# David Ellefson v Megadeth

Available online from http://www.blabbermouth.net/ellefson_vs_mustaine_Blabbermouth.net.pdf
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x 04 cv. 5395 DAVID ELLEFSON, Plaintiff, vs.MEGADETH, MAJESTIC IV, INC., MEGAMERCH, INC., DAVID MUSTAINE and “JOHN DOES” Nos. 1-5, inclusive, Defendants.
ECF CASE COMPLAINT - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - x Plaintiff David Ellefson (“Ellefson”) by his attorneys, Bienstock & Michael, P.C., Randall S. D. Jacobs, Esq., of Counsel, as and for his complaint against defendants Megadeth, Inc. (the “Corporation”), a California corporation, Majestic IV, Inc. (“Majestic”), an Arizona corporation, Megamerch, Inc. (“Megamerch”) a California corporation and David Mustaine (“Mustaine”) (collectively, the “Defendants”), alleges as follows:
Nature of the Claims 1. This Complaint is brought by Plaintiff Ellefson, a minority shareholder of the Corporation, a professional musician and a performing member of the recording group performing as “Megadeth” (the “Group”), one of the two most successful “heavy metal” recording groups. Plaintiff seeks money damages, a declaratory judgment, statutory and equitable relief against the Defendants, as follows: money damages against Defendants, as set forth in Case 1:04-cv-05395-NRB Document 1 Filed 07/12/04 Page 1 of 38 page 1
detail herein, for (1) fraudulent registration of the Group’s tradename “Megadeth” (the “Tradename”), (2) fraudulent registration of Plaintiff’s music copyrights, (3) libel per se, (4) defamation, (5) intentional infliction of emotional distress, (6) breach of fiduciary obligations and self-dealing, (7) fraud and conversion, (8) negligence and mismanagement, (9) interference with economic advantage, (10) statutory access to the Corporation’s books and records, and equitable relief providing for (11) an accounting and a constructive trust, (12) temporary and permanent injunctive relief and (13) a declaratory judgment.
Jurisdiction and Venue 2. The Court has jurisdiction of this action under 28 U.S.C. §§ 1331 (federal question), 17 U.S.C. §§ 101 et seq. (Copyright) and 15 U.S.C. 1120 (trademark). 3. This Court has personal jurisdiction over the Defendants under the New York State Long Arm Statute, Section 302 of the Civil Practice Law & Rules, in that the Defendants regularly do business in the State of New York pursuant to their recording, performance and music publishing contracts entered into and performed in the State of New York as well through international and national merchandising of products bearing the Group’s tradename through its interactive internet website. 4. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) and 28 U.S.C. §1400(a) as this is a judicial district in which a substantial part of the events giving rise to the claims occurred. 5. Pursuant to 28 U.S.C. §1367 this Court has supplemental jurisdiction over claims against the Defendants arising under state law out of the same series of events. Case 1:04-cv-05395-NRB Document 1 Filed 07/12/04 Page 2 of 38 page 2
The Parties 6. The Plaintiff Ellefson (together with Defendant Mustaine) is one of the two cofounders of the Group which initially operated in the mid 1980's as an equal (“50/50") partnership (the “Partnership”). Ellefson is also the Group’s bass guitarist, backing vocalist and co-composer of many of its musical compositions including, but not limited to, such hits as “Foreclosure on a Dream,” “99 Ways to Die” and “In My Darkest Hour” and others set forth on Exhibit A attached hereto. Ellefson and Defendant Mustaine are the only continuing original members of the Group, which has performed throughout much of the United States, as well as in Canada, Japan, Brazil, Argentina, Mexico, the United Kingdom, Germany and many other countries throughout the world. 7. On information and belief, defendant Mustaine is the only other cofounder of the Group and the Partnership. He was also the Group’s lead singer, guitarist and co-composer of many musical compositions. 8. On information and belief, defendant Megadeth is a California corporation incorporated in or about 1990. Defendant Mustaine unilaterally allotted to himself 80% of its common shares and, upon information and belief, the title and control of the Corporation as its Chief Executive Officer and Chairman of the Board of Directors. 9. The Defendant Corporation also operates an interactive internet web site addressed as www.megadeth,com from which it sells merchandise over the internet and its records and provides information about the Group to its fan base worldwide. Upon information and belief, the Corporation also has other merchandising agreements with third parties to distribute and sell its merchandise. Case 1:04-cv-05395-NRB Document 1 Filed 07/12/04 Page 3 of 38 page 3
10. Upon information and belief, Defendant Megamerch, is a California corporation, wholly owned by Defendant Mustaine which licenses, sells and/or distributes Trademarked merchandise the profits from which are solely distributed to Defendant Mustaine. 11. On information and belief, Defendant Majestic is an Arizona corporation, equally owned by Defendant Mustaine, Plaintiff Ellefson and former Group members Marty Friedman and Nick Menza; it was incorporated in approximately 1994 for the purpose of contracting for performances for the Group on various tours. 12. Upon information and belief, at all times hereinafter mentioned, Plaintiff is unaware of the true names and capacities, whether individual, corporate or otherwise, of Defendants sued herein as “John Does 1 through 5" inclusive, and therefore sues these Defendants by such fictitious names. Plaintiff will amend this complaint to state the true names and capacities of such fictitiously named Defendants when ascertained. Plaintiff is informed and believes, and on that basis alleges, that each of such fictitiously named Defendants is in some manner connected with the matters alleged herein and is liable to Plaintiff. 13. Plaintiff is informed and believes, and on that basis alleges, that each Defendant herein was the agent, servant, employee, partner and/or joint venturer of each of the other Defendants; the acts of each defendant were within the scope of such agency, service, employment, partnership or joint venture; in doing the acts and omissions alleged herein, each defendant acted with the knowledge, permission and/or consent of every other defendant; and each defendant aided, abetted, and/or conspired with the other Defendants in the acts and omissions alleged herein.
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Background Facts 14. In or about May 1983, Plaintiff Ellefson met Defendant Mustaine in Hollywood. Upon information and belief, Mustaine had been a performing member of “Metallica,” another rock group, from which he had been recently fired for alleged alcohol and other substance abuse; after discharging Mustaine, Metallica subsequently became the most successful “heavy metal” rock band in the world. 15. Shortly thereafter, Ellefson and Mustaine formed the Partnership and co-founded the Group as a “heavy metal” rock band. 16. From the inception of the Group, Defendant Mustaine referred to Plaintiff Ellefson as “Junior” although they both had the same given name (“Dave”) because, upon information and belief, Defendant Mustaine was older than Plaintiff Ellefson, the lead singer and “front man” for the Group while performing. 17. Plaintiff Ellefson and Defendant Mustaine hired a drummer and a guitar player to perform with the Group. 18. Plaintiff Ellefson and Defendant Mustaine, acting as equal partners, jointly adopted the tradename “Megadeth” for the Group. 19. However, notwithstanding such equal partnership, upon information and belief, defendant Mustaine registered the tradename “Megadeth” with the United States Patent and Trademark Office identifying himself as the sole owner thereof. 20. Since registration of the Tradename, Mustaine has had the Corporation make unrestricted and uncompensated use of the Tradename in its business dealings.
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21. From 1986 through 1989, Mustaine and Ellefson hired a drummer and guitar player Gar Samuelson and Chris Poland, who were each given 25% interests in the Partnership so that each of the four Group members and an equal share of ownership and control of the Partnership. 22. When the Partnership was succeeded by the Corporation in or about 1990, the Drummer and guitar player were not given any equity interest or control of the Corporation, but only hired to perform with the Group. 23. Upon information and belief, both Samuelson and Poland subsequently sued the Plaintiff and Defendant Mustaine for nonpayment of funds earned performing for the Group, which action was settled resulting in payments to the plaintiffs therein. 24. Over the past 20 years, both the drummer and other guitar player have been replaced several times by other hired employees with Defendant Mustaine and Plaintiff Ellefson remaining the only continuously performing members of the Group. 25. The Group made its first recording in 1984 which was released in 1985 through Combat Records, Inc., an independent record company. In May 1985 the Group released its debut album “Killing Is My Business . . . and Business is Good.” 26. Thereafter, in or about 1986, Capitol Records, Inc. (“Capitol”), through its New York headquarters, purchased the Group’s recording contract. Shortly thereafter, the Group entered into a seven-record album agreement with Capitol in New York which was fully performed through 2000. 27. The Corporation also entered into a music publishing agreement with EMI Blackwood, Inc., in the State of New York. Case 1:04-cv-05395-NRB Document 1 Filed 07/12/04 Page 6 of 38 1 By 1989 Defendant Mustaine and Plaintiff were both suffering from alcohol and other substance abuse. As a result, both Plaintiff and Defendant Mustaine entered into drug rehab programs from which each emerged “clean”; however, only Plaintiff has remained continuously sober and drug free since then. page 6 28. Virtually all of the Group’s albums were successful selling in excess of one million copies most becoming “platinum” while one or two were only “gold” albums. 29. In the aggregate, upon information and belief, the Group has sold more than 20 million recordings through recording contracts entered into with Capitol until its expiration in September 2000, and subsequently in October 2000 with Sanctuary Copyrights, Ltd. (“Sanctuary”), both having been executed and subsequently performed within the State of New York as the leading record industry center in the country. 30. Upon information and belief, the Group has earned aggregate revenues from record sales, publishing rights, performance income and merchandising income in excess of $200 Million since 1984. 31. The Group began performing nationwide tours beginning in 1985 and continuing through 2001 throughout the world at venues including Madison Square Garden, New York, “Late Night with David Letterman” on CBS television in New York and on MTV among many others. Mustaine’s Drug Abuse and Mismanagement 32. Upon information and belief, Mustaine is a self-admitted drug and alcohol abuser, and as a result, has had to enter drug rehabilitation programs approximately seventeen different times over the years1.
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33. Defendant Mustaine’s drug abuse began to affect his management of the Partnership as early as 1988 when he became incapable of performances or making decisions necessary to the Group’s business and public appearances. 34. Moreover, Defendant Mustaine’s conduct of the Group’s business began to become arbitrary, egomaniacal and paranoid to the detriment of the Group and the Corporation. 35. In 1988, the Group cancelled its scheduled Australian tour. Shortly thereafter, in 1989 Defendant Mustaine was arrested for driving while impaired resulting in his entry into a drug rehab program. Referring to the incident later, Mustaine is quoted as saying “A while before that I injected myself with some heroin, I was already on some cocaine, a couple of drinks and some other shit. In the hospital they counted nine of the other shit. In my pockets they found a jar of hard drugs, a spoon, needles, and a sack of pot. I stayed in the hospital for a month and started the process of quitting; not that it was really my decision.” (http://megadeth.rockmetal.art.pl/band_timeline.html) 36. In or about 1990, Plaintiff Ellefson and Defendant Mustaine incorporated the Corporation in California. However, notwithstanding his representations to Ellefson that they were still “partners,” Defendant Mustaine unilaterally allocated only 20% of the common shares to Plaintiff Ellefson despite his prior equal interest in the Partnership. 37. As a result of Defendant Mustaine’s continued drug abuse and entry into numerous other drug rehab programs, in 1993 the Group’s scheduled nationwide tour of Japan had to be cancelled resulting in substantial lost income to the members of the Group and the Corporation. page 8 38. In 2001, the Group had contracted for a lengthy “world tour” in 36 different countries through a subsidiary corporation named “Rattlehead, Inc.” The world tour was projected to generate approximately $1 million in revenue for Rattlehead, Inc. 39. After most of the dates and locations had been contracted for and firmed up, Defendant Mustaine unilaterally changed the schedule and altered the tour. 40. Mustaine said that he would change the tour “at any cost” so that the Group could perform with another band (“AC-DC”) solely because it “had been a childhood dream of his” to perform with them. 41. As a result, the 2001 tour lost money and was unprofitable for Rattlehead, Inc. and the Corporation. As a result of Defendant Mustaine’s alteration of the tour schedule, Rattlehead, Inc. lost approximately $300,000 which Defendant Mustaine unilaterally paid from the Corporation’s other sources of revenues. 42. In February 1993, Defendant Mustaine apparently overdosed on valium in a reported suicide attempt (http://megadeth.rockmetal.art.pl/band_timeline.html.) 43. By 1995 Defendant Mustaine had been in drug rehabilitation programs several times but nevertheless continued to assert his control over the Corporation as its CEO and over the Group as the front man. 44. Mustaine appeared to resent Plaintiff Ellefson for his having continued to be sober and no longer being an alcohol abuser in light of Mustaine’s continuing drug abuse problems.
page 9 Mustaine’s Self-Dealing 45. Defendant Mustaine retained control of the Group and the Corporation’s record making; accordingly, Defendant Mustaine retained exclusive control over the approximately $1 Million advances provided by the record companies for each recording. The following events are only those of which Plaintiff has learned or discovered to date and is by no means an inclusive statement of additional wrongdoing which subsequent discovery is expected to produce. 46. Defendant Mustaine unilaterally hired himself as “producer” of the records and paid himself exorbitant salaries without the consent or approval of the Corporation or even consultation with Plaintiff Ellefson. 47. Upon information and belief, in some instances Defendant Mustaine hired his friends as co-producers paying both himself and his friend an aggregate amount equal to double the normal amount charged by a record producer of similar background and expertise. 48. Defendant Mustaine abused his position as CEO and “producer” by disbursing unreasonable amounts of money to himself for personal expenses from the Corporation’s revenues, i.e., he brought his entire family to Nashville, TN while he was producing the album “Risk,” upon information and belief, paying for their expenses with the Corporation’s funds. 49. Upon information and belief, Defendant Mustaine generally used the record company advances for production of record albums to the Corporation as his own personal “piggy bank” to the exclusion of Ellefson and the Corporation, taking personal loans without repayment and paying other purely personal expenses with the Corporation’s advance funds. page 10
50. Upon information and belief, in or about 1996, Defendant Mustaine spent approximately $40,000 of the Corporation’s funds to purchase “Pro Tools,” a professional recording software program which Mustaine kept for his own personal use. 51. Upon information and belief, in or about 1999, Defendant Mustaine built a recording studio in his own home using the Corporation’s funds therefore. 52. Upon information and belief, thereafter, when he sold his house realizing substantial price appreciation resulting, in part from the recording studio therein, he kept all the profits and failed to return the approximately $50,000 he took from the Corporation to build and furnish the recording studio and all the recording equipment therein. 53. Upon information and belief, subsequently, Defendant Mustaine purchased another house in Scottsdale, Arizona, and again used Corporation’s revenues to build another recording studio therein for an estimated additional $50,000 including recording equipment and has not reimbursed the Corporation therefore. 54. Upon information and belief, in January 2002 Defendant Mustaine suffered an injury to his left hand which was apparently sustained during his stay in a rehab program when he passed out and fell asleep on his arm. 55. Upon information and belief, the injury was not permanent but required a substantial amount of time in order to rehabilitate and recover from it. 56. In or about February or March of 2002, upon his most recent emergence from drug rehab, he approached Plaintiff Ellefson advising him that he had quit the Group and was turning it and the Corporation over to Ellefson’s control. page 11 57. Plaintiff Ellefson requested an express power of attorney from Defendant Mustaine to effectuate the transfer of control. 58. However, shortly thereafter, Defendant Mustaine reneged on his proposal and again reclaimed control of the Group and the Corporation. 59. In May 2003, Defendant Mustaine announced that his latest bout with drug rehabilitation was over and that was beginning work on a “solo album” with Sanctuary excluding Plaintiff Ellefson after, upon information and belief, having used Corporation’s funds to pay his legal counsel. 60. Upon information and belief, however, Sanctuary advised Mustaine that he could not lawfully divert either the cash advance from Sanctuary or the new record to himself alone to the exclusion of the Corporation and that he was legally obligated to produce the record under the Corporation’s account. Mustaine’s Distribution of Income 61. Notwithstanding that Plaintiff Ellefson owned only 20% of the Corporation’s equity, pursuant to Mustaine’s promises and representations, he received distributions of the Corporation’s profits, unilaterally determined entirely at Defendant Mustaine’s whim, sometimes in the amount equal to 25% profits and at other times in the amount of as much as 35% thereof, except for publishing royalty income, of which he received none. 62. Defendant Mustaine used income distributions not to compensate Plaintiff Ellefson for his ownership or effort for the Group, but as a way of controlling him and making him dependent upon Defendant Mustaine, as set forth below. page 12 Merchandising Income 63. The Corporation sells merchandise bearing the Megadeth Tradename worldwide through the internet via its website www. megadeth.com. 64. The Corporation also has a merchandising agreement with Anthill Trading Company, Inc. (“Anthill”) a distributor which it licensed in 2001, to distribute Trademarked products at live concert venues and through retail stores. 65. However, Plaintiff Ellefson received no portion of the profits from any merchandise sales notwithstanding that, upon information and belief, the Corporation had entered into agreements with Anthill to receive such profits from retail sales of merchandise in stores and at live concerts; all such profits were distributed entirely to Defendant Mustaine to Plaintiff’s exclusion. 66. Moreover, upon information and belief, Defendant Mustaine directed the Group’s business manager to deduct 10% of all revenues received by the Corporation from Anthill and to give such funds directly to Defendant Mustaine alone. 67. Further, upon information and belief, Defendant Mustaine incorporated Defendant MegaMerch, Inc. making himself as the sole stockholder, officer and director thereof. 68. Upon information and belief, Defendant Mustaine caused Megamerch to enter into a separate merchandising agreement with Anthill, to the complete exclusion of the Corporation and Plaintiff Ellefson, and from which Mustaine has received all merchandising profits therefrom. page 13 69. Plaintiff Ellefson never received his share of any merchandise income earned by the Corporation. 70. Upon information and belief, other income producing opportunities were diverted by Defendant Mustaine to his personal account to the exclusion of the Corporation and Plaintiff Ellefson which Plaintiff cannot presently identify or quantify but which will be revealed in discovery. Artist Royalty Income 71. Notwithstanding the Corporation’s recording contract with Sanctuary, Defendant Mustaine has wrongfully precluded Plaintiff Ellefson from participating in two contractual recording opportunities with Sanctuary providing an estimated $5 million in publishing and touring income resulting in his loss of an estimated $2 million based upon historical revenues for such album and tour cycles. Publishing Income 72. The Group publishes music through Blackwood-EMI, Inc. pursuant to a music publishing agreement negotiated and executed in New York and receives publishing income therefrom. 73. During the entire history of the Group, Plaintiff Ellefson and Defendant Mustaine, as well as other performers who were members of the Group for various time periods, worked with Defendant Mustaine to write and compose numerous musical compositions including those set forth on Exhibit A attached hereto. page 14 74. However, Defendant Mustaine failed to credit most of these contributions and registered copyrights for all musical compositions so composed by the group effort, including that of Plaintiff Ellefson, solely in Mustaine’s name alone. 75. As a result of the foregoing, only Defendant Mustaine received publishing income derived from such copyrights. Defendants’ Conspiracy to Defraud Ellefson 76. Throughout the Group’s history since 1990 at least, by virtue of his control of the Corporation, Defendant was able to hire or force out each of the other members of the Group at his whim, except for Plaintiff Ellefson because of his status as a co-founding member and his stock ownership in the Corporation. 77. Upon information and belief, after his emergence from rehab in 2002, Defendant Mustaine conspired with his wife and John Does 1 - 5 to force Plaintiff Ellefson out of the Group and the Corporation by causing him to suffer mental distress, attempting to damage his public image with the Group’s fan base and cutting off his income. 78. In furtherance of his plan, Defendant Mustaine demeaned and disparaged Plaintiff’s musical abilities, published critical and false statements about him on the Group’s website and eventually libeled him in the process as set forth below; further, he precluded Plaintiff from performing with the Group thereby cutting of his performance royalty income. 79. Finally, after inflicting substantial emotional distress upon Plaintiff, rather than proposing a reasonable buy out of Plaintiff’s interests, Defendant Mustaine delivered an unsigned proposal (the “Proposal”) in the form of a “Settlement and General Release” (providing for a page 15
complete termination of Plaintiff’s interest in the Corporation and severing his entire relationship with the Group as a performer. 80. However, the proposal offered extraordinarily little compensation to Plaintiff (essentially that to which Plaintiff was already entitled and which Defendant Mustaine had withheld from him) in exchange for virtually all his rights, title and interest in the Group, its income streams and all future revenues which might be generated through the legacy value of the Group’s music, i.e., in “greatest hits” albums, lyric books, and subsequent renewed interest in any of the Group’s musical compositions used in advertising or motion pictures, etc. 81. As a result of the mental distress to which Defendant Mustaine subjected Plaintiff, Ellefson was tempted to accept Defendant’s inequitable Proposal and in fact, under pressure from Defendant Mustaine sent a signed signature page to Mustaine’s attorney. 82. However, before Mustaine could execute the Proposal and accept it, Plaintiff thought better of it and withdrew his offer. Defendants’ Libel of Plaintiff Published on the Internet 83. At all times relevant to the allegations of this Complaint, the public at large obtained access to the Internet through many different networks linked directly to the Internet, including but not limited to those networks operated by employers, schools, community organizations, libraries, and small commercial establishments. 84. More than one hundred and fifty million computers in the United States were linked directly to the Internet. page 16 85. The public accessed information on the Internet via newsgroups, bulletin boards, e-mail, and subscriber-based news groups mail lists and chat rooms. 86. Information posted in newsgroups, bulletin boards, subscribed mail lists and chat rooms were available to persons subscribing to such services as well as to persons accessing such services on an ad hoc basis. 87. The "World Wide Web" (hereinafter the "Web" or “www” ) consists of a vast number of documents stored in different computers all over the United States and the world containing information formatted according to Web publishing standards. 88. The information on the Web was located at millions of separate “Web sites” that displayed content provided by particular persons or organizations. 89. Web sites, such as megadeth.com, usually contain a " home page, " which displays basic information about the publisher of the Web site and the information that publisher offered. 90. Each Web site and its originating computer were connected to the Internet by means of protocols that permitted each Web site to become part of a single body of information accessible by all Web visitors through search engines and search directories. 91. Beginning in or about May 2004 defendant Mustaine wrote e-mail messages to defendants John Doe and posted it on the megadeth.com website to be seen by anyone coming to that website and knowing that his statements would be viewed by all of the Group fan base. 92. One of Defendant Mustaine’s email messages accused Plaintiff Ellefson of having committed the crime of extortion. 93. The public viewed the web site through "browser" software, which allowed the persons to display, download, and print out information from the Web. page 17 94. Every Web site had an address by which it was accessed. 95. People who did not know the address or specific name of a given Web site, or who conducted generalized searches, accessed Web sites by means of a "search engine/directory," which found the Web sites by using a word or strings of words to locate those sites. 96. Information accessible on the Internet through the various methods described in this Complaint was downloaded and printed in "hard copy”, i.e., on paper. 97. People communicated via the Internet directly to one or more other persons by transmitting messages to such other persons through electronic mail, also known as " e-mail. 98. "More than one hundred and fifty million persons had access to the Internet, and used that access at all time relevant during this complaint. 99. Mustaine, at all times maintained full control of the megadeth.com web site and posted messages to the Group’s fans that were false, critical and defamatory of Plaintiff Ellefson. 100. Plaintiff Ellefson as recently as July 10, 2004 has attempted to resolve his differences with Defendant Mustaine on an amicable basis and offered to continue to perform with the Group; however, Plaintiff Ellefson’s offers were met with verbal abuse, threats, lies and continued invective from Defendant Mustaine. Claim I Against Defendant Mustaine Fraudulent Trademark Registration 17 U.S.C. §101, et seq. 101. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. page 18 102. Upon information and belief, Defendant Mustaine made a fraudulent declaration in registering the Trademark solely in his name and omitting Plaintiff Ellefson’s name as coowner thereof when in fact, both Plaintiff Ellefson and Defendant Mustaine were equal partners, jointly chose the Tradename for the partnership business and jointly held rights to register such Tradename. 103. Pursuant to 15 U. S. C., §1120: - Civil liability for false or fraudulent registration: Any person who shall procure registration in the Patent and Trademark Office of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof. 104. As a result of the foregoing, Plaintiff Ellefson has been damaged in a sum to be determined at trial, but which is estimated to be at least $500,000. together with accrued interest. Claim II Against Defendant Mustaine Copyright 17 U.S.C. § 201 105. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 106. The Copyright Act, Title 17 U.S.C. § 201, provides that: Initial Ownership.--Copyright in a work protected under this title vests initially in the author or authors of the work. The authors of a joint work are coowners of copyright in the work. page 19
107. Upon information and belief, Defendant Mustaine fraudulently registered copyrights to various musical compositions coauthored by Plaintiff Ellefson and listed on Exhibit A attached hereto solely in his name to the exclusion of Plaintiff Ellefson. 108. As a result of the foregoing, Defendant Mustaine is liable to Plaintiff Ellefson in a sum to be determined at trial but which Plaintiff estimates to be at least $3 million together with accrued interest. Claim III Against Defendants Libel on the Internet 109. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 110. Defendant Mustaine knew that other search engines/indexes, news groups would automatically pick up, index and disseminate his email messages to his fans to numerous websites, news groups and chat rooms. 111. Specifically, on May 7, 2004, just before 3:00 p.m. Eastern Time, Defendant Mustaine posted an e-mail message on the Megadeth website bulletin board, apparently repeating an earlier publication, accusing Plaintiff Ellefson of the crime of extortion, stating, in hoc verbea: “. . . gar is dead, marty was illusive and insincere, and as i said ellefson tried to extort me in order to be on the record.” (Emphasis added) A copy of the relevant portion of such email is attached hereto as Exhibit B. 112. Defendant Mustaine’s defamatory e-mail (the “Libelous Accusation”) was received by defendant John Does and also posted/published on Megadeth.com subject to being viewed by millions of Internet users. Their web site is subscribed to by an unknown number of page 20
fans who comprise Plaintiff’s fan base and primary audience. These fans received a daily digest of all new messages and then e-mailed by Defendants. 113. The publication and circulation of the Libelous Statement by Defendants concerning the Plaintiff was factually and knowingly false and defamatory. 114. The Libelous Statement is libelous per se since it falsely accused the Plaintiff of a crime as well as dishonesty and disloyalty. 115. In publishing and circulating the Libelous Statement and refusing to allow Plaintiff Ellefson to refute same, Defendants acted with malice, and an intent to injure Plaintiff Ellefson’s business and reputation. 116. Defendants’ Libelous Statements of Plaintiff’s criminality and conduct are false and were known, or Defendants had reason to know, to be false by Defendants when the statements and email messages were published and circulated. 117. By reason of the publication and circulation of the Libelous Statement and email messages, Plaintiff Ellefson has been publicly disgraced and humiliated, and has been injured in his good name and reputation with the public at large and specifically in the Group’s fan base through the Group’s fan clubs and located internationally in which the publication and circulation of the Statements and email messages occurred. 118. The publication of the Statements and email messages have placed the Plaintiff Ellefson in a false light in the public eye and constitutes an invasion of his privacy. 119. As a result of the foregoing, Plaintiff has sustained severe damage to his good name, reputation and business interests and demands judgment against Defendants, jointly and page 21
severally and individually, in the amount of $5 Million together with punitive damages of $10 Million plus accrued interest. Claim IV Defamation against Defendant "John Does" 120. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 121. The publication and circulation of the email messages containing Defendant Mustaine’s Libelous Statement (of Plaintiff Ellefson’s “extort(ion)”) by the Defendant John Does were false and defamatory. 122. The email message is libelous per se because it again publishes the false accusation that Plaintiff Ellefson committed the crime of extortion as well as disreputable and dishonest conduct. 123. By reason of the publication and circulation of the email message and the Libelous Statement Plaintiff Ellefson has been publicly disgraced and humiliated, and has been injured in his good name and reputation in the community in which he resides and within the fan community in which he does business and throughout the entire country in which the publication and circulation of the email message occurred. 124. At the time Defendants published the Libelous Statement, namely the email message containing the Libelous Statement, defendant knew, or had reason to know, that the statement was false, or failed to take the proper steps to ascertain their accuracy and, instead, page 22 published the email messages with reckless disregard of whether the Libelous Statement within the email message were true or not. 125. As a result of the foregoing, Plaintiff has sustained severe damage to his good name and reputation and to his business interests, in the excess of $5 Million plus interest. Claim V Against Defendants Intentional Infliction of Emotional Distress 126. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 127. The acts and omissions of Defendants, jointly and severally, in publishing the Libelous Statement about Plaintiff with knowledge that the information was false, or with reckless disregard for whether it was false, constituted extreme and outrageous conduct. 128. As a direct and proximate result of the acts and omissions of Defendants, jointly and severally, Plaintiff, suffered severe emotional distress, including but not limited to headaches, nervousness, anxiety, embarrassment, humiliation, and mental distress. 129. It was Defendant Mustaine’s intention to cause Plaintiff Ellefson such emotional distress for the purpose of rendering Plaintiff in an emotionally weakened condition so that Defendant could attempt to fraudulently force Plaintiff Ellefson to act against his own interests and sell all his rights to the 20 years of musical compositions and the legacy value of Megadeth held by the Corporation and the Group for insufficient and inequitable compensation. 130. Wherefore, Plaintiff demands judgment against Defendants, jointly and severally, in the form of damages in the amount of $1 Million in compensatory damages, and $5 Million in page 23 punitive damages; and in the form of an award to Plaintiff of his costs in this action and such further relief as justice requires. Claim VI Against Defendants For Breach of Fiduciary Duties and Self Dealing 131. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 132. By virtue of Plaintiff's ownership of the majority of the Corporation’s common stock, and upon information and belief, Mustaine’s positions as Chief Executive Officer, director and Chairman of the Board of Directors of the Corporation, and because Ellefson reposed trust and confidence in him, Mustaine owed to Plaintiff Ellefson fiduciary duties of care, candor and loyalty of the highest good faith, integrity and fair dealing. 133. In taking and/or failing to take the actions heretofore alleged, Defendant Mustaine violated his fiduciary obligations to Ellefson and skimmed millions of dollars from the Corporation’s revenue streams by self-dealing and otherwise benefitting himself to the exclusion of Plaintiff Ellefson and the Corporation. 134. As a proximate result of Defendants' aforesaid conduct, Plaintiff was damaged by injury to his property, lost profits, loss of future income, and other general and specific damages, in an amount to be determined at trial but which Plaintiff estimates to exceed $5 million together with interest. page 24 Claim VII Against Defendant Mustaine Fraud and Conversion 135. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 136. Defendant Mustaine represented to Plaintiff Ellefson that he was an equal partner and would share in the profits of the Corporation on an equal basis as he had in the Partnership which had previously controlled and operated the Group. 137. Plaintiff Ellefson relied upon Defendant Mustaine’s representations believing them to be true. 138. In fact, however, Defendant Mustaine’s representations were false when made and intended by Defendant to deceive and mislead Plaintiff Ellefson to his detriment. 139. Upon information and belief, Defendant Mustaine obtained control of the Corporation and its revenues through his misrepresentations to Plaintiff and converted the Corporation’s revenues to his own use and benefit to the exclusion and detriment of Plaintiff. 140. Due to the value of the above-described converted revenues, Plaintiff Ellefson has been directly and proximately damaged in an amount estimated to be at least $5 million, plus accrued interest since each conversion occurred, the exact sum to be proved at trial. 141. The aforementioned acts of Defendant Mustaine were fraudulent, willful, wanton, malicious, oppressive, and were undertaken with the intent to defraud Plaintiff; such acts justify the awarding to the Plaintiff of exemplary or punitive damages, in a sum to be shown at trial. page 25
Claim VIII Against Defendant Mustaine Negligence 142. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 143. Defendant Mustaine had a fiduciary duty to manage the affairs of the Corporation and the Group with reasonable skill, ordinary diligence and in good faith. 144. In the alternative to the allegations of intentional misconduct supra, the actions of Mustaine were negligent, directly and proximately causing foreseeable damages to Plaintiff in the amount of at least $5 million plus interest, the exact amount to be proved at trial. Claim IX Against Defendant Mustaine For Interference With Prospective Economic Advantage 145. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 146. Plaintiff’s performance as a member of the Group, co-authorship of musical compositions, and stockholder of the Corporation, offered him the prospect of receiving financial rewards in the form of royalty income, publishing income, performance income and profits from the Corporation’s business operations. 147. Defendants were aware of the prospective economic benefit and financial rewards of Plaintiff as a result of his position as performing musician, coauthor and shareholder of the Corporation. 148. Defendants, and each of them, intentionally acted, using wrongful means, to disrupt and interfere with the economic relationship between Plaintiff and the Corporation and its page 26 sources of royalty income by, among other things, failing to provide and providing inaccurate accountings of the Corporation’s operations, self-dealing by Defendant Mustaine skimming off revenues from the Corporation to his own personal accounts, 149. As a direct and foreseeable consequence of the actions alleged herein, Defendants did in fact disrupt and interfere with Plaintiff Ellefson’s prospective economic advantage arising from his stock ownership, music performance and co-authorship of musical compositions. 150. As a direct and proximate result of the actions as alleged herein, Plaintiff Ellefson has suffered actual damages. 151. Plaintiff is informed and believes, and thereon alleges, that the aforementioned acts of Defendants were done willfully, maliciously, with fraudulent intent and with deliberate disregard of the rights, privileges and concerns of Ellefson. 152. As a result of the foregoing, Plaintiff Ellefson is entitled to recover punitive damages in an amount bearing a reasonable relationship both to the actual amount of damages Ellefson recovers, which are estimated to be at least $2 Million, and the general financial solvency of Defendants, yet in a sufficient amount to punish and make an example of Defendants in the proposed amount of $5 Million, and to deter others from engaging in the same or similar conduct. Claim X Against Defendants Violation of California Corporation Law 153. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. page 27
154. The California Corporations Code, §1601 provides: (a) The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any such records in this state or having its principal executive office in this state, shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. The right of inspection created by this subdivision shall extend to the records of each subsidiary of a corporation subject to this subdivision. (b) Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. The right of the shareholders to inspect the corporate records may not be limited by the articles or bylaws. §1603. (a) Upon refusal of a lawful demand for inspection, the superior court of the proper county, may enforce the right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or accountants to audit the books and records kept in this state and investigate the property, funds and affairs of any domestic corporation or any foreign corporation keeping records in this state and of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct. (b) All officers and agents of the corporation shall produce to the inspectors or accountants so appointed all books and documents in their custody or power, under penalty of punishment for contempt of court. page 28
© All expenses of the investigation or audit shall be defrayed by the applicant unless the court orders them to be paid or shared by the corporation. §1604. In any action or proceeding under Section 1600 or Section1601, if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award an amount sufficient to reimburse the shareholder or holder of a voting trust certificate for the reasonable expenses incurred by such holder, including attorneys' fees, in connection with such action or proceedings. §1605. If any record subject to inspection pursuant to this chapter is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. (Emphasis added) 155. Plaintiff has made numerous demands for an accounting of the Corporation’s books and records, most recently in the letter sent to Defendants’ contemporaneously herewith. 156. Notwithstanding the foregoing demands, Defendants have failed and refused to provide Plaintiff Ellefson with an accounting of the Corporations’ operations or its books and records since December 2003. 157. Wherefore, Plaintiff demands an affirmative injunctive order of this Court directing the Defendants to provide immediate access to all the Corporation’s books and records for the purposes of Plaintiff’s accountant’s and/or attorneys’ review thereof or provide a legible and complete copy thereof to Plaintiff’s attorneys. page 29 Claim XI Against Defendants For an Accounting 158. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 159. Defendant Mustaine has neglected and refused, and still neglects and refuses, to render to Plaintiff a just and true account of the Corporation’s revenues and expenses although demand therefor was duly made numerous times, most recently through Plaintiff’s counsel on in July 12, 2004. 160. As a result of the foregoing, Plaintiff requests that this Court issue an injunctive order affirmatively directing Defendants to provide Plaintiff’s designated agents or attorneys with immediate access to the Corporation’s books and records. 161. Defendants have also neglected and refused to pay over or deliver to the Plaintiff revenues due to him as a stockholder or any royalties earned which were received or in the Defendants’ possession or any part thereof, all to Plaintiff's damage, in the sum estimated to be at least $1 million, the exact sum to be proved at trial. 162. Plaintiff has no adequate remedy at law. Claim XII Against Defendants For a Temporary and Permanent Injunction 163. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. 164. Plaintiff has no adequate remedy at law, and will be irreparably injured absent issuance of a preliminary injunction and then permanently: page 30 a. Prohibiting Defendants from entering into or performing agreements related in any way to the Group or the Corporation which Defendant Mustaine unilaterally entered into with any record companies, merchandise distributors or other third parties which are either solely or primarily for Mustaine’s benefit and profit or which otherwise exclude Plaintiff Ellefson; b. Directing Defendant Mustaine to file an amended registration of the Trademark to include Plaintiff Ellefson as an equal co-owner thereof nunc pro tunc from the date of initial registration; c. Directing Defendant Mustaine to file amended copyright registrations for the musical compositions on Schedule A attached hereto, paying such costs as in required, to add Plaintiff Ellefson as an equal co-owner, or owning such amount thereof as may be determined by the Court; d. Requiring the restraint on Defendants’ transfer of the Corporation’s records, corporate seal, and any interest in its revenues (or assets traceable to them). 165. Plaintiff has no adequate remedy at law. Claim XIII Against Defendants For Declaratory Relief 166. Plaintiff Ellefson restates the allegations of all the preceding paragraphs of this Complaint and incorporates them herein. page 31
167. Plaintiff seeks a declaratory judgment from the Court declaring: a. That Plaintiff’s equity interest in the Corporation to be no less than 35% of the common stock issued and outstanding; b. That the unrestricted and uncompensated use of the license to use the Tradename “Megadeth” has inured to the Corporation and become an asset thereof; and c. That he is coauthor of each of the musical compositions listed on Schedule A hereof to the extent determined by the Court and entitled to such publication and other royalty income having been derived therefrom by Defendants since creation thereof. 168. Plaintiff has no adequate remedy at law. Wherefore, as a result of the foregoing, Plaintiff David Ellefson demands judgment against Defendants David Mustaine, Megadeth, Inc., Majestic IV, Inc. and “John Does” 1-5, as follows: 1. On the First Claim in favor of the Plaintiff Ellefson and against Defendant Mustaine for money damages in a presently unknown sum, but which damages are estimated to total at least $500,000 plus accrued interest from the date of fraudulent registration of the Trademark. 2. On the Second Claim, in favor of the Plaintiff Ellefson and against Defendant Mustaine for damages in such amount as may be found and requiring Defendants to account for and pay over to Plaintiff Ellefson such percentage of profits derived from such wrongfully
page 32 registered copyrights as are properly Plaintiff’s property, or such other amount as may be proper pursuant to 17 U.S.C. § 201, which Plaintiff estimates to be at least $3 million. 3. On the Third Claim, in favor of the Plaintiff Ellefson and against Defendant Mustaine for money damages in a presently unknown sum, but which damages are estimated to total at least $5 million, plus punitive damages of $10 Million and accrued interest from the date of first publication of the Libelous Statement at the maximum rate allowable by law. 4. On the Fourth Claim, in favor of the Plaintiff Ellefson and against Defendants John Does 1-5 for money damages in a presently unknown sum, but which damages are estimated to total at least $5 Million, plus accrued interest from the date of first publication of the Libelous Statement at the maximum interest rate allowable by law. 5. On the Fifth Claim, in favor of the Plaintiff Ellefson and against Defendant Mustaine for money damages in a presently unknown sum, but which damages are estimated to total at least $1 million, plus $5 Million in punitive damages and accrued interest at the maximum rate allowable by law. 6. On the Sixth Claim, in favor of the Plaintiff Ellefson and against all Defendants jointly and severally, for compensatory money damages in an amount to be determined at trial, but which damages are estimated to total at least $1 million together with accrued prejudgment interest at the maximum rate allowable by law. 7. On the Seventh Claim, in favor of the Plaintiff Ellefson and against Defendants Mustaine, Megadeth, Inc. and Majestic IV, Inc. for compensatory damages against Defendants for fraud, jointly and severally, estimated to be at least $2 Million which amount is to be page 33 determined at trial, and for the value of the assets converted together with accrued prejudgment interest at the maximum rate allowable by law. 8. On the Eighth Claim, in favor of the Plaintiff Ellefson and against Defendant Mustaine for compensatory damages in the amount to be determined at trial, but which damages are estimated to total at least $2 million, plus accrued prejudgment interest at the maximum rate allowable by law. 9. On the Ninth Claim, in favor of the Plaintiff Ellefson and against Defendants Mustaine, Megadeth, Inc. and Majestic IV, Inc. for money damages in a presently unknown sum, but which damages are estimated to total at least $2 Million plus accrued interest and punitive damages of $5 Million. 10. On the Tenth Claim, in favor of Plaintiff Ellefson and against Defendants for a a temporary and permanent injunction affirmatively directing Defendants to produce a legible and complete copy of the Corporation’s books and records and deliver same to Plaintiff’s attorneys or to provide access to such books and records for Plaintiff’s agents or attorneys to make copies thereof, and in the event that Defendants fail to comply with the applicable sections of California Corporation Code requiring such access to the Corporation’s books and records, for such damages therefore as are provided therein. 11. On the Eleventh Claim, in favor of Plaintiff Ellefson and against Defendants Mustaine, Megadeth, Inc. and Majestic IV, Inc. Ordering such Defendants, jointly and severally, to account to Plaintiff and, pending such accounting, to hold all profits in a constructive trust for the benefit of Plaintiff Ellefson. page 34 12. On the Twelfth Claim, in favor of Plaintiff Ellefson and against Defendants Mustaine, Megadeth, Inc. and Majestic IV, Inc. and John Does 1-5 ordering a temporary and permanent injunction, against the Defendants, their agents, servants, employees, and all other persons in active concert or privity or in participation with them, enjoining them from: a. Entering into or performing agreements related in any way to the Group or the Corporation which Defendant Mustaine unilaterally entered into with any record companies, merchandise distributors or other third parties which are either solely or primarily for Mustaine’s benefit and profit or which otherwise exclude Plaintiff Ellefson; b. Transfer of the Corporation’s records, corporate seal, and any interest in its revenues (or assets traceable to them). c. Distributing any profits to Defendant Mustaine or at his direction pending further order of this Court; d. Distributing any revenues to Defendant Mustaine outside the ordinary course of business; e. Affirmatively directing Defendant Mustaine to file an amended registration of the Trademark to include Plaintiff Ellefson as an equal coowner thereof nunc pro tunc from the date of initial registration; f. Affirmatively directing Defendant Mustaine to file amended copyright registrations for the musical compositions on Schedule A attached hereto, paying such costs as in required, to add Plaintiff Ellefson as an equal co- page 35
owner, or owning such amount thereof as may be determined by the Court; and g. Affirmatively directing Defendants to immediately turn over and release all royalties and/or other monies received or in their possession, custody or control which are the property of, were delivered to Defendants for, or otherwise belong to Plaintiff Ellefson. 13. On the Thirteenth Claim, in favor of Plaintiff Ellefson and against Defendants Mustaine, Megadeth, Inc. and Majestic IV, Inc. declaring the rights of Plaintiff Ellefson as follows: a. That Plaintiff’s equity interest in the Corporation to be no less than 35% of the common stock issued and outstanding; b. That the unrestricted and uncompensated use of the license to use the Tradename has inured to the Corporation and become an asset thereof; c. That Plaintiff is an equal owner of an undivided half interest in the Tradename; and d. That Plaintiff is coauthor of each of the musical compositions listed on Schedule A hereof to the extent determined by the Court and entitled to such publication and other royalty income having been derived therefrom by Defendants since creation thereof. 14. On each of the foregoing Claims, awarding Plaintiff Ellefson: a. Punitive damages in a sum to be proved appropriate at trial; b. Costs of suit; Case 1:04-cv-05395-NRB Document 1 Filed 07/12/04 Page 36 of 38 c. Plaintiff’s attorneys’ fees and costs pursuant to 17 U.S.C. § 101, et seq. and/or 15 U.S.C. §201, et seq., and d. For such other and further relief as the Court deems just and proper. Dated: New York, New York July 13, 2004 Respectfully submitted, BIENSTOCK & MICHAEL, P.C. ______________________________ Randall S. D. Jacobs (RJ 3414) Attorneys for Plaintiff Ellefson Office Address: 250 West 57th Street, Suite 1917 New York, New York 10107 [212] 399-0099 or [973] 226-3301 Fax: (212) 399-1278 Email: rsjacobs@optonline.net To: David Mustaine, Megadeth, Inc., Majestic IV, Inc. and Megamerch, Inc. c/o David Mustaine 12734 East Appaloosa Place Scottsdale, AZ 85259 page 35
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