Local Record Label Sues Distributor -- Sub Pop, `Grunge' Music Maker, Claims Receipts Are $3 Million Off

Sub Pop, the local independent record label that helped launch such popular "grunge" music groups as Nirvana and Mudhoney, has filed suit against its distributor, Caroline Records, claiming that Caroline defrauded the label out of more than $3 million.

Sub Pop seeks $3 million in actual damages and another $9 million in punitive damages.

Sub Pop's complaint was filed yesterday in U.S. District Court in New York.

In it, Sub Pop claims that Caroline misrepresented its receipts from the sale of Sub Pop CDs and cassettes, on which payments to Sub Pop were based. In effect, Sub Pop claims, Caroline skimmed about 19 percent of the revenue that should have been divided between the companies.

"It's an outrageous example of cynicism and greed. This one just boggles the mind," said Paul LiCalsi, attorney for Sub Pop. LiCalsi said he didn't know if any of Sub Pop's artists were directly affected.

Bernard Fishbach, attorney for Caroline Records, denied Sub Pop's claims.

As an independent label, Sub Pop lacks the manufacturing and distribution capabilities of the so-called "major" labels. Independent labels like Sub Pop typically contract with major labels for those services.

Sub Pop and Caroline signed a manufacturing and distribution agreement two years ago. The agreement allowed Caroline to subtract expenses and a distribution fee from the sale of Sub Pop CDs and cassettes; the rest of the receipts would be sent to Sub Pop, LiCalsi said.

But Sub Pop auditors found that Caroline was getting more from the distribution of Sub Pop recordings than it reported, LiCalsi said. According to Sub Pop's complaint, on a CD with a retail list price of $13.98, Caroline reported receipts of less than $7.50 while actually receiving more than $9.

Sub Pop terminated its agreement with Caroline on Monday.

Caroline Records is owned by Virgin Music Group, which in turn is owned by Thorn-EMI, PLC. Caroline has 20 days to respond to Sub Pop's complaint.