DEFENDING JOHN BRANCA
God knows that writing about John Branca was the least of my desires. He is so controversial a subject that no matter what you write you automatically fall into disfavor with large factions of fans. However this sacrifice will have to be made even if it is my last series of posts in this blog.
FOR THE SAKE OF TRUTH ONLY
The reason for addressing this subject is the overwhelming response I’ve got about Branca to the recent article about AEG.
This has become a tradition with us – I write about AEG driving Michael into the ground and the customary answer I get is that John Branca was not re-hired by Michael Jackson on June 17, 2009 and those who assert it are not to be trusted, Branca first and foremost.
How one thing is connected with the other and why almost any post about AEG should end up talking about Branca is beyond my understanding but since people insist that there is a connection let me try to follow their logic and look into everything they have against this person.
The best place to go to is surely Joe Jackson’s objection to appointing John Branca and John McClain the Executors of Michael Jackson’s Estate made on November 9, 2009. This document provides all the arguments we need to know about Branca’s alleged or real faults. Why John McClain is mentioned there is unclear as he is not even mentioned anywhere in the text except the title.
Another source is a December 2010 series of Wrap articles, incredibly pleased with themselves for their investigative journalism and dwelling on the on-and-off business relations between Branca and Michael Jackson under the catchy titles of “How Michael Jackson Nearly Lost His Prized Music Catalog”, “The Secret Probe That Got Branca Fired”, “Michael Jackson and John Branca — a Major Wrap Series”, etc.
The series is far from flattering to Branca, is filled with innuendoes towards him (but lots of admiration for Randy Phillips of AEG) and is accompanied by some documents which are the only reason why this series should be looked up at all.
The third source to go to is the testimony of lawyer David Legrand at the 2005 trial who was actually the one who ordered the so-called Interfor report to investigate John Branca as part of Michael Jackson’s inner circle in 2003. He provides first-hand information about why the report was made, who initiated it and what its outcome was.
Now that I’ve read it all I wonder if the people who refer us to these notable papers for alleged evidence against John Branca ever looked up the attached documents themselves or do they believe what they are told without any double checking?
The reason I am asking is because the attached documents prove exactly the opposite of what is said or implied in the Wrap series and Joe Jackson’s papers presented to court. The daring of both authors is simply incredible – the counted on the readers to never look up and it seems that their readers never did.
The myth has it that a certain Intefor report was made in April 2003 by investigators hired by Michael Jackson and as a result of that Branca was dismissed in February 2003.
It is exactly in this ridiculous succession that the Wrap series, for example, claims that the events took place:
Jackson lawyer David Legrand, testified at the singer’s 2005 child-molestation trial that Jackson had hired him to look into the people in his inner circle. But, Legrand testified, “I was given no credible evidence to support the charges; I would be doing Mr. Branca a great wrong if I said otherwise.”
Nonetheless, the report achieved its goal: Branca’s termination.
“This is to confirm that I am terminating the services of you and your firm effective upon delivery of this letter,” Jackson wrote the attorney in February 2003. “You are commanded to immediately cease expending effort of any kind on my behalf…You are specifically instructed to transfer any funds you are holding in trust for me…”
The real events came in a totally different order of course and had a different outcome.
The letter of Branca’s discontinuance of service came in February 2003 while the Interfor report was made several months later, on April 15, 2003 and since no wrongdoing on the part of Branca was found he resumed working for Michael Jackson and continued to do so until the year 2006.
What’s interesting is that both the Wrap series and Joe Jackson’s papers contain documents proving that John Branca continued to render legal services to Michael even after the Interfor report.
Joe Jackson’s court paper lists as one of its attachments an Agreement dated April 2006 where Branca’s firm waives the right to the 5% previously agreed fee and states that the moment the Waiver comes into effect Branca’s firm ceases to represent Michael Jackson in any capacity and shall no longer provide any legal or other services to him.
The above means that until such a declaration was made Branca’s firm was providing legal services to Michael and did represent him. The document was signed in April 2006 in the Kingdom of Bahrain and was notarized by the Vice Consul of the US Consulate there:
- “Effective as of the Waiver Effective Date, this is to confirm that the Firm shall no longer be representing you in any capacity or providing any legal or other services to you”
That was the document from the Joe Jackson file.
As to the Wrap series it also has a document that proves that John Branca worked for Michael Jackson as a lawyer and advisor after the Interfor April 2003 report and all the more so after the discontinuance letter made several months before that.
The document is John Branca’s letter to Mr. Koppelman sent on July 28, 2003. The letter is scrutinizing the deal initiated by Al Malnik and proposed by Goldman and Sachs and Mr. Koppelman as a way to alleviate some of MJ’s debts to the Bank of America.
Branca spotted numerous points in the deal unfavorable to Michael and suggested their further discussion with Mr. Koppelman.
This alone means that he as lawyer was actively involved in the assessment of the proposal made by a third party and was working out the best terms for Michael in the deal.
One of the Wrap articles confirms that the negotiations were carried out in 2003-2004:
… From 2003 to 2004, virtually the identical financial crisis — almost $300 million of debt, with the songs at stake — was met with a momentous initiative led not by Branca but by a power cast that included Wall Street-savvy Goldman Sachs, veteran music entrepreneur Charles Koppelman and a Florida entrepreneur dogged by mob suspicions, Alvin Malnik.
…In the documents, Goldman’s master financial alchemists began proposing a venture to position Jackson as “the Bill Gates of the music industry” and described how not only the $300 million debt might be whittled but also detailed how the beleaguered legend could walk away with perhaps $1.3 billion — with the Wall Street firm exiting even richer.
But only if he would sell his interest in Sony/ATV and in Mijac, the catalogue of Jackson’s own hits. According to the secret documents, Goldman was prepared even to “drag” Jackson along into a deal to sell them.
As the proposal evolved during more than a year, its fundamental flaw — that Jackson all but surely would forfeit his songs — remained clearly obvious to Branca. More than anyone, Branca knew that owning the songs was one of his client Jackson’s great passions and that the singer worried intensely about them slipping from his grasp.
Even if you don’t know the details of the Goldman and Sachs/Koppelman deal the letter sent by Branca to Koppelman strikes you by a quiet but firm and consistent advocacy for Michael’s rights in each of its points:
July 28, 2003
PERSONAL & CONFIDENTIAL VIA FEDERAL EXPRESS
Mr. Charles Koppelman
37 E. 64th St.
New York, NY10021
RE: Michael Jackson/Goldman Sachs Agreement
In follow up to our conversation about the Goldman Sachs deal memo and your suggestion that its term be extended beyond July 31, certain clarifications need to be made as follows:
1. It should be clear that Michael does not contribute, assign or relinquish ownership of his publishing interests unless and until Warner/Chappell is acquired and until it is clear what Michael’s equity interest would be in the combined publishing operation. The capital structure and economic interests of the parties in the venture entities (i.e., Music LLC and Newco) need to be elaborated and clarified.
2. It needs to be clarified that Goldman Sachs and/or the venture will take over responsibility for the Bank of America loans up to $270 million and Michael will have no further responsibility with respect thereto.
3. We need to confirm whether Goldman Sachs will agree to provide an interim guarantee (i.e., Put) for the Miijac loan and, if so, on what basis.
4. You stated that Michael will receive the first $320 million of distributions from the venture (after payment of annual fees). If this is the deal, it needs to be clarified. Merely paying off Michael’s loan obligations without allocating significant cash to him is obviously an insufficient valuation of his publishing interests to justify this transaction.
5. It needs to be clarified that transferring the loans and copyrights into the venture will not be a taxable event for Michael.
6. It needs to be clarified that, in the event of a liquidity event or exercise of the Put, there will be sufficient cash distributed from the venture to cover Michael’s obligations, including tax obligations, direct payment of this firm’s 5% and any other obligation Michael may have as a result of a liquidity event or exercise of the Put. Similarly an exit strategy needs to be devised for Michael to receive fair market value should he wish to exit the venture.
7. We should discuss how Goldman Sachs justifies an annual fee of $5,5 million. It seems high.
8. I’m not sure of the justification for Goldman Sachs to control the Board with five of seven Board seats, giving Michael only two. Whatever the Board membership, Michael should have some control over the management and operation of the venture.
9. The letter of intent imposes broad exclusivity obligations on Michael and none on Goldman Sachs. We should discuss this.
10. There should probably be confidentiality obligations imposed on Goldman Sachs since Michael is disclosing confidential information.
11. Finally, with all due respect, it does not make sense to Michael to tie you in as manager of Mijac as a condition of the loan. Your valuable contributions should be rewarded without interposing you as a condition to Michael’s relationship with the bank.
I am sure there are other issues that need to be address if this goes to long-form.
I look forward to discussing this with you.
Very truly yours,
Cc: Alvin Malnik
Zia Modabber, Esq.
Rene Ghadimi, Esq.
The Wrap series also noticed Branca’s zeal in supporting Michael’s interests but attributed it to Branca’s own interest in getting the profit out of the deal:
With his interest linked to Jackson’s, Branca seemed to have little choice but to be a zealous advocate for the entertainer.
In case Michael wanted out of the venture, “an exit strategy needs to devised for him to receive fair market value.” Skeptical of Goldman’s power grab, he insisted that “Michael should have some control over the management and operation of the venture.”
The other Wrap article already mentioned here implied that he worked so hard because he “stood to collect millions from the Goldman dealings”:
So why then had Branca worked so hard, as the secret files appear to indicate, for an outcome most feared by his client?
According to entrepreneur Malnik, Branca stood to collect $17 million from the Goldman dealings for a 5 percent interest that he held in Jackson’s stake in the Beatles’ catalog.
Alas, the Goldman deal, more than a year in the making, got no further than the paper on which it was written. Rather, it was scuttled by Jackson against a backdrop of behind-the-scenes hijinks that seemed to mirror his final sad decade, which roiled with scandals, a criminal trial, epic debt and an ever-rotating inner circle.
(A lawyer for Branca responds: “Branca was asked to review a proposal brought to Michael by others and gave advice to Jackson. The decision not to enter into the agreement was Michael Jackson’s based primarily on this. There were no secret files, and ultimately the Goldman proposal was never accepted.”)
The response sent to the Wrap article by Branca’s lawyer makes it clear that not only did Michael approach John Branca for the evaluation of that deal but Michael also acted on his advice and ultimately refused the Goldman Sachs proposal.
However after the deal fell through Branca was accused of trying to make big profit from it by working for Michael too hard. Utterly twisted logic, but how very typical when you are hell bent on smearing someone!
The Goldman and Sachs proposal was not Branca’s doing and the advantages and disadvantages of the deal may be disputed, but what is essential for today’s discussion is that Branca did continue to work for Michael in July 2003, well after his services were discontinued in February the same year, and this is the best answer to Joe Jackson’s statements about Branca allegedly never working for Michael again, which are made in total disregard of the facts.
THE GOLDMAN SACHS LOAN PROJECT
The reason why Michael didn’t accept the Goldman and Sachs’ project was because it did not cover his full debt to the Bank of America (at least according to its initial variant available to us from the Wrap articles), was giving Michael little liquidity, was reducing his stake in the Sony/ATV catalog to a minimum and was leading to the eventual sale of all his assets including rights to his own songs.
The deal was offered under the attractive cover of Michael Jackson turning into a future “Bill Gates” of the entertainment industry, meaning that he would have a minority stake in a business that would cost many billions.
The January 2004 date of the Wrap article shows us that at that time the project was still under discussion, so Branca must have been still involved in the negotiations over it. This article explains the essence of Goldman Sachs’ proposal:
Inside Secrets of the Goldman Proposal
By Johnnie L. Roberts on December 5, 2010 @ 8:46 pm
…Acting as Jackson’s adviser, Charles Koppelman, the veteran entertainment executive and investor, recruited Goldman Sachs and worked closely with two of its private-equity aces, Gerry Cardinale and Henry Cornell, in crafting the proposal.
Ahead of the proposal, he and Florida businessman Al Malnik also arranged to double — to $70 million — one of Jackson’s two loans with Bank of America, where a Koppelman friend, Jane Heller, happened to handle his and Jackson’s personal accounts.
The confidential Goldman documents detail a proposal with several steps:
>> First, Goldman and Jackson become 50-50 owners in a new company, Music LLC.
>> Next, Music forms a separate company, “Newco,” with new partners — Sony, with its half of the Beatles, and Goldman putting up money.
>> Newco’s assets would be 100 percent of Sony/ATV (the Beatles) and Mijac (Jackson’s hits) and Goldman (more cash).
>> Newco would swallow Warner Music Group’s music publisher, Warner-Chappell, and combine it with Sony-ATV.
A target list also included other publishers — arms of Universal Music Group, BMG or EMI. The goal: industry dominance.
Jackson’s original stake would shrink as more investors entered the Goldman-crafted venture. “Like Bill Gates, Jackson would have a smaller stake in a multibillion-dollar company,” Goldman declared in a talking-point memo dated April 15, 2003.
Within five years, Goldman’s typical time frame for such investments, all would have been monetized in a sale of the venture, most likely to Sony Corp. By Goldman’s projections, Jackson’s share would be $700 million to $1.3 billion.
But backend riches didn’t solve Jackson’s shorter term crisis of repaying the $270 million bank debt. Not to worry. A $135-million Goldman loan would retire the $70-million Bank of America loan and $7-million due Sony. He would catch up on $12 million in overdue monthly bills and have a few million as a cushion.
Goldman planned to repay itself from Jackson’s backend bounty, but it was unclear how he’d repay the remaining $200 million bank loan. This much was clear, however: If he defaulted, Bank of America could legally force him to sell his share of the venture to Goldman, with the proceeds handed out to the bank.
As Jackson’s putative partner, the Wall Street titan would have hogged much of the power: twice as many shareholder votes as Michael in their jointly-owned Music LLC and eight of 10 board seats — or seven if Jackson’s three picks included Koppelman, whom the secret documents show was as much a partner of Goldman as he was an advisor to Jackson.
A Jan. 7, 2004, term sheet — drafted by Goldman’s lawyers at Wachtell, Lipton, Rosen & Katz — also granted the Wall Street bank “drag-along rights … to require MJ-ATV Trust” (with control over Jackson’s Beatles interest) to participate in the contemplated cash-out deal. Drag-along rights prevent a minority partner from sitting out a sale of the company — something Jackson was apt to try to do.
The sums to be lent by Goldman and Sachs to Michael Jackson are detailed in the attached document called “Goldman Sachs’ Proposal”:
- Cash of $35 million to pay off $35 million Bank of America Loan secured against MIJAC
- Cash of $68 million to reduce balance on $200 million Bank of America loan ($132 million balance would remain)
- Cash of $7 million for pre-payment penalty for the Bank of America loans
- Cash of $16 million to handle other current obligations
- Cash of $9 million payable on a monthly basis for the first year.
However according to another document called “Current MJ Status As We Understand It” the then obligations of Michael Jackson amounted to $254 million and when the initial $35 loan secured by Michael’s own songs was increased to $70 million with the help of Mr. Koppelman and Al Malnik his overall liabilities reached the sum of $289 million which was far too big to be covered by the Goldman Sachs’ proposal:
- $200 million Bank of America loan, secured by MJ’s Sony-ATV interest with the maturity date of December 20, 2005
- $35 million Bank of America Loan, secured by MIJAC, Neverland Ranch, MJ personal guarantee and other person propery, with the January 31, 2004 maturity date
- $12 million current obligations/liabilities
- $7 million advance from Sony, Signature secured by MIJAC (second lien).
To put it plainly Goldman Sachs was giving Michael a loan of $135 million which was covering less than half of his debts.
The ultimate price to be paid for it was Michael’s loss of control over all his assets and getting a small stake in his own catalogs. In five years or so it was to be sold for an estimated $700 mln to $1,3 billion.
However the future of the remaining unpaid debt was unclear and even if the sale of his stake left him some money, all the assets would be gone including the rights to his own songs. Nothing would be left for Michael’s children.
In terms of cash the proposal meant that Michael was to receive $1million every month for the first year and $3,5 million per year ($300,000 a month) for the next 5 years. Goldman Sachs was to receive the annual fee of $5,5 million per year which as John Branca pointed out in his letter as too high.
Now that we’ve learned a little about the terms of the proposed deal Branca’s objections to the deal become clearer to us:
- He wanted Goldman Sachs to take responsibility for MJ’s full $270 mln debt (“It needs to be clarified that Goldman Sachs and/or the venture will take over responsibility for the Bank of America loans up to $270 million and Michael will have no further responsibility with respect thereto”).
- In addition to paying off all the loans he wanted significant cash for Michael as otherwise the deal was not justified (“Merely paying off Michael’s loan obligations without allocating significant cash to him is obviously an insufficient valuation of his publishing interests to justify this transaction”).
- He wanted Michael to have some control over the venture and more than two seats in the seven seat board membership, as well as an exit strategy for Michael enabling him to receive a fair market value in case he wanted to exit the venture.
In short Branca was trying hard to work out the best terms for Michael in the deal. However the Wrap series presented his efforts in extremely vague terms:
But some might conclude that Branca is no hero at all. A proposal in 2003 that would have sold Jackson’s interests in the Beatles’ and Mijac catalogues to the investment bank Goldman Sachs would lead some to question Branca’s role in Jackson’s business affairs.
The response sent to the Wrap article by Branca’s lawyer was:
“While the Goldman proposal might have divested Michael Jackson of his interest in the Beatles and MIJAC catalogues in the long run, it would have created a larger entity that increased the value of his interests. If sold, Branca’s fee would have gone to his firm, not directly into his pocket. Branca advised Jackson that he would be giving up too much control based on the proposal and Jackson vetoed the deal.”
But the best of the Wrap story is its ending. The article said that the deal took more than a year in the making and by the time it collapsed Branca was fired. To prove the point the article refers us… to the February 2003 letter discontinuing Branca’s services and to the so-called “Secret Probe that got him fired” dated April 2003:
Alas, the Goldman deal, more than a year in the making, got no further than the paper on which it was written. Rather, it was scuttled by Jackson against a backdrop of behind-the-scenes hijinks that seemed to mirror his final sad decade, which roiled with scandals, a criminal trial, epic debt and an ever-rotating inner circle.
The bank, which wouldn’t comment specifically on its planning to “drag” Jackson into a transaction, concluded: “We ultimately decided not to pursue the acquisition of these assets.”
As for Branca, by the time the deal collapsed, the superlawyer had been fired.
See Jackson’s letter to Branca: You’re fired.
The Wrap article wrapped it up very nicely of course, only the negotiations of the Goldman Sachs deal spanned over the whole year of 2003/2004 while the letter firing Branca is dated February 2003 and the so-called “secret probe” was in April the same year, after which Branca was still advising Michael in the Goldman Sachs’ deal and Michael was even listening to him.
So our conclusion is that as a very minimum Michael rehired him back.
GOLDMAN SACHS IS OUT. ENTER FORTRESS INVESTMENT GROUP
Branca’s legal representation was stopped in April 2006 as we now know from the “Bahrain” agreement. We also know that at least a year before that John Branca must have been still involved in the Goldman Sachs deal as the negotiations lasted until April 2005 when the deal was off.
The April 14, 2005 Fox article announced that the deal was to be signed in the next few days and if we are to believe their sources Goldman Sachs was pressed so hard (by Branca) that now they agreed to pay all Michael Jackson’s debts.
This point I am a little doubtful of, but as to the final figures in the deal we lack the respective documents and therefore have to rely on the highly unreliable Roger Friedman:
Published April 14, 2005
A deal to extricate Michael Jackson from his perilous financial situation is at hand.
I can tell you exclusively that the deal Jackson is being offered must be signed in the next few days, or he really will have his proverbial head on the chopping block.
I’m told Jackson will likely be presented with a deal sculpted by what I call his “permanent government” of lawyers and advisers, not the many shady characters who’ve come and gone over the years.
This “government” includes music publisher Charles Koppelman (who’s also on the boards of Martha Stewart and Steve Madden’s companies), attorneys John Branca and Al Malnik, Jane Heller of Bank of America and private investors represented by Goldman Sachs.
In return, all his debts will be paid off, including $270 million in loans from Bank of America, all the debt piled up at his Neverland ranch and all loans against his own Mijac Music Publishing, which owns Jackson hits such as “Billie Jean” and “Beat It,” as well as songs by Sly and the Family Stone and others.
Jackson will wind up with somewhere in the neighborhood of $10 million in cash, I am told. He will still reap a $7 million to $8 million annual income as well. He’ll also get some income from Sony/ATV.
Sources point out that Mijac is now worth around $100 million, and will be an even better asset once it’s free from debt.
..Bank of America has, according to sources, lost its patience over his mounting debt. If for some reason he doesn’t accept this latest proposal, I am told that he will really be in a dire situation.
Jackson, mind you, is not likely to sign this deal. Insiders tell me that he’s encouraged his fans to spread the word that he’s the victim of a “conspiracy.”
My sources also say that Jackson considers Branca one of the “conspirators,” since his former attorney would reap a 5 percent commission on this sale — almost three times as much money as Jackson will make.
But push has come to shove, to use a cliché, and Jackson is unlikely to find a better deal.
Friedman says that in that period of time Michael was distrustful of Branca, and either for this reason or because Michael was afraid to lose full control over his assets (as Branca warned him against) or because he didn’t want to ultimately sell his assets as the Goldman Sachs proposal envisaged it, or because a better deal was offered to him, but their project was not accepted and the very next month, in May 2005 the Bank of America loans were sold to Fortress Investment Group.
This was done via Prescient Acquisitions Group who wanted for their services $48 million (eventually their claim had to be settled by Michael Jackson for an undisclosed sum). The ultimate maker of the deal was Dan Stadler, the advisor hired by Randy Jackson.
Now we know that at least since November 2004 the negotiations with Goldman Sachs and Fortress Investment group were running parallel to each other, and something tells me that Randy Jackson did not consult the lawyer John Branca as to the possible outcome of that deal – which I personally consider a big mistake:
The original Jackson-Prescient-Fortress deal went down in May 2005 while Jackson stood trial in Santa Maria, Calif., for child molestation.
But, unbeknownst to anyone, the negotiations had actually begun in November 2004.
So while Branca was working on the Goldman Sachs deal Michael was pressed by his brother and his advisor Don Stabler to look into a different direction.
Eventually it was their advice that he listened too, especially since Branca was warning Michael that the Goldman Sachs deal was not flawless either as he would lose control over his assets there (and would have to finally sell them too).
The NY Daily News article says that pressure to enter into a deal (with Fortress Investment group) was exercised on Michael during the bathroom breaks in the 2005 trial:
SUNDAY, JUNE 17, 2007, 4:00 AM
…But during breaks in the trial, Jackson says he was being pressured to sign off on a multimillion-dollar financing deal by Don Stabler, an associate brought in by brother Randy, his go-to guy on financial matters during much of his career.
Jackson initially took a liking to Stabler after Randy introduced them.
“He reminded me of people that live in mid-America like Indiana,” Jackson testified.
Stabler was persistent, at one point during the trial sending a message through one of Jackson’s Nation of Islam security guards that questioned the singer’s faithfulness to his African-American heritage.
It was a sore point for someone who has denied he purposely lightened his skin.
By then, Jackson had turned to Burkle, the billionaire pal of former President Bill Clinton, for financial help. Burkle brought in Jesse Jackson, who’s known Michael Jackson since his Jackson 5 days, to help with the consultation.
Burkle was calling him on the cell phone during bathroom breaks, warning him not to sign anything, Michael Jackson said. Stabler wasn’t happy, Jackson said.
“[Stabler] said, ‘What’s the problem? You’re not down, you’re with the Jews now. You’re not down with blacks anymore,’” Jackson testified.
“It was unkind,” Jackson added. “It was mean. It was meanspirited. It was nasty. Simply because he couldn’t get me to sign something that he wanted me to sign.“
The next time Jackson saw Stabler “he wanted to take my head off.” And his brother Randy wasn’t too happy, either.
Randy later claimed that Jackson and his staff had run up a $700,000 bill on his American Express card during the trial, which Jackson said he would repay.
It wasn’t the first time that Stabler teamed with Randy in trying to get him to sign off on a deal, Jackson claimed.
…Jackson made his comments when he was grilled by lawyers for the Hackensack, N.J., finance company that is suing the singer in Manhattan Federal Court. The firm, Prescient Acquisition, is owned by businessman Darien Dash, who claims Jackson stiffed his company out of $48 million.
According to Dash’s lawyer Steven Altman, Dash was due the money for helping Jackson refinance a $272 million bank loan and secure $573 million in financing to buy out Sony’s half of the Beatles’ song catalogue that Jackson co-owned.
But Jackson claimed he’s never heard of Dash, a cousin of hip-hop impresario Damon Dash, and doesn’t remember signing any agreement.
A year later, in April 2006 Fortress was threatening to acquire Michael’s stake in the Sony/ATV catalog if he did not pay back the debt bought from the Bank of America in May 2005 (with their added highway robbery interest on the loan), and it was Sony who came to Michael’s help and refinanced the deal with a $300 million loan from the Barclay’s bank.
To facilitate the refinancing deal in the “Bahrain” agreement mentioned above Branca gave up the right to a 5% fee to which his company was entitled since the time Michael merged his Beatles catalog with Sony, and sold this right back to Michael for $15 million as Joe Jackson’s court documents state it.
From the later developments we know that the refinancing scheme was a temporary one as it satisified Fortress’s hunger for two years only and in May 2008 they came after Michael’s assets again, at least in respect of Neverland. In came Tom Barrack’s Colony Capital who are in the same business as Fortress and who know each other perfectly well. The rest of it is known to you.
THE 5% FEE
Joe Jackson claims that “Branca’s 5% Interest in Michael Jackson’s Performances and Sony/ATV Disqualify Him from Being the Executor”. His reasoning is the following one:
“Michael Jackson signed various retainer agreement with Branca and his firm in 1993 through 1998. In those agreements, Branca took 5% of the proceeds of Michael Jackson’s businesses and performances, and then, without further entitlement, a 5% ownership interest in the Sony/ATV catalog royalties, all of which were the subject matter of his representation. Branca took a percentage of Michael Jackson’s business proceeds without regard to the work performed.
These contract for representation not only constituted conflicts of interest, but also violated Branca’s duties as a lawyer by taking an interest in the subject matter of the representation. The Sony/ATV catalogue has been valued in excess of $1 billion for Mr. Jackson, and a 5% interest represented an unearned fee of $50 million, plus the distributions attributed to that 5% interest.
…In April, 2006, Michael Jackson paid Branca $15 million to get back his 5% interest in the Sony/ATV catalogue. When Branca filed his Petition to be Executor of Michael Jackson’s Estate, he concealed from the Court this multimillion dollar transaction and material profiting from the 5% interest in Michael Jackson’s business.”
I have several objections to the above.
First of all by the year 2009 the fee of 5% had long been not paid to Branca or his firm in accordance with the “Bahrain” agreement of April 2006.
Second, there is a document attached to Joe Jackson’s papers saying that Branca had waived his right to that fee even earlier, when Michael was obtaining a loan from the Bank of America National Trust & Savings Association and Branca wanted to facilitate that loan transaction. The document dated the year 1998 says that the firm would waive payment of the 5% fee “through September 2005” with respect to future “guaranteed advances” and the “put price”. Under the same document the fee sum of $2, 275,000 payable to them was also to be discounted to $1,864,200.
For what period the discounted sum was charged and whether the fee was waived fully or partially, for good or for a limited period of time, I have no idea.
But you will still agree that the general impression of Branca’s offer makes a decided difference from everything we’ve ever read about Michael’s other associates.
None of them ever gave up their right to charge Michael for money and none of them gave him any discounts.
Almost all of them sued him at the first opportunity presenting itself and this even despite their big friendship with Michael and their ardent love for him (like Dieter Wiesner, for example).
And Branca is offering to waive the right to his fee for several years and is discounting the money owed to him?
My third objection is that Joe Jackson’s papers make it unclear what he means by the 5 percent. On the one hand he calls it “an interest in the royalties”, and on the other hand he says that Branca’s share was $50mln in comparison with the catalog costing $1 billion which implies that Branca’s firm had a 5% stake in the catalog itself.
But this very statement from Joe Jackson makes me exclaim that even if Branca had a $50 million stake in the catalog, the $15 million price he charged for it means that he sold it at one third of its market price!
He could have surely sold it to the other side (Sony) and they would have gladly paid the required $50 million to have a stake bigger than Michael’s by a full 10 percent and changing it into 55% for themselves and 45% for MJ – however Branca never did it.
The Wrap series also claims that Branca had a 5% stake in the Sony/ATV catalogue, and while both they and Joe Jackson are trying hard to prove that Branca is a profiteer, the facts are testifying exactly to the opposite.
If Branca was charging a fee, we know that he gave it up for a considerable period of time. And if it was his stake in the catalog he sold it back to Michael for a purely nominal sum.
IF 5% WAS A STAKE
The Wrap article tells us how that 5% came about.
After cancelling the Dangerous tour Michael owed the tour promoters a fortune and one of his lawyers suggested selling the Beatles catalog for $75 million. Branca advised him against it and instead arranged a merge with Sony which brought Michael $150million cash from Sony. This is when he asked for a 5% fee on the deal which amounted to $7,5mln (which in my opinion, was a fair price for so big a profit).
The Wrap article says:
…Three years later, Branca got a phone call. “Branca, it’s Michael. You think I should sell half of ATV Music for $75 million?”’
One of several lawyers was proposing just that, to raise cash, which Jackson was in dire need of. The child molestation scandal, which had exploded earlier that year, would ultimately cost him $20 million in a private settlement. He owed promoters a fortune after suspending a world tour. Neverland was draining cash. What’s more, he was addicted to prescription drugs.
Branca realized he had an opening to return to Jackson’s side. He’d come back and fix everything — but this time it would cost Jackson up front: 5 percent of ATV Music (the Beatles), as he had proposed before his firing.
The woeful Jackson assented.
But even though they would reunite, the old relationship was never to be again. Branca would now find himself to be just one more member in the rotating cast of characters in Jackson’s life.
And with Branca now owning the 5 percent stake, Jackson became paranoid that his lawyer would want him to sell his song rights.
On the other hand, Branca did see an ATV transaction with Sony as an answer to Jackson’s cash crisis. But instead of an outright sale, he proposed a merger of Sony’s music publishing operations and ATV.
Thus, in 1995, Branca pulled off another coup: Sony/ATV Music Publishing. Jackson owned half of a much larger company, and pocketed a $150-million check from Sony. If Branca were entitled to 5 percent, his take totaled $7.5 million.
Estimates of its value range from $1.6 to $2 billion, and in recent years it generated operating cash of $100 million to $130 million a year, according to the New York Times.The publishing income alone, which Sony and the Jackson estate divvy up, should acount for tens of millions a year in estate income — as it used to for Jackson.
Yet, amazingly, his financial woes would only worsen. By 2003, he owed $270 million alone to the Bank of America in two massive loans through MJ ATV Publishing Trust, which owned Michael’s Sony-ATV stake, and MJ Publishing Trust, which controlled Mijac, repository of Michael’s songs. If Jackson defaulted on either loan, he could be forced to sell the songs to Sony, with the bank collecting the proceeds.
…Finally, Bank of America threw in the towel, selling the loan (and Beatles collateral) to Fortress investment, which charged Jackson double-digit interest rates. Utter disaster, however, was staved off only by a bailout arranged by Sony, which guaranteed a $300 million Barclay’s loan.
In 2006, Jackson’s and Branca’s on-again, off-again relationship hit a new low. Branca quit Michael this time in what, according to two top music industry executives familiar with the situation, was a broader dispute.
They suggest that Branca, Michael and Sony clashed over the lawyer’s 5 percent when it became a complication in Michael’s bail-out. The settlement: Branca sold it back for millions of dollars.
(A lawyer for Branca responds:
“Branca’s fee was not an issue. Branca settled his equity in those assets in which he had an interest for much less than its fair market value.”)
I absolutely agree. If it was really a stake in the catalog he sold it for much less than its fair market value.
IF 5% WAS A FEE
Branca’s letter of 1993 about a fee is attached to Joe Jackson’s papers. It was written exactly at the time described by the Wrap article.
This was evidently the moment when the merge with Sony was contemplated and Michael Jackson was rehiring Branca as his General Counsel in music, television and home video businesses as well as real estate acquisitions.
The letter specifies the fee arrangement with Michael and says that it will be 5% from all his proceeds received by Michael beginning with next year.
If he tours and bears the show costs appropriate deductions will be made. The fee will not include litigation costs.
In short its text does not have even a suggestion of Branca aspiring to have a stake in the future Sony/ATV catalog:
RE: Fee Arrangement
The purpose of this letter is to confirm our fee arrangement with you and your various companies. We shall render services for you as your general counsel in the music business (an, ancillary to music, in the television and home video business). We shall render services in other areas (such as real estate acquisitions) as we shall mutually agree upon. You shall have the right to terminate our services at any time.
During the term of our engagement, we shall receive five percent (5%) of any gross monies actually received by you or any related entity from songwriting and music publishing (including the publishing companies comprising ATV and Mijac), recording, television, home video programs, merchandising, personal appearances, commercial endorsements, sponsorship and from the operation, sale and/or other disposition of any assets owned by you or any such entity; provided, however, that excluded from the foregoing commission shall be personal appearances, engagements and sponsorships performed in 1993. If you tour, we will work out appropriate deductions for any show costs, as that term is contently understood (e.g., sound and light), that you are required to bear.
Notwithstanding the foregoing our commission fee with respect to recording income shall commence in connection and simultaneous with the renegotiation of your Sony Records contract with respect to the delivery of a studio or a “Greatest Hits” album; and our commission with respect to your Mijac publishing income shall also commence simultaneous therewith.
The foregoing compensation does not include out-of-pocket costs; such as travel, telefaxes, messengers, photocopying and long-distance phone calls. These costs will be billed periodically. In addition, the retainer does not include any services which this firm does not customarily provide, such as litigation, tax, securities or trademark representation. We do not typically bill the five percent (5%) fee. Instead, we depend upon clients and their business managers to send us checks as and when income received.
We believe that this fee arrangement is fair and reasonable under California law, including the California Rule of Professional Conduct. We urge you to consult, if you wish, with an independent lawyer of your choice about this fee arrangement. If you or any independent lawyer have any questions about this fee arrangement, please fell free to call me.
If you wish to discuss the foregoing, please feel free to call me. Otherwise, please sign a copy of this letter below and return it to me.
John G. Branca
Agreed to and accepted
Some of you will say that paying 5% of all proceeds for the work of a General Counsel in music, television, home video businesses and real estate acquisitions is too big a commission.
I will disagree because others around Michael did not do a fraction of what was done by John Branca but still demanded 15% and more for a mere bringing the parties together (Tohme).
Or charged 10% for “promoting” the This is it tour the tickets for which sold within minutes without them moving even their little finger (AEG) and charged the additional 5% as a Producer’s fee (I am talking of the AEG official figures only).
Or asked for $5 million for his part in making a This is it film upon which he had no bearing at all (Dileo).
Repeating the words of LeGrand, a one-time Michael Jackson’s lawyer who testified at the 2005 trial, let me say that I’m not concerned about people making money, but I am concerned when people want excessive amounts in relation to their contribution. Branca’s contribution seems to me quite a substantial one and a justified one at that.
So when I receive comments like the recent one implying that Branca exploited Michael Jackson and just made money off his back:
- “Whenever anyone wants to consider who made money off of Michael’s back during his lifetime and after, the firm of Ziffren Brittenham must be placed at the top of that list.”
All I want to do in reply is shrug my shoulders and ask: