Variety’s Logo “Vandalized”
Contrary to popular opinion, settlement agreements don’t always end litigation. Exhibit A: Reed Elsevier Inc., Variety’s parent company, is suing the Californian punk band, The Vandals, despite the parties’ settlement in 2004. The dispute began when the media conglomerate took umbrage at The Vandals invoking its trademark Variety logo on the cover of its “Hollywood Potato Chip” album. (The title is a vulgar reference to dried semen left on a Hollywood casting couch) The Vandals settled out of court, agreeing to pay $2,500.00 and to eradicate all traces of the offending cover art. But now Reed Elsevier is suing the band again, this time because it believes the terms of the settlement have been breached.
In December 2009, Reed Elsevier claims it discovered the prohibited image on some websites that it alleges were controlled by the band. In February, the newsgroup’s lawyers informed the band that it was in breach and owed $50,000.00 in liquidated damages and $25,000.00 lawyers’ fees as mandated by the settlement. The band was also asked to sign an amended settlement agreement without a provision for a “cure period” and liquidated damages of $100,000.00 for the next violation.
True to its punk rock ethos, The Vandals refused to this lying down. Statements to the press and fans by Joe Escalante, the Vandals’ bassist and its attorney, have stressed that the original album art is protected by the First Amendment as parody. And while that may be true, it’s actually irrelevant to the case at hand. The media is mischaracterizing the current lawsuit as a free speech issue. Because the band signed the settlement agreement rather than litigating the underlying issue six years ago, only contractual issues arising from that document are up for dispute.
The band claims that it no longer uses the logo on any website under its control and that websites listed in the original complaint are maintained by third parties over whom it has no power. This may be a valid defense: the language of the settlement only requires The Vandals to take “reasonable steps” to stop third parties from using the logo.
Mr. Escalante has filed a motion to change the venue of the pending trial from federal court in Delaware to California on the grounds that a Delaware trial would be excessively burdensome to The Vandals. California is where both parties and their attorneys reside and the only state where Mr. Escalante is licensed to practice law. He believes that Reed’s choice of venue is just a way of preventing the cash-strapped band from adequately contesting the lawsuit. But the Delaware venue is specified in the same provision of the settlement agreement that contains its cure period. By signing it, The Vandals consented to Delaware courts having personal jurisdiction. Since Reed Elsevier Properties, Inc. is a Delaware corporation, the state has jurisdiction over it. (The band says it signed the settlement under duress since it couldn’t afford to litigate, but there is no evidence of undue coercion.)
While Variety has kept mum about the lawsuit in its publications, Mr. Escalante is doing his best to publicize The Vandals’ side of the story to garner support in this costly legal conflict. The band even created a video featuring the offending album cover. This is a violation of the settlement’s confidentiality clause, and if a judge decides the confidentiality clause was a material term of the agreement, The Vandals could face additional sanctions.
On the other hand, the band may have a valid defense if it can prove that it wasn’t given its contracted thirty days to cure a breach after being notified in February. A cure period allows a party to a contract to rectify any breaches on its part within a limited time span before being liable for violating the contract. Since the offending image had disappeared from the alleged websites within a month after it was notified, the band believes it shouldn’t have to pay any damages. Reed Elsevier believes it doesn’t need to recognize a cure period for a breach that was material.
In addition, The Vandals contend that the current lawsuit is born of bad faith and therefore invalid. There is an implied duty of good faith in every contract. The Chancery Court of Delaware defines a breach of good faith as “engaging in unfair dealing, that prevents the other side of the contract from getting its fair bargain.” The band alleges that Reed Elsevier acted in bad faith by denying it the cure period that it had negotiated. The parties agreed to cooperate to promptly remove all instances of the original art from the web, but The Vandals were not informed of the breach until almost two months after the supposedly harmful image was discovered online. In its motion to deny change of venue, Reed Elsevier admits that “an additional breach was discovered … then not identified to Defendants as a way to gauge how serious an effort at curing would be.” If The Vandals can convince the court that Reed Elsevier didn’t uphold its duty to deal fairly with them, it would help their case immensely.
This lawsuit should be a lesson to all about the importance of carefully drafting and reading contracts. If you don’t want to be sued in Delaware, don’t sign a settlement that includes such a clause. Check if there’s a confidentiality clause before broadcasting a dispute in a YouTube video and posting the relevant documents to your website. If a contract allows a month-long opportunity to fully cure breaches, you can’t bring a lawsuit in good faith by ignoring this provision.
Whether anybody learns these lessons hinges on the outcome of the pending trial.
UPDATE, February 15, 2012: The Vandals can celebrate; the suit against the group was dismissed.