The R&B; trio TLC burst onto the music charts in 1992 with such hits as "Ain't 2 Proud 2 Beg," and with its second album it became the biggest-selling female group ever. But by 1995, members of the group said they were too broke to go on and filed for bankruptcy.
In January, platinum-record star Toni Braxton joined TLC in insolvency. And, like TLC, she sought to void her recording contract, which she said denied her a fair share of the $170 million in sales she had generated.
Record companies say they are increasingly being confronted by artists who are willing to exchange the stigma of bankruptcy for the chance to scrap a contract and land a more lucrative deal with another studio. Seeing what they believed was an abuse of federal law, they turned to Congress for help.
In June, the House passed legislation to rewrite the nation's bankruptcy code, including a provision making it more difficult for artists to get out of their contracts via bankruptcy.
A review of how the recording industry obtained the provision shows that lawmakers quickly accepted industry lobbyists' claims--which artist groups dispute--that bankruptcies like those of Braxton and TLC are on the rise.
"What it demonstrates is that a very successful lobby can effectively portray artists in such a way that it produces legislation that is neither useful nor productive nor fair," said New York Law School professor Karen Gross, who analyzed the bill for the House subcommittee in charge of bankruptcy law. "I don't understand why it's appropriate to single out one group for a different rule than the rest of the universe."
Asked to document the scope of the problem, the Recording Industry Assn. of America, the trade group representing the nation's record companies, declined to do so. Industry officials say they wish to protect the privacy of cash-strapped artists.
There were no congressional hearings on the new provision, but RIAA lobbyists, who argued that it is unfair for an artist to bolt from a studio that has invested resources to groom the performer for stardom, actively courted support from members of Congress.
California Rep. Ellen O. Tauscher (D-Pleasanton) helped defeat an effort to undo the industry provision with a House floor speech that tracks, in some cases word-for-word, an RIAA position paper.
Tauscher said her staff wrote the remarks just before she spoke and that she was one of several lawmakers who banded together to oppose some proposed changes to the bill.
Tauscher described her advocacy as both good national policy and an important defense of a home-state economic interest. "As a member of the California congressional delegation, I am proud to support the entertainment industry," she said.
Rep. Bill McCollum (R-Fla.) who acknowledges adding the language of the provision after entreaties from the RIAA, echoes the group's claim that artist bankruptcies are a "growing problem" meriting congressional action. "I don't recall the number precisely, but it strikes me that there's three or four cases they cited to me," he said.
(Since 1995, McCollum has received $3,000 from the RIAA political action committee, campaign records show. House Judiciary Committee members overall received $8,700 from the RIAA's PAC during the 1997-98 election cycle, including $1,000 contributed to McCollum.)
Before inserting the provision in the bankruptcy bill, McCollum said, he listened to the RIAA's complaints but did not consult artist representatives who challenge the claims.
When pressed for evidence to back up her group's claims, RIAA lobbyist Jennifer Bendall, who also manages its PAC finances, said, "I simply can tell you based on personal conversations that there's a problem that should be addressed."
Skeptics say a list of artists seeking to break their contracts through bankruptcy filings would be a short one.
"Whereas approximately 1% of all American adults filed for bankruptcy in 1997, not even one-tenth of 1% of recording artists file for bankruptcy annually," Rep. Robert C. "Bobby" Scott (D-Va.) told colleagues June 10 when he tried to strike the language on the House floor.
The issue is not likely to arise again publicly unless the House and Senate hold a conference to agree on a final bill. The full Senate has yet to act on its version, which passed the Senate Judiciary Committee on May 21.
There have been several well-publicized bankruptcies of celebrity musicians since the early 1980s--Meat Loaf, M.C. Hammer and Chaka Khan, for example--but none is clearly tied to a contract dispute.
"The RIAA simply rode the tidal wave with everyone and said, 'Oh we've got abuse,' " said Babette Ceccotti, a lawyer for the American Federation of Television and Recording Artists union.
From the industry's perspective, however, even a suggestion that an artist might file a bankruptcy petition is cause for alarm. Currently, it is hard for creditors--including record companies that pay artists' royalties upfront--to block a bankruptcy because they must prove the artists filed for reasons other than financial distress. Meanwhile, filers can seek to dissolve "executory contracts" such as those in the recording industry.
For that reason, Sherman said, bankruptcy can be used as "a threat" and "a clever ploy . . . that enables artists to extract money from record companies by threatening something worse. That's what we complained about to Congress, and Congress agreed some relief was appropriate." Sherman said companies simply want "some semblance of equality in the negotiating relationship."
Gross, the New York law school professor, said record companies already have the upper hand in contracts and noted that bankruptcy can be an effective weapon in all sorts of negotiations.
"Using bankruptcy as a negotiating technique is not unique to recording artists," she said. "Companies use it all the time with their banks" to renegotiate loan terms.
Justin Pritchard covers Congress for Legi-Slate News Service, which can be found on the Web at http://www.legislate.com. His e-mail address is email@example.com.
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Speaking For The Record
Rep. Ellen O. Tauscher's floor speech in support of a record industry bankruptcy provision tracks almost exactly with an industry position paper.
'This provision would not deny anyone access to bankruptcy. It would not deny debtors in genuine economic stress the ability to rehabilitate their finances. And it would not deny or give record companies a preferred creditor position.'
REP. ELLEN O. TAUSCHER
'Section 212 does not deny anyone access to bankruptcy. Section 212 does not deny debtors who are in genuine economic stress the powers that debtors have to rehabilitate their finances. Section 212 does not give record companies a preferred creditor position.'
RECORDING INDUSTRY ASSN. BRIEFING