CASE : Rock ‘N Out

You are an attorney representing a rock group. Recently the group has told you that it
wants to get out of its present recording contract in order to take advantage of a much
better offer. The group's contract is a "new kid" agreement common in the recording
industry. The group complains, and you agree, that the terms of the contract heavily
favor the recording company. For example, although the contract calls for the group
to make eight records, the company can drop the group at any time. In contrast,
however, under the contract, your client (the rock group) cannot terminate the
agreement at will (i.e. whenever it wants to), but instead must stay with the recording
company and make all eight recordings. These could take twelve years to produce,
however.
The rock group entered into the contract, before you represented them, at a time when
the members were all just out of high school. In your opinion, however, had you been
there to represent them, you probably could not have secured a much better deal
because the above kinds of contractual terms are standard throughout the recording
industry. In this regard, record companies say they have to rely upon "new kid"
contracts to balance the financial risks of signing and producing many new artists,
most of whom do not pan out.
A lawsuit requesting a court to release the group from its contract could go on for
years. You know about another legal strategy, however, that could generate the same
result much sooner -- declaring bankruptcy. Under federal bankruptcy law, the courts
may free debtors from contracts the court views as burdensome. The purpose of the
bankruptcy law is to enable debtors to make a fresh start, and not simply to make it
possible for individuals to get out of contracts they dislike. Nonetheless, you realize,
although you have not yet shared this with the rock group, that it might be able to get
out of the contract if the group members all rapidly accumulated large debts that
might convince a judge they are financially bankrupt.


What actions would you take and why?