Singer Carly Simon is singing the blues. She’s steamed at Starbucks. It’s not because someone spilled hot coffee on her. It’s because Starbucks decided to go out of the music business five days before her latest album was to be released for distribution at the famous barista, right next to those impulse-purchase cookies and candy.
Ms. Simon’s able legal team sued for breach of contract. Unfortunately, in April a California court threw the case out on summary judgment. Summary judgment is a procedure that can be used early in the court proceedings to get a case tossed. The standard used to evaluate a motion for summary judgment is to give the plaintiff the benefit of the doubt. Basically the defendant says “look, even if everything they say is true, so what . . . . there is no genuine issue of material fact, there’s nothing to decide, there’s no case.”
Here the dispute hinged on whether Starbucks had an obligation to distribute Simon’s new album in their stores. Starbucks says it didn’t because the contract was with Starbuck’s subsidiary, Hear Music, a separate legal entity owned by Starbucks.
Of course, as a practical matter, when Starbucks pulled the plug on Hear Music, Ms Simon’s contract went down the drain with it. That’s her point. Essentially, Ms. Simon is asking the court to ignore the separate legal structure and reach back to the parent company for accountability. She is asking the court to “pierce the corporate veil.” Unfortunately, the corporate veil may only be pierced in extraordinary circumstances. It’s easier said than done.
Ms. Simon’s legal team has recently amended her complaint in an effort to do exactly that. They are now offering evidence of statements made by Starbucks to induce Ms. Simon to sign with Hear Music. A court will ultimately decide with the new information is enough to allow the case to move forward.
For our purposes however, Simon’s dispute with Starbucks is a valuable reminder about making sure we understand who the entity is we’re contracting with and what role, if any, a third party could have on the ability either party to the written agreement to perform their respective contract obligations.
Keeping that fundamental principle in mind when negotiating a contract will help you determine whether you need any additional indemnities or assurances to protect your interests from interference by that third party. This way even if they do pull the plug on you you’ll have some recourse and won’t be left holding bitter grounds that may, or may not, be the basis of a successful lawsuit.