Sony Music breached contracts and shorted royalty payments to former American Idol contestants and the series' music company 19 Recordings, according to a federal lawsuit filed today, The Tennessean reports.
The suit — which is seeking at least $10 million in damages — was brought by 19, which entered into licensing agreements with Sony for recordings by several former Idol contestants including Nashville residents and recording artists Kelly Clarkson, Carrie Underwood and Kellie Pickler.
Other artists cited in the suit are Clay Aiken, Chris Daughtry, Jordin Sparks, David Archuleta and David Cook. According to the suit, Sony then shorted 19 and the artists on royalty payments because of "systemically incorrect calculations."
According to the suit, 19, which was founded by Simon Fuller, discovered the shortfalls from audits performed by two separate accounting firms. More shortfalls likely would be discovered if Sony gave 19's accountants full access to the appropriate documents, which the suit alleges Sony has refused to do.
The suit outlines how 19 tried to settle its claims with Sony without success.
American Idol left Sony in 2010 and entered into an agreement with Universal Music Group. 19 is represented in the lawsuit by prominent Nashville entertainment law attorney Richard Busch from the firm King & Ballow. The company is owned by Core Media Group.
"We did not want to have to file this lawsuit, but Sony left us no choice, so this became necessary to protect our artists," Jason Morey, worldwide head of music for 19 Entertainment, said. "Our complaint lays out the claims in great detail. Everything we have to say about the case is set forth in it."
According to the lawsuit, Sony shorted the artists on streaming royalties and incorrectly deducted amounts spent on television advertising. Other accounting moves by Sony, such as incorrect royalties paid for joint-venture compilation albums that included hit songs by the contestants, also led to underpayments.
Under the terms of the contestants' agreement with American Idol, Sony had the right of first refusal to sign them to record deals. Some of the artists, including Clarkson, Underwood and Daughtry have remained on Sony label imprints, and the artists are not listed as plaintiffs on the lawsuit.
"Sony has failed to comply with the terms of the recording agreements, and failed to fulfill its obligations under the recording agreements by failing to properly account to and pay 19 royalties for licensing, sales and other exploitations of the masters," the suit alleges.
The breaches and underpayments have been compounded by the success of the former Idol contestants, especially Clarkson and Underwood who have reached superstar status. The suit outlines the commercial success of Clarkson, who has sold more than 20 million albums and achieved 54 Billboard No. 1 songs, and Underwood, who has sold 15 million records.
"We have investigated this matter thoroughly and feel strongly about each of the claims," Busch said.
The suit, filed in New York federal court, seeks compensatory damages in excess of $7 million in addition to $3 million in interest, plus costs for the audits and attorney's fees.