Jury Orders Def Jam, Chief to Pay Damages

In a case that laid bare the music industry’s rough-and-tumble tactics, a federal jury in New York on Tuesday ordered Vivendi Universal’s Island Def Jam record label and its chairman, Lyor Cohen, to pay $132 million in damages to an independent label blocked from releasing a potentially lucrative album by rap star Ja Rule.

The award -- one of the largest against a major record company or top entertainment executive -- comes at a precarious time for Vivendi’s Universal Music Group, which is on the auction block and faces potential legal problems from a money- laundering probe of Def Jam’s joint venture label Murder Inc. The size of the judgment in favor of relatively small TVT Records shocked an industry dominated by global conglomerates.

“Def Jam and Lyor Cohen have been bullies for far too long. They finally got caught,” TVT attorney Peter Haviland said. “Unless there are some radical changes over there, I doubt this will be the last time they are punished by a jury.”

Def Jam parent Universal Music, the biggest of the five major record corporations, said it believes the verdict will be reversed on appeal. Still, Universal probably will be forced to post a bond that may equal the full judgment, amounting to more than a fifth of the music company’s annual operating profit.

“We are disappointed with the jury’s verdict. We do not believe that it is supported by the facts or the law,” said Cohen’s attorney, Matthew Dontzin. “We will immediately and vigorously appeal the verdict. We are confident that the verdict will not withstand the scrutiny of an appellate court.”

The dispute centered on the release of an album by Ja Rule and two former rap partners who, together, called themselves Cash Money Click. TVT signed Ja Rule, whose real name is Jeffrey Atkins, as an unknown in 1994. He later left for Def Jam.

TVT’s lawsuit said Cohen and Def Jam agreed to let Ja Rule record an album with his old partners for the independent label. The agreement, the suit said, called for a profit-sharing arrangement between TVT and Def Jam. But there would be no profit because, according to TVT, Def Jam reneged on the deal 10 months later -- after TVT had spent an estimated $1 million on the project. TVT chief Steve Gottlieb contended that Def Jam had been stringing his label along to keep Ja Rule happy while Def Jam was renegotiating his contract.

Once that deal was completed, according to witnesses and documents, Def Jam informed TVT that it would not waive its rights to Ja Rule.

Def Jam denied the allegations, testifying that it had never agreed to waive its exclusive rights to Ja Rule.

Last month, the jury found Def Jam and Cohen liable for fraud and wrongful interference with a contract. Tuesday’s award came after a trial on damages, held in front of the same jurors. TVT had asked for an award of $400 million.

Typically, major record companies privately settle even their nastiest contract disputes to avoid public trials. In this instance, sources said, Cohen believed that the cost of a settlement would be greater than any trial award, and Universal executives followed along.

But the trial turned out to be a disaster. Universal, represented by prominent music lawyer Charles Ortner, lost key procedural rulings. Cohen fared so poorly on the stand that the judge later supported the jury’s verdict by citing the executive’s “inconsistencies.”

Cohen’s trial testimony frequently didn’t jibe with earlier sworn statements. The executive’s testimony on several key points was directly contradicted by Ja Rule’s mentor and producer Irv Gotti, chief executive of Def Jam partner Murder Inc.

Tuesday’s judgment includes about $24 million in compensatory damages for TVT’s lost sales and other financial ills tied to the collapse of the Cash Money Click album, plus $52 million in punitive damages against Def Jam and $56 million in punitive damages against Cohen personally.

Universal is expected to pay damages imposed on Cohen, whose employment contract expires in about eight months.

TVT’s Gottlieb said the case revealed a “systematic pattern of wrongdoings by Def Jam” executives. “I see this verdict as vindication for independent businessmen in every field,” he said. The punitive award “is a clear signal ... that corporate players in positions of overwhelming dominance will be held accountable for their misdeeds.”