A US judge has ruled that a dispute over the value of the rights acquired by a former joint venture between sync agency Zync and Round Hill Music should be thrashed out through an ‘appraisal process’ rather than being decided in the courts. The judge also ordered that Zync’s lawsuit against Round Hill should be paused pending the outcome of that appraisal.
It was Round Hill which told the court that the matter should be settled via appraisal, arguing that a 2017 joint venture agreement between Zync and Round Hill laid out that course of action in the event of a dispute over the valuation of the rights.
A spokesperson for Round Hill says the company is “happy that the court confirmed Round Hill’s position that the parties are subject to a valid and binding agreement calling for an appraisal to resolve the central issue in this case and not protracted litigation”.
Round Hill’s lawyer Josh Schiller says it’s “unfortunate that Zync chose to file a lawsuit”, but that his client “is pleased that the court has respected the parties’ agreement” to seek appraisal rather than litigation, noting that the decision of the judge “respects the will of two sophisticated parties who agree to an alternative form of dispute resolution”.
As part of its lawsuit, Zync made a variety of colourful allegations against its former business partner, including that Round Hill “grossly misstated” the JV’s income and expenses, and that Zync’s leadership were subject to “bullying and mistreatment” from Round Hill executives.
Round Hill has been keen to portray those other allegations as distraction tactics employed by Zync to draw attention away from the core dispute over the valuation of the JV’s rights, after Zync’s founders failed to get their way regarding what that valuation should be.
Schilling continues that Round Hill is pleased that the court “ignored the superfluous and unrelated allegations by Zync designed to embarrass my client, and has put us back on track for completing the appraisal”.
Round Hill acquired Zync’s core business in 2017 in a deal that also created the new joint venture business that used but didn’t own the Zync brand. The JV was led by Zync’s leadership team of Marisa Baldi and Sanne Hagelsten. Rights acquired by the JV would be administrated by Round Hill, while the new business would also look for sync opportunities for music owned by other Round Hill companies.
The 2017 agreement said that, if and when the JV came to an end, Round Hill would acquire the rights that were owned by the JV business. The value of the rights would be agreed through an appraisal process, which is a streamlined and cheaper form of arbitration usually focused on valuing specific assets rather than dealing with any wider disputes between parties.
The agreement said both sides would appoint a “reputable third party appraiser” to value the rights. If both appraisers agreed, they would produce a joint report and Round Hill would acquire the JV’s rights at that price. If they disagreed, they would each write their own report and then a “third independent appraiser” would be appointed to ultimately decide on the valuation.
That process got underway in April 2023. However, when the two sides’ respective appraisers did not agree on the valuation, no agreement could be reached on who the third independent appraiser should be.
The whole process then basically stalled in September 2023, although the two sides continued to negotiate in a bid to agree a valuation without the use of appraisers. When those negotiations failed, Zync filed its lawsuit in May.
The joint venture had been problematic more or less from the start in 2017, with Hagelsten departing the business in 2019. As a result, the lawsuit raised a number of other grievances with Round Hill, accusing the company of breach of contract, breach of implied covenant of good faith and fair dealing, conversion, unjust enrichment, unfair competition, trademark infringement and failures in accounting.
Round Hill argued that the other grievances were distractions and the real dispute was over the valuation of the JV’s assets, which the 2017 agreement said should be decided by resuming the appraisal process. Zync countered that Round Hill had waived its right to appraisal by failing to take “any further steps in the appraisal process” after the parties reached an “impasse” in September 2023.
Reviewing Round Hill’s motion to force the dispute back to appraisal, the judge overseeing the case, Analisa Torres, concurred that the 2017 agreement did set a deadline for the appraisal process, which had not been met. However, she said that the deadline was not “of the essence” of the JV agreement and therefore missing the deadline “is not sufficient to constitute waiver”.
Torres also noted that, although the appraisal process stalled in September last year, negotiations continued through to the filing of the lawsuit this year. And, while "the court is sympathetic to Zync’s desire for a timely resolution of this dispute", she continued, “Zync does not argue that submitting to the appraisal process would cause it prejudice”. In fact it could result in a speedier resolution, which is in Zync’s interest.
Round Hill also requested that the rest of Zync’s lawsuit - including all the grievances beyond the dispute over the valuation of the JV’s assets - be paused, or ‘stayed’, pending the outcome of the appraisal process. Torres agreed that that was the best approach, meaning the lawsuit has now been stayed while Zync and Round Hill try to agree on who that third party independent appraiser should be. If they can’t do that, the court might ultimately appoint that person.