The Big-Game Hunter's Big Gamble - Los Angeles Times » Cappello & Noël LLP

Los Angeles Times (excerpted)
July 29, 2001
By Kathleen Sharp

The corporate decor at Universal Music Group is high-tech modern, but here, in the Santa Barbara law offices of A. Barry Cappello, it’s the Wild West. To the left is a rattlesnake, coiled and ready to strike. To the right is a bronze statue of a bucking bronco. A muffled hysteria unspools as faxes, phones and modems transmit the breaking news about Cappello’s high-profile entertainment case against UMG.

Overlooking all this is a striking William Koerner painting that depicts a stickup unfolding in broad, God-fearing daylight. A gunman stands in the doorway, a glint in his eye, six-shooter aiming at some well-to-do patrons, who reach for the sky. His accomplice, a comely maiden, collects the firearms and money from everyone inside this honky-tonk saloon. What’s so striking is the audacious swash of the self-styled buckaroo, which in broad brush strokes is precisely how the $40-billion-a-year music industry sees Cappello. As one entertainment lawyer snorted: “He’s never tried a music case, which is pretty clear based on his complaint.”

Earlier this year, Cappello filed suit in Los Angeles Superior Court against Universal Music Group on behalf of his client, rock and movie star Courtney Love. She and her grunge band, Hole, are suing the record label, the biggest in the world, for $30 million plus punitive damages. The trial–expected early next year–threatens to reveal some of the industry’s closely guarded accounting secrets. Love claims the practices are fraudulent, and Cappello, who admits he’d never seen a recording contract until this year, accuses UMG of breaking its promises, withholding accounting records and rolling in “unjust enrichment.” Furthermore, he says, UMG broke Love’s contract when it acquired a slew of other music labels, then abruptly closed hers.

If Love and her lawyer can persuade a jury, they could push the entire merger-mad recording industry off its post. A Love victory would mean, conceivably, that any musician could walk away from a record company if the label with which it signed no longer exists and the musician is shuffled to another one. A verdict against UMG could hog-tie the entire industry, in which 90% of recordings are produced and promoted by five entertainment conglomerates, all of which share the same basic contracts, pipelines and policies. Such a ruling could open up the music business to new blood, more bands and lower consumer prices.

Of course, UMG doesn’t see it that way. It accuses Love, her attorney and the horse they rode in on of creating “a new special constitutional right for wealthy rock stars.” In court documents, UMG calls Love’s suit an “irrelevant and scurrilous attack on the recording industry” and derides Cappello’s legal brief for its “vague, catchall” allegations. But last month, a Los Angeles Superior Court judge ruled that Cappello could take his client’s case to trial, based on four of the 15 original claims. Eventually, 12 everyday people will decide if Cappello and Love, a Golden Globe nominee for best actress for “The People vs. Larry Flynt,” are two off-the-wall, half-cocked mavericks, as UMG claims, or if they have a legitimate beef.

UMG won’t comment on the record, but Cappello doesn’t mince words. “Universal needs a good knock to the head,” he says. “It’s gotten very arrogant lately, especially after the decision with Napster [which closed down the free music Internet site]. Universal feels high and mighty now, so it’s time for their comeuppance.”

Cappello has been called a shark, a piranha and a barracuda, although he denies feeding that image. “It’s a media thing, you know.” Associates say he carefully cultivates that predatory handle. “He’ll make a quick slashing attack, but if the aquarium glass is thick enough he’ll go away,” says retired lawyer Jeremy Hass. On the other hand, “the weak, the timid or idiotic will get slaughtered.”

Cappello forged his reputation in the maelstrom of campus unrest. In 1968, he was chief trial deputy in the Santa Barbara County district attorney’s office, just as UC Santa Barbara students were protesting the Vietnam War. Co-workers remember the 27-year-old Young Republican strutting around the office, smoking a cigar and wearing a holstered gun.

“Barry was in favor of the death penalty and didn’t believe in legalizing drugs,” says Pat McKinley, who was hired by Cappello and is now an assistant DA. He hated making deals, but he had a sense of humor. Cappello, his boss, David Minier, and others “had a lot of fun disguising ourselves as hippie rioters, jeering and yelling at police cars,” says Minier, now a Madera County Superior Court judge.

But Cappello’s law-and-order stance helped turn the community of Isla Vista into a fortress under siege. In June 1970, after 700 students were jailed for violating a 7:30 p.m. curfew during finals, Cappello wanted to prosecute. A judge freed the students, which infuriated Cappello’s office enough to bar the judge from hearing more student cases. This, in turn, outraged local citizens, who called for investigations into alleged judicial and police abuses.

Cappello knew it was time to move on, says Minier. “If he didn’t get into a higher-profile job, he knew he’d silently slip away.” It just so happened that the city attorney had retired in the midst of what could be an explosive case. A blowout at Platform A, operated by Union Oil and other firms, had spilled tons of black crude into the Santa Barbara Channel in January 1969, and the city, among three other public entities, filed a $560-million damage suit. But two years later, the suit was mired in the system. Cappello, who had virtually no civil law experience, lobbied hard for the city attorney job and got it. Says Minier: “He convinced the City Council that he’d learn all the civil law he needed to know.”

Cappello requested more funds and started amassing damning evidence against the oilmen. “In the end, it was going to be me, the oil company’s lead lawyer and a judge,” says Cappello. “That was all it was going to be when it came time to fight.” His bulldog approach worked. Just as they were heading into trial, the oil firms settled for $9.4 million, which at the time was the most ever paid in oil pollution damages in the United States. Cappello basked in the media spotlight the deal attracted and today gives the impression that he alone brought down Big Oil. “I don’t want to take anything away from Barry, who is bright and aggressive,” says Marvin Levine, the county attorney who filed the original suit, “but there were four of us working on the case, which got started before he got involved.”

Success whetted Cappello’s appetite for more trophy-sized game. From his public service days he’d learned that he could handle hot- button, big-bucks cases even when pitted against large law firms. “I wanted to be in business litigation and take big cases to trial,” he says.

In 1977, he joined a local firm, where he started to hear about another unexploited niche: small businesses that went bankrupt after bankers abruptly called in their loans. Cappello reviewed files, with visions of large lawsuits in his head, but found only a few cases against banks and none whose verdicts exceeded $30,000. In general, small businesses couldn’t afford to pursue their bankers because of the high costs associated with litigation. Then Cappello met Ian Allison, head of Lumbermans Mortgage. The firm had defaulted on its mortgage. The lender seized not only Lumbermans deed of trust, but its letter of credit, too. “The bank callously took it,” Cappello says.

He crafted a theory that seems obvious today but was groundbreaking at the time: A loan is a contract, governed by contract law. Essentially Cappello argued that the lender broke the contract by seizing the letter of credit and wove a tale about a heartless banker ruining a salt-of-the-earth employer. In 1982, the jury awarded Cappello’s client $7.5 million, which California Lawyer called the first multimillion-dollar lender-liability verdict. (The story was headlined: “Santa Barbara’s Resident Barracuda.”) The case was later settled for $5 million, which muted some of its thunder, but Cappello had found his calling.

His watershed case arrived in 1985. A Sonoma County apple-growing family, the Jewells, had fallen on hard times. Bank of America, which had worked with the family for 30 years, assured them it would help if the family signed over all ranch and equipment deeds. When they did, the bank foreclosed the very next day. Cappello sued the bank and won $37 million in a jury trial (the bank was found guilty of fraud and breach of duty), an astounding figure at the time. But the case went to the appeals court, where Cappello lost in a “bizarre, unjust verdict.” He adds: “To this day, it’s a real sore spot for me.” But it’s a testament to his promotional skills that the case that ended in such a humiliating defeat remains his claim to fame.

“He’s a pioneer in lender liability cases,” says Ian Allison, who gave Cappello the stuffed rattler. And, by the late 1980s, Cappello had helped pave the way for other such lender cases, which produced a collective $200 million in verdicts against banks.

The education of Barry Cappello included a Hole concert in Santa Barbara last summer. He’d never heard of the group, but when he saw lead singer/guitarist Courtney Love perform, her image became indelible. Love was magnetic, and 200 fevered fans clambered onstage. Cappello marveled at Love’s ability to control the crowd with a word or signal. He was dumbfounded by the musician’s unflinching faith in the mob–Love threw herself into the standing-room-only crowd, which carefully, almost reverently, passed the rock star’s body over the roiling human sea.

“It was an amazing performance,” he says, still shaking his head a year later. “I’d never seen anything like that.”

What he didn’t know was that Love was enmeshed in a power struggle with her label, UMG. As outlined in court records, Hole rocketed to fame around 1990 and was deluged with record contracts. In 1992, the group signed with Geffen Records, which was known for nurturing its artists. David Geffen had sold his label in 1990 to the entertainment conglomerate MCA, which in turn sold it to Matsushita Electric Industrial Co. But the founding management team was still intact, says Love’s manager, James Barber. “Lew Wasserman and Sid Sheinberg let their guys [like David Geffen] run the label as they saw fit.”

In 1995, however, Seagram Co. bought MCA and later changed its name to Universal. Seagram spent $10 billion buying other music houses, including rap-label Interscope Records. It then slashed costs at its other labels, just as Hole’s second Geffen album, “Celebrity Skin,” was released in September 1998. A month later, UMG announced it was shutting down Geffen and later shuffled Hole over to Interscope, one of the labels Hole had spurned in 1992. There her band’s album was ignored, Love claims. (According to Soundscan, Hole’s 1994 album, “Live Through This,” sold 1.5 million copies; “Celebrity Skin” sold 1.3 million copies.)

Love tried to negotiate a better deal. But UMG balked, saying she still owed five more albums on the first contract. When her seven- year contract ended in 1999, Love informed Interscope that she would no longer record for the label. In January 2000, UMG sued Love for breach of contract. Her lawyers urged her to settle, but she fired them. In June 2000, a few weeks before Cappello saw Love in concert, Seagram was purchased by Vivendi, which began as a French water utility company.

Love spent a year looking for a new lawyer. She, Barber and Hole guitarist Eric Erlandson drafted a complaint, charging UMG with everything from restraint of trade to cheating on royalties. Barber discussed the complaint with other entertainment attorneys, he says. But they just “looked at us and said, ‘Hey, it’s always been like that.’ ” The band stepped outside the tight circle of entertainment lawyers but found only litigators who weren’t comfortable trying a music case, or who had egos bigger than a rocker’s. Then they heard about Cappello, who had just finished an entertainment case involving the creator of a children’s TV series and a producer.

“Barry listened to us,” says Barber. The fact that Cappello had seen Hole in concert was a big plus. Once he was hired, Cappello spent hours with Barber, who taught him the ABC’s of the music world. Critics snicker at Cappello’s initial ignorance of the industry, but he says such greenness often is his strength. “In my business, virtually every case is something new, whether it’s oil, banking or records,” he says. “My specialty is trial cases.”

The way Barry Cappello figures it, Hollywood is a service industry. A musician provides the art and a record label offers the services to sell the art. But standard record contracts include a clause that says the label can assign its services–forward a contract–to whomever it chooses, even if the artist objects. “That’s like saying I can give this [lawsuit] to the ambulance chaser down the street,” Cappello says. “My argument is that personal services go both ways. How could Courtney sign with Geffen and then land with a label she doesn’t even want?”

In off-the-record comments, UMG indicates it has rounds of ammunition too: Love was so busy becoming a movie star, she didn’t have time to fulfill her contract; she’s a 37-year-old has-been, a once avant-garde artist who now vogues at Hollywood premieres draped in haute couture.

How, entertainment attorneys wonder, will the headstrong siren react if she’s attacked as an ex-drug addict, ex-stripper, once- neglectful mom who used to score heroin with her now-dead husband, Nirvana’s Kurt Cobain.

This battle will not be courtly. But Cappello thrives in the mud ring, with its warm Klieg lights and buckets of legal tender. As he talks about this case, he gestures around his office, with its green baize colors and shiny brass fixtures. At one end sits that ornery coiled rattlesnake; at the other is the painting of the stick-up man and maiden. Beyond the second-story window sits Cappello’s nemesis, the Bank of America. Inside, his voice booms like a pipe organ, ringing about his mission to fell this new-found enemy: “So far, there’s been no movement of troops, no cavalry sweeps. This is just the artillery exchange,” he says.

If the self-styled gunslinger is true to form, he may just blaze a trail into the honky-tonk music At least until the appeal.