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July 20, 2009 6:57 PM

Motown Magic Sues Willkie Farr for Fraud, Breach of Contract

Posted by Brian Baxter

Willkie Farr & Gallagher was sued in federal court in Los Angeles last week by Lamont Dozier, the cofounder of songwriting and production team Holland-Dozier-Holland, which was behind hit Motown acts like The Supremes and The Isley Brothers.

At issue: Willkie's role advising on an issuance of Bowie Bonds, the asset-backed security for song royalties sometimes called Pullman Bonds because they were popularized by the banker David Pullman, now chairman and CEO of The Pullman Group in New York.

Bowie Bonds took the market by storm in 1997 when Pullman helped securitize future royalties from 300 David Bowie songs, including his 1972 hit Ziggy Stardust. The bonds were once hailed as a new form of IP securitization and other artists soon followed Bowie's bond lead. (A legal battle in the estate of renowned entertainer James Brown revealed how Brown mortgaged royalties to hit songs for up-front payments from bond sales.)

The case against Willkie and several other defendants--including Bankers Trust, now owned by Deutsche Bank, and a group of John Does--was filed by Dozier in U.S. district court on July 15.

LamontDozier According to the 11-page complaint, Dozier (pictured right) was represented by Willkie in a securitized transaction in June 1998 with Pullman and a New York-based brokerage firm called Fahnestock & Co. The transaction set up entities for Dozier to issue bonds that were purchased in exchange for royalties to a catalog of songs over a 10-year time period. Dozier's former partners, brothers Edward and Brian Holland, entered into identical securitized transactions.

The complaint states that Dozier's purpose for the transaction was to "generate sufficient funds to satisfy the preexisting tax obligations of Dozier and to provide income for living expenses of Dozier and his family."

Revenue from song royalties would flow to Bankers Trust, which served as trustee for the transaction. The entities created for Dozier by Willkie would sell bonds in excess of $6 million to Fahnestock with Dozier as the beneficiary. Dozier alleges that Willkie represented both sides of the table on the transaction, issuing opinion letters for the creation of trust documents and songwriter agreements to which Dozier was a party.

According to the complaint, the problem occurred with regards to the creation of a tax reserve to pay taxes incurred by Dozier for the securitized transaction and subsequent royalty streams. The tax reserve was placed in the sixth order of priority in payments, leaving Dozier with insufficient funds necessary to meet his tax obligations. Ahead of the tax reserve were payments for interest to the purchaser and fees for Willkie and the trustee.

As a result, Dozier maintains that no taxes were paid. In order to satisfy his tax obligations, Dozier claims he was forced to go out and obtain a "hard money" loan at an interest rate of 15 percent to cash the buyers of the bonds out so they could catch up with the tax payments.

The suit accuses Willkie of fraud, breach of contract, and breach of fiduciary duty, and seeks compensatory and punitive damages totalling nearly $9.5 million. Dozier is represented by Los Angeles litigator Sanford "Sandy" Passman. (Passman has longstanding ties to Motown. He was the coproducer of the 2002 award-winning music documentary Standing in the Shadows of Motown, which won two Grammys and a New York Film Critics Award.)

The complaint also states that Dozier was forced to use Willkie for the Bowie Bond issuances, even though the firm provided no conflict-of-interest waivers for representing multiple parties on the same transaction. The firm served as regular outside counsel to Pullman at the time, according to a previous civil suit filed by Pullman against Willkie and several other defendants in November 1999.

Court filings in that litigation reveal that former Willkie partners Richard "Dick" Rudder and Richard Sammis, both now partners at Baker & McKenzie, advised on the Bowie Bonds. While Willkie did not respond to a request for comment to this story--the firm had yet to be served with the complaint--Rudder says the Dozier suit is merely the latest "crazy" filing related to the Pullman bonds.

"It's one of the risks when dealing with individuals who don't understand the finance market," says Rudder, adding that the suit Pullman filed against Willkie several years ago was dismissed. "It's very unfortunate, if things go wrong in their life they look for someone to blame. This kind of thing has happened before and it will happen again."

Rudder and Sammis were not named in the Dozier complaint and therefore have not retained counsel.

The Holland brothers previously filed a suit against Pullman in 2001, but the case was later dismissed. The two are understood to be in financial straits similar to that of Dozier, but have so far not filed a suit against Willkie and Deutsche Bank on their own.

The Holland-Dozier-Holland songwriting team reunited last year to write the score for the musical version of The First Wives Club, which is currently playing at The Old Globe theater in San Diego. It hopes to make it to Broadway next year.

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The key phrase in this suit is:
The allegations address the Defendants’ conflict of interest and failure to fully inform the Plaintiff as to all of the consequences resulting from the securitized transaction. When money was received by the Defendants to retire the bonds, it was taxable and that liability was paid out on a tax free basis to the purchaser of the bonds. Additionally, law firms, bank fees and other charges were paid without any payment made towards the taxes due. Thus, the Defendants failed to provide for the tax liabilities suffered by Dozier, causing interest and penalties in addition to the tax liability.

This is not the first time charges have been made against the parties. A number of other well-known artists also participated in similar transactions, including but not limited to David Bowie, for whom this type of transaction was named, Brian and Eddie Holland, former partners of Dozier in the legendary songwriting and producing trio Holland-Dozier-Holland, Ashford & Simpson, and others.

Law Firm is GUILTY!

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