In 1991 I was working with the Miami law firm Bailey & Hunt to handle my taxes, and there was a lawyer there working on some of my business named Joe Weinberger. He was a University of Miami Law School graduate, a specialist in tax law. I thought he did good work. More importantly, I liked the vibe he gave off. He wasn’t like all these slick motherfuckers you find in the record business. He wasn’t some hip-hop guy. He wasn’t even into the music. He was just a tax nerd. I’m talking about the nerdiest nerd you’ve ever met. Short little Jewish guy with the dorky khakis and the thick glasses. I thought, This is the kind of guy I need watching the farm, just a straight numbers guy to dot the i’s and cross the t’s. And Bailey & Hunt was one of the most reputable firms in Miami. I asked Weinberger to join Luke Records as my in-house counsel and chief financial officer, and he came over and joined the company.
For a while everything went great. I was a rock star on top of the world. The money was coming in, and the legal issues were being handled. The only major issue I had at the time was the breakup of 2 Live Crew. Since Weinberger was a tax attorney, he said we should bring in a litigator to handle the settlement. He recommended a guy he knew, a Cuban lawyer named Nicolas Manzini. Manzini didn’t have a background in entertainment law, but he was a skilled negotiator, which is what Weinberger said we needed. I trusted his opinion and brought Manzini on for a $10,000-a-month retainer.
Manzini did a great job with the case. All the issues with Mr. Mixx and Marquis and Fresh Kid Ice, they were all settled pretty quickly. It was amicable, too. Marquis went and said some shit about me in the press, but that was just trying to stir up beef to promote this solo project he was trying to do. The truth is that we all walked away from the table on good terms. We just agreed that the ride was over and it was time for each of us to do his own thing.
The 2 Live Crew catalog was a huge piece of my business, and if that settlement had gone badly I might have had problems, but Manzini had done such a good job with it I agreed with Weinberger that he should handle another problem I had: MC Shy D. MC Shy D, also known as Peter Jones, was one of the first acts I’d signed to Luke Records. His albums sold okay in Florida and in the Atlanta area, but he was not a huge success. I dropped him after his first two albums, Got to Be Tough and Comin’ Correct, and had paid him $95,645 in royalties on the two records, which was exactly what my records showed I owed him. But same as with Mixx and Marquis, Jones felt he was entitled to more. He went and hired an entertainment lawyer, this guy Richard Wolfe, and in June of 1990 they sued me, saying I owed an additional $180,000.
The whole thing was a nuisance. This was coming right in the middle of the Broward trial and I had much bigger concerns, like not going to jail for obscenity. I felt like, even with the most generous interpretation of the contract, Jones was owed maybe another fifty grand, and I was willing to settle for something in the mid-five figures just to make it go away. That case had been lingering for months when Manzini and Weinberger came on board, and I put Manzini on Wolfe to try and settle it.
Those guys were going back and forth when Jones went and did some typical thug-rapper bullshit: he got in an argument in the parking lot of a club in Atlanta and shot a guy in the leg. Jones ended up getting sentenced to a year in jail, and Wolfe realized his leverage was slipping away. He offered to come down thirty grand and settle for $150,000. I’d have taken that deal in a heartbeat—but I’d never told Manzini I was willing to go that high, and he never brought me the offer. He rejected it out of hand because I’d told him, ideally, I wanted to pay about fifty grand. But he could have at least told me about the offer. It was a costly mistake. In the meantime, Manzini was taking home $10,000 a month, costing me almost as much as it would have taken to settle and take the whole thing off my plate.
Was I paying as much attention to this as I should’ve been? No. I was bunkered down with Bruce Rogow, worried about taking Acuff-Rose to the Supreme Court. I was putting all my mental energy over there, going to circuit court in Nashville, to the appeals court in Atlanta. It was costing me hundreds of thousands just to fight that case, and if I’d lost it would have cost me hundreds of thousands more. That was a big fucking deal. Compared to that, the MC Shy D case was nothing. It was nickel-and-dime shit, just some minor piece of business that I’d delegated to Manzini. I figured at some point he’d come back with a settlement for eighty, ninety grand or something and that would be the end of it.
Manzini rejected four other offers from Wolfe, and by the time Jones was out of prison, Wolfe refused to lower his offer and decided to go to trial in December of 1992. The only thing at issue was the accounting practices of Luke Records, whether or not they accurately reflected what Jones should be paid. Wolfe’s contention was that the records were wrong. My contention was always that the records were spot-on. I wasn’t running my shit out of a shit house. I wasn’t hustling records out of my mamma’s utility shed anymore. I’d hired professional CPAs, the best tax attorneys in town. As far as I knew, we had a record of every sale. We have catalog numbers. You go to the manufacturer and say, “How many copies of XR-102 did you press?” Then you go to the distributor, “How many XR-102 did you purchase?” Then you add and subtract. It’s not difficult. I had all that information because that’s how I kept track of what I was owed. You don’t just lose stuff like that.
But Manzini made what turned out to be a crucial mistake. He tried to make a counterargument against Jones by saying that Luke Records had overestimated the number of records sold, so Jones had actually been overpaid, that he owed money back to the label. But in making that argument, Manzini had agreed in principle that the records were not accurate, that my company had not been keeping its own books properly. Since Manzini wasn’t an entertainment lawyer, he didn’t know about a key legal precedent in the history of the record industry. It’s the case of Thomas v. Gusto Records, which came out of Nashville in 1991, right around the time Jones first sued me. It’s now considered a landmark case in the business, but Manzini wasn’t an entertainment lawyer, he was a Florida litigator, so he wasn’t familiar with it.
B. J. Thomas, who wrote “Raindrops Keep Fallin’ on My Head,” sued his label and the court decided that whenever there is doubt about a record company’s accounting of its sales, the artist is allowed to present expert testimony to determine the real sales figures. With his counterargument, Manzini had opened that door. Wolfe and Jones were able to bring in their own accountants to plow through my files and present the court with their estimate of what they thought the sales were, as well as what Jones’s royalties ought to be based on that estimate. In October of 1994, after nearly four years of depositions and hearings and filings, the judge ruled that Luke Records owed this guy $1.6 million. By the time they added legal fees and punitive damages, it was $2.3 million.
When I heard that, I was shocked, floored. I said, “This is the craziest shit in the world.” $1.6 million in royalties? You have to be doing 2 Live Crew–level sales to make that kind of money. MC Shy D never even came close to that. I knew Wolfe and his team had to be doing creative accounting of their own. First thing I did was call Weinberger and Manzini and say, “Let’s fucking appeal.” Manzini wanted to. He said we’d win. But Weinberger said we didn’t have enough cash on hand to do it. To appeal a civil case in the state of Florida, you have to post a bond of 124 percent of the judgment just to start the process. I’d have to take $3 million in cash and set it aside to post the bond. Then there’d be years of legal expenses on top of that. I didn’t care. I’d never shied away from a fight when I knew I was right. I said, “Fuck it. Put up the $3 million.”
But I couldn’t. I didn’t have it.
While all this MC Shy D stuff was going on, 2 Live Crew had come back. They weren’t gone but a year or two when they realized shit wasn’t working out for them on their own. Mixx was jumping around, producing on different albums, doing work-for-hire-type shit. Brother Marquis had moved to Atlanta and started a group with DJ Toomp called 2 Nazty. That bombed. The
solo album that Fresh Kid Ice did for Luke Records, The Chinaman? Horrible. Probably the worst record we ever released.
It didn’t look like those guys were going to make it with solo careers, but there was still a lot of demand out there for new music from 2 Live Crew. We had an offer to do a single for the soundtrack of the new Ice Cube movie, Friday. Seemed like it’d be a fun thing to do, and there was no bad blood between us. We decided to put the group back together and re-sign them with the label. I asked Weinberger to work up the contract, and I thought what he came back with was terrible. The way I read it, I felt like it was loaded in favor of the other guys against me with rights and conditions that no other artist on the label had. It didn’t make any sense to me.
At the same time, I was involved in signing a new distribution deal with Sony/Relativity. I’d had a bad experience with Atlantic, but now I was expanding into R&B. Back then, in R&B you needed a big machine behind you in a way that you didn’t for hip-hop. Rather than keep working with all these independent distributors, I was in negotiations with Sony/Relativity to take over and consolidate that part of the business. I had a big New York law firm handling that deal for me—Grubman, Indursky, Schindler, & Goldstein, one of the most powerful firms in the business.
There was one sticking point in the deal over the subject of bar codes. Switching from one distributor to another, it would have been beneficial to Luke Records to change the bar code on the inventory, so that we could separate the returns coming from the old distributor from the returns at the new distributor. Any losses coming from the independent distributor wouldn’t count against the money we’d be owed from Sony. We were insisting that Sony change the bar codes, and Sony didn’t want to.
It was a Friday morning, maybe a week or so before Christmas. The MC Shy D decision had just come down six weeks before, and I was wrestling with how to resolve that. I was on my way to Canada to do a show that night. The way I recall it happening was that Weinberger came to me and told me that the lawyer from Grubman had called to say the contract was ready to sign. So I said, “Great. I’ll stop off in New York on my way to Canada and sign the deal.” And that’s what I did. I swung by Sony’s offices and signed the contract, but I should have reviewed it, or at least double-checked the bar code language, and I never should have signed it since it didn’t come to me straight from my law firm. Monday morning I called Grubman to talk to my lawyer and tell him the contract was done. First thing out of his mouth was, “You did what? I didn’t say the contract was ready to sign.” The problem with the bar codes was still in the language of the deal, and I wasn’t able to back out once I’d signed. What the hell had Weinberger done, telling me Grubman had okayed the contract to sign? Did he have some miscommunication with them? Did he deliberately have me sign a bad deal? Whatever was going on, between that and the contract he’d drawn up for 2 Live Crew, I started to get a bad feeling. I fired Weinberger. But I was too late.
A few days later, right around New Year’s, my assistant Nikki got a call from Jose Armado, who ran Caribbean Cassettes, one of the local pressing plants I used to make my records. Armado was one of my best and oldest vendors; he’d built his business on the work that I brought him. He called that day looking for me, but I was out. He told Nikki that he’d received a disturbing phone call from Weinberger. He said that Weinberger had called him and told him that Luke Records was broke, that I was never going to pay him on the invoices that were outstanding from the past few months, and that he should join Weinberger in forcing me into bankruptcy. In Florida, if you have unpaid creditors, all it takes is three of them to band together and they can force you into what’s called a Chapter 7, an involuntary bankruptcy, in an attempt to recover their debt. Armado said he told Weinberger, “No way.” He never liked Weinberger. He called him a snake on the the phone call with Nikki. That’s how he phrased it, “Tell Luther this snake just called me . . .”
The next couple of days, we started to piece together what was happening. We started reaching out to clients and vendors. A lot of them hadn’t been paid properly, and they were getting calls from Weinberger trying to band them together to put me in Chapter 7. Why would my former CFO and in-house counsel be trying to force me into bankruptcy? It turned out that Weinberger had put himself in a position where he could say that Luke Records owed him money, too. A lot of money. I’d never asked Joe Weinberger for money in my life, as a loan or anything else, but he’d gone and put a few hundred thousand dollars of his own money into the company account, calling it a loan to help cover expenses. He insisted later that Luke Records had needed the cash. It didn’t make any sense to me. You’re the CFO and you see a cash flow problem, but you give the company a secret loan and you don’t actually tell the head of the company that there’s an issue? Whatever his motivation, this “loan” meant that Weinberger was now a creditor to the company, and since he was no longer an executive employee owing the company any kind of fiduciary duty, the door was open for him to come back around, find some willing partners, and drive me into bankruptcy.
Now don’t that sound like some devious shit?
I sued Weinberger for tortious interference. On January 11, 1995, the court held a hearing on my request for an injunction to stop him from contacting anyone doing business with me. The court found that Luke Records’ reputation and ability to do business had suffered “irreparable harm” due to Weinberger’s actions, and that there was “a substantial likelihood of success on the merits for a claim for interference.” In plain English: the facts of the case were in my favor and I had a good chance of winning if I took him to trial.
The injunction was granted. But, again, I was already too late. One week before I filed for the injunction, on January 4, Weinberger had gone and filed incorporation papers for a new company: Lil’ Joe Records. He was starting his own record label? Dude was a tax attorney. He didn’t know the first thing about music. What acts was he planning to sign? How was he going to make money? All those questions would eventually be answered.
Despite the injunction, Weinberger had already made enough phone calls to convince a handful of my creditors to file for Luke Records to go into involuntary bankruptcy. As I recall, it was one of my distributors, a sound engineer who was owed about a thousand dollars, and one other guy. They filed the petition on March 28. At the same time, I was still trying to figure out what had happened with the Sony/Relativity deal. The new H-Town album, Beggin’ After Dark, had just dropped. It was blowing up, already well on its way to being certified gold, and the money from that could have helped me take care of a lot of my problems. But Sony/Relativity wouldn’t release any of the money from the album. They said there were too many losses being reported from previous distributors—the bar code issue.
Once the Chapter 7 petition was filed, I had to go and find a new lawyer to clean up the mess. She told me if I filed for Chapter 11, a voluntary bankruptcy and reorganization, I could preempt the involuntary bankruptcy, renegotiate the bad contract with Sony, and have at least some control over what was happening. So that’s what I did. On June 12, 1995, Luke Records filed for Chapter 11.
When you file for bankruptcy, the first thing the court does is send in an accountant to go through your books and establish what’s what: every asset and receivable you own, every outstanding debt that you owe. What this accountant uncovered was that my accounts were in terrible shape. The artists on my label, groups like Poison Clan and H-Town—they’d stopped receiving royalty statements. They were getting angry, wanting to know where their money was. The pressing plants and other vendors I worked with, they hadn’t been getting paid, either. Their accounts were falling behind, 90 days in arrears, 120 days in arrears. I’d never even been notified about it, and I had brought Weinberger in as CFO to oversee this kind of stuff. This whole time my focus had been on launching H-Town and fighting the Acuff-Rose case. I trusted that the person I hired to handle it was handling it.
This accountant also uncovered a paper trail of checks that Weinberg
er had written to himself from the company. As CFO, Weinberger was allowed to write checks on the company account up to $3,000. The safeguard I had in place was that all checks had to be countersigned by myself or my office manager, Debbie Bennett, but there was no limit on the number of checks he could write in a given period. Weinberger had been making these checks out to himself, sometimes a stack of them in the space of a month, and taking them to Debbie—and she’d countersigned them. All of them. She said Weinberger had told her these checks were for reimbursement on the “loan” he’d given me—the loan I never asked him for.
I don’t recall exactly the number of checks, but it was a lot. I confronted Debbie about it. I thought she had to be in on whatever was going on. She put it back on me. She said I’d given Weinberger too much authority and too much say in the company. I’d been so busy that whenever legal or financial issues had come up I’d gotten in the habit of saying “Ask Weinberger. Talk to Weinberger. Check with Weinberger.” She’d grown accustomed to taking Weinberger’s word as mine. If he said it, she assumed it was either coming from me or it was something I knew about. So she’d deferred to him without question.
She wasn’t wrong about the blame being on me. I trace it back to one terrible, regrettable decision on my part. Back before I hired Weinberger, my accountant was this guy Sharpton, from one of the top black accounting firms in Miami. After Weinberger came in, he was always coming to me with complaints about Sharpton: Sharpton didn’t use the right bookkeeping system, this and that. Weinberger kept saying he couldn’t work with the guy and he wanted to bring in a new accountant he had a good working relationship with.
I never went to business school. All my decisions on how to run Luke Records came from instinct. My approach to the label came from my background in sports. I thought of that company like a team. I was the coach, and my management team was my coaching staff. When you’re a head coach and you bring in a new offensive coordinator, you usually let him bring in his own guys, the people he works best with, his own quarterback coach, his own running back coach. So when Weinberger said he’d work better with someone else instead of Sharpton, I said, “Okay. You’re handling the money. That’s your crew. You staff it however you think is best.”
The Book of Luke Page 21