Salt 'N Pepa Win Back Their Royalties

NEW YORK -- Salt 'N Pepa on Aug. 19 won an appeal against Noise in the Attic Productions.

A New York Appellate Court unanimously reversed a December 2003 judgment granting Noise more than $540,000 and the right to collect future royalties from the rap act's records.

Cheryl Wray and Sandra Denton, performing as Salt 'N Pepa, entered into a production agreement with Noise for their fourth and fifth albums. The three then forged a deal with London Records for distribution. London also acquired rights to SNP's first three albums.

Although the production deal required all of SNP's royalties to be paid directly to the artists, London declined to make direct payment. Therefore, Noise and SNP set up a trust account in Noise's name, but under the control of a third-party joint venture of Noise, acting as SNP's manager.

After release of the fourth album, SNP formed a new production company and signed with MCA Records to record four more albums after their fifth one with London was completed. London later assigned its rights to record and distribute the fifth album to MCA. Noise was not a party to the MCA deal, so arrangements had to be made with Noise for the fifth album.

SNP and Noise entered a settlement agreement in 1997. Noise gave up its right to produce the fifth album and consented to London's assignment of that album to MCA. In exchange, SNP agreed to pay Noise a $2 million recoupable advance on its share of royalties. SNP had the right to recoup $1.6 million from Noise's share of royalties from the first five SNP albums and the remaining $400,000 from merchandising income.

Noise dissolved in 1997. Subsequently, the company sued London, MCA and its parent, Universal Music Group, for allegedly not paying all royalties due. UMG brought SNP into the action for indemnification and contribution.

Eventually UMG deposited more than $455,000 in disputed royalties in trust with the court, and the labels were dismissed from the suit. Noise amended its complaint and continued the suit against SNP.

At trial, a jury found that SNP breached one or both of its agreements with Noise -- the settlement agreement or the letter agreement setting up the trust -- without specifying which. However, the jury also found that Noise suffered no damages and awarded no money. Noise's motion to set aside the verdict was denied.

After the verdict, both parties submitted proposed orders for the judge to sign. Inexplicably, the court signed an order submitted by Noise directing SNP to pay more than $540,000 to Noise and directed all future royalties on the sale of SNP records to be paid to Noise and distributed according to the terms of the settlement and trust agreements, "which are in full force and effect."

SNP appealed. The Appellate Court unanimously reversed the order and directed payment of the disputed royalties, and all future royalties, to SNP until their $1.6 million advance is recouped.

The court also reversed the judgment permitting Noise to collect future royalties. Although a dissolved corporation could pursue a claim for its share of royalties, it cannot have an indefinite right to receive and administer record royalties, especially when the royalties "in large part, belong to SNP."