Seattle-based indie label Sub Pop on Friday filed a $ 12 million suit against Caroline Records Inc. claiming that the company skimmed more than $ 1.5 million from a distribution agreement over a two-year period.

The suit was filed in the Southern District Federal Court of New York.

It claims that New York-based Caroline — a wholly owned subsidiary of EMI Virgin — took advantage of a contract with Sub Pop that had set up Caroline as exclusive distributor for the company’s various groups.

Sub Pop has become known as label that created a market for a lot of grunge acts, such as Nirvana, Mudhoney and Soundgarden.

“According to this contract, Caroline was only to be paid manufacturing costs and a very detailed distribution fee,” said Paul LiCalsi of Gold, Farrell and Marks, the firm representing Sub Pop. “But an audit showed that over a two-year period, they skimmed 19% off the top of profits and reported as total revenues only the remaining 81%.”

The attorney representing Caroline, Peter Matorin of Beldock, Levine & Hoffman, could not be reached for comment.

LiCalsi said that Sub Pop demanded the money back last Monday, then filed suit on Friday. The suit, which charges fraud and breach of fiduciary duties, seeks $ 3 million in actual damages and $ 9 million in punitive damages.

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