Top L.A. music attorney Don Engel faced a no-win situation when a Boston court ordered him to testify.
By Di Mari Ricker
California Law Business
For San Francisco music attorney David Phillips of [Phillips & Erlewine], it was "an attorney's dream." For Los Angeles music attorney Don Engel of Engel & Engel, the same experience ranged from "weird" to "devastating."
What they were describing were the events of a recent trial in Boston involving the rock group of the same name. Mr. Engel, who defended the group's guitarist, Tom Scholz, found himself in a litigator's Twilight Zone: on the witness stand being questioned by the plaintiff's counsel.
The case centered on a common refrain in the music industry: royalties. Paul Ahern - who began his involvement with the group Boston as its original personal manager and went on to manage the careers of Mr. Scholz and others - sued Mr. Scholz over royalties he claimed were owed him from Boston's third album, "Third Stage," which was released by MCA Records in 1986 and sold more than three million copies. Ahern v. Scholz, 91-10586-H.
Mr. Scholz countersued, claiming Mr. Ahern still owed him royalties from the first Boston album, which sold more than 10 million copies, and the second album, which sold more than five million copies.
After a three-week trial, a jury awarded $547,000 to Mr. Ahern and the judge ordered Mr. Scholz to pay Mr. Ahern's attorney's fees.
What transported the case into the Twilight Zone was not the verdict, but rather the court's order that Mr. Engel, "testify as an expert witness against my own client," Mr. Scholz, says Mr. Engel.
"That was an impossible situation to be in. I was put in the position of committing perjury or hurting my client," says Mr. Engel, who recently prepared a motion for a new trial based on that order and several other grounds.
Mr. Engel's Catch-22 arose from his longterm representation of Mr. Scholz and his work negotiating a contract between the band and the MCA label for the third Boston album. When the delivery of that album was delayed in 1983, CBS sued the band and Messrs. Ahern and Scholz. Mr. Scholz as band leader, paid Mr. Engel $1.7 million for defending that case and for negotiating a subsequent contract with MCA. Those legal fees were crucial to last month's trial because they had been deducted as recording costs for the third album. They were shown as a portion of the $4.5 million in "artists costs" deducted on an accounting of the third album, which an accountant prepared several years ago in connection with Mr. Ahern's demand for royalty payments from that album.
That accounting purported to show that nothing was owed to Mr. Ahern and that Mr. Ahern, in fact, had a deficit of $100,000 on the album. Although Mr. Ahern's contract would have entitled him to a 12 percent share of any artist royalties, the group was nearly $1 million in the red after all costs on the album were deducted - including the $1.7 million payment to Mr. Engel.
At the trial, Mr. Phillips called Mr. Engel to the stand and elicited his opponent's extensive background representing a host of music heavy-hitters, among them Don Henley and Luther Vandross. Mr. Phillips then asked whether, in Mr. Engel's experience, the phrase "recording costs" in recording agreements includes legal fees.
"I was stunned," says Mr. Engel. "I looked at [Judge Edward F. Harrington] and said, 'You want me to answer that? The judge said, 'You're an expert. Answer the question.'"
The only answer, of course, was "no" - the answer Mr. Engel gave.
"That lost the case right there," he says. The real clincher may have come during Mr. Phillips' closing argument, which Mr. Engel describes as "prejudicial use of my testimony against my client."
Mr. Phillips, who has represented Journey, Santana and the Doobie Brothers, as well as the late Bill Graham, says he had every right to comment on Mr. Engel's testimony.
"He put his legal fees in issue," says Mr. Phillips. "In his opening statement he discussed why he could feel justified in charging such gigantic legal fees to Paul [Ahern] because he had supposedly achieved such a fabulous result [on the recording contract for the third album]. His testimony became an issue of credibility."
Mr. Phillips also maintains that Mr. Engel "created defense issues that only he could testify to." Primary among them was a fraud claim Mr. Scholz made against Mr. Ahern, the evidence of which was allegedly obtained in discovery during previous litigation.
"Everyone was on notice that I had every intention of calling Engel as a witness," says Mr. Phillips.
Although Mr. Engel knew he might be questioned about factual matters, he says he "never anticipated I would be [made to be] an expert witness against my client. They didn't ask me what happened, they asked me my opinion."
He says he did not learn he would be called by the plaintiff until a week before trial, when the judge ruled he would have to testify about certain events. Mr. Scholz then asked Judge Harrington for a 30-day continuance so he could find substitute counsel. The judge denied the request.
"The fact that we couldn't get new counsel in when we realized I was going to have to give percipient testimony put us in an extremely awkward position," says Mr. Engel. "I was very uncomfortable with my client having to decide whether to keep me on the case, knowing I would have to testify, or whether to bring in an attorney on a weekend's notice who knew nothing about the case."
Shortly after the verdict the judge wrote a blistering opinion, finding that the accounting given by Mr. Scholz was a "deliberate and blatant attempt" to deprive Mr. Ahern of royalties. The judge called the accounting "a shocking display of arrogant disdain for Ahern's contractual rights" and wrote: "Artistic excellence does not excuse one from complying with the norms of decent behavior."
That, says Mr. Phillips, is the message this case sends to the music industry. As he puts it, "You can't say, 'I'm the star. I created the music and my manager can go to hell.'"
And the music, after all, is what it's supposed to be all about. While Boston's plans for a tour were put on hold during the litigation, word is the show is soon to be back on the road: Boston has announced plans to go on tour early next year.
But that could change quickly, depending upon the outcome of Mr. Engel's motion for a new trial. Mr. Scholz, he says, will consider whether to appeal after that decision is entered.