The intricate web of litigation surrounding the homegrown rock band Live just got a bit more complex, as a trio of investors in a music project accused the founding members of funneling tens of thousands of dollars to themselves.
“It’s about the money, but it’s about the principle,” said Eric Martinis, one of the investors.
Martinis, of California, described feeling mad about the situation that led to the suit and about alleged revelations that came out through the case over the past year.
The suit only names Chad Taylor and Patrick Dahlheimer as defendants with allegations dating back to 2011 while they led a new music label, Questionable Entertainment, with former Live bandmate Chad Gracey and singer Kevin Martin.
The label covered the band the four had helped form, The Gracious Few, as Live was breaking up.
Martinis and the other two investors — Robert Zazzera of Philadelphia and Gregory LaCava of Connecticut — originally sued Taylor and Dalheimer in December 2022.
They cited accounting concerns at Think Loud Entertainment (TLE), the company that succeeded Questionable Entertainment and was part of the Think Loud family of companies based in York.
They alleged they asked for access to TLE’s books to see the financial state of the company. When they were allegedly rebuffed, they took the issue to civil court in York County.
The case then essentially paused for the past year as attorneys said they investigated, subpoenaed accounting documents and conducted depositions.
The investors came back two weeks ago with an updated complaint that now charges Taylor and Dahlheimer with breach of contract, breach of fiduciary duty, fraud and unjust enrichment.
They seek at least $50,000 in damages on top of the original calls to inspect company books, court documents show.
Martinis also wants to be paid back $40,000 that he said he loaned the Gracious Few in what he believed was an emergency to save their album.
“I thought I was getting them out of a pinch. But who knows where my 40,000 bucks went,” he said.
Taylor and Dahlheimer did not respond to messages seeking comment. Gracey, who was involved in QE but not named in the latest lawsuit, also did not respond.
The suit is one in a convoluted mess of litigation that expanded in late 2022 amid the long, bitter breakdown of the partnership behind Think Loud, sister company United Fiber & Data and other projects.
Taylor, Dahlheimer, Gracey and business partner Bill Hynes are all entangled in multiple semi-related, sometimes crossing, lawsuits. Though, two sides are often clear, showing Hynes and Gracey aligned on one end, and Taylor and Dahlheimer on the other.
Taylor has alleged the lawsuits involving him are retaliatory attempts by Hynes to bury him in litigation.
The controversies even expanded over the past year. Police charged Hynes with the theft of millions of dollars from UFD. He’s fighting the allegations.
And last month, Gracey filed a suit against Live’s other founder and current name-holder, Ed Kowalczyk, in York County. That case is sealed because it contains confidential financial documents, the prothonotary’s office said.
When Live first broke up in 2009, the original falling out with Kowalczyk set the stage for the current lawsuit involving Think Loud Entertainment.
Taylor, Dahlheimer, Gracey and Martin, along with guitarist Sean Hennesy, put together the Gracious Few and Questionable Entertainment (QE) that September. Both were formed as companies in Pennsylvania on the same day.
Two years later, in April 2011, the group began courting wealthy investors into QE by selling shares at $10,000 each, court documents show.
Martinis and Zazzera were among the early buy-ins, according to the complaint. Martinis told The Dispatch that he’s friends with Gracey, and he helped recruit him to invest.
QE’s offering memorandum, attached as an exhibit in the lawsuit, shows the group hoped to raise up to $3 million with the stock sale.
The company set out to operate as a “boutique” label with plans to sign and develop about 20 artists. Revenues would primarily come through recording agreements that would cover the acts’ music sales, licensing, publishing, touring, etc., the document shows.
The memorandum also warned investors of risks, such as the company being brand new and the managers having little direct experience running a label. Their Gracious Few was the only band signed to the group at the time.
QE also warned investors that by the end of 2010, they had about $305,500 in accounts payable and about $253,000 in outstanding loans, primarily money Taylor, Dahlheimer, Gracey and their publishing company, Black Coffee Publishing Inc., apparently put into the new label, court documents show.
Their equity was in the hole by about $489,000.
Taylor was named as CEO in the memorandum, and Gracey was chief operating officer.
When asked why Gracey isn’t a defendant in the lawsuit, Martinis said he was eventually taken out of his role and that Taylor and Dahlheimer ran the group toward the end.
The lawsuit alleges the stock offering memorandum turned out to make fraudulent claims and to draw in investors.
One allegation pointed to QE’s sales forecasts in financial projections as showing the company would grow by 133% in 2012 and continue to grow over four years. The document estimated sales of $14 million with 20 signed artists by 2015.
After costs, QE expected to gross about $3.7 million in 2015 and begin making profit distributions in 2016, court documents show.
“Not only did QE never hit these lofty growth goals, but plaintiffs would later discover that defendants Taylor and Dalheimer contemporaneously knew that these estimates were baseless,” the complaint states.
The complaint shows a financial document acquired last year showed investor funds were used to pay Taylor and Dalheimer back $73,721 they loaned to the company.
The document also shows Gracey was repaid $79,612 from a loan, and Hynes was repaid $11,400. The complaint doesn’t note this as they’re not named in the suit. Money was also apparently paid out to investors.
Another $96,410 was paid to Think Loud Music. Black Coffee Publishing took in a $65,000 management fee. And $40,000 went to “writing expenses,” the document shows.
The complaint alleges the loan payments weren’t disclosed to investors, and that Taylor and Dahlheimer had told potential backers they would forego paying themselves back until QE had adequate cash flows.
Taylor was also accused of giving investors the impression he would draw zero salary as CEO while he was being paid through Black Coffee instead, creating an alleged conflict of interest, the complaint shows.
The complaint also alleged funds were intermixed at will between QE and other related groups, such as Think Loud.
Investors believed they would receive “preferential distributions” over the band, and the stock offering memorandum indicated outside shareholders combined would own more of the group than the individual band members.
But the complaint, pointing to 2013 tax returns, alleged that Taylor, Dahlheimer and Gracey together had 94% controlling interest in QE. Eleven investors, including Martinis and Zazzera, combined had a 5.8% interest, or less than one-fifth of what they were promised, the suit shows.
On top of this, the complaint accused Taylor of scamming Martinis to make an additional loan.
Taylor allegedly called Martinis to ask for a $40,000 emergency loan in 2011 to save the Gracious Few’s album from being repossessed by its executive producer.
According to accounts in the complaint and by Martinis, Taylor allegedly said the producer essentially held rights to the album hostage for that $40,000.
“I felt bad for him,” Martinis said, adding that Gracey backed up Taylor’s call.
So, he loaned the money — noting the amount “is nothing to sneeze at” — and believed he would be repaid in a couple of weeks.
After about a month, he said he talked to Taylor again. Taylor didn’t have the money to repay the loan, but instead, he talked Martinis into rolling the amount into additional company equity.
Taylor reportedly denied that the situation occurred.
The complaint provided a transcript of his responses during a deposition last August where, showing he said he didn’t recall anyone threatening to repossess his album’s publishing rights, and he didn’t remember calling Martinis.
Taylor, in the transcript, also said the executive producer never invested in him or his companies.
The lawsuit alleged the $40,000 loan went to repay a loan to the Gracious Few.
Taylor’s responses in the deposition were news to Martinis.
“That was all just a total freaking lie and a fabrication that he didn’t actually need the 40,000 bucks to get the album back,” he said.
Looking back, Martinis said he should’ve asked for collateral on that loan.
“I didn’t do that, shame on me. I just trusted them,” he said.
He said he’s also talked about taking a loss on the suit and maybe going after the album and sharing it with the other investors, more on principle, believing he already paid for it.
Think Loud Entertainment succeeded Questionable Entertainment in 2013 as a relaunch with an apparently clean slate, according to the complaint.
The new company carried over QE’s investors while attracting new investors, such as LaCava.
But the lawsuit alleged it carried over similar practices such as the managers controlling the lion’s share of the company, and funds being moved to related companies to pay the managers.
Neither label reached the level of QE’s initial projections. The lawsuit indicates only two other bands, outside the Gracious Few, were signed to Think Loud Entertainment.
The complaint alleged that investors sought to look at TLE’s books in 2022 amid other civil and criminal cases surrounding Think Loud and UFD. But an attorney, acting as TLE’s representative, denied the request.
The investors were also told TLE was defunct, the complaint shows.
The barred request led to the lawsuit. And then issues serving TLE led to subpoenas on accountants and to depose Taylor and Dahlheimer, according to the complaint.
Martinis said he’s mad at feeling shaken down as he put most of the blame on Taylor.
“I don’t want him to do it again to anyone else,” he said, adding that Dahlheimer hasn’t wronged him.
Martinis said he’s willing to settle the matter, though nobody has come to him to start negotiating along those lines. He said he’d like to get his money back or, if TLE is defunct, he’d at least appreciate a K-1 tax form so he can write off his investment losses.
Martinis disclosed he’s also currently an investor in UFD, and that he was recruited into that company around the time it officially launched in early 2013.
No new action has yet been taken on the TLE lawsuit since the new complaint was filed.
— Reach Aimee Ambrose at email@example.com or on Twitter at @aimee_TYD.