TLC was an Atlanta rhythm, blues, and hip-hop band that performed at clubs in 1991. The three-woman group signed a recording contract with LaFace Records. The group’s first album that LaFace produced, Ooooooohhh on the TLC Tip, sold almost 3 million albums in 1992. The group’s second album, Crazysexycool, also produced by LaFace, sold 5 million albums through June 1996. The two albums together had six top-of-the-chart singles.
LaFace had the right to renew TLC’s contract in 1996 following renegotiation of the contract terms. In the industry, royalty rates for unknown groups, as TLC was in 1991, are generally 7 percent of the revenues for the first 500,000 albums and 8 percent for sales on platinum albums (albums that sell over 1 million copies). The royalty rate increases to 9.5 percent for all sales on an eighth album. Established artists in the industry who renegotiate often have royalty rates of 13 percent, and artists with two platinum albums can command an even higher royalty.
The three women in TLC—Tionne Watkins (T-Boz), Lisa Lopes (Left-Eye, who has since died), and Rozonda Thomas (Chili)—declared bankruptcy in July 1995. All three listed debts that exceeded their assets, which included sums owed to creditors for their cars and to Zale’s and The Limited for credit purchases. Lopes was being sued by Lloyd’s of London, which claimed she owed it $1.3 million it had paid on a policy held by her boyfriend on his home that was destroyed by fire.
Lopes pleaded guilty to one count of arson in the destruction of the home but denied that she intended to destroy it. She was sentenced to five years’ probation and treatment at a halfway house.
Lopes asked that the Lloyd’s claim be discharged in her bankruptcy. All three members of TLC asked that their contract with LaFace be discharged in bankruptcy because being bound to their old contract could impede their fresh financial starts.
Did the three women meet the standards for declaring bankruptcy? Evaluate whether Lopes’s Lloyd’s claim should be discharged. Determine whether the record contract should be discharged.