COPYRIGHT ROYALTY JUDGES The Library of Congress In re DISTRIBUTION OF CABLE ROYALTY CONSOLIDATED PROCEEDING FUNDS NO. 14-CRB-0010-CD (2010-13) In re CONSOLIDATED PROCEEDING DISTRIBUTION OF SATELLITE DOCKET NUMBER 14-CRB-0011-SD ROYALTY FUNDS (2010-13) RULING AND ORDER REGARDING OBJECTIONS TO CABLE AND SATELLITE CLAIMS In September, 2015, the Copyright Royalty Judges (Judges) consolidated proceedings for distribution of cable royalties for the years 2010 to 2013, inclusive. At the same time, the Judges consolidated proceedings for distribution of satellite royalties for the same years. The Judges set October 10, 2016, as the date for participants to file objections to the validity of claims in the consolidated cable proceeding.1 Participants filed claims objections to both cable and satellite claims. Claimants to funds in the Devotional Claimants category, appearing as the Settling Devotional Claimants (SDC); the Program Suppliers category represented by the Motion Picture Association of America (MPAA); and the Joint Sports Claimants category, appearing as Joint Sports Claimants (JSC) objected to claims filed against their respective categories by Multigroup Claimants (MGC) or Spanish Language Producers (SLP). Correspondingly, MGC2 objected to claims asserted by JSC, MPAA, and SDC in each of the respective categories3. 1 See Order Granting in Part Emergency Mot. to Extend Deadline for Mots. for Allowance or Disallowance of Claims (Sep. 30, 2016). 2 During the proceeding, SLP assigned its interests in asserting claims and collecting royalties for Spanish language programs to MGC. 3 The fund categories in the cable proceeding are: Canadian Claimants, Commercial Television Claimants, Devotional Claimants, Joint Sports Claimants, Music Claimants, National Public Radio, Program Suppliers, and Public Television Claimants. See Notice of Participant Groups, Commencement of Voluntary Negotiation Period (Allocation), and Sched. Order, Ex. A, Docket No. 14-CRB-0010-CD (2010-13) (Nov. 25, 2015) (Cable Participant Notice). The fund categories in the satellite proceeding are: Commercial Television Claimants, Devotional Claimants, Joint Sports Claimants, and Program Suppliers. See Notice of Participant Groups, Commencement of Voluntary Negotiation Period (Allocation), and Sched. Order, Ex. A, Docket No. 14-CRB-0011-SD (2010-13) (Nov. md/kw Royalty Distribution Claims Ruling Cable and Satellite 2010-13 – Page 1 In the interest of judicial economy, the Judges rule on the validity of claims to both cable and satellite funds for the relevant years. The Judges’ conclusions are described in this Order. I. Disqualification of MGC The SDC seek to disqualify MGC as a claimant representative and, effectively, dismiss MGC from these proceedings. MGC is a first-time participant in these proceedings and has never filed royalty claims with the Judges. Rather, each of the claims that MGC pursues in these proceedings was either filed by Worldwide Subsidy Group dba Independent Producers Group (IPG), which has participated in several royalty distribution proceedings in the past, by the claimant, or by some other claimant representative. See MPAA’s Mot. for Disallowance of Claims Made by Multigroup Claimants at 8 (Oct. 11, 2016) (MPAA Motion) (“Except in a few instances where MGC has identified a purported interest in claims filed by other parties, IPG filed all the claims represented by MGC.”); Multigroup Claimants’ Opp’n to MPAA Motion … , at 11 (Oct. 31, 2016) (MGC Opp’n to MPAA) (MGC produced “the agreements between IPG and the underlying copyright owners.”); Multigroup Claimants’ Opp’n to Settling Devotional Claimants’ Motion … , at 16 (Oct. 31, 2016) (MGC Opp’n to SDC) (“authority was granted by underlying claimants to IPG, and then such authority was transferred to SLP and MGC.”). MGC is an assumed business name filed by Alfred Galaz as a sole proprietor in Bell County, Texas, on January 20, 2015. See Settling Devotional Claimants’ Mot. to Disqualify Multigroup Claimants and to Disallow Certain Claimants and Programs, Ex. 10 (Oct. 11, 2016) (SDC Motion). IPG executed an “Authorization and Transfer” agreement (also on January 20, 2015), whereby IPG “engage[d] and authorize[d]” MGC to act as IPG’s representative in U.S. cable and satellite royalty distribution proceedings. See SDC Mot. Ex. 9. Alfred (also referred to as Alfredo or Al) Galaz is the father of Raul Galaz and Denise Vernon, both of whom have carried out IPG’s business as owners, employees, or contractors at various times over the past two decades. See Galaz v. Katona, 2015 U.S. Dist. LEXIS 125595, *5 (W.D. Tex. 2015). In the present proceedings, Raul Galaz and Denise Vernon are the only individuals (apart from counsel) who have acted on behalf of MGC. See, e.g., Multigroup Claimants’ Opp’n to Settling Devotional Claimants’ Motion …, Exs. A-B (Oct. 31, 2016) (MGC Opp’n to SDC). The SDC propose several grounds for disqualifying MGC. The Judges address each of these grounds. As the moving parties, it falls on the SDC to establish that MGC should be disqualified from representing claimants in these proceedings. A. Lack of Consent to MGC Representation The SDC note that MGC has produced no evidence that any of the claimants MGC purports to represent have agreed to the substitution of MGC for IPG as a claimant representative. SDC Mot. at 5-6. The SDC argue that MGC, therefore, fails to meet the Judges’ requirement that a claimant representative “must have representation authority from each rights holder that [it] purports to represent [and] must have continuing authority to pursue the claimants’ royalty rights through the distribution proceeding(s).” Id. at 5 (quoting Mem. Op. and Ruling on Validity of … Claims at 6, Docket Nos. 2012-6 CRB CD, 2012-7 CRB SD (March 25, 2015) (Satellite Participant Notice). In each case the categories are mutually exclusive. See Cable Participant Notice, Ex. A; Satellite Participant Notice, Ex. A. md/kw Royalty Distribution Claims Ruling Cable and Satellite 2010-13 – Page 2 2015 Claims Ruling). The SDC conclude that, absent the underlying claimants’ consent to the substitution and/or fresh authorization to MGC’s representation, MGC is not a valid claimant representative and must be disqualified. SDC Mot. at 6-7. For the reasons set forth in section III.A.1, infra, the Judges find that the lack of direct authorization of MGC by its underlying claimants (in the absence of an express contractual obligation) does not disqualify MGC as a claimant representative. The Judges will not disqualify MGC or dismiss any of MGC’s claimants in any category on this basis. B. Deception as to MGC’s True Identity The SDC claim that MGC, through its counsel, intentionally sought to deceive the Judges and other participants as to MGC’s true identity, and argue that the deception should disqualify MGC. SDC Mot. at 7. The SDC note that, initially, two groups of claimants now represented by MGC filed petitions to participate under separate names: MGC and SLP.4 None of the petitions disclosed the nature of MGC or SLP as “an individual, a business entity, or some other structure.” Id. Subsequently, MGC and SLP notified the Judges and other parties that the two claimant groups had reached a “confidential settlement,” and that SLP has “assigned its rights in these proceedings to MGC” and MGC would take over representation of the claimants that SLP had represented. SDC Exs. 36, 37. The SDC contend the foregoing facts demonstrate that Alfred Galaz, through counsel, falsely held out MGC and SLP as separate entities, reasoning that “if MGC and SLP were one and the same, then they could not appear as two different parties in the same proceeding” and “a single entity cannot ‘assign’ its rights to itself ….” SDC Mot. at 7-8. The SDC conclude that “[b]y asserting and implying that MGC and SLP are separate and distinct entities, and by failing to disclose that they are merely two different names for the same person, MGC breached its duty of candor to the Judges and to the other participants in this proceeding.” Id. at 9. The SDC draw a comparison to Raul Galaz’s use of the alias “Bill Taylor” as part of the fraud he perpetrated in prior royalty distribution proceedings and for which he was incarcerated. Id. at 10-11. In response, MGC cites a lack of evidence to support the SDC’s accusation of deception by MGC. MGC Opp’n to SDC at 8. MGC states that in discovery it produced documentation of “aggregate chain-of-title” for programs claimed in the proceeding, and that “Al Galaz” was signatory for SLP and MGC. Id. at 7-8. MGC asserts that MGC and SLP are “two different sole proprietorships,” so treating them as such was not deceptive. Id. at 9; see also id. at 10 (“they are separate entities”). In reply, the SDC assert that “MGC and SLP are not ‘entities’ or organizations at all; rather, they are one and the same person, Alfred Galaz.” Settling Devotional Claimants’ Reply in Supp. of Their Motion …, at 8 (Nov. 15, 2016) (SDC Reply). The SDC cite Texas case law for the proposition that “a sole proprietorship has a legal existence only in the identity of the sole proprietor.” Id. (citing Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 952 (Tex. 1983)). The SDC conclude that “a single person does not transact business with himself, settle 4 As it happens, SLP is another assumed business name for Alfred Galaz. SDC Mot. Ex. 39. md/kw Royalty Distribution Claims Ruling Cable and Satellite 2010-13 – Page 3 disputes with himself, enter agreements with himself, or transfer interests to himself. For one person to do such things is a sure sign of fraud.” Id. Neither the Copyright Act, nor the Judges’ procedural rules, requires a participant to disclose the structure of its business in a petition to participate in a royalty distribution proceeding.5 Alfred Galaz’s failure to do so on the MGC and SLP petitions to participate is not evidence of deception.