't -- allege actual sales from the arrangement. In short, he failed to show Death Row's benefit from sales of The Chronic during the relevant time period.
And second, the judge pointed to prior proceedings back in 2007, when Dre sought to rescind his contract with Death Row and then claimed old royalties due. At the time, his claims were denied for failure to establish the existence of a contract entitling him to payment of royalties. The reliance on a vague oral agreement was one of the things that hurt him. Dre later had some success on his digital sales claim, but nevertheless, the bankruptcy judge Friday says his latest stab at royalty recovery is partly precluded by what has come before and otherwise barred by statute of limitations.