Steely Dan in Fight over Band Ownership
Steely Dan are in a fight over band ownership with Delia Cioffi involving a buy/sell contract signed in 1972. A buy/sell agreement is a contract between co-owners of a business that requires one partner to sell his or her shares back to the business or the surviving partner upon one of the owners' deaths. Since the death of Walter Becker, his widow Delia Cioffi and bandmate Donald Fagen are now in a dispute.
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UPDATED: Jul 14, 2021
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Donald Fagen, one of the founders of the band Steely Dan, known for hits like Time Out of Mind, is engaged in a dispute with Delia Cioffi, the widow of his former partner Walter Becker.
Becker died in September, 2017.
Steely Dan was founded in 1972, disbanded in 1981, and reunited in 1993. The band, with a revolving group of studio musicians as well as the two founders, sold more than 40 million albums and earned four Grammy Awards. Steely Dan’s name lives on. More importantly, their royalties continue to add up. If Becker were still alive, one would assume they’d be splitting the profits of joint labors. Cioffi essentially wants Walter Becker’s share.
What is a buy/sell contract?
The dispute involves a “buy/sell” contract the band members signed on Halloween of 1972.
A buy/sell agreement is a contract between co-owners of a business that usually requires one partner to sell his or her shares back to either the business or the surviving partner, based on a set price or formula. This both compensates the family members of the deceased partner and lets the business to go on operating without undue disruption.
As NPR reported,
The contract … says that if any of its signees dies or leaves the band, the band’s corporation has the right to immediately repurchase their shares at book value. The contract also says that any transfer of those shares to another person is still subject to the agreement.
Since Becker’s death, Fagen is the only living person to have signed the contract. So he’s the only one with the right to buy the shares, which normally wouldn’t be bad news. It would make the process very simple.
According to Forbes,
The buy/sell agreement, if enforceable, would entitle Fagen to purchase Becker’s 50% ownership of the band and, therefore, be the sole owner and retain 100% control of the band.
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Is the agreement not in force?
Cioffi’s lawyers now claim that the 1972 agreement is no longer in force and that it wasn’t in effect when Becker died.
According to Rolling Stone, Fagen claims that he received a letter from Cioffi “stating that, as director or officer of Steely Dan, she is entitled to 50 percent ownership of the band.”
Fagen is seeking a declaratory judgement that the ’72 agreement still is in effect. He’s also suing the band’s former business management firm and tour accounting company.
According to Fagen’s attorney,
Mr. Fagen believes Mr. Becker’s estate is entitled to receive all normal royalties on the songs they wrote together. But this case is about the future of the band, and we will vigorously defend the contract.
What lessons can be learned?
Forbes suggests that the case offers four lessons for band members:
1) Create a Legacy Plan
A proper legacy plan will isolate the band and all of Steely Dan’s rights and assets separate from the band members’ estates and more traditional assets (e.g., stocks, bonds, etc.). It would also provide for the separate and continual management of those assets for as long as possible, i.e., in perpetuity. It’s critical to make this active decision while all parties are able to sign appropriately. It also means all parties have to make an identical decision.
2) Provide for a Seamless Transition upon the Death of a Band Member
If a band is a legal entity, such as a Limited Liability Company (LLC) owned by a trust, the ability of a member’s estate or heirs to bring a claim against the trust would be limited.
3) Update the Estate/Legacy Plan as Needed
The 1972 agreement was drafted before the band’s first album was released and was never updated to reflect the band’s success. Especially with such significant changes, legal documents should be updated to address new money concerns.
4) Buy/Sell Agreements Don’t Work Well for Bands
Buy/Sell agreements don’t work well for bands, because it’s difficult to say what a band (unlike, for example, a taco stand) is “worth.” A band’s value lies not just in the royalties from its sound recordings but also in images of band members. Also, the value of a band can go up or down after a member dies if that member was the core member. Their contributions may be worth more. Even if band members don’t pass, serious health concerns can affect the value of the band.