Split Over Settlement Could Endanger Artists' Health Claims

A major rift about health benefits due recording artists between the leadership of the American Federation of Television & Radio Artists (AFTRA) and the trustees of the union's separate Health and Retirement Funds seems certain to bring into the public spotlight ongoing charges of the Funds' inept and incomplete record-keeping. Allegations of non-payments or underpayments on the part of U.S. labels are also likely to come to light.

The fight pits Greg Hessinger, AFTRA's national executive director, against its funds unit, responsible for collecting and distributing benefits to featured recording artists, whether they are AFTRA members or not. It also threatens to blow apart an already controversial proposed settlement of a 9-year-old lawsuit waged by 15 veteran R&B artists. Their 1992 lawsuit charged the funds with breach of fiduciary duty. At stake is not only a payout for the 15 named plaintiffs in return for dropping the charges, but also the treatment of many thousands of eligible artists not active in the suit.

Under the collective bargaining agreement of the first Phono Code law of 1959, record labels are required under federal law to pay health and pension benefits to recording artists. The payments were to be based on gross compensation, including advances.

The rift comes as lawyers for the funds and half their trustees, mostly representatives from broadcast networks (AFTRA's main constituency) rejected Hessinger's requests May 22 to further modify the proposed settlement.

In meetings with Hessinger in mid-May, the trustees accepted changes to allow future claims of underpayment by artists unnamed in the suit, especially if unrecouped. The trustees also approved benefit claims by artists with pre-1959 recordings, since the recordings had been remastered in the CD era and carry newer copyright dates.

At the May 22 meeting, however, the trustees rejected Hessinger's call for modification of a blanket release of the settlement and more open-ended, non-prejudicial terms for future claims by the eligible artists. Hessinger had initiated the call for changes after discussions with alarmed artists and activists.

"I told the trustees, 'You have a choice: Either agree to the changes, or try and get the settlement approved over the objections of this union,' " Hessinger tells Billboard. "They rejected them, so AFTRA is going to actively oppose the settlement. So we're gonna file papers saying we oppose the settlement because it adversely affects class-action participants and infringes on the union's right as a collective bargaining agent to determine what our own contracts mean." The lawyer representing the funds could not be reached for comment.

The decision by the AFTRA leader underscores the union's more aggressive stance in recent years in defending the rights of recording artists.

Bonnie Raitt, a member of the Recording Artists Coalition (RAC) and a longtime activist, says: "Greg has shown integrity and courage in standing up for the rest of the AFTRA constituency in this case. For those of us working to help the artists who have not gotten the help they deserve, this is a watershed moment in the struggle, and I can't thank him enough. This kind of conscience in action is what an organization like AFTRA should be doing for the artists it represents, and I'm hopeful that Greg will work to get the unpaid health insurance and pension benefits to those in need."

Howell Begle, the lawyer best-known for his reform efforts to secure modern royalties for veteran R&B artists, says, "I think he's courageous for stepping up and dealing with the concerns. But it doesn't change the sad fact that there are years and years of bad record-keeping at the funds."

Joyce Moore, wife of plaintiff Sam Moore and the driving force behind the lawsuit, says: "It's a wonderful first step. Maybe now someone [at the funds] will say, 'Well, boys, it's all out in the open now, so let's deal with it and try to clean this mess up.' "

Jay Rosenthal, co-counsel for the RAC, says the coalition hopes that AFTRA leadership "will continue to address other lingering problems with the AFTRA Health & Benefit Fund."

In 1992, 15 veteran R&B artists sued the funds for fiduciary irresponsibility for basically botching its mission from 1959 to 1992 due to inept or nonexistent record-keeping and failure to enforce legal obligations requiring record companies to contribute payments to both recouped and unrecouped artists. The messy suit dragged on for nine years and featured almost as many lawyers.

Even with the changes, the proposed settlement is hardly a triumph. In exchange for dropping the charges against the funds, there is an offer of a one-time settlement of $8.5 million. The 15 veteran R&B artists who brought the suit are being offered $100,000 each—a total of $1.5 million. It also allows lawyers in the case to take 25% of the gross recovery—about $2 million. Thousands of unnamed artists in the class-action settlement will not do as well in the split of the remaining $5 million. After administrative deductions of about another $1 million, the artists in the class-action suit—as many as 10,000—could receive a small settlement of about $400 each in benefits for those years.

The settlement money comes from the well-heeled funds' insurance underwriters and not from collected record-company contributions.

Five of the 15 artists have rejected the proposed settlement, and another has not yet accepted. The settlement goes before Judge Clarence Cooper in U.S. District Court June 20 in Atlanta for final approval. There's also a growing list of artists from the class action who have written to reject the settlement, including Bruce Hornsby, Kenny Loggins, Dionne Warwick, and such elderly pop stars from the pre-rock era as Patti Page and Frankie Laine.

The crisis comes as AFTRA negotiates with U.S. record companies over a new Phono Code (now called the Sound Recording Code) to establish terms for health and pension benefits. In recent years, AFTRA has engaged recording-artist issues to a greater extent than in the past, supporting the successful repeal of the work-for-hire amendment put forward by the recording industry, direct payment of equitable digital royalties to artists, repeal of the recording-industry exemption from the California seven-year personal-contract rule, and greater artist representation in the SoundExchange digital-royalties collection unit.

The major change proposed by Hessinger in the settlement language rewrites the provision that will shut off future claims by artists against the labels that they had not paid health and retirement benefits or that benefits were incorrectly calculated. It also makes clear that AFTRA interprets the language of the Phono Code of that era to mean that the labels had obligations to report earnings and pay contributions up to a maximum of $100,000 for a group or individual, whether the artists are recouped or not.

Some critics say that even the revised language in the settlement still lets the funds off the hook for past inequities, but others say that because there are so many years of data that are incomplete or missing, the mess can never be sorted out. Statute-of-limitations rules may also apply.

Hessinger pledges that AFTRA will work with artists if they claim improper credits from their labels. "Given the fact that no class member is [now] foreclosed from bringing a claim to restore improper deficiencies in pension credits, and given the lingering questions surrounding the record-companies' payment and accounting practices during the years in question, AFTRA believes it imperative that the union provide assistance to any class member who feels that they have been deprived of appropriate credit."

He says that once the revised settlement is finalized, "AFTRA will be independently communicating with artists to offer assistance to anyone who wishes to submit a benefit claim to the funds based upon any such deficiencies. We will dedicate whatever staff personnel are necessary to provide effective assistance and representation to claimants."

Begle thinks AFTRA should go further: " 'Offer assistance'? What's that mean? Individual artists don't have the clout or resources to do it themselves. If there's a dispute over ambiguities about who's eligible to be paid in the Phono Code, they should represent the little-guy artist and take the labels to binding arbitration."

Hessinger is keeping his cards close to his chest. He says, "That's what should be done."

The 15 plaintiffs continue their claims against their former labels, charging racketeer-influenced and corrupt organization violations, in a separate ongoing 1992 lawsuit. The named plaintiffs in the funds suit are Samuel D. Moore; Curtis Mayfield; Jerry Butler; Carl Gardner; Brian Hyland; Jerry Landers, administering the Jackie Wilson estate; the estate of David Prater Jr.; Doris Jackson; Marshall Thompson; Stacey Womack (as beneficiary for Mary Wells); Lester Chambers; Willie B. Pinckney; Barbara Acklin; Alfred Smith, professionally known as Brenton Wood; and Otis R. Harris Jr., professionally known as Damon Harris. Moore, Hyland, Womack, Wood, Pinckney, and Prater have either rejected or not yet agreed to the settlement.

The funds division during that era was not a pretty picture. Frederick Wilhelms was hired in 1988 to run the unit after earlier directors without any administrative or auditing experience retired or were fired. He says he found the office and files in a "shambles. There were many incomplete and unsettled audits, and 30-cent-on-the-dollar settlements plowed into a general fund with no way of determining the earnings of individual participants. Not all companies were audited for each payment period, nor did they forward earnings for their entire rosters." The funds unit was required to file annual earnings statements for everyone it had names and addresses for, but "every year thousands would be returned for bad addresses—and were then used as scrap paper.

"There was also what was called the 'No Soc' file, containing the names of 30,000 performers—not all vocalists—for whom AFTRA funds had received contributions," Wilhelms continues. Lacking their social security numbers or addresses, AFTRA funds, he says, "made no effort to find correct information nor allocate contributions to those individuals' accounts."

Critics of the proposed settlement oppose the provision that ties artists' shares, in lieu of accurate paperwork, to Billboard singles charts of that era. Wilhelms says, "What about successful album artists like the Grateful Dead who only had one charting single?" Others point out the sales inaccuracies and built-in racism of older charts that kept black artists off the main, white-dominated pop charts.

Recording artists and their managers must share some of the blame, observers say. A sampling of managers contacted by Billboard say that even today, most admit they don't have the AFTRA funds on their radar, partly because the unit has done little outreach.

When pensions and benefits questions did hit the radar, managers had to rattle the cages of the labels and the funds to get their attention about contributions. Industry veteran Irving Azoff—head of Giant Records, manager of Don Henley, and former manager of the Eagles—says: "During the late '80s or early '90s, I checked into the payments for one of the Eagles during the period when the group had broken up. Elektra just quit making contributions to AFTRA on behalf of the Eagles. And AFTRA never notified us that they weren't getting the contributions.

"One of our accountants was checking accounts and caught it," Azoff continues. "So we went back to Elektra and said, 'We're gonna sue you—why haven't you paid this money?' They said, 'Because we didn't have to—your band was broken up.' And we said, 'No, no, no, we were still selling records. The contract says you still have to pay.' So Elektra finally agreed to make the contributions. It took me a year and cost me about $25,000 in legal fees. We couldn't even get AFTRA to confirm to us that the money was credited to that individual's account! Eventually—we think—it got straightened out. It was a bureaucratic nightmare."

Wilhelms says the funds unit relies on voluntary reporting and payment, but prior to his arrival, "there was no collections department, no procedures for pursuing overdue or uncollected contributions, no appellate structure for participant appeals of eligibility determinations." Further, there weren't any label audits until 1979.

Continued pressure by Wilhelms for changes from the funds trustees led to his termination in 1992. He then became an artist's advocate, working with clients unrelated to the lawsuit on such matters as securing back royalties.

A selected timetable of archived Billboard stories about the artists' lawsuit against the funds and the labels includes the issues of March 27, 1999; Dec. 16, 1995; and May 7, 1994.