'N Sync court battle boils down to a tale of 2 accountants
Published in The Orlando Sentinel on Dec 6, 1999
Who owns the name 'N Sync? What constitutes a contract
with a U.S. record company? How much does it cost to
"create" a boy band, record it, make its videos and
put it on the road? And most importantly, how much has
'N Sync earned and how much did Trans Continental
Records' Louis J. Pearlman make off them?
Those are just some of the bones of contention in
Trans Con and Pearlman's $150 million breach of
contract suit against the Orlando-based pop group,
which has sold more 10 million CDs in the last two
years.
Round one in this bout went to 'N Sync, after federal
Judge Anne C. Conway declined Nov. 24 to issue an
injunction barring them from performing under that
name or releasing a new CD with a new record company.
But Pearlman's attorneys have fired back in
preparation for a second day of settlement talks
scheduled for today in U.S. District Court in Orlando.
'N Sync wants out of Trans Con and the record deal
Pearlman negotiated for them with BMG, a German record
company that, in turn, got the group's CDs distributed
in the United States by RCA. 'N Sync contends that
Pearlman has cheated them out of earnings and
royalties and failed to get them a deal with a U.S.
record company. The group wants to jump to Jive
Records, home to fellow teen popsters The Backstreet
Boys and Britney Spears.
Pearlman and Trans Con want 'N Sync to honor its
contracts with them and BMG. Or they want $150 million
in compensation.
The court case is a paper trail of increasingly testy
letters, angry meetings, detailed touring expense
reports, compact discs, magazine covers and contracts.
Attorneys for Trans Con filed papers last week seeking
to clarify their claims about the money paid to 'N
Sync, the nature of their contracts with the group and
the ownership of the trademark, 'N Sync, which
Pearlman has sought to establish as his. And those
attorneys want to cross-examine the members of 'N
Sync, who have given depositions about the case to
their own attorneys.
"We want the right to challenge the incompetent
evidence given in opposition of our original motion,"
said William Pringle, lead attorney for Trans Con.
"It's an evidentiary issue, and many things [such as
who came up with the name 'N Sync] are still hotly
contested."
But Helene Freeman, lead attorney for 'N Sync,
described this latest filing as "quintessential
lawyering," an effort to "circumvent the process." To
Freeman, the pretrial maneuvering is based on the way
Judge Conway seemed to be leaning in court by denying
the preliminary injunction.
"I think they certainly must have left the courtroom
feeling that they were on the losing end, and that
they needed to do something to alter the judge's
inclinations," Freeman said.
According to court documents, the seeds for this split
were planted late in 1998 when the members of the
group said that they began to wonder, aloud, where all
the money was going.
'N Sync claims that they heard from a record company
executive that he was having to pay Pearlman huge sums
just to get anything to trickle down to members of the
group. Trans Con's W-2 forms filed on behalf of the
five members of 'N Sync -- Justin Timberlake, J.C.
Chasez, Joey Fatone Jr., Chris Kirkpatrick and Lance
Bass -- indicate the members of the group earned only
$19,905 each in 1997, and $38,484 each in 1998, the
year their debut CD and Christmas CD came out and
dominated the pop charts.
Itemized expense reports show just what it takes to
keep the group on the road and on the charts. 'N Sync,
like most pop groups, is billed by its record company
for the costs of its videos (well over $300,000), and
the costs of musicians, dancers and choreographers and
others it takes on tour with it. For instance, the
group ran up more than $12,000 in massage bills during
a recent tour.
On the plus side, there are ticket sales,
merchandising, record sales and endorsements from
Kellogg's (more than $345,000), Oxy skin products
(more than $220,000) and Clairol hair products
($330,000), as well as a Disney special ($100,000).
Trans Con says that 'N Sync is owed $2.45 million from
its merchandising company, and $5.275 million from
BMG.
The money issue makes the case a tale of two
accountants. David Pierfy, a New Jersey accountant
retained by Trans Con to run 'N Sync's affairs, says
they each made $10,000 in 1996, the year their
contested contract began, $150,000 in 1997, $644,000
in 1998, and more than $6.3 million in 1999.
Canceled checks to the five members of the group vary
from $10,000 to $15,000 in the first years of
existence, to much larger checks cashed "under
protest" for $200,000 to $250,000, checks paid out as
the group's intention to leave Trans Con became known.
Pearlman has often described himself as "the sixth
member of 'N Sync," whose work behind the scenes
turned the singing group into pop superstars. Members
of the group and their representatives have questioned
that status, particularly in regard to Pearlman taking
one-sixth of the group's earnings, in addition to
other fees that go to him or the various arms of his
company.
Papers filed by his attorneys Tuesday say Pearlman
invested $2.7 million in the group, and that he "has
made approximately $3.4 million" from 'N Sync.
"That $2.7 million is money that he could have lost at
any time," had 'N Sync failed to produce hits, Pringle
said. Trans Con maintains that the five members of 'N
Sync have earned a total of $7 million, and that
Johnny Wright, the group's manager, "has received
approximately $2.5 million."
But 'N Sync's accountant, Howard Comart of New York,
takes issue with those figures. In court papers,
Comart says that Pearlman's initial investment in the
group "never exceeded $206,016" and that he was
reimbursed for those expenses by BMG once he signed 'N
Sync to them.
Comart claims that Trans Con "has collected management
commissions in excess of $6.5 million on the known
income" received by 'N Sync, through concerts,
endorsements, and album and merchandise royalties.
Freeman said that she stands behind Comart's
accounting, but that his estimates of money owed the
group "actually were on the low side."
Freeman expects 'N Sync's new record, delayed because
of the litigation, to now come out on Jive early in
the new year.
U.S. Magistrate James Glazebrook is scheduled to
mediate today's settlement talks. Barring a
settlement, Freeman said that her understanding is
that this case won't reach court "until at least
2001."
