Interscope, Trauma Settle Legal Dispute

A bitter four-month-long legal dispute between Interscope Records and Trauma Entertainment ended Thursday with the two companies deciding to part ways, sources said.

Representatives of Trauma and Interscope, the latter of which is half-owned by Seagram’s Universal Music Group, declined to comment on the out-of-court agreement.

Sources close to the negotiations, however, said Trauma owners Rob Kahane and Paul Palmer will walk away from the joint venture two years early and $3 million richer--but without top-selling act No Doubt.

It was a battle over control of the rights to future music by the Orange County pop stars that prompted Trauma to file a $100-million lawsuit against Interscope in the first place. No Doubt is scheduled to deliver six more albums to Interscope, which also has been guaranteed manufacturing and distribution rights to the next album by Trauma’s second-biggest act, Bush.

Under the exit agreement, Kahane, 44, and Palmer, 42, will become free agents immediately, gaining the right to shop their successful Sherman Oaks label on the open market. Trauma, whose artist roster also includes Phunk Junkeez, Eva Trout, Souls and Shaquille O’Neal, has already been approached by several major corporations, including Bertelsmann Music Group and Walt Disney Co., sources said.

Trauma agreed Thursday to drop its Los Angeles Superior Court lawsuit, which had accused Interscope of fraud and extortion, contending that the Westwood company had reneged on a 2-year-old promise to assign No Doubt to the Trauma roster. It was never clear why Interscope, which had signed No Doubt to a multi-album recording agreement contract more than a year before it ever did business with Trauma, would agree to give the act away.

It is clear, however, that Trauma had spent a great deal of effort in helping to transform the unknown quartet into mega-selling international superstars. In 1995, Palmer worked with the band in the studio to help mix and record No Doubt’s “Tragic Kingdom” album, which went on to sell more than 10 million copies around the world.

As late as November, Kahane praised Interscope founders Jimmy Iovine and Ted Field in The Times, saying, “we credit a huge part of our success to Jimmy and Ted, who believed in our vision and just let us do our thing.” But tensions erupted between the two companies around February, when Interscope rejected a request from Kahane and Palmer to put in an early bid to purchase Trauma, sources said.

This is the second time that Kahane, a former artist manager whose clients included pop singer George Michael, has been paid to leave a record company in the last three years.

The 44-year-old entrepreneur walked away from Disney’s Hollywood Records division in 1994 with about $1 million after Disney deemed his $5-million Acme Records pact unprofitable. Sources at Disney said Kahane was difficult to work with, but he quickly resurfaced with Palmer to launch Trauma, a five-year joint venture with Interscope.

Months after joining Interscope, Bush’s single shot to the top of the alternative chart, with its debut album going on to sell more than 6 million copies in the United States alone. Together, Bush’s two records have sold about 11 million albums around the world.