Rock-and-Rollers Seeking Royalties Run Smack Into Daubert
The Bay City Rollers was a Scottish pop band that reached superstardom in the UK during the mid-1970’s with hits like "Shang-a-Lang" (UK No. 2), "Summerlove Sensation" (UK No. 3), and "All of Me Loves All of You" (UK No. 4). Comparisons to the Beatles became common. Then Arista Records successfully launched the band in the United States, where their song “Saturday Night” reached No. 1 on the US Billboard Hot 100 in 1975. “Rollermania” was in full swing.
Alas, fame and fortune proved fleeting, and by the late 1970’s, the group’s popularity had waned. Decades passed until, in March 2007, four former band members decided that the time had come to pursue litigation. The defendant was Arista, from which the plaintiffs sought to recover tens of millions of dollars in unpaid royalties that were allegedly owed under a 1981 agreement.
The plaintiffs contended that calculation of royalties in the music business is a complex subject requiring the services of an expert and for that purpose produced Wayne Coleman, owner of a company that provides royalty auditing services. Coleman claimed that Arista’s records were “abysmal,” “gap-ridden,” and “meaningless” and thus wholly unreliable for purposes of calculating the royalties allegedly due to plaintiffs. As a substitute, Coleman proposed three alternative methodologies purporting to show that Arista owed the plaintiffs anywhere from $8,141,213 to $112.7 million (with interest).
In rebuttal, Arista countered with the expert testimony of Tom Nilsen, a former recording-industry executive and presently a royalty examiner. Nilsen rejected Coleman’s criticism of Arista’s recordkeeping and instead opined that it accurately reflected plaintiffs’ earnings and the royalties due thereon. Nilsen also derided Coleman’s damages calculations as riddled with errors.
Each side moved to exclude the other side’s expert testimony under Daubert. Drum roll please….
The Court found that Coleman was qualified to testify concerning the status of Arista’s records and to provide estimates of royalties owed. However, Coleman fared less well when it came to the reliability of his analyses.
First, the Court cited case law holding that expert reports lack reliability when the expert fails to review data that was produced by the other side when forming his or her opinion. Here, for example, Coleman stated that no foreign royalty data existed when, in fact, Arista had produced a 150,000-line spreadsheet chock full of sales data reported from overseas territories. Further, at his deposition, Coleman admitted that he had failed to review all of the documents produced by Arista when forming his opinion of Arista’s recordkeeping. Coleman’s stubborn refusal to budge one iota from his conclusions in this area despite ample documentary evidence to the contrary produced by Arista led the Court to conclude that Coleman’s analysis was improperly “aimed at achieving one result” and thus was unreliable.
The Court did find that Coleman’s calculation of a “minimum” estimate of damages owed was reliable. However, it rejected the alternative methodologies proposed by Coleman that had yielded far higher damages estimates. For example, the Court ruled that Coleman’s release-based damages analysis (calculating royalties due based on known releases of plaintiffs’ music) was properly excluded because Coleman had disregarded the voluminous production of actual sales and royalty data provided by Arista. There was simply no basis to rely on projections when historical data existed. As it did with respect to Coleman’s opinion concerning the state of Arista’s records, the Court cautioned that experts may not ignore evidence that contradicts their conclusions simply in order to reach the result they want.
The Court also rejected Coleman’s interpolation damages estimate (which used an exponential decay curve to plot the sales of plaintiffs’ music) because the mathematical model on which it was based was developed by one of Mr. Coleman’s colleagues and not by Mr. Coleman himself. Indeed, Coleman admitted that he did not possess the mathematical expertise necessary to explain the interpolation model. Accordingly, his testimony concerning this methodology was properly excluded as a “conduit” for the opinion of another unproduced expert.
With Mr. Coleman’s testimony in tatters, there was not much need for Mr. Nilsen’s rebuttal testimony. As such, the Court declined to decide plaintiffs’ motion to exclude Mr. Nilsen’s rebuttal testimony concerning the state of Arista’s records and the release-based and interpolation methods for calculating damages. However, the Court found that Mr. Nilsen’s calculation of the minimum royalty amount owed – $1,042,203 – was reliable and could be presented to a jury in opposition to Mr. Coleman’s calculations. Cross-examination was the appropriate vehicle to challenge Nilsen on this point.
Have any of you ever heard the tune “Bye Bye Baby” in the back of your mind when dealing with similar exclusion issues? If so, we would like to hear about it.