Goodbye American Idol, Hello Lawsuit
When Aerosmith’s lead singer, Steven Tyler, left “American Idol,” word was there there were no hard feelings on either side. But now come reports that his management company, Kovac Media Group, Inc., was unhappy with his decision to leave his judge’s robe behind. And it was even more unhappy when Mr. Tyler changed management companies.
KMG’s complaint stated four causes of action: breach of fiduciary duty, breach of the duty of confidence, intentional interference with contract, and intentional interference with prospective economic advantage. The media reported them but didn’t analyze each one. LASIS will.
1. Breach of Fiduciary Duty
KMG alleges that Ms. LaPolt had a fiduciary relationship to both KMG and Mr. Tyler because she represented both parties in their business affairs, including participating in negotiations, developing strategy, and providing general legal advice. The complaint alleges that Ms. LaPolt, who represented both Mr. Tyler’s and KMG’s business affairs, breached her fiduciary duty to the company by disclosing to AI the details of its renegotiation strategy.
This cause of action is difficult to assess without additional facts. California Jurisprudence, a treatise that states and explains California law, states that, “The relationship between attorney and client is a fiduciary relationship of the very highest character and binds the attorney to most conscientious fidelity.” To assert a claim for breach of fiduciary duty, there must exist an attorney-client relationship.
In a 2003 California Court of Appeals case an attorney was hired by one party to represent it in a dispute with another party, and the attorney decided to try to mediate the discussions between the parties. Before the mediation discussions began, the attorney sent both parties a letter explicitly stating that the attorney represented one of the parties, and only one of the parties. The mediation effort failed. The other party later sued the attorney for breach of fiduciary duty. The court dismissed the claim for breach of fiduciary duty because there was no attorney-client relationship with that second party.
For KMG to prevail on its breach of fiduciary duty claim, it must present evidence that proves the existence of an attorney-client relationship between KMG and Ms. LaPolt. The general practice is for attorneys to memorialize agreements with new clients in the form of an engagement letter. That KMG and Ms. LaPolt sat on the same side of the table and shared information when negotiating with AI on Mr. Tyler’s behalf does not mean that such an attorney-client relationship existed. Considering the “long-standing relationship” between KMG and Ms. LaPolt alleged in the complaint, the sophistication of the parties, and the obvious conflict of interest associated with Ms. LaPolt’s representation of Mr. Tyler, it would be surprising if a court found that an attorney-client relationship existed absent some form of written agreement.
2. Breach of the Duty of Confidence
KMG’s second cause of action is for breach of the duty of confidence. This suffers a similar deficiency to its first cause of action — namely, the lack of an attorney-client relationship.
KMG alleges that Ms. LaPolt breached her duty of confidentiality by disclosing to AI confidential and proprietary information given to her for the purpose of providing legal advice and services regarding Mr. Tyler’s renegotiation effort.
Section 6068(e)(1) of the California Business and Professions Code provides: “It is the duty of an attorney to . . . maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” But in a 2002 decision, the California Court of Appeal succinctly stated that, “a lawyer owes no general duty of confidentiality to nonclients.”
Again, KMG must establish the existence of an attorney-client relationship between itself and Ms. LaPolt to proceed on its claim for breach of the duty of confidence. And on this claim too, KMG is unlikely to jump this initial hurdle.
In addition, a claim for breach of the duty of confidence is primarily a tool for a party to disqualify its opponent’s attorney – not a reward of money damages as KMG is seeking.
3. Intentional Interference with a Contract
KMG’s third cause of action is based on additional facts alleged in the complaint that do not relate to the unsuccessful negotiations with AI, but rather to subsequent events.
KMG alleges that following the unsuccessful renegotiations with AI, Ms. LaPolt “instigated and facilitated” the departure of both Mr. Tyler’s manager and Mr. Tyler from KMG. Because Mr. Tyler was still under contract with KMG, the parties entered into a termination and release agreement, which provided that KMG would receive a portion of the manager’s two percent commission from the rocker’s earnings for the next two years.
The complaint alleges that Ms. LaPolt then took one percent “of the top” of these two percent commissions.
California provides a cause of action for intentional interference with a contract. A 1998 decision by the Supreme Court of California sets forth the five elements to state a claim for intentional interference with contract: (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.
If the facts alleged by KMG are true, then is seems likely the cause of action will go forward and ultimately succeed. That’s because: (1) there was a valid contract between KMG and Mr. Tyler’s manager; (2) Ms. LaPolt, as the alleged instigator of the departure, was aware of the contract between KMG and Mr. Tyler’s manager; (3) Ms. LaPolt took half of the two percent commission owed to Mr. Tyler’s manager; (4) Ms. LaPolt’s actions disrupted the agreement because KMG has not received its rightful share; and (5) KMG was damaged by not receiving the amount bargained for.
4. Intentional Interference with a Prospective Economic Advantage
KMG’s final cause of action for intentional interference with a prospective economic advantage is based on peculiar factual circumstances. KMG alleges that the Mr. Tyler’s highly regarded performance on the TV show placed him in a superior bargaining position with leverage to obtain more favorable contract terms. KMG alleges that Ms. LaPolt sabotaged the negotiations with AI by bad-mouthing, disparaging, and defaming KMG’s principal, resulting in the loss of both the original contract value and any additional compensation that could have been negotiated upon renewal.
California recognizes a cause of action for intentional interference with a prospective economic advantage. In 2003 the Supreme Court of California summarized California’s law on this cause of action and provided the elements needed to state a claim for intentional interference with a prospective economic advantage: There must be: (1) an economic relationship between the plaintiff and a third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt that relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.
In addition, to satisfy the third element of this claim, the intentional acts intended to disrupt the plaintiff’s relationship with the third party, the plaintiff must allege an act that is wrongful independent of the interference itself, meaning that outside the relationship, the actions would be deemed unlawful “by some constitutional, statutory, regulatory, common law, or other determinable legal standard.”
To illustrate: A 2007 case before the United States Court of Appeals for the Ninth Circuit involved an employer who offered truck driving training to potential employees provided that the employees signed a contract obligating them to remain with the company for a certain period of time. Another company hired two of these now trained truck drivers away from the first employer, which sued, claiming intentional interference with a prospective economic advantage because the two drivers were still under contract. The court held that the facts were sufficient to move forward on the claim and that a violation of California’s Unfair Competition Law against intention interference with an existing contract satisfies the requirement that the action be independently wrongful.
Likewise, KMG could sue Eric Sherman, Mr. Tyler’s new manager, a former employee of KMG who left as a result of Mr. Tyler’s “divorce” from AI, because he disrupted the company’s relationship with its client. But, KMG is suing Ms. LaPolt, a party who arguably received no benefit from Mr. Tyler switching managers and it remains to be seen whether a cause of action for intentional interference with a prospective economic advantage can be sustained when the defendant may have influenced the outcome, but nonetheless derived no benefit from interfering.
Further, KMG must overcome the hurdle created by Mr. Tyler’s recent interview with Rolling Stone. When Mr. Tyler and AI parted ways, Mr. Tyler described his experience as “over-the-top fun” and that he “loved every minute of it.” But during his Rolling Stone interview, Mr. Tyler revealed that AI was “something to do while the storm blew by” (referencing a falling out with the Aerosmith band members) and that it was “not his cup of tea.” These statements affect KMG’s ability to prove that there was a probability of future economic benefit (a requirement for the first element of the cause of action) because the statements indicate that Mr. Tyler wanted to walk away from the show, and for reasons outside of how lucrative a deal could have been struck.
This may also explain why KMG ultimately lost Mr. Tyler as a client. Maybe KMG was using its fast-talking agents to coerce the legendary singer back to the judging table. Maybe Ms. LaPolt was smart enough to see the writing on the wall and helped Mr. Tyler extricate himself, thus retaining his business.
It will be interesting to see how a court will decide this case if it proceeds to trial. But don’t expect too much because while lawsuits between management companies, agencies, and artists are a dime a dozen, they rarely get to the stage where a judicial decision becomes necessary.