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Recording Academy Paid Millions Annually to Outside Law Firms

Among the concerns listed in a memo sent to the Recording Academy’s head of HR by president/CEO Deborah Dugan before she was placed on administrative leave Thursday was an item about the organization’s “exorbitant and unnecessary” legal fees to outside law firms, according to sources familiar with the document.

According to the most recent 990 forms (for tax-exempt organizations) filed to the IRS by the Academy covering the tax years 2013-2017, the organization paid out nearly $15 million over those years to two law firms — Greenberg Traurig LLP and Proskauer Rose LLP — as well as millions in additional legal expenses. Those firms are headed by Joel Katz and Chuck Ortner, respectively, both of whom have worked closely with the Academy, particularly former president/CEO Neil Portnow, for decades and also represent Academy executives and/or Board of Trustees members (including new interim president/CEO Harvey Mason, Jr., a Greenberg Traurig client). Katz is also one of the music industry’s top and most entrenched lawyers, having represented many executives (including L.A. Reid and Republic Records’ Monte and Avery Lipman) over the years as well as artists including Michael Jackson, Justin Timberlake, Jimmy Buffett, Julio Iglesias, Willie Nelson and many others; he also was the chief negotiator for Scott Borchetta in the recent acquisition of Big Machine Records by Scooter Braun’s Ithaca Holdings. Sources tell Variety that both Katz and Ortner are also paid salaries as outside general counsels by the Academy, as well as expenses.

Reps for the Academy and Ortner did not immediately respond to Variety‘s requests for comment; Katz said he was uncertain whether he received a salary during those years but noted that the firm’s fees included the 2016 CBS television contract negotiation for the Grammy Awards (as noted below), a fee that was approved by the Board. That deal nets the Academy over $20 million (and perhaps significantly more) in licensing fees annually, sources tell Variety.

The Recording Academy has no in-house attorney or business affairs executive, choosing instead to pay outside law firms, apparently for all of its legal work. An executive who has worked closely with the Academy — a 501(c)(6) tax exempt non-profit organization formally called the National Academy for Recording Arts and Sciences — for many years called the arrangement “unconscionable.”

In an interview last month, Dugan told Variety that she planned to scale back those expenses significantly.

“We’re going out very soon for an in-house lawyer — [the Academy] has not had one, which is mind-boggling to me,” she said. “This would be to look at employment, governance, to oversee trademarks and business affairs, help us with sponsorship deals and things like that.”

Five weeks after that conversation — and, sources say, three weeks after she sent the memo to the Academy head of HR — she was placed on administrative leave after a formal allegation of misconduct was leveled by a “senior female executive on the Recording Academy team” who sources say is Portnow’s former assistant, Claudine Little.

According to the 990s, in 2016 — the year that Greenberg negotiated a 10-year extension of the Academy’s deal with CBS for the Grammy Awards — Greenberg Traurig was paid $6,309,936; Proskauer Rose $873,611; and the Academy reported additional legal fees of $3,922,593.

In 2017 (the last year for which a report is publicly available), Greenberg was paid $1,758,388 and Proskauer Rose $906,691, with $3,737,440 reported in additional legal fees. In 2015, Greenberg was paid $1,167,029, Proskauer $829,034, with $2,169,229 in other legal expenses. In 2014 and 2013, Greenberg was paid $1,296,133 and $1,328,606 (Proskauer is not listed as a top contractor either year) and the Academy reported additional legal expenses of $1,925,119 and $1,824,444 respectively.

According to the New York Times and Variety sources, Dugan’s concerns detailed in the memo included “voting irregularities, financial mismanagement, ‘exorbitant and unnecessary’ legal bills, and conflicts of interest involving members of the academy’s board, executive committee and outside lawyers.”

“What has been reported is not nearly the story that needs to be told,” Dugan’s lawyer, Bryan Freedman, said in a statement Friday. “When our ability to speak is not restrained by a 28-page contract and legal threats, we will expose what happens when you ‘step up’ at the Recording Academy, a public nonprofit.”

Freedman also said on Saturday that he has hired a security detail to guard Dugan after receiving “credible and extremely disturbing information,” adding that she now has 24-hour, round-the-clock security, according to the Hollywood Reporter. He did not immediately respond to requests for further information.

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